First Citizens N.b. Upper Sandusky · OTC:FSDK
First Citizens N.b. Upper Sandusky — The First Citizens National Bank — Investor Presentation (December 2022)
68 slides from First Citizens N.b. Upper Sandusky's investor presentation, Dec 8, 2022
Slide 1: 2022 Agriculture Insights
2022 Agriculture Insights Thursday, December 8, 2022 – 8:30am Hosted by The First Citizens National Bank Ag Lending Team and Dr. Freddie Barnard Welcome!
Slide 2: Welcome!
Welcome! As the past several weeks have shown, the business climate across the world continues to be tumultuous and uncertain. Because we are a trusted partner in our local communities, we’re honored to provide expert resources to the community through our Business First Content Series. We’re excite
Slide 3: Freddie L. Barnard, Purdue University
THE FIRST CITIZENS NATIONAL BANK DECEMBER 8, 2022 UPPER SANDUSKY, OH FREDDIE L. BARNARD, PROFESSOR EMERITUS DEPARTMENT OF AGRICULTURAL ECONOMICS PURDUE UNIVERSITY 765-491-3241 barnardf@purdue.edu
Slide 4: Educational tool, general in nature, illustration only
This power point presentation is an educational tool that is general in nature and for purposes of illustration only. The materials in this presentation are not exhaustive, do not constitute legal and tax advice and should not be considered a substitute for consulting with legal counsel and a tax pr
Slide 5: Agenda
Common External Factors, but Major Individual Differences Current Situation in Agriculture: Financial Reporting Key Financial Ratios to Determine Strengths and Weaknesses Purdue Spreadsheet: Accrual-adjusted Income Statement Impact on Loan Repayment of Changes Keys to Operating in the Current
Slide 6: Profitable 2006-2013 period followed by lower net farm incomes
Generally Profitable 2006-2013 Period for Grain Operations, Followed by Multiple Years of Lower Net Farm Incomes…but now Some Relief ! Higher Capital Purchases using Borrowed Funds, Rapid Depreciation Methods during the Profitable Period…Is Now the Time to Buy?! Principal Payments on Term Debt
Slide 7: Differences across producers
Financial records vary across producers, as well as manager understanding Family living withdrawals vary across producers Crop Yields in 2019, 2020 and 2021, depending on location Grain prices have improved dramatically, but marketing practices vary across producers Operating expenses vary
Slide 8: Illinois Farm Business Farm Management Association
Illinois Farm Business Farm Management Association (FBFM) 5,000+ Cooperators in FBFM 2011 through 2020 Average Profit Defined as Management Returns/Acre Top One-third and Bottom One-third 4 Geographic Areas Northern Central-High Central-Low Southern
Slide 9: Crop costs and power and equipment costs
Crop Costs: Fertilizer Seed Pesticides Power and Equipment Costs: Fuel Repairs Machine Hire Lease Expense Economic Depreciation
Slide 10: Top third farms: size and yields
Larger in Size 200 – 800 Acres Higher Crop Yields Corn: 9 – 16 bushels/acre Soybeans: 4 – 6 bushels/acre Crop Shared a Larger Percent of Acres 7 – 14 Percent Higher Percent
Slide 11: Gross returns, costs and management returns per acre
Higher Gross Returns $104/acre - $132/acre Lower Costs Crop Costs: $32/acre - $41/acre Lower Power and Equipment: $34/acre - $43/acre Lower Management Returns/Acre $233/acre - $256/acre
Slide 12: Indiana producer record-keeping survey
Data: Indiana Producers 72 Farms 2005 Results: Record-keeper • Respondent or Spouse 78% • Other Family Member 18% Primary Reason to Keep Records • Income Taxes 99% Prepare Balance Sheet 80% Own a Computer 96% Use Computer for Record-Keeping 87% Use Accrual Accounting to Measure Pro
Slide 13: Financial Reporting and Credit Analysis
Financial Reporting and Credit Analysis: Schedule F vs. Accrual-adjusted Income Statements Few Monthly or Quarterly Projected Cash Flow Statements, with almost no Actual to Projected Cash Flow Comparisons Multiple Years of Operating Expenses in one Operating Line, with Few Separate Inventory L
Slide 14: Background, Goals, Current Activities, Recommendations
Background Goals Current Activities Recommendations
Slide 15: Recommended guidelines
Recommend Guidelines for … Financial Reporting Financial Criteria and Measures Information Management Continue a Forum to Address Future Issues
Slide 16: Financial statements
Balance Sheet Income Statement: Accrual-adjusted Statement of Owners Equity Statement of Cash Flows…But We Often Use the Projected Cash Flow Statement
Slide 17: Interrelationship among financial statements
Exhibit 1 Agricultural Financial Statements INTERRELATIONSHIP AMONG FINANCIAL STATEMENTS Balance Sheet Statement of — | Cash Flows for XL Statement of Owner Equity Balance Sheet 12/31/X0 for X1 12/31/X1 Accrual-Adjusted Income Statement for X1 Cash Flow Projected Accrual- Projection Projected Balanc
Slide 18: Illinois FBFM data 1996-2002
Data Illinois Farm Business Farm Management (FBFM) 1996-2002 Asset Valuation: Market Income Statement: Accrual-adjusted
Slide 19: Financial measures by age group
8-year Measure <30 30-39 Age Groups 40-49 50-59 60+ Average All Farms Debt-to- Asset 47.1 40.2 35.9 30.3 15.6 30.2 Current Ratio 1.6 1.5 1.5 1.4 2.4 1.6 Interest Expense 4.6 6.1 6.6 7.9 5.7 6.6 Debt Servicing 14.0 15.4 15.3 17.3 12.4 Term Debt and Capital Lease Coverage 2.0 1.5 1.4 1.1 1.7 1.4
Slide 20: Family transitions and living withdrawals
___________________________________ Help Younger Generation Get In ____________________________________ Help Older Generation Get Out ____________________________________ College ____________________________________ Marriages ____________________________________ Spouse - Retires ________
Slide 21: Farm and family sources and uses of dollars
Table 1. Farm and Family Sources and Uses of Dollars - Average per Farm in Illinois, 2004-2007. Item 2007 2006 2005 2004 Net non-farm income . . . . . . . . . $31,668 $29,614 $27,810 $27,280 Net farm income . . . . . . . . . . . $193,675 $94,756 $55,030 $93,704 FAMILY LIVING EXPENSE: Contributions .
Slide 22: Family living expenses 2007-2020
2020 2019 2013 2007 No. Farms 1088 1257 1307 xxxx No. Family 2.6 2.6 2.7 xxx Nonfarm Income $47,892 $44,871 $38,019 $31,668 Living Expenses Contributions $2,947 $3,085 $3,874 $2,303 Medical 10,712 10,866 10,417 8,071 Ins., Life & Dis. 5,093 5,174 4,492 3,039 Expendables 57,920 59,769 61,933 46,881 T
Slide 23: Illinois FBFM data 2002-2006
Data Illinois FBFM 1045 Farms 2002-2006 Asset Valuation: Market Income Statements: Schedule F Cash Basis and Accrual- adjusted
Slide 24: Accrual-adjusted vs Schedule F by year
Year Median Absolute Difference: (Accrual-Adjusted – schedule F)/ Accrual-Adjusted 2002 16,820 56% 2003 31,351 61% 2004 43,223 63% 2005 23,445 52% 2006 45,510 63%
Slide 25: Median absolute difference, years averaged
Years Median Absolute Difference Averaged (Accrual-adjusted – Schedule F)/ Accrual-adjusted 2002-04 $26,726 52% 2003-05 $30,817 52% 2004-06 $34,770 54% 5-Year 2002-06 $28,253 52%
Slide 26: Difference by revenue growth rate
Median Absolute Difference: Annual Gross Revenue Growth Rate 2002-06 Years Less than 5% 5-10% Greater than 10% Averaged 2002-04 46% 51% 54% 2003-05 41% 49% 58% 2004-06 41% 50% 61% 5-Year 2002-06 39% 52% 55%
Slide 27: Difference by debt-to-asset level
Median Absolute Difference: Debt-to-Asset Levels Years Greater than Averaged Less than 20% 20-40% 40% 2002-04 44% 56% 60% 2003-05 45% 56% 61% 2004-06 47% 57% 63% 5-Year 2002-06 44% 55% 60%
Slide 28: Beginning and ending balance sheet, tax return
Beginning Balance Sheet Ending Balance Sheet Income Tax Return Schedule F Form 4797
Slide 29: Spreadsheet website address
Spreadsheet Website Address: www.agecon.purdue.edu/files/EC712.xlsx
Slide 30: Profitability, liquidity, solvency, efficiency, repayment
Profitability Liquidity Solvency Financial Efficiency Repayment Capacity
Slide 31: Website addresses
Website Addresses: www.farmdoc.illinois.edu/finance/benchmark_pdf www.iowafarmbusiness.org/PRES10/2010 www.northlandfbm-morehead.com/reports http://agmanager.info/kfma/
Slide 32: Profitability ratio definitions
Rate of return on farm assets = (NFI* + farm interest expense – value of operator and unpaid family labor and management)/average total farm assets Rate of return on farm equity = (NFI* – value of operator and unpaid family labor and management)/average total farm equity Operating profit margi
Slide 33: Profitability ratios, high and low 20%
ROA1 ROA ROE2 ROE OPMR*3 OPMR* High 20% Low 20% High 20% Low 20% High 20% Low 20% 2014** 11.0 -5.1 15.1 -13.7 27.0 -16.5 2017** 6.6 -3.7 8.3 -13.2 19.1 -12.2 2018 6.5 -4.4 7.9 -16.2 18.4 -14.9 2020 10.6 -2.5 14.9 -11.2 26.0 -10.1 2021** 14.6 -1.1 21.6 -8.0 32.8 -3.8 * This ratio was calculated using
Slide 34: ROA and ROE by year
ROA ROE ROA ROE High 20% High 20% Low 20% Low 20% 2014 11.0 15.1 -5.1 -13.7 2017 6.6 8.3 -3.7 -13.2 2018 6.5 7.9 -4.4 -16.2 2020 10.6 14.9 -2.5 -11.2 2021 14.6 21.6 -1.1 -8.0
Slide 35: Liquidity and solvency ratio definitions
Current ratio = total current farm assets/total current farm liabilities Working capital to gross revenue* = working capital/gross revenue or value of farm production Debt-to-asset = total farm liabilities/total farm assets Equity-to-asset = total farm equity/total farm assets Debt-to-equi
Slide 36: Current ratio and working capital
Current Current Working Working Ratio Ratio Capital to Capital to High 20% Low 20% GR GR High 20% Low 20% 2014 2.4 1.3 35.0 18.5 2017 2.2 1.1 40.0 8.0 2018 2.1 1.1 40.2 5.1 2020 2.3 1.2 36.9 12.1 2021 2.7 1.6 47.6 18.3
Slide 37: Solvency ratios
D/A1 D/A E/A2 E/A D/E3 D/E High 20% Low 20% High 20% Low 20% High 20% Low 20% 2014 33.0 45.0 67.0 55.0 0.48 0.80 2017 36.0 49.0 64.0 51.0 0.55 0.96 2018 35.0 51.0 65.0 49.0 0.53 1.03 2020 38.0 47.0 62.0 53.0 0.61 0.89 2021 42.0 51.0 58.0 49.0 0.71 1.04 1 Debt-to-asset. 2 Equity-to-asset. 3 Debt-to-e
Slide 38: Financial efficiency ratio definitions
Asset turnover ratio = gross revenue*/average total farm assets Revenue/full-time laborer ratio = gross revenue*/number of operators and employees Operating expense ratio = operating expenses (excluding interest and depreciation)/gross revenue* Depreciation expense ratio = depreciation expen
Slide 39: Asset turnover and operating expense ratios
ATR*1 ATR* OER*2 OER* High 20% Low 20% High 20% Low 20% 2014 40.9 30.9 70.7 97.7 2017 34.8 30.7 72.1 96.4 2018 35.1 29.8 71.1 97.7 2020 40.6 25.2 68.7 90.8 2021 44.6 29.5 63.5 88.5 * This ratio was calculated using Gross Revenue (GR). 1 Asset turnover ratio. 2 Operating expense ratio.
Slide 40: Depreciation, interest and NFI ratios
DER*1 DER* IER*2 IER* NFI NFI High 20% Low 20% High 20% Low 20% Ratio* Ratio* High 20% Low 20% 2014 5.0 9.5 2.4 5.8 22.3 -13.3 2017 6.3 7.7 3.2 6.3 18.9 -10.3 2018 6.4 7.3 3.6 6.3 18.8 -11.3 2020 5.2 8.6 3.1 8.1 22.9 -7.5 2021 4.4 7.2 2.4 5.6 29.7 -1.3 * This ratio was calculated using Gross Revenue
Slide 41: Repayment capacity ratio definitions
Term debt and capital lease coverage ratio = [(NFI + total nonfarm income + depreciation expense + interest on term debts + interest on capital leases) – total income tax expense – withdrawals for family living]/annual scheduled principal and interest payments on term debts and capital leases De
Slide 42: Term debt coverage ratio
Term Debt Term Debt Coverage Ratio Coverage Ratio High 20% Low 20% 2014 3.37 -0.45 2017 2.35 -0.16 2018 2.51 -0.22 2020 3.57 0.48 2021 5.31 0.91 * This ratio was calculated using Gross Revenue (GR). 1 Asset turnover ratio. 2 Operating expense ratio.
Slide 43: Sensitivity analysis stress test
Sensitivity Analysis “Stress Test” Evaluate Alternatives Prioritize Alternatives
Slide 44: Scenario assumptions: debt-to-asset 30 percent
Debt-to-Asset = 30 Percent Interest Rates on Operating Debt = 3.5 Interest Rates on Term Debt = 5 Percent
Slide 45: Scenario assumptions: debt-to-asset 46 percent
Debt-to-Asset = 46 Percent Interest Rates on Operating Debt = 3.5 Interest Rates on Term Debt = 5 Percent
Slide 46: Gross farm income by year
Year Amount Percent Billions Change 2013 $456.1 ------- 2014 470.3 3.1 2015 422.6 (10.1) 2016 399.4 ( 5.5) 2017 413.2 3.5 2018 414.0 0.2 2019 424.3 2.5 2020 437.2 3.0
Slide 47: Revenue decrease scenarios
1. Decrease Gross Farm Revenue by 5 percent 2. Decrease Gross Farm Revenue by 10 percent
Slide 48: Production expenses by year
Year Amount Percent Billions Change 2013 $355.8 ------ 2014 386.0 8.5 2015 355.0 (8.0) 2016 345.6 (2.6) 2017 346.5 0.3 2018 340.1 (1.8) 2019 344.8 1.4 2020 354.1 2.7
Slide 49: Operating expense increase scenarios
3. Increase Total Operating Expenses by 5 percent 4. Increase Total Operating Expenses by 10 percent
Slide 50: Percentage change in income and expense
Year Gross Farm Income Prod. Expense ------------------Percentage Change------------ 2013 1.1 2.1 2014 3.1 8.5 2015 (10.1) (8.0) 2016 (5.5) (2.6) 2017 3.5 0.3 2018 0.2 (1.8) 2019 2.5 1.4 2020 3.0 2.7
Slide 51: Combined revenue and expense scenarios
5. Decrease GFR by 5% and Increase OE 5% 6. Decrease GFR by 5% and Increase OE 10% 7. Decrease GFR by 10% and Increase OE 5% 8. Decrease GFR by 10% and Increase OE by 10%
Slide 52: Scenario results, D/A 30 vs 46
Scenarios D/A = 30 D/A = 46 Base 3.03 2.01 1 R↓5 2.45 1.65 2 R↓10 1.87 1.30 3 E↑5 2.63 1.77 4 E↑10 2.23 1.53 5 R↓5 E↑5 2.05 1.42 6 R↓5 E↑10 1.64 1.18 7 R↓10 E↑5 1.47 1.06 8 R↓10 E↑10 1.06 0.82
Slide 53: Scenario with higher interest rates
Debt-to-Asset = 30 vs. 46 Percent Interest Rates on Operating Debt = 3.5 and 6.0 Interest Rates on Term Debt = 5 and 7.5 Percent Working Capital to Gross Farm Revenue = 19 Percent
Slide 54: Scenario results, low and high interest
Scenarios D/A = 30 D/A = 46 Base-Low Int. 3.03 2.01 Base-High Int. 2.50 1.61 1 R↓5 1.99 1.31 2 R↓10 1.49 1.01 3 E↑5 2.15 1.41 4 E↑10 1.80 1.21 5 R↓5 E↑5 1.64 1.11 6 R↓5 E↑10 1.29 0.91 7 R↓10 E↑5 1.13 0.81 8 R↓10 E↑10 0.78 0.61
Slide 55: Fixed term debt scenario
Debt-to-Asset = 30 vs. 46 Percent Interest Rate on Term Debt Fixed at 5 Percent when the market is 7.5 Percent Interest Rate on Operating Debt at 6.0 Percent Working Capital to Gross Farm Revenue = 19 Percent
Slide 56: Variable vs fixed-term results
Scenarios Variable Fixed-Term Base 2.50 2.87 1 R↓5 1.99 2.28 2 R↓10 1.49 1.70 3 E↑5 2.15 2.46 4 E↑10 1.80 2.06 5 R↓5 E↑5 1.64 1.88 6 R↓5 E↑10 1.29 1.48 7 R↓10 E↑5 1.13 1.30 8 R↓10 E↑10 0.78 0.90
Slide 57: Variable vs fixed with working capital
Scenarios Var.&WC/GR=19 Fixed&WC/GR=50 Base 1.61 2.03 1 R↓5 1.31 1.68 2 R↓10 1.01 1.33 3 E↑5 1.41 1.80 4 E↑10 1.21 1.56 5 R↓5 E↑5 1.11 1.44 6 R↓5 E↑10 0.91 1.20 7 R↓10 E↑5 0.81 1.09 8 R↓10 E↑10 0.61 0.85
Slide 58: Keys to operating: credit standards, profitability, leverage
1. Do not abandon proven credit standards 2. Focus on profitability – accrual-adjusted income statements • Large operations • Highly Leveraged • Farms in transition 3. Be Aware of the “Wealth Effect” - Purchase of Capital Assets when Profits and Repayment Capacity are Declining 4. Repayment Capacity
Slide 59: Keys: insurance, marketing, liquidity, guarantees
6. Reduce Production Risk with Crop Insurance 7. Reduce Market Risk with a Disciplined Marketing Plan 8. Pay Attention to Liquidity – Increase Working Capital to Gross Revenue for More Highly Leveraged Borrowers 9. Get Guarantees on Questionable Loans – When is the Best Time to Get a Loan Guarantee?
Slide 60: Thank-you for Your Attendance and Attention!
Thank-you for Your Attendance and Attention! Questions?
Slide 61: We Welcome Your Questions!
We Welcome Your Questions! • We’ll answer as many questions as we can, with both speakers. • Simply raise your hand to ask a question and our speaker and/or moderator will call on you. 61 © 2022 First Citizens National Bank | 2022 Ag Insights Presentation
Slide 62: Key factors FCNB considers when analyzing loans
Key Factors FCNB Takes Into Consideration When Analyzing Loans • Annual Requirements • Complete Federal AND State Tax Returns • Personally • Any Entity Which Has More Than 20% Ownership • Along with K-1s • Personal or Agricultural Financial Statement • Assets/Liabilities/Net Worth • Current Business
Slide 63: Key factors: repayment capacity, collateral, credit
Key Factors FCNB Takes Into Consideration When Analyzing Loans • Repayment Capacity (Cash Flow) • Debt Service Coverage (Minimum 1.3x) • Historic Trends • Collateral • Loan-to-Value Ratio • Loan-to-Cost Ratio • Loan-to-Acre Ratio (on Land Loans) • Credit • History • Bureau Score (typically TransUnio
Slide 64: Key factors: mitigating factors
Key Factors FCNB Takes Into Consideration When Analyzing Loans • Mitigating Factors • Net Worth • Deposit Relationship with FCNB • Repayment History with FCNB • Dec. 31 Carryover (from one tax year into another) vs. Dec. 31 Line of Credit (Operating Debt) Balance • Income • Stored Grain as of 12/31
Slide 65: Key factors: expenses
Key Factors FCNB Takes Into Consideration When Analyzing Loans • Expenses • One-time Major Expense • Prepaid Inputs 65 © 2022 First Citizens National Bank | 2022 Ag Insights Presentation
Slide 66: Farm Finance Scorecard
Farm Finance Scorecard 66 © 2022 First Citizens National Bank | 2022 Ag Insights Presentation
Slide 67: Speaker Series Upcoming Event Information
KEY TAKEAWAYS Speaker Series Upcoming Event Information This concludes our presentation. Visit firstcitizensnational.com/2022-ag-event or use the QR to view and download the presentation. We invite you to follow us on LinkedIn and Facebook to learn more about this series and be the first to know whe
Slide 68: Thank you!
Thank you! J SUE NATIONAL BANK
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