Your community bank

[marketeye]

Folks,

From a  grain marketing perspective, does your community banks offer any services that help you and your farm? Curious how smaller banks are doing vs. the larger ones. What do you think?

• How large of a role do community banks play in local rural communities, and how important are they to local farmers/producers?
• What types of pragmatic or emotional values or offerings draw farmers to these community banks? How does the localized nature of these banks aid their value offering to farmers?
• What sentiments do farmers carry towards larger, national banks/institutions compared to community banks?
• What is top of mind among farmers who are assessing a lender?  

thanks,

Mike

[illinifarmer]

From a personal stand point I have discovered to never mention farming to a small bank for any reason. Worked to get a loan for an additional land and farm operations buy out, as soon as I mentioned farming they automatically denied it. Local loan official said more than 19% of their farm loan portfolio’s have filed for bankruptcy or default in as many years.,  however was able to secure a personal and operating loan with some ease as the credit score does the talking.

[marketeye]

illinifarmer,

Thanks for the reply. It's been a few years back, but I was visiting with a southern Illinois farm family about the business side of their operation when they told me that they had to move away from their local bank to get hedging support. The farmer said that the local bank didn't have the risk-taking ability to back their hedging plan. So, they withdrew a lot of money to go with a national   bank that could help them.

Mike

[sdholloway56]

I do personally know of a couple of instances where farmers were hurt badly when their lender pulled back the support of their hedges. I don't know if their degree of prior communication was adequate, but I do know this. The only thing worse than a bad hedge is being forced to blow out if it at the top.

I really liked some aspects of the internal, OTC, hedging program that Wells Fargo was developing a number of years ago. Basically they'd let approved customes take a position- to a pre-approved limitt- that wer basically just an internal derivative- you just got netted out on the interest and differential at the end but it never hit your credit line.

Unfortunately they abanonded that when regulations on bank derivatives got tighter after the GFC.

I do know a community bank that hired a very good ag banker- who brought a lot of good business with him- and at least through the sweet decade the owners were over the moon happy- huge profits and no writeoffs.

I hear they had to tighten up some in recent years.

[rickgthf]

I keep my money in our local bank and run both my farm & personal accounts through it but all my loans are with Farm Credit.  Years ago, when I was starting out I asked my local banker about borrowing money, he said, "don't both, just go to Farm Credit, I can't compete with them."  Farm Credi may not be the cheapest money but whenever I've wanted to borrow money for cattle, machinery, or land, they politely listen to me for about 3 minutes and then ask me how much & when.

[timetippingpt]

Very interesting question markedeye, just a summary kind of to answer your question.

Since buying in and becoming the CFOish type role in our family businesses in 1992, we have had to change banks 4 times at their request. Nothing about us changed. Our net worth has gone up more than 27x over that window of time (excluding inheritances), and has only decreased in 1 of the 29 years. Incredibly consistent as we intentionally planned.

So, you can see why we think banks are simply some of the poorest run businesses on the planet. FCS is even worse in terms of personnel talent in many cases. Since we understand the "Dupont Model" better than most banks, we intend to operate our new farming entities with a negative working capital position, since they are highly insured through fed crop ins, with a revenue floor underneath, they really need very little working capital to prosper. Plus the earnings that can be captured by a young guy we are starting out are pretty fantastic if he is aggressively leveraged. Of course, he needs our signatures to make that possible, kind of a win win.

Currently, we are a proud and happy customer of the Global Kong called Rabobank. They have some incredible products and some really smart folks to work with on planning business growth. Only downside is they source funds globally which is good today but could be a nightmare when the liquidity party is over. 

Just our experiences....not right or wrong just real.

[sw363535]

Mike we still maintain loyalty to a locally owned community bank.  A couple of generations back they gave the first guy on the nameplate a chance to be more than a hired man.  We are still loyal to that as long as ownership stays local.  But one of our heirs has moved on to Farm Credit for banking.  They are far more progressive in terms of marketing.

In this area, being an end user location, marketing does not depend on hedging as much.  We have a naturally occurring basis advantage.  We have higher expenses a community bank can handle.  They financed a lot of grain storage which was a basis of our marketing moves. (making the move to end user sales)

As mentioned before,  community banks are at a severe disadvantage vs Farm Credit because of regulations that Farm Credit does not have.  Unfortunately congress works against local private ownership in regulation and in ownership transfer.  It is a distinct disadvantage.  The expertise is better at our community bank.  Farm Credit probably has the least expertise.  But banking in general struggles with marketing aspects.  And more often than not a hedging position needing backing is a choice that was at a loss in the first place.  Hedges should be used to preserve a profitable sale.  A hedge to save a loss position might be a sign of poor judgement.

Much appreciate Times comments.  So far we have avoided foreign banking sources and insurance based lending...  I appreciated his input....

[BA Deere]

Our local communities were hit hard during the "hedge-to-arrive" debacle in the mid-90s.  there was lawsuits, elevators went broke.  I`m not a riverboat gambler so i don`t know the in`s and outs of it all, but a judge took some Bigshot farmers off the hook and institutions had to see their local coop get gobbled up into a 50 site group to survive after the hit.  Bigshots that caused it were the "smartest marketers in the room" and still are to hear `em tell it.  "Corn just has to go down...that`s what I`m bettin`!" ...but it didn`t, it went to $5.

Gray haired loan officers are retiring and young hotshot "farmer-bankers"   20-somethings, still young enough that they know it all.  I`m sure they are sophisticated enough, they`ll give you all the money you want to gamble with, so long as it`s approved by  "the committee".  

Few years ago the crop insurance man had a meeting and a commodity broker speaker with marketing ideas..."this can`t miss, but you have to have a banker that will go along when you have to write margin checks"  That`s about the time I spaced off thinking about what`s really important, girls on beaches wearing bikinis   🙂

No, the local banker shouldn`t be your personal "Tony Soprano" for money to place bets with your bookie on the pony races.  

[amadsecca93]

They address the needs of a community by offering loans to small-business owners or personal loans to individuals. Typically operating with significantly smaller assets, the appeal of a community bank is the social relationship it has with customers. I've always used https://www.girokontokuendigen.de/de/ and I'm very pleased with the service that they provide. Unlike banks that may take deposits in one state and lend in others, community banks channel most of their loans to the neighborhoods where their depositors live and work, helping to keep local communities vibrant and growing.

[sw363535]

when someone drags a conversation this old, I have a hard time reading it and just get aggravated for wasting the time (other than the renewed respect for those who presented good information originally.

I am always somewhat amazed at how good some of the commentary was.

finally stockholders won't feel that way.  It is an investment owning a bank.......... not a piggy bank.

Otherwise I have settled on a standard answer for the new comment that fails to "get" what was said.

"When a large number of universities all decide to join the same conference of sports competitors following the pyramid type illusion of Television revenue riches..... I hold my breath to control the laugh and find comfort in knowing that 12 to 14 of them will be losers in a very public manner while learning the obvious lesson"(most of their fans will stay home and watch the winners)