Pub. 2 2013 Issue 1

28 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 debt is callable – at the end of 2011, that was the case with 39% of its debt with a maturity greater than one year. The FCS has aggressively used that option, calling $48 billion of debt during the first nine months of 2012. As a result, the FCS reduced its debt funding cost by 29 basis points for the first nine months of 2012, compared to the same period in 2011, lowering it to an average cost of 1.10%; for the third quarter of this year, its debt funding cost even less – just 1.05%. The FCS has aggressively passed its lower funding cost through to its member-borrowers, with the average yield on its loans for the first three quarters of 2012 dropping by 30 basis points from the same period last year, to 4.31%. During the third quarter of 2012, the FCS’s average loan yield was 40 basis points lower than the same quarter last year. After taking into account the yield on its substantial investment portfolio, the FCS actually increased its net interest spread by five basis points, to 2.72% for the first nine months of 2012 compared to the same period in 2011. However, the FCS prudently warns that “over time, as interest rates increase or assets prepay or reprice in a manner consistent with historical experience, the positive impact on the [FCS’s] net interest spread that the [FCS] has experienced over the last several years from calling [FCS] Debt Securities will likely diminish.” The FCS’s lower funding cost has enabled it to grow its lending through very aggressive loan pricing. So as to eliminate seasonal bor- rowing effects, I compared FCS lending at September 30 dates. From September 30, 2008, to September 30, 2011, FCS lending grew $12.6 billion, or 7.9%. Between September 30, 2011, and September 30, 2012, FCS lending grew $14.8 billion, or 8.7%. That is a tremendous increase given how strong farm income has been. The FCS’s increased lending has been spread across most of its lending categories, with real estate loans accounting for over half (54%) of the loan growth. As the previous article suggests, how much of the FCS’s increased real estate lending is on productive agricultural land is an open question. Agribusiness lending, though, was the exception, dropping 4.4% over the 2008-12 period, due to a decline in processing and marketing loans. AgSouth Farm Credit enforcement order hides too much O N OCTOBER 11, AGSOUTH FARM CREDIT, serving portions of South Carolina and Georgia, was hit with an FCA enforcement order, but not because of financial problems. Instead, someone at AgSouth engaged in self-dealing through the sale of AgSouth property, most likely foreclosed real estate. However, neither the FCA nor AgSouth have provided any details about the transgression which led to this enforcement order, including naming the guilty parties. The questionable transaction may have been costly toAgSouth as it recorded $2.9 million of “losses on the sale or write down of other property owned” during the first nine months of 2012. According to the order, AgSouth must “take corrective actions and other actions with respect to certain areas of its operations including standards of conduct, acquired property, borrower rights and board policies.” This incident is yet another example of the FCA protecting an association’s management and directors by not disclosing to the association’s borrower/owners, and to the public, precisely what occurred and by whom. The FCA should stop protecting FCS insiders and begin protecting the public interest by publishing its enforcement orders. 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. REPORT FCS LENDING ABUSES TO: GREEN-ACRES@ELY-CO.COM continued frompage 27