Pub. 13 2018-2019 Issue 5

NEBRASKA BANKERS ASSOCIATION 23 Bert Ely — continued on page 24 have sufficient authority and resources to meet the needs.” The GAO has three months to conduct this study. One can easily imagine this study being linked to the study discussed above even though this study is limited to FCS lending to Indian tribes or enrolled members of Indian tribes. A third section in the bill, 5414, gives the FCAsixmonths to study “loan risk”within the FCS. Specifically, the study will analyze and compare “the financial risks inherent in loans made, held, securitized, or purchased” by FCS banks, associations, and Farmer Mac and “how such risks are required to be capitalized under statutes and regulations” currently in effect. This study is especially timely given growing financial distress in American agriculture — see the next article. FCA Report on Conditions Affecting the FCS and Agriculture At the Dec. 13 meeting of the three-member FCA board of directors, FCA staff presented a report on economic conditions affecting the FCS. Read the report at https://bit.ly/2AuPbyY. Pages 6–9 present information about farm income and key commodity price trends while pages 10–14 report on troubling trends in some farmsectors. Pages 18–22 present data about FCS institutions. While the FCS is well-capitalized, the credit-quality of its loans is deteriorating, as shown in charts on page 19. From September 2015 to September 2018, the FCS’s non-performing loans as a percent of total loans rose from 0.76 percent to 0.89 percent. From September 2016 to September 2018, production and intermediate credit loans classified as less than acceptable role from 9.4 percent to 10.6 percent while real estate loans so classified rose from 5 percent to 7 percent. Given the continuing weakness in farm income, those percentages are likely to rise. Not surprisingly, weaknesses are developing within the FCS. While the total number of FCS institutions decreased from 77 at the end of 2016 to 73 at Sept. 30, 2018, the number of highest- rated institutions (comparable to CAMELS 1 ratings) declined from 44 to 35, while the number of institutions with ratings equivalent to a CAMELS 3 or worse rose from 2 to 5. These numbers will likely get worse. FCS America Is Using ‘magnify’ to Get Accounts From Banks A banker recently brought to my attention the “Magnify” program FCS of America (FCSA) recently launched to expand the banking services it provides to its borrowers. FCSA, the largest FCS association (total assets of $29.2 billion at Sept. 30, 2018), serves all of Iowa, South Dakota, Nebraska and Wyoming. A banker recently reported to me that customers of his have experienced difficulty importing into Magnify account data from his bank. Worse, FCSA seems unable to rectify this problem. Instead, FCSA personnel have encouraged the farmer to overcome this problem by moving his deposit accounts to FCSA. Leaving aside the fact that FCS institutions should not be offering banking services, one can readily wonder why Magnify is incompatible with commercial bank deposit-accounting sys- tems, such as QuickBooks. These are anti-competitive actions neither the FCA nor the agriculture committees should tolerate. Financial Indicators Highlight Key FCS Trends Every quarter, the FCA publishes a summary of financial indicators for the FCS that ag lenders should review periodically to stay abreast of overall trends for the FCS. See summary at https://bit.ly/2SydrHB. The first of the three tables provides balance sheet and income statement data for the fivemost recent calendar quarters for the FCS as awhole as well as combined data for the four FCS banks and the FCS’s direct lending associations for those same periods. The second table provides annual data for last five years for the FCS and for the same groupings of FCS banks and associations while the third table shows a comparison of FCS bank and association data summarized by the four FCS districts. View district maps at https://bit.ly/2R4W3xo.These tables give bankers a good overview of recent trends in the FCS and its key organizational components. Although highly summarized, the third table revealed some interesting differences among the four FCS districts. For ex- ample, the operating expense ratio (expenses divided by loans Given the continuing weakness in farm income, those percentages are likely to rise. Not surprisingly, weaknesses are developing within the FCS.