> The FDIC and Dream First Bank, National Association, are also entering into a commercial shared-loss agreement on the loans it purchased of the former Heartland Tri-State Bank.
Sounds like they had some bad loans on the books, smaller banks in rural communities often struggle to adequately assess loan risk because talent is hard to find.
Rural people, whatever that means, can be smart and crafty. And there should be a risk management committee and there are services to help provide insights. I was on a rural BoD and don't recall ever seeing a crop loan.
I have a relative who was an FDIC auditor and spent the last 10 years assessing commercial loan portfolios as a consultant for hundreds of small banks across the south and Midwest. Most banks had at least a few loans that were poorly underwritten (insufficient income verification, collateral declaration, improper property comps, etc.) She had some crazy stories though.
A rural bank gave out one of its largest loans, a few million, to a guy to build a crypto farm 3-4 years ago. She called me up during the crypto crash asking for advice on how to price all of these GPUs he bought at the top of the market since he was facing liquidation. The bank took a bath on it. And that was just one of many. Tons of PPP fraud, small Town corruption, etc.
Another problem is the cash flow that can be generated from farmland varies wildly. You might lease it out for $100 an acre, On the other hand you might be making $5,000 an acre if you're farming something specialized.
Crop insurance isn't an economically viable thing for any of the small farmers that I personally know anymore. It might still be feasible if you qualify for the beginner subsidies.
Sounds like they had some bad loans on the books, smaller banks in rural communities often struggle to adequately assess loan risk because talent is hard to find.