You may have seen our Facebook post a couple of weeks ago that announced we were one of the Most Exceptional Companies in Maryland, as selected by The Gazette of Politics and Business.
At the time, we were only told that we were one of the winners—we didn’t know what number we would be. The Gazette chooses 53 companies (they explained that they chose 53 because when you do the top 50, it always seems as if three great companies are left out. And, besides, The Gazette P&B Top 53 rhymes, so it’s a little catchier).
We were prepared to be 53rd, which would still have been a great honor (well over 100 companies applied). But the announcers went through the 50’s, the 40’s…and our name wasn’t called.
Then they announced 39-30, and still nothing. It was getting downright exciting. Finally, at number 27, they called MidAtlantic Farm Credit and we walked to the stage. As I walked between the tables (why can’t they ever seat me at the front of a room when I have to go to the stage?), I heard the announcer talk about our StartRight program, and how many young, beginning and minority farmers we’ve helped since we launched the program last year.
The 400 people in the room heard about our program, too. In fact, at the end of the night, one of the other winners came up to me and said “Congratulations! You’re doing a great thing…farmers need a company like you!”
That gentleman was right. Farmers do need a company like Farm Credit. That’s why I’m so proud to work here.
I’m sorry you couldn’t all be in the room that night, because we all know that the Most Exceptional Companies have the Most Exceptional Employees and Customers. Thank you for everything you do that makes Farm Credit a leader in the community!
Bob
Thursday, October 1, 2009
Tuesday, July 28, 2009
Spreading the Word
Monday morning I had an interview with Marcia Taylor, an executive editor at DTN/Progressive Farmer.
She’s doing an article based on the new ag census. If you haven’t seen it, and you’re interested, you can check it out here.
Marcia specifically wanted to talk about new farmers—both young people just starting out and old(er) people who have come to farming as a second career (you may recall we did an entire Leader magazine based on folks who have double-cropped their careers, so I was well-prepared to talk about this as well).
There are more new farmers in this census—4% more farmers than in the census filled out in 2002. Farm numbers have been declining since the 1940’s, so it was nice to talk about the positive trend.
It was also nice to tell Marcia about our StartRight program, and how it’s specifically geared to young, beginning, small and minority (that includes women—according to the farm census data, there are 30% more women farming now than in 2002). Thank you to all of you for talking about our program, using our program, and supporting our program. It’s nice to know that we’re making a difference, and helping people get started.
Special note: we recently posted an overview of how well the System is serving ybsm farmers to our Facebook page. If you didn’t see it there, you can check it out here.
She’s doing an article based on the new ag census. If you haven’t seen it, and you’re interested, you can check it out here.
Marcia specifically wanted to talk about new farmers—both young people just starting out and old(er) people who have come to farming as a second career (you may recall we did an entire Leader magazine based on folks who have double-cropped their careers, so I was well-prepared to talk about this as well).
There are more new farmers in this census—4% more farmers than in the census filled out in 2002. Farm numbers have been declining since the 1940’s, so it was nice to talk about the positive trend.
It was also nice to tell Marcia about our StartRight program, and how it’s specifically geared to young, beginning, small and minority (that includes women—according to the farm census data, there are 30% more women farming now than in 2002). Thank you to all of you for talking about our program, using our program, and supporting our program. It’s nice to know that we’re making a difference, and helping people get started.
Special note: we recently posted an overview of how well the System is serving ybsm farmers to our Facebook page. If you didn’t see it there, you can check it out here.
Wednesday, July 1, 2009
A Member of the Family
This week, I’m not going to talk about our industry or our business. I’m going to talk about our family.
We always say that we’re a big family here; I hear that from staff members all the time. When one of us is hurting, we’re all hurting; when one of us succeeds, I feel like it’s a success for everyone.
Yesterday we lost a dear family member—Debbie Wilson. And I’m as upset about the loss as I would be if we had grown up together.
Debbie was one of my heroes. That’s pretty high praise, but I mean it. I’m sorry that I didn’t tell her when I could. I’ve known Debbie for nine years…ever since our merger in 2000. Back then, Debbie worked for the Marva association, and she was the board secretary and assistant to the CEO. Obviously, that role changed after our merger, and Debbie took on her new role with her trademark cheerfulness.
I’m not sure if the move bothered her, or if she had any difficulties with the transition. If she did, she didn’t show it.
In the past few years, Debbie’s role has changed again and again. When we needed help, she pitched in and did it with a smile. Need to scan in a couple thousand loan docs? There was Debbie at the scanner, joking about the job, making everyone smile who walked past.
In the last few years, Debbie pitched in to help the appraisal department in Delmarva. As usual, Debbie handled this change, too, with grace and a positive attitude. In fact, Debbie always seemed happy to me…and when I heard her trademark giggle, I was happy as well.
We lost her giggle this week. We lost her great sense of fun. And most importantly, we lost a member of our team, and a dear member of our family.
I wish that I could handle this change as well as she could have.
Bob
PS—If you didn’t know Debbie personally, she is leaving behind a husband and a son in his early twenties. And, of course, a whole family of grieving co-workers.
We always say that we’re a big family here; I hear that from staff members all the time. When one of us is hurting, we’re all hurting; when one of us succeeds, I feel like it’s a success for everyone.
Yesterday we lost a dear family member—Debbie Wilson. And I’m as upset about the loss as I would be if we had grown up together.
Debbie was one of my heroes. That’s pretty high praise, but I mean it. I’m sorry that I didn’t tell her when I could. I’ve known Debbie for nine years…ever since our merger in 2000. Back then, Debbie worked for the Marva association, and she was the board secretary and assistant to the CEO. Obviously, that role changed after our merger, and Debbie took on her new role with her trademark cheerfulness.
I’m not sure if the move bothered her, or if she had any difficulties with the transition. If she did, she didn’t show it.
In the past few years, Debbie’s role has changed again and again. When we needed help, she pitched in and did it with a smile. Need to scan in a couple thousand loan docs? There was Debbie at the scanner, joking about the job, making everyone smile who walked past.
In the last few years, Debbie pitched in to help the appraisal department in Delmarva. As usual, Debbie handled this change, too, with grace and a positive attitude. In fact, Debbie always seemed happy to me…and when I heard her trademark giggle, I was happy as well.
We lost her giggle this week. We lost her great sense of fun. And most importantly, we lost a member of our team, and a dear member of our family.
I wish that I could handle this change as well as she could have.
Bob
PS—If you didn’t know Debbie personally, she is leaving behind a husband and a son in his early twenties. And, of course, a whole family of grieving co-workers.
Wednesday, June 17, 2009
Service to Our Community
There’s no doubt that Farm Credit is an important part of the agricultural community. We provide credit for farmers and rural homeowners, and we do it whether the times are good or bad.
But we’re also a part of the broader, local community as well. Our employees are each allowed to take one day of paid leave a year to donate our time to a worthy cause. I know that many of our employees donate much more than one day to causes, both in their backyards and in other communities (some of our employees have traveled to other states and sometimes other countries to help rebuild communities!)
In economic times like these, charitable groups in every community are in need of extra help. Donations dry up. People spend more time working and less time donating their time. It’s sad, but when organizations need the most help, they often get the least.
I think I’ve come up with a plan to help our community, and to have some fun while doing it.
This year, instead of our usual employee appreciation event in Ocean City, I’ve asked our planning team to do something a little unusual: I’ve asked them to coordinate a day of association-wide volunteerism.
Now, this doesn't mean that we each have to search out an individual volunteer activity. One of the things I’ve liked best about the event in Ocean City is the time that our employees all spent together—either in smaller groups during the day, or as a full group at dinner. So that aspect of the event isn’t going to change.
What will change is the venue, and the group activities.
For several years, employees have asked us to investigate locations other than Ocean City. And we’ve done that. To be perfectly blunt, the price of other areas was just too high.
This year, however, given the slow tourism economy, we have managed to get a great price at Baltimore’s Sheraton Inner Harbor Hotel, which is just about one block from the Harbor. We’ve gotten a great rate both for the rooms (which are now blocked off for October 9, our usual day), and for dinner.
While we still plan a nice dinner for all our employees and their spouses (or guests), and we’ll still have our annual awards program later in the evening, what will change is our day-time activities.
I’ve asked our planning team to look into local volunteer projects in the Baltimore area, where we can work in small groups of about 20 people (more or less—we’re still in the very early stages of this). I know Baltimore may not be your community, but it is within our footprint, and I think we have a great opportunity to make a difference to several organizations during the day. As I said, we’re still working on the details for this, but I think it will be a fun and rewarding day (and, long term, I would love it if we could move this event around in the future and help a different community every year). Those employees who really prefer free time will still be able to make that choice.
After we spend some time helping others, we’ll have a short overview of the day (I’m betting that we’ll have some fun stories to share about our experiences), a dinner, and our annual employee awards. After dinner, our employees will be on their own to either mingle with friends or hit the downtown (I’m told there are several nearby locations for folks who want to hit the dance floor hard).
This change does not reflect any lack of appreciation for our employees as a team, and as individuals. In fact, it shows my deep appreciation of all our staff's skills and commitment—I know they make a difference to our borrowers every day, and I’m excited about the opportunity to make a difference to local charities as well.
We’re still working on details, and will know more in the next few weeks. In the meantime, I hope our employees are prepared to be appreciated in a whole new way.
But we’re also a part of the broader, local community as well. Our employees are each allowed to take one day of paid leave a year to donate our time to a worthy cause. I know that many of our employees donate much more than one day to causes, both in their backyards and in other communities (some of our employees have traveled to other states and sometimes other countries to help rebuild communities!)
In economic times like these, charitable groups in every community are in need of extra help. Donations dry up. People spend more time working and less time donating their time. It’s sad, but when organizations need the most help, they often get the least.
I think I’ve come up with a plan to help our community, and to have some fun while doing it.
This year, instead of our usual employee appreciation event in Ocean City, I’ve asked our planning team to do something a little unusual: I’ve asked them to coordinate a day of association-wide volunteerism.
Now, this doesn't mean that we each have to search out an individual volunteer activity. One of the things I’ve liked best about the event in Ocean City is the time that our employees all spent together—either in smaller groups during the day, or as a full group at dinner. So that aspect of the event isn’t going to change.
What will change is the venue, and the group activities.
For several years, employees have asked us to investigate locations other than Ocean City. And we’ve done that. To be perfectly blunt, the price of other areas was just too high.
This year, however, given the slow tourism economy, we have managed to get a great price at Baltimore’s Sheraton Inner Harbor Hotel, which is just about one block from the Harbor. We’ve gotten a great rate both for the rooms (which are now blocked off for October 9, our usual day), and for dinner.
While we still plan a nice dinner for all our employees and their spouses (or guests), and we’ll still have our annual awards program later in the evening, what will change is our day-time activities.
I’ve asked our planning team to look into local volunteer projects in the Baltimore area, where we can work in small groups of about 20 people (more or less—we’re still in the very early stages of this). I know Baltimore may not be your community, but it is within our footprint, and I think we have a great opportunity to make a difference to several organizations during the day. As I said, we’re still working on the details for this, but I think it will be a fun and rewarding day (and, long term, I would love it if we could move this event around in the future and help a different community every year). Those employees who really prefer free time will still be able to make that choice.
After we spend some time helping others, we’ll have a short overview of the day (I’m betting that we’ll have some fun stories to share about our experiences), a dinner, and our annual employee awards. After dinner, our employees will be on their own to either mingle with friends or hit the downtown (I’m told there are several nearby locations for folks who want to hit the dance floor hard).
This change does not reflect any lack of appreciation for our employees as a team, and as individuals. In fact, it shows my deep appreciation of all our staff's skills and commitment—I know they make a difference to our borrowers every day, and I’m excited about the opportunity to make a difference to local charities as well.
We’re still working on details, and will know more in the next few weeks. In the meantime, I hope our employees are prepared to be appreciated in a whole new way.
Thursday, June 11, 2009
Statement before the subcommittee on conservation, credit, energy and research.
Statement by Mr. Bob Frazee, President and CEO
MidAtlantic Farm Credit, Westminster, Maryland
Before the Subcommittee on Conservation, Credit, Energy and Research
House Committee on Agriculture
June 11, 2009
Mr. Chairman and members of the subcommittee, thank you for the opportunity to testify today on behalf of the Farm Credit System. My name is Bob Frazee, and I am President and CEO of MidAtlantic Farm Credit. MidAtlantic is a part of the nationwide Farm Credit System. My remarks today will provide some background on the Farm Credit System, comments on current credit conditions and the impact of recent financial market disruptions, and discuss how we are working to meet the credit needs of agriculture in the geographic area served by my institution.
Background on the Farm Credit System
Established in 1916, the Farm Credit System is a unique set of 95 private institutions, including five funding banks (four Farm Credit Banks and one Agricultural Credit Bank) and direct-lending associations, all of which are cooperatively owned by farmers, ranchers, agricultural cooperatives, rural utilities and others in rural America. We are chartered by the Federal government to provide credit and other related financial services to our owners and others consistent with the eligibility criteria set out in the Farm Credit Act.
MidAtlantic is one of these 95 Farm Credit cooperatives. We are owned by more than 10,500 farmers that borrow from us in the states of Maryland, Delaware, and parts of West Virginia, Virginia, and Pennsylvania. As President and CEO, I report to a 23 member Board of Directors. Twenty-one of these directors are farmers elected by the members of the cooperative. MidAtlantic is required to have at least one appointed outside director that has financial experience, and we have chosen to have two. In no case are employees allowed to serve as directors.
There are 90 independently operated Farm Credit associations like MidAtlantic serving agriculture throughout the United States and Puerto Rico. Every Farm Credit association is organized as a cooperative that is owned and governed by its farmer-members. Our Board of Directors is responsible for establishing our institution’s capitalization plan consistent with Federal regulations and for ensuring that management makes available loan products and financially related services appropriate to the unique needs of agriculture in the geographic territory that we serve.
Each Farm Credit association obtains funds for our lending programs from one of five wholesale Farm Credit banks. At MidAtlantic, we get our funding from AgFirst Farm Credit Bank (headquartered in Columbia, SC), which is cooperatively owned by twenty-two local associations. The five System banks own the Federal Farm Credit Banks Funding Corporation (located in Jersey City, NJ), which, as agents for the banks, markets to the investing public the Systemwide debt securities that are used to fund the operations of all Farm Credit System institutions. Unlike commercial banks, Farm Credit institutions do not have access to insured deposits guaranteed by the FDIC and backed by the U.S. Treasury as a source of funding for our operations.
Regulatory Oversight by the Farm Credit Administration
All Farm Credit institutions are regulated by the Farm Credit Administration (FCA), which was created by Congress and is subject to this committee’s oversight. The Farm Credit Administration is an arm’s-length, independent safety and soundness regulator. FCA’s three board members are nominated by the President and confirmed by the Senate. The FCA has all of the oversight and enforcement powers that every other Federal financial regulatory institution has to ensure that Farm Credit institutions operate in a safe and sound manner. In some instances, FCA has more authority than other comparable Federal regulators.
I compliment this committee for its instrumental role in reconfiguring the FCA in the mid-eighties. The decisions made by this committee shaped the System’s regulator, providing a regulatory framework second to none among Federal financial institution regulators. Should this Congress move forward with reforms for other financial regulators, we ask that you vigorously resist any proposal to include FCA in those efforts. I strongly believe the Agriculture Committees have done an excellent job providing the appropriate statutory framework and ongoing oversight of FCA. Including FCA in a financial institution regulatory reform effort likely would cause serious repercussions for agriculture in what already is a difficult and stressful environment. Simply put, let’s not fix what isn’t broken.
The Farm Credit System’s mission, ownership structure and authorizing legislation is unique among financial institutions. For farmers, ranchers and the cooperatives that they rely on, it is critically important that our safety and soundness regulator understands our unique mission and what it takes to be successful in accomplishing it. Changing this would threaten our ability to accomplish the mission set out for us by this Committee in the Farm Credit Act.
Fulfilling Farm Credit’s Mission of Serving Agriculture and Rural America
MidAtlantic Farm Credit, like all Farm Credit System institutions, focuses on accomplishing the mission established for us by Congress: to serve agriculture and rural America. We do not take our Congressional charge lightly. Our cooperative structure and governance is designed specifically to ensure that our lending and financially related service activities are driven by the needs of our farmer-members and to ensure that there is a reliable and competitive credit source available to agriculture that farmers own and control. Our practice is to engage our customers in a consultative lending relationship, using our accumulated expertise and knowledge of agriculture and finance to craft long term lending relationships that are often delivered across the farmer’s kitchen table
We understand that farming isn’t a short-term investment for our member-borrowers. Our cooperative structure allows us to work with our farmer-owners with an approach that is not focused on achieving quarterly returns to impress investing stockholders. We know that when we work with our customer-owners to help them achieve success in their business, our business will succeed as well. Our lending relationship with our member-borrowers is based on constructive credit over the long haul — we do not enter and exit agricultural lending as farm profitability waxes and wanes.
Distributing Profits to Farmers through Patronage
Our commitment to our farmer-members’ business success is demonstrated further by the fact that we share our profits directly through patronage dividends with the farmers that borrow from us. Each year, the MidAtlantic board of directors makes a determination based on our profitability and financial strength as to what portion of our net earnings will be returned directly to the farmer-members that own our institution.
In just the past four years, MidAtlantic has sent back over $110 million dollars in earnings as patronage dividends to the member-borrowers of our cooperative. During the same period, the Farm Credit System in total has returned some $2.6 billion to our customer-owners. That is money that stays in agriculture and rural America and helps our members be successful.
Farm Credit’s Financial Strength
I am pleased to report that the Farm Credit System remains very strong financially. At the end of April, the Federal Farm Credit Banks Funding Corporation reported the System’s combined financial results for the first quarter of 2009. Net income earned was $615 million with total loans of about $162.3 billion. The System provided almost $1 billion in new credit to agriculture during the first three months of this year. Reflective of the overall economy and growing stress in certain segments of the farm economy, we are seeing demand for credit decline as farmers become wary of expanding operations, purchasing new equipment, or taking on additional risk at this time of economic weakness.
Current Conditions in Agriculture
I also am pleased to report to you that MidAtlantic Farm Credit has not changed its lending standards in response to the current financial and economic disruption. This is particularly important to farmers in that there are now fewer choices of agricultural lenders available.
Let me give you some highlights regarding what we are seeing in MidAtlantic’s territory when it comes to the local farm economy and credit conditions.
Poultry represents 21% of our portfolio. For several years, the industry has been increasing production. In 2008, it found itself in a position of high production costs plus high levels of inventory. This resulted in significant cash flow losses for the integrators, who reduced production and conserved cash. We have been working with individual borrowers to help maintain their cash flow during these times of lower prices. We expect the industry will work through the current distressed environment and return to profitability.
Cash Grains represents 19% of our portfolio. Demand for local grain continues to be good, but is highly dependent on poultry production. Demand for grain continues to keep land in production, but pressures from development and environmental concerns will continue to challenge producers.
Dairy is 11% of our portfolio. Low milk prices and high input costs throughout 2008 have resulted in numerous herd sales within our territory. We have contacted all of our dairy borrowers individually (most recently in April) explaining the options for sustaining their business. Milk prices will be determined by cow numbers, total milk production and dairy exports. Slaughter for the year is 12% above last year and we hope that the positive signs in milk futures will mean higher prices in the next six months.
In addition to the key sectors mentioned above, we also serve operations that produce fruit, vegetables, livestock, as well as those involved in timber and forestry, nursery and greenhouse, and equine operations. Where operations touch the housing industry, we expect to see some stress occurring.
A Commitment to Serving Young, Beginning and Small Farmers
The Farm Credit System’s commitment to agriculture not only extends to these typical farming operations, but also to those young, beginning, and small farmers who may need some assistance as they start out in agriculture. Every Farm Credit association has programs in place targeted specifically at meeting the needs of three special categories of borrowers, those that are young, those that are just beginning in farming, and those that are small farmers. At MidAtlantic Farm Credit, we call ours the “Start Right” Young, Beginning, Small, and Minority Farmer program.
The Start Right program offers lower interest rates, while maintaining our credit standards. In fact, since last April, we’ve written over $45 million of new loans to Young, Beginning, Small and Minority Borrowers in our territory. In addition, we are now piloting a national online business-planning course targeted at young, beginning, and small farmers. This is part of our commitment to training future farmers the good credit habits and skills that will help make them successful business people in the future. This program encourages skill attainment by integrating training with access to lower rates.
One of these farmers is 27-year old Jeremy Larimore, who now owns a small poultry farm on Maryland’s Eastern Shore, along with 30 acres of grain and soybeans. Jeremy didn’t grow up on a farm, but he worked on farms owned by his uncles, and he realized early that that’s what he wanted to do. Seven years ago, when he was twenty, Jeremy wanted to buy a used combine so that he could do some custom harvesting for his neighbors, bringing him closer to his dream. Farm Credit helped him finance the combine.
Jeremy’s Farm Credit loan officer was impressed with Jeremy’s drive and business sense. The two stayed in touch for years, talking about how Jeremy could purchase his own farm. In 2005, when Jeremy was just 24, the opportunity arose for him to purchase 33 acres with four poultry houses on it. Jeremy has said that without Farm Credit, he would still be dreaming of buying that farm.
Today, Jeremy leases an additional 100 acres, for a total of 133, and his four poultry houses account for about 90,000 chickens per flock. He’s currently talking to his loan officer about opportunities for buying more land.
When it comes to serving the needs of small farmers, the Farm Credit System stands out. Recently, the American Bankers Association released its report on “farm bank” performance in 2008. They indicated that the 2,247 banks that met their definition of a “farm bank” had some $32.8 billion in credit outstanding in small farm loans (those with an original loan size of less than or equal to $500,000). In comparison, the 90 associations of the Farm Credit System had slightly more than $58 billion of similar sized loans outstanding at the end of 2008.
Even if we are to look just at the new credit extended in 2008, the System clearly continues to demonstrate its commitment to the next generation of farmers. Farm Credit institutions provided new loans and commitments totaling almost $12 billion to beginning farmers last year (those with 10 or fewer years experience). USDA’s FSA beginning farmer loan programs totaled $1.24 billion in fiscal year 2008. Unfortunately, there is no comparable data available from commercial banks since they are not required to collect this same data.
USDA Programs and Farmer Mac Help Farm Credit Serve Agriculture
At MidAtlantic we make significant use of USDA’s Farm Service Agency (FSA) loan guarantees to support our lending. We are pleased that our experience and excellent credit management practices have allowed us to be recognized as an FSA preferred lender. At the end of May, we had over $74 million in our portfolio that had FSA guarantees. We believe about 60% of all System associations are FSA preferred lenders.
The guarantees available through FSA are an important tool that allows us to serve higher risk credits that might not otherwise meet our underwriting standards. The Farm Credit Act requires that we focus our resources on meeting the needs of credit worthy borrowers. The FSA guarantees permit us to reach some individuals that we might not otherwise be able to serve. In fact, in the story I just mentioned about Jeremy Larimore, we used both FSA direct money, as well as an FSA guarantee to make the loan work.
Another USDA program which benefits our farmer-members is the Risk Management Agency’s (RMA) crop insurance program. Crop insurance is an important tool for our farmer-members to use in mitigating the risk in their operations. MidAtlantic writes almost 25% of the crop insurance policies in Maryland. Last year, we paid out $10.3 million in claims.
These two programs are very important tools in ensuring that we can stay with borrowers in stressful times—especially those who are just getting started and likely have inadequate equity, as well as those that have experienced losses due to adverse weather or economic conditions.
One other tool that this committee has made available to agricultural lenders is the Federal Agricultural Mortgage Corporation or Farmer Mac. At MidAtlantic we have used Farmer Mac to help us manage the risk of portfolio concentration in certain agricultural sectors and to help manage our capital position. At the end of 2008, we had almost $16 million in loans in Farmer Mac’s long-term standby program, all of which are 100% guaranteed. Farmer Mac serves an important function for our institution, and we look forward to continuing to utilize it in the future.
In addition to the tools mentioned above, Farm Credit institutions also work with many commercial banks of all sizes. When your focus is on meeting the needs of the customer, reaching out to a competitor easily morphs into finding partnerships that work for the customer. These relationships allow us to better manage risk and permit us to provide the customer with what they need to succeed. When there are services that our borrowers need that they can’t get from us it makes sense for us to partner with others who can provide those services. We have worked with local commercial banks on loan participations. We have both bought these participations, and sold them. This allows us to diversify our portfolio, manage our risk, and continue to serve our marketplace.
Farm Credit institutions also work with many commercial banks as we participate in the pilot program established by the Farm Credit Administration that permits System institutions to make mission-related investments. Many of our borrowers, especially the young ones, depend on off-farm employment to help pay the bills as they get started in agriculture. Permitting Farm Credit institutions to help rural communities by making mission-related investments just makes good sense especially now when so many other sources of investment funds have evaporated.
Serving the Vital Needs of Rural Communities and Global Markets
Lending to companies that serve the needs of rural communities in the energy, communications, and water industries is a growing part of Farm Credit’s overall business. Customers in these industries include rural electric generation and transmission cooperatives, electric distribution cooperatives, independent power producers, rural local exchange carriers, wireless provides, cable television system, and water and waste water companies. Farm Credit loans to these customers increased to $14.2 billion at the end of the first quarter this year from $10.8 billion at the end of 2007.
Much of the loan growth to these customers came as the broader debt capital markets contracted as part of the overall financial market crisis. The Farm Credit System, primarily through CoBank (the one Farm Credit bank that operates as an Agricultural Credit Bank) has increased its lending to these customers ensuring that a continued flow of competitively priced credit is available to them. The System’s ability to expand financing to these customers has been critical as many of them, electric co-ops especially, have been forced to modernize facilities and expand operations as demand for electricity has boomed across rural areas.
Similarly, as global credit markets contracted, demand for credit around the world to purchase U.S. agricultural export products increased. Loans made by CoBank to facilitate the export of U.S. farm products increased from $2.1 billion at the end of 2007 to $4.5 billion at March 31, 2009.
Impact of Financial Market Disruptions
Because the Farm Credit System relies on our access to the financial markets for the funds we need to make credit available to our borrowers, a disruption in the efficient operation of those markets can adversely impact agriculture. Over the last year the nation’s financial markets have changed dramatically and this has impacted not only our cost of funds but also the term of the funds that are available.
At this time last year of our nation’s grain marketing cooperatives were faced with the need to meet unprecedented levels of margin requirements due to the volatility of commodity prices. They turned to the Farm Credit System because they knew we could access the capital markets to get them the credit they needed at a moment’s notice. Farm Credit increased its borrowing from the market by $21 billion through the first half of 2008 just to meet these and other needs. The market understood our financial strength and our unique status as agriculture’s GSE. Margin calls were met and what could have been a disastrous situation was averted because of that access to the financial markets.
The dynamic of the financial markets changed quickly late last summer in some very unusual ways. While the Federal conservatorship of Fannie Mae and Freddie Mac had disastrous impacts on their equity holders, it positioned them in the debt markets as having greater links to the Federal government, and ironically created the perception in the eyes of investors that they are a less risky credit. This was underscored further when the Treasury made available a direct line of credit for Freddie Mac and Fannie Mae as well as their sister housing GSE the Federal Home Loan Bank System.
Then utilizing direct backing through the FDIC, the Federal government provided commercial banks the ability to issue debt that essentially has a direct Federal guarantee standing behind it. These same banks also have Treasury’s backing of the FDIC to facilitate them generating loanable funds through bank deposits. And this Federal FDIC backstop has just been expanded substantially.
Complicating the national and international debt markets even further has been the heavy issuance of U.S. Treasury securities to finance our Nation’s deficit and the substantial increase in foreign government backed debt hitting the markets and competing for investors. We have seen the investment banking sector collapse that we had relied on to facilitate transactions between sellers and buyers of debt. The severe economic stress also has resulted in very few investors being interested in term debt that exceeds three years in maturity.
While we continue to access the funding we need to serve our marketplace, the changes and disruptions in the national financial markets have markedly changed the landscape for us. Decreased access to longer-term debt and pricing volatility has presented a challenge. While the environment has settled since the beginning of 2009, it would be a mistake to conclude that we are back to normal. The Farm Credit securities margin spread over 5-year U.S. Treasury bonds makes the point:
Pre-2007 norm 32 basis points 0.32%
Fall 2008 peak 215 basis points 2.15%
April 2009 92 basis points 0.92%
The result is that farmers seeking to reduce the volatility of their interest expense by locking in longer-term, fixed rate loans at low rates do not have options that are available to the average homeowner. Low cost home mortgage rates are available to homeowners because of direct government intervention targeted at helping them. The Federal Reserve action to purchase mortgage-backed securities has improved pricing in the home mortgage market, but similar action is not being taken to address the needs of agriculture.
To summarize, commercial banks have been extended a direct Federal guarantee on their debt issuance and access to Federal capital support. The housing GSEs have enhanced support from the Treasury to facilitate their access to the debt markets. Actions are being taken to facilitate the liquidity of mortgage-backed securities. Farm Credit institutions have no such guarantee, no access to capital support, no explicit borrowing line with Treasury and no Federal backstop for our insurance fund.
Despite the fact that we have had no assistance from the government throughout these times of extreme stress in the financial markets, we are very proud to report to you that we have not had to deny a single farmer, cooperative or other eligible borrower access to credit because we could not access the Nation’s money markets. This is testament to the financial strength that the System has carefully built up during good times through cautious lending and the accumulation of appropriate capital reserves.
Trust has been built with our investors, who know that the Farm Credit System has never failed to meet its obligations. They are secure in the knowledge that System management and directors are intent on preserving this fine organization to ensure that farmers will continue to own and govern their credit source through their cooperative in the future. However, Farm Credit’s operational prudence notwithstanding, last fall’s financial market turmoil demonstrated to us that our ability to access the necessary funding to meet our mission to agriculture and rural America may be at risk if circumstances beyond our control disrupt our market access.
Loan Restructuring Available for Farm Credit’s Farmer-Owners
As economic stress increases in agriculture we stand ready to work with our customers as they deal with their individual challenges. Farm Credit System institutions have operated with specific “borrower rights” requirements for over twenty years. We are required to follow “least cost” restructuring requirements for farmers that can’t meet the terms of their loans. In addition, if a farmer that applies for a loan or one that has a loan with us is faced with a credit decision they believe is adverse to them, they have a specific right to appeal that decision before a credit review committee that must involve a local elected farmer-director from the board of their institution.
You have probably heard us say that Farm Credit serves agriculture in good times and in bad. Borrower rights are one of the ways that we serve our marketplace when the environment is more bad than good.
I’ll give you a recent example of this: for years, MidAtlantic has had a lending relationship with a customer whose business is sensitive to the general economy and in particular the housing industry. Although this business was well managed, it began to experience the financial stresses that came with the downturn in the housing industry in 2006. As you might imagine, those stresses have continued and grown.
In response, MidAtlantic has worked with this borrower by employing a variety of tools from our borrower’s rights guidelines: we have advanced additional monies during this time, provided principal forbearance, and relaxed the financial covenants that had been placed on the account. Our goal in taking these actions has been to help this account return to profitability.
As recently as last month, we completely reworked the credit, advancing more new money for the purchase of equipment, and working with the borrower to help them secure funds from the Pennsylvania Machinery and Equipment Loan Fund (MELF), as well as a USDA Business and Industry Guarantee.
We assume, and we hope, that the housing industry will turn around. In the interim, what we’ve done for the borrower — and what the borrower has done for themselves — has given them an opportunity to stay in business during an extremely challenging down cycle. This company has a strong management team, they have implemented efficiencies that are serving them well now and will serve them even better when things do improve.
At Farm Credit, we know that the economy, markets and commodity prices are cyclical. That comes with 93 years of experience. When we say we’re there in good times and in bad times, we mean it.
Conclusion
The Farm Credit System is financially stable, economically vital, and serving its mission for agriculture and rural America well. We continue to make credit available to all segments of agriculture including commercial producers as well as young, beginning and small farmers. We have stepped up our lending to vital rural infrastructure companies. There is no taxpayer support of the Farm Credit System. There are no federal dollars invested in the Farm Credit System. We even pay for the expense of being regulated by the federal government through an assessment on all Farm Credit System institutions.
As a network of agricultural and rural lending cooperatives owned by the farmers, cooperatives, and rural utilities that borrow from us, we have the built in oversight mechanism of our owners holding our feet to the fire to keep service quality high. We understand that Farm Credit’s success depends on our customers’ success. To continue serving our mission, we must have continued, effective access across all terms to the national debt markets and an independent, arm’s-length regulator that comprehends the unique requirements of agriculture.
I am testifying to you as a leader of a nationwide lending institution in a climate of lapsed supervision by regulators and mistrust of institutional intent. But it should not surprise you that I am reporting on our successes and service to mission. The Agriculture Committee understands why the Farm Credit System exists, and our continued success is due in part to the fact that this Committee had the foresight to change our structure more than 20 years ago while strengthening our regulatory oversight to ensure our safety and soundness.
We are proud of our commitment to rural America. We have maintained our focus and continually work to meet our mission. Certain parts of agriculture are facing some challenging economic times that may test the resolve of many. We urge that you continue to monitor this situation closely and continue to provide both FSA and Rural Development at USDA with the funding resources and flexibility they need so that an adequate guaranteed loan program remains available. And we urge that you continue to monitor the Federal programs that are being put in place to address the upheaval among commercial banks and the disruption of the money markets to ensure that agriculture is not disadvantaged in its access to the Nation’s money markets
Mr. Chairman, thank you again for the opportunity to testify today on behalf of MidAtlantic Farm Credit and the Farm Credit System. I will be pleased to respond to your questions.
MidAtlantic Farm Credit, Westminster, Maryland
Before the Subcommittee on Conservation, Credit, Energy and Research
House Committee on Agriculture
June 11, 2009
Mr. Chairman and members of the subcommittee, thank you for the opportunity to testify today on behalf of the Farm Credit System. My name is Bob Frazee, and I am President and CEO of MidAtlantic Farm Credit. MidAtlantic is a part of the nationwide Farm Credit System. My remarks today will provide some background on the Farm Credit System, comments on current credit conditions and the impact of recent financial market disruptions, and discuss how we are working to meet the credit needs of agriculture in the geographic area served by my institution.
Background on the Farm Credit System
Established in 1916, the Farm Credit System is a unique set of 95 private institutions, including five funding banks (four Farm Credit Banks and one Agricultural Credit Bank) and direct-lending associations, all of which are cooperatively owned by farmers, ranchers, agricultural cooperatives, rural utilities and others in rural America. We are chartered by the Federal government to provide credit and other related financial services to our owners and others consistent with the eligibility criteria set out in the Farm Credit Act.
MidAtlantic is one of these 95 Farm Credit cooperatives. We are owned by more than 10,500 farmers that borrow from us in the states of Maryland, Delaware, and parts of West Virginia, Virginia, and Pennsylvania. As President and CEO, I report to a 23 member Board of Directors. Twenty-one of these directors are farmers elected by the members of the cooperative. MidAtlantic is required to have at least one appointed outside director that has financial experience, and we have chosen to have two. In no case are employees allowed to serve as directors.
There are 90 independently operated Farm Credit associations like MidAtlantic serving agriculture throughout the United States and Puerto Rico. Every Farm Credit association is organized as a cooperative that is owned and governed by its farmer-members. Our Board of Directors is responsible for establishing our institution’s capitalization plan consistent with Federal regulations and for ensuring that management makes available loan products and financially related services appropriate to the unique needs of agriculture in the geographic territory that we serve.
Each Farm Credit association obtains funds for our lending programs from one of five wholesale Farm Credit banks. At MidAtlantic, we get our funding from AgFirst Farm Credit Bank (headquartered in Columbia, SC), which is cooperatively owned by twenty-two local associations. The five System banks own the Federal Farm Credit Banks Funding Corporation (located in Jersey City, NJ), which, as agents for the banks, markets to the investing public the Systemwide debt securities that are used to fund the operations of all Farm Credit System institutions. Unlike commercial banks, Farm Credit institutions do not have access to insured deposits guaranteed by the FDIC and backed by the U.S. Treasury as a source of funding for our operations.
Regulatory Oversight by the Farm Credit Administration
All Farm Credit institutions are regulated by the Farm Credit Administration (FCA), which was created by Congress and is subject to this committee’s oversight. The Farm Credit Administration is an arm’s-length, independent safety and soundness regulator. FCA’s three board members are nominated by the President and confirmed by the Senate. The FCA has all of the oversight and enforcement powers that every other Federal financial regulatory institution has to ensure that Farm Credit institutions operate in a safe and sound manner. In some instances, FCA has more authority than other comparable Federal regulators.
I compliment this committee for its instrumental role in reconfiguring the FCA in the mid-eighties. The decisions made by this committee shaped the System’s regulator, providing a regulatory framework second to none among Federal financial institution regulators. Should this Congress move forward with reforms for other financial regulators, we ask that you vigorously resist any proposal to include FCA in those efforts. I strongly believe the Agriculture Committees have done an excellent job providing the appropriate statutory framework and ongoing oversight of FCA. Including FCA in a financial institution regulatory reform effort likely would cause serious repercussions for agriculture in what already is a difficult and stressful environment. Simply put, let’s not fix what isn’t broken.
The Farm Credit System’s mission, ownership structure and authorizing legislation is unique among financial institutions. For farmers, ranchers and the cooperatives that they rely on, it is critically important that our safety and soundness regulator understands our unique mission and what it takes to be successful in accomplishing it. Changing this would threaten our ability to accomplish the mission set out for us by this Committee in the Farm Credit Act.
Fulfilling Farm Credit’s Mission of Serving Agriculture and Rural America
MidAtlantic Farm Credit, like all Farm Credit System institutions, focuses on accomplishing the mission established for us by Congress: to serve agriculture and rural America. We do not take our Congressional charge lightly. Our cooperative structure and governance is designed specifically to ensure that our lending and financially related service activities are driven by the needs of our farmer-members and to ensure that there is a reliable and competitive credit source available to agriculture that farmers own and control. Our practice is to engage our customers in a consultative lending relationship, using our accumulated expertise and knowledge of agriculture and finance to craft long term lending relationships that are often delivered across the farmer’s kitchen table
We understand that farming isn’t a short-term investment for our member-borrowers. Our cooperative structure allows us to work with our farmer-owners with an approach that is not focused on achieving quarterly returns to impress investing stockholders. We know that when we work with our customer-owners to help them achieve success in their business, our business will succeed as well. Our lending relationship with our member-borrowers is based on constructive credit over the long haul — we do not enter and exit agricultural lending as farm profitability waxes and wanes.
Distributing Profits to Farmers through Patronage
Our commitment to our farmer-members’ business success is demonstrated further by the fact that we share our profits directly through patronage dividends with the farmers that borrow from us. Each year, the MidAtlantic board of directors makes a determination based on our profitability and financial strength as to what portion of our net earnings will be returned directly to the farmer-members that own our institution.
In just the past four years, MidAtlantic has sent back over $110 million dollars in earnings as patronage dividends to the member-borrowers of our cooperative. During the same period, the Farm Credit System in total has returned some $2.6 billion to our customer-owners. That is money that stays in agriculture and rural America and helps our members be successful.
Farm Credit’s Financial Strength
I am pleased to report that the Farm Credit System remains very strong financially. At the end of April, the Federal Farm Credit Banks Funding Corporation reported the System’s combined financial results for the first quarter of 2009. Net income earned was $615 million with total loans of about $162.3 billion. The System provided almost $1 billion in new credit to agriculture during the first three months of this year. Reflective of the overall economy and growing stress in certain segments of the farm economy, we are seeing demand for credit decline as farmers become wary of expanding operations, purchasing new equipment, or taking on additional risk at this time of economic weakness.
Current Conditions in Agriculture
I also am pleased to report to you that MidAtlantic Farm Credit has not changed its lending standards in response to the current financial and economic disruption. This is particularly important to farmers in that there are now fewer choices of agricultural lenders available.
Let me give you some highlights regarding what we are seeing in MidAtlantic’s territory when it comes to the local farm economy and credit conditions.
Poultry represents 21% of our portfolio. For several years, the industry has been increasing production. In 2008, it found itself in a position of high production costs plus high levels of inventory. This resulted in significant cash flow losses for the integrators, who reduced production and conserved cash. We have been working with individual borrowers to help maintain their cash flow during these times of lower prices. We expect the industry will work through the current distressed environment and return to profitability.
Cash Grains represents 19% of our portfolio. Demand for local grain continues to be good, but is highly dependent on poultry production. Demand for grain continues to keep land in production, but pressures from development and environmental concerns will continue to challenge producers.
Dairy is 11% of our portfolio. Low milk prices and high input costs throughout 2008 have resulted in numerous herd sales within our territory. We have contacted all of our dairy borrowers individually (most recently in April) explaining the options for sustaining their business. Milk prices will be determined by cow numbers, total milk production and dairy exports. Slaughter for the year is 12% above last year and we hope that the positive signs in milk futures will mean higher prices in the next six months.
In addition to the key sectors mentioned above, we also serve operations that produce fruit, vegetables, livestock, as well as those involved in timber and forestry, nursery and greenhouse, and equine operations. Where operations touch the housing industry, we expect to see some stress occurring.
A Commitment to Serving Young, Beginning and Small Farmers
The Farm Credit System’s commitment to agriculture not only extends to these typical farming operations, but also to those young, beginning, and small farmers who may need some assistance as they start out in agriculture. Every Farm Credit association has programs in place targeted specifically at meeting the needs of three special categories of borrowers, those that are young, those that are just beginning in farming, and those that are small farmers. At MidAtlantic Farm Credit, we call ours the “Start Right” Young, Beginning, Small, and Minority Farmer program.
The Start Right program offers lower interest rates, while maintaining our credit standards. In fact, since last April, we’ve written over $45 million of new loans to Young, Beginning, Small and Minority Borrowers in our territory. In addition, we are now piloting a national online business-planning course targeted at young, beginning, and small farmers. This is part of our commitment to training future farmers the good credit habits and skills that will help make them successful business people in the future. This program encourages skill attainment by integrating training with access to lower rates.
One of these farmers is 27-year old Jeremy Larimore, who now owns a small poultry farm on Maryland’s Eastern Shore, along with 30 acres of grain and soybeans. Jeremy didn’t grow up on a farm, but he worked on farms owned by his uncles, and he realized early that that’s what he wanted to do. Seven years ago, when he was twenty, Jeremy wanted to buy a used combine so that he could do some custom harvesting for his neighbors, bringing him closer to his dream. Farm Credit helped him finance the combine.
Jeremy’s Farm Credit loan officer was impressed with Jeremy’s drive and business sense. The two stayed in touch for years, talking about how Jeremy could purchase his own farm. In 2005, when Jeremy was just 24, the opportunity arose for him to purchase 33 acres with four poultry houses on it. Jeremy has said that without Farm Credit, he would still be dreaming of buying that farm.
Today, Jeremy leases an additional 100 acres, for a total of 133, and his four poultry houses account for about 90,000 chickens per flock. He’s currently talking to his loan officer about opportunities for buying more land.
When it comes to serving the needs of small farmers, the Farm Credit System stands out. Recently, the American Bankers Association released its report on “farm bank” performance in 2008. They indicated that the 2,247 banks that met their definition of a “farm bank” had some $32.8 billion in credit outstanding in small farm loans (those with an original loan size of less than or equal to $500,000). In comparison, the 90 associations of the Farm Credit System had slightly more than $58 billion of similar sized loans outstanding at the end of 2008.
Even if we are to look just at the new credit extended in 2008, the System clearly continues to demonstrate its commitment to the next generation of farmers. Farm Credit institutions provided new loans and commitments totaling almost $12 billion to beginning farmers last year (those with 10 or fewer years experience). USDA’s FSA beginning farmer loan programs totaled $1.24 billion in fiscal year 2008. Unfortunately, there is no comparable data available from commercial banks since they are not required to collect this same data.
USDA Programs and Farmer Mac Help Farm Credit Serve Agriculture
At MidAtlantic we make significant use of USDA’s Farm Service Agency (FSA) loan guarantees to support our lending. We are pleased that our experience and excellent credit management practices have allowed us to be recognized as an FSA preferred lender. At the end of May, we had over $74 million in our portfolio that had FSA guarantees. We believe about 60% of all System associations are FSA preferred lenders.
The guarantees available through FSA are an important tool that allows us to serve higher risk credits that might not otherwise meet our underwriting standards. The Farm Credit Act requires that we focus our resources on meeting the needs of credit worthy borrowers. The FSA guarantees permit us to reach some individuals that we might not otherwise be able to serve. In fact, in the story I just mentioned about Jeremy Larimore, we used both FSA direct money, as well as an FSA guarantee to make the loan work.
Another USDA program which benefits our farmer-members is the Risk Management Agency’s (RMA) crop insurance program. Crop insurance is an important tool for our farmer-members to use in mitigating the risk in their operations. MidAtlantic writes almost 25% of the crop insurance policies in Maryland. Last year, we paid out $10.3 million in claims.
These two programs are very important tools in ensuring that we can stay with borrowers in stressful times—especially those who are just getting started and likely have inadequate equity, as well as those that have experienced losses due to adverse weather or economic conditions.
One other tool that this committee has made available to agricultural lenders is the Federal Agricultural Mortgage Corporation or Farmer Mac. At MidAtlantic we have used Farmer Mac to help us manage the risk of portfolio concentration in certain agricultural sectors and to help manage our capital position. At the end of 2008, we had almost $16 million in loans in Farmer Mac’s long-term standby program, all of which are 100% guaranteed. Farmer Mac serves an important function for our institution, and we look forward to continuing to utilize it in the future.
In addition to the tools mentioned above, Farm Credit institutions also work with many commercial banks of all sizes. When your focus is on meeting the needs of the customer, reaching out to a competitor easily morphs into finding partnerships that work for the customer. These relationships allow us to better manage risk and permit us to provide the customer with what they need to succeed. When there are services that our borrowers need that they can’t get from us it makes sense for us to partner with others who can provide those services. We have worked with local commercial banks on loan participations. We have both bought these participations, and sold them. This allows us to diversify our portfolio, manage our risk, and continue to serve our marketplace.
Farm Credit institutions also work with many commercial banks as we participate in the pilot program established by the Farm Credit Administration that permits System institutions to make mission-related investments. Many of our borrowers, especially the young ones, depend on off-farm employment to help pay the bills as they get started in agriculture. Permitting Farm Credit institutions to help rural communities by making mission-related investments just makes good sense especially now when so many other sources of investment funds have evaporated.
Serving the Vital Needs of Rural Communities and Global Markets
Lending to companies that serve the needs of rural communities in the energy, communications, and water industries is a growing part of Farm Credit’s overall business. Customers in these industries include rural electric generation and transmission cooperatives, electric distribution cooperatives, independent power producers, rural local exchange carriers, wireless provides, cable television system, and water and waste water companies. Farm Credit loans to these customers increased to $14.2 billion at the end of the first quarter this year from $10.8 billion at the end of 2007.
Much of the loan growth to these customers came as the broader debt capital markets contracted as part of the overall financial market crisis. The Farm Credit System, primarily through CoBank (the one Farm Credit bank that operates as an Agricultural Credit Bank) has increased its lending to these customers ensuring that a continued flow of competitively priced credit is available to them. The System’s ability to expand financing to these customers has been critical as many of them, electric co-ops especially, have been forced to modernize facilities and expand operations as demand for electricity has boomed across rural areas.
Similarly, as global credit markets contracted, demand for credit around the world to purchase U.S. agricultural export products increased. Loans made by CoBank to facilitate the export of U.S. farm products increased from $2.1 billion at the end of 2007 to $4.5 billion at March 31, 2009.
Impact of Financial Market Disruptions
Because the Farm Credit System relies on our access to the financial markets for the funds we need to make credit available to our borrowers, a disruption in the efficient operation of those markets can adversely impact agriculture. Over the last year the nation’s financial markets have changed dramatically and this has impacted not only our cost of funds but also the term of the funds that are available.
At this time last year of our nation’s grain marketing cooperatives were faced with the need to meet unprecedented levels of margin requirements due to the volatility of commodity prices. They turned to the Farm Credit System because they knew we could access the capital markets to get them the credit they needed at a moment’s notice. Farm Credit increased its borrowing from the market by $21 billion through the first half of 2008 just to meet these and other needs. The market understood our financial strength and our unique status as agriculture’s GSE. Margin calls were met and what could have been a disastrous situation was averted because of that access to the financial markets.
The dynamic of the financial markets changed quickly late last summer in some very unusual ways. While the Federal conservatorship of Fannie Mae and Freddie Mac had disastrous impacts on their equity holders, it positioned them in the debt markets as having greater links to the Federal government, and ironically created the perception in the eyes of investors that they are a less risky credit. This was underscored further when the Treasury made available a direct line of credit for Freddie Mac and Fannie Mae as well as their sister housing GSE the Federal Home Loan Bank System.
Then utilizing direct backing through the FDIC, the Federal government provided commercial banks the ability to issue debt that essentially has a direct Federal guarantee standing behind it. These same banks also have Treasury’s backing of the FDIC to facilitate them generating loanable funds through bank deposits. And this Federal FDIC backstop has just been expanded substantially.
Complicating the national and international debt markets even further has been the heavy issuance of U.S. Treasury securities to finance our Nation’s deficit and the substantial increase in foreign government backed debt hitting the markets and competing for investors. We have seen the investment banking sector collapse that we had relied on to facilitate transactions between sellers and buyers of debt. The severe economic stress also has resulted in very few investors being interested in term debt that exceeds three years in maturity.
While we continue to access the funding we need to serve our marketplace, the changes and disruptions in the national financial markets have markedly changed the landscape for us. Decreased access to longer-term debt and pricing volatility has presented a challenge. While the environment has settled since the beginning of 2009, it would be a mistake to conclude that we are back to normal. The Farm Credit securities margin spread over 5-year U.S. Treasury bonds makes the point:
Pre-2007 norm 32 basis points 0.32%
Fall 2008 peak 215 basis points 2.15%
April 2009 92 basis points 0.92%
The result is that farmers seeking to reduce the volatility of their interest expense by locking in longer-term, fixed rate loans at low rates do not have options that are available to the average homeowner. Low cost home mortgage rates are available to homeowners because of direct government intervention targeted at helping them. The Federal Reserve action to purchase mortgage-backed securities has improved pricing in the home mortgage market, but similar action is not being taken to address the needs of agriculture.
To summarize, commercial banks have been extended a direct Federal guarantee on their debt issuance and access to Federal capital support. The housing GSEs have enhanced support from the Treasury to facilitate their access to the debt markets. Actions are being taken to facilitate the liquidity of mortgage-backed securities. Farm Credit institutions have no such guarantee, no access to capital support, no explicit borrowing line with Treasury and no Federal backstop for our insurance fund.
Despite the fact that we have had no assistance from the government throughout these times of extreme stress in the financial markets, we are very proud to report to you that we have not had to deny a single farmer, cooperative or other eligible borrower access to credit because we could not access the Nation’s money markets. This is testament to the financial strength that the System has carefully built up during good times through cautious lending and the accumulation of appropriate capital reserves.
Trust has been built with our investors, who know that the Farm Credit System has never failed to meet its obligations. They are secure in the knowledge that System management and directors are intent on preserving this fine organization to ensure that farmers will continue to own and govern their credit source through their cooperative in the future. However, Farm Credit’s operational prudence notwithstanding, last fall’s financial market turmoil demonstrated to us that our ability to access the necessary funding to meet our mission to agriculture and rural America may be at risk if circumstances beyond our control disrupt our market access.
Loan Restructuring Available for Farm Credit’s Farmer-Owners
As economic stress increases in agriculture we stand ready to work with our customers as they deal with their individual challenges. Farm Credit System institutions have operated with specific “borrower rights” requirements for over twenty years. We are required to follow “least cost” restructuring requirements for farmers that can’t meet the terms of their loans. In addition, if a farmer that applies for a loan or one that has a loan with us is faced with a credit decision they believe is adverse to them, they have a specific right to appeal that decision before a credit review committee that must involve a local elected farmer-director from the board of their institution.
You have probably heard us say that Farm Credit serves agriculture in good times and in bad. Borrower rights are one of the ways that we serve our marketplace when the environment is more bad than good.
I’ll give you a recent example of this: for years, MidAtlantic has had a lending relationship with a customer whose business is sensitive to the general economy and in particular the housing industry. Although this business was well managed, it began to experience the financial stresses that came with the downturn in the housing industry in 2006. As you might imagine, those stresses have continued and grown.
In response, MidAtlantic has worked with this borrower by employing a variety of tools from our borrower’s rights guidelines: we have advanced additional monies during this time, provided principal forbearance, and relaxed the financial covenants that had been placed on the account. Our goal in taking these actions has been to help this account return to profitability.
As recently as last month, we completely reworked the credit, advancing more new money for the purchase of equipment, and working with the borrower to help them secure funds from the Pennsylvania Machinery and Equipment Loan Fund (MELF), as well as a USDA Business and Industry Guarantee.
We assume, and we hope, that the housing industry will turn around. In the interim, what we’ve done for the borrower — and what the borrower has done for themselves — has given them an opportunity to stay in business during an extremely challenging down cycle. This company has a strong management team, they have implemented efficiencies that are serving them well now and will serve them even better when things do improve.
At Farm Credit, we know that the economy, markets and commodity prices are cyclical. That comes with 93 years of experience. When we say we’re there in good times and in bad times, we mean it.
Conclusion
The Farm Credit System is financially stable, economically vital, and serving its mission for agriculture and rural America well. We continue to make credit available to all segments of agriculture including commercial producers as well as young, beginning and small farmers. We have stepped up our lending to vital rural infrastructure companies. There is no taxpayer support of the Farm Credit System. There are no federal dollars invested in the Farm Credit System. We even pay for the expense of being regulated by the federal government through an assessment on all Farm Credit System institutions.
As a network of agricultural and rural lending cooperatives owned by the farmers, cooperatives, and rural utilities that borrow from us, we have the built in oversight mechanism of our owners holding our feet to the fire to keep service quality high. We understand that Farm Credit’s success depends on our customers’ success. To continue serving our mission, we must have continued, effective access across all terms to the national debt markets and an independent, arm’s-length regulator that comprehends the unique requirements of agriculture.
I am testifying to you as a leader of a nationwide lending institution in a climate of lapsed supervision by regulators and mistrust of institutional intent. But it should not surprise you that I am reporting on our successes and service to mission. The Agriculture Committee understands why the Farm Credit System exists, and our continued success is due in part to the fact that this Committee had the foresight to change our structure more than 20 years ago while strengthening our regulatory oversight to ensure our safety and soundness.
We are proud of our commitment to rural America. We have maintained our focus and continually work to meet our mission. Certain parts of agriculture are facing some challenging economic times that may test the resolve of many. We urge that you continue to monitor this situation closely and continue to provide both FSA and Rural Development at USDA with the funding resources and flexibility they need so that an adequate guaranteed loan program remains available. And we urge that you continue to monitor the Federal programs that are being put in place to address the upheaval among commercial banks and the disruption of the money markets to ensure that agriculture is not disadvantaged in its access to the Nation’s money markets
Mr. Chairman, thank you again for the opportunity to testify today on behalf of MidAtlantic Farm Credit and the Farm Credit System. I will be pleased to respond to your questions.
Thursday, May 7, 2009
Be All That You Can Be
As I write this, three of our employees are in Colorado for their first session in the Farm Credit System’s Leadership Development Program. This is our latest group of employees to go through this training; the first group graduated in Phoenix, Arizona on April 10, and we have others who are in the middle of the program or waiting in the wings to go (it’s a two-year program).
I’m very proud of all of the staff members who have committed to participating in this program, and—as I learned at the graduation a few weeks ago—we have been well represented by this group of outstanding individuals.
The Leadership Development Program (LDP) helps train our future leaders—there are seminars devoted to personal development, management skills, and Farm Credit System and financial industry issues. It is a comprehensive program, and the employees that we have sent so far have excelled, as I heard great stories both from their instructors and their peers throughout the System.
I know that the LDP isn’t for everyone. Not every one of our employees wants to be a manager. But, no matter what position you’re in, and what your future goals are, I think it’s always important to make training a part of your job. We’re all leaders in our individual skills—whether you’re in customer service, sales, or administration—I truly think that our employees are the best in the field. But, as we all know, the world keeps changing around us—the only way to continue building our skills to handle those changes is through a commitment to training and lifelong learning.
I often ask myself “Bob, what do you want to be when you grow up?” (Note: I don’t often say it out loud!) I obviously love what I’m doing now, but I know that I want to continue challenging myself, and continuing to grow, both as a person and as a Farm Credit CEO.
In April, I began a program called Leadership Maryland. My fellow classmates are a very impressive group—leaders from around the state, from fields as varied as education, city developers, law firms and construction companies. Sometimes, when I look over their resumes, I wonder why they let me in!! I suspect that I will learn as much from my peers in this group as I will from the scheduled seminars.
If you want to learn more about the program, you can read all about it at www.leadershipmd.org. But I think their mission says it all: “Leadership Maryland is designed to broaden the base of leaders through the development of individual interest, statewide knowledge, and leadership ability that can be applied with power, influence, and authority for the greater good of Maryland.”
I fully expect that this learning opportunity will be for the greater good of MidAtlantic, as well. Feel free to ask me what I’ve learned and how I’m applying it when you see me—it’s always good to put the classroom time into real world applications!
I know that training takes time, and it means extra work when you get back to your office. But I fully support taking that time. I think it’s important for us as an association, as well as for all of us as individuals.
After all, we can’t be the best if we don’t keep up. Ask your manager what training opportunities are available for your development—and share what you’ve learned with me! I promise that I will do the same.
I’m very proud of all of the staff members who have committed to participating in this program, and—as I learned at the graduation a few weeks ago—we have been well represented by this group of outstanding individuals.
The Leadership Development Program (LDP) helps train our future leaders—there are seminars devoted to personal development, management skills, and Farm Credit System and financial industry issues. It is a comprehensive program, and the employees that we have sent so far have excelled, as I heard great stories both from their instructors and their peers throughout the System.
I know that the LDP isn’t for everyone. Not every one of our employees wants to be a manager. But, no matter what position you’re in, and what your future goals are, I think it’s always important to make training a part of your job. We’re all leaders in our individual skills—whether you’re in customer service, sales, or administration—I truly think that our employees are the best in the field. But, as we all know, the world keeps changing around us—the only way to continue building our skills to handle those changes is through a commitment to training and lifelong learning.
I often ask myself “Bob, what do you want to be when you grow up?” (Note: I don’t often say it out loud!) I obviously love what I’m doing now, but I know that I want to continue challenging myself, and continuing to grow, both as a person and as a Farm Credit CEO.
In April, I began a program called Leadership Maryland. My fellow classmates are a very impressive group—leaders from around the state, from fields as varied as education, city developers, law firms and construction companies. Sometimes, when I look over their resumes, I wonder why they let me in!! I suspect that I will learn as much from my peers in this group as I will from the scheduled seminars.
If you want to learn more about the program, you can read all about it at www.leadershipmd.org. But I think their mission says it all: “Leadership Maryland is designed to broaden the base of leaders through the development of individual interest, statewide knowledge, and leadership ability that can be applied with power, influence, and authority for the greater good of Maryland.”
I fully expect that this learning opportunity will be for the greater good of MidAtlantic, as well. Feel free to ask me what I’ve learned and how I’m applying it when you see me—it’s always good to put the classroom time into real world applications!
I know that training takes time, and it means extra work when you get back to your office. But I fully support taking that time. I think it’s important for us as an association, as well as for all of us as individuals.
After all, we can’t be the best if we don’t keep up. Ask your manager what training opportunities are available for your development—and share what you’ve learned with me! I promise that I will do the same.
Wednesday, May 6, 2009
Feeling Lucky
Unemployment numbers have just shot up again, so now more than 8% of the workers in our country are out of a job.
It’s the kind of environment where, when you complain about your job at a party, 10 people look at you and say “You should feel lucky to even have a job.”
I do feel lucky to have a job, and I feel extra lucky that my job happens to be at Farm Credit. But that doesn’t mean that I don’t care about my job satisfaction. Like most people, I want to have it all.
In April last year, we sent a job satisfaction survey to all employees here at MidAtlantic. In it, we asked them about their perspective on our association’s management, leadership, customer service, teamwork, human resources, and communications.
We received the results of the survey in June, and I wanted to give you an update on what we’ve done about them. First, the results of the survey were very good—the outside consultant that helped us evaluate the results said that we should be very proud of our positive work environment. But, as I said earlier, I want it all—and if there’s room for improvement, let’s make it better.
Some of the specific concerns that came out of that survey were the need for better communications through all levels of our association, a concern about workload issues, and a targeted look at our regional structure.
We’ve done several things to improve in those areas. Communications, for instance, has been addressed at both the association level and the regional level, with more consistent communications for me (hence my jump into the modern world with my blog), more meetings and conference calls with staff, and—towards the end of the year—more conference calls with the bank and funding corporation as well. I think communications is always an issue with every organization, but I’m committed to keeping all of you in the loop as much as possible.
Workload issues, which are both short-term (based on business cycles) and long-term (anticipating retirements), have been addressed as well, as we’ve added several new positions in our business plan for 2009. Expansion positions are a tricky proposition in 2009. Obviously, our first goal is to be efficient—and that’s more important in this economic environment than ever. But an equally important goal is to provide outstanding customer service, and that means having enough people to do the work. My strategy is always to balance these two goals, and I think this year’s business plan does that.
Finally, I think that our strategy to have regional differences was proven last year when Valley chose to merge with us (in my discussions with their board, I frequently heard that the ability to maintain some autonomy was a large factor in their decision). We have taken the opportunity of the merger to look at what we do regionally and what we do centrally; as you know, this is a constant balance (again) between serving the customer and being efficient. I trust that our regional differences will continue to evolve as the market changes, but I do think that having some regional differences positions us well for success in the future.
Those three issues were the largest ones to come out of the survey. We know that we haven’t completely addressed everyone’s concerns, and we’re certainly not saying that the process is over. In fact, we’ve decided to send an annual survey to all staff so that we can continue tracking your satisfaction. We want to be our staff's favorite employer…so that they don’t just feel lucky to have a job, they feel lucky to have THIS job.
I know that employee satisfaction is part of my responsibility as CEO. But, as I said last year, it’s not all my responsibility (thank goodness!) Every one of our employees has an opportunity to improve our association’s work environment…whether it’s through suggestions for new efficiencies, spot awards for your fellow employees, or keeping the lines of communication open both ways (it doesn’t always have to come from the top down! I always love to get feedback and suggestions from staff!)
I'm committed to making MidAtlantic the best workplace possible. Because sometimes, you have to make your own luck!
It’s the kind of environment where, when you complain about your job at a party, 10 people look at you and say “You should feel lucky to even have a job.”
I do feel lucky to have a job, and I feel extra lucky that my job happens to be at Farm Credit. But that doesn’t mean that I don’t care about my job satisfaction. Like most people, I want to have it all.
In April last year, we sent a job satisfaction survey to all employees here at MidAtlantic. In it, we asked them about their perspective on our association’s management, leadership, customer service, teamwork, human resources, and communications.
We received the results of the survey in June, and I wanted to give you an update on what we’ve done about them. First, the results of the survey were very good—the outside consultant that helped us evaluate the results said that we should be very proud of our positive work environment. But, as I said earlier, I want it all—and if there’s room for improvement, let’s make it better.
Some of the specific concerns that came out of that survey were the need for better communications through all levels of our association, a concern about workload issues, and a targeted look at our regional structure.
We’ve done several things to improve in those areas. Communications, for instance, has been addressed at both the association level and the regional level, with more consistent communications for me (hence my jump into the modern world with my blog), more meetings and conference calls with staff, and—towards the end of the year—more conference calls with the bank and funding corporation as well. I think communications is always an issue with every organization, but I’m committed to keeping all of you in the loop as much as possible.
Workload issues, which are both short-term (based on business cycles) and long-term (anticipating retirements), have been addressed as well, as we’ve added several new positions in our business plan for 2009. Expansion positions are a tricky proposition in 2009. Obviously, our first goal is to be efficient—and that’s more important in this economic environment than ever. But an equally important goal is to provide outstanding customer service, and that means having enough people to do the work. My strategy is always to balance these two goals, and I think this year’s business plan does that.
Finally, I think that our strategy to have regional differences was proven last year when Valley chose to merge with us (in my discussions with their board, I frequently heard that the ability to maintain some autonomy was a large factor in their decision). We have taken the opportunity of the merger to look at what we do regionally and what we do centrally; as you know, this is a constant balance (again) between serving the customer and being efficient. I trust that our regional differences will continue to evolve as the market changes, but I do think that having some regional differences positions us well for success in the future.
Those three issues were the largest ones to come out of the survey. We know that we haven’t completely addressed everyone’s concerns, and we’re certainly not saying that the process is over. In fact, we’ve decided to send an annual survey to all staff so that we can continue tracking your satisfaction. We want to be our staff's favorite employer…so that they don’t just feel lucky to have a job, they feel lucky to have THIS job.
I know that employee satisfaction is part of my responsibility as CEO. But, as I said last year, it’s not all my responsibility (thank goodness!) Every one of our employees has an opportunity to improve our association’s work environment…whether it’s through suggestions for new efficiencies, spot awards for your fellow employees, or keeping the lines of communication open both ways (it doesn’t always have to come from the top down! I always love to get feedback and suggestions from staff!)
I'm committed to making MidAtlantic the best workplace possible. Because sometimes, you have to make your own luck!
Tuesday, April 28, 2009
Season's Meetings
It’s been awhile since my last update. You've been busy and I've been busy as well. One of the things that's made us busy is our annual stockholder meeting. I am still basking in the glow of the wonderful job that our staff did (I’m also still going through detox after two weeks of well-stocked buffets!)
I know I’ve said this before, but I mean it: I am so proud of our organization, our staff, and the job that we do for rural America. And spending two weeks with 1800 borrowers, staff members and community leaders really brings that pride to the forefront for me.
I always try to arrive at the meetings a little early, so that I have the opportunity to talk to as many of our borrowers as possible. The things I hear from our guests during these meetings are the things that the staff probably hears all the time from our customers—that Farm Credit feels like family, and that our staff is the best in the industry. I also hear people tell me that they would not be farming today if it wasn’t for Farm Credit…and, sometimes, our guests tell me that they would not have been able to sell the farm to their children or grandchildren if it weren’t for our cooperative. The people who share these stories with me are very emotional when they talk about what we’ve done for them…and I get a little emotional hearing them, as well.
Those kinds of stories are the kinds of things we sometimes take for granted, because we feel like we’re just doing our job. But it’s more than that—we’re helping people in a real way, we’re making a real impact on our rural communities, and we’re meeting the mission that Congress has set out for us.
I just wanted to add my thanks and gratitude to the long list of happy stories that I heard for the first two weeks in April. Thanks to our entire staff, both for helping to make the annual meetings professional, fun and a great reflection on our association, but also for all the things that the staff does every day to support their customers and their community. It is noticed, and it is appreciated.
Thanks again.
I know I’ve said this before, but I mean it: I am so proud of our organization, our staff, and the job that we do for rural America. And spending two weeks with 1800 borrowers, staff members and community leaders really brings that pride to the forefront for me.
I always try to arrive at the meetings a little early, so that I have the opportunity to talk to as many of our borrowers as possible. The things I hear from our guests during these meetings are the things that the staff probably hears all the time from our customers—that Farm Credit feels like family, and that our staff is the best in the industry. I also hear people tell me that they would not be farming today if it wasn’t for Farm Credit…and, sometimes, our guests tell me that they would not have been able to sell the farm to their children or grandchildren if it weren’t for our cooperative. The people who share these stories with me are very emotional when they talk about what we’ve done for them…and I get a little emotional hearing them, as well.
Those kinds of stories are the kinds of things we sometimes take for granted, because we feel like we’re just doing our job. But it’s more than that—we’re helping people in a real way, we’re making a real impact on our rural communities, and we’re meeting the mission that Congress has set out for us.
I just wanted to add my thanks and gratitude to the long list of happy stories that I heard for the first two weeks in April. Thanks to our entire staff, both for helping to make the annual meetings professional, fun and a great reflection on our association, but also for all the things that the staff does every day to support their customers and their community. It is noticed, and it is appreciated.
Thanks again.
Monday, April 20, 2009
Annual Stockholders' Report
Last year, I began my report with the proverb “May you live in interesting times”.
What was I thinking? I don’t think any of us even began to imagine what lay ahead of us.
Tonight, I’m intentionally not leading with a catchy proverb. What I will do is focus on one of the elements of our mission statement “…to be dependable in good times and bad…” and share with you a perspective on what’s happened, what’s happening and what all of that means for MidAtlantic and you.
When we met last year, Bear Stearns had just collapsed under the weight of its sub-prime mortgage loan investments and related credit commitments. The federal government engineered the sale of the company, literally during a weekend, and made loans and guarantees available that induced J.P. Morgan Chase to come to the rescue. The financial storm clouds that had been growing made their first strike in bringing down a major U.S. investment bank. As the year has shown, this was just the beginning of a much bigger storm.
The unraveling of risky mortgage loans and the complex securitization and credit default structures that were connected with those loans caused the financial storm clouds to grow. In the summer, nervous speculation about the risks of Fannie Mae and Freddie Mac became panicked reality. In late July, former Treasury Secretary Paulsen sought and received emergency authorities from Congress to support Fannie and Freddie in the unlikely event assistance was needed. In September, the unlikely became likely. The full force of the financial equivalent of a category 5 hurricane had hit. Over the course of just a few weeks, threatening clouds turned into pummeling storms that rocked the world’s largest and most venerable financial institutions. The bankruptcy of Lehman Brothers in September unleashed new fears about the stability of the U.S. and global financial systems. The collapse of institutions of long standing and strong reputation caused fear among investors world wide. Credit markets dried up as private capital fled to safe, short term investments.
Governments around the world rushed to action to promote the stability of the financial markets. Our own government led the charge. Unprecedented fiscal stimulus was sought by the Bush administration and approved by the Congress. Coincident with that, the Federal Reserve injected massive liquidity into the financial system; it lowered short term rates and began buying securities. The Obama administration and a new Congress have approved an emergency economic stimulus package, while the Fed has expanded its purchases of securities to provide liquidity in the markets. We’re in the midst of rebuilding the global financial system. While the panic of last fall has abated, there’s still unease and uncertainty in the marketplace. Are we focusing on the right problems? Are we taking the right actions? These are questions that are being asked and debated. Only time will tell.
Let’s talk about the implications of this for Farm Credit. First let me set some context. The Farm Credit System is a GSE (which is the acronym for Government Sponsored Enterprise). One of the crucial features of being a GSE is special access to the public debt markets. We were the first GSE, established in 1916 to ensure that farmers and ranchers had access to a steady supply of sound and constructive credit. The model was successful and other GSEs have since been established over the years to support public policy purposes, the most notable of these being Fannie Mae and Freddie Mac for housing. We pale in size to them. We have just over $200 billion in assets; Fannie and Freddie combined have over $5.3 trillion in loans and guarantees. That’s over 25 times the size of the Farm Credit System. There’s also another striking difference; we’re a cooperative and are owned by the people who use us.
Last fall’s credit crunch raised the cost of debt for all institutions that raise money in the financial markets. We were no exception; we saw our costs rise and the availability of longer term debt (by longer term, I mean anything over 3 years) virtually dry up. This happened in spite of our strong financial performance and our credit worthiness as an institution. Even so, we were able to fund all of our loan commitments as well as make new loans to new credit worthy customers. We continue to be able to do that today, thanks to our access as a GSE.
So, you might ask, where are we?
Agriculture on the whole is financially sound. Net farm income for 2008 declined to $77.3 billion but is still $5.5 billion over the 10 year average. Farm debt repayment capacity is strong. The balance sheet for the industry is stronger than at any point since 1960. That being said, it has experienced unprecedented volatility in commodity prices and input costs. Last summer, a barrel of oil traded from over $140. Today, its’ just under $50. Milk checks today are half of what they were a year ago. Think about what you could’ve contracted your corn or beans for this time last year, or last summer and what you actually got in the fall. And what if you were feeding that grain to livestock or poultry? Depending on where you ended up, your own financial condition could be much better or much worse than the average for the industry. All that’s to say that for those of us in the business of financing agriculture, we recognize there will be financial pressures and credit stress for some of our borrowers over the coming months.
The Farm Credit System on whole is financially sound. We earned record net income in 2008 of $2.9 billion, maintained capital at 12 % and boosted our allowance for loan and lease losses in recognition of general economic stress and emerging credit risk. The System’s credit quality continues to be strong but is beginning to show signs of slippage. We came through a challenging period of instability in the debt markets last fall and met our commitments to our borrowers. MidAtlantic, as one of 90 Farm Credit retail associations that serve this country, continues to achieve strong financial performance; our CFO will provide you more detail on that later this evening.
The next question is, what are we doing?
Let me take a few minutes to share just a few of the things we’re doing to ensure that we remain dependable in good times and bad.
Internal controls over financial reporting – We are deeply committed to clear, accurate and transparent financial reporting. We publish our audited financials on time. We have voluntarily implemented many of the requirements associated with Sarbanes-Oxley because we thought they represented best practices for the financial services industry. We follow the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We have continued our long standing engagement with PricewaterhouseCoopers to audit our financial statements and provide its independent opinion on the adequacy of internal controls. Just to give you an indication of what that means, I signed a 9 page letter that had 65 warranties and representations before PwC would issue its opinion on our annual financial statements. Our commitment is serious.
Liquidity – We plan for a rainy day. The System has established a liquidity standard minimum of 90 days. That’s to say that if there were an emergency that did not allow us to access the capital markets, we could continue to fund for 90 days. In light of what happened last year, we deliberately raised our actual liquidity levels to 177 days as of December 31, 2008. Now that may not sound like a lot, but in the financial world that can be almost an eternity. It allows us to fund your needs while seeking alternative funding sources.
Farm Credit System Insurance Corporation (FCSIC) – We believe in self help solutions to managing our business risks. Many of you may recall that we experienced our own credit crisis in the Farm Credit System in the 1980’s. We were bailed out by the government and we paid it all back, with interest. In keeping with the traditional modesty in the ag community we haven’t said much about that. As a part of that bailout, our regulator was strengthened and we established an independent insurance fund. That fund is administered by FCSIC and is available to ensure repayment to investors. It’s not been needed, but it’s there. Part of the interest you pay us goes to pay premiums to support that fund.
Managing credit risk – One of the lessons in the meltdown of loans and financial institutions over the past couple of years is that there’s a duty to manage the risk of individual loans as well as the combined risk of all loans. Each loan is a building block that ultimately makes up the financial house that customers rely on. Here’s how we do that. On the front end, we develop underwriting standards with an eye toward making loans that borrowers can reasonably be expected to repay. We’ve not changed our underwriting standards…because we didn’t loosen them to begin with. Once the loan is made, we work with borrowers on a case by case basis should problems arise. The other thing we do is make sure that we have a financially sound institution. We pay close attention to making sure we have adequate loan loss reserves and capital to support the risk in our loan portfolio. We retain some of our earnings to ensure stability of the association. I heard from many of you as I traveled through the area last fall…and you said…I want to know will I get the credit I need next spring?
Reputation Risk management – Warren Buffett said it well—“A good reputation takes twenty years to build and twenty minutes to ruin. If you think about it like that, you’ll do things differently.” A casualty of the financial markets turmoil has been the destruction of long standing reputations. Early last year, the Farm Credit System embarked on an effort to better understand where we stand with the people who depend on us. We conducted a national survey of customers, trade groups, investors, policy makers and regulators. We used an internationally recognized firm, Reputation Institute, which conducts an annual global survey of the reputations of the 600 largest companies in the world. We were pleased with what we learned; we scored higher than the leading company in the world, Toyota. We were humbled as well; we know that we have a duty to govern and manage to ensure that we maintain our reputation. If you think reputation isn’t important, ask yourself how willing you are to do business with the companies that have made the financial news in the last year.
Start Right – It’s easy to lose sight in the doom and gloom of the economy that real people, every day, are making decisions about entering farming. We’ve thought about that and our Board made a tangible commitment to helping new farmers get established by establishing the Start Right program. You might remember my introducing Start Right to you at last year’s annual meeting. The response has been exceptional: we’ve committed over $30 million toward loans with reduced initial rates that are targeted toward young, beginning and minority farmers to help purchase equipment, livestock, and land or implement environmental best management practices. We don’t compromise on our credit standards, but, we do work to put together financing packages to help people get off to a good start. Start Right’s about more than loans…it’s also about providing mentoring and education to give new farmers the support they need to be successful over the long term.
Valley merger - We were pleased that our neighbor, Valley Farm Credit, chose us to be their partner last year. We were even more pleased when you, our member owners, supported the Boards’ analysis and recommendation to merge. We’ve committed to going about the process of implementing the merger in much the same way as we approached our original merger in 2000. We’re working to make it seamless with an eye toward making our institution and the service we provide you safer, stronger and better in the long run.
There’s much, much more that we’re doing but I think these items give you some perspective on what we’re doing to ensure that we remain true to the vision of our founders in 1916. We are actively working to make sure that agriculture and rural America has access to a source of sound and reliable credit.
These are challenging days…for the world, our country and most importantly for the people who wake up every day, go about their work trying to build a better life for themselves, their families and their communities. People like you.
As we work through these times, know that we at MidAtlantic are partnering across the Farm Credit System to make sure that we can partner with you to have access to the credit you need. After all, it’s our mission…to be dependable in good times and bad.
What was I thinking? I don’t think any of us even began to imagine what lay ahead of us.
Tonight, I’m intentionally not leading with a catchy proverb. What I will do is focus on one of the elements of our mission statement “…to be dependable in good times and bad…” and share with you a perspective on what’s happened, what’s happening and what all of that means for MidAtlantic and you.
When we met last year, Bear Stearns had just collapsed under the weight of its sub-prime mortgage loan investments and related credit commitments. The federal government engineered the sale of the company, literally during a weekend, and made loans and guarantees available that induced J.P. Morgan Chase to come to the rescue. The financial storm clouds that had been growing made their first strike in bringing down a major U.S. investment bank. As the year has shown, this was just the beginning of a much bigger storm.
The unraveling of risky mortgage loans and the complex securitization and credit default structures that were connected with those loans caused the financial storm clouds to grow. In the summer, nervous speculation about the risks of Fannie Mae and Freddie Mac became panicked reality. In late July, former Treasury Secretary Paulsen sought and received emergency authorities from Congress to support Fannie and Freddie in the unlikely event assistance was needed. In September, the unlikely became likely. The full force of the financial equivalent of a category 5 hurricane had hit. Over the course of just a few weeks, threatening clouds turned into pummeling storms that rocked the world’s largest and most venerable financial institutions. The bankruptcy of Lehman Brothers in September unleashed new fears about the stability of the U.S. and global financial systems. The collapse of institutions of long standing and strong reputation caused fear among investors world wide. Credit markets dried up as private capital fled to safe, short term investments.
Governments around the world rushed to action to promote the stability of the financial markets. Our own government led the charge. Unprecedented fiscal stimulus was sought by the Bush administration and approved by the Congress. Coincident with that, the Federal Reserve injected massive liquidity into the financial system; it lowered short term rates and began buying securities. The Obama administration and a new Congress have approved an emergency economic stimulus package, while the Fed has expanded its purchases of securities to provide liquidity in the markets. We’re in the midst of rebuilding the global financial system. While the panic of last fall has abated, there’s still unease and uncertainty in the marketplace. Are we focusing on the right problems? Are we taking the right actions? These are questions that are being asked and debated. Only time will tell.
Let’s talk about the implications of this for Farm Credit. First let me set some context. The Farm Credit System is a GSE (which is the acronym for Government Sponsored Enterprise). One of the crucial features of being a GSE is special access to the public debt markets. We were the first GSE, established in 1916 to ensure that farmers and ranchers had access to a steady supply of sound and constructive credit. The model was successful and other GSEs have since been established over the years to support public policy purposes, the most notable of these being Fannie Mae and Freddie Mac for housing. We pale in size to them. We have just over $200 billion in assets; Fannie and Freddie combined have over $5.3 trillion in loans and guarantees. That’s over 25 times the size of the Farm Credit System. There’s also another striking difference; we’re a cooperative and are owned by the people who use us.
Last fall’s credit crunch raised the cost of debt for all institutions that raise money in the financial markets. We were no exception; we saw our costs rise and the availability of longer term debt (by longer term, I mean anything over 3 years) virtually dry up. This happened in spite of our strong financial performance and our credit worthiness as an institution. Even so, we were able to fund all of our loan commitments as well as make new loans to new credit worthy customers. We continue to be able to do that today, thanks to our access as a GSE.
So, you might ask, where are we?
Agriculture on the whole is financially sound. Net farm income for 2008 declined to $77.3 billion but is still $5.5 billion over the 10 year average. Farm debt repayment capacity is strong. The balance sheet for the industry is stronger than at any point since 1960. That being said, it has experienced unprecedented volatility in commodity prices and input costs. Last summer, a barrel of oil traded from over $140. Today, its’ just under $50. Milk checks today are half of what they were a year ago. Think about what you could’ve contracted your corn or beans for this time last year, or last summer and what you actually got in the fall. And what if you were feeding that grain to livestock or poultry? Depending on where you ended up, your own financial condition could be much better or much worse than the average for the industry. All that’s to say that for those of us in the business of financing agriculture, we recognize there will be financial pressures and credit stress for some of our borrowers over the coming months.
The Farm Credit System on whole is financially sound. We earned record net income in 2008 of $2.9 billion, maintained capital at 12 % and boosted our allowance for loan and lease losses in recognition of general economic stress and emerging credit risk. The System’s credit quality continues to be strong but is beginning to show signs of slippage. We came through a challenging period of instability in the debt markets last fall and met our commitments to our borrowers. MidAtlantic, as one of 90 Farm Credit retail associations that serve this country, continues to achieve strong financial performance; our CFO will provide you more detail on that later this evening.
The next question is, what are we doing?
Let me take a few minutes to share just a few of the things we’re doing to ensure that we remain dependable in good times and bad.
Internal controls over financial reporting – We are deeply committed to clear, accurate and transparent financial reporting. We publish our audited financials on time. We have voluntarily implemented many of the requirements associated with Sarbanes-Oxley because we thought they represented best practices for the financial services industry. We follow the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We have continued our long standing engagement with PricewaterhouseCoopers to audit our financial statements and provide its independent opinion on the adequacy of internal controls. Just to give you an indication of what that means, I signed a 9 page letter that had 65 warranties and representations before PwC would issue its opinion on our annual financial statements. Our commitment is serious.
Liquidity – We plan for a rainy day. The System has established a liquidity standard minimum of 90 days. That’s to say that if there were an emergency that did not allow us to access the capital markets, we could continue to fund for 90 days. In light of what happened last year, we deliberately raised our actual liquidity levels to 177 days as of December 31, 2008. Now that may not sound like a lot, but in the financial world that can be almost an eternity. It allows us to fund your needs while seeking alternative funding sources.
Farm Credit System Insurance Corporation (FCSIC) – We believe in self help solutions to managing our business risks. Many of you may recall that we experienced our own credit crisis in the Farm Credit System in the 1980’s. We were bailed out by the government and we paid it all back, with interest. In keeping with the traditional modesty in the ag community we haven’t said much about that. As a part of that bailout, our regulator was strengthened and we established an independent insurance fund. That fund is administered by FCSIC and is available to ensure repayment to investors. It’s not been needed, but it’s there. Part of the interest you pay us goes to pay premiums to support that fund.
Managing credit risk – One of the lessons in the meltdown of loans and financial institutions over the past couple of years is that there’s a duty to manage the risk of individual loans as well as the combined risk of all loans. Each loan is a building block that ultimately makes up the financial house that customers rely on. Here’s how we do that. On the front end, we develop underwriting standards with an eye toward making loans that borrowers can reasonably be expected to repay. We’ve not changed our underwriting standards…because we didn’t loosen them to begin with. Once the loan is made, we work with borrowers on a case by case basis should problems arise. The other thing we do is make sure that we have a financially sound institution. We pay close attention to making sure we have adequate loan loss reserves and capital to support the risk in our loan portfolio. We retain some of our earnings to ensure stability of the association. I heard from many of you as I traveled through the area last fall…and you said…I want to know will I get the credit I need next spring?
Reputation Risk management – Warren Buffett said it well—“A good reputation takes twenty years to build and twenty minutes to ruin. If you think about it like that, you’ll do things differently.” A casualty of the financial markets turmoil has been the destruction of long standing reputations. Early last year, the Farm Credit System embarked on an effort to better understand where we stand with the people who depend on us. We conducted a national survey of customers, trade groups, investors, policy makers and regulators. We used an internationally recognized firm, Reputation Institute, which conducts an annual global survey of the reputations of the 600 largest companies in the world. We were pleased with what we learned; we scored higher than the leading company in the world, Toyota. We were humbled as well; we know that we have a duty to govern and manage to ensure that we maintain our reputation. If you think reputation isn’t important, ask yourself how willing you are to do business with the companies that have made the financial news in the last year.
Start Right – It’s easy to lose sight in the doom and gloom of the economy that real people, every day, are making decisions about entering farming. We’ve thought about that and our Board made a tangible commitment to helping new farmers get established by establishing the Start Right program. You might remember my introducing Start Right to you at last year’s annual meeting. The response has been exceptional: we’ve committed over $30 million toward loans with reduced initial rates that are targeted toward young, beginning and minority farmers to help purchase equipment, livestock, and land or implement environmental best management practices. We don’t compromise on our credit standards, but, we do work to put together financing packages to help people get off to a good start. Start Right’s about more than loans…it’s also about providing mentoring and education to give new farmers the support they need to be successful over the long term.
Valley merger - We were pleased that our neighbor, Valley Farm Credit, chose us to be their partner last year. We were even more pleased when you, our member owners, supported the Boards’ analysis and recommendation to merge. We’ve committed to going about the process of implementing the merger in much the same way as we approached our original merger in 2000. We’re working to make it seamless with an eye toward making our institution and the service we provide you safer, stronger and better in the long run.
There’s much, much more that we’re doing but I think these items give you some perspective on what we’re doing to ensure that we remain true to the vision of our founders in 1916. We are actively working to make sure that agriculture and rural America has access to a source of sound and reliable credit.
These are challenging days…for the world, our country and most importantly for the people who wake up every day, go about their work trying to build a better life for themselves, their families and their communities. People like you.
As we work through these times, know that we at MidAtlantic are partnering across the Farm Credit System to make sure that we can partner with you to have access to the credit you need. After all, it’s our mission…to be dependable in good times and bad.
Tuesday, February 10, 2009
Sending a Message - February 10, 2009
I know it’s been a while since I’ve sent something out; I apologize. I have been traveling quite a bit lately. The good news is, I have a lot to report as a result of these travels.
Today, I'll start with Farm Credit Council’s annual meeting in San Diego. Held the last week of January, the meeting had a strong lineup of speakers from economists to industry experts. While their perspectives were different, most of the speakers said the same thing: we’re in for some tough times economically. Commodity prices have come down; input prices have not. Rising unemployment numbers could affect those operations that rely on off-farm income. Obviously, all of these factors are going to put extra stress on our borrowers.
I know I’ve said this before, but these types of stresses are exactly what Farm Credit is here for. While other banks may stop lending to agriculture, it’s up to us to continue making good loans to good farmers. We’re going to keep doing that. We learned in San Diego that FCA (the Farm Credit Administration) is increasing its budget to add more examiners to its staff, and I think that’s entirely appropriate during these times. We’re not going to help anyone by making risky loans…the strategy, as always, is to continue building a strong association so that we’ll be here for the long run. That’s what our borrowers deserve.
Today, I'll start with Farm Credit Council’s annual meeting in San Diego. Held the last week of January, the meeting had a strong lineup of speakers from economists to industry experts. While their perspectives were different, most of the speakers said the same thing: we’re in for some tough times economically. Commodity prices have come down; input prices have not. Rising unemployment numbers could affect those operations that rely on off-farm income. Obviously, all of these factors are going to put extra stress on our borrowers.
I know I’ve said this before, but these types of stresses are exactly what Farm Credit is here for. While other banks may stop lending to agriculture, it’s up to us to continue making good loans to good farmers. We’re going to keep doing that. We learned in San Diego that FCA (the Farm Credit Administration) is increasing its budget to add more examiners to its staff, and I think that’s entirely appropriate during these times. We’re not going to help anyone by making risky loans…the strategy, as always, is to continue building a strong association so that we’ll be here for the long run. That’s what our borrowers deserve.
Wednesday, January 21, 2009
Inauguration Day - January 20, 2009
As I write this, our new President is being sworn in just an hour away from me in Washington, DC. I don’t have to tell you that this is a historic day.
While it’s an exciting day for our new President, I’m sure it’s a little overwhelming as well. The hundreds of thousands of people who are packing the mall are just a fraction of the Americans who are anxious to see what he does…not just today, of course, but in the days to come. President Obama has a lot on his plate—the economy, homeland security, the war, the unrest in the Middle East, and on and on and on.
During his campaign, then-Senator Obama did a great job establishing his mission—to be a conduit for change. He reiterated his message points—change and hope—at each whistle stop, promising to give us hope, and to make a change.
I’m a big fan of mission statements. As you know, I reiterate our own mission statement here at MidAtlantic frequently (http://www.mafc.com/loans-mission-statement.asp?mapage=mission ). Each year, as we begin our strategic planning session, we ask ourselves if our mission is still relevant (and if it isn’t, we update it). When we make decisions throughout the year, we often look to our mission statement, and ask if our decision meets that test. It’s a helpful way to keep everyone on the same page, and focused on the promises that we’ve made to our members.
Farm Credit has stuck to its mission for more than 90 years, and it has helped us to create a strong resource for our stockholders. I hope that President Obama’s mission will serve our country equally well.
Bob
While it’s an exciting day for our new President, I’m sure it’s a little overwhelming as well. The hundreds of thousands of people who are packing the mall are just a fraction of the Americans who are anxious to see what he does…not just today, of course, but in the days to come. President Obama has a lot on his plate—the economy, homeland security, the war, the unrest in the Middle East, and on and on and on.
During his campaign, then-Senator Obama did a great job establishing his mission—to be a conduit for change. He reiterated his message points—change and hope—at each whistle stop, promising to give us hope, and to make a change.
I’m a big fan of mission statements. As you know, I reiterate our own mission statement here at MidAtlantic frequently (http://www.mafc.com/loans-mission-statement.asp?mapage=mission ). Each year, as we begin our strategic planning session, we ask ourselves if our mission is still relevant (and if it isn’t, we update it). When we make decisions throughout the year, we often look to our mission statement, and ask if our decision meets that test. It’s a helpful way to keep everyone on the same page, and focused on the promises that we’ve made to our members.
Farm Credit has stuck to its mission for more than 90 years, and it has helped us to create a strong resource for our stockholders. I hope that President Obama’s mission will serve our country equally well.
Bob
Friday, January 9, 2009
Coming Home - January 9, 2009
A big thanks to all the staff members (both here and at AgFirst) who made our transition from two associations to one run so smoothly last week. I was thrilled that our systems combined as planned, and we were quickly back up to speed serving our customers.
I know that integrating our people into one cohesive, well functioning system will take longer than it took to integrate our loan files. But I also think that it will happen more quickly than you would expect.
As many of you know, I have spent much of my career with the Farm Credit System. But, for a few years there, I thought that the grass was greener on the other side of the fence, and I worked at a commercial bank.
It wasn’t the color of the grass that struck me when I made the move so much as it was the type of people that I was working with. They were nice people, and well meaning people, but they weren’t Farm Credit people.
What makes Farm Credit people? Commitment to our customers, for one. Commercial banks like their customers…because more customers, in general, mean more profits. But at Farm Credit, we LOVE our customers. We love them so much we want to see them succeed. That’s why we didn’t enter the subprime mortgage market…we cared too much to set our customers up for failure. That doesn’t mean that all of our loans succeed…but obviously, our percentages of failures are much lower than that of our commercial banking competitors.
Another difference is our knowledge of agriculture and rural folks. I know that ag varies within our territory, which is why we use a regional approach. But I also know that no one understands the local market better than our staff. Land prices may differ, markets may change…but we get those subtle variances. And we get them more than our competition.
One of the reasons we get them is because so many of us started our lives in agriculture, and in small and close-knit rural communities. Our borrowers know that. And I know that…it’s one of the reasons I like traveling throughout our association to talk to our employees—we all have a common background.
Finally, one thing we all have in common is a strong work ethic. We all want to do as much as we can (it’s part of loving our customers). No matter what office you work in, what region you call home, that desire to work hard is something that binds us all together.
I know it will take some time before we all know each other, and before we start to interact like one big team. But I’m confident that when that happens, it will feel like coming home.
Have a good weekend.
Bob
I know that integrating our people into one cohesive, well functioning system will take longer than it took to integrate our loan files. But I also think that it will happen more quickly than you would expect.
As many of you know, I have spent much of my career with the Farm Credit System. But, for a few years there, I thought that the grass was greener on the other side of the fence, and I worked at a commercial bank.
It wasn’t the color of the grass that struck me when I made the move so much as it was the type of people that I was working with. They were nice people, and well meaning people, but they weren’t Farm Credit people.
What makes Farm Credit people? Commitment to our customers, for one. Commercial banks like their customers…because more customers, in general, mean more profits. But at Farm Credit, we LOVE our customers. We love them so much we want to see them succeed. That’s why we didn’t enter the subprime mortgage market…we cared too much to set our customers up for failure. That doesn’t mean that all of our loans succeed…but obviously, our percentages of failures are much lower than that of our commercial banking competitors.
Another difference is our knowledge of agriculture and rural folks. I know that ag varies within our territory, which is why we use a regional approach. But I also know that no one understands the local market better than our staff. Land prices may differ, markets may change…but we get those subtle variances. And we get them more than our competition.
One of the reasons we get them is because so many of us started our lives in agriculture, and in small and close-knit rural communities. Our borrowers know that. And I know that…it’s one of the reasons I like traveling throughout our association to talk to our employees—we all have a common background.
Finally, one thing we all have in common is a strong work ethic. We all want to do as much as we can (it’s part of loving our customers). No matter what office you work in, what region you call home, that desire to work hard is something that binds us all together.
I know it will take some time before we all know each other, and before we start to interact like one big team. But I’m confident that when that happens, it will feel like coming home.
Have a good weekend.
Bob
Tuesday, January 6, 2009
Being Thankful: November 26, 2008
Being Thankful
Earlier today, it was announced that our merger with Valley Farm Credit has been approved by our stockholders. Assuming we continue to meet our very aggressive schedule, the merger will be complete on December 31 and we will begin doing business jointly on January 1.
As you may have heard, we have decided to close our offices to the general public on January 2 so that we can test our systems and make sure that the technical part of our merger is complete and perfect. Our first priority in this merger, as with any project that we undertake, is to put the needs of our customers first. By closing our offices, we can ensure top-notch customer service on the following Monday (if there are any glitches, we’ll have the weekend to fix them).
Of course, I’m optimistic that there won’t be any glitches…and we’ll be back to business as usual by the afternoon of the 2nd, serving our customers. My goal when it comes to members is always to under-promise and over-deliver—as stockholders and owners, they deserve that. So, let’s keep our fingers crossed and hope that everything goes as planned during the system transition.
Speaking of transitions, this is the week that I typically transition into “holiday mode.” I may not be ready to put up my own decorations (I never am), but I’m ready to enjoy looking at them on other people’s lawns.
This is also the time that I start thinking about all of the things that I’m thankful for. Here’s my list: I’m thankful that I work for an institution that puts its members first. I think that’s a great key to success—and it’s something that our fellow financial institutions are just figuring out now, as they’re looking at bailouts and buyouts. I’m thankful that we’re not in that boat.
I’m thankful, too, that I work with a great group of individuals who are committed to customer service. When I visit with customers, or see them at events, I hear great feedback on that commitment. I gave a presentation last week to one of our dealers—Binkley and Hurst—and one of the participants came up to me to rave about the great job that we do. This new member mentioned his growing anxiety with the reliability of the commercial bank he deals with...and saw us as a more stable provider. He made special note of saying that he appreciated the way we "hustled" for his business. I hear that a lot…and I probably don’t pass it on enough. So, please accept my deepest thanks for everything that you do to make Farm Credit a critical partner for our customers. Whether that means working on holidays, or staying late to finish a project, I am thankful for your commitment.
Finally, I’m thankful for the strong leadership that we have, on all levels. We have a strong leadership team here, as well as a thoughtful and enthusiastic board of directors that pushes me to challenge myself. I’m also thankful for the system leadership that we have right now, from the Funding Corporation to the Farm Credit Council. The financial market is challenging right now (did I just say that I like to be challenged? Maybe not quite this much!), and it looks like it’s going to continue that way through 2009. We’re all working together to do the right thing—and the right thing is to serve our members consistently.
I hope that your list of things to be thankful for is long, like mine (I didn’t even get into all the things I’m thankful for at home!!!) If you’re so inclined, feel free to share them with me. Because that’s something else I’m thankful for—the day-to-day interaction with all of you. Sometimes I get pretty busy with travel, and conference calls, but I’m never too busy to talk to someone from my team.
Best Thanksgiving wishes, to you and your family. If you’re traveling, travel safe.
Earlier today, it was announced that our merger with Valley Farm Credit has been approved by our stockholders. Assuming we continue to meet our very aggressive schedule, the merger will be complete on December 31 and we will begin doing business jointly on January 1.
As you may have heard, we have decided to close our offices to the general public on January 2 so that we can test our systems and make sure that the technical part of our merger is complete and perfect. Our first priority in this merger, as with any project that we undertake, is to put the needs of our customers first. By closing our offices, we can ensure top-notch customer service on the following Monday (if there are any glitches, we’ll have the weekend to fix them).
Of course, I’m optimistic that there won’t be any glitches…and we’ll be back to business as usual by the afternoon of the 2nd, serving our customers. My goal when it comes to members is always to under-promise and over-deliver—as stockholders and owners, they deserve that. So, let’s keep our fingers crossed and hope that everything goes as planned during the system transition.
Speaking of transitions, this is the week that I typically transition into “holiday mode.” I may not be ready to put up my own decorations (I never am), but I’m ready to enjoy looking at them on other people’s lawns.
This is also the time that I start thinking about all of the things that I’m thankful for. Here’s my list: I’m thankful that I work for an institution that puts its members first. I think that’s a great key to success—and it’s something that our fellow financial institutions are just figuring out now, as they’re looking at bailouts and buyouts. I’m thankful that we’re not in that boat.
I’m thankful, too, that I work with a great group of individuals who are committed to customer service. When I visit with customers, or see them at events, I hear great feedback on that commitment. I gave a presentation last week to one of our dealers—Binkley and Hurst—and one of the participants came up to me to rave about the great job that we do. This new member mentioned his growing anxiety with the reliability of the commercial bank he deals with...and saw us as a more stable provider. He made special note of saying that he appreciated the way we "hustled" for his business. I hear that a lot…and I probably don’t pass it on enough. So, please accept my deepest thanks for everything that you do to make Farm Credit a critical partner for our customers. Whether that means working on holidays, or staying late to finish a project, I am thankful for your commitment.
Finally, I’m thankful for the strong leadership that we have, on all levels. We have a strong leadership team here, as well as a thoughtful and enthusiastic board of directors that pushes me to challenge myself. I’m also thankful for the system leadership that we have right now, from the Funding Corporation to the Farm Credit Council. The financial market is challenging right now (did I just say that I like to be challenged? Maybe not quite this much!), and it looks like it’s going to continue that way through 2009. We’re all working together to do the right thing—and the right thing is to serve our members consistently.
I hope that your list of things to be thankful for is long, like mine (I didn’t even get into all the things I’m thankful for at home!!!) If you’re so inclined, feel free to share them with me. Because that’s something else I’m thankful for—the day-to-day interaction with all of you. Sometimes I get pretty busy with travel, and conference calls, but I’m never too busy to talk to someone from my team.
Best Thanksgiving wishes, to you and your family. If you’re traveling, travel safe.
Trust Issues: October 13, 2008
Last week, I met with a group of grain farmers here in Maryland. It’s always nice to get out and talk with the folks that we serve.
As you can imagine, this meeting was full of tough questions: questions about the economy, and questions about Farm Credit. With everyone painting the financial industry with the same ugly brush, there was some concern about our stability, and whether or not we’ll be able to continue to help farmers in the future.
I’m sure I’m not the only one getting these questions, so I thought I’d share with you some of my answers.
The issue today is an easy one to define—the issue is trust. It seems like no one trusts financial institutions anymore—not the brokers on Wall Street, not consumers, not even other banks. That lack of trust has a direct impact on us—when our Funding Corporation looks for an investor to buy our bonds, there are fewer bids. Fewer bids means money is more expensive (because those bidders only want very profitable, very safe investments right now). The good news is that we still have access to capital .
What do we tell our borrowers? We tell them the truth. The truth is that Farm Credit was not the cause of the current credit crisis, but the crisis is so large that it is affecting financial institutions both good and bad. The truth is that we’re one of the good ones—as both a System and an association, Farm Credit has strong capital reserves, strong earnings and strong credit quality. That’s not to say that we haven’t felt some stress as well; we certainly have borrowers who have been affected by the downturn of the general economy. But that’s why we have diversity in our portfolio—so that we can handle a downturn as well as an upturn. That’s also why we’ve made some of the decisions that we’ve made recently—changes like retaining capital so that we are strong, building our allowance for loan losses, and challenging our ALCO committee to look at our products, fees and rates so that we can continue to strike a balance between being strong financially and serving our membership in good times and bad.
Trust got our industry into trouble. We are very lucky to have the trust of our stockholders, and we don’t want to lose that. We plan to help by explaining the current situation to our customers, giving them honest and open answers, and continuing to work to help them find the right package to finance their farm or home. That will go a long way towards helping to rebuild trust in our industry, and towards helping them keep their trust in Farm Credit.
We’re lucky that we have a great relationship with our borrowers, but we can’t take that for granted. Stay tuned though, as I plan to tell you about some of the things we’re doing as a System to build on that relationship, and continue to foster trust.
(By the way, I saw all my kids Friday night...and they're just shaking their heads at the thought of me doing a blog. You know the look...it's the "what are we gonna do with him/ain't he cute" look you give your crazy uncle!)
Bob
As you can imagine, this meeting was full of tough questions: questions about the economy, and questions about Farm Credit. With everyone painting the financial industry with the same ugly brush, there was some concern about our stability, and whether or not we’ll be able to continue to help farmers in the future.
I’m sure I’m not the only one getting these questions, so I thought I’d share with you some of my answers.
The issue today is an easy one to define—the issue is trust. It seems like no one trusts financial institutions anymore—not the brokers on Wall Street, not consumers, not even other banks. That lack of trust has a direct impact on us—when our Funding Corporation looks for an investor to buy our bonds, there are fewer bids. Fewer bids means money is more expensive (because those bidders only want very profitable, very safe investments right now). The good news is that we still have access to capital .
What do we tell our borrowers? We tell them the truth. The truth is that Farm Credit was not the cause of the current credit crisis, but the crisis is so large that it is affecting financial institutions both good and bad. The truth is that we’re one of the good ones—as both a System and an association, Farm Credit has strong capital reserves, strong earnings and strong credit quality. That’s not to say that we haven’t felt some stress as well; we certainly have borrowers who have been affected by the downturn of the general economy. But that’s why we have diversity in our portfolio—so that we can handle a downturn as well as an upturn. That’s also why we’ve made some of the decisions that we’ve made recently—changes like retaining capital so that we are strong, building our allowance for loan losses, and challenging our ALCO committee to look at our products, fees and rates so that we can continue to strike a balance between being strong financially and serving our membership in good times and bad.
Trust got our industry into trouble. We are very lucky to have the trust of our stockholders, and we don’t want to lose that. We plan to help by explaining the current situation to our customers, giving them honest and open answers, and continuing to work to help them find the right package to finance their farm or home. That will go a long way towards helping to rebuild trust in our industry, and towards helping them keep their trust in Farm Credit.
We’re lucky that we have a great relationship with our borrowers, but we can’t take that for granted. Stay tuned though, as I plan to tell you about some of the things we’re doing as a System to build on that relationship, and continue to foster trust.
(By the way, I saw all my kids Friday night...and they're just shaking their heads at the thought of me doing a blog. You know the look...it's the "what are we gonna do with him/ain't he cute" look you give your crazy uncle!)
Bob
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