14

nonperforming loans and 2.54 percent of total loans compared with 179 percent and 2.68 percent a year earlier. Delinquencies (accrual loans more than 90 days past due) remained minimal.

Earnings

The System's $1.3 billion in net income for the nine months ended September 30, 2001, was up $247 million from the same period the previous year. Net interest margins were stable with a Systemwide net interest margin of 2.79 percent for the nine months ended September 30, 2001, compared with 2.74 percent for the same period in 2000. Noninterest expenses for the first nine months of 2001 were higher than for the same period in 2000, but because loan volume increased, the ratio of noninterest expenses to total loans fell slightly. Noninterest income for the first

$90

$80

$70

$60

$50

$40

$30

$20

$10

Nonaccrual Loans

Past Due Loans

10. Nonperforming loans consist of nonaccrual loans, accruing restructured loans, and accruing loans 90 days or more past due.

Gross Loans Outstanding (billons)

15

nine months of 2001 was $281 million compared with $205 million for the same period the previous year because of increased loan fees and interest income related to tax refund daims.

The Federal Farm Credit Banks Funding Corporation reported that provisions for income taxes for the first nine months of 2001 were down $79 million from the same period in 2000, because several ACAs recognized refunds on taxes previously paid on earnings from their long-term real estate portfolios. Other ACAS expect to receive similar refunds through year-end 2001 as a result of a model settlement agreement reached with the Internal Revenue Service during the third quarter of 2000.

Figure 3

Capital"

The System continues to build capital through increased earnings. Total capital ($15.7 billion) as a percentage of total assets ($99.1 billion) increased from 13.8 percent as of September 30, 1995, to 15.8 percent as of September 30, 2001 (see Figure 3). Accumulated surplus alone now represents more than 12 percent of System assets and 77 percent of total capital.

All institutions met their regulatory core surplus ratio requirement at September 30, 2001. Permanent capital ratios (PCR) at System associations ranged from a low of 10.4 percent to a high of 30.6 percent. Ninety percent of System associations had,

11. In addition to accumulated surplus and borrower stock, total capital inclades Perpetual Preferred Stock, Restricted Capital, and Accumulated Other Comprehensive Income It does not include Mandatorily Redeemable Term Preferred Stock or Protected Capital One Farm Credit Bank issued $300 million in Perpetual Preferred Stock in 2001. Restricted Capital ($1.7 billion at September 30, 2031) represents the total assets under the control of the Farm Credit System Insur ance Corporation, including asses that have been identified for estimated insurance obligations and the Farm Credit Insurance Fund balance. Accumulated Other Comprehensive Income ($44 million at September 30, 2001) for the System consisted mostly of unrealized holding gains and losses on available-for-sale securities One System bank issued $225 million of Mandatorily Redeemable Term Preferred Stock Such stock is not included in "Total Capital" though it quali fies for certain regulatory capital purposes Protected Capital ($52 milion at September 30, 2001 consists of Borrower Stock, Participation Certificates, and Allocated Equities that were outstancing as of January 6, 1988, or were issued or allocated before October 8, 1988. Protection of certain borrower capital is provided under the Farm Credit Act, which requires FCS institutions, when retiring protected borrower capital to retire sach capital at par or stated value regardless of its book value. If Mandator ly Redeemable Term Preferred Stock and Protected Capital were included in total capital, the System's capital as a percentage of total assets would be 16.1 percent as of September 30, 2001.

The System's increased loan volume over the past 12 months stems mainly from long-term real estate loans (up $4.2 billion or 11.7 percent) and short- and intermediate-term loans (up $2.5 billion or 13.1 percent). Among the fastest growing components of short- and intermediateterm lending are farm-related business and marketing and processing loans. Together these lending areas made up almost half the growth in the short- and intermediateterm loan category. Other reasons for the growth have been increases in loan participations purchased from non-System lenders (up 27 percent) and increases in lease receivables (up nearly 20 percent for the Leasing Corporation). Another growth factor is the result of associations availing themselves of Farmer Mac's longterm standby purchase commitment (guarantee) program. Under this programn, associations obtain a guarantee on agricultural mortgage loans by paying an

Other Financing Institutions System banks also serve agriculture by funding and discounting short- and intermediate-term loans for non-System lending institutions, which are known as "other financing institutions" or OFIs, 19 These loans are made to eligible farmers, ranchers, aquatic producers and harvesters, farm-related businesses, and non-farm rural homeowners. Section 1.7(b) of the Farm Credit Act provides that the funding and discount services of Farm Credit banks are available, on a reasonable basis, to any OFI that is significantly involved in agricultural or aquatic lending and demonstrates a continuing need for supplemental funds to meet the needs of agricultural or aquatic borrowers. On September 30, 2001, 29 OFIs had $309 million in loans outstanding from System banks. Outstanding loans to OFIS

increased by 18.8 percent in the past year, but still represent only 0.5 percent of the System's loans to producers.

In July 2001, FCA held a public meeting to seek input about various regulatory approaches that could increase the access of potential OFIS to Farm Credit bank funding. The public meeting supported the FCA Board's continuing goal of increasing availability of affordable credit to farmers and ranchers. The meeting sought to identify new methods and tools

13. OPIs include commercial banks, thrifts, credit unions, trust companies, agricultural credit corporations, and other specified agricultural lend

era.

Since 1933, the Farm Credit Administration has been committed to ensuring the availability of dependable, affordable credit to agriculture and rural America. Farmers, ranchers, and their cooperatives need financing today more than ever, and FCA is working to ensure that the Farm Credit System remains a safe and sound source of credit that is able to respond to the changing needs of its customers.

In August, the FCA Board held a public meeting in Des Moines, lowa, to hear suggestions on possible regulatory revisions to the funding and discount relationship between Farm Credit System banks and other financing institu

and non-Systern lending institutions to form partnerships to give farmers, ranchers, cooperatives, farm-related businesses, and rural utilities more flexible credit opportunities.

At the meeting, FCA Chairman Michael M. Reyna and Board Member Ann Jorgensen heard the voices and views of System customers, as well as bankers, commodity groups, cooperatives, FCS associations, non-System lenders, and others. While most participants underscored the need for additional funding to fill the credit gap in rural America, recommendations varied from slight modifications to extensive changes to FCA regulations. The testimony presented at the hearing is posted on the PCA's Web site at