Title: Program Allows Ag Banks to Have Loan and "Sell" It Too
Abstract: LIQUIDITY SQUEEZE: Like many community bankers, Mike Grove has watched loan demand grow and grow in his market in White Sulphur Springs, Mont. Just in this year, Grove notes, his First National Bank has seen loan demand rise by 30%. Unfortunately, again like many other community banks, the $30 million-assets agricultural bank hasn't been seeing anywhere near the same rate of growth in deposits. Thus far this year, Grove says, deposits are up only about 15%. To compensate, Grove has explored some of the alternative sources of funds that other bankers have--advances from the Federal Home Loan Bank System, for instance. But Grove has also been able to tap a relatively new program only available to farm bankers. is the Ag Vantage program introduced late last year by Farmer Mac-- the Federal Agricultural Mortgage Corp. Ag Vantage is designed to provide farm lenders with a source of liquidity that they can tap without actually selling off their ag loans or releasing the servicing. This is a natural fit for us, says Grove. Already a Farmer Mac stockholder, which is a requirement to take part in any Farmer Mac program, First National was granted a $5.5 million line under the AgVantage advance program. In a sense, this program is something of a hybrid (no pun intended, ag bankers) between the advances from the Home Loan Banks and the technique of securitization. The principle is relatively simple. Farmer Mac member banks can issue AgVantage bonds, which Farmer Mac purchases. The bonds are secured by qualifying farm mortgages. The proceeds become lendable funds. Grove's bank is already a frequent user of the standard Farmer Mac program and was scheduled to put through its first Ag Vantage deal in mid-July. The program is still new enough, according to a Farmer Mac spokeswoman, that it is too soon to tell how well Ag Vantage will catch on. lot of banks still haven't woken up to the fact that Farmer Mac is a heck of a deal, says Grove. And even in the wake a recent liberalization of Federal Home Loan Bank System lending rules regarding agricultural properties, there ire still many loans backed by farmland tat can't qualify for that program. In another recent case, a $5 million of AgVantage bonds helped fund peak ag lending demand for a Washington state bank. This was a source of liquidity that was very attractively priced, says Jim Tribbett, president of $100 million-assets Bank of Whitman, in Colfax. helped satisfy our needs for this season. Among the features of the program: * It is open to all banks that qualify as Farmer Mac sellers and who submit a supplemental application for certification to issue AgVantage bonds. * A wide range of funding terms are available, ranging from one month up to 15-years maturity at both fixed and variable rates. Bond-issuing banks are not required to maintain any particular pricing or structural relationship between the bonds they issue to Farmer Mac and the loans backing them. * Advances obtained using the AgVantage program can be turned around into any credit type, not just farm loans. How AgVantage works While the new Farmer Mac program is simple in principle, there are considerable details in practice. The minimum size for an AgVantage bond is $500,000. The bonds are non-amortizing, monthly pay, interest-only obligations. Principal is repayable at maturity. (An amortizing bond option is under development.) The rates banks must pay on the bonds are set at spreads of about 75 basis points over Treasury security rates, though the pricing is tighter to Treasuries on large bonds. The maximum outstanding amount of bonds a bank can issue is held to the lesser of five times capital; 20% of the bank's assets; or $50 million ($25 million for maturities of over five years). The amount of loans that a bank must maintain against its bond depends on a bank's credit rating. …
Publication Year: 1998
Publication Date: 1998-08-01
Language: en
Type: article
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Cited By Count: 1
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