Pub. 12 2017-2018 Issue 3

WWW.NEBANKERS.ORG 24 To contact Bert Ely, email bert@ely-co.com , phone (703) 836-4101, or send mail to P.O. Box 320700, Alexandria, Va. 22320. Reform Farm Credit: Help educate the public, the press, and policymakers. Get the facts, take a stand at http://reformfarmcredit.org . If your bank belongs to the American Bankers Association (ABA), you can enjoy a free email subscription to Farm Credit Watch or you can read it monthly online at www.aba.com . To receive Farm Credit Watch by email or to manage your subscription, visit ABA Member Email Bulletins at www.aba.com/Tools/Ebulletins/Pages/default.aspx. For other inquiries, please contact Barbara McCoy at the ABA at (800) BANKERS or bmccoy@aba.com . With these mergers, the 10 largest of the FCS’ 70 associations hold 67 percent of total association assets. The FCS is increasingly dominated by very large, multi-state associations. Bert Ely — continued from page 23 For example, non-performing assets as a percent of total loans plus other property owned at March 31, 2017, varied from 2.46 percent down to .02 percent. The adequacy of loss provi- sioning, as measured by the allowance for loan losses as a per- cent of non-performing assets also varied significantly on that date, from 20.5 percent to 2800 percent. Especially troubling numbers for both measures are noted in red. The wide range of these numbers raises this question: Are some of the larger associations not being as diligent as they should be in identify- ing troubled loans and reserving for eventual losses on those loans? Time will tell. This question is especially relevant for the second-largest association, Louisville, Kentucky-based, Farm Credit Mid-America (FCMA). Moving down the spreadsheet, rankings by return on average assets (ROA) and net interest margin (NIM) also show great variability, with ROA ranging from 2.51 percent to 1.20 percent and NIM ranging from 3.59 percent to 2.14 percent. Notably, FCMA is at or near the bot- tom of both of these rankings. Farm Credit Watch readers are encouraged to massage the data in this spreadsheet to see what conclusions they reach about the financial condition of the larger FCS associations. Five Associations Became Two On June 27, the FCA gave final approval to two sets of mergers of FCS associations that became effective on July 1. The merger of Badgerland Financial and 1st FarmCredit Services into AgStar has created the third-largest FCS association, with total assets of approximately $19 billion. Now called Compeer Financial— hardly suggestive of agricultural finance—it serves eastern and south Minnesota, western and southern Wisconsin, and northern and western Illinois. Separately, United FCS merged into AgCountry FCS to create the ninth-largest FCS association with total assets of approximately $7 billion. It serves western Minnesota, eastern North Dakota, and a portion of eastern Wisconsin almost 200 miles to the east. With these mergers, the 10 largest of the FCS’ 70 associations hold 67 percent of total association assets. The FCS is increasingly dominated by very large, multi-state associations. AgStar, an Out-of-Market “Investor” Prior to gobbling up two smaller associations to form Com- peer, on January 10 the FCA authorized AgStar to invest up to $2 million in bonds issued by a long-termcare facility inWisconsin. Although the facility may have been located within the territory served by AgStar, financing a long-term care facility, however worthy the project may be, hardly fits within the scope of the FCS’ financing authority. Further, these bonds are really a loan recast to look like an investment. More troubling, though, was the FCA’s April 7 authorization for AgStar to “invest up to $2.5 million in taxable bonds to be issued by a rural continuous care facility in Texas,” which of course is hundreds of miles south of AgStar’s territory. Leaving aside the propriety of such an invest- ment, what could AgStar possibly know about the continuous care market in Texas? Most interestingly, on June 5, the FCA authorized CoBank “to invest up to $1 million in taxable bonds to be issued by a continuous care facility in Texas.” Quite likely, this is the same facility whose bonds AgStar is purchasing. One can reasonably ask why Texas-based FCS associations or the Farm Credit Bank of Texas are not buying those bonds. 