Lending Standards

Farmers State Bank of Oakley


The Farmers State Bank is a financially strong bank and it is the intention of the Board of Directors that it remain so. It has achieved this position by following lending practices that are well recognized throughout the banking industry. That such practices are necessary has been amply demonstrated by the many financial institutions that have failed because their lending standards were too liberal. To abandon such practices in favor of a more lenient lending policy would bring financial problems not only to the bank, but to the bank’s customers and especially to our community. A bank does no favors to anyone by having lax lending standards. This explanation is provided so that you might have a better understanding of our lending principles.



Lenders should not loan the entire value of collateral–borrowers should have some equity in any collateral offered as security for a loan. Generally we will loan up to 60-80% of the value of an asset depending on the type of collateral; less if it involves an unusual type of collateral or an unusual amount of risk. On a purchase, borrowers can provide this equity in several ways: cash down payment, trade in value, additional collateral, etc. Historically, borrowers who have no equity of their own “at risk” have tended to have much poorer payment records. Also, borrowers who are not required to put up equity are able to bid up land far beyond its economic value if they can find a lender to finance them. This is what led up to the farm land boom and bust in the 1970’s and 1980’s when some lenders (especially government) required no or minimal down payment on land loans and borrowers would “take a chance” on high-priced land.


Source of Repayment

All borrowers must be able to demonstrate that they have an adequate source of income to repay the debt. They should always be conservative and keep all their borrowing well within their capacity to repay. Borrowing should be kept at levels that allow for unexpected expenses and emergencies. A secondary source of repayment is desirable.


Financial Information

Borrowers must be able and willing to provide sufficient financial information to enable the bank to make an informed decision. Depending on the size of loan the bank may require any or all of the following: financial statements, income statements, cash flow statements, income tax returns, past credit experience, inventories, appraisals, credit reports, etc. The extent of these requirements will, of course, depend on the size and nature of the credit application. The bank will not approve a loan if it cannot determine the financial ability of the applicant to repay the loan. Also, it is the borrower’s responsibility, after the loan is made, to keep the bank informed of his or her financial condition.


No Split Lines

A split line occurs when one person is borrowing from two or more lenders and it is our general policy not to make loans under such circumstances. We want loan customers who are loyal and will work with us and with whom we can develop a close and trusting relationship. We must be familiar with the borrower’s financial condition to be a good lender and be able to discuss and help him or her on financial matters. This is impossible if the borrower is continually shifting from one lender to another. We continually see a high correlation between split lines and financial difficulties. We do recognize that there may be instances when exception need to be made, however, we expect our loan customers to keep us informed of such borrowing.



For much the same reasons that we don’t want to get involved in split lines, we want our borrowers to always use the same loan officer. This is necessary for the loan officer to competently work with the customer. We do recognize that there has been some loan officer turn over here at Farmers State Bank as in all Western Kansas community banks, but we have worked very hard recently to hire an outstanding staff of very capable and qualified loan personnel. It is our goal to maintain this strong staff long into the future so our valued customers will be confident and comfortable with their loan officer for years.  We also recognize that occasionally the officer will be gone and that the customer may need to see another loan officer. We want to develop good working relationships with our borrowers and see lending not as one-time events, but as long term associations. As such, communication and cooperation is of utmost importance. We expect borrowers to be communicative and forthcoming at all times concerning their financial affairs.


Deposit Accounts

We want our borrowers to keep their deposit accounts with our bank. As deposits provide the source of funds to lend, we feel that borrowers should help provide these funds by keeping their deposits with us. Also, these accounts provide us with valuable experience by which to evaluate loan applications.