Percent of Total Loans Asset Quality Loan volume continued to grow and loan quality remained high for the year ended September 30, 2001. Gross loans increased 9.8 percent to $80.1 billion. Nonperforming loans declined to 1.2 percent of total loans compared with 1.5 percent a year earlier. Nonaccrual loans were 1.0 percent of total loans compared with 1.3 percent at September 30, 2000. At September 30, 2001, the allowance for loan losses represented 216 percent of 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. Nonperforming Loans in the Farm Credit System, 1995-2001 Source: Farm Credit System Quarterly Information Statement. Third Quarter 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 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 claims. 9 Nonperforming loans consist of nonaccrual loans, accruing restructured loans, and accruing loans 90 days or more past due. Gross Loans Outstanding (millions) Percentage of Total Assets 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. 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. 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 PCRS greater than 13.2 percent. For System banks, PCRs ranged from 12.1 percent to 19.5 percent. Farm Credit System Capital as a Percentage of Total Assets, 1995-2001 The System fulfills its overall mission by utilizing its authority to lend to the agricultural and rural economy. Through changes in law since the System's original authorization in 1916, System lending authorities have evolved to include . long-term agricultural real estate loans, including rural home loans; short- and intermediate-term agricultural loans; loans to certain farmer-owned agricultural processing facilities and farm-related businesses; loans to farmer-owned agricultural cooperatives; loans that finance agricultural exports; and loans for rural utility cooperatives and rural water and waste facilities. Nationwide, the System had $80.1 billion in gross loans outstanding as of September 30, 2001. Agricultural producers represented by far the largest borrower group with $61.1 billion, or more than three-quarters of the total dollar amount of loans outstanding. As required by law, al borrowers are also stockholder-owners of System institutions. The System has more than 430,000 stockholders; about 85 percent of these are farmers with voting stock. Based on USDA farmer numbers, about 20 percent of all U.S. farmers are stockholders of System institutions. About half of the System's total loan volume outstanding (49.6 percent) was in long-term real estate loans, one-quarter (26.7 percent) in short- and intermediate-term loans to agricultural producers, and 20.3 percent to cooperatives. International loans (export financing) represented 3.3 percent of the System's loan portfolio. Rural home loans made up about 2.5 percent of total loans (included in long-term real estate loans). Loans to finance rural utilities (included in cooperative loans) comprised more than $6.5 billion, or 8.1 percent, of overall loan volume; this segment has roughly doubled over the past five years. Lease receivables (included in both the domestic cooperatives and the short- and intermediate-term categories) now account for about 2.5 percent of the overall System portfolio. Total loan dollars outstanding have grown by $7.1 billion, or 9.8 percent, during the year ended September 30, 2001, and by $19.2 billion, or 31.5 percent, over the past five years. All loan categories grew compared with a year earlier, and all except international loans grew over the five-year period. Total members served increased about 3 percent during the past year. With lending growth occurring throughout the country, the System continues to show a strong commitment to its mission of service to agriculture even during a time when many farmers are plagued by weak farm prices. 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 intermediate-term lending are farm-related business and marketing and processing loans. Together these lending areas made up almost half the growth in the short- and intermediate-term 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). Another growth factor is the result of associations availing themselves of Farmer Mac's long-term standby purchase commitment (guarantee) program. Under this program, associations obtain a guarantee on agricultural mortgage loans by paying an annual fee to Farmer Mac. Based on the guarantee, the associations are permitted to hold less capital on the guaranteed loans and can then leverage their capital into additional growth. Together these growth areas have provided opportunities for portfolio diversification and risk reduction for System institutions. * Nonperforming Loans are defined as Nonsccural Loans, Accruing Restructured Loans, and Accrual Loans 90 or More Days Past Due Total capital includes mandatonly redeemable preferred stock, protected borrower stock, and restricted capital (amount in Farm Credit Insurance Fund). • Income ratios are annualized 7 Defined as operating expenses divided by average gross loans, annualized ⚫ Cannot be derived through summation of above categories due to intradistrict and intra-System eliminations Source: Call Reports received from the Farm Credit System and the Federal Farm Credit Banks Reports to investors of the Farm Credit System. 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." 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 to meet the credit needs of agriculture and rural America in the 21st century, and identify any regulatory barriers that may impede OFI access to FCS funding. Participations Another way the System provides funding to other lenders in agriculture and rural America is through loan participations. System institutions can buy and sell participations with non-FCS institutions, including commercial banks. Participation activity helps small agricultural banks facing capital constraints or high commodity concentration risks to better serve their customers. Some FCS institutions with high commodity concentrations use participations as a tool to help diversify the concentration risk inherent in their lending territory. The use of participations between System and non-System lenders continues to grow. Participations represented 5.1 percent of total loans in the System as of September 30, 2001, versus 1.9 percent five years earlier. In April 2000, FCA adopted regulations that removed outof-territory consent for loan participations, a change that further encouraged growth in participation activity, particularly at the association level. FCS institutions reported $4.1 billion in outstanding participations purchased from non-System lenders as of September 30, 2001, compared with $3.3 billion a year earlier, an increase of $882 million, or 27 percent, in the past year. This increased level of participation activity illustrates the System's use of available authorities to diversify risk in their portfolios and better serve their customers. FCS Market Share of Farm Debt Reflecting its continuing service to agriculture and rural America, the Farm Credit System's year-end 2000 share of total farm debt edged higher, to 26.4 percent from 26.2 percent at yearend 1999. Market share of total farm debt reached a low of 24.4 percent in 1994 and a high of 34.0 percent at year-end 1982. Over the past six years, both the System and commercial banks 11 OFIs include commercial banks, thrifts, credit unions, trust companies, agricultural credit corporations, and other specified agricultural lenders. Market share percentages are for farm business debt and are based on U.S. Department of Agriculture annual year-end estimates. USDA also periodically surveys debt sources used by farm cooperatives. According to the most recent survey (1997), the System provided about 54 percent of the funds borrowed by those cooperatives surveyed. |