Pub. 11 2016-2017 Issue 2

July/August 2016 23 Extraordinary Service for Extraordinary Members.  Bert Ely — continued on page 24 K ANSAS BANKER LEONARD WOLFE TESTIFIED ON ABA’S behalf at the May 19 oversight hearing the Senate Agriculture Committee held on the Farm Credit System (FCS) and its regulator, the Farm Credit Administration (FCA). After he testified, Leonard wrote an opinion article for Agri-Pulse titled “It’s time to reform the Farm Credit System,” summarizing his testimony. Todd Van Hoose, president of the Farm Credit Council (FCC), the FCS’ trade association, then fired back with a response titled “Make no mistake: The bank lobby wants to kill farm credit.” I encourage bankers to read both articles, and especially Van Hoose’s, as his article is an excellent example of the way in which the FCS tries to defend its lending practices and the competitive advantages it has over its taxpaying bank com- petitors. Speaking of articles, Ralph Nader has weighed in with this criticism of the FCS, “The Funny Business of Farm Credit.” Even those not traditionally involved in agriculture see that the FCS is not fulfilling its mission. Three Large FCS Associations Plan Merger, More on the Way In May, three large midwestern FCS associations an- nounced they had “begun exploring amerger,” stating that their “organizations are in the process of evaluating this potential collaboration with the guidance and assistance of staff and industry experts.” They are AgStar Financial Services, which serves eastern and southern Minnesota and northwest Wis- consin; 1st FCS, which serves northern and western Illinois; and Badgerland Financial, which serves southern Wisconsin. As of March 31, 2016, they were, respectfully, the fifth, tenth, and twelfth largest FCS associations. If they merge, which is more likely than not, the merged association, with $18 billion of assets, would become the third-largest FCS association, trail- ing only FCS of America ($24.9 billion of assets at March 31, 2016) and Farm Credit Mid-America ($22.2 billion). Perhaps coincidentally, this prospective merger was announced just days before the FCA posted on its website an informational memorandumon revisedmerger guidance for FCS institutions, based on new merger rules the FCA adopted last year. If this merger takes place, it will reduce the FCS to 72 direct-lending retail associations, down from 84 at the beginning of 2011 and 96 at the beginning of 2006. More significantly, this consolidation has led to the growth of some very large, multi-state associations. Assuming the three as- sociations had merged as of March 31, 2016, the six largest FCS associations would have held about 52 percent of all as- sets owned by FCS associations while the bottom half of the associations, by size, hold just 9.8 percent of all association assets; the largest of the associations in the bottom half had $945 million of assets. The 20 smallest associations—those with less than $500 million of assets—held just 3.6 percent of all FCS assets. Four of the larger associations serve all or portions of 19 states while Kansas is served by six associations and Oklahoma by four. Clearly, the FCS increasingly is domi- nated by large, multi-state associations, hardly consistent with the FCS of several decades ago, when it was dominated by local associations. The FCS merger wave almost certainly will continue, leading to ever larger associations. CoBank: New CEO; Investors Sue Over Sub- debt Redemption On June 2, CoBank announced that its CEO, Bob Engel, would retire on June 30, 2017, after 11 years as CEO. During Engel’s tenure, CoBank more than tripled its size, reaching $118 billion in total assets on March 31, 2016, making it the largest of the four FCS banks. Over the same period, the FCS overall more than doubled its size, to $305 billion in total assets on March 31, 2016. Engel achieved that growth in part through CoBank’s aggressive lending to investor-owned utilities and by buying participations in loans to “similar enti- ties”—investor-owned businesses that can borrow from the FCS only because similar businesses, agricultural and utility cooperatives, can borrow from the FCS. Although CoBank dominates the FCS, some executives elsewhere in the FCS will welcome a tamer CoBank, as will some members of the House and Senate Agriculture Committees who have questioned CoBank’s aggressiveness. Tom Halverson, CoBank’s chief banking officer, will succeed Engel. According to a CoBank An independent licensee of the Blue Cross and Blue Shield Association. We’re honored to offer NBA members group health insurance for more than 20 years To learn about our plans, visit www.nbaveba.com