Pub. 1 2012 Issue 6

Aug/Sept 2012 25 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s AD INDEX ATM Maintenance Integrated Coating Systems..................................pg 17 Banks Bankers Bank of Kansas (BBOK) ..........................pg 2 First Bankers’ Banc Securities, Inc......................pg 27 First National Bank of Hutchinson ....................... pg 26 INTRUST Bank ....................................................pg 17 Certified Appraisers/Consultants Marketing & Consultant Services, Inc................. pg 26 Core Processors DCI.......................................................................pg 28 CPA/Accountants BKD........................................................................pg 3 Financial Services BankOnIt..............................................................pg 21 The Kansas Bankers Surety Company................. pg 16 Insurance Providers BlueCross BlueShield of Kansas..........................pg 23 Integrated Services Diebold...................................................................pg 5 to YBS farmers continued in 2011.” Especially striking was this fact: The dollar amount of loans made to small farmers and ranchers, as a percentage of the total amount of new FCS loans, shrank from 30.3% in 2003 to 15.7% in 2011. This drop reinforces a point I have made many times — the FCS increasingly focuses on lending to large farming and agri-business operations. A chart in the report highlighted an interest- ing disparity within the FCS — the widely varied performance of FCS associations as YBS lenders. Notably, the percentage of new loans in 2011 to small farmers was less than 20% of all new loans at 12 of the 83 FCS associations while such lending accounted for more than 70% of new loans at nine other associations. Lesser, but still significant disparities among the associa - tions were evident in new loans extended in 2011 to beginning and young farmers. Data from the FCS’s Annual Information Statement (the equivalent of a 10-K) confirms the FCS’s steady decline in YBS lending, as the FCS classifies that lending. From the end of 2009 to the end of 2011, loans to young farmers and ranchers declined from 11.7% of all FCS loans and commitments to lend to 11.2%. Over the same period, loans and loan commitments to beginning farmers dropped from 19.5% to 18.0% of the FCS total. The comparable drop for small farmers was from 24.4% at the end of 2009 to 22.6% at the end of 2011. Note that the lending percentage to “young” farmers is much lower than the comparable percentages for “beginning” and “small” farmers. That differential undoubtedly is due to the fact that much FCS YBS lending is not to the true young man or woman starting out in farming but to owners of country estates who raise a few cows and to hunting and fishing camps that generate just a modest amount of farm sales. This conclusion is confirmed by this piece of data — at the end of 2011, $17.7 billion had been lent to “small” farmers in loan amounts over $250,000, with an average loan size of $518,000. It is highly unlikely that many of the 34,175 loans in this category were to true young, beginning farmers. FCA report illustrates decline in FCS funding costs At its July 12 meeting, the FCA board received a report on the FCS’s funding conditions. This report illustrates what I have reported in prior FCWs, that the FCS is capitalizing on its GSE status by steadily lowering its funding costs, in part by aggressively calling and refunding much of its longer-term debt. For example, the yield on 10-year FCS debt dropped by approximately 100 basis points between August 5, 2011, and July 5, 2012, to about 2.20%. The spread of the yield on FCS debt over Treasury debt also tightened over the last year, out to 10-year maturities, reflect - ing the fact that investors view FCS as a close substitute for Treasury debt. The FCS is using that perception to full effect as they engaged in the predatory loan pricing discussed above. Report FCS lending abuses to: green-acres@ely-co.com Bankers are continuing to send FCW reports of FCS lending abuses, such as FCS loans for rural estates, weekend getaways, and hunting preserves. Email reports of similar lending abuses in your market to: green-acres@ ely-co.com. Please provide as much detail as possible about any loan which violates the spirit, if not the law, governing FCS lending. Borrowers who can readily obtain credit from private- sector lenders must be charged a market rate of interest, but not less, on their FCS loans.