Greenstone Farm Financing for Northern Michigan - Ben Mahlich

FINANCING AND MONEY MANAGEMENT

From a lender’s perspective…

Ben Mahlich, Regional Vice President

Farm Credit System

GSE established in 1916

80+ associations

• GreenStone ranks sixth in assets

Four system banks

500,000 customers nationally

$260 billion total assets

$199 billion in loans, leases and related services to customers

13,000 employees nationwide

System Bank Chartered Territories

AgriBank District

GreenStone’s Territory & Branches

GreenStone Overview

Serving Michigan and northeast Wisconsin

36 locations

475 employees

$6.9 billion owned and managed assets

23,000 customers

$163 million total patronage paid since 2005

• $29 million paid from 2013 net earnings

96% customer satisfaction

GreenStone History 2000 - 2013

2000 and 2003 mergers

Annual growth in loan volume

• 10.3% compounded growth rate

• $1.6 billion to $6.6 billion

Members: 14,000 to 23,000

Net operating rate reduced 68 basis points

Loan spreads reduced 32 basis points

Financial services: $5.6 million to $7.4 million

AgBus3.77%

Broilers1.45%

Cash Crops20.14%

Dairy22.35%

Eating Places0.75%Fruit

3.47%Gov. Guar.

0.58%

Grain andField Beans

0.68%

Greenhouseand Nursery

2.53%

Hogs3.71%

Landlords0.94%

Livestock2.91%

Misc.6.05%

Non-AgriBus.0.01%

Part-time/No Major Ag Prod

17.22%

Potatoes2.09%

Poultry0.61%

Rural Home3.12%

SugarBeets1.74%

Timber4.56%

Vegetables1.31%

Portfolio Diversification

As of December 31, 2013

Volume by Enterprise

Products and ServicesReal estate lending

Land loans

AgriBusiness financing

Operating lines of credit

Construction financing

Home mortgages

Equipment loans

Facility and equipment lease financing

AgDirect equipment lending

Farm cash management accounts

Fund held accounts

Commercial and consumer credit cards

Crop insurance

Life and disability insurance

Tax planning and preparation

Accounting software and services

Appraisal services

Market Segments

Traditional farmers

• Young, beginning and small farmers

Commercial producers

Capital markets

Country living residents

• Part-time farmers

Market Segment

As of December 31, 2013

Number of Customers by Segment

AgriConsumer12,097, 51%

Traditional10,768, 45%

Commercial693, 3%

Capital177,1%

Market Segments

As of December 31, 2013

Volume by Segment

AgriConsumers, 1,149, 18%

Traditional2,701, 42%

Commercial1,638, 25%

Capital Markets 948, 15%

Farm Market Share

As of June 30, 2013

65%

55%

83%

57%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

MI WI

Dec-03 Dec-04

Dec-05 Dec-06

Dec-07 Jun-08

Dec-08 Jun-09

Dec-09 Jun-10

Dec-10 Jun-11

Dec-11 Jun-12

Dec-12 Jun-13

GreenStone77%

Commercial Banks77%

Credit Availability

From a lender’s perspective…

Credit Considerations

Capital position drives credit availability

• GreenStone has 14.7% permanent capital ratio

Credit available with built in controls and conditions

Sound record keeping and business planning

Risk mitigation to limit volatility

Cash flow and working capital

Weakening land values may increase conservatism

Common Credit Standards

Owner equity

Working capital

Term debt repayment capacity

Loan to appraised value

Loans and Financing

From a lender’s perspective…

Loan Pricing

Pricing expectations

• Yield curve will lift and flatten

• Rates at or very near low

• Inflation will rise which will take interest rates with it (when? and how far?)

Financial institutions have new rules

• Capital/Liquidity requirements

• Financial regulatory reform

• Servicing regulations

Financing Process

Initial meeting

Application

Data gathering

Credit analysis

Decision and customer feedback

Appropriate Data Needed

Historical profit and loss statements

Balance sheet

Projections

Business plan

SWOT analysis

Competitor analysis

Industry analysis

Risk management

Credit Enhancement Tools

Use of SBA or FSA guarantees

MEDC support programs

Grants

State and national disaster assistance programs

Agricultural Expansion Opportunities

There are both large and small scale investment opportunities within Michigan’s food processing industry

Given the state’s economic situation, location, diversity, and population center access, there is GREAT potential to expand processing

GreenStone’s Values

Customer first

Deliver quality

Get involved

Do the right thing