Pub. 14 2019-2020 Issue 5

NEBRASKA BANKERS ASSOCIATION 23 Fully registered Dealer Bank • Not FDIC Insured • No Bank Guarantee • May Lose Value FROMONE COMMUNITY BANK TOANOTHER. Country Club Bank Capital Markets Group has assisted community banks build high- grade bond portfolios that reflect specific markets expectations, product preference, income goals and overall risk parameters, since 1985. Operating in over 30 states, the Capital Markets Group is always ready to meet the needs of our fellow community bankers. We keep investing simple so that banks can focus on what really matters— lending to the communities who support us. • Portfolio Strategy, Fixed Income Sales and Service • Bond and Securities Underwriting/Trading • balanCD Brokered CD and TBA Programs We speak the same language. the associations by the bank which funds them, lists two key asset-quality ratios as of Sept. 30, 2019, and then in the right columns shows the amount of change in those two ratios between Dec. 31, 2018, and Sept. 30, 2019. The percentages in red in the right columns indicate that the association believed it faced a reduced likelihood of incurring a loss on its loans despite an overall deterioration in agri- cultural finances this year. Percentages in black acknowledge an increased risk of loss. For the FCS associations as a whole (the last line in the table) the Allowance for Loan Losses (ALL) percentage actu- ally dropped slightly, by .004% to .527% from .531% at the end of 2018, when de- teriorating credit conditions among FCS borrowers should have produced a higher ALL percentage during 2019. Less than half of the associations (32 of 68) boosted their ALL as a percentage of total loans outstanding while that percentage at another five associations did not change. Thirty-one associations, holding almost one-third of all association loans, actually reduced their ALL percentage during the first nine months of 2019. Increased credit-quality problems during 2019 also were evidenced by an increase in non-performing assets as a percent of loans outstanding plus other property owned (OPO), which consists of repossessed real estate and non- real-estate assets. The FCA defines non- performing assets as consisting of OPO, nonaccrual loans, accruing restructured loans and accruing loans 90 or more days past due. Of the 68 associations, 38 reported an increase in non-performing assets as a percent of loans plus OPO during the first three quarters of 2019 (red numbers) while 28 showed a lower percentage; two were unchanged. For the associations collectively, the non- performing asset percentage increased .09 percent, from .94 percent at the end of 2018 to 1.03% at Sept. 30, 2019. FCS is experiencing increased regulatory failures An increasingly evident problem within the FCS is regulatory failure, specifically the inability of the FCA and the four FCS banks to adequately monitor accounting and credit risk management practices within FCS associations. Previ- ous FCWs reported the essentially forced merger in 2015 of Farm Credit Services Southwest, which servedmost of Arizona and southern California, into FarmCredit West following “a sudden significant increase in the level of delinquent loans affecting an identifiable portion of the association’s lending portfolio.” Lone Star Ag Credit, serving portions of central and North Texas, issued a Notification of Non- Reliance on Previously Issued Financial Statements for 2016 and the first quarter of 2017 due to just-discovered “appraisal and accounting irregularities.” Lone Star has resolved those problems and preserved its independence. More recently, July 1, 2019, American AgCredit (AAC) acquired all of the assets and liabilities of Farm Credit Services of Hawaii (FCSH), with each stockholder of FCSH becoming a stockholder of AAC. FCSH will be formally dissolved in the next few months. It appears that FCSH was a failed institution, yet the FCA has said nothing about its disappearance beyond approving a “proposed plan to combine” the associations. Bert Ely — continued on page 24