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Southern Agriculture’s Current Financial
Situation
Alton K. McRee, President & CEOFederal Land Bank Association
of South Mississippi, FLCA
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Farm Commercial Banks
Agricultural banking industry remains strong.
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Farm Commercial Banks
• Agricultural credit continued its upward trend in 2001, expanding 4.8 percent
• Marking the ninth consecutive increase, total outstanding farm credit reached $192.8 billion in 2001
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Farm Commercial Banks
Farm assets reached $1.02
trillion at the end of 2001.
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Farm Commercial Banks
Commercial banks continue to be the largest holder of
agricultural loans, with the Farm Credit
System being the second largest holder.
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Farm Commercial Banks
The interest rate reductions by the Federal reserve created a more
favorable borrowing environment for
agricultural producers in 2001.
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Farm Commercial BanksAsset Quality
• Asset quality remained
favorable for farm banks in 2001.
• Ratio of non-performing loans to total loans increased slightly to 1.13 percent at farm banks, up from 0.96 percent in 2000.
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Farm Commercial BanksLoan Losses
• Banks across the country
have increased loan loss reserves.
• Loan loss provisions represent close to 0.4 percent of total loan volume for farm banks.
• Net charge-offs were 0.9 percent of total loans at all commercial banks, up from 0.66 in December 2000.
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Farm Commercial BanksDeposits and Capital
• Farm bank deposit liabilities increased 7.6 percent in 2001 to $164.5 billion
• The median farm bank equity capital-to-asset ratio was 10.06, slightly lower than the 10.48 percent in 2000.
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Farm Commercial BanksEarnings
• Farm banks reported a net income of little more than $2 billion in 2001, virtually unchanged from the previous year.
• The median ratio for return on assets decreased slightly from 1.11 to 1.05 percent.
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Farm Credit SystemStrong Financials – Few Signs of Stress
(June 30, 2002)
Gross loan volume was $86.2 billion, up 9.3 percent from a
year ago.
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Farm Credit SystemMajor Financial Indicators
Annual Comparison
Source: FCS Reports to Investors – Quarterly Information Statements & Call Reports Received from
System Institutions
Total Farm Credit SystemAt and for 12 months ended 30-Jun-02 30-Jun-01 30-Jun-00
Gross Loan Volume $86.2 B $78.8 B $71.7 B
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Farm Credit SystemStrong Financials – Few Signs of Stress
(June 30, 2002)
Non-performing loans were 1.24 percent of
gross loans, down from 1.28 percent a
year ago.
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Farm Credit SystemStrong Financials – Few Signs of Stress
(June 30, 2002)
Accruing loans 90 or more days past due
remain very low at $112 million, 15 percent less
than a year ago, but more than double the level two years ago.
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Farm Credit SystemMajor Financial Indicators
Annual Comparison
Source: FCS Reports to Investors – Quarterly Information Statements & Call Reports Received from
System Institutions
Total Farm Credit SystemAt and for 12 months ended 30-Jun-02 30-Jun-01 30-Jun-00
Accruing Restructured Loans $96 M $107 M $124 M
Accrual Loans 90 or More Days Past Due $112 M $132 M $50 M
Nonaccural Loans $859 M $771 M $879 M
Nonperforming Loans/Gross Loans 1.24% 1.28% 1.47%
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Farm Credit SystemStrong Financials – Few Signs of Stress
(June 30, 2002)
Capital to asset ratio at 15.9 percent, up
from 16.52 percent a year ago.
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Farm Credit SystemMajor Financial Indicators
Annual Comparison
Source: FCS Reports to Investors – Quarterly Information Statements & Call Reports Received from
System Institutions
Total Farm Credit SystemAt and for 12 months ended 30-Jun-02 30-Jun-01 30-Jun-00
Capital/Assets 15.93% 15.62% 15.45%
Surplus/Assets 12.50% 12.03% 11.89%
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Farm Credit SystemStrong Financials – Few Signs of Stress
(June 30, 2002)
Net income for first six months of 2002
was $934 million, up 8.1 percent from first
6 months of 2001.
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Farm Credit SystemMajor Financial Indicators
Annual Comparison
Source: FCS Reports to Investors – Quarterly Information Statements & Call Reports Received from
System Institutions
Total Farm Credit SystemAt and for 12 months ended 30-Jun-02 30-Jun-01 30-Jun-00
Net Income $934 M $864 M $660 M
Return on Assets 1.81% 1.81% 1.51%
Return on Equity 11.44% 11.66% 9.79%
Net Interest Margin 2.75% 2.81% 2.74%
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Interest Rates
Rates are low– Rates at lowest levels in over 40 years
• Overnight rate
• 10 Year Treasury
– Home Mortgage rates• 6.22% - August average
• 6.05% - week of September 19th
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Historical RatesU.S. Treasury
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1.000
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1 Month 10 Years
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Historical RatesLIBOR
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1.000
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/92
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1 Month LIBOR 10 Year LIBOR Swap
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Interest Rate Outlook – little change
• Comments by Fed Governors seem to indicate no change in policy
– The current policy is “very accommodative and it is intentionally that way to help the economy move forward and expand more rapidly” - Chicago Federal Reserve Bank President Michael Moskow (9/9/02)
– ”Given what we know now about economic conditions, an accommodative stance seems appropriate to me” - San Francisco Federal Reserve President Robert Parry (9/12/02)
– “Doesn't sound to us like a signal he's changed his mind on the appropriateness of the current level of interest rates” - comment on 9/12/02 Congressional Testimony by Alan Greenspan
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Interest Rate Outlook – little change
• Federal Reserve OMC Meeting – 9/24/02– Next meetings 11/6 and 12/10
• Bloomberg survey of Bond Dealers (9/20/02)– 9 predict no change before March 2003– 4 predict increase in March 2003
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Economic Outlook
“The road to recovery is turning out to be bumpy” Chicago Federal Reserve Bank President Michael Moskow
• 1.1% growth in 2nd quarter
• Blue Chip Economic Indicators survey– 2.7% in 3rd quarter– 2.9% in 4th quarter
• Treasury Secretary Paul O-Neill– 3% to 3.5% pace by yearend
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Economic Outlook
• Economic news continues to be Good News/Bad News– 0.8% increase in retail sales in August– 2.2% decrease in new home construction in August
• Decrease in Midwest
• Growth in South
– Jobless rate dropped to 5.7% in August– Initial jobless claims remained above 400,000
• Indicating a slowing job market
– Decrease in trade deficit– Decrease in factory orders
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Economic Outlook
• “Statistics on the economy have been generally pretty good.”
– Merrill Lynch senior economist
• “The economy broadly looks like it’s moving ahead.”
– JP Morgan Chase senior US economist
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Conclusion
• Relatively low inflation and interest rates should help keep the farm sector strong.
• Government payments will again play an important part on the ability of farmers to pay down their existing debt and maintain a strong balance sheet.
• Rising farm-land prices and cautious borrowing helped keep farm balance sheets sound in 2001.
• Weak export demand and low commodity prices are likely to persist in 2002.