FCA News Release 08-12

News Release

Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

For Immediate Release
NR 08-12 (07-10-08)
Contact: Martha Schober or Christine Quinn, 703-883-4056
E-mail: info-line@fca.gov
Web site: www.fca.gov

FCA Board Considers Impact of Midwest Flooding on the Farm Credit System

McLEAN, Va., July 10, 2008 — As a result of recent flooding in the Midwest, 241 counties have been declared disaster areas either by the Federal Emergency Management Agency, a state governor, or both, according to a Farm Credit Administration (FCA) Board briefing by FCA staff today.

Having just completed a survey of the Farm Credit System (FCS) institutions in the immediate flood region, FCA staff reported that, while there are more than 26,000 FCS borrowers in the affected region, a far fewer number actually suffered flood-related losses.

Of the $8 billion in estimated agriculture-related losses, corn and soybean crops were particularly affected. The floods disrupted planting, decreased expected yields, and triggered surges in crop prices.

Since a large percentage of all corn and soybeans were insured through the U.S. Department of Agriculture’s Risk Management Agency, these losses are not expected to significantly affect the ability of corn and soybean producers to repay their loans. However, these losses and the general increase in grain and other input costs may have a large, lingering impact on other borrowers, particularly livestock and other grain-dependent borrowers, such as ethanol producers.

The FCA survey revealed that System institutions responded quickly to the disaster by making reamortizations and deferments available to borrowers, by working individually with customers, and stepping up communication efforts with customers.

FCA’s initial response to the flooding was to reaffirm its disaster relief policy in a national press release commending FCS institutions for working with borrowers affected by the Midwest flooding. The agency also plans to monitor the commodity markets and ethanol and livestock margins carefully throughout the year and to encourage the affected institutions to stress-test their portfolios.

Preliminary Approval for Merger
In other business, the FCA Board granted preliminary approval today to merge First Ag Credit, FCS, and its subsidiaries with and into Capital Farm Credit, ACA, and its subsidiaries. Both institutions serve counties in Texas. If approved by the stockholders of First Ag Credit and Capital Farm Credit, the proposed merger will become effective on October 1, 2008. Capital Farm Credit, ACA, will be the continuing institution, and its office headquarters will remain in Bryan, Texas.

Office of Examination Report
According to a quarterly report presented by the Office of Examination (OE) to the FCA Board, the FCS remains financially strong as of March 31, 2008, and continues to meet the significant credit demands from its customer base, especially from cooperatives.

Asset quality remains high although examiners indicated that it is likely at its peak. Because of exceptional loan demand and asset growth, capital ratios to March 31, 2008, have continued a downward trend. Despite this decline, however, capital levels remain strong, with no institutions falling below regulatory minimums. Most institutions are considered well capitalized. Earnings and liquidity levels are excellent.

Overall, the CAMELS (capital, asset, management, earnings, liquidity, and sensitivity) ratings of System institutions remain very good, with 82 of 100 institutions rated 1 on a scale of 1 to 5. Examiners did note that four institutions received a rating of 3, which means these institutions are receiving special supervision.

Because of the volatility in the agricultural and credit markets, stress from the deteriorating general economy, and stress on certain portions of the agricultural sector, especially livestock, examiners will be closely monitoring the portfolios of System lenders.

To ensure the Agency has sufficient staff to monitor the System in the anticipated rising risk environment, OE is recruiting additional staff and hiring contract assistance.

Notational Votes
Since the June 12 FCA Board meeting, one notational vote has occurred. Notational votes are actions taken by the FCA Board between Board meetings.

On July 2, the FCA Board voted to tentatively waive the regulatory reporting requirement of an agricultural credit association for the potential violation discovered on May 14, 2008, of the Fair Credit Reporting Act. The waiver depends on the resolution to FCA’s satisfaction of the circumstances surrounding the violation.

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The Farm Credit Administration is the safety and soundness regulator of the cooperative Farm Credit System. FCA charters, regulates, and examines the 106 banks, associations, and service corporations of the System. System institutions make loans to agricultural producers and their cooperatives nationwide. Members of the FCA Board are Leland A. Strom, Chairman and CEO; Nancy C. Pellett; and Dallas P. Tonsager.

Note: FCA news releases are available on the Web at www.fca.gov.