January 2012 (Santa Rosa, CA) ‐‐ American AgCredit has announced the merger with Farm Credit Services of the Mountain Plains, based in Greeley, CO, effective January 1, 2012. The merger will make the joint Association the 6
the largest Farm Credit cooperative in the U.S., totaling $5.58 billion in assets, and creating a combined customer base of 6,907 members.
The boards of directors of both organizations released the following statement supporting the merger.
“The combined organization will create efficiency benefitting stockholders, and will strengthen the Association through more diversity and better capitalization. Through this, and through the extension of our national presence, American AgCredit is poised to lead agriculture lending into the next generation.”
This is the fifth merger since 2000 for the multi‐state lender, which has continued to grow its capital and loan portfolio despite the financial challenges in the lending marketplace.
“It is our fundamental goal to ensure that agricultural financing remains available to agricultural producers who need financing in these challenging times. In order to do this, the Association must remain a safe, well‐diversified organization that can meet the needs of a constantly changing marketplace,” said American AgCredit CEO Ron Carli. “This merger with Mountain Plains strengthens our core structure, and allows us to respond to market demands more efficiently and effectively.”
Merger Benefits
In disclosure documents released to the shareholders of both Associations, the lenders identified the key benefits of the merger for both Associations’ stockholders.
These include:
A larger capital base, which allows increased equity funding to sustain future loan growth and offer a stronger foundation to weather future economic and credit downturns.American AgCredit and Farm Credit Services of the Mountain Plains Merge
Improved risk management from increased commodity and borrower diversification.
Improved business processes through economies of scale – such as increased purchasing power,
reduction in per capital operating costs, and the elimination of redundant professional services.
American AgCredit’s Board Chairman David Santos re‐affirmed the importance of the merger for both Associations and for agricultural lending. “We have a fiduciary obligation to stockholders to ensure that the merger with Mountain Plains
constitutes a benefit for each Association’s customers,” Santos said. “With a strong, diversified portfolio and improved capital reserves, we can now better serve our existing customers, as well as young, beginning, and small farmers who are the future of our industry.”
About American AgCredit
Founded in 1916, the cooperative nationwide Farm Credit System provides lending and other financial services to farmers, ranchers, agribusinesses and rural homeowners. With this merger, American AgCredit is now the 6th
largest Farm Credit cooperative in the nation. The organization specializes in providing financial services to agricultural and rural customers throughout California, north central
and western Colorado, northwestern New Mexico, Nevada, central Kansas and northern Oklahoma as well as to capital markets customers in 30 states across the nation.
Financial services include production and mortgage financing, equipment and vehicle leasing, lines of credit, crop insurance, and the Young, Beginning and Small farmer program. In addition, the Association provides interest‐free loans for qualifying 4‐H and FFA AgYouth programs, as well as
college scholarships to young people interested in agriculture.
For more information about American AgCredit’s financial services, call 800‐800‐4865 or visit the website at www.agloan.com for a listing of offices by region.
Summary Fact Sheet
Key advantages of the merger between American AgCredit and Farm Credit Services of the Mountain Plains
Diversification
The merger will provide greater geographic, commodity and borrower diversification. Mountain Plains’ loan portfolio is
heavily concentrated in small grain and field crops (22.2%) and beef and other livestock (22.5%), with a large percentage
(37.4%) comprised of a variety of small market commodities. American AgCredit’s portfolio is spread across a number of
industries, commodities and specialty crops that Mountain Plains does not finance, such as wine grapes, vegetables, tree
fruit and nuts, timber and dairy. The merger will reduce Mountain Plains’ two highest commodity concentrations by more than 50% and 33%, respectively Following the merger, the largest industry/commodity concentration will be in a spectrum of small market miscellaneous commodities (21%), followed by wine grapes and wine at 16%. The significant concentrations in the vineyard/winery and dairy industries will be diluted, thereby mitigating risk exposure in these specific commodities.
The key benefit of broader diversification is that it better positions the organization to withstand credit adversity.
Specifically, by bringing together two portfolios with little overlapping commodity exposures, a downturn in the credit
quality of one area or commodity, whether caused by adverse weather patterns or market conditions, is less likely to
place significant financial distress on the merged association.
Approximately 70% of Mountain Plains’ individual loan balances are less than $250,000. The addition of these loans to American AgCredit’s portfolio will reduce the overall average loan size and help to minimize a material adverse
impact to the Association from any one individual borrower or group of borrowers.
Cost and Overhead Reduction
The merger will provide both Associations with a larger asset base over which fixed costs and overhead can be spread.
Due to its larger size, American AgCredit can spread costs over a larger asset base and thus operate more efficiently.
Following the merger, cost reductions in the range of $1.7 to 2.0 million annually are expected. Farm Credit System costs and CoBank District allocations (such as regulatory charges and insurance premiums) have large fixed cost components that will be spread over a greater volume of assets. In the area of technology, a savings of approximately $1 million per year will be achieved by converting Mountain Plains to American AgCredit’s technology platform. Another cost savings opportunity is in the area of professional services. By being able to access American AgCredit’s in-house legal, marketing and accounting staffs, Mountain Plains will save the fees paid to external providers of these professional services. Salaries and employee benefits are expected to decrease by approximately $1 million annually from the premerger state as redundant positions are consolidated over a period of two to three years.
In addition, increased purchasing power should result in savings in areas such as information technology, telephone systems, fleet vehicles and advertising as volume discounts are applied on a larger scale. The merger should not substantially increase any category of annual operating expenses, apart from a modest increase in certain expenses
caused by the expansion in territory (such as travel expenses).
Management Succession
The merger will create a larger organization which will enhance opportunities to retain and attract talented employees.
Further, it will provide additional staff depth and create more opportunities to build succession at all organizational
levels. The benefits of combining the human capital pool run in both directions. Mountain Plains’ employees will have
opportunities to succeed to open positions within the combined organization. Also, American AgCredit employees will
fill areas where Mountain Plains lack particular expertise, depth or skill sets or are at risk of losing experienced personnel.
Improved Capital Position
The merger will improve capital position and regulatory capital ratios. This larger capital level will increase lending limits
which will better serve the larger loan customers by taking bigger positions in loans consistent with prudent
underwriting standards. Increased equity funding will also sustain loan growth into the future, as the larger absolute
capital level will increase lending limits, enabling the joint Association to take bigger positions in loans consistent with
prudent underwriting standards.
