Transcript 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
•
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
Farm Commercial Banks
Farm assets reached $1.02
trillion at the end of 2001.
Farm Commercial Banks
Commercial banks continue
to be the largest holder of
agricultural loans, with the
Farm Credit System being the
second largest holder.
Farm Commercial Banks
The interest rate reductions by
the Federal reserve created a
more favorable borrowing
environment for agricultural
producers in 2001.
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.
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.
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 capitalto-asset ratio was 10.06, slightly lower
than the 10.48 percent in 2000.
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.
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.
Farm Credit System
Major Financial Indicators
Annual Comparison
Total Farm Credit System
At and for 12 months ended
30-Jun-02
Gross Loan Volume
$86.2 B
30-Jun-01
$78.8 B
30-Jun-00
$71.7 B
Source: FCS Reports to Investors – Quarterly Information Statements &
Call Reports Received from System Institutions
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.
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.
Farm Credit System
Major Financial Indicators
Annual Comparison
Total Farm Credit System
At and for 12 months ended
Accruing Restructured Loans
30-Jun-02
30-Jun-01
30-Jun-00
$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
1.24%
1.28%
1.47%
Nonperforming Loans/Gross Loans
Source: FCS Reports to Investors – Quarterly Information Statements &
Call Reports Received from System Institutions
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.
Farm Credit System
Major Financial Indicators
Annual Comparison
Total Farm Credit System
At 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%
Source: FCS Reports to Investors – Quarterly Information Statements &
Call Reports Received from System Institutions
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.
Farm Credit System
Major Financial Indicators
Annual Comparison
Total Farm Credit System
At and for 12 months ended
Net Income
30-Jun-02
$934 M
30-Jun-01
30-Jun-00
$864 M
$660 M
Return on Assets
1.81%
1.81%
1.51%
Return on Equity
11.44%
11.66%
9.79%
2.75%
2.81%
2.74%
Net Interest Margin
Source: FCS Reports to Investors – Quarterly Information Statements &
Call Reports Received from System Institutions
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
8/3/02
2/3/02
8/3/01
2/3/01
8/3/00
1 Month
2/3/00
8/3/99
2/3/99
1.000
8/3/98
2/3/98
8/3/97
2/3/97
8/3/96
2/3/96
8/3/95
2/3/95
8/3/94
2/3/94
8/3/93
2/3/93
8/3/92
Historical Rates
U.S. Treasury
9.000
8.000
7.000
6.000
5.000
4.000
3.000
2.000
10 Years
-
8/3/02
2/3/02
8/3/01
2/3/01
8/3/00
2/3/00
8/3/99
1 Month LIBOR
2/3/99
8/3/98
2/3/98
8/3/97
2/3/97
2.000
8/3/96
2/3/96
8/3/95
2/3/95
8/3/94
2/3/94
8/3/93
2/3/93
8/3/92
Historical Rates
LIBOR
9.000
8.000
7.000
6.000
5.000
4.000
3.000
10 Year LIBOR Swap
1.000
-
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
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
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
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
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
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.