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Southern Agriculture’s Current Financial Situation

Southern Agriculture’s Current Financial Situation. Alton K. McRee, President & CEO Federal Land Bank Association of South Mississippi, FLCA. Farm Commercial Banks. Agricultural banking industry remains strong. Farm Commercial Banks.

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Southern Agriculture’s Current Financial Situation

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  1. Southern Agriculture’s Current Financial Situation Alton K. McRee, President & CEO Federal Land Bank Association of South Mississippi, FLCA

  2. Farm Commercial Banks Agricultural banking industry remains strong.

  3. 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

  4. Farm Commercial Banks Farm assets reached $1.02 trillion at the end of 2001.

  5. Farm Commercial Banks Commercial banks continue to be the largest holder of agricultural loans, with the Farm Credit System being the second largest holder.

  6. Farm Commercial Banks The interest rate reductions by the Federal reserve created a more favorable borrowing environment for agricultural producers in 2001.

  7. Farm Commercial Banks Asset 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.

  8. Farm Commercial Banks Loan 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.

  9. Farm Commercial Banks Deposits 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.

  10. Farm Commercial Banks Earnings • 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.

  11. Farm Credit System Strong Financials – Few Signs of Stress (June 30, 2002) Gross loan volume was $86.2 billion, up 9.3 percent from a year ago.

  12. Farm Credit System Major Financial Indicators Annual Comparison Total Farm Credit System At and for 12 months ended30-Jun-0230-Jun-0130-Jun-00 Gross Loan Volume $86.2 B $78.8 B $71.7 B Source: FCS Reports to Investors – Quarterly Information Statements & Call Reports Received from System Institutions

  13. Farm Credit System Strong 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.

  14. Farm Credit System Strong 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.

  15. Farm Credit System Major Financial Indicators Annual Comparison Total Farm Credit System At and for 12 months ended30-Jun-0230-Jun-0130-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% Source: FCS Reports to Investors – Quarterly Information Statements & Call Reports Received from System Institutions

  16. Farm Credit System Strong Financials – Few Signs of Stress (June 30, 2002) Capital to asset ratio at 15.9 percent, up from 16.52 percent a year ago.

  17. Farm Credit System Major Financial Indicators Annual Comparison Total Farm Credit System At and for 12 months ended30-Jun-0230-Jun-0130-Jun-00 Capital/Assets 15.93% 15.62% 15.45% Surplus/Assets12.50% 12.03% 11.89% Source: FCS Reports to Investors – Quarterly Information Statements & Call Reports Received from System Institutions

  18. Farm Credit System Strong 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.

  19. Farm Credit System Major Financial Indicators Annual Comparison Total Farm Credit System At and for 12 months ended30-Jun-0230-Jun-0130-Jun-00 Net Income $934 M $864 M $660 M Return on Assets 1.81% 1.81% 1.51% Return on Equity11.44% 11.66% 9.79% Net Interest Margin 2.75% 2.81% 2.74% Source: FCS Reports to Investors – Quarterly Information Statements & Call Reports Received from System Institutions

  20. 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 Interest Rates

  21. Historical RatesU.S. Treasury

  22. Historical RatesLIBOR

  23. 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 Interest Rate Outlook – little change

  24. 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 Interest Rate Outlook – little change

  25. “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 Economic Outlook

  26. 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 Economic Outlook

  27. “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 Economic Outlook

  28. 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.

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