FCA Info Memo - Financial Institution Rating System (FIRS) Summary

Informational Memorandum
Subject:	Financial Institution Rating System (FIRS) Summary
Date of Memorandum:	03/01/2000
Expiration Date:
Office:	OE
Signed By:	Smith, Roland
FCA Contact Person:	Holland, Tom
Contact Phone:	703-883-4484
List of Attachments:	Charts illustrating composite FIRS ratings at 12/31/99 & trends over 5 yrs

INFORMATIONAL MEMORANDUM

March 1, 2000

To: Chairman, Board of Directors

Chief Executive Officer

Each Farm Credit System Institution

From: Roland E. Smith, Chief Examiner /s/

Office of Examination

Subject: Financial Institution Rating System (FIRS) Summary

Attached for your review and information are charts illustrating assigned composite FIRS ratings of Farm Credit System (FCS or System) institutions by type at December 31, 1999, and trends in composite and component FIRS ratings on a Systemwide basis over the last 5 years. These ratings are assigned by examiners and are an indication of the financial condition and overall operating soundness of the FCS. As illustrated by the attached charts, the FIRS ratings reflect a healthy System. About 97 percent of the System’s institutions, representing substantially all of the System’s assets, were 1or 2 rated at December 31, 1999. There are only five 3 rated institutions, all Production Credit Associations. There are currently no 4 or 5 rated institutions.

Each institution is assigned a composite rating based on an evaluation of pertinent financial and operational criteria and principles. The rating is based on a scale of 1 through 5 in ascending order of supervisory concern. For example, a 1 represents the best level of performance and a 5 represents the poorest, most critically deficient level of performance and the highest level of Farm Credit Administration (FCA) concern. In addition to the composite rating, all institutions [except Federal Land Bank Associations (FLBAs)] are assigned component ratings in six areas, including capital, assets, management, earnings, liquidity, and sensitivity to market risk. FLBAs are not assigned liquidity or sensitivity ratings.

The System has continued to grow and build capital over the past several years. Also, the continued consolidation of System capital through mergers has contributed to well-capitalized associations. As reflected in the attached trend charts, the ratings trend for capital has been positive, with over 50 percent of the System institutions rated 1 for capital and only one institution rated 3 or worse.

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 of 1- and 2-rated 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 condition of institutions.

In conjunction with the quarterly review of FIRS ratings, our Field Office Directors review the composite and component ratings of each institution in their assigned portfolio. Any rating changes are discussed with the institution and written notification is provided.

If you have questions or comments regarding the attachments, please feel free to contact the Director of your respective Field Office, or Thomas J. Holland, Director, Special Examination and Supervision Division, Office of Examination, at (703) 883-4483. You may also correspond with him on the Internet at his e-mail address at

hollandt@fca.gov

. In addition, please feel free to call me at (703) 883-4160, or send me an e-mail at

smithr@fca.gov.

Attachments