Farm Credit of Central Florida explains where ag lending has
been, where it is now and what the future may bring.
FFVA recently had the opportunity to go one on three with leaders
from Farm Credit of Central Florida, ACA on how
the agricultural lending industry is faring in this tight economy. We
sat down with Craig Register, executive vice president and chief lending
officer; Regina Thomas, senior vice president and chief business
development officer; and Ron O’Connor, director of marketing and
FFVA: Talk a little about what the Farm Credit
System is and how it became what it is today.
Ron O’Connor: Back in the early 1900s most
farmers couldn’t get credit at all. Those who did paid much higher
rates than other businesses because of the inherent risks in
agriculture. So, President Theodore Roosevelt planted the seeds in 1908
that led to the creation of the Farm Credit System. Congress
responded by passing the Federal Farm Loan Act of 1916 and The Federal
Land Bank began making loans in 1917. Part of the nationwide Farm Credit
System, Florida’s three associations are one of the state’s
largest agricultural lenders and cover the entire peninsula. Farm Credit
of Central Florida’s service area straddles the I-4 corridor from
the Gulf to the Atlantic. Farm Credit of Florida serves the lower
portion of the peninsula and the north-central region, and Farm Credit
of Northwest Florida services the panhandle.
FFVA: Is Farm Credit part of the government?
O’Connor: No, Farm Credit is a GSE
– a government-sponsored enterprise, and it is a real success
story among GSEs. It was started with federal seed money, which has all
been repaid by the Farm Credit System, and now the entire system is
operated with its own capital. It is regulated by the Farm Credit
Administration, whose three-person board is appointed by the President
of the United States with Senate oversight.
FFVA: What makes Farm Credit different from regular
I think the unique thing about Farm Credit is it’s a cooperative,
and as a member-owned cooperative the borrowers share in the profits.
When we have a profit. it is shared with our members based upon their
usage of the cooperative, providing them with a lower effective rate of
Like other financial institutions, Farm Credit is governed by
our board of directors. Farm Credit’s governing board is comprised
primarily of ranchers, farmers, and growers who are also Farm Credit
members. They set the policies carried out by the staff. The loan
decisions are made locally, not in New York or in some ivory tower by
people who don’t know anything about agriculture. That is one of
the strengths of Farm Credit.
FFVA: So where does the money come from?
Craig Register: The Farm Credit System is very
strong and well-capitalized. The Federal Farm Credit Banks Funding
Corporation in New Jersey sells system-wide bonds to pension funds,
central banks and others domestically and internationally. Farm Credit
bonds are in high demand due to their perceived low risk. They are seen
as good investments due to the system’s strong capital position,
prudent lending practices, and its status as one of the most successful
and respected GSEs.
FFVA: How has agricultural lending been affected by
the downturn? Have certain kinds of loans or different borrowers been
affected more than others?
Regina Thomas: The slowdown in the economy has
definitely affected ag lending and the availability of credit. All the
banks are responding to current market conditions.
Any of the agricultural commodities dependent upon construction have
been negatively impacted. Particularly hard-hit were the tree and
sod industries as well as landscape contractors. The general economic
downturn and high unemployment affected portions of our portfolio that
were highly dependent upon salaried income. In particular, this
adversely affected our residential loan portfolio.
FFVA: What were the signs that things weren’t
Register: The recession started in late
2007. In 2008 we began experiencing increased defaults that
accelerated through 2009. By the fall of 2010, we were
seeing fewer defaults and reduced delinquencies. During the economic
downturn, lending institutions, including Farm Credit, had to take
additional provisions for loan losses. This increased our reserves for
losses but significantly reduced our earnings. There are positive signs
that credit quality is stabilizing, which will result in improved
FFVA: Did you work with borrowers to help them
manage their loans?
Register: Yes, we worked closely with our members to
find constructive solutions to their financial challenges. Since 2008,
we have had borrowers – especially in the nursery industry –
who needed to have some relief on their loans. So in some cases we gave
them interest only for a period of time, or we provided an extended
amortization. We provided similar relief to other members outside
the nursery industry. The result of these efforts and positive actions
taken by our members have allowed many of them to weather the recession
and keep their loans in good standing.
FFVA: How difficult is agricultural financing
We have seen some softening in demand for ag loans. Many of our
borrowers have been preserving liquidity, reducing debt and delaying
significant capital investments. They are trying to determine which way
the economy is headed. On the positive side, we are seeing an overall
improvement in our borrowers’ financial metrics with some industry
segments, especially fruits and vegetables, beginning to undertake
expansion projects. Certain kinds of agricultural land have experienced
a dramatic decline in value, particularly those influenced by future
development potential. This has made lending on some properties a
FFVA: What, specifically, do people have to pay
attention to if they want financing?
Thomas: In this credit market we’re asking for
more useful financial information. Today, I think all our ag producers
need to have a great relationship with their accountants, attorneys, and
their lenders. In working with lenders the more organized and complete
the financial information is, the faster the loan application
Register: A number of skill sets are needed to
effectively borrow money today. The better you understand your
financials, business drivers, and industry economics, the easier it will
be to borrow.
FFVA: What’s around the bend in agricultural
Register: We see stabilization in credit quality, so
that’s a good thing, and with it, fewer defaults. I do think
you’ll continue to see fairly restrictive underwriting standards.
The lending industry will likely expect stronger credit metrics (i.e.
capital and capacity ratios) from new customers. Additionally,
because of the losses sustained by lenders in the past several years,
many will be looking for more protective collateral packages.
FFVA: So it’s not all doom and gloom?
Thomas: I think exciting things are happening.
People are starting to grow crops like pomegranates, olives and
peaches. Initially, it may be tough to finance commodities without
a track record, but there will be lending opportunities created. Florida
agriculture is very resilient, and we see continued opportunity for
growth in many of the state’s commodities.
Photo credit: Image of money in article banner is
from Farm Credit of Central Florida's website.