Defining efficient commercial loan portfolios for regional and multi-regional lender

During the 1980's many areas of the United States experienced financial stress which affected lending practices and portfolios. Some local borrowers were faced with closed or taken-over banks. Lenders were also faced with tradeoffs between various kinds of loans according to risk-return measures. The problems faced by the lenders became the focus of this study.;To accomplish this study a methodology incorporating a mean variance (EV) model was used. Both a historical portfolio covering 1984-1990, and a projected portfolio covering 1991-1995 were estimated. These portfolios were estimated in each time period for three separate regions in Texas: Region 1 - Northern Plains of the Texas Panhandle; Region 2 - Southern Plains of the Texas Panhandle; Region 3 - Rolling Plains of Northwest Texas. A survey was also sent to lenders in the three regions of Texas to validate the projected portfolio findings.;Results of the study indicate that the projected portfolio favors increased agricultural lending in the three regions of Texas, compared to the historical time period. The multi-regional portfolio showed increased returns and decreased variances for Regions 1 and 2. For Region 3, returns in the multi-regional portfolio were similar, but Region 3's variances were lower. Survey results indicate a willingness of lenders in Regions 2 and 3 to change their agricultural portfolios.