The September 11, 2001 terrorist attack on the World Trade Center and the resulting massive destruction in the financial district of New York City significantly disrupted the financial markets. Many brokers and dealers that sell Farm Credit System securities were shut down.

Despite the damage to buildings and disruption of communication systems that were almost beyond imagination, the Federal Farm Credit Banks Funding Corporation remained open for business. On the day of and the days following the attack, the Farm Credit System's fiscal agent was able to sell billions of dollars in securities and successfully continue operations.

In recognition of this extraordinary accomplishment, the FCA Board adopted a resolution praising the Funding Corporation's management and employees for their work in keeping the funding pipelines open throughout this unprecedented test of our nation's financial systems. The FCA Board noted that throughout the ordeal, the Funding Corporation staff worked tirelessly and diligently to maintain an uninterrupted flow of funds to farmers, ranchers, and rural America.

ules and the Uniform Performance Report. Previously, the public could obtain this information only by submitting a Freedom of Information Act request to FCA. The public now can view or download the information at no cost from the FCA Web site. FCA plans to add additional reports and data to its Web site in FY 2002.

Litigation

Louisiana Federal Land Bank Association, FLCA et al. v. FCA On June 30, 2000, the Farm Credit Bank of Texas and its affiliated Federal Land Credit Associations in Alabama, Mississippi, and Louisiana filed a Complaint for Declaratory Relief against FCA. The lawsuit in the U.S. District Court for the District of Columbia challenged our final rule deleting the consent requirements for outof-territory loan participations. On August 22, 2001, the U.S. District Court ruled against the plaintiffs' claims by granting summary judgment in our favor on each count of the complaint. The court stated, "[t]he FCA is responsible for the well-being of American farmers and their efficient access to credit. If, in FCA's judgment, this regulation provides the best possibility for achieving those goals, the court should not second-guess such policy decisions." On October 9, 2001, the plaintiffs filed an appeal to the U.S. Court of Appeals for the District of Columbia Circuit.

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Farmer Mac is regulated by FCA through its Office of Secondary Market Oversight (OSMO), which was established in 1992, as required by Public Law 102 237. The statute prescribes that OSMO be a separate office, reporting to the FCA Board, and that its activities, to the extent practicable, be carried out by individuals not responsible for the supervision of the banks and associations of the FCS.

In FY 2001, OSMO presented for the FCA Board's consideration a final Farmer Mac risk-based capital rule. Approved by the FCA Board on February 21, 2001, the final rule became effective on May 23, 2001. However, because of a one-year period to allow for the rule's orderly implementation, Farmer Mac will not be required to comply with all aspects of the rule until May 23, 2002. OSMO also provided for the annual examination of Farmer Mac conducted as of June 30, 2001, and the ongoing monitoring of its operations and condition throughout the year.

Farmer Mac conducts its business through two programs - Farmer Mac I and Farmer Mac II. Under the former, Farmer Mac purchases, or commits to

guaranteed by any instrumentality or agency of the U.S., or obligations backed by qualified loans. Under the latter, Farmer Mac purchases the guaranteed portions of farm ownership and farm operating loans, rural business and community development loans, and certain other loans guaranteed by USDA.

At September 30, 2001, Farmer Mac's net worth was $129.7 million, and its core capital remained above the minimum prescribed by section 8.33 of the Farm Credit Act. For the nine-month period ended September 30, 2001, net income was $10.8 million, up $3.2 million from the same period in 2000. Net income continued the increasing trend begun when the Farm Credit System Reform Act of 1996 (1996 Act) was signed into law on Febru ary 10, 1996. This legislation made positive revisions to Farmer Mac's operating authorities.

Farmer Mac's on- and off-balance sheet program activity continued to increase, reaching just over $4 billion at September 30, 2001, up $1.05 billion from a year earlier. Farmer Mac's ability to achieve this growth and its statutory mission was enhanced by the new operating authorities under the 1996 Act.

At September 30, 2001, Farmer Mac I loans purchased or guaranteed after the enactment of the 1996 changes to Farmer Mac's statutory charter (post-1996 Act loans) that were 90 days or more past due, in foreclosure, or in bankruptcy represented 2.16 percent of the principal amount of all post-1996 Act loans, compared with 1.80 percent at September 30, 2000. (Parmer Mac assumes 100 percent of the credit risk on post-1996 Act loans; pre-1996 Act loans are supported by at least a 10 percent subordinated interest that mitigates credit risk.) Higher delinquer.cy rates are likely during the first and third quarters of each year, as most Farmer Mac loans are paid semiannually.

At September 30, 2001, 97 percent of all post-1996 Act loans that were 90 days or more past due, in foreclosure, or in bankruptcy had an original loan-to-value (LTV) ratio of 70 percent or less. No such loans had an original LTV in excess of 80 percent, and the weighted average original LTV for all post-1996 Act loans was 49.4 percent. At September 30, 2001, Farmer Mac's reserve for losses totaled $14.7 million, compared with $10.0 million at September 30, 2000.

As the independent regulator of the Farm Credit System, the Parm Credit Adminis tration is responsible for protecting the public interest by ensuring the safety and soundness of the FCS. FCA regulations and policies must be sound and constructive, use a proactive approach, manage risks within reasonable costs, and reflect the continuing changes in, and the needs of, agriculture. We are committed to providing a flexible regulatory environment that recognizes market forces and enables the System to meet agriculture's and rural America's changing demands for credit and other related services within the authorities established by Congress. In so doing, our primary focus is to ensure the safety and soundness of the FCS.

To achieve our desired outcomes, the Board adopted two-strategic goals for FY 2000-2005.

1. Ensure the Farm Credit System fulfills its public mission to provide constructive, competitive, and dependable credit and related services for agriculture and

rural America.

2. Supervise risk to ensure the safety and soundness of the Farm Credit System

for the benefit of stakeholders.

Our Strategic Plan contains seven objectives designed to assist the Agency in accomplishing its strategic goals. In this section, we evaluate our accomplishment of these objectives by examining 11 performance measures.

During FY 2001, we continued the implementation of initiatives to accomplish our strategic goals and fine-tuning how we measure our performance. We are committed to improving efficiency, minimizing the cost burden on FCS borrowers, and helping our customers meet the challenges and opportunities of

the future.

We accomplished all but one of our performance measures. We completed seven of the nine Board actions scheduled for FY 2001, which was a 78 percent completion rate, short of our goal of 90 percent.