Discussion Topics
description
Transcript of Discussion Topics
![Page 1: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/1.jpg)
Discussion Topics
Where have we been? Where are we going?
Production Ag Financing Update
Capital Markets update for cooperatives
Credit Union and Bank conditions
Questions & answers
![Page 2: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/2.jpg)
Economic Summary and Outlook
Brian Legried
President, Cofina Financial
![Page 3: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/3.jpg)
Agriculture
Demand increase – World wealth increasing
Weather impacts – low stocks
Energy, Bio-fuels – increasing demand
High commodity prices – demand and $$
Grain based balance sheets stressed
Financial markets and economic meltdown
Inventory valuation impacts
What’s next?
![Page 4: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/4.jpg)
U.S. Economy
World demand increase – China, India, U.S.
Housing slowdown / sub-prime mortgage mess
Financial meltdown
Monetary policy recovery steps
Governmental action / stimulus
Recovery? If so, what kind – U, V, L or W?
![Page 5: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/5.jpg)
Housing Starts
00.20.40.60.8
11.21.41.61.8
2006
2007
2008
Jun-
08
Jul-0
8
Aug-
08
Sep-
08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb-
09
Mar
-09
Apr-
09
May
-09
Jun-
09
Jul-0
9
Aug-
09
Sep-
09
Mill
ions
![Page 6: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/6.jpg)
3-Month Treasury Bill Yield
![Page 7: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/7.jpg)
Interest Rates
![Page 8: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/8.jpg)
Corporate Bonds – Moody’s Seasoned
![Page 9: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/9.jpg)
Dow Jones Industrial Average
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
![Page 10: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/10.jpg)
Considerations
US / World economic conditions
Financial markets
Agriculture
• Production and consumption
• Globalization
• Innovation
![Page 11: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/11.jpg)
Trade PolicyTrade Policy
Strength of $Strength of $
US Commodity PricesUS Commodity Prices
Investor ConfidenceInvestor Confidence
Consumer SpendingConsumer Spending
China GrowthChina Growth
US GrowthUS Growth
Government SpendingGovernment Spending
Inflation Inflation
US DeficitUS Deficit Interest RatesInterest RatesWorld Food DemandWorld Food Demand
Unemployment RateUnemployment Rate
Planting DecisionsPlanting Decisions
WeatherWeatherInnovationInnovation
Energy ConsumptionEnergy Consumption
World Economic GrowthWorld Economic Growth
![Page 12: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/12.jpg)
Summary
Volatility is constant
Financial position
• Liquidity – working capital needs
• Reserves – balance sheet management
• Margins – compressed
Demand driven markets are good, but…
What if?
![Page 13: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/13.jpg)
Agricultural Outlook
Ross B. AndersonSr. Vice President and Chief Credit
Officer
13
![Page 14: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/14.jpg)
Farm Income Statement
Farm income indicators 2003 2004 2005 2006 2007 2008 2009AB
billions $s Sept
Gross farm income 260.9 295.6 294.3 291.5 338.7 377.2 334.8
13% 0% -1% 16% 11% -11%
Crops 109.9 113.7 111.9 122.5 150.1 183.1 165.0
Livestock and products 105.6 123.6 125.1 118.7 138.6 141.2 119.0
Government payments 16.5 13.0 24.4 15.8 11.9 12.2 12.6
Farm-related income 15.7 17.1 14.2 16.6 16.3 19.8 19.7
Noncash income 14.6 17.3 19.2 21.0 21.1 23.3 20.3
Value of inventory adjustment -2.4 11.2 -0.4 -3.1 0.6 -2.4 -1.8
Total production expenses 200.3 209.8 219.7 232.7 267.5 290.0 280.0
5% 5% 6% 15% 8% -3%
NET FARM INCOME 3/ 59.7 85.8 74.6 58.8 71.2 87.2 54.844% -13% -21% 21% 22% -37%
![Page 15: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/15.jpg)
2000 2006 2007 2008 20092009 Adjusted
Assets
Real estate 946 1,625 1,751 1,692 1,626 946
NonReal estate 257 298 304 313 309 309
Total 1,203 1,923 2,055 2,005 1,935 1,255
Liabilities
Debt 164 203 214 240 234 234
Equity 1,039 1,720 1,841 1,765 1,701 1,021
Total 1,203 1,923 2,055 2,005 1,935 1,255
Debt/equity 15.8 11.7 11.6% 13.6% 13.8% 22.9%
Debt/assets 13.6 10.5 10.4% 12.0% 12.1% 18.6%
![Page 16: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/16.jpg)
Avg. U.S. Cropland Value in $/Acre, Jan. 1, 1999 - 2009
![Page 17: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/17.jpg)
![Page 18: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/18.jpg)
Credit Conditions – Credit Quality by Commodity
Volume as % of YE 2009Commodity of 6/30/09 Portfolio % Adverse Projection
Hogs $3,428 5.8% 11.7% 15.7%Dairy $4,581 7.8% 8.1% 10.7%Poultry $2,128 3.6% 6.5% 7.5%Cow / Calf $4,015 6.8% 1.8% 3.3%Feedlots $1,448 2.5% 3.2% 4.0%Corn & Soybeans $11,535 19.7% 0.7% 0.9%Other Crops $16,801 28.6% 1.3% 2.3%Ethanol $1,632 2.9% 27.5% 34.2%Other Commodities $13,113 22.3% 3.9% 5.0%Total $58,682 100.0% 4.1% 5.0%
$ in millions
18
![Page 19: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/19.jpg)
Dairy
Futures strip:; Dec. ‘09 - $14.82; March ‘10 - $15.19; June ‘10 - $15.58; Dec. ‘10 - $15.72
Cost of production $15/cwt.
Weak domestic and foreign demand, Strong dollar, High feed cost
$19 to $12 price
Kielkopf – “Need to slaughter 225K cows to reduce excess NFDM”
Two industries – traditional and “factory” dairies Factory dairies are losing equity at a rapid rate – high volatility
in feed markets Traditional - less debt, some profits from crop production, less
affected by market volatility for feed costs
• Expect to finance negative cash flows through mid 2010
• Many factory dairies do not have the liquidity and solvency to reach breakeven next summer
![Page 20: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/20.jpg)
Per Capita Consumption of Meat in Pounds
Pork Beef Chicken Turkey Total
2006 49 66 87 18 220
2007 51 65 85 18 219
2008 50 63 84 18 215
2009 49 63 80 17 209
2010 48 60 81 17 206
![Page 21: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/21.jpg)
09/08 10/082008 2009 2010 % Change % Change
Beef Production 26,663 26,565 26,092 -0.4% -2.1%Pork Production 23,367 22,766 22,365 -2.6% -4.3%Broiler Production 36,511 35,040 35,541 -4.0% -2.7%
Beef Exports 1,888 1,744 1,905 -7.6% 0.9%Pork Exports 4,668 4,183 4,450 -10.4% -4.7%Broiler Exports 6,962 6,428 6,300 -7.7% -9.5%
Beef Exports 7% 7% 7%Pork Exports 20% 18% 20%Broiler Exports 19% 18% 18%
Livestock Overview
![Page 22: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/22.jpg)
Pork
Oversupply due to increased productivity of herd due to effective
circo virus vaccine and genetic improvement
Exports have been strong, 20% of production
Vulnerable to global slow down/swine flu scare
Banes- spring 2008 --- need 10% reduction in sow number; actual
only 3%
Futures strip –Dec. ‘09 - $56.20; Live $41.58
Feb. ‘10 - $61.90; $45.80
June ‘10 - $72.35 $56.42
Estimated cost of live production $50-51/cwt.
Expect to finance negative cash flows through Mid 2010
• Many operations have burned liquidity and solvency and do not
have the ability to get to mid-year 2010
![Page 23: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/23.jpg)
Beef Feedlots were losing $100-200 per head Lower placements put pressure to move from hotel to
“owner” role. Financial capacity to accept risk is often not present.
Beef is a high price source of protein
• What will financially pressured consumers buy? Beef to chicken issue.
South Korean agreement - how fast will it ramp up? Limited movement of feedlots to western corn belt (NE) due
to DDGs
• What will feedlots be worth? 65 for sale Lower calf prices for cow/calf producer after 5-8 years of
good income will lead to lower profitability
![Page 24: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/24.jpg)
Broilers
Production - USDA
• ‘07 35,739MM# +1.0%
• ‘08 36,511 +2.1
• ‘09 35,095 -3.9
• ’10 35,541 +1.2 Value subtraction issue (whole birds vs. further processed) World trade/Russian exports Cash positive in 2nd quarter, positive net income in 3rd
quarter Industry will build equity if they do not crank up production
![Page 25: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/25.jpg)
Ethanol
Mandate = 10.5 BGY in 2009
Current production capacity = 12.5 BGY
Current production = 9.8 BGY 78% of capacity
Forecast is to operate at 10-15 cents per gallon EBITDA (assumes labor is fixed expense)
New industry driven by government policy
Problems caused by market volatility/high feedstock cost (corn)
Expect several plants to turn more than once
![Page 26: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/26.jpg)
Crops
Crop producers
• USDA forecasts $20 billion less revenue in 2009 vs. 2008
• Overseas production response to high prices in 2008
• Domestic and foreign demand reduced due to economic recession and reduced livestock use
• Flattening of demand pressure from ethanol
• Less income, not losses Credit concerns in this segment are unlikely to show until 2011 or 2012
• A drought in the world can change credit outlook in 90 days
Crops - two different risk profiles
• Cash renter/operator
• Land owner with low debt load
![Page 27: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/27.jpg)
World Grain Stocks
StocksMM Metric Tons
Percent Carry to Use
04/05 408 20
05/06 389 19
06/07 342 17
07/08 360 17
08/09 440 21
09/10 443 20
![Page 28: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/28.jpg)
World Oilseed Stocks
StocksMM Metric Tons
Percent Carry to Use
04/05 56 19
05/06 54 17
06/07 73 22
07/08 63 19
08/09 55 16
09/10 62 18
![Page 29: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/29.jpg)
US Coarse Grain & Oilseed Stocks
Coarse GrainStocksMM Metric Tons
Percent Carry to Use
OilseedStocksMM Metric Tons
04/05 59 19% 25 16%
05/06 54 17% 22 48%
06/07 36 22% 15 32%
07/08 45 19% 16 13%
08/09 45 16% 16 10%
09/10 32 18% 11 14%
![Page 30: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/30.jpg)
Capital Markets Update and Keys for Cooperative Financing
Bob DoaneVice President, CoBank
![Page 31: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/31.jpg)
$351B
$410B
$351B
$240B
$307B
$389B
$624B
$675B
$166B
$398B
$201B
$222B $219B
0
250
500
750
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
YTD 1
0/9/
09
Institutional Pro Rata High-Yield
Total Bank Debt and High-Yield Bond Volume in the Leveraged Finance MarketSource: S&P/LCD and Merrill Lynch Global High Yield Strategy
![Page 32: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/32.jpg)
0.0%1.0%1.0%
11.3%
3.7%
0.6%
1.9%
3.6%
7.4%
10.0%
4.0%
9.9%
7.0%
2.6%
0%
3%
6%
9%
12%
15%
As of
Percent of Outstanding Leveraged Loans in Payment Default or Bankruptcy
![Page 33: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/33.jpg)
High Yield Bond and Lev. Loan Maturities
0
50
100
150
200
250
300
350
2009 2010 2011 2012 2013 2014 2015 2016
Institutional Loans High Yield Bonds
($billions)
![Page 34: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/34.jpg)
Loan Spreads Over LIBOR for BB/BB-
Average New-Issue Pro Rata & Weighted Average First-Lien Institutional Spread of BB/BB- Loans
L+100
L+200
L+300
L+400
L+500
L+600
Pro Rata Institutional
![Page 35: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/35.jpg)
Loan Spreads Over LIBOR for B+/B
Average New-Issue Pro Rata & Weighted Average First-Lien Institutional Spread of B+/B Loans
L+150
L+250
L+350
L+450
L+550
Pro Rata Institutional
![Page 36: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/36.jpg)
Middle Market Spreads (Cash Flow < $50MM)
L+200
L+300
L+400
L+500
L+600
Institutional
Pro Rata
![Page 37: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/37.jpg)
Secondary Market Trading Spreads By Rating
L+0L+200L+400L+600L+800
L+1000L+1200L+1400L+1600L+1800L+2000L+2200L+2400L+2600L+2800L+3000L+3200
B Loans
All BB/B Loans
BB Loans
![Page 38: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/38.jpg)
Deal Structure Trends
Lower leverage, higher equity levels required Tighter covenants and security packages
• More asset-based financing• Borrowing bases
Shorter maturity loans Very few dividend recapitalization deals Original-issue discounts, higher up-front fees Libor floors often set at 2 to 2.5% More rigorous excess cash flow sweeps
![Page 39: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/39.jpg)
Commercial Lenders Recapitalization process has begun although some commercial banks are likely
to remain under pressure into 2010.
Banks remain unpredictable (deal by deal for some) Capital issues Credit concerns evident in 3Q results (depth/breath of recession remains
an issue) Reformed business strategies Different personnel, layoffs, restructurings Market down to a handful of dependable Ag lenders
• Focus on: Credit quality and risk Conservative structures (shorter tenors, tighter covenants, Libor floors,
borrowing bases, and collateral packages — back to old school backing) Higher loan spreads and fees
Relationships Count Relationship banks continue to support their core accounts Ancillary business remains very important
![Page 40: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/40.jpg)
Farm Credit System
Greater capital conservation
•Focus on pricing (minimum spread thresholds) and structure (term, collateral and covenants)
• Interested in funded assets that achieve market yields
•Selective with lower hold levels
•Reserving capital for core relationship borrowers
Ethanol, Dairy, Forest Products and Livestock segments experiencing credit deterioration
•Farm Credit entered downturn with strong balance sheets and solid credit quality ratios
Continued interest in quality credits (all the FCS investors are back, some not yet at full strength)
![Page 41: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/41.jpg)
Credit Market Outlook
Global Unwinding of Leverage
• Banks, hedge funds, private equity, and consumers, all in process of unwinding leverage
• Rapid unwinding of leverage associated with the structured finance (securitization) industry
• Government sector taking on new debt, risk of crowding-out of private sector
• Derivative exposure concentrations still unknown Commercial/investment banks likely to remain under extreme
pressure through 2009 and likely into 2010
• Higher minimum capital requirements for all financial institutions likely
• Need to raise more capital, who will provide it?
• Rethinking risk management models
• Substantial internal restructuring and deleveraging
• How will regulatory environment change?
![Page 42: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/42.jpg)
Credit Market Outlook Fundamentals of real estate and consumer credit problems
likely to have a long tail and tied to unemployment dynamics and deleveraging
Lender perspective that the economy is poised for recovery. But will it be a jobless recovery?
Expectation of higher credit losses in many segments
Credit spreads likely to tighten from current levels as economy continues to recover but refinancing calendar likely to put floor on spreads
Multiple levels of uncertainty: global economy, role of government (ownership), credit availability, dollar value, financial strength of institutions/counterparties, derivative exposure concentrations, risk management (model) risks, regulatory changes, etc.
![Page 43: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/43.jpg)
Management
Board governance
Balance sheet strength
Appropriate risk management competencies and tools
Capacity
• People
• Capacity
• Time
1. Key items that lenders typically consider
![Page 44: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/44.jpg)
Working Capital (Liquidity)
• Current assets - Current liabilitiesFactors to Consider:
• Accounts receivable management
• Inventory management
• Types of business lines
• Grain merchandising practices
• Prepayment activity
• Peak seasonal borrowing needs
• Working Capital to Sales Percentage is one component of Risk Rating
2. Ratios
![Page 45: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/45.jpg)
Local Leverage
Long Term Debt minus Current Portion Due
Net Worth minus investments in Cooperatives and Other Entities
Reasonable Local Leverage 50%
Minimum Acceptable Level < 80%
2. Ratios
![Page 46: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/46.jpg)
Debt Service Coverage Ratio
Net Cash Available for Debt Service
Current Portion of Long Term Debt
Minimum Acceptable Level > 1.5 : 1
Optimum Level > 2.75 : 1
2. Ratios
![Page 47: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/47.jpg)
3. Procedures/Policy
Counter-party risk
• Assessment, due diligence, mitigating factors, contracts, limits
Contracts
• Procedures on contract execution and fulfillment (enforcement)
• Forward contracting limitations
• Pre-pay versus booking contracts
![Page 48: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/48.jpg)
Wrap-up: Rapidly Changing Conditions
Prepare to manage greater risk associated with increasing volatility in all markets.
• input risk – availability, price, prepaids, etc.
• production risk – weather, technology, etc.
• marketing risk –hedging, pricing, consumer
• investment risk – realistic assumptions
• Regulatory risk – farm programs, regulation
Develop strategies to secure working capital and remember it will be resource challenged in the future!
![Page 49: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/49.jpg)
Credit Union and Bank Financial Update
Bill RakerPresident, Federal Employees Credit
Union
![Page 50: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/50.jpg)
Credit Unions
Financial cooperatives
• One vote per member
• Volunteer boards
State or federal charter & supervision
Full-service financial providers
Defined field of membership
• Single employer
• Multiple employer groups
• Organizational
• Community (geographic)
• Trade, Industry, Profession (TIP)
![Page 51: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/51.jpg)
Minnesota’s Credit Unions
62 Federal (NCUA); 94 State (Dept. Commerce)
All Federally insured to $250K
$12.83 B total deposits; ~6.0% of MN market
$9.86 B total loans; 865,668 total credits
$14.96 B total assets; 1.5 M members
10.19% Net Worth; 0.28% ROA [0.93%]
![Page 52: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/52.jpg)
Minnesota’s Credit Unions
Business loans ~ 8.5% of CUs’ total portfolio
8 credit unions doing Ag lending
• 2,921 credits
• $285 M total Ag credits
• $168 M largest Ag portfolio; 1,497 credits
Money to lend – all loan types
Well-capitalized
![Page 53: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/53.jpg)
Wisconsin’s Credit Unions
2 Federal (NCUA); 245 State (Dept. of Financial
Institutions)
All Federally insured to $250K
$17.18 B total deposits; ~14.8% of WI market
$15.52 B total loans; 1,304,260 total credits
$20.06 B total assets; 2.2 M members
10.01% Net Worth; 0.46% ROA [1.35%]
![Page 54: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/54.jpg)
Wisconsin’s Credit Unions
Business loans ~ 15.5% of CUs’ total portfolio
16 credit unions doing Ag lending
• 1,741 credits
• $130 M total Ag credits
• $48 M largest Ag portfolio; 571 credits
Money to lend – all loan types
Well-capitalized
![Page 55: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/55.jpg)
Minnesota’s “Watch List”*
CAMEL (Examination) Ratings: 1 – 5
4 or 5 CAMEL rating is a “watch”
71 banks – 22% of state’s total banks
• Six failures
3 credit unions (all are CAMEL 4)
• Two mergers
*Source: Minnesota Department of Commerce
![Page 56: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/56.jpg)
Wisconsin’s “Watch List”*
17 Banks & 5 S&Ls are on the “Problem” list
7 Credit Unions are on the “Problem” list 3 are still “Adequately Capitalized” (> 6%) 2 are “Under Capitalized” (5% – 6%) 2 are “Critically Undercapitalized” (<2%)
1 bank failure since 2007
1 credit union failure since 2007
*Source: IDC Financial Publishing “Corporate Report” magazine and NCUA
![Page 57: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/57.jpg)
National Picture: Banks
416 (5.1% of total) institutions on FDIC “watch” list – $300 B in assets -- 15 year high
120 closures/mergers YTD -- $25+ B cost to FDIC
40% of net income going into provisions for potential losses
Stressed insurance fund
• 12/07 1.22%
• 6/09 0.22%
![Page 58: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/58.jpg)
FDIC Quarterly Bank Report
![Page 59: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/59.jpg)
FDIC Quarterly Bank Report
![Page 60: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/60.jpg)
FDIC Quarterly Bank Report
![Page 61: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/61.jpg)
FDIC Quarterly Bank Report
![Page 62: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/62.jpg)
FDIC Quarterly Bank Report
![Page 63: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/63.jpg)
National Picture: Credit Unions
~326 (4.26% of total) CUs on NCUA’s “watch” list – CAMEL 4 or 5
3,500 (45% of total) CUs with net operating loss through 6/09
~135 mergers YTD (includes 21 “failures”) -- $95 M cost to NCUSIF
Concentrations: CA, FL, AZ, TX, NE, UT
NCUSIF fund at 1.30%
![Page 64: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/64.jpg)
Regional/Community Institutions(Credit unions and banks)
Financial landscape has changed
Some institutions still doing relatively well
Most are experiencing challenges
• Slower loan growth
• Higher than normal delinquencies and losses
• Higher loss provisions – negative earnings
• Falling net worth (capital) ratios
• NCUSIF and FDIC assessments
![Page 65: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/65.jpg)
Loss Mitigation(What’s changed)
Refined underwriting guidelines
Quarterly updates to credit scores
Reviewing & updating collateral values
Reducing credit lines on credit cards and HELOC
loans
Re-writes
Counseling
![Page 66: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/66.jpg)
![Page 67: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/67.jpg)
Current Concerns(Lingering?)
Employment
• Lags recovery
• 10%: how long?
Real estate values
• Bubble has burst
• Residential first, now commercial
• Time to recovery?
Consumer confidence
• Uncertainty, confusion, lack of trust
Interest margin
![Page 68: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/68.jpg)
Consumer Behaviors(Applies to small businesses, too)
Saving more
Paying down existing debt faster
Reluctant to take on new debt
Refinancing at lower rates
Cautionary spending
Consumption (GDP) down; business
investment/expansion down
![Page 69: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/69.jpg)
Getting Credit Today
Somewhat harder to borrow – tighter standards
Rates are low – for now
Credit unions are making loans
Credit score & BNI score
Ability to repay
Higher down payment
Lower LTV ratios
![Page 70: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/70.jpg)
2010 Outlook?
Freefall ends
Modest growth resumes
Unemployment remains higher than usual
Little change in short-term rates
Economy remains fragile
More regulation
Government looking to help small businesses
All eyes on leading indicators
![Page 71: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/71.jpg)
2010 and beyond
Cost of clean up: the consumer will pay!
• Insurance fund assessments FDIC – 3 years prepaid premium; 7 years to
rebuild NCUSIF – up to 7 years to payback Treasury loan
• Capital restitution; need to pump up earnings
• Additional provisions for future losses & write-downs Regulation
• Consumer “protection” and “safety & soundness”
• Financial industry oversight Long-term to full recovery
![Page 72: Discussion Topics](https://reader035.fdocuments.us/reader035/viewer/2022070411/56814759550346895db496d2/html5/thumbnails/72.jpg)
What to do now
After the rain, comes the rainbow!
Protect your good credit
Deal with volatility
Have a post-recovery plan