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Informational Memorandum
Subject:Financial Instution Rating System Guide
Date of Memorandum:02/17/1999
Expiration Date:
Signed By:Smith, Roland
FCA Contact Person:Mardock, Barry
Contact Phone:703-883-4456
List of Attachments:FCA Examination Manual Section EM-135
and FIRS Guide

Farm Credit Administration Chief Examiner's Office
1501 Farm Credit Drive
McLean, Virginia 22102-5090
(703) 883-4160


February 17, 1999

To: Chairman, Board of Directors
Chief Executive Officer
All Farm Credit System Institutions

From: Roland E. Smith, Chief Examiner Roland E. Smith
Office of Examination

Subject: Financial Institution Rating System Guide

Last year I provided the benchmark guidelines that examiners used in 1998 to assign ratings to Farm Credit System (FCS or System) association capital, assets, earnings, and liquidity. We have since developed additional guidance for the other areas evaluated and rated in the examination/oversight process through the Financial Institution Rating System (FIRS) Guide. I am providing you with the section from the Farm Credit Administration (FCA) Examination Manual (Section EM-135), which describes the FIRS and the objectives of the FIRS, along with the Guide used by examiners.

FCA examiners use the FIRS to evaluate and categorize the safety and soundness of System institutions on an ongoing, uniform, and comprehensive basis. In 1998, we extended the examination cycles for associations with less than $1 billion in assets to 18-month intervals. As a part of that change, we enhanced the ongoing monitoring and oversight process to include the offsite review of FCS institutions' performance. As such, the FIRS ratings assigned to System institutions are reviewed each quarter and adjusted, as needed, to accurately reflect the conditions of institutions. The attached FIRS Guide will be used to help assimilate and evaluate all significant financial, managerial, and operational factors and adjust ratings for each System institution.

In conjunction with the quarterly review of FIRS ratings, the Office of Examination (OE) Field Office Directors will review and approve the composite and component ratings of each institution in their assigned portfolio and will make adjustments to those ratings as conditions change to ensure they reflect the current conditions. OE procedures prescribe that any rating changes will be discussed with the institution and written notification will be provided. Also, semiannually (as of December 31 and June 30), each institution will be notified of its current FIRS ratings.

The qualitative and quantitative factors included in the FIRS Guide are intended to supplement examiner judgment in assigning ratings. Examiner judgment remains of paramount importance, particularly when evaluating the overall conditions in institutions and determining the composite rating. Please be mindful that the FIRS ratings are confidential. They reflect ratings assigned by the examiners’ evaluation and, while they are shared with the institution’s board and chief executive officer, they should not be disclosed to others. Please note that the "association benchmarks" contained in the FIRS Guide are only applicable to direct-lender associations, and we have instructed the examiners to acknowledge the differing operational structures among FCS institutions and give these factors appropriate consideration in their risk analyses and rating methodology.

If you have any questions or comments regarding the content or use of the FIRS Guide, please contact me or Barry Mardock at (703) 883-4160. Also, please feel free to contact me on the Internet at my e-mail address or Barry at