Farm credit leader modernizes practices What ag lender sees when

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INDIANA NEWSWATCH 8

www.FarmProgress.com – March 2013

Indiana Prairie Farmer

Farm credit leader modernizes practices By TOM J. BECHMAN

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ILL Johnson isn’t just any farm lender. He’s the CEO of Farm Credit Mid-America, a financial co-op that serves farmers and rural homeowners in four states: Indiana, Ohio, Kentucky and Tennessee. The co-op has $19 billion in loans, with 92 offices. Recently, he sat down for this exclusive interview. What was the first thing you did in this role? Johnson: I visited every office. I wanted to hear what both staff and customers had to say. It became obvious that turnaround time needed improvement. We put changes in place which helped shorten the time it takes to find out whether your loan is approved. I even asked our senior vice presidents to spend time actually working loans until we figured out how to make it better. One complaint we hear is increasing paperwork to get loans. Are you addressing it?

Johnson: Yes. New regulations are added almost every day by regulators. We took a close look at how we could comply with regulations and yet keep the process efficient and simple for the customer. We even started a new department to address it. We strive to continuously improve how we do things. What is the credit conversion program? Johnson: With interest rates moving lower, we ask staff in local offices to review customer loans routinely. If they see an option that would allow the customer to reduce the payment or shorten the payoff through a lower interest rate, they contact the borrower to discuss it. We don’t require existing customers to go through a total refinancing process if they can get a better rate. There is a one-time fee which is much lower than the typical cost of refinancing that covers our costs. We’re a cooperative, so we want to make sure we’re doing what’s best for our customers. Do you suggest fixed or variable-rate

FARM CREDIT’S HEAD MAN: Bill Johnson returned to Louisville two years ago to take the reins of Farm Credit Mid-America. loans on long-term mortgage loans? Johnson: Most of our long-term loans are at a fixed rate. Even if a customer does a conversion, he or she is locked in at the new, lower rate. We then protect ourselves through our source of funds to lock in the rate. There is too much uncertainty in the years ahead to risk borrowing for a long-term loan at a variable rate. Why are you in the crop insurance business? Johnson: We do it as a service for our customers. Sometimes it helps the loan officer know he or she can make the loan. Whether or not we require crop insurance depends on the loan. Even if we re-

Bill Johnson at a glance Home county: Spencer County, Indiana Background: Grew up on small family farm, father also operated a farm supply business Education: Finance degree from University of Evansville Experience: Started in Farm Credit at Huntingburg. He spent roughly 30 years in various roles at many locations across the country with Farm Credit. Became CEO: May 1, 2011 Reason: Previous CEO, Donnie Winters, retired quire it, the customer is not obligated to buy crop insurance from Farm Credit.

What ag lender sees when he looks ahead S ITTING across the table from Bill Johnson in a local office is like chatting with a neighbor on the front porch. As CEO of Farm Credit Mid-America, he has a big job to do. But it’s clear he does it one step at a time, letting common sense guide his actions. In this portion of an exclusive interview, he looks ahead to the future of ag lending. What trends do you see specifically for Farm Credit? Johnson: Over the next five years onethird of our staff will become eligible to retire. We’re increasing the number of people we hire at entry and higher-level positions. We want people coming in to glean knowledge from existing staff. To make that happen, we’ve changed our training process so it’s more one-on-one with more frequent evaluations. Is the process working? Johnson: Yes. What we’re seeing is it’s a two-way street. Our experienced people are also learning from the new people. We’re exploring different ways at universities to better train students. What general trends do you see in agriculture? Johnson: Feedback from customers and staff points toward the coming transition from one generation in agriculture to another generation. It’s obvious to us customers need help with estate planning, understanding insurance and more. We believe many people have a desire to have those crucial conversations. They need to happen. How does this affect lenders? Johnson: One thing we see is a real need for real estate appraisers. There appears to be a shortage of appraisers who understand agriculture. As land turns over, some of it will go to children who don’t live on the farm and understand agriculture. There will be a real need for people who can work with them. What trends so you see in land values? Johnson: It’s always difficult to tell

what lies ahead for land values. We see more farmers buying land today based on what adding the land can do for them financially vs. just sentimental reasons. We’re not in the business of telling someone what to bid on land. We have conversations with customers, but the decision is always up to them. We lend to customers based on the economic value of the specific property. Do you see a chance of the woes of the early 1980s returning? Johnson: There are big differences between then and now. We’re not going as far on how much we will loan as some did back then. Interest rates also make a huge difference. Many people have near-historic low fixed rates today. In the early 1980s, loans were made at well over 10% interest rates. If you borrowed 70% from us today to buy land and have a low fixed-rate mortgage, it’s much different than having a much higher percentage borrowed at a much higher rate in the 1980s. We all learned some lessons from that experience. Editor’s note: Find the final part of this interview on Page 57.

FACE THE FUTURE: Bill Johnson (standing) says conditions are much different than those that led to the financial debacle of the early 1980s. Seated is Tom Dougherty, loan officer at Franklin.

3 receive Indiana Pork award By TOM J. BECHMAN

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HE Indiana Pork Producers Association recognized three people with awards for Meritorious Service at its 2013 annual meeting. Bill Tempel, Gentryville, received the producer’s award from Heather Hill, IPPA president. Beverly Gard, Hancock County, retired from the Indiana Senate, was honored for her commonsense guidance on issues involving environmental regulations during her years in the Statehouse. Gov, Mitch Daniels appointed her to the Environmental Rules Committee for a four-year term before leaving office. Former Lt. Gov. Becky Skillman was honored for her long years of service. Unable to attend, she made remarks via video.

BILL TEMPEL

BEVERLY GARD