Pub. 6 2017 Issue 6

September 2017 11 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 Especially troubling numbers for both measures are noted in red. The wide range of these numbers raises this question: Are some of the larger associations not being as diligent as they should be in identifying troubled loans and reserving for eventual losses on those loans? Time will tell. This question is especially relevant for the second-largest association, Louisville-based Farm Credit Mid-America (FCMA). Moving down the spreadsheet, rankings by return on average assets (ROA) and net interest margin (NIM) also show great variability, with ROA ranging from 2.51% to 1.20% and NIM ranging from 3.59% to 2.14%. Notably, FCMA is at or near the bottom of both of these rankings. FCW readers are encouraged to massage the data in this spreadsheet to see what conclusions they reach about the financial condition of the larger FCS associations. On July 1, five associations became two On June 27 the FCA gave final approval to two sets of mergers of FCS associations that became effective on July 1. The merger of Badgerland Financial and 1st Farm Credit Services into AgStar has created the third-largest FCS association, with total assets of approximately $19 billion. Now called Compeer Financial — hardly suggestive of agricultural finance — it serves eastern and south Minne- sota, western and southern Wisconsin, and northern and western Illinois. Separately, United FCS merged into Ag- Country FCS to create the ninth-largest FCS association with total assets of approximately $7 billion. It serves western Minnesota, eastern North Dakota, and a portion of eastern Wisconsin almost 200 miles to the east. With these mergers, the ten largest of the FCS’s 70 associations hold 67% of total association assets. The FCS is increas- ingly dominated by very large, multi-state associations. AgStar —an out-of-market ‘investor’ Prior to gobbling up two smaller associations to form Compeer, on January 10 the FCA authorized AgStar to invest up to $2 million in bonds issued by a long-term care facility in Wisconsin. Although the facility may have been located within the territory served by AgStar, financing a long-term care facility, however worthy the project may be, hardly fits within the scope of the FCS’s financing authority. Further, these bonds are really a loan recast to look like an investment. More troubling, though, was the FCA’s April 7 authorization for AgStar to “invest up to $2.5 million in taxable bonds to be issued by a rural continuous care facility in Texas,” which of course is hundreds of miles south of AgStar’s territory. Leaving aside the propriety of such an investment, what could AgStar possibly know about the continuous care market in Texas? Most interestingly, on June 5, the FCA authorized CoBank “to invest up to $1 million in taxable bonds to be issued by a continuous care facility in Texas.” Quite likely, this is the same facility whose bonds AgStar is purchasing. One can reasonably ask why Texas- based FCS associations or the Farm Credit Bank of Texas are not buying those bonds.