Feeling the pinch from weakening rural economies, the Farm Credit System reported that its net income declined 27% during the fourth quarter and its bad loans were up 69% for the year.

James A. Brickley, president and chief executive officer of the Federal Farm Credit Banks Funding Corp., blamed Farm Credit's weaker financial results on "continued stress within the softening agricultural economy." Farm communities were hurt in 1998 by low commodity prices, reduced export demand, and weather disasters, he said.

For the three months ending Dec. 31, the Farm Credit System's net income was $243 million-down $89 million from the same period in 1997.

The system attributed the decline in earnings to its boost in allowances for loan losses, which totaled $91 million for the quarter. The increase in loss provisions-up from $5 million during the fourth quarter of 1997-was intended to cover loans that might not be repaid during the economic downturn, Mr. Brickley said.

Nonperforming loans increased by more than two-thirds, to $1.4 billion, in 1998. Most of the bad loans were to cooperatives, such as grain elevators, and hog farmers-two sectors that were hit particularly hard last year.

The Farm Credit System also warned that the farm sector may not bounce back this year. The U.S. Department of Agriculture predicts net farm cash income for the year will be below 1998 levels.

Mr. Brickley assured investors, however, that Farm Credit's capital reserves, which represent 21% of the system's total loans as of Dec. 31, are expected to carry the lenders through an economic downturn. Laura Pavlenko Lutton

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