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Serving: Central

Making the transition to direct lender status

The last time commodity prices were this depressed, some Farm Credit System lenders shut their doors. At the height of the mid-1980s farm recession, the Farm Credit Bank of Jackson, Miss., went into receivership. The federal land banks in the Jackson region eventually were taken over by the Farm Credit Bank of Texas.

The successors of those institutions, such as the Federal Land Bank of North Mississippi, are making sure they weather the current recession and continue to serve their member borrowers.

“The stockholders can be proud that 2000 was another great performance year for the association, and that the association is in very sound financial condition, especially considering the current agricultural economic conditions,” said Ed Hester, chairman of the North Mississippi Land Bank Association's board of directors.

Speaking at its annual meeting in Oxford, Miss., Hester said that, despite the current economic climate, the association has continued to grow its loan portfolio and increase its net interest income.

“The board reviewed loan actions taken by the staff in 2000 that resulted in the closing of 226 loans for $48.5 million in new money loaned,” he said. “This increased outstanding loan volume from $183 million to $210.7 million for a 14.8 percent increase.”

Gary Gaines, the association president, told members that net interest income increased from $2.29 million in 1999 to $5.67 million in 2000 as the association completed its transition from an agency lender for the Farm Credit Bank of Texas to a direct lender.

The association increased it provision for loan losses from 1999's $105,000 to $369,000 in 2000, again as part of the transition to direct lender status. Net income declined from $3.43 million to $3.37 million with the increase in the provision for loan losses.

“The move to direct lender was a bold step taken by your association in 1999, but it has proven to be a prudent one,” said Hester, a farmer from Benoit, Miss. “The association has more direct control over its operations as major decisions now are made at the local level based on local characteristics and circumstances.

“While much more responsibility and accountability are placed on your board and management, direct lender status places us in a better position to remain competitive and a strong financial institution.”

Gaines said the association is projecting increases in net interest income for the next three years, despite the troubled economic conditions.

At the end of 2001, the FLB of North Mississippi anticipates net interest income of $6.33 million, up from 2000's $5.67 million. For 2002, the projection is for $6.63 million and 2003, $7.09 million.

The credit quality of the land bank's outstanding loans remains strong with nearly 98 percent of its long-term loans in the acceptable range. Association officials project that substandard loans could increase from 1.16 percent to 1.35 percent of the total loan portfolio by the end of 2001.

In December, Hester said, the board approved another patronage payment to stockholders based on the interest they paid in 2000. The patronage declared totaled $500,000 and was paid in cash in January.

“This patronage distribution resulted in an average decrease of about 25 basis points to the effective interest on your loan for the year,” he noted. “The patronage paid for 1999 and 2000, combined with the stock reductions approved for the years 1996, 1997 and 1998, brings the total amount of capital returned to you over this five-year period to more than $6 million.”

Hester said the association also continues to make progress on building its Website, which is located at

“We believe this gives us an early presence in the emerging e-commerce market,” he said. “After being established for a while now, loan and information inquiries have increased significantly. While actual business may be limited in the short run, we do believe over the long run more and more potential customers will choose to conduct business this way.”

He said the association's board of directors and staff believe it has a bright future despite the cloudy economic prospects.

“Yes, the next 10 years will be every bit as challenging as the last 10 years have been,” said Hester. “Farmers will face more difficult challenges with projected low commodity prices, uncertain weather conditions and the possibility of major changes being made in the farm bill.

“Our goal remains the same — to meet the challenges and manage the changes while remaining a reliable and competitive provider of long-term credit to farmers and rural landowners.”

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