Magazine article American Banker

Farm Credit System Earnings Dip Sharply

Magazine article American Banker

Farm Credit System Earnings Dip Sharply

Article excerpt

CHICAGO -- The depressed agricultural economy nearly wiped out earnings in the second quarter for the struggling Farm Credit System and could lead to losses for the year.

Combined income for all Farm Credit Banks was $5.6 million in the second quarter, down from the $126.3 million recorded a year earlier. The drop in earnings was due mainly to an increase in the loan-loss provision in the second quarter to $137 million from $70 million in the first quarter.

Net chargeoffs also were up, soaring to $117 million from $42 million in the first quarter. Loan volume dropped to $74 billion, down from $75.8 billion in the first three months of the year.

The results were reported by the Federal Farm Credit Banks Funding Corp., which issues bonds to fund the system's banks.

The Farm Credit System is the largest agricultural lender in the nation, with about $74 billion of the total $212 billion in farm loans. It is made up of 37 banks that provide short- and long-term agricultural loans.

Because it lends strictly to agriculture, the current depressed agricultural economy has affected its performance. The funding corporation said the significantly increased net chargeoffs and provision for loan loss were a result of declining collateral values in several districts and of higher loan delinquences.

Nonaccrual loans for the second quarter increased to $2 billion, up from $1.6 billion at the end of the first quarter. The June 30 loan-loss allowance was $745 million.

The agency also said the costly bailout of troubled Farm Credit Banks in Spokane, Wash. …

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