BOARD OF DIRECTORS OFFICERS OF THE CORPORATION Bill Uruski, Chair Charlene Kibbins Arborg Acting, Chief Executive Officer / Vice-President, Corporate and Program Development Sandy Yanick, Vice-Chair Ex-officio Member of the Board Shoal Lake Karen McEachen Norine Dohan Chief Financial Officer Ethelbert Albert Todosichuk Joe Eichler Vice-President, Program Delivery Minitonas Lester Vopni Robert Friesen General Counsel / Corporate Secretary Wawanesa
Goldwyn Jones Tilston
Ron Kostesky Rossburn
Frieda Krpan St. Laurent
TABLE OF CONTENTS
CORPORATE VALUES ...... 1 TRANSMITTAL LETTERS...... 2 MESSAGE FROM THE CEO & CHAIR...... 4 ORGANIZATION CHART ...... 5 OPERATING PHILOSOPHY ...... 6 OPERATIONAL BACKGROUND ...... 7 YEAR IN REVIEW ...... 8 STRATEGIC DIRECTION ...... 10 SUMMARY OF OPERATIONS ...... 14 DIRECT LENDING PROGRAM ...... 15 EMERGENCY AND/OR SPECIAL ASSISTANCE PROGRAMS ...... 17 GUARANTEED LOAN PROGRAMS ...... 18 PROPERTY MANAGEMENT ...... 19 LENDING PORTFOLIO ...... 20 GUARANTEE PORTFOLIO ...... 20 PROGRAM PARTICIPATION BY SECTOR ...... 21 FINANCING OF THE CORPORATION ...... 22 MANAGEMENT REPORT ...... 23 AUDITOR’S REPORT ...... 24 FINANCIAL STATEMENTS ...... 25
2002-2003 ANNUAL REPORT CORPORATECORPORATE VALUESVALUES
OUR VISION: A sustainable Manitoba agricultural economy
OUR PROMISE: To participate in meeting the financial requirements of the agricultural community, thereby contributing to a vibrant Manitoba economy that is globally competitive
OUR COMMITMENT: Facilitate acquisition of credit for Manitoba farmers, especially young, beginning, low-equity farmers or those considering higher risk farm diversification, in establishing a viable farm operation.
Provide the vehicle through which the Province of Manitoba can implement financial agricultural programs, determined by the government of the day as essential for the long-term viability of agricultural production, agricultural producers and rural development.
Continue to develop MACC’s relationship with private lending institutions in order to provide Manitoba farmers with access to credit under reasonable terms and conditions.
Administer some of the Province’s emergency and special assistance programs.
1 2002-2003 ANNUAL REPORT
Unit 100 - 1525 First Street South Brandon, Manitoba R7A 7A1 T 204.726.6850 F 204.726.6849
The Honourable Rosann Wowchuk Minister of Agriculture and Food 165 Legislative Building Winnipeg, Manitoba R3C 0V8
Dear Mrs. Wowchuk:
On behalf of the Board of Directors, I am pleased to submit the Annual Report of the Manitoba Agricultural Credit Corporation for the fiscal year ending March 31, 2003
Yours truly,
Bill Uruski Chair MESSAGEMESSAGE FROMFROM THETHE CEOCEO && CHAIRCHAIR
MACC has provided a range of financial services MACC recognizes that staff are a key resource in for Manitoba farmers for the past 44 years with a meeting its objectives and that teamwork is the special emphasis on the needs of the young and foundation of the organization. MACC’s staff are beginning farmer. Todays operating environment collectively involved in the development and presents many challenges for Manitoba implementation of strategies to ensure successful producers. Awareness of these challenges helps outcomes. We value staff input from all levels, MACC to enhance programs, to establish whether it is years of experience or a fresh priorities and to improve responsiveness to the perspective. We would like to thank all MACC needs of our clients. staff for continuing to embrace the challenge of change. Their dedication, insight and collaborative Canadian export markets continue to be affected spirit have contributed to the value we bring to our by international trade issues and disputes. clients. Canada’s dairy industry received a severe blow to future expansion this past year when exports of To improve effectiveness and efficiency of dairy products to the United States (US) were operation, and increase the level of client service in determined to be unfairly subsidized. The US the delivery of our programs, MACC has recently continues to challenge the Canadian Wheat taken some key steps in reorganization. We have Board and although each challenge to date has made several changes to the corporation’s been decided in Canada’s favour, fighting these organizational structure over the past year with disputes comes at a high cost. The concept of the more to follow in 2003-2004. voluntary Country of Origin Labeling provision was released as part of the US Farm Security and This past year, MACC transitioned to centralized Rural Act of 2002 (2002 Farm Bill) with mandatory computing, managing MACC’s data in a manner labeling to be implemented in the fall of 2004. that protects the integrity of our computer system Over the last year, Canada’s livestock industries as a whole. Centralized computing provides such have realized that the mandatory component of benefits as centralized data storage and reduction the 2002 Farm Bill may not easily be repealed as of user downtime. The majority of MACC offices was once thought. This leaves many questions have seen a significant increase in line speeds as to the impact on Canada’s cattle and hog through broadband bandwidth improvements industries as well as other livestock sectors, all enabled by the newly implemented second- extremely reliant on the US export market, should generation Provincial Data Network. the 2002 Farm Bill become mandatory. Canada’s grain producers also continue to struggle with MACC fully supports and participates in Manitoba tighter margins, brought on by higher operating Agriculture and Food’s Sustainable Development costs and low commodity prices. Increased price Initiative under the Sustainable Development Act supports for crops in the US, also part of the 2002 and encourages staff to do so with activities such Farm Bill, places further downward pressure on as recycling, reducing, and returning items where Canadian commodity prices. applicable. We encourage the use of tele- conferencing to minimize travel and incorporate MACC has seen a great response in its first year sustainable development objectives when planning of the Bridging Generations Initiative. Over $14 activities. million was made available to help establish a new generation of Manitoba farmers. MACC MACC is continually making changes to improve distributed 123 Bridging Generations Loans our efficiency and effectiveness and strives to be across the province, demonstrating the innovative in our meeting clients’ needs. Making importance of accessible financing options for Manitobans aware of our products and services is young and beginning, and retiring farmers. Most also a key priority. Many thanks go to our Board of the program’s clients are participating in the and to our Minister, the Honourable Rosann Management Training Credit component of the Wowchuk, for their dedication, direction and program. This program demonstrates our assistance through out the year. commitment to facilitating farm transfer between generations and providing Manitoba farmers with the financial options, training and skills vital for Charlene Kibbins Bill Uruski today’s farm families and their long-term viability. Acting, CEO Chair 4 2002-2003 ANNUAL REPORT ORGANIZATIONORGANIZATION CHARTCHART
MACC staff are located throughout the province, with the Head Office in Brandon. MACC is governed by a Board of Directors appointed by the Lieutenant Governor in Council. The CEO, who reports to the Board of Directors, is responsible for the management, direction, and control of the operations of MACC and the day-to-day administration of its affairs. The CEO is also a member of the Executive Management Committee of Manitoba Agriculture and Food. MACC is comprised of three main divisions being Finance and Administration, Program Delivery, and Corporate and Program Development.
MACC has recently embarked on some major steps in reorganization to improve effectiveness and efficiency of operation, and increase the level of client service in the delivery of our programs. The continued progress of MACC and its contribution to Manitoba’s agricultural industry is facilitated through a restructuring plan, developed based on the corporation’s strengths and weaknesses, opportunities and challenges. A number of changes have been made to the corporation’s organizational structure over the past year and there are several enhancements in the upcoming year.
Manitoba Agricultural Credit Corporation - March 31, 2003
Minister of Agriculture and Food
Board of Directors
Acting Chief Executive Officer C. Kibbins
Administrative Compliance Secretary Officer
Vice-President, Vice-President, Corporate and General Counsel / Chief Financial Program Delivery Program Development Corporate Secretary Officer A. Todosichuk C. Kibbins L. Vopni K. McEachen
Direct Lending Corporate & Program Financial Services Services Development
Guarantees and Information Technology Human Resources Special Programs Services
Loans Administrative Administration Services
Legal Services
5 2002-2003 ANNUAL REPORT OPERATINGOPERATING PHILOSOPHYPHILOSOPHY
ALLIANCE BUILDING
We are committed to building partnerships and relationships within the agricultural community.
SERVICE
We are committed to providing professional, prompt, respectful, orderly, efficient and ethical service.
PRODUCTIVITY
We are dedicated to providing a high volume of high quality products.
PROGRESS
We believe in the future of agriculture as a viable industry in Manitoba and are dedicated to program change and enhancement that addresses unserviced financial needs in the agricultural community.
PROFESSIONAL GROWTH
We are committed to employee development and advancement in an atmosphere of mutual trust that fosters initiative and creativity.
ORGANIZATIONAL STRUCTURE
We are committed to defining roles and responsibilities that will support efficient decision-making, orderly flow of information, and effective program delivery.
COMMUNICATION
We believe that effective and open communication, based on listening and responding, is integral to a successful organization.
6 2002-2003 ANNUAL REPORT OPERATIONALOPERATIONAL BACKGROUNDBACKGROUND 3-2004 STRATEGIC DIRECTION perational Background MACC recognizes that satisfied and knowledgeable staff are essential in providing quality customer service. In order to determine current levels of employee satisfaction, MACC initiated a process to track corporate performance in this area, ensuring the identification of staff concerns that may impede quality customer service. Better expanded access to our clients through email and the Internet will also improve customer service; and will only advance as rural communities become more accessible electronically. MACC looks forward to taking advantage of improved electronic access to rural communities to improve turnaround times and provide more efficient service for clients.
Another goal for MACC is to be recognized for quality financing programs. Assessing and managing credit risk is essential in protecting MACC’s clients and the Province. Credit risk is inherent both in MACC's lending portfolio and its guarantee programs. MACC strives to provide quality programs with reasonable terms and conditions available to all sectors of agriculture ensuring a diversified portfolio. As well, MACC lending staff are highly skilled in credit risk assessment and management.
MACC continually examines the current agricultural environment to ensure that financing gaps for rural economic development projects are being filled. Such gaps include the financing of larger production units necessary to take advantage of economies of scale, supply managed commodities, and supporting development projects complementing the government’s commitment to agriculture.
MACC provides unique and essential financial assistance programs facilitating the establishment and development of value added and diversification activities of farms and agricultural enterprises. MACC compliments its traditional programming through guarantee partnerships, which provide support to financial institutions in rural communities by making agricultural financing an attractive option. A number of agricultural processing initiatives have begun or are being proposed in rural Manitoba. A recent example is Simplot’s potato processing operation in Portage. MACC’s Enhanced Diversification Loan Guarantee program has supported several clients in expanding and establishing potato production, in order to supply this facility.
In many sectors of agriculture, costs for capital assets and other operating expenses continue to rise faster than gross revenues resulting in reduced debt service capacity and shrinking net margins. At the same time, access to credit from traditional lenders continues to be limited. This is reflected in increasingly restrictive eligibility requirements and a decreasing number of local branches. In order to increase the availability of credit, under reasonable terms and conditions, MACC offers guarantee programs to help producers access financing for capital intensive projects from the private sector. The client, the rural community, the lender and MACC all benefit from these partnerships.
Delivery of emergency and special assistance programs for the province on a priority status makes MACC a valuable instrument in government. Through restructuring, MACC has better positioned itself to rapidly respond to emergency and special situations while maintaining our mandated services.
7 2002-2003 ANNUAL REPORT YYEAREAR ININ REVIEWREVIEW
The Manitoba Agriculture and Food’s Destination This past year, MACC implemented the Producer 2010 – A Strategic Roadmap for Agriculture and Inquiry form. This form is aimed at ensuring Food document outlines the department’s six strategic consistent, high quality customer service, while routes, which identify the programs and activities, providing MACC with critical information in areas such needed to realize their vision. Within these routes, as unmet client needs and anticipated work volumes. MACC plays an important role in agriculture guided by A Client Comment sheet was also developed to our Vision and Goals. encourage communication between MACC and our clients. This communication tool will help to assess Manitoba Agriculture and Food has identified Farm qualitative aspects of service to enhance our existing Profitability and Sustainability as two of their routes. programs and aid in program development. In order to Due to an ever-shifting economic environment, ensure a positive customer service reputation into the producers must constantly update their competitive future, MACC established a Service Standards Policy knowledge and skills while having access to effective to make certain all clients across the province receive risk-reduction measures. As well, the long-term well consistent service. being of farm families requires an integrated environmental, social and economic approach to In response to the corporation’s Change Readiness agriculture. MACC is striving to meet these needs by Survey completed in 2001-2002, MACC made providing well-structured financial services with additional efforts this past year to enhance internal reasonable terms and conditions as an effective risk communications. MACC established an annual reduction method. MACC targets Manitoba’s young, employee survey process and completed the first beginning and lower equity producers and offers survey. MACC will use this initial survey as a tool to reasonable terms and conditions such as favorable measure and benchmark employee satisfaction within interest rates and the Young Farmer Rebate. MACC the corporation. encourages farm management training for young producers involved in family farm transfers with the An Electronic Environment Policy was developed and Management Training Credit component of the presented to staff, providing information and direction Bridging Generations Initiative. regarding rights and responsibilities in an electronic environment. Several corporate calendars were In order to meet our goal “To provide quality designed to display staff availability, highlight customer services”, over the past year MACC corporate events and ensure deadlines are met. We improved access to its Head Office computer server by also initiated monthly feature employee articles in implementing centralized computing. This transition order to share success stories and provide personal manages MACC’s data in a manner that better insights. protects the integrity of the system as a whole. It reduces user downtime for maintenance and A Field Representative Workshop was held to make troubleshooting while enhancing remote user certain new staff are made aware of and understand accessibility. It also provides centralized data storage, MACC policies and to re-affirm our policies with enhanced integration of data and reporting existing, longer term staff. The workshop focused on capabilities, and easier management, backup and customer service standards, and analysis and recovery. MACC’s Head Office and the majority of preparation of loan recommendations. Further training field offices have now increased line speeds through was provided on the Freedom of Information and the second-generation Provincial Data Network. Protection of Privacy Act (FIPPA). MACC strives to provide an environment that supports continuous MACC’s customized Electronic Client Loan Information learning as a means of ensuring our positive customer Profile System was also enhanced throughout the year service reputation into the future. to include improvements to client information screens and access to MACC’s lease and property activity for Another MACC goal is “To be recognized for quality data entry and viewing. MACC also integrated an financing programs.” In 2002-2003 MACC took electronic funds transfer system, enabling loan steps to build program awareness with producer disbursements and refunds to be directly deposited groups, financing partners and other stakeholders. into recipient’s bank accounts.
8 2002-2003 ANNUAL REPORT YEAR IN REVIEW
MACC conducted many information sessions on our while providing retiring farmers with a reliable payment guarantee, Bridging Generations Initiative and direct schedule. lending programs. In conjunction with Manitoba Agriculture and Food, an information pamphlet on the Included in this initiative is the Management Training Bridging Generations Initiative was published. We Credit, which helps young farmers increase their farm completed updates on our promotional material and business management skills. MACC provided a total procedures manuals in order to have the most of $14.6 million in loans this past year to applicants accurate and current information available. Over under the Bridging Generations Initiative to help 3,000 hours were logged in networking activities establish a new generation of Manitoba farmers. including trade shows, seminars, conferences, client Another strategic route for Manitoba Agriculture and focus groups, federal/provincial relations, and Food is Diversification and Adding Value. MACC meetings with agriculture producer leaders, lenders can contribute by providing a more stable economic and industry groups. foundation for Manitoba producers interested in pursuing economic expansion and prosperity through Within our Direct Lending program, many increased diversification and value-added activities. enhancements occurred over the year. MACC Since 1995, MACC has been able “To provide unique implemented a policy allowing clients to borrow in and essential financial assistance programs more than one capacity. Producers can now use facilitating the establishment, development, value- Direct Loans to purchase supply-managed quota and added and diversification activities of farms and shares in primary agriculture production enterprises. agricultural enterprises” through its Diversification Also, MACC increased the lending limits for hog bio- Loan Guarantee (DLG) programming. Use of the DLG tech shelters and removed lending restrictions based program has seen continued growth year after year on production allotments for Pregnant Mares Urine with an increase of 40% in the number of loans (PMU) operators. guaranteed and a 74% increase in the dollar value over 2001-2002. One of MACC’s goals is “To increase the availability of credit, under reasonable terms and conditions, As new agricultural market opportunities emerge, from traditional financial institutions to Manitoba MACC is prepared to assist in meeting client needs farmers” by guaranteeing loans from other financial and in doing so, aid in Manitoba Agriculture and institutions. Agriculture and Food Minister, the Food’s strategic route of Market Development. With Honourable Rosann Wowchuk, announced March 27, the recent construction of the Simplot potato 2003 that effective April 1, 2003, MACC’s Operating processing plant in Portage la Prairie, MACC Credit Guarantee (OCG) program is available to assist responded with greater maximums in our guarantee Manitoba farmers obtain more affordable financing. programs to address the higher capital and operating This new program responds to the changing needs of costs of potato production. Over the 2002-2003 fiscal farmers and the industry, and assists producers who year, the Enhanced Diversification Loan Guarantee experience difficulty securing sufficient operating credit program guaranteed 6 potato production projects for by reducing the risk for participating lenders. The $6.0 million with a guarantee of $1.5 million. MACC Operating Credit Guarantee replaces the Guaranteed also provided a $5 million guarantee for Brett-Young Operating Loan program, which expired March 31, Seeds Limited, a company that specializes in grass, 2003. MACC also continued to provide the Enhanced canola and forage seeds. The company's research Diversification Loan Guarantee and the Manitoba will expand on its existing expertise in seed Cattle Feeder Associations Loan Guarantee programs development, such as producing varieties of canola to help Manitoba producers obtain financing that may with specific oil profiles preferred by consumers and otherwise not be available to them. canola yield enhancing products.
As always, MACC is ready “To deliver emergency and special assistance programs for the Province on a priority status.” In April 2002, MACC piloted the Bridging Generations Initiative; a unique direct lending and guarantee product designed to assist young farmers purchase a farm operation
9 2002-2003 ANNUAL REPORT STRATEGICSTRATEGIC DIRECTIONDIRECTION
MACC believes in the future of agriculture as a viable industry in Manitoba. The Vision, which is the driving force of the corporation, is that of “A sustainable Manitoba agricultural economy”.
In order to do its part in achieving this vision, the corporation Promises “To participate in meeting the financial requirements of the agricultural community, thereby contributing to a vibrant Manitoba economy that is globally competitive”.
MACC was established in 1958 and has a Commitment to: • facilitate acquisition of credit for Manitoba farmers, especially young, beginning, low-equity farmers or those considering higher risk farm diversification, in establishing a viable farm operation • provide the vehicle through which the Province of Manitoba can implement financial agricultural programs, determined by the government of the day as essential for the long- term viability of agricultural production, agricultural producers and rural development • continue to develop MACC’s relationship with private lending institutions in order to provide Manitoba farmers with access to credit under reasonable terms and conditions • administer some of the Province’s emergency and special assistance programs
MACC operates in a setting that is influenced by a number of factors. Some of the dynamics faced by the corporation and its clients include a volatile financial situation, an export driven market, a public that is increasingly food safety and environmentally conscious and knowledgeable, a declining rural population, the attendant loss of political influence, and agricultural production and processing that is expensive and rapidly changing. For the corporation specifically there are challenges and opportunities offered by new technology and the need to operate in the political spectrum.
Within this setting and the structure provided by its Vision, Promise and Commitment, MACC is dedicated to cooperation within the financial community in order to offer program development, change and enhancement that address the unserviced financial needs in the agricultural community.
Goals have been established to focus the work of the corporation. Within each goal, MACC challenges itself to accomplish specific initiatives for the 2003 – 2004 year.
Within the December 2002 report on Performance Reporting in Annual Reports: Current Practices Among Crown Entities, the Auditor General has presented many guidelines to incorporate into our annual reporting. Over the next three to five years, MACC plans to implement these recommendations by including the expected results, the actual results achieved with explanations of the variance between the two, and future strategies to address any shortcomings in performance.
10 2002-2003 ANNUAL REPORT STRATEGIC DIRECTION
To provide quality customer services
2003-2004 Strategies 2003-2004 Targets
Enhance efficiency, accuracy, and turnaround • analyze research results and make time in responding to client requests recommendations for development of a client satisfaction measurement system • research external credit scoring systems and make recommendation for appropriate system for MACC • develop infrastructure for remote data entry • provide improved access to program information by implementing the on-line Producer Inquiry Form
Enhance MACC’s client accessibility • provide 24 hr multi-location accessibility to MACC on the internet • encourage staff to perform on-site data entry for clients
To be recognized for quality financing programs
2003-2004 Strategies 2003-2004 Targets
Enhance awareness of MACC programs and • conduct program awareness training for accomplishments lenders and extension staff • add a regular MACC piece to the District newsletters in the four Manitoba Agriculture and Food regions • continue to hold program delivery sessions for MACC staff with semi-annual credit meetings and conduct program awareness with producers • initiate development of lenders’ manuals for the Enhanced Diversification Loan Guarantee Program • deliver procedural guidelines to participating lenders for the new Operating Credit Guarantee Program
11 2002-2003 ANNUAL REPORT STRATEGIC DIRECTION
To provide unique and essential financial assistance programs facilitating the establishment, development, value-added and diversification activities of farms and agricultural enterprises
2003-2004 Strategies 2003-2004 Targets
Analyze the marketplace and report on • make recommendations on financing identified gaps and emerging needs needs in the following areas: - rural development focus/financing gaps - bio-fuels - marketing co-ops - custom operations
• measure activity relating to established target groups under the Client Profile System
Develop or enhance existing products to fill • establish / refine criteria and guidelines for gaps and meet needs - modest farms (in Statistics Canada profiling) - agricultural product processing - specialized environmental infrastructures
Implement new products or program • provide financing related to: enhancements - grass and forage seed processing - modest farms (in Statistics Canada profiling) - manure management
12 2002-2003 ANNUAL REPORT STRATEGIC DIRECTION
To increase the availability of credit, under reasonable terms and conditions, from traditional financial institutions, to Manitoba farmers
2003-2004 Strategies 2003-2004 Targets
Analyze the marketplace and report on • evaluate potential for non-participating identified gaps and emerging needs financial institutions to become involved in guarantee programs
Develop or enhance existing products to fill • establish criteria and guidelines for breeder gaps and meet needs financing • complete Treasury Board Submission for breeder financing
Implement new products or program • provide loan guarantees under a new enhancements guarantee program for operating loans • introduce enhancements to Manitoba Cattle Feeder Associations Loan Guarantee Program for breeder financing
To deliver emergency and special assistance programs for the Province on a priority status
2003-2004 Strategies 2003-2004 Targets
Have a vehicle to address the needs of • deliver the Bridging Generations Initiative Manitoba farm families to facilitate intergenerational farm transfers
Identify trends through our networking strategy • meet with lenders, stakeholders and clients Establish an archive system to provide ready • develop a system format using the Flood access to emergency and special assistance Proofing Loan Assistance Program program information information as a template
13 2002-2003 ANNUAL REPORT SUMMARYSUMMARY OFOF OPERATIONSOPERATIONS
MACC has a reputation for proactive financial programs meeting the challenges and opportunities faced by the agricultural industry. We continually monitor farm financial services in order to provide financing in gap areas that are not served by other institutions. MACC works in cooperation, not in competition, with other financial institutions to ensure that Manitoba’s farming community is fully serviced. MACC provides short, intermediate and long-term credit to agricultural producers serving a wide variety of purposes. We work with Manitoba farmers to find the financial management answers to help them achieve their goals.
MACC’s farm lending products include:
DIRECT LENDING PROGRAM • Direct Loans • Stocker Loans • Bridging Generations Initiative • Young Farmer Rebate
EMERGENCY AND/OR SPECIAL ASSISTANCE PROGRAMS • Flood Proofing Loan Assistance • Comprehensive Refinancing Loans • Manitoba Farm Mediation Loan Guarantee
GUARANTEED LOAN PROGRAMS • Enhanced Diversification Loan Guarantee • Manitoba Cattle Feeder Associations Loan Guarantee • Guaranteed Operating Loan
PROPERTY MANAGEMENT • Short Term Leases • Land Lease Option Program
14 2002-2003 ANNUAL REPORT DIRECT LENDING PROGRAM DIRECT LENDING PROGRAM
MACC’s Direct Lending Program provides eligible Manitoba producers with short, intermediate and long term financing, competitive interest rates and no prepayment penalties. Clients also have the control and flexibility of locking the interest rate for the full amortization period or by selecting a five-year renewable interest term.
DIRECT LOANS
In 1959-1960, the first year of its inception, MACC made available Direct Loans to provide financial assistance to Manitoba producers in establishing, developing and operating their farms. Direct Loans are available for a variety of purposes such as the purchase of land / buildings, permanent improvements to land/buildings, traditional or alternative breeding stock, construction and renovation of production buildings or debt consolidation.
During 2002-2003, there were 334 loans approved totalling $18.8 million as compared to 653 loans approved totalling $45.4 million during 2001-2002. The major allocation of agricultural lending activities in 2002-2003 went to land purchase loans of 41% and debt consolidation loans of 27%.
APPROVED DIRECT LOANS BY PURPOSE
2002-2003
Building Land Improvements Improvements 10% 2%
Land Purchases 41%
Livestock Purchases 20%
Debt Consolidation 27%
15 2002-2003 ANNUAL REPORT DIRECT LENDING PROGRAM
STOCKER LOANS
In 1974-1975, MACC introduced Stocker Loans to provide livestock inventory financing to qualified livestock producers. This includes the purchase of feeder steers, feeder heifers, feeder cows and equine growers.
During 2002-2003, MACC approved 337 loans for 34,961 head, totalling $19.5 million as compared to 425 loan approvals for 41,596 head, totalling $27.6 million for 2001-2002.
BRIDGING GENERATIONS INITIATIVE
In 2002-2003, MACC implemented a five-year pilot project, the Bridging Generations Initiative to assist in the transferring of farm assets between retiring and next generation farmers. The initiative is comprised of six key elements: • Bridging Generations Loan • Land Lease Guarantee • Bridging Generations Mortgage Guarantee • Lifestyle Transition Loan • Livestock Herd Establishment Loan • Management Training Credit
In its first year, MACC approved 123 Bridging Generations Loans, totaling $14.6 million.
YOUNG FARMER REBATE
Direct Loans and Bridging Generations Loans can include a Young Farmer Rebate for qualifying clients. MACC introduced the Young Farmer Rebate in 1978-1979 to assist young, beginning and expanding farmers in the development, re-organization and expansion of their farm operations. The rebate is aimed at reducing the cost of borrowing during the critical start-up stage of production. Eligible young farmers, under the age of 40, receive a rebate of 2% on the first $100,000 of principal on Direct Loans or Bridging Generations Loans, with an interest term of five years or greater. The maximum lifetime rebate is $10,000.
During 2002-2003, MACC distributed $1.9 million of young farmer rebates as compared to rebates of $1.7 million during 2001-2002. Young farmers were approved for 70% of the loan dollar volume as compared to 72% for 2001-2002.
16 2002-2003 ANNUAL REPORT EMERGENCY AND/OR SPECIAL ASSISTANCE PROGRAMS
As required, MACC plays a vital role in delivering financial assistance and/or programming in specialized areas that are identified as critical by the Province for Manitobans.
FLOOD PROOFING LOAN ASSISTANCE
In cooperation with Manitoba Conservation, MACC enhanced the Flood Proofing Loan Assistance Program in 1998-1999. Financial assistance was provided to Manitobans affected by the 1997 Red River Valley flood to undertake raising, moving and diking of buildings necessary for flood proofing. In January 2001, in cooperation with Manitoba Conservation, MACC administered the City of Winnipeg Flood Proofing program allowing property owners in the City of Winnipeg to obtain financing for the raising, moving and diking necessary for flood proofing. The deadline for completion of all flood-proofing projects was March 31, 2003.
COMPREHENSIVE REFINANCING LOANS
MACC introduced Comprehensive Refinancing Loans in 1985-1986 to provide loans to farmers who were in financial difficulty. MACC enhanced the program in 1998-1999 when $5 million was made available specifically for lending to existing MACC clients in financial difficulty. The interest rate was set at 6.50% for the first five years of each loan. An additional $5 million was made available in 2001-2002 with the same interest rate.
During 2002-2003, MACC approved 9 loans totaling $957,481 as compared to 8 approvals for $757,062 in 2001-2002.
MANITOBA FARM MEDIATION LOAN GUARANTEE
During 1987-1988, loan assistance to clients of the Manitoba Farm Mediation Board was identified to be in the category of “special programs.” The Manitoba Farm Mediation Board has funds, which it may use to provide guarantees to lenders to assist farmers experiencing financial difficulties.
In 2002-2003, there were Manitoba Farm Mediation Guarantees associated with 5 loans totaling $582,568 as compared to 5 loans totaling $474,726 during 2001-2002.
17 2002-2003 ANNUAL REPORT GUARANTEED LOAN PROGRAMS
MACC is committed to meeting the financing requirements of Manitoba’s agricultural producers by working in partnership with the major chartered banks, credit unions and caisse populaires. These partnerships provide agricultural producers with access to credit where it would not otherwise be available due to factors such as insufficient equity or security and unproven projects. MACC’s guarantees encourage private lenders to participate in areas that they may otherwise consider higher risk.
ENHANCED DIVERSIFICATION LOAN GUARANTEE
In order to assist Manitoba producers in diversifying their current operation and/or add value to commodities produced on the farm, MACC introduced the Diversification Loan in 1995-1996. The Enhanced Diversification Loan Guarantee program replaced the original program in 2001- 2002. MACC bases the guarantee on 25% of the principal amount of the loan with no maximum loan cap.
During 2002-2003, MACC approved 52 Enhanced Diversification Loan Guarantees for a total of $73.3 million as compared to 38 approvals with a total of $42.4 million during 2001-2002. At the end of 2002-2003, MACC’s total portfolio for the Diversification Loan Guarantee programs included 170 active guarantees totaling $182.4 million as compared to 126 active guarantees totaling $113.5 million at the end of 2001-2002.
MANITOBA CATTLE FEEDER ASSOCIATIONS LOAN GUARANTEE
In 1991-1992, the Manitoba Cattle Feeder Associations Loan Guarantees was introduced to assist Manitoba residents in establishing Feeder Associations and enable them to borrow funds on the strength of a government guarantee to lenders. For each association, the corporation provides a guarantee to the individual lending institution, based on 25% of the amount of the loan. The maximum guarantee is $1,250,000 per association.
At the end of 2002-2003 there were 10 Feeder Associations with a total of $24.4 million in approved guaranteed loans (for 150 active members) as compared to 10 Feeder Associations with $26.6 million in approved guaranteed loans (for 174 active members) at the end of 2001- 2002.
GUARANTEED OPERATING LOAN
In 1983-1984, MACC introduced Guaranteed Operating Loans to provide new lines of credit for operating expenses. The corporation guarantees each participating lending institution 121/2% of the respective total value of loans made under this program. All participating lending institutions have a $100 million combined total maximum. Note: This program expired March 31, 2003.
During 2002-2003, MACC provided 90 loan guarantees totaling $13.4 million approved as compared to 100 loan guarantees approved totaling $14.0 million during 2001-2002.
18 2002-2003 ANNUAL REPORT PROPERTY MANAGEMENT
Currently, MACC acquires property as a result of debt settlement negotiations or by foreclosure proceedings. In the case of debt settlement, MACC endeavors to provide an opportunity to the original owner to acquire back their land. Any land not leased or sold in the course of debt settlement is advertised to the general public for sale or lease.
PROPERTY ACTIVITY
Beginning of 12,623 Year 15,396
2,085 Sales 3,809 2003 2002 75 Acquisitions 1,036
10,613 End of Year 12,623
0 5,000 10,000 15,000 20,000 Acres
SHORT TERM LEASES
MACC offers properties with expired leases for sale by public tender. Properties that are not sold are tendered for lease with terms up to five years.
As at March 31, 2003, there were 7 Short Term Leases consisting of 1,561 acres and 480 acres committed to new tenants with lease agreements starting April 1, 2003.
LAND LEASE OPTION PROGRAM
From 1974 to 1977, MACC purchased farmland from willing sellers and leased it to qualifying farmers. The corporation acquired a total of 223,600 acres for $22.6 million.
As at March 31, 2003, there were 20 Long Term Leases and Agreements for Sale on 8,252 acres.
19 2002-2003 ANNUAL REPORT LENDING PORTFOLIO
As at March 31, 2003, MACC’s total loan portfolio decreased by 495 loans, $11.4 million under last year. This decrease can be attributed to variety of issues Manitoba producers are facing, such as uncertain commodity markets, ongoing trade issues, reduced margins due to declining prices and higher input costs, and areas suffering from low yields. As well, MACC’s activity level has been affected by the more aggressive approach being taken by other agricultural lenders, typically seen when interest rates are low.
Approvals Approvals Active and 2002/2003 2001/2002 Outstanding March 31, 2003 # of Loans $M. # of Loans $M. # of Loans $M. DIRECT LENDING Direct Loans 334 18.8 653 45.4 4,766 238.5 Stocker Loans 337 19.5 425 27.6 312 14.9 Bridging Generations Loans 123 14.6 - - 123 11.2 Total Direct Lending 794 52.9 1,078 73.0 5,201 264.6
EMERGENCY / SPECIAL ASSISTANCE Enhanced Flood Proofing Assistance Loans - - 31 2.1 489 2.4 Comprehensive Refinancing Loans 9 1.0 8 0.8 91 5.7 Producer Recovery Loans - - - - 509 19.0 Total Emergency / Special Assistance 9 1.0 39 2.9 1,089 27.1
TOTAL LENDING PORTFOLIO 803 $ 53.9 1,117 $ 75.9 6,290 $ 291.7
GUARANTEE PORTFOLIO
Although the Direct Loan portfolio has declined, both the number and dollar value of the Diversification Loan Guarantee portfolio continues to increase. This may indicate a shift toward larger production units, requiring the broader eligibility criteria and limits available in the DLG program.
Active and Approvals Approvals Outstanding 2002/2003 2001/2002 March 31, 2003 # of Loans $M. # of Loans $M. # of Loans $M. GUARANTEES Enhanced Diversification Loan Guarantees 52 73.3 38 42.4 170 182.4 Guaranteed Operating Loans 90 13.4 100 14.0 70 9.8 Manitoba Cattle Feeder Associations Loan Guarantees 10 24.4 10 26.6 10 24.4 TOTAL GUARANTEE PORTFOLIO 152 $ 111.1 148 $ 83.0 250 $ 216.6
20 2002-2003 ANNUAL REPORT PROGRAM PARTICIPATION BY SECTOR
MACC’s clients span all sectors of agriculture from grains and oilseeds to beef and supply managed commodities. Similar to Manitoba’s gross farm receipts, 1. grains and oilseeds, hogs and beef represent the greatest proportion of MACC’s poltfolio.
Primary Enterprise Direct Feeder Guaranteed Diversification Enhanced TOTAL Loans Association Operating Loan Diversification PORTFOLIO Loan Guarantee Loan Guarantee
% of % of % of % of % of Mar. 31/03 Portfolio ($) Portfolio ($) Portfolio ($) Portfolio ($) Portfolio ($)
Grains/Oilseeds 53.7% 66.9% 0.0% 0.0% 45.6%
Potatoes 0.1% 10.8% 7.0% 2.2% 0.7%
Other Crops 1.9% 8.6% 0.0% 0.0% 1.6%
Beef 32.4% 100.0% 9.5% 0.0% 0.2% 29.2%
Hogs 6.3% 1.4% 68.0% 69.1% 14.5%
Poultry 1.0% 0.0% 7.0% 5.9% 1.7%
Dairy 1.3% 1.5% 13.7% 4.3% 2.2%
Other 3.3% 1.2% 4.3% 18.2% 4.5% TOTAL OF PORTFOLIO *Guarantees representative of contingent liability 84.5% 1.8% 0.4% 4.9% 8.4% 100.0%
$ OF PORTFOLIO (MILLIONS) *Guarantees represent total value of loans
289.3 24.4 9.8 66.8 115.6 505.9
1. Source: Manitoba Agriculture Yearbook 2001
21 2002-2003 ANNUAL REPORT FINANCINGFINANCING OFOF THETHE CORPORATIONCORPORATION
Beginning in 1959-1960, its first full year of operation, the corporation borrowed its capital requirements from the Province of Manitoba. The capital funds at that time remained with the corporation to be reused for lending purposes and the interest charged on this debt was paid annually to the Province.
In 1977, arrangements were made to repay these capital funds and the fixed interest charges over an amortization period as consistent as possible with the term over which these funds were loaned to farmers. Subsequent capital advance requirements and terms of repayment were determined annually based on the lending activity of the corporation for that year.
FINANCIAL STATEMENTS
BALANCE SHEET DEFICIT ACCOUNT
1985-1986 brought about a change in the method of funding provided by the Province for the corporation's operations. This change eliminated any further funding of MACC’s allowance for impaired loans and required a return to the Province of funds provided for this allowance prior to March 31, 1985.
Because of this funding change, the corporation continues to operate from an accumulated deficit position which is now $26,796,299. This is essentially the allowance for impaired loans total of $20,885,101 at March 31, 2003, less the reserve for working capital and other provisions in the amount of $5,911,198.
STATEMENT OF REVENUE AND EXPENDITURE
The net costs of operation of the corporation were $5,643,886 (expenditures of $27,836,787 less revenue of $22,192,901) in 2002-2003 as compared with $5,657,978 (expenditures of $28,340,466 less revenue of $22,682,488) in the previous fiscal year.
To offset these net costs of operation, the Province provided $4,944,276 ($4,659,030 from appropriations of Manitoba Agriculture and Food and $285,246 from Manitoba Finance valuation account) resulting in an operating excess of expenditures over revenue of $699,610 for 2002-2003.
22 2002-2003 ANNUAL REPORT Unit 100 - 1525 First Street South Brandon, Manitoba R7A 7A1 T 204.726.6850 F 204.726.6849
July 4, 2003
MANAGEMENT REPORT
The accompanying financial statements are the responsibility of management and have been prepared in accordance with Canadian generally accepted accounting policies. In management’s opinion, the financial statements have been properly prepared and of necessity include some amounts based upon management’s best estimates and judgments. The financial information presented elsewhere in the Annual Report is consistent with that in the financial statements.
As management is responsible for the integrity of the financial statements, management has established systems of internal control to provide assurance that reliable financial information is produced and assets are properly accounted for and safeguarded from loss. The Board of Directors, which oversees management’s responsibilities for financial reporting, reviews and approves the financial statements. The Board of Directors meets with management and the auditors to discuss the audit, financial reporting, and related matters.
Charlene Kibbins Karen McEachen Acting, Chief Executive Officer Chief Financial Officer
The Manitoba Agricultural Credit Corporation Balance Sheet As at March 31, 2003
2003 2002 $ (000s) $ (000s)
Assets Cash (Note 3) $ 9,868 $ 12,645 Receivables (Notes 2 and 6) Mortgages (Note 4) 269,753 275,809 Other (Note 5) 14,093 19,254 Long-term funding commitments – Province of Manitoba (Note 7) 5,581 5,346 Real estate (Notes 2 and 12) 1,521 1,972 $ 300,816 $ 315,026
Liabilities and Deficit Accounts payable Unearned real estate revenue $12$28 Other 998 1,132 Provision for Young Farmer Rebate 549 524 Provision for losses on guaranteed loans (Notes 2 and 11) 9,075 7,899 Provision for employee pension benefits (Notes 2 and 9) 5,352 5,117 Advances from Province of Manitoba (Note 8) 311,627 326,423 327,613 341,123
Deficit Balance, beginning of year (26,097) (24,672) Excess of expenditure over revenue (700) (1,425) Balance, end of year (Note 17) (26,797) (26,097)
$ 300,816 $ 315,026 Contingent Liabilities (Note 11)
APPROVED BY THE BOARD
DIRECTOR
DIRECTOR
25 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Statement of Revenue and Expenditure for the year ended March 31, 2003
2003 2002 $ (000s) $ (000s)
Revenue Interest (Note 13) Mortgages $ 20,027 $20,509 Other 940 1,225 Cash on deposit with Province of Manitoba857 574 21,824 22,308
Province of Manitoba – Net Funding (Note 15)5,179 4,639 Services donated by Province of Manitoba (Note 2)72 109 Real estate (Note 10) 239 188 Change in provision for decline in real estate values (Note 12)20 35 Other 38 43 27,372 27,322
Expenditure Administration costs Salaries and benefits (Note 2) 3,670 4,064 Impaired loan (recoveries) losses (Notes 2 and 6)(168) 766 Change in provision for losses on guaranteed loans (Notes 2 and 11)1,419 685 Assistance under the Manitoba Farm Mediation Board Program56 95 Young Farmer Rebate 1,854 1,682 Flood proofing initiative administration 89 152 Other administration costs 936 1,037 7,856 8,481
Financing charges Interest on advances from Province of Manitoba (Note 13) 20,216 20,266 28,072 28,747
Excess of expenditure over revenue $ 700 $ 1,425
26 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Statement of Cash Flows for the year ended March 31, 2003
2003 2002 $ (000s) $ (000s)
Cash Provided By (Used for) Operating activities Excess of expenditure over revenue $ (700) $ (1,425) Items not involving cash Change in provision for impaired loan losses (457) 423 Gain on disposal of real estate (96) (18) Change in provision for decline in real estate value (20) (35) Change in provision for Young Farmer Rebate 25 13 Change in provision for losses on guaranteed loans 1,176 1,037 Change in provision for employee pension benefits 235 406 Mortgage loans disbursed (35,169) (48,889) Mortgage principal received 41,304 42,763 6,998 (4,300)
Decrease (increase) in other receivables 5,020 (1,592) Decrease in mortgage receivables 284 376 (Decrease) increase in accounts payable (150) 60 5,154 (1,156)
Cash provided by (used for) operating activities 11,452 (6,881)
Investing activities Proceeds from real estate disposals 613 750 Real estate acquisitions (46) (484) Cash provided by investing activities 567 266 Financing activities Advances received from Province of Manitoba 42,000 81,800 Advances repaid to Province of Manitoba (56,796) (69,922) Cash (used for) provided by financing activities (14,796) 11,878
Net (decrease) increase in cash (2,777) 5,263 Cash, beginning of year 12,645 7,382 Cash, end of year $ 9,868 $ 12,645
27 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Notes to the Financial Statements As at March 31, 2003
1. Nature of Operations
The Manitoba Agricultural Credit Corporation was incorporated under The Agricultural Credit Corporation Act of Manitoba. Under this Act, the corporation provides and administers financial assistance to farmers to assist in the development of farms in Manitoba.
2. Significant Accounting Policies
a) Basis of Accounting
The financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles and include the following significant accounting policies:
b) Allowances for Impaired Loans
The allowances for impaired loans are determined annually by a review of individual accounts. The allowances represent management's best estimate of probable losses on receivables. Where circumstances indicate doubt as to the ultimate collectibility of principal or interest, specific allowances are established for individual accounts. These accounts are valued at the lower of their recorded value and the estimated net realizable value of the security held for the accounts.
In addition to the allowances for impaired loans identified on an individual loan basis, the corporation establishes a further allowance for impaired loans. This additional allowance for loan impairment represents management’s best estimate of probable losses in its entire loan portfolio, due to potential future declines in the value of the real estate taken as the underlying security for these loans.
Current year provisions for impaired loans are charged to administration expenditure as impaired loan losses. Actual accounts written off by Board resolution are charged to the allowances for impaired loans.
c) Provision for Losses on Guaranteed Loans
The provisions for losses on guaranteed loans are determined annually by a review of individual guarantees. The provisions represent management’s best estimate of probable claims against the guarantees. Where circumstances indicate the likelihood of claims arising, provisions are established for those loan guarantees. These provisions would cover principal, accrued and unpaid interest, and amounts recoverable.
Current year provisions for losses on guaranteed loans are charged to administration expenditure. Actual claims paid are charged to the provisions for losses on guaranteed loans. Recoveries are credited against current year’s expenditure.
28 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Notes to the Financial Statements As at March 31, 2003
2. Significant Accounting Policies (continued)
d) Real Estate Acquired in Settlement of Loans
Real estate that is acquired in settlement of loans through foreclosures and voluntary transfers of title is recorded at the lower of the recorded value of the loan and the appraised value of the real estate at acquisition date. Subsequent declines or increases in estimated realizable value are not recorded. Real estate is stated net of a provision for decline in real estate value.
e) Real Estate Under Long-Term Lease
Real estate that was acquired under the land lease program for long-term leases is recorded at cost.
f) Pension Plan
Employees of the Corporation are pensionable under the Civil Service Superannuation Act. The Corporation accrues a provision for the liability for the employer’s share of employee pension benefits, including future cost of living adjustments, based on an actuarial valuation. The Corporation began to fund contributions for new employees beginning October 1, 2002.
g) Financial Instruments
Credit Risk The Corporation provides direct loans to its customers in the normal course of operations. It carries out, on a continuing basis, credit reviews on its customers and maintains provisions for contingent credit losses.
Interest Rate Risk Interest rate risk is the risk to the company’s earnings that arises from fluctuations in interest rates, and the degree of volatility of these rates. During the year ended March 31, 2003, the Corporation did not utilize derivative financial instruments to reduce its exposure to interest rate risk.
29 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Notes to the Financial Statements As at March 31, 2003
2. Significant Accounting Policies (continued)
g) Financial Instruments (continued)
Fair Value of Financial Instruments Because of the relatively short period to maturity, short-term financial instruments are valued at cost and adjusted for any applicable allowance for doubtful accounts. This is considered to be equivalent to fair value and applies to cash, other receivables, long-term funding commitments, accounts payable, and accrued liabilities. Fair values of mortgages receivable and advances from the Province of Manitoba are disclosed in their respective notes.
h) Donated Services
The Province of Manitoba provides certain administrative services at no charge to the corporation. The estimated fair value of $72,100 for these services is included in salaries expenditure and donated services revenue in these financial statements.
i) Measurement Uncertainty – Use of Estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3. Cash
2003 2002 (000s) (000s) Cash on hand in bank $ 416 $ 265 Cash on deposit with Province of Manitoba 9,452 12,380 $9,868$ 12,645
30 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Notes to the Financial Statements As at March 31, 2003
4. Mortgages Receivable
2003 2002 (000s) (000s)
Amounts are due over the following terms:
1 year - Accrued interest $ 12,088 $ 12,134
- Arrears 1,856 2,041
- Prepayments (13,724) (12,617)
- Regular instalments 24,457 23,516
24,677 25,074
2 years - Regular instalments 25,300 24,244
3 years - Regular instalments 24,916 24,961
4 years - Regular instalments 25,376 24,356
5 years - Regular instalments 24,993 24,624
Over 5 years - Regular instalments 161,224 169,647
286,486 292,906
Less: Allowance for impaired loans 16,733 17,097
$ 269,753 $ 275,809
The approximate fair value of mortgages receivable at March 31, 2003 is $276,821,000 (2002 - $279,403,000). Fair value is based on expected future cash flows discounted by rates equivalent to the market rates on loans with similar terms and credit risk.
31 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Notes to the Financial Statements As at March 31, 2003
4. Mortgages Receivable (continued)
Terms of Mortgages Receivable
Direct lending and special assistance program mortgages are fixed rate mortgages which have an average yield as follows:
Direct Special Lending Assistance Mortgages Mortgages Total (000s) (000s) (000s)
Less than 6.00% $ 11,964 $ 0 $ 11,964
6.01% to 7.00% 111,658 23,337 134,995 7.01% to 8.00% 118,070 1,955 120,025
More than 8.00% 19,154 348 19,502
$ 260,846 $ 25,640 $ 286,486
These mortgages have maturities as follows:
Average Direct Special Interest Lending Assistance Rate Mortgages Mortgages Total (000s) (000s) (000s)
1 to 4 years 7.782% $ 14,029 $ 1,234 $ 15,263
5 to 9 years 7.070% 69,650 20,595 90,245 10 to 14 years 7.146% 94,158 3,008 97,166
15 to 19 years 7.238% 59,282 803 60,085
20 to 24 years 7.476% 21,852 0 21,852 More than 25 years 7.416% 1,875 0 1,875 $ 260,846 25,640 286,486
32 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Notes to the Financial Statements As at March 31, 2003
5. Other Receivables
2003 2002
(000s) (000s)
Stocker loan advances $ 15,193 $ 18,882 Flood proofing loan initiative 2,505 3,859
Lease revenue 58 80 Miscellaneous 14 203 17,770 23,024
Less: Allowance for impaired loans 3,677 3,770
$ 14,093 $ 19,254
6. Allowances for Impaired Loans
2003 2002 Provision Write-Offs (000s) (000s) (000s) (000s)
Direct lending mortgages $ 11,859 $ 540 $ 265 $ 11,584
Special assistance mortgages 4,874 (632) 7 5,513
16,733 (92) 272 17,097
Stocker loan advances 2,632 29 13 2,616 Flood proofing loan initiative 1,012 (100) 0 1,112 Other 33 (5) 4 42
3,677 (76) 17 3,770
$ 20,410 $ (168) $ 289 $ 20,867
7. Long-term Funding Commitments – Province of Manitoba 2003 2002
(000s) (000s)
Employee Severance $229$ 229 Employee Pension Benefits (Note 9) 5,352 5,117 $ 5,581 $ 5,346
33 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Notes to the Financial Statements As at March 31, 2003
8. Advances from Province of Manitoba
In accordance with Province of Manitoba practices, the corporation must repay advances according to the amortization schedule or be subject to a prepayment penalty. The mark to market calculation for any principal prepayment will be the present value of the cash flows on the principal being repaid against the cash flows using a yield to maturity on the date of the payment compounded semi-annually that a non-callable Province of Manitoba Bond would carry, if issued in Canadian dollars in Canada, at 100% of its principal amount on the payment date with a term to maturity equal to the remaining term to maturity of the loan being repaid.
2003 2002
(000s) (000s)
Advances are repayable in equal annual blended instalments of principal and interest, with interest rates from 4.750% to 8.000%. Maturities of principal by fiscal year are as follows:
2003 $ - $ 56,511
2004 47,891 28,097 2005 30,014 27,604
2006 30,316 27,783 2007 30,950 28,288
2008 26,304 23,507
2009 through 2031 146,152 134,633
$ 311,627 $ 326,423
The approximate fair value of advances from the Province of Manitoba at March 31, 2003 is $302,474,000 (2002 - $304,509,000). Fair values for the advances from the Province of Manitoba are based on the net present value of expected future cash flows, discounted by rates equivalent to the market rates on loans with similar terms and credit risk.
9. Provision for Employee Pension Benefits
Corporation employees are eligible for defined benefit pensions under The Manitoba Civil Service Superannuation Act. In accordance with the provisions of this Act, the corporation contributes 50% of the pension disbursements made to retired employees.
Actuarial valuations are to be carried out every three years to provide an estimate of the accrued liability for unfunded pension benefits. The most recent actuarial valuation was performed as at December 31, 2001. Based on the 2001 valuation for “Future Indexing”, the actuarial liability for unfunded pension benefits is estimated to be $5,351,288 at March 31, 2003 (2002 - $5,116,572).
34 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Notes to the Financial Statements As at March 31, 2003
10. Real Estate Revenue
Proceeds Book Value 2003 2002
(000s) (000s) (000s) (000s) Sales to lessees $ 277 $ 244 $33$56
Sales by public tender 336 273 63 (38) $ 613 $ 517
Net gain on sale of real estate 96 18
Lease revenue from real estate acquired in settlement of loans and from long-term leases 166 184
Other revenue 0 2
Interest revenue 3 15
265 219
Less: Real estate carrying costs 26 31
$ 239 $ 188
11. Contingent Liabilities
a) The corporation introduced the Guaranteed Operating Loan Program beginning April 1, 1983. The corporation guarantees each participating lending institution 12 1/2% of the respective total value of loans made under this program. As of March 31, 2003, the corporation's contingent liability amounted to $9,627,779 (2002 - $9,615,631). Based on management's best estimate of probable losses, the corporation has made a provision for this contingency in the amount of $1,083,176 (2002 - $1,977,450). The corporation adjusts the provision to the level regarded by management as appropriate through a current provision charged or credited to administration expenditure for the year.
b) The Manitoba Cattle Feeder Associations Loan Guarantee Program was introduced jointly by Manitoba Agriculture and Food and The Manitoba Agricultural Credit Corporation in November 1991. In September 1997, The Manitoba Agricultural Credit Corporation assumed responsibility for administration of the program. For each association, the corporation provides a guarantee to the lending institutions, based on 25% of the amount of the loan to a maximum guarantee of $1,250,000. As of March 31, 2003 the corporation's contingent liability amounted to $6,096,324 (2002 - $6,657,494). Based on management's best estimate of probable losses, a provision has been made for this contingency in the amount of $1,524,081 (2002 - $1,664,374).
35 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Notes to the Financial Statements As at March 31, 2003
11. Contingent Liabilities (continued)
c) The Diversification Loan Guarantee Program was introduced in December 1995, to provide guarantees on loans made by participating lenders, for diversification or farm value-added activities. As at March 31, 2003, the corporation’s contingent liability under this program amounted to $16,701,431 (2002 - $17,785,514). Based on management’s best estimate of probable losses on this program, the corporation has established a provision in the amount of $2,505,213 (2002 - $2,667,826).
d) The Enhanced Diversification Loan Guarantee Program (DLG+) was approved in 2001 eliminating lender pooling of guarantees and the maximum of $3,000,000 for qualifying loans. As at March 31, 2003, the corporation’s contingent liability under the DLG+ program amounted to $28,889,337 (2002 - $10,595,163). Based on management’s best estimate of probable losses on this program, the corporation has established a provision in the amount of $3,962,987 (2002 - $1,589,273).
e) The corporation has guaranteed performance bonds of certain agricultural marketing agencies in the amount of $250,270 (2002 - $248,422). No provision for this contingency has been made in the financial statements. Any payments arising from claims under these guarantees will be recorded as an expense in the period the claims occur.
f) As at March 31, 2003 the corporation had approved but not disbursed mortgages and other loans in the amount of $11,863,107 (2002 - $16,868,220).
12. Real Estate
Based on a review of its current real estate portfolio, the corporation has established a provision of $18,000 for 2003 (2002 - $37,735) to provide for future declines in real estate values. This provision represents management’s best estimate of probable losses on sale of real estate.
2003 2002
(000s) (000s)
Real Estate $ 1,539 $ 2,010
Provision for decline in real estate values 18 38 $ 1,521 $ 1,972
36 2002-2003 ANNUAL REPORT The Manitoba Agricultural Credit Corporation Notes to the Financial Statements As at March 31, 2003
13. Interest Paid and Received
During the year, the corporation received interest of $21,941,666 (2002 - $22,808,060) and paid interest of $20,215,876 (2002 - $20,265,985).
14. Related Party Transactions
The corporation is related in terms of common ownership to all Province of Manitoba created departments, agencies and Crown corporations. The corporation enters into transactions with these entities in the normal course of business.
15. Revenue – Province of Manitoba 2003 2002
(000s) (000s)
Grant $ 4,944 $ 4,233
Increase in long-term funding commitment 235 406
$ 5,179 $ 4,639
16. Comparative Figures
Certain 2002 figures have been reclassified to conform to the 2003 financial statement presentation.
17. Economic Dependence
The corporation is economically dependent on the Province of Manitoba.
37 2002-2003 ANNUAL REPORT MACC Field Offices
Altona (Satellite) Ag Rep Office, Altona Mall 324-2810
Arborg 317 River Road 376-3305
Ashern (Satellite) Ag Rep Office, Railway Street 768-2686
Beausejour 20-1st Street S. 268-6016
Brandon Unit 100 – 1525 1st Street S. 726-6018
Carman 65-3rd Avenue N.E. 745-5621
Dauphin 27-2nd Avenue S.W. 622-2016
Killarney 411 Broadway Avenue 523-5270
Lundar (Satellite) Ag Rep Office, Main Street 762-5649
Melita 139 Main Street 522-3443
Morris 229 Main Street S. 746-7506
Neepawa 41 Main Street 476-7026
Portage la Prairie 2nd Floor, 25 Tupper Street N. 239-3357
Roblin nd 117-2 Avenue N.W. 937-6470
St. Pierre (Satellite) Municipal Building 433-7749
Shoal Lake th 4 Avenue E. 759-4064
Steinbach 323 Main Street 346-6092
Stonewall (Satellite) 337 Main Street 467-8391
Swan River th 120-6 Avenue N. 734-3172
Teulon 77 Main Street 886-4412
Treherne (Satellite) 163 Smith Street E. 723-3232
Virden 247 Wellington W. 748-4779