Prompted by recent acquisitions in Texas and encouraged by rebounding crop values, Hibernia Corp. in New Orleans is ramping up its agricultural lending.
The $21.4 billion-asset company has set up an agricultural lending unit that it said would reduce approval time for farm production loans and let its ag lenders drum up more business among larger, more well-established farms.
The new unit would also centralize Hibernia's agricultural operations so that commercial lenders who might not know anything about ag lending will have somewhere to turn, said Malcolm Maddox, the chairman of Hibernia's northeast central region.
The unit, to be based in Bastrop, La., is set to open this month. Leo Nelson, Hibernia's Bastrop president and an experienced agriculture lender, will head the unit and will oversee agricultural loan production and policy throughout Hibernia's 285 branches in Louisiana and Texas.
Hibernia is already an active agricultural lender; its ratio of ag loans to total loans ranks 39th among U.S. banks, according to Federal Deposit Insurance Corp. statistics.
Its latest initiative is aimed, in large part, at boosting production in Texas, where it has acquired about 20 banks over the last decade. Its May acquisition of the $2.7 billion-asset Coastal Bancorp in Houston gave Hibernia its first operations in the Rio Grande Valley, an area that is a large producer of crops such as cotton, citrus fruits, sugar cane, vegetables, and melons.
Mr. Maddox said Hibernia is primarily interested in lending to producers that have at least 1,200 acres and are growing commodity row crops, such as rice, sugar cane, or soybeans. The borrowers must own at least part of the land that they farm and use up-to-date technology to farm it.
"We do not intend to be the ag bank for someone who is renting his land and leasing equipment," he said.
Rising crop values, too, have made ag lending a less dicey proposition than it was a few years ago. For example, the most recent yearend numbers from the Department of Agriculture show that, nationwide, the value of rice produced in the United States climbed 60% between 2001 and 2003, to $1.5 billion, while the value of cotton climbed 79%, to $5.6 billion.
Mr. Maddox said Hibernia wants to lend to farmers who primarily grow commodities because they are traded on major exchanges, such as the Board of Trade in Chicago, so prices are predictable. Crops such as sweet potatoes, which are also grown in Hibernia's area, typically have only a few buyers, and the market can be unpredictable, he said.
Though Hibernia operates in many rural markets, Mr. Maddox said not all of its branches are staffed by lenders with farm-lending expertise. Lenders without agricultural experience typically do not turn away walk-in business, but they often will not produce quick answers, either, he said.
"If they came across an opportunity before, they would ask so and so, who would direct them to so and so, who might eventually reach someone who has experience in agriculture," he said.
Now a lender can pick up the phone and call Mr. Nelson, who says he can work with them to underwrite the loan using new browser-based software that lets him, the lender in the field, and anyone else within the bank review the loan documents at the same time.
"With crop lending, you need to be ready - you can't make a crop loan in July when [a farmer] needed it in April," Mr. Maddox said.
The second benefit of having Mr. Nelson oversee agricultural lending is that it will standardize the agricultural lending process, so that Hibernia is focusing on the same kinds of producers in all of its regions, Mr. Maddox said.
"When you looked at the company as a whole, northeast Louisiana did agricultural loans like this, southwest Louisiana did them like that, and Texas did them another way," he said.
Jeff K. Davis, an analyst with First Horizon National Corp.'s FTN Midwest Research Securities Corp., said ramping up agricultural lending could help Hibernia build its business in Texas, though the business would probably always be a niche one.
Hibernia's success in agricultural lending, he said, would depend on the same factors as its overall success does: maintaining strong credit quality and reinvesting profits from slower-growing markets into faster-growing ones.
