Farm Credit System:

GAO's Analysis of the Farm Credit System's Third Quarter Financial Condition

GGD-86-35BR: Published: Dec 23, 1985. Publicly Released: Dec 23, 1985.

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In response to a congressional request, GAO provided an assessment of the financial condition of the Farm Credit System as of September 30, 1985, to show how the system's third quarter financial performance related to previous projections.

GAO found that: (1) third-quarter financial data reflected a significant decline in the profitability of the system and a significant deterioration in the quality of its loan portfolio, but past reporting inaccuracies may have distorted the results; (2) deterioration in loan quality appeared to have been a major factor in contributing to the system's $800 million loss for the 12-month period ending September 30, 1985; (3) a large provision for loan losses had a great effect on third-quarter earnings; (4) a large chargeoff of bad loans, combined with a net operating loss, resulted in the system's earned surplus decreasing by nearly $1 billion in the 3-month period; (5) the system's net losses and reduction in earned surplus would have been larger had the institutions maintained the loan losses account at the same level as the ratio of the allowance to nonaccrual loans that existed on June 30, 1985; and (6) the loss of interest income associated with an increased amount of nonaccrual loans and the increased risk premium that investors are now requiring on system securities also adversely affected the system's profitability.

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