1 Members of The Farm Credit Council board and the Farm Credit Corporation of America board are the same. 2 Each District Farm Credit Council is governed by a local board of directors which, in most instances. has the same membership as the district Farm Credit Banks board. 3 Central Bank for Cooperatives. The Farm Credit Council In 1983, the 37 Farm Credit Banks established The Farm Credit Council in Washington, D.C. The Farm Credit Council is a federated trade association, affiliated with the National Council of Farmer Cooperatives, representing the interests of the Farm Credit System and other cooperative farm lending institutions before Congress and the administration. The Farm Credit Council and the District Farm Credit Councils described below are neither chartered nor examined by the Farm Credit Administration. The Farm Credit Council is governed by a 13-member board of directors. One member is elected by and from each of the 12 district Farm Credit boards and the Central Bank for Cooperatives board of directors. Members of The Farm Credit Council board and the Farm Credit Corporation of America board are the same. District Farm Credit Councils Regional trade associations called District Farm Credit Councils have been established by each of the 12 Farm Credit districts and the Central Bank for Cooperatives and are members of The Farm Credit Council in Washington. D.C. The 13 District Councils provide the structure for grassroots position development on legislative issues. Each District Farm Credit Council is governed by a local board of directors which, in most cases. is comprised of the same members as the district Farm Credit board. District Council membership is drawn from the Farm Credit banks and associations, other cooperative farm lenders, and the borrower-stockholders of these institutions. FARM CREDIT COUNCIL. An organization chart and information sheet for the Farm Credit System are provided for the record. The Farm Credit System Capital Corporation, established in 1985 and rechartered in 1986 by the Farm Credit Administration, was created to allocate financial resources among System entities and to acquire and service qualified nonearning assets from financially stressed System entities. The Capital Corporation is to ensure the System's continued viability by (1) mobilizing and using available System capital and reserves to assist ailing entities; (2) purchasing nonearning assets from System entities and restructuring, collecting, administering, and disposing of such assets; (3) providing technical assistance to System entities in connection with the administration of their loan portfolios, including the restructuring of loans to their borrowers; and if necessary, (4) receiving and administering any federal financial assistance that may be provided. To date, the Capital Corporation's operating expenses have been covered by the cash flows generated from the liquidation of assets in the Spokane and Omaha Districts and from management fees from the 34 banks participating in the purchase of those assets. The operating expenses for 1985 and 1986 were $829,000 and $3,937,000 respectively. The 1987 base operating budget is $9,700,000. This budget is subject to change if additional banks require financial assistance or as nonperforming assets are acquired from other System entities. The budget for 1988 has not been prepared. The Farm Credit Corporation of America is the central policy-making and service organization for the Farm Credit System. Major areas of responsibility are strategic planning, policy formulation, development of operating standards, and financial reporting. Its operating expenses are covered by assessment to it owners and by fees charged for services. The operating expenses for 1985 and 1986 were $3,881,000 (six months) and $8,854,000 respectively. The 1987 operating budget is $13,600,000 which includes System audit fees of $2,600,000. The budget for 1988 has not been prepared. The Federal Farm Credit Banks Funding Corporation manages the sale of System securities in the nation's money and capital markets through a network of security dealers and dealer banks. Net operating expenses of the Funding Corporation are paid by the 37 Farm Credit Banks as service fees to the Funding Corporation on a dollar for dollar basis. The operating expenses for 1985 were $8,320,000 and for 1986 they were $11,440,000 which included System audit fees of $4,350,000. As special needs of the System Finance Committee arise, projects have been funded through the Funding Corporation. In 1985 and 1986 special project fund expenses amounted to $3,248,000 and $817,000 respectively. The operating budget for 1987 is $7,000,000. The budget for 1988 has not been prepared. The Farm Credit Council is not a System entity. It is the trade association representing cooperative agricultural lenders including institutions of the Farm Credit System. The FCCA does not maintain data on the Council's budget. EXTENSION OF CREDIT EXAMINATION ACTIVITIES Mr. WHITTEN. Have all of the new Credit Examination Field Offices been established and staffed? If not, what is the schedule for completing establishment of these offices? Mr. NAYLOR. Eight of our ten field offices are operating in leased facilities while the Sacramento, CA, and Albany/Troy, NY, offices are in temporary space. They should be in leased offices by mid year. Mr. WHITTEN. Please provide a list of the Field Offices, current staffing, and additional staffing if proposed. Mr. NAYLOR. The FCA's Office of Examination currently has offices located at: Location Sacramento, CA. Current staffing 21 23 The Chief Examiner is conducting an extensive study to determine the proper staffing structure and levels of the Office of Examination. Insofar as the study is in process, the need for additional staff has not been determined. There is not, however, any existing proposal for additional staff. FINANCIAL STABILITY OF FARM CREDIT SYSTEM Mr. WHITTEN. What is the total amount of Federal Land Bank and Production Credit Association loans classified as nonaccrual? Mr. NAYLOR. The System reported as of December 31, 1986 that its nonaccrual loans increased to $7.07 billion, up from $5.323 billion at the end of 1985. The Federal land bank group reported $5.8 billion on nonaccrual loans in 1986, up $1.8 billion. The production credit associations reported a 7.9 percent increase in nonaccrual loans to $1.02 billion. Mr. WHITTEN. What percent of the respective portfolios does this represent? What is the dollar value and percentage of portfolio of other loans that would be considered high risk? Mr. NAYLOR. For the FLBs, this represents 18.4 percent of their net loans outstanding. For the PCAs, it is 9.5 percent. As of this date, the System has reported its other high risk loans on a Systemwide basis. Included in the other high risk category as of the end of 1986 is $1.0 billion of loans. Mr. WHITTEN. What criteria is used to classify a loan as high risk? Mr. NAYLOR. These loans are 90 days or more past due but are well secured and in the process of collection. FARM CREDIT COUNCIL. While the term "high risk loans" is not specifically defined in current regulation or Farm Credit System Standards, there is a consensus of opinion that assets requiring a specific allowance due to identified risk, portions of assets classified doubtful or loss, nonaccrual, restructured, and other high risk loans as defined by FCA in the Federal Register would be included. These categories are defined as follows in Regulation 12 C.F.R. 621.2: (15) Nonaccrual Loans.-A loan shall be considered nonaccrual if and as long as: (i) Any amount of the outstanding principal and all past and future interest accruals, considered over the full term of the loan, are determined to be uncollectible for any reason; or (ii) It has been classified "loss" as a result of a periodic credit evaluation; or (iii) The loan is severely past due and is not adequately secured, in process of collection, and fully collectible with respect to all principal and interest. Conversely, a severely past-due loan may be excepted from nonaccrual status only if it is adequately secured and in process of collection and fully collectible. Restructured. This category was split into two by FCA regulation. They are noted as "formally restructured loans" and "other restructured and reduced rate loans." These are defined as follows: (8) Formally Restructured Loans.-Loans that are "troubled debt restructurings," as defined in Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings, as promulgated by the Financial Accounting Standards Board. (19) Other Restructured and Reduced Rated Loans.-These loans shall have the same meaning as formally restructured loans except that the concessions granted to the borrower have not been incorporated into the contractual terms and conditions of the loan by amendment or other revision. (18) Other High Risk Loans.-All loans that: (i) Are past due 90 days or more but adequately secured and in the process of collection; or (ii) Are in the process of collection, bankruptcy, or foreclosure; or (iii) Are in severe default; or (iv) Do not meet the other criteria of this paragraph for classification as other high risk loans, but management has information that causes serious doubt as to the borrower's willingness or ability to perform in accordance with the terms and conditions of the loan agreement. PROVISION FOR LOAN LOSSES Mr. WHITTEN. Please provide for the record a table showing the most recent information for combined allowances for loan losses and the net charge-offs of Federal Land Banks, Production Credit Associations, and the Banks for Cooperatives. Please provide the information for fiscal years 1981 through 1986. Mr. NAYLOR. As a result of the Farm Credit Amendments Act of 1985, the System is responsible for reporting its financial condition to its stockholders and to investors. To date, the System has reported total allowance for loan losses of $3.635 billion, or 6.2 percent of loans outstanding. This compares to $3.190 billion, or 4.5 percent of loans outstanding, at the end of 1985. We have contacted the System to provide more specific data to the subcommittee. FARM CREDIT COUNCIL. [The information follows:] |