Pennsylvania banker Bob Badger doesn't know if the consolidation of two key Farm Credit Banks in the Mid-Atlantic region has made them tougher to compete against or not.

All he knows is that the new, bigger bank has taken away some of his best business.

"Just in the past 30 days, I've lost two fairly large accounts to them because of rates," said Mr. Badger, vice president for ag lending at $630 million-asset Bank of Lancaster County in Strasburg. The loans totaled about $1.5 million.

At the beginning of April, the Farm Credit Bank of Baltimore and the Farm Credit Bank of Columbia (S.C.) merged into AgFirst Farm Credit Bank, based in Columbia. The merger resulted in 120 jobs being cut. Management believes the merger will save $9 million this year, mostly from salaries.

The merger is the latest in a consolidation of the Farm Credit System that could force a new competitive dynamic in the agricultural lending business.

At its height in the 1980s, the Farm Credit System had 37 banks and about 1,000 local lending associations.

The subsequent farm crisis forced the organization to slim down. Recent mergers, including St. Louis-St. Paul in 1992 and Omaha-Spokane last year, were done to decrease overhead.

Further, geographic diversification is a way to spread the risk, which officials said was one reason for the Baltimore-Columbia merger.

The system now encompasses six regional farm credit banks and two specialized banks.

AgFirst and its 40 affiliated community lending organizations have assets of $10.1 billion and loans outstanding of more than $8 billion.

AgFirst now serves organizations in 15 states along the East Coast and the Ohio River valley as well as Puerto Rico.

The farm credit banks provide the funding for lending by numerous affiliates. The banks raise money on the capital markets. Stephen Blakely, a spokesman for the Farm Credit Council in Washington, D.C., said service won't be affected by the merger, but borrowing and administrative costs will.

Mr. Badger believes that may be the case in his area.

Until recently, Bank of Lancaster County could hold its own against the farm credit bank lenders.

But now, "The rates they're quoting are unreal," Mr. Badger said. "Even at prime, they undercut us by three-quarters of a percent."

However, other bankers don't believe the Baltimore bank's move from the area will affect competition one way or another between commercial banks and local farm credit lending organizations.

"I think our local office is strong enough, no matter where they want to call their local headquarters," said Thomas Trott, a farm lender with $71 million-asset First Bank of Frederick, in Maryland.

He said his biggest competition remains larger banks - one of which recently beat out First Bank on a $600,000 loan.

The local farm credit lender "actually refer(s) people to us when it's something they can't handle," he said.

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