Farm Credit Services Southwest at the Close of a Millennium
With a look at a strong and promising future

by Gary R. Dyer, President and CEO, Farm Credit Services Southwest

As we come to the close of the decade, century and millennium, I thought it would be interesting to reflect back over the past 10
years.

In 1990 the Farm Credit System was just starting to recover from the 1980s, which was one of the worst economic times for agriculture in history. Your association was not immune from the difficult economic times, especially the old Arizona ACA. By the early 1990s a severe recession hit Arizona and a little later California. Land values in central Arizona dropped 75 percent from the peak to the bottom. White-fly infestations and poor yields compounded the already difficult economic conditions.

Now, 10 years later, we are experiencing one of the longest economic growth periods in history. Your association has grown at approximately 10 percent for the past five years and significantly rebuilt capital and reduced nonaccrual loans. The following table shows key comparative indicators for your association in 1990 and estimated indicators for 2000.

As we enter the next century, we see some clouds on the horizon with climbing interest rates and low commodity prices. If the clouds turn into a major storm, we feel we are well positioned with a strong customer base of high-quality loans and a rebuilt balance sheet with improved capital. We have also recently implemented the following initiatives to ensure our future success:

1. Business Reinvention Initiative (BRI): Our BRI project was led by staff teams focused on positioning the association for the future. As a result, we reorganized our operations with a decentralized branch focus that is consistent with what our stockholders and customers recommended. Even though we grew our business and loan volume 10 percent during 1999, we will be able to reduce our operating expenses 7 percent for 2000 and still cover inflation and salary and benefits increases.
2. Overhaul our technology platform: During the past two years, we replaced our computers and converted our software programs for loan origination, general ledger and loan accounting systems to more efficient Y2K compliant versions. This has been a difficult conversion for the staff and we are still working on refining the new software. In early 2000 we will introduce improved transaction summaries and billing statements for our customers. We are also planning to make electronic banking and cash management services available during 2000.
3. Implement Holding Company: We worked with the Farm Credit Administration and the Internal Revenue Service, and are converting Farm Credit Services Southwest, ACA, PCA, and FLCA, PCA, and FLCA, PCA, and FLCA, PCA, and FLCA, PCA, and FLCA to a holding company with a PCA and an FLCA subsidiary. The benefit is mortgage loans can be made through the tax-exempt FLCA, and save the association approximately $1 million in taxes per year. The disclosure document mailing and stockholder vote was completed in December 1999 with an effective date of January 1, 2000. The Holding Company concept will help us build capital faster and achieve our long-term goal of paying patronage as soon as possible.
4. Expand related services products: Early in 2000 we will offer expanded financially related products to our customers. These products will include financial and family business planning services, business consulting, insurance, appraisals and investment products via a strategic alliance with a company called Money Concepts. The focus of these services is to help our customers be successful meeting their business challenges.

The results of the above initiatives is to successfully position your association with improved earnings and create additional value for our stockholders.

Please don’t hesitate to give me a call at 800.822.3276 if you have any ideas on strategies we should consider implementing. We sincerely appreciate your membership with Farm Credit and our opportunity to be of service.

This message appeared in a recent issue of the Farm Credit Services Southwest customer newsletter. Click here if you would like us to add your name to our mailing list.

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