Pub. 7 2018 Issue 9

December 2018 19 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 CoBank — one of the world’s safest banks? As it has in recent years, Global Finance Magazine has again listed the four FCS banks as among “the world’s 50 safest banks” in 2018; the FCS banks also are included in a companion listing of “the world’s 50 safest commercial banks.” CoBank touted its inclusion in the safest banks listing in a news release, Global Finance selected these banks “through an evaluation of long-term foreign currency ratings.” The other FCS banks did not issue comparable news releases. The four FCS banks, of course, are largely funded with debt raised by the FCS’s funding arm, the Federal Farm Credit Banks Funding Corporation, which is not included in any of the lists of largest banks. The Global Finance article made no mention of the Funding Corporation nor of the fact that the FCS banks are jointly and severally liable for the debt the Funding Corporation issues. I have previously pointed out to the magazine that the four FCS banks are not banks as that term is generally understood, and they certainly are not commercial banks, but the magazine has persisted in mischaracterizing the FCS banks. Quite puzzling is how the magazine differentiates the banks — on its list of the 50 safest commercial banks, Agribank is number 23, CoBank is number 28, AgFirst is number 31, and Farm Credit Bank of Texas is number 32. Last year, when I asked the FCA if it had any concerns about the FCS banks being labeled as commercial banks, it stated that it was not concerned about that mischaracterization. If the FCS and the FCA have no qualms about the FCS banks being called commercial banks, then perhaps the Senate Banking and House Financial Services committees should hold hearings about the activities of the FCS banks and their status as GSEs. Otelco pays down some of its CoBank debt In the June 2018 FCW, I reported on recent CoBank credit extensions to two investor-owned utilities, one of which was Otelco, an investor-owned telecommunications holding company that owns several independent telephone companies. CoBank, which has the exclusive authority within the FCS to lend to utility cooperatives, had no business providing $92 million of credit to Otelco. Additionally, Otelco is highly leveraged, with just $8.56 million of equity at Sept. 30, 2018, versus debt and other liabilities of $105.24 million. After subtracting goodwill and other intangible assets, Otelco had a negative tangible net worth of $37.4 million at Sept. 30. Its riskiness may be why Otelco, in its debt agreement with CoBank, currently pays an interest rate equal to Libor plus 4.25 percent. In order to reduce its leverage and lower the interest rate on its debt from Libor plus 4.5 percent, during the third quarter of this year Otelco made “voluntary” prepayments on its debt totaling $3 million in addition to a scheduled repayment of $1.1 million. The sooner CoBank no longer finances Otelco, the better for all concerned, for this is a loan CoBank should never have made. 22316 Midland Drive Shawnee, KS 66226 913-390-1010 Fax 913-390-1515 NMLS # 194708 • A Kansas Licensed Mortgage Company #MC 0001182 • Missouri Residential Mortgage Loan Broker License # 10-1912 • Oklahoma Mortgage Broker # MB001953 • Colorado License # 100044344 High Tech Mortgage Solutions with Your Personal Touch Your customers don’t need a mortgage on a rocket. They need you! Most homebuyers like the idea of an online mortgage. But what they really need is a trusted local advisor to help them through the mortgage process. Your bank, supported by MISC, can give them all the high-tech features they expect, along with innovative loan products and the personal service only you can provide. For 17 years, Kansas bankers have partnered with MISC to serve their customers with accountable, high quality mortgage services. We know your community. We know you! Give us a call today! No rocket needed. 913-390-1010 . “I have had the privilege of working with Mortgage Investment Corp for many years. The expertise of the staff and their desire to help us, help our customers is exceptional. Mortgage Investment does a great job at providing fast solid approvals, and I appreciate that!” -Marna Handlin, Vice President / Union State Bank