Quarterly Report on 

FCS Condition 

September 8, 2022

Yuri Katrinic

Hal Johnson

FCA Board Meeting 

September 2022

1

Tab 2
Topics for Open Session

▶ Economic Conditions Affecting the Farm Credit System

▪Macroeconomic update

▪Drought risks

▪Rural infrastructure outlook

▶ Farm Credit System Condition and Performance

▪System growth and loan portfolio

▪Earnings and capital

▪Financial Institution Rating System (FIRS)

2
Economic Conditions Affecting 

the Farm Credit System

Yuri Katrinic

Senior Economist 

Office of Data Analytics and Economics

3
Economic risks continue: Inflation, interest 

rates, and geopolitical tensions

▶ Inflation has plateaued with an 

uncertain future trajectory.

▶ Rising interest rates slow housing 

market and investment.

▶ Ukraine situation remains volatile, 

despite grain export deal. 

▶ Risk of global energy crunch this winter.

4 *Personal Consumption Expenditures

Source: Bureau of Economic Analysis

3.5%

4.0%

4.5%

5.0%

5.5%

Jul-21 Oct-21 Jan-22 Apr-22 Jul-22

PCE* price index, excluding food and energy 

Year-over-year change
Threat of global energy crunch driving price 

volatility for fuel and fertilizer

▶ European reliance on Russian natural 

gas drives price volatility. 

▶ Shutdowns and low deliveries on Nord 

stream pipeline ahead of winter.

▶ Volatility in natural gas will be reflected 

in fertilizer prices and production.

▶ Higher oil and gas prices would affect 

inflation and the broader economy. 

Source: New York Mercantile Exchange 5

Natural Gas

Crude Oil

0%

50%

100%

150%

Jan Feb Mar Apr May Jun Jul Aug

Change in price, year-to-date
What to look for in food and agriculture amid 

economic challenges

Source: BLS - retrieved from FRED 6

2.3%

-1.0%

1.1%

-2.9%

-4.4%

-6%

-4%

-2%

0%

2%

4%

2006 2007 2008 2009 2010

▶ CPI for food up 10.9% in the past year.

▶ Consumers could move away from 

dining out and high-value products if 

their wages do not keep pace.

▶ Export impacts due to weak global 

economy and strong dollar.

Historical example: Food-away-from-home expenditures

Year-over-year change
Drought continues to affect producers in the 

Plains and Southwest

Source: Current Map | U.S. Drought Monitor (unl.edu) 7

0% 25% 50% 75% 100%

Wyoming

Colorado

Arizona

New Mexico

Utah

California

Nevada

% of land in drought

Colorado Basin states 

0% 25% 50% 75% 100%

Nebraska

Kansas

Texas

Oklahoma

% of land in drought

Plains states

 Severe 

 Extreme

 Exceptional
Dwindling Colorado River reservoirs are a longterm problem for farmers in the Southwest

8 Source: Bureau of Reclamation, Census Bureau

Tier 1 restrictions

Tier 2 restrictions

1,000

1,050

1,100

1,150

1,200

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

▶ Western aridification over 20 years. Lake Mead surface elevation, feet above sea level

▶ Federal shortage declaration 

imposed automatic cuts. More cuts 

likely to come.

▶ Agriculture accounts for 80% of 

water usage from Lake Mead.

▶ Population growth in last decade:

▪ Salt Lake County, UT +15.1%

▪ Clark County, NV +16.1%

▪ Maricopa County, AZ +15.8%
Economic risks and drought contribute to 

erratic commodity markets

Source: Intercontinental Exchange, Chicago Board of Trade, CME Group 9

Lumber

Corn

Wheat

Cotton

-75%

-50%

-25%

0%

25%

50%

75%

Jan Feb Mar Apr May Jun Jul Aug

Change in futures price, year-to-date
Housing market slowing down as mortgage 

interest rates rise

10 Source: National Association of Realtors

▶ Housing prices have stalled or fallen in 

much of the country.

▶ Slower pace of sales and construction.

▶ Impact on the broader economy. 

▶ Implications for the System: 

▪Rural home loans

▪Refinancing

▪Forestry 4

5

6

7

Jul-21 Oct-21 Jan-22 Apr-22 Jul-22

Millions

Existing Home Sales (Annualized)
Rural infrastructure in the System

Source: Federal Farm Credit Banks Funding Corporation - Second Quarter 2022 Information Statement 11

▶ Infrastructure risk factors are distinct 

from those affecting other sectors.

▶ Strong loan growth over the past 5 

years.

▶ Portfolio mostly consists of loans to 

rural utility cooperatives. 

▪Electricity: Distribution, 

Generation

▪Telecommunications

▪ Water and Sewer 0%

2%

4%

6%

Production

and

Intermediate

Agribusiness Real Estate

Mortgage

Residential

Real Estate

Rural

Infrastructure

Share of loan volume: Less-than-acceptable 

June 30, 2022
Future of electricity co-ops is shaped by 

renewable energy and policy change

Source: EIA - U.S. Battery Storage Market Trends 12

▶ Electricity co-ops will be using more renewables and charging more EV’s.

▶ Grid will have to accommodate these changes.

▶ Grid scale battery storage expected to double from 4.6 to 10 GW just this year.

▶ Inflation Reduction Act and last year’s infrastructure bill include tax credits for:

▪Co-ops, to use more renewables 

▪Carbon capture technology

▪Grid scale battery storage

▪Consumers to purchase EVs

▪USDA grants and loans for rural broadband
Questions

THANK YOU

13
Farm Credit System 

Condition and Performance 

as of 

June 30, 2022

Hal Johnson

Sr. Financial Analyst

Office of Examination

14
Topics ▶ System Growth ▶ Loan Portfolio ▶ Earnings ▶ Capital ▶ FIRS

15
The System experienced continued loan growth

▶ Real estate mortgage lending slows.

▶ Production and intermediate term 

loan volume drops on seasonal 

repayments.

▶ Strong commodity prices drive sharp 

increase in agribusiness lending.

▶ Year-to-date loan growth at a district 

level varied, ranging from 2.2% for 

the AgriBank district to 5.8% for 

Texas.

Source: Federal Farm Credit Banks Funding Corporation 

Information Statements

16

3.6% 4.4%

0.2%

1.3%

10.8%

2.4%

5.4%

-4.0%

1.8%

3.1% 3.9%

2.8%

-6.7%

16.0%

5.6%

Total Loan

Portfolio

RE Mortgage

(47%)

Production &

Intermediate

(16%)

Agribusiness

(20%)

Rural Infrastructure

(11%)

2000

2021

2022

Loan Growth by Loan Type

(% change year-to-date through June)

+0.7% Qtr -0.8% Qtr

+4.7% YTD +3.9% YTD

+11.9% 12M +10.6% 12M

Total 

Assets

6/30/22

$456.3

billion

Gross

Loans

6/30/22

$357.3

billion
System loans continued to perform well

(1) accruing loans 30 days or more past due as a % of accruing loans

Source: Federal Farm Credit Banks Funding Corporation Information Statements 17

3.5

3.3

5.6

4.7

0.7

0.6

5.2

4.9

7.9

6.6

1.1

1.2

6.8

6.8

10.4

6.1

3.3

2.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0

Total

Portfolio

Real Estate

Mortgage

Production &

Intermediate

Agribusiness

Rural

 Infrastructure

Other

Jun-22 Jun-21 Jun-20

% of Loans Classified Less than Acceptable

Qtr chg. +118M or 7.1%

YTD chg. +191M or 12.1%

12 month

chg. - $92M or -4.9%

Q2 '21 0.24%

Q4 '21 0.27%

 Nonperforming 

Assets

(6/30/22)

 Delinquencies (1)

(6/30/22) 0.26%

$1.769

billion
Nonperforming assets edged higher, but 

remain low

▶ Nonperforming assets were 0.50% 

of loans outstanding and other 

property owned, up from 0.46% at 

year-end.

▶ Nonaccrual loans totaled $1.214 

billion, up 3% from year-end, but 

down 15% from a year ago.

▶ 63.8% of nonaccrual loans were 

current as to principal and 

interest, compared with 63.7% at 

year-end.

Source: Federal Farm Credit Banks Funding Corporation Information Statements

(1) calculated as a percentage of gross loans outstanding and other property owned (OPO)

18

$2,022

$2,282 $2,347

$1,897

$1,578

$1,769

0.78%

0.83% 0.82%

0.60%

0.46% 0.50%

Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Jun-22

Nonaccrual Loans

Accrued Restructed

Loans

Accruing 90 days+ Past

Due Loans

OPO

% Nonperforming Assets

% of Nonperforming Assets (1)
Spreads declined on higher funding costs; average

earning assets up sharply on strong loan growth

Source: Federal Farm Credit Banks Funding Corporation Information Statements

19

** annualized

3.75 

4.21 4.40 

3.56 

3.16 3.22 

1.50

2.09 2.36

1.30

0.83 0.98

2.25 

2.12 

2.04 

2.26 2.33 

2.24 

2.48 2.46 2.42 2.46 2.46 

2.38 

2017 2018 2019 2020 2021 YTD '22 **

% Rate: Earning Assets % Rate: Interest-Bearing Liab.

% Net Interest Spread % Net Interest Margin

5.0%

4.1%

4.9%

6.5%

8.8%

10.8%

2Q-17 2Q-18 2Q-19 2Q-20 2Q-21 2Q-22

Average Earning Assets 

(% change year-over-year)

Net Interest Spread | Net Interest Margin
System earnings up year-over-year

Source: Federal Farm Credit Banks Funding Corporation Information Statements

20

$2,273 $2,337 $2,466

$2,649 $2,668

$2,873

$3,441 $3,567

50 

160 117 87 66 

158 

(30)

1 

Year-to-date System Net Income

Year-to-date Provisions for Loan Losses

System Earnings ($M)

$498

$140

$31

$23

$173

$51

$126

NII* - Vol.

Change

NII - Rate

Change

Loan

Provisions

Noninterest

Income

Noninterest

Expense

Other ** Net

Income

Income Statement Changes

(YTD dollar change from the same period a year ago)

*NII - net interest income

** Includes taxes and net gains/losses on other transactions 
System is well-capitalized; capital-to-asset 

ratio declined on strong asset growth

Source: Federal Farm Credit Banks Funding Corporation Information Statements

21

$51.4

$54.5

$57.3

$61.2

$64.8 $68.4 $68.9

16.3%

17.0% 17.2% 17.4%

16.8% 16.8%

15.1%

Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-21 Jun-22

System Capital

Total Capital less Restricted

Capital-to-Assets Ratio

Total System Capital ($B)

15.9%

17.1%

15.1%

13.1%

14.7%

15.9%16.3% 16.9%16.3%17.2%17.4% 16.8%

15.1%

0%

4%

8%

12%

16%

20%

24%

% year-over-year change in Assets Capital-to-Assets ratio

Impact of asset growth on the 

capital-to-asset ratio
Composite FIRS ratings remained strong

FIRS Ratings

( based on 6/30/22 financial reporting )

▶ Composite FIRS ratings reflect the 

System’s sound financial condition.

▶ Over 92% of System Banks and 

Associations have a Composite FIRS 

rating of 1 or 2.

▶ Institutions rated 3 or lower account 

for less than 1.5% of System assets.

Composite FIRS Ratings

Farm Credit System Banks and Associations

Source: FCA’s FIRS ratings database 22

46 44 39 34 30 32 33 35

29 31

29

32 35 35 32 27

3 2

5 7 7 4 4 5

0

10

20

30

40

50

60

70

80

90

1/1/16 1/1/17 1/1/18 1/1/19 1/1/20 1/1/21 1/1/22 7/1/22

Number of Rated Institutions

1 Rated 2 Rated 3 Rated or lower
Summary and final points

▶ The challenge facing the U.S. economy is balancing economic 

growth with efforts to lower inflation.

▶ Input price risk remains a major concern for producers.

▶ Drought persists in the Western U.S.; water availability a 

longer-term issue for ag producers, especially in the Southwest.

▶ The System reported strong financial results for the first half of 

2022, including higher earnings and continued strong portfolio 

credit quality.

▶ System institutions are well-capitalized with significant riskbearing capacity. 23
Questions

THANK YOU

24