The failure of New Frontier Bank in Greeley, Colo., may affect up to a third of Colorado's 140 dairy farms. The Federal Deposit Insurance Corporation closed the bank April 10, and then re-opened the bank April 13th under FDIC control to allow depositors 30 days to find new banks.
The FDIC will not disclose the number of dairies that have loans at the bank, citing privacy rules. New Frontier's 4th quarter 2008 "call report,” which was last updated January 29, 2009, shows agricultural loans totaling $780,638,000. That amount represents roughly 49% of the bank's total loan portfolio.
FDIC will close New Frontier branches this Friday, May 8, but has given borrowers no deadline as to when they must have refinancing in place. "The FDIC will eventually sell those loans that have not been refinanced,” says David Barr, an FDIC spokesperson. "Typically, that takes 90 to 120 days. We have not even reached the 30-day mark yet.”
The problem, say industry sources, is that few lenders will touch these loans. Due to weak milk prices and high feed costs, the value of cattle has likely dropped well below loan values. The only likely buyers of the loans will be liquidators, who will buy the paper for pennies on the dollar and then force the cattle to be liquidated.
One out for these herds is the Cooperative Working Together (CWT) program, which closed its bidding process last Friday. But it's unknown at this point how many of the dairies put in a bid nor whether any of those bids will be accepted.