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| 1st Farm Credit Services: Farmers Come First |
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| Written by Eric Slack | ||
| Friday, 01 January 2010 00:00 | ||
The organization is focused on agricultural lending, or the “ag market,” and its loan portfolio is made up primarily of two types of loans. Real estate loans are about 70% to 75% of its portfolio, while commercial loans for operating lines of credit for things like livestock and equipment make up the rest. According to Gary Ash, president and CEO, the company has somewhere around 40% of the marketshare for the ag market’s real estate loan business in its service area, as well as around 20% marketshare on the commercial side.  “It’s pretty hard to get a firm handle on marketshare because there isn’t a great source for collecting information from all the different competitors serving the market,” he said. “That’s our estimation based on what the USDA says the total ag debts are in our market.” Joint efforts Much of the reason for the organization’s size today is due to the merger of two smaller farm credit associations 10 years ago. The merger created 1st Farm Credit Services and allowed the organization to define its core client segments: commercial farming operations; traditional family farms; agri-business; and others who invest in rural America, primarily landlords or real estate investors. “We serve other segments of the market, but those four are viewed as our core,” said Ash. “The merger allowed us to specialize our staff. For example, we have specialists who serve the agri-business industry, the swine industry, the green industry, and the dairy industry. We have underwriting specialists, and we have a group of appraisers who handle the majority of the appraisal work on real estate lending.” Becoming a larger player following the merger and specializing in certain markets, products, and industries provided the company with a significant advantage over its primary competitors, which are small commercial banks. Ash says those banks aren’t capable of such specialization because they don’t have the necessary size and scale. “Ag loans and crop insurance are all we do all day long,” he said. “We specialize in ag lending, and that allows our team to have the expertise needed to bring value to the client.” Because of the organization’s intimate knowledge of the agriculture industry and ag lending, it understands the needs of the farmer better than most other lenders. Ash believes it is the amount of time spent in the industry that allows 1st Farm Credit Services to keep abreast of the different circumstances affecting farmers. In fact, a majority of its team members have ag backgrounds in their personal lives, earning agriculture-related college degrees or growing up in a rural setting. Internal development Recently, the company has invested in the development of new team members. Its growth has led to an increase in the number of new hires during the past few years, and Ash said the company has a number of tenured team members. As they start to retire during the next decade, the organization must be able to maintain its knowledge and expertise. As for continuing its growth, 1st Farm Credit Services has been diversifying its portfolio and placing more emphasis on crop insurance in the last five or six years. Crop insurance is a solid profit center for the company, as well as what Ash called an essential risk management tool for grain producers. “The majority of our portfolio is tied to grain production,” he said. “It’s a natural fit for the lending side of our business to have a crop insurance product to offer clients because, as a risk management tool, it protects the revenue streams of our clients and repayment on our loans.” The company has diversified its portfolio so it can better manage cycles in various industries and continue to be profitable, viable, and growing. One way the company has done that is in its capital markets portfolio. “That’s a portfolio where we work with other lenders and purchase interests in loans from other lenders. These tend to be larger credits, and they’re primarily agri-business accounts,” said Ash. “That allows us to diversify out of the corn and soybean market we serve here.” Fighting for the industry As part of the Farm Credit System, 1st Farm Credit Services is one of more than 90 farm credit institutions serving the country. Five district funding banks work with the Farm Credit Funding Corporation on Wall Street to sell system bonds and support the financial needs of local clients. Funds from those bonds are distributed to the associations. Ash said 1st Farm Credit Services has a strong relationship with its funding bank, AgriBank, and it also works closely with other members of the Farm Credit System. In addition, the system is represented by the Farm Credit Council, the political affairs group representing the Farm Credit System in Washington DC. “We are working with several other farm credit associations from around the country right now on a board-member development program. We pooled our resources and put together a number of development programs our directors can go to,” Ash said. “By pooling our resources, we get higher quality programs and presenters, and our directors get more out of attending those development and training sessions.” Currently, the organization is watching the unintended consequences caused by the government’s bailout of other financial institutions. The bailouts affected the Farm Credit System by making its bonds less attractive because the government was guaranteeing some of the bonds of other institutions. “We’re pretty much through that challenge absent another financial meltdown, but that’s something we need to keep an eye on,” said Ash. “However, throughout the financial crisis we’ve been able to meet all of our clients’ debt capital needs, and that is what we will continue to do.” |