First American Bank in Woodward, Okla., has built a successful agriculture business over the last 12 years, but now it is looking for other fertile fields.

"You shouldn't put all your eggs in one basket," said Jeff Klick, vice president in charge of agriculture loans at the $25 million-asset bank. "We're going to try to grow with additional loans in other sectors. It's not that we have to get out (of agriculture) completely."

First American exemplifies a view at many small agriculture-oriented banks: that they ought to be more diversified.

Some want to compensate for lost business from rapid farm consolidation. Others, like First American, want to lessen the risks of relying heavily on one industry, particularly segments such as cattle that are in a price slump with no end in sight.

"From a bank management perspective, I think it is always appropriate to consider portfolio issues," said Michael D. Boehjle, a professor of agriculture economics at Purdue University in Lafayette, Ind.

"The challenge to banks for implementing that strategy is: What is the market for other options that is open to them for a reasonable cost?"

Costs may include hiring experts in the new field, training existing staff, or trying to compete in a new geographic area, Mr. Boehjle said.

First American is one of many banks that survived the agriculture crisis of the 1980s, but find themselves reevaluating the business as their reliance on it has grown. More than 50% of the bank's loans are agriculture-related.

The bank - known as American National Bank until a recent ownership change - was founded in 1979 during Woodward's oil boom. The town's rapid growth lured two other new banks, although one has since failed.

During the oil and gas boom of the 1980s, the bank first focused on consumer and real estate lending. But it wanted expertise to tap into the area's major industry: agriculture.

Mr. Klick joined up in 1983, after five years with the Farm Credit System, to build a farm-loan portfolio during the height of the agriculture crisis. Mr. Klick said he was helped by the fact many farm customers wanted to leave the federal system as it tightened its standards.

"The opportunity is when things are towards the bottom of the cycle," Mr. Klick said of the bank's initial push into farm lending.

After growing its agriculture portfolio for about 10 years, the bank began to level off and management began thinking about evening out the loan mix, he said.

The need for such a strategy has been intensified by the fact that low prices for wheat and, more recently, cattle, have stymied producers' ability to make money in Mr. First American's market. Many have discussed scaling back their operations, said Mr. Klick, himself a wheat farmer whose operation hasn't been very profitable.

"We've had two consecutive years of losses in net worth," he said. "Most people look at that and wonder how much financial risk they can stand."

The bank's 90-day past-due loans increased to 2.02% of total loans last year from 1.02% in 1993. At March 31, they were 1.73%.

For the year, Mr. Klick said he expects total nonperformers to be up about 25%.

Still, the overall performance has been good. In 1994, net income was up 15% to $298,000 and the bank maintained a solid 1.50% return on assets and 18.86% return on equity.

In some regions, farmers might be able to make up for problems in particular commodities by diversifying into other types of crops or livestock.

But the climate and limited rainfall near Woodward leaves area farms with few agricultural options besides the existing cattle and wheat. "There's really not a lot of ways to diversify the farming operations," Mr. Klick said.

So, although the bank won't seek to shrink its farm loans, it is targeting different areas for growth, particularly commercial lending.

Today, First American's loan portfolio roughly breaks down to 50% agriculture, 25% consumer, 15% commercial, and 10% residential real estate, Mr. Klick said.

But over the next five years, he said, his ideal mix for the portfolio would be approximately 30% agriculture, 25% commercial, 25% real estate, and 20% consumer.

He said it's attainable, in part, because Woodward, a community of about 15,000 in northwest Oklahoma, also covets the benefits of diversification.

"You look at the cycles," Mr. Klick said. "Oil and gas and agriculture are cyclical businesses. Anybody that's been around sees you need to have something in there to keep it a little more level."

In addition to the mom and pop operations in town, the bank also hopes to get a piece of any outside businesses the town helps to recruit.

First American plans to hire someone with a commercial lending background to build up that area.

Mr. Klick is not alone. Farm lenders across middle America are struggling to diversify.

About 60% of the loans at Commercial State Bank are agriculture-related, but chairman Robert Frei said the Wagner, S.D., institution has been doing more commercial lending to make up for farms that have been liquidated.

But like First American, $91 million-asset Commercial State isn't going to give up doing what it knows. It's capitalizing on the trend among some rural banks to pare down agriculture portfolios.

"What we've seen in banking is many rural banks getting out of ag lending," Mr. Frei said. "We've been very aggressive in trying to pick it up."

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