http://www.businesswire.com/news/home/20091103006418/en
NEW YORK--(Business Wire)--
The Farm Credit System today reported combined net income of $721 million and
$2.018 billion for the three and nine months ended September 30, 2009, as
compared with combined net income of $817 million and $2.370 billion for the
same periods last year. The decline in the System`s combined net income for the
first nine months of 2009 primarily resulted from increases in the provision for
loan losses and net noninterest expense offset, in part, by an increase in net
interest income.
"Once again the Farm Credit System had solid performance despite the challenging
economic environment," remarked Jamie B. Stewart, Jr., President and CEO of the
Federal Farm Credit Banks Funding Corporation. "While credit quality in certain
sectors of the loan portfolio remains under pressure, the System`s profitability
has allowed us to build our capital levels. Capital as a percentage of assets
has grown from 12.7% at December 31, 2008 to 13.6% at September 30, 2009,
supporting the System`s mission to provide for the financing needs of
creditworthy farmers and ranchers throughout the United States."
Results of Operations
Net interest income increased $144 million and $437 million to $1.342 billion
and $3.942 billion for the three and nine months ended September 30, 2009, as
compared with the same periods of 2008. These increases in net interest income
resulted from increased net interest spreads driven by overall market conditions
and, to a lesser extent, higher levels of average earning assets. Average
earning assets grew $5.187 billion or 2.6% to $203.819 billion for the three
months ended September 30, 2009 and $10.285 billion or 5.3% to $203.272 billion
for the nine months ended September 30, 2009, as compared with the same periods
of the prior year.
Net interest margin increased 22 and 17 basis points to 2.63% and 2.59% for the
quarter and nine months ended September 30, 2009, as compared with 2.41% and
2.42% for the same periods of the prior year. Positively impacting the net
interest margin was an increase in the net interest spread of 40 and 37 basis
points to 2.41% and 2.36% for the three and nine months ended September 30,
2009, as compared with the net interest spread of 2.01% and 1.99% for the same
periods of 2008. The increases in the net interest spread were primarily
attributable to the System Banks` ability to more quickly reprice their
outstanding debt in this lower interest rate environment and to System
institutions` ability to increase pricing on loans as a result of a less
competitive market, as many of the System`s competitors have reduced lending to
the agricultural sector. During the first nine months of 2009, the Banks called
debt totaling $47.4 billion and were able to lower their cost of funds relative
to the interest rate earned on their assets, which did not change as quickly.
Negatively impacting the net interest margin for the three and nine months ended
September 30, 2009 was a decline in income earned on earning assets funded by
noninterest-bearing sources (principally capital), as yields on average earning
assets declined in this low interest rate environment.
The System recognized higher provisions for loan losses of $259 million for the
third quarter of 2009 and $733 million for the nine-month period ended September
30, 2009, as compared with provisions for loan losses of $61 million and $124
million for the three- and nine-month periods ended September 30, 2008. The
financial stress in certain sectors of the agricultural economy, as well as the
weakness in the general economy, continued to adversely impact certain System
borrowers during the first nine months of 2009. The provisions for loan losses
were primarily due to credit deterioration in those agricultural sectors that
continue to be impacted by volatility in commodity and other input prices, and
reduced demand for products, such as ethanol, dairy and hogs. In addition,
credit deterioration occurred in those sectors impacted by the overall downturn
in the general economy, including the communications and forestry industries.
Noninterest income decreased $28 million and $73 million to $134 million and
$299 million for the three- and nine-month periods ended September 30, 2009, as
compared with the same periods of the prior year. The decreases for both the
three- and nine-month periods ended September 30, 2009 were primarily due to
losses of $42 million and $103 million on the other-than-temporary impairment of
certain available-for-sale securities, as compared with impairment losses of $9
million and $15 million recognized during the comparable periods of 2008. Also
contributing to the decline for the three- and nine-month periods of 2009 were
decreases in fees for financially related services, primarily multi-peril crop
insurance, and mineral income. Partially offsetting these decreases were
increases in loan-related fee income and gains recognized on the sale of certain
investments.
Noninterest expense increased $8 million and $108 million to $450 million and
$1.350 billion for the three- and nine-month periods ended September 30, 2009,
as compared with the same periods of the prior year. The increase for the nine
months ended September 30, 2009 was principally due to an increase in salary
expense of $26 million and an increase in employee benefit costs of $64 million.
The increase in salary expense was primarily due to higher staffing levels at
certain System institutions and to annual merit increases. Employee benefit
costs increased primarily due to increases in defined benefit pension expenses
resulting from a decrease in the expected return on pension plan assets and to
increased amortization of past actuarial plan losses.
The provisions for income taxes were $46 million and $140 million for the three
and nine months ended September 30, 2009, as compared with $40 million and $141
million for the three and nine months ended September 30, 2008. The effective
tax rate increased from 5.6% for the nine months ended September 30, 2008 to
6.5% for the nine months ended September 30, 2009.
Loan Portfolio Activity
Gross loans increased $763 million or 0.5% to $162.186 billion at September 30,
2009, as compared with $161.423 billion at December 31, 2008. The slight growth
in loans experienced by the System during the first nine months of 2009 is
reflective of the softening in loan demand due to the decline in commodity
prices, adherence to prudent credit underwriting standards and the overall
downturn in the U.S. and global economies. Further, in light of the current
economic conditions, System managements have carefully managed their loan growth
in order to maintain conservative capital ratios, while continuing to fulfill
their mission.
Credit Quality
The System`s accruing loan volume was $158.054 billion at September 30, 2009, as
compared with $159.141 billion at December 31, 2008. Nonaccrual loans increased
$1.055 billion and $1.850 billion to $4.132 billion at September 30, 2009, as
compared with $3.077 billion at June 30, 2009 and $2.282 billion at December 31,
2008. These increases in nonaccrual loans were primarily due to deterioration in
the credit quality of loans to borrowers in certain agricultural sectors,
primarily ethanol, dairy, hogs and forestry. The deterioration in the ethanol,
dairy and hog sectors was the result of decreases in revenue from lower prices
and increases in input costs, particularly for borrowers who purchased
crops/feed at elevated prices in 2008 for future production/breeding. The
forestry sector was impacted by the downturn in the U.S. general economy. At
September 30, 2009, 58% of nonaccrual loans were current as to principal and
interest, as compared with 75% at December 31, 2008. Nonaccrual loans as a
percentage of total loans increased from 1.41% at year-end 2008 and from 1.89%
at June 30, 2009 to the current level of nonaccrual loans to total loans of
2.55%.
Nonperforming loans (which consist of nonaccrual loans, accruing restructured
loans and accruing loans 90 days or more past due) increased $1.047 billion and
$1.883 billion to $4.299 billion at September 30, 2009, as compared with June
30, 2009 and December 31, 2008. Also, nonperforming assets (which consist of
nonperforming loans and other property owned) increased $907 million and $2.046
billion to $4.508 billion at September 30, 2009, as compared with June 30, 2009
and December 31, 2008. Nonperforming assets represented 2.78% of the System`s
loans and other property owned at September 30, 2009, an increase from 2.20% at
June 30, 2009 and 1.52% at December 31, 2008.
Other credit quality indicators generally declined during the first nine months
of 2009, but continued to reflect generally favorable levels. Loans classified
under the Farm Credit Administration`s Uniform Loan Classification System as
"acceptable" or "other assets especially mentioned" as a percentage of loans and
accrued interest receivable declined to 94.8% at September 30, 2009, as compared
with 97.1% at December 31, 2008. Loan delinquencies (accruing loans 30 days or
more past due) as a percentage of accruing loans were 0.63% at September 30,
2009, as compared with 0.36% at September 30, 2008.
The allowance for loan losses was $1.323 billion at September 30, 2009, as
compared with $936 million at December 31, 2008. Net loan charge-offs of $358
million were recorded during the first nine months of 2009, as compared with net
loan charge-offs of $34 million for the same period of the prior year.
Approximately one-third of the net loan charge-offs were related to loans to
ethanol producers, while the remaining charge-offs were primarily related to the
other sectors experiencing deterioration in credit quality. Also impacting the
allowance for loan losses for the nine months ended September 30, 2009 was the
transfer of $12 million from the reserve for unfunded commitments to the
allowance for loan losses because the commitments were funded during this
period.
The allowance for loan losses as a percentage of total loans was 0.82% at
September 30, 2009 and 0.58% at December 31, 2008. The allowance for loan losses
was 29% of the System`s total nonperforming assets and 32% of its nonaccrual
loans at September 30, 2009, as compared with 38% and 41% at December 31, 2008.
Risk funds (total capital and the allowance for loan losses), which is a measure
of risk-bearing capacity, totaled $30.633 billion at September 30, 2009 and
$28.060 billion at December 31, 2008, and increased to 18.9% of System loans at
September 30, 2009, as compared with 17.4% at December 31, 2008.
Liquidity and Capital Resources
Cash and investments increased $243 million to $44.050 billion at September 30,
2009, as compared with $43.807 billion at December 31, 2008. The System`s
liquidity position increased to 182 days at September 30, 2009, as compared with
177 days at December 31, 2008.
Total capital increased $2.186 billion during the first nine months of 2009 to
$29.310 billion. The increase was principally due to net income earned and
retained and to a decrease in accumulated other comprehensive loss. The System`s
surplus increased $1.401 billion to $24.549 billion during the first nine months
of 2009. Capital as a percentage of total assets increased to 13.6% at September
30, 2009, as compared with 12.7% at December 31, 2008, due to the increase in
capital and the slowdown in loan growth.
About the Farm Credit System
The Farm Credit System is a federally chartered network of borrower-owned
lending institutions and related service organizations. The System specializes
in providing financing and related services to borrowers in the agricultural and
rural sectors through the five System Banks and 90 affiliated Associations.
Unlike commercial banks, the Banks are not authorized to take deposits and they
principally obtain their funds through the issuance of Systemwide Debt
Securities.
Additional Information
Copies of this press release, as well as other information regarding the System,
including its annual and quarterly information statements, are available on the
Federal Farm Credit Banks Funding Corporation`s website at
www.farmcredit-ffcb.com. For further information and copies of annual and
quarterly information statements, contact:
Daniel M. Bienz, Vice President
Financial Analysis and Disclosure
Federal Farm Credit Banks Funding Corporation
10 Exchange Place, Suite 1401
Jersey City, NJ 07302
(201) 200-8070
E-mail - DBienz@farmcredit-ffcb.com
Forward-Looking Statements
Any forward-looking statements in this press release are based on current
expectations and are subject to uncertainty and changes in circumstances. Actual
results may differ materially from expectations due to a number of risks and
uncertainties. More information about these risks and uncertainties is contained
in the System`s annual and quarterly information statements. The System
undertakes no duty to update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
FARM CREDIT SYSTEM
COMBINED FINANCIAL STATEMENT DATA
(in millions)
STATEMENT OF CONDITION DATA September 30, December 31,
2009
2008
(unaudited)
Cash and investments $ 44,050 $ 43,807
Loans 162,186 161,423
Less: allowance for loan losses (1,323 ) (936 )
Net loans 160,863 160,487
Accrued interest receivable 2,349 1,970
Other assets 4,807 5,174
Restricted assets 3,214 2,915
Total assets $ 215,283 $ 214,353
Systemwide Debt Securities:
Due within one year $ 62,930 $ 65,722
Due after one year 114,220 112,643
Total Systemwide Debt Securities 177,150 178,365
Subordinated debt 1,550 1,050
Other bonds 1,323 1,404
Other liabilities 5,950 6,410
Total liabilities 185,973 187,229
Preferred stock 1,771 1,771
Capital stock 1,492 1,423
Restricted capital 3,214 2,915
Accumulated other comprehensive loss (1,716 ) (2,133 )
Surplus 24,549 23,148
Total capital 29,310 27,124
Total liabilities and capital $ 215,283 $ 214,353
STATEMENT OF INCOME DATA For The For The
Quarter Ended Nine Months Ended
September 30, September 30,
(unaudited)
2009 2008 2009 2008
Interest income $ 2,244 $ 2,688 $ 6,843 $ 8,173
Interest expense (902 ) (1,490 ) (2,901 ) (4,668 )
Net interest income 1,342 1,198 3,942 3,505
Provision for loan losses (259 ) (61 ) (733 ) (124 )
Noninterest income 134 162 299 372
Noninterest expense (450 ) (442 ) (1,350 ) (1,242 )
Income before income taxes 767 857 2,158 2,511
Provision for income taxes (46 ) (40 ) (140 ) (141 )
Net income $ 721 $ 817 $ 2,018 $ 2,370
Federal Farm Credit Banks Funding Corporation
Daniel M. Bienz, 201-200-8070
Vice President
Financial Analysis and Disclosure
DBienz@farmcredit-ffcb.com
Copyright Business Wire 2009
