News
President's Corner
by Doug Hofbauer
Good 2008 results!
We’ve completed a successful 2008. Key results included:
- Positive growth of 8.36% to accrual volume of $1,185,031,118
- Earnings of over $12.2 million increasing shareholders equity to over $218.9 million
- Credit quality above 96.6%
- Low delinquencies of .46%
- $3 million of patronage paid to customers for a total of $19.4 million since the 2004 inception of the program
The overall economy creates challenges for 2009
The weakening general economy is creating stress in our credit portfolio and earnings potential for 2009. The ethanol and protein sectors — pork, beef, and poultry — are under stress. The drop in consumer spending and high transportation costs in 2008 creates stress in our “green” portfolio (nursery, garden center, landscape, and greenhouse). Cash grain producers generally had positive 2008 results, but to remain profitable in 2009, strong commodity prices will be necessary to cover higher input costs. Land values remain steady with some signs of a slowdown in sales activity and
more no-sales.
What could we see in 2009?
Our Association’s ability to pay customer patronage in 2009 will depend upon the ability to generate net earnings and deal effectively with increasing credit stress. The first priority of the board is to maintain the financial strength of the Association so we remain a consistent, dependable provider of credit and financially related services for our customers.
Focusing on net income
We are projecting reduced earnings and increasing credit stress in our 2009 business plan. In response, we are cutting Association expenses and focusing on increasing net income. A special emphasis will be on increasing non-interest income from our financially related services —crop revenue insurance, tax preparation, records, and business planning services.
Will I have access to operating money?
Frontier Farm Credit’s financial strength allows continued access to the nation’s debt markets. Additionally, a backup funding source exists in the event the national money markets become illiquid.
What is happening to rates?
Rates continue to be at historic lows. Prime rate loans are moving to an internal variable rate index because the national prime rate market is essentially non-existent. Rates remain very competitive.
Where should customers focus right now?
Build balance sheet equity (net worth) and liquidity (working capital). Why do you need to build equity and liquidity? It keeps you in control when you have cash or margin on hand. If rates go up dramatically with inflation, you won’t have to borrow as much. Today cash is king. There are and will be opportunities available to those with extra cash.
How do you do it?
Be prudent with capital spending, keeping it to only what
is absolutely needed. Fund as much of your ’09 operating
expense from ’08 earnings as you can. Do not pay ahead
on fixed rate term loans unless you have substantial cash
reserves. Keep the extra cash or margin in your current
position.
Today more than ever, you need a lender that knows the
industry and can be there with you through good times and
bad times. Our staff is tenured and knows what it means to
be a consistent and dependable lender. Thank you for your
business. Thank you for allowing us to serve your needs.
877-744-7144 | Copyright © 2010 — Frontier Farm Credit
