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

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

8. Financial Indicator: SOLVENCY Debt Ratio Leverage Ratio PROFITABILITY ROA ROE DEBT REPAYMENT CAPACITY Term Debt & Capital Lease Coverage Ratio Debt Burden Ratio 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. 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

9. 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 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 Financial Indicator: LIQUIDITY Current Ratio Working Capital PROFITABILITY ROA ROE DEBT REPAYMENT CAPACITY Term Debt & Capital Lease Coverage Ratio Debt Burden Ratio 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 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. Financial Indicator: LIQUIDITY Current Ratio Working Capital SOLVENCY Debt Ratio Leverage Ratio PROFITABILITY ROA ROE 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 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 DEBT REPAYMENT CAPACITY Term Debt & Capital Lease Coverage Ratio Debt Burden Ratio

12. Financial IndicatorMinimumGeneral Desired Trend LIQUIDITY Current Ratio Working Capital 1.0 Positive Increasing SOLVENCY Debt Ratio Leverage Ratio <0.5 <1.0 Decreasing PROFITABILITY ROA ROE Positive, high Increasing DEBT REPAYMENT CAPACITY Term Debt & Capital Lease Coverage Ratio Debt Burden Ratio >1.0 Low, Falling Increasing

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 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. Intention to repay, responsibility, truthfulness, purpose, intention.

17. Legal authority to sign contract.

18. Ability to generate cash to repay loan.

19. Adequate net worth/assets to provide support for loan.

20. Economic conditions in customer’s industry.

21. Whether changes in the law would adversely affect the customer.

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. 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 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 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. 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 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 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 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 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 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 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 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 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 By Amanda Fort: Member of the Board of Directors

37. Borrower Information: Sleepy B Ranch President/CEO/Owner: Brad Roberson 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 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 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 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 Scenario---------- 20082009201020112012 2.57% 5.00% 1.50% 9.07% 0.916840.840600.770700.706610.64785 $48,070$72,042$41,664$83,890$63,086 $4,967 $53,036$77,008$46,631$88,856$68,053 $130,800 $48,626$64,733$35,938$62,787$128,827 $169,400 $171,511 Required rate of return: 1. Risk free rate of return 2. Business risk premium 3. Financial risk premium 4. Required rate of return 5. Present value interest factor: Expected net cash flow: 1. Net income 2. Depreciation 3. Total net cash flow Terminal value Present value of net cash flows Total capital purchased Net present value Baseline – NPV

46. Shock 1-Expected  Lowered 1 st 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  Lowered 1 st 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. ---------Alternative Scenario---------- 20082009201020112012 Required rate of return: 1. Risk free rate of return2.57% 2. Business risk premium5.00% 3. Financial risk premium1.50% 4. Required rate of return9.07% 5. Present value interest factor:0.916840.840600.770700.706610.64785 Expected net cash flow: 1. Net income$36,470$39,443$42,459$45,522$48,631 2. Depreciation$4,967 3. Total net cash flow$41,437$44,410$47,426$50,489$53,598 Terminal value$130,800 Present value of net cash flows$37,991$37,331$36,551$35,676$119,462 Total capital purchased$169,400 Net present value$97,611 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  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

51. Shock 2 – NPV ---------Alternative Scenario---------- 20082009201020112012 Required rate of return: 1. Risk free rate of return2.57% 2. Business risk premium5.00% 3. Financial risk premium1.50% 4. Required rate of return9.07% 5. Present value interest factor:0.916840.840600.770700.706610.64785 Expected net cash flow: 1. Net income$33,643$27,479$21,161$14,645$7,882 2. Depreciation$4,967 3. Total net cash flow$38,610$32,446$26,128$19,612$12,848 Terminal value$111,100 Present value of net cash flows$35,399$27,274$20,136$13,858$80,300 Total capital purchased$169,400 Net present value$7,567

52. Shock 3 – Very Pessimistic  Lowered expected calf crop to 80%.  Used shock 1’s first year sales price and then decreased sales price by 10% per year.  Increase direct materials expense by 10% per year.  Lowered terminal value by approx. $20,000  Lowered expected calf crop to 80%.  Used shock 1’s first year sales price and then decreased sales price by 10% per year.  Increase direct materials expense by 10% per year.  Lowered terminal value by approx. $20,000

53. Shock 3 – Financial Ratios

54. Shock 3 - NPV ---------Alternative Scenario---------- 20082009201020112012 Required rate of return: 1. Risk free rate of return2.57% 2. Business risk premium5.00% 3. Financial risk premium1.50% 4. Required rate of return9.07% 5. Present value interest factor:0.916840.840600.770700.706610.64785 Expected net cash flow: 1. Net income$33,643$23,383$13,585$4,131-$6,789 2. Depreciation$4,967 3. Total net cash flow$38,610$28,350$18,552$9,097-$1,822 Terminal value$111,100 Present value of net cash flows$35,399$23,831$14,298$6,428$70,796 Total capital purchased$169,400 Net present value-$18,648

55. Conclusion & Decision By Courtney Buerger: Co-VP for Research & Credit Analysis By Courtney Buerger: Co-VP for Research & Credit Analysis

56. Financial IndicatorOur Credit Standard Ratios Baseline Average Ratios Expected Averaged Ratios LIQUIDITY Current Ratio Working Capital 1.25 Positive 3.88 $119,066 2.82 $63,326 SOLVENCY Debt Ratio Leverage Ratio <0.5 <1.0.40.84.45 1.04 but decreasing PROFITABILITY ROA ROE Positive, high 23.24% 37.59% 20.88% 34.72% DEBT REPAYMENT CAPACITY Term Debt & Capital Lease Coverage Ratio Debt Burden Ratio >1.25 Low, Falling 3.57 2.03 2.6 2.67

57. Year Beginning Principal Principal Payment Interest Payment Total Payment Ending Principal 1$135,520$22,198$13,552$35,750$113,322 2 $24,418$11,332$35,750$88,905 3 $26,859$8,890$35,750$62,045 4 $29,545$6,205$35,750$32,500 5 $3,250$35,750$0 nominal totals $135,520$43,229$178,749 Amortization Table

58. Conclusion Borrower’s original baseline numbers are on the optimistic side and fluctuate greatly, but the adjusted numbers are strong enough to justify the loan Cattle markets are volatile, cyclical, and have high input risks Outside income of $60,000 will compensate for risks We have decided to grant the $135,520 loan for 5 years at a 10% fixed interest rate Land will be used as collateral Borrower’s original baseline numbers are on the optimistic side and fluctuate greatly, but the adjusted numbers are strong enough to justify the loan Cattle markets are volatile, cyclical, and have high input risks Outside income of $60,000 will compensate for risks We have decided to grant the $135,520 loan for 5 years at a 10% fixed interest rate Land will be used as collateral