2015 annual report - Farm Credit Services of America

Transcription

2015 ANNUAL REPORT
/ 2015 Annual Report
Financial Highlights
'13
'15
'14
$145
'14
$160
'15
Cash-Back
Dividends
Declared
(in millions)
$160
$514.6
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$536.5
'14
Net Income
(in millions)
$514.0
'15
$3.6
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$4.0
$4.3
'14
Members’
Equity
(in billions)
$20.2
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$22.1
$23.6
Loans
(in billions)
'13
no.
the most remarkable idea
for financing agriculture
is 100 years new.
Rapidly changing farmland values, the
introduction of new technologies, the
desire to expand, higher production costs,
a struggle to keep the next generation
from leaving...
As chronicled in the news of the day, the challenges faced
by America’s farmers and ranchers 100 years ago still sound
familiar. But in the early 20th century, they included an
additional barrier to success: the lack of consistent credit at
reasonable rates.
The Federal Farm Loan Act was signed into law in 1916 to
establish a cooperative system to deliver reliable financing
to qualified farmers and ranchers through every cycle of
agriculture. The resulting Farm Credit System remains
one of the most remarkable — and successful — ideas
in agricultural finance.
Today, Farm Credit Services of America supports rural
communities and agriculture with financing for producers,
crop insurance to help manage risks, and tools to help
grow success.
The next 100 years will undoubtedly bring new innovations
and challenges to agriculture. More than simply changing
with the times, Farm Credit Services of America will help
lead the way by enabling our customer-owners to thrive and
succeed into the next century.
no other lender works for agriculture
like farm credit services of America.
3
"No other lender gives back
to its customers — or the
communities they are part of
— like FCSAmerica."
no.
In an era of volatility and uncertainty, you can count on
your financial services cooperative to be consistent,
dependable and strong. With loan growth to $23.6 billion,
net income of $514.0 million and members’ equity
increasing to $4.3 billion, Farm Credit Services of America
(FCSAmerica) is well-positioned to meet the challenges of
an unpredictable agricultural economy.
Farmland values softened in our four states in 2015,
with the level varying by state. Still, values remained
firmer than expected, helped in the last half of 2015 by
higher-than-expected yields. However, we expect that
lower commodity prices and tighter margins will continue
to put downward pressure on farmland values as we look
forward.
In 2015, we leveraged the strengths of the Association to
implement a strategic alliance with Frontier Farm Credit,
an Association serving 41 counties in eastern Kansas.
We are working with the Frontier Farm Credit Board of
Directors to deliver additional FCSAmerica products,
services and lending capacity to farmers and ranchers
there. The alliance uniquely positions our two Associations
to continue investing in new services and technologies that
enhance our customers’ experiences.
Nothing that stands still survives forever. As the Farm
Credit System begins a new century of service to
agriculture, we will continue to look for opportunities to
strengthen your Association. On behalf of FCSAmerica,
I would like to thank you for being part of our history and
invite you to celebrate and shape the next 100 years.
The value proposition of our cooperative continues to be
bolstered through a very strong patronage program as
well as through educational opportunities for producers.
It is always heartening to hear from customer-owners
who say our education programs, such as GrowingOn ®
(a risk management offering) and Side by Side (a special
program for young and beginning producers), help them
with their business decisions. It also is rewarding to watch
a new generation of farmers and ranchers enhance their
opportunities for success with the support of programs like
our Development Fund.
Douglas R. Stark
President and CEO
Your Board of Directors’ declaration of a $160 million
cash-back dividend for 2015 marked a milestone for our
patronage program. The amount of earnings returned
to rural communities and agriculture through cash-back
dividends to our eligible customer-owners now exceeds
$1 billion. Yes, that is billion with a “b.” No other lender
has matched this achievement.
Another milestone this year is the 100th anniversary of
the Farm Credit System. We are proud of the legacy of the
Farm Credit System — and even prouder that we are so
well-positioned to serve rural communities and agriculture
today and in the years to come.
Certainly among the hottest topics of 2015 were interest
rates and land values. In December 2015, for the first time
in nearly 10 years, the Federal Reserve raised the federal
funds rate. Even so, as we look back, interest rates remain
at reasonable levels, and opportunities still exist to help
manage interest rate risk through attractive fixed rates.
5
working to grow the next generation
of farmers and ranchers.
One of the most innovative programs of its kind for helping young,
beginning and small producers, our Development Fund was launched
this past year.
The Development Fund works with and enhances FCSAmerica’s Young &
Beginning specialized loan program and conventional lending products
to address the short-term risk-bearing ability of producers at that critical
stage of transitioning into, or starting or expanding an operation.
FCSAmerica has committed $40 million to the Fund, which provides
low-interest, long-term working capital loans of up to $150,000.
Successful applicants must have a viable business plan and are
guided by the financial expertise and support of an FCSAmerica
business development officer.
One young South Dakota ranching couple described the business
planning process as a great way to understand more about the
industry, research best practices, learn cutting-edge ideas and identify
historical trends. “As uncomfortable as it was, the process forced us
to contemplate future markets,” they said. “Ultimately, we are more
informed and better prepared to make adjustments and take an
alternate path if needed.”
Just as we continue to serve our more established customers through
the ups and downs of agriculture, our support of young, beginning and
small producers is critical to the future. It is important to our vision of
becoming the next generation’s most valued financial partner.
52%
Young, beginning or small
producers accounted for
52% of all new customers
added in 2015.
50%
We assisted more than 2,100
customers in 2015 alone
through our Young &
Beginning specialized loan
program — a 50% increase
over the last five years.
no.
NAME: Matt & Andy Hurd,
M & A Farms
L O C ATIO N :
Nemaha, Iowa
O PE RATIO N :
Grain & Beef Producers
C U STO M E RS SIN C E :
2002
Why we chose agriculture
Matt: My dad had an opportunity to
expand his farming operation, which
made room for me to come back after
working off the farm for a few years.
I like the work, the lifestyle and being
my own boss.
Andy: I decided at an early age that
I wanted to return to the farm if the
opportunity presented itself. I like how the
business is run and being my own boss.
Our vision for the operation
Andy: The goal for our farming operation
is to pass it on to the next generation.
We want to keep it sustainable, make
a comfortable living, and pass the farm
on to our kids if they want to take the
opportunity.
Why we work with FCSAmerica
Matt: Our financial officer was our dad’s
financial officer. He helped us transition
the operation and then took us on as
customers in 2002. FCSAmerica is a
family type of place. I know everyone in
the office. They’ll come out to the farm
and talk to us anytime.
Andy: FCSAmerica helped us get on our
feet. They are a business partner we
chose to be on our team. Anybody we
choose to be on our team we feel is the
best. They are great people and very
friendly to work with.
Hear more from the Hurds at
fcsamerica.com/matthurd
fcsamerica.com/andyhurd
PIC TU RE D L E F T TO RIG H T: Matt & Andy Hurd
"The goal for our
farming operation is to
pass it on to the next
generation."
– ANDY HURD
7
NAM E : Matt, Aaron & John Anderson,
Anderson Farms
LOCATION:
Elgin, Nebraska
OPE R ATION:
Grain Producers
CUSTOM E R S SINCE :
2001
"The digital tools help
us hone our positives,
find our weaknesses and
become more efficient."
– JOHN ANDERSON
Aaron: We work well together. There are
a lot of challenges, but it’s always been
a dream to farm together. Opportunities
arise from good and bad times. It’s
exciting. No matter the situation, there’s
always an exciting moment.
Using FCSAmerica’s digital tools
John: I like that FCSAmerica has digital
tools that can analyze our financial
information to generate charts, pie graphs
and balance sheets. We learn something
about our balance sheet every time we
look at it. The digital tools help us hone
our positives, find our weaknesses and
become more efficient.
Our business approach
John: We’ve been trying to expand for
years and have been doing so little by
little. We’ve been running a lot of older
equipment. We didn’t ever want to tie up a
lot of money or capital in equipment. We’re
very confident in expanding this way.
The future of our operation
Matt: The biggest thing is the transition
of the farm. It’s something we’re all going
to work through together. We know it can
be a challenge to bring new people into
the family and operation successfully, but
we’re committed to doing it.
Hear more from the Andersons at
fcsamerica.com/mattanderson
fcsamerica.com/aaronanderson
fcsamerica.com/johnanderson
PICTUR E D LE FT TO R IGHT: Matt, Aaron & John Anderson
no.
technology advances growth
and sustainability.
FCSAmerica’s investment in technology spans every facet
of our business, from digital tools for our customers to
internal systems that make our operations more efficient
and productive.
FCSAmerica is a leader in the development of automated
loan-decisioning systems, resulting in significant cost
efficiencies that support our business growth. Other
systems equip our Association with sophisticated risk
management tools. In addition, online tools available
through FCSAmerica ® Mobile and AgriPoint ® at
fcsamerica.com provide account access, Remote Deposit,
and robust data and financial management support to help
customers better understand their financial health and
make smart business decisions.
FCSAmerica will continue to invest in technologies,
systems and programs that make it easier and more
convenient to do business with us — to save time, save
money and help grow your operation.
9
providing educational opportunities
to help customers grow.
As farm, ranch and agribusiness operations grow, so too does the need
for sophisticated business and financial acumen. Our financial and
crop insurance officers are on farms and ranches every day, working
one-on-one with producers to provide financial expertise and support.
To further elevate the business of financial management, FCSAmerica
hosts and sponsors a variety of educational programs.
Our sponsorship of Annie’s Project in our four states has allowed
more than 1,000 women in agriculture to sharpen their financial and
farm management skills. In July, we hosted our annual Side by Side
Conference in Omaha for young and beginning farmers and ranchers.
Approximately 1,000 farm families have now benefited from our
workshops in farm finances, transition planning and more. In early 2015,
our GrowingOn events drew record attendance in Iowa, Nebraska and
South Dakota with a comprehensive and timely review of the Farm Bill
and its impact on operations.
Whether it’s an educational program offered at a retail office, a learning
resource provided online, or guidance shared through a one-on-one
discussion, we are committed to equipping you with the financial knowhow to succeed.
We continue to expand our learning tools and topics to help you
anticipate and prepare for agriculture’s changing cycles, manage
your finances and better understand the trends and forces shaping
agriculture.
98%
98% of 2015 GrowingOn
attendees said the
experience was extremely
valuable or valuable.
99%
99% of 2015 Side by Side
Conference attendees said
the experience was extremely
valuable or valuable.
no.
NAME: Bryce & Leann Vigil
L O C ATIO N :
Manderson, Wyoming
O PE RATIO N :
Grain Producers
C U STO M E RS SIN C E :
2011
Bryce: Growing up, I worked on our
family farm. I’ve always had fun doing it
and I like being outside as much as I can.
Attending Side by Side
Bryce: To get young people where
everybody’s at the same point in life
and striving for the same things, made
it an event we were really excited to
attend. It was fun to be in a group
where everybody’s thinking about the
same issues.
Our farm’s transition
Bryce: My dad is trying to slow down and
let me take on more responsibility. We’re
going through a similar change with our
FCSAmerica financial officer right now
too. We’ve got a financial officer retiring
and one who’s very young. It’s awesome
for me, because Dad and I are at a similar
point. He’s got ideas like I do and is very
good with technology. We work together
well.
Our approach to our farm’s future
Bryce: We want to expand the acres we
farm. That’s just the nature of agriculture.
But, when we sit down and think about it,
sometimes we could work a little less, do
a better job and make a little more money
at the end of the day. We set our goals,
have faith and believe in ourselves.
Hear more from the Vigils at
fcsamerica.com/brycevigil
"Attending Side by Side,
where everybody's at
the same point in life
and striving for the
same things, made it an
event we were really
excited to attend."
– BRYCE VIGIL
11
Each year, we make contributions and volunteer to assist programs and organizations
that impact people and communities across our four-state area. Our community
involvement efforts are focused on ag education, hunger and nutrition, and young and
beginning producer initiatives.
Ongoing Community Efforts
4-H Stall Cards More than 21,600 stall cards provided to
livestock exhibitors in 89 counties.
Annie’s Project Funded 39 courses on farm business
management, livestock management and succession planning.
Disaster Relief 439 employee volunteer hours and
contributions dedicated to cleanup efforts.
4-H Stall Cards
Grain Bin Rescue Donat
Annie’s Project
Grants
Disaster Relief
Scholarships
Grain Bin Rescue Donated grain bin rescue equipment and
training for 84 fire departments.
Grants Provided 257 Working Here Fund grants totaling $440,530
for hunger and nutrition, ag education, and young and beginning
Employee
Volunteer Locations
The Big Garden
producer initiatives.
Scholarships
Awarded 24 $2,500
$1,000
Support
Farm
Risk Management
Tool land grant and 44Underwriting
community college scholarships to students in agriculture.
Employee Volunteer Locations FCSAmerica employees
volunteered 7,141 hours in 335 communities.
The Big
Garden
new community
gardens for hunger,
Farm
Safety
For20Just
Kids
Office Activities
harvesting 88.4 tons of produce overall and teaching 4,800
children to grow food.
Farm Risk Management Tool Web-based farm management
curriculum used by 304 high school FFA chapters.
FFA Support
Farm Safety For Just Kids Funding support provided to
educate 11,060 children in 127 communities about farm safety.
Underwriting Support Funding for commodity groups, Raising
Nebraska, Feeding South Dakota, Wyoming Women in Ag,
Hunger
Relief
Iowa Food Bank Association, Lincoln Public Schools Ag Career
Pathways and four land grant university endowment funds.
FFA Support 7,482 FFA handbooks, seven national convention
sponsorships and state convention support.
Hunger Relief Funding and employee volunteering increased
mobile pantries, food rescue and food distribution to
underserved counties with high percentages of food insecurity.
Invest An Acre
Local Contributions Each of our 42 offices impact communities
with funding support for local programs and initiatives.
Invest An Acre Matched crop donations at $500 each;
contributions went to the producer’s local food bank.
no.
land grant universities each
receive $100,000 in honor of
farm credit system centennial.
To celebrate our centennial in a way that can provide a lasting impact on
agriculture, FCSAmerica contributed $100,000 to each of the land grant
universities in our four-state area. The funds will be used to help
advance industry education initiatives and opportunities in agriculture,
life sciences and leadership.
At the University of Nebraska-Lincoln, FCSAmerica centennial
funding supports the Institute of Agriculture and Natural
Resources Science Literacy Initiative designed to integrate agricultural
literacy and STEM education in Nebraska schools. Partners in this effort
include state commodity organizations, Ag in the Classroom, educators
and staff leaders from UNL Extension, UNL College of Agricultural
Sciences and Natural Resources and UNL College of Education and
Human Sciences.
Agricultural leadership is the focus of FCSAmerica’s contribution
at the University of Wyoming. The funding is being used to
create an Agricultural Leadership Program within the university’s
College of Agriculture and Natural Resources. The program will
develop new leadership programming, provide funding for student-led
research on institutional leadership models, develop a campus-wide
leadership-focused speaker series, and support programs that will
create a permanent university leadership curriculum.
South Dakota State University is using the FCSAmerica
McCrory Gardens Education and Visitors Center Endowment
for an outdoor teaching laboratory for agronomy, botany, horticulture
and plant science students. With FCSAmerica’s contribution, SDSU
College of Agriculture and Biological Sciences leaders will develop new
classroom facilities to expand student educational opportunities. This
includes providing new equipment, supplies and other upgrades to
expand the university’s research.
tions
Iowa State University’s College of Agriculture and Life Sciences
features the highest-ranked Ag Business Club in the nation.
The Ron Deiter ISU Ag Business Club Endowment, supported by
FCSAmerica, is being established to expand the Ag Business Club’s
leadership mentoring capacities for students. This will include new
leadership development activities, ag industry tours, and professional
meetings and engagements with industry leaders.
volunteer hours
contributed
For more information about
our community involvement,
visit fcsamerica.com/community.
13
"I feel confident that
FCSAmerica has the tools, expertise
and capital to see us through these
challenging times."
no.
Those of us who work in production agriculture understand
the risks inherent in our chosen careers. Last year was
a reminder that long-term success depends as much
on managing through the tough cycles as it does on
maximizing profits during the good ones.
As chairman of your cooperative’s Board of Directors,
I feel confident that FCSAmerica has the tools, expertise
and capital to see us through these challenging times.
Many producers have and will continue to benefit from
FCSAmerica’s work to restructure debt to preserve critical
working capital. Few lenders offer the kind of long-term
fixed rates that FCSAmerica provides. This, combined with
financing strategies tailored to each of our operations,
offers opportunities to succeed even in tough times.
Your Board recognizes that today’s agricultural market is
especially difficult for young and beginning producers.
Agriculture remains a capital-intensive business. Low
commodity prices and a relatively strong land market
compound the challenges of starting and sustaining an
operation. In 2015, more than half of all new FCSAmerica
customers fell into the young, beginning or small
categories. While many of these producers met the
criteria for traditional financing, others benefited from our
specialized programs that offer modified credit standards
and financial guidance.
I am proud to report that in 2015, FCSAmerica’s new
Development Fund for young, beginning and small
producers provided working capital loans to dozens of
young farmers and ranchers with solid business plans
to start or expand operations. In addition, our Young &
Beginning specialized loan program, which began with
132 customers in 2002, now serves more than 2,100
producers. In total, FCSAmerica loaned nearly $5.5 billion
to young, beginning or small producers in 2015.
Your Board also is committed to advocating on behalf of
agriculture. FCSAmerica, along with others in the Farm
Credit System, regularly reaches out to lawmakers to
defend and protect the interests of agriculture. I would
like to thank all of those who joined FCSAmerica during
Congress’ 2015 appropriations process to educate
lawmakers about the importance of crop insurance.
Bringing the weight of our stockholders to bear for
the good of agriculture is one of the strengths of our
cooperative business model. So too is FCSAmerica’s
patronage program, which returns a share of earnings
to eligible customer-owners each year. With more than
$1 billion returned to farmers and ranchers in the past
12 years, the Board considers cash-back dividends to be
an added value to doing business with the cooperative,
one that benefits our farms and ranches as well as our
rural communities throughout our four-state area.
Thank you for choosing FCSAmerica. We wish you
continued success.
Jeremy Heitmann
2015 Board Chairperson
15
fcsamerica, aca directors
Robert Bruxvoort / New Sharon, Iowa
Bruxvoort operates a family farm producing corn and soybeans. He is also a partner in a
contract hog-finishing operation. He was elected to the Board effective January 1, 2008,
and his current term ends March 31, 2018.
Jim Ehlers / Newell, Iowa
Ehlers has a farming operation raising corn and soybeans. He was elected to the Board
effective January 1, 2009, and his current term ends March 31, 2017.
Jeremy Heitmann / Byron, Nebraska
Heitmann farms with his family. They raise corn, soybeans, wheat and alfalfa, and run a
background feeder cattle operation. He was appointed to the Board effective January 1,
2008. He was elected to the Board effective January 1, 2011, and his current term ends
March 31, 2018.
Steve Henry / Nevada, Iowa
Henry has a family commercial and seed-crop production operation. He was elected to the
Board effective January 1, 2011, and his current term ends March 31, 2019.
Nicholas Hunt / Atlantic, Iowa
Hunt owns and operates a farm growing corn, soybeans and alfalfa, and has a cattlefeeding operation. He was elected to the Board effective January 1, 2007, and his current
term ends March 31, 2017.
Jim Kortan / Brookings, South Dakota
An Appointed Director, Kortan is a retired partner with Deloitte and brings a background in
information technology, strategic planning, risk management, internal control, regulatory
compliance and business process improvement. He was appointed to the Board effective
April 1, 2015, and his current term ends March 31, 2019.
Rick Maxfield / Lyman, Wyoming
Maxfield and his family have a ranch and farm. The multigenerational operation includes
cow-calf and background calves. The family also grows hay. He was elected to the Board
effective April 1, 2015, and his current term ends March 31, 2019.
Cris Miller / Spearfish, South Dakota
Miller has a family ranching business with a commercial cow-calf operation, a backgrounding
operation and feed crops. He was elected to the Board effective January 1, 2012, and his
current term ends March 31, 2016.
no.
Randy Peters / McCook, Nebraska
Peters has a family farm and ranch operation raising wheat, corn, soybeans and
sunflowers. Peters also raises and sells certified seed wheat, and has a Black Angus and
Red Angus cow-calf herd. He was elected to the Board effective January 1, 2003, and his
current term ends March 31, 2019.
John Reisch / Howard, South Dakota
Reisch is a farmer and cattle feeder. As president of Reisch Farms, Inc., he raises corn,
wheat, soybeans and alfalfa, and has cattle-feeding and cow-calf enterprises. He was
elected to the Board effective January 1, 2008, and his current term ends March 31, 2018.
Timothy Rowe / Elwood, Nebraska
Rowe and his wife raise corn, white corn, soybeans and alfalfa. He also raises livestock
that consists of a cow-calf herd, plus a custom backgrounding, feedlot and finishing
operation. He was appointed to the Board effective June 1, 2014, to serve the balance of a
vacated four-year term that ends March 31, 2017.
Jon Van Beek / Primghar, Iowa
Van Beek has a family farm operation raising corn and soybean seed, and contract finish
pigs. He was elected to the Board effective January 1, 2009, and his current term ends
March 31, 2016.
Kim Vanneman / Ideal, South Dakota
Vanneman and her husband own and operate a diversified farming operation including row
crops, small grains, finishing feeder pigs and a commercial beef-cow herd. She serves on the
Farm Credit Foundations board of directors and plan sponsor committee, the Farm Credit
Council board of directors and FCC Services board of directors. She was elected to the
FCSAmerica Board effective January 1, 2007, and her current term ends March 31, 2017.
Susan Voss / North English, Iowa
Voss and her husband grow corn and soybeans, and have run cow-calf and background
feeder operations. She also is a certified public accountant and principal at TD&T CPAs
and Advisors. She was elected to the Board effective April 1, 2014, and her current term
ends March 31, 2018.
Mark Weiss / Omaha, Nebraska
An Appointed Director, Weiss is the chief information officer with Solutionary Inc. He has
senior leadership experience with organizations engaged in the business of healthcare,
gas and water utilities, telecom, financial services and software development. He was
appointed to the Board effective April 1, 2014, and his current term ends
March 31, 2018.
Jennifer Zessin / Madison, Nebraska
Zessin has a grain farm operation raising corn and soybeans. She has past business
experience in banking, personnel and internal auditing. She was elected to the Board
effective January 1, 2009, and her current term ends March 31, 2016.
17
Financial Information
19Consolidated Five-Year Summary of Selected Financial Data
20
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
30
Report of Management
31
Report on Internal Control Over Financial Reporting
32
Report of Audit Committee
33
Independent Auditor’s Report
34
Consolidated Financial Statements
38
Notes to Consolidated Financial Statements
61
Disclosure Information Required by
Farm Credit Administration Regulations (Unaudited)
no.
Farm Credit Services of America, ACA
Consolidated Five-Year Summary of Selected Financial Data
(Dollars in thousands)
2015
2014
2013
2012
2011
$23,638,506
$22,098,426
$20,211,770
$18,489,616
$15,890,986
65,000
58,000
52,000
60,000
58,000
23,573,506
22,040,426
20,159,770
18,429,616
15,832,986
487,333
465,880
486,438
455,203
426,735
AgDirect, LLP investment in AgriBank, FCB
73,783
82,975
86,972
82,388
65,412
Cash
60,832
48,246
86,363
216,109
157,260
Other property owned
–
4,279
3,642
4,800
4,330
Balance Sheet Data
Loans
Less allowance for loan losses
Net loans
Investment in AgriBank, FCB
Other assets
Total assets
Obligations with maturities of one year or less
577,212
486,147
451,086
422,048
418,984
$24,772,666
$23,127,953
$21,274,271
$19,610,164
$16,905,707
$20,077,076
$18,790,035
$17,333,892
$16,060,763
$13,720,771
370,834
368,566
347,905
325,747
310,720
20,447,910
19,158,601
17,681,797
16,386,510
14,031,491
Protected members’ equity
–
–
–
At-risk capital stock
47,780
46,480
46,118
46,978
Accumulated other comprehensive loss
–
–
–
–
Other liabilities
Total liabilities
Retained earnings
Total members’ equity
Total liabilities and members’ equity
–
1,734
47,116
(188)
4,276,976
3,922,872
3,546,356
3,176,676
2,825,554
4,324,756
3,969,352
3,592,474
3,223,654
2,874,216
$24,772,666
$23,127,953
$21,274,271
$19,610,164
$16,905,707
$628,454
$597,965
$554,935
$509,687
$482,620
Statement of Income Data
Net interest income
12,194
3,015
(18,747)
15,051
(9,775)
Noninterest income
189,569
210,643
188,004
201,624
166,269
Noninterest expense
286,818
260,244
233,748
210,354
192,853
4,964
8,868
13,296
4,820
9,407
$514,047
$536,481
$514,642
$481,086
$456,404
Provision for (reversal of) credit losses
Provision for income taxes
Net income
Key Financial Ratios
For the year
2.20%
2.48%
2.60%
2.75%
2.84%
12.28%
14.07%
15.00%
15.60%
16.63%
Net interest income as a percentage of
average earning assets
2.81%
2.89%
2.95%
3.07%
3.17%
Net charge-offs (recoveries) as a percentage
of average loans
0.02%
(0.01)%
(0.04)%
0.06%
0.04%
17.46%
17.16%
16.89%
16.44%
17.00%
Return on average assets
Return on average total members’ equity
At year-end
Members’ equity as a percentage of total assets
Allowance for loan losses as a percentage
of total loans
0.28%
0.26%
0.26%
0.32%
0.37%
Permanent capital ratio
15.38%
15.20%
14.81%
14.86%
15.06%
Total surplus ratio
15.19%
14.99%
14.58%
14.60%
14.77%
Core surplus ratio
15.19%
14.99%
14.58%
14.60%
14.77%
Other
Cash patronage distribution payable to members
$160,000
$160,000
$145,000
$130,000
$130,000
19
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following commentary reviews the consolidated financial
condition and consolidated results of operations of Farm Credit
Services of America, ACA (FCSAmerica) and its subsidiaries, Farm
Credit Services of America, FLCA and Farm Credit Services of
America, PCA (the subsidiaries) and provides additional specific
information. The accompanying consolidated financial statements
and notes to the consolidated financial statements also contain
important information about our financial condition and results of
operations.
The Farm Credit System is a nationwide system of cooperatively
owned banks and associations established by Congress to meet
the credit needs of American agriculture. As of January 1, 2016,
the Farm Credit System consisted of three Farm Credit Banks,
one Agricultural Credit Bank and 74 customer-owned cooperative
lending institutions. The Farm Credit System serves all 50 states,
Washington, D.C., and Puerto Rico. This network of financial
cooperatives is owned and governed by the rural customers the
Farm Credit System serves.
AgriBank, FCB, a System bank, and its affiliated associations are
collectively referred to as the AgriBank Farm Credit District. Farm
Credit Services of America, ACA is one of the affiliated associations
in the AgriBank Farm Credit District.
The Farm Credit Administration is authorized by Congress
to regulate the Farm Credit System. The Farm Credit System
Insurance Corporation ensures the timely payment of principal
and interest on Systemwide debt obligations and the retirement of
protected borrower capital at par or stated value.
To request a free copy of our annual or quarterly reports, contact
us at PO Box 2409, Omaha, NE 68103-2409, (800) 531-3905,
via email to [email protected] or view them on our website,
fcsamerica.com. The annual report is available on our website 75
days after the end of the calendar year, and members are provided
a copy of the report 90 days after the end of the year. The quarterly
reports are available on our website 40 days after the end of each
calendar quarter.
As part of the new alliance, Farm Credit Services of America and
Frontier Farm Credit continue to exist as separate associations while
integrating their day-to-day business operations, technology systems
and leadership teams. Each Association continues to have its own
Board, with representatives participating in a coordinating committee
to facilitate Board governance between the two organizations.
By aligning with Farm Credit Services of America, Frontier Farm
Credit gains access to state-of-the-art technology and business
processes to serve its customers, lowers its cost of operations and
strengthens its risk management capabilities. Farm Credit Services
of America benefits from economies of scale with access to larger
capital pools and the ability to spread technology investments across
a larger customer base.
In October 2014, Frontier Farm Credit stockholders voted to
approve the alliance. Farm Credit Services of America provided
information concerning the alliance to its stockholders. The alliance
was implemented January 1, 2015.
Under the alliance agreement, Farm Credit Services of America
and Frontier Farm Credit have agreed to share current-year income
and expenses based on the average total assets of each entity
for the prior calendar year. Due to the transition period required to
fully implement the alliance, the agreement specifies generally that
pre-tax net income will be shared on fixed percentages of 94 percent
for Farm Credit Services of America and 6 percent for Frontier Farm
Credit for 2015, and 93 percent for Farm Credit Services of America
and 7 percent for Frontier Farm Credit for 2016. For the year ending
December 31, 2015, Farm Credit Services of America recorded $10.4
million of operating expense credits under the income and expense
sharing provisions of the alliance agreement primarily due to the
recovery of salary and related expenses incurred by Farm Credit
Services of America for former Frontier Farm Credit employees
added to the Farm Credit Services of America payroll.
Frontier Farm Credit has $1.9 billion in assets and serves multiple
counties in eastern Kansas. Farm Credit Services of America has
$24.8 billion in assets and serves the states of Iowa, Nebraska,
South Dakota and Wyoming.
Notice of Significant or Material Event
Forward-Looking Information
On May 20, 2014, the Boards of Directors of Farm Credit Services
of America and Frontier Farm Credit signed a letter of intent to form a
strategic alliance. The alliance is designed to benefit the farmers and
ranchers who own and support the two financial services cooperatives
by ensuring that both associations have the strength and capacity to
serve agricultural customers’ needs for years to come.
This annual report includes forward-looking statements. These
statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions that are difficult to
predict. Words such as “anticipate,” “believe,” “estimate,” “may,”
“expect,” “intend,” “outlook” and similar expressions are used to
identify such forward-looking statements. These statements reflect
our current views with respect to future events. However, actual
results may differ materially from our expectations due to a number of
risks and uncertainties which may be beyond our control.
no.
These risks and uncertainties include, but are not limited to:
•political, legal, regulatory, financial markets, international and
economic conditions and developments in the United States
and abroad;
•
economic fluctuations in the agricultural and farm-related
business sectors;
•
unfavorable weather, disease and other adverse climatic or
biological conditions that periodically occur and impact agricultural
productivity and income;
•changes in United States government support of the agricultural
industry and the Farm Credit System as a government-sponsored
enterprise, as well as investor and rating agency actions relating to
events involving the United States government, other governmentsponsored enterprises and other financial institutions;
•actions taken by the Federal Reserve System in implementing
monetary policy;
•
credit, interest rate and liquidity risks inherent in our lending
activities; and
•changes in our assumptions for determining the allowance for
loan losses.
2015 Highlights
The year ended December 31, 2015, was another year of
continuing to build Farm Credit Services of America’s financial
strength. A solid balance sheet and favorable earnings provide a
solid foundation for 2016. Highlights include:
•In December, the Board declared a $160 million cash-back dividend
distribution under the 2015 patronage program.
• Loan volume increased 7 percent to $23.6 billion.
•
Total members’ equity increased 9 percent to $4.325 billion
after recording a liability for the $160 million cash-back dividend
payment.
•Net income for the year was $514 million compared to $536
million for 2014, a decrease of 4 percent.
Commodity Review and Outlook
The United States Department of Agriculture forecasts 2015 farm
net income at $55.9 billion, down 38 percent from 2014 and the
largest single-year decline since 1983. Crop receipts are expected
to drop by 8.7 percent while livestock receipts are forecasted to
drop by 12 percent, largely driven by lower commodity prices. The
major agricultural production industries financed by Farm Credit
Services of America were not immune from price declines, leading
to reduced profits for most of the industries. The exception was egg
producers who experienced higher prices, but several producers
were adversely impacted by disease outbreaks.
The average prices received by farmers and ranchers in December
compared to prior years are reflected in the following chart based on
United States Department of Agriculture data:
Averages for the Month of December:
Commodity
2015
2014
2013
2012
2011
Corn
$3.65
$3.79
$4.41
$6.87
$5.86
Soybeans
$8.76
$10.30
$13.00
$14.30
$11.50
Wheat
$4.71
$6.14
$6.73
$8.30
$7.20
$122.00
$164.00
$130.00
$124.00
$120.00
Hogs
$42.80
$64.30
$61.50
$62.40
$63.50
Milk
$17.20
$20.40
$22.00
$20.80
$19.10
Eggs
$1.24
$1.77
$1.36
$1.13
$1.22
Beef cattle
We monitor, compile and report real estate sales information
for Farm Credit Services of America’s four-state territory of Iowa,
Nebraska, South Dakota and Wyoming. We also monitor 64
benchmark farms in the four states, which are updated each January
and July.
The following chart compiled by our Appraisal team reflects
average value changes for each state over the past six-month,
one-year, five-year and ten-year periods as of January 1, 2016. The
current number of benchmark farms is shown in parentheses after
each state.
State
Five-Year
Ten-Year
Iowa (21)
Six-Month One-Year
(1.6)%
(6.3)%
45.1%
156.9%
Nebraska (18)
0.2%
(2.4)%
95.0%
243.2%
South Dakota (23)
0.2%
1.0%
101.2%
239.8%
Wyoming (2)
2.5%
9.5%
25.1%
62.7%
Farmland prices have remained fairly steady over the past year,
while the number of sales and demand for farmland has declined
across our territory. Public land auction activity for the four-state
territory was 26 percent lower than a year ago with overall sales
activity down in all four states.
A reduction in farm income compared to previous years has led
many operators to focus on the profitability of an acre of land. Sales
of higher-quality ground are driving the market and keeping overall
market prices relatively steady. Fewer sales of lower-quality and
average-quality land are entering the market.
Loan repayment capacity is largely dependent on income from
corn, soybeans, hogs and cattle. Of somewhat less significance are
wheat, dairy and poultry. Many of our customers are also dependent
on off-farm income, although the level of off-farm income varies
widely. Government program payments related to corn, soybeans,
wheat, the Conservation Reserve Program and, to a lesser extent,
dairy are also a source of income for many of our customers.
21
Corn and soybean production is predominant in Iowa, with hogs
and cattle also a significant source of income. Corn, soybeans and
cattle are important income sources in Nebraska and South Dakota.
Western areas of our territory are dependent on income from wheat,
cow-calf and feeder-cattle operations. We have no single customer
or group of related customers who comprise more than 10 percent of
our volume or who would have a material effect if they no longer did
business with us.
The following reflects economic conditions for various commodities
prepared by our industry specialists based on United States
Department of Agriculture and commodity industry reports:
Grain: Crop producers were again challenged by lower grain
prices while input costs declined marginally, resulting in break-even
to negative margins for most producers. Strong yields across our
four-state territory helped offset lower prices with gross revenues
similar to 2014. Production expenses were down for the first time
since 2009; however, the estimated 2 percent expense decline
follows a four-year period of rapid increases averaging 9 percent per
year. Cash rents remain at high levels but have modestly declined
based on Iowa State University studies showing rental rates down
about 10 percent over the past two years. This compares to a 26
percent increase over the previous two-year period.
United States corn production in 2015 was 13.6 billion bushels,
down 4 percent from the record crop raised in 2014. United States
yields at 168.4 bushels per acre were down 2.6 bushels per acre
compared to a year earlier. Iowa production was up 5.8 percent and
Nebraska production was up 5.7 percent, as yields increased from
178 to 192 bushels per acre in Iowa and from 179 to 185 bushels
per acre in Nebraska. South Dakota production was up 1.6 percent
due to an 11-bushel per-acre yield increase to 159 bushels per acre.
United States ending stocks were up slightly as a result of the strong
yields with production outpacing usage.
Corn prices in 2015 were in a relatively narrow trading range during
the year as corn was priced between $3.50 and $3.75 per bushel
during the majority of the year. Omaha cash corn prices ended the
year at $3.49 per bushel, down $0.28 per bushel from a year earlier
but up modestly from a post-harvest low price of $3.37 per bushel.
United States soybean production in 2015 was similar to 2014
at 3.9 billion bushels. Average yields at 48 bushels per acre were
a record-high but only slightly above 2014. Iowa production was
up 11.1 percent as yields increased 5.5 bushels per acre to 56.5
bushels per acre. Nebraska production likewise increased by 6.2
percent as yields jumped 4 bushels per acre to 58 bushels per acre.
South Dakota production was up 2.4 percent as yields increased 1
bushel per acre to 46 bushels per acre. The growth in production
contributed to a 7 percent increase in United States soybean stocks
as of December 1, 2015, which led to a decline in soybean prices.
Omaha cash soybean prices ended the year at $8.33 per bushel,
down $1.70 per bushel for the year. Soybean meal averaged $342
per ton in 2015, down $110 per ton from 2014. Meal prices ended
the year at $277 per ton, $141 per ton lower than last year.
Cow-Calf: Cow-calf producers were again profitable, although
at a reduced level when compared to 2014. Feeder cattle prices
declined similarly to fed cattle prices, reducing returns to the producer
by approximately $50 per head; however, returns still exceeded $400
per cow. The calf supply remained low, but the industry now appears
to be in a rapid expansion mode based on the strong calf prices and
ideal pasture conditions across much of the country.
Beef Feedlot: Cattle feeders had a difficult 2015. Losses for
2015, without the impact of risk management programs, averaged
$175 per head compared to $210 per head profit in 2014. The large
losses occurred despite cash prices averaging only 4 percent or
$6 per cwt. less in 2015 as break-evens were considerably higher
than 2014 due to the high initial cost of feeder cattle replacements.
The year proved to be the most volatile in history with cash prices
declining $55 per cwt. or 47 percent. The decline began slowly
toward the end of the second quarter before accelerating through
year-end leading to losses at times exceeding $400 per head in the
fourth quarter.
The price decline was driven by reduced exports as a result of
the dollar strengthening, increased protein supplies and heavier
slaughter weights. Beef exports were down 12 percent from a year
earlier while imports were up over 20 percent, resulting in excess
beef on the market. With average costs of gain in the $0.80 per
pound range, cattle feeders were motivated to make cattle heavier,
and packers, for the first half of 2015, did not enforce discounts for
excess size. As a result, carcass weights reached all-time highs and
marketing’s were slowed, leading to even larger losses in the second
half of the year as prices eroded under the challenging economic
environment.
Swine: Swine production was up 7 percent in 2015, leading to
significantly lower hog prices and a marginally profitable year for
most producers. Hog cash prices averaged about $51 per cwt. for
the year, down nearly $26 per cwt. from 2014. A drop in feed expense
led to $5 to $10 per cwt. decline in production costs helping offset
part of the revenue decline. Pork supply increased as the industry
recovered from the 2013-2014 outbreak of Porcine Epidemic
Diarrhea virus, which caused substantial numbers of piglet deaths.
A 2 percent increase in imports, mostly Canadian, also contributed to
the supply increase. Pork exports were hampered by the West Coast
port closure during the first half of 2015 but recovered in the second
half of the year.
Hog prices declined below the cost of production during the final
two months of the year. With pork supplies projected to modestly
increase again in 2016, the industry is expecting even tighter margins
for 2016.
Dairy: Dairy profits narrowed in 2015 as the United States All
Milk price fell to an estimated $17 per cwt. following a record-high
dairy price of $24 per cwt. in 2014. The lower milk price was partially
offset by reduced feed expenses, resulting in an average profit of
roughly $250 per cow in the Midwest. United States milk production
in 2015 was estimated at 209 billion pounds, up 1.3 percent over
no.
2014. Lower prices were driven by a higher world supply of milk
products, processor capacity challenges that led to a lower milk
basis over Class III milk futures, and weaker export demand. The
United States Department of Agriculture forecast for 2016 is for a 2
percent increase in production, leading to modestly lower milk prices.
Poultry: Record-high egg prices and lower feed costs resulted in
record profits in 2015 for egg producers and egg product companies
not impacted by High Pathogenic Avian Influenza (HPAI). Producers
benefited from record-high prices beginning in June through
September as the industry reacted to the loss of nearly 30 million
layers from HPAI. While egg prices declined in the fourth quarter,
the year still closed with record-setting highs in shell eggs and liquid
whole eggs. Layer inventories decreased from 308 million at the
beginning of 2015 to 270 million in June following the HPAI outbreak
before rebounding to 282 million in December. Midwest large-shell
egg prices averaged $1.88 per dozen during 2015, $0.41 per
dozen higher than a year ago. Unpasteurized whole eggs averaged
$1.18 per pound, up $0.37 per pound from 2014 while average
breaker prices were up from $0.91 per dozen to $1.25 per dozen.
All quarantines have been lifted from HPAI-infected sites, allowing
repopulation to commence. Recovery from HPAI is projected to be
slow for the egg industry, as it will take 12 to 18 months to replace all
the laying hens. Lower layer inventory levels are projected to support
egg prices during 2016.
Ethanol: The United States ethanol industry was marginally
profitable in 2015 with most Corn Belt plants operating at or slightly
above break-even levels. Even though corn prices were lower than
a year ago, profit levels declined as ethanol and gasoline prices
fell due to dramatically declining crude oil prices. The industry
and most producers were well-positioned to withstand the market
downturn resulting from an exceptionally profitable year in 2014.
Most ethanol producers capitalized on this liquidity opportunity by
building cash reserves, reducing term debt or investing in capital
projects to gain efficiency or incrementally expand production. The
industry ended 2015 with most plants running in excess of their
nameplate capacity, leading to a market surplus.
harvest and before spring planting. Operating loan volume tends to
peak late in the fall, decline toward January and trend upward during
the remainder of the year. Equipment loans generally have annual
installments that correlate to customer commodity sales.
Our chartered territory includes Iowa, Nebraska, South Dakota and
Wyoming. The geographic distribution of loan volume follows:
December 31,
State
2015
2014
2013
Iowa
39%
39%
41%
Nebraska
29
29
29
South Dakota
18
18
17
2
2
2
12
12
11
100%
100%
100%
Wyoming
Other states
The following table summarizes risk asset and delinquency
information (accrual loans include accrued interest receivable;
amounts are in thousands):
December 31,
2015
2014
2013
$73,484
$60,964
$78,289
10,658
6,329
8,799
638
4,900
466
84,780
72,193
87,554
–
4,279
3,642
$76,472
$91,196
Risk loans:
Nonaccrual
Restructured
0 days past due still
9
accruing interest
Total risk loans
Other property owned, net
Total risk assets
$84,780
Risk loans as a percentage
of total loans
0.35%
0.32%
0.43%
Total delinquencies as a
percentage of total loans
0.33%
0.21%
0.23%
Loan Portfolio
Our loan volume experienced another solid year of growth
and increased $1.5 billion during 2015, an increase of 7 percent.
Approximately 70 percent of the loan volume increase came from
long-term agricultural mortgage loans, and approximately 10 percent
came from each of the production and intermediate-term loan,
processing and marketing and rural residence categories.
Our loan portfolio consists primarily of agricultural real estate loans,
production operating loans and intermediate-term installment loans,
and credit facilities to agricultural businesses. A high percentage
of real estate loan installments are due in the December to March
period. Most operating loans mature and are refinanced after the fall
Total risk loans have increased since the end of 2014. The increase
in nonaccrual loans is primarily due to several large accounts in the
grain industry being classified as nonaccrual. Restructured loans
increased primarily due to the restructuring of a large account in
the grain industry. Based on our analysis, loans 90 days or more
past due and still accruing interest were adequately secured and in
the process of collection. Risk loans as a percentage of total loans
remain at acceptable levels.
Our adversely classified assets increased during 2015, ending
the year at 2.9 percent of the portfolio, compared to 1.6 percent of
the portfolio at December 31, 2014. Adversely classified assets are
assets we have identified as showing some credit weakness outside
our credit standards.
23
The allowance for loan losses is an estimate of losses on loans
in our portfolio as of the financial statement date. We determine the
appropriate level of allowance for loan losses based on the periodic
evaluation of factors such as loan loss history, probability of default,
estimated loss severity, portfolio quality, and current economic and
environmental conditions.
Comparative allowance coverage of various loan categories
follows:
Changes to our return on average assets and return on average
members’ equity are related directly to the changes in income as
described below, the changes in assets discussed in the Loan
Portfolio section and the changes in members’ equity discussed in
the Members’ Equity section. Major components of the changes in
net income for 2015, 2014 and 2013 are outlined in the following
table (in thousands):
December 31,
December 31,
2015
2014
2013
Net income prior year
Increase (decrease) in
net income attributable
to changes in:
Allowance as a
percentage of:
2015
2014
2013
$536,481
$514,642
$481,086
0.27%
0.26%
0.26%
Nonaccrual loans
88.45%
95.14%
66.42%
Net interest income
30,489
43,030
45,248
Total risk loans
76.67%
80.34%
59.39%
Provision for credit losses
(9,179)
(21,762)
33,798
Total loans
In our opinion, the allowance for loan losses at December 31,
2015, is adequate to provide for probable and estimable losses in
the loan portfolio.
Noninterest income
(21,075)
22,640
(13,620)
Noninterest expense
(26,573)
(26,497)
(23,394)
Provision for income
taxes, net
3,904
4,428
(8,476)
$514,047
$536,481
$514,642
Net income for the year
Results of Operations
The effects on net interest income from changes in average
volumes and rates are presented in the following table (in thousands):
The following table provides profitability information:
Changes in Net Interest
Income Due To:
December 31,
Net income (in thousands)
Return on average assets
Return on average
members’ equity
2015
2014
2013
$514,047
$536,481
$514,642
2.20%
2.48%
2.60%
12.28%
14.07%
15.00%
2015 vs. 2014
2014 vs. 2013
Changes in volume
$50,286
$56,315
Changes in rates
(18,514)
(9,292)
(1,283)
(3,993)
$30,489
$43,030
Change in nonaccrual income
Net change
The average lending rate was 4.04 percent for 2015 compared to
4.07 percent for 2014. The average cost of debt was 1.50 percent for
2015 compared to 1.47 percent for 2014. The net interest margin was
2.81 percent in 2015 compared to 2.89 percent in 2014.
Net interest income included income on nonaccrual loans that
totaled $1.7 million in 2015, $3 million in 2014 and $7 million in 2013.
Nonaccrual income is recognized when:
•received in cash,
•collection of the recorded investment is fully expected, and
•prior charge-offs have been recovered.
We recorded a $12.2 million provision for credit losses for 2015
compared to a $3 million provision for credit losses for 2014. The
provision for credit losses includes the provision for loan losses and
the provision for unfunded lending commitments. The increase in
the provision for credit losses is primarily due to an increase in the
allowance for the grain industry and net charge-offs partially offset by
decreases in the allowance for the energy/electric, swine and dairy
industries.
no.
We recorded net charge-offs of $5.2 million in 2015 (0.02 percent
of average loans). We recorded $1 million of net recoveries of chargeoffs in 2014 ((0.01) percent of average loans) and net charge-offs of
$7.7 million in 2013 (0.04 percent of average loans).
The reserve for unfunded lending commitments is based on our
best estimate of losses inherent in lending commitments made
to customers but not yet disbursed. Factors such as likelihood of
disbursal and likelihood of losses given disbursement were utilized in
determining this contingency. The reserve for unfunded commitments
was $8 million at December 31, 2015, compared to $8 million at the
end of 2014 and $10 million at the end of 2013.
The decrease in noninterest income is primarily due to a decrease
in AgriBank, FCB patronage, a nonrecurring gain from the sale of
other property owned in 2014 and a decrease in AgDirect program
distributions and fees.
The increase in noninterest expense is primarily due to salary,
benefits and other expenses for increased staffing levels to support
business initiatives and growth, operating expenses related to
the alliance with Frontier Farm Credit partially offset by expense
recoveries paid by Frontier Farm Credit and an increase in insurance
fund premiums.
Patronage Program
Our Board adopted a patronage program for eligible customers
in 2015. The patronage program has been in place for more than
a decade. The 2015 program is based on each customer’s eligible
average loans outstanding during the year. The patronage program
is a qualified (cash) distribution, referred to as cash-back dividends.
The Board declared a cash-back dividend of $160 million at its
December 2015 meeting to be distributed no later than April 30,
2016. We recorded a liability of $160 million in December 2015.
The 2014 and 2013 patronage programs were also based on
each customer’s eligible average loans outstanding during the
year. The 2014 and 2013 programs had a qualified (cash) and
nonqualified distribution. The Board declared a cash-back dividend
of $160 million at its December 2014 meeting and $145 million at its
December 2013 meeting to be distributed no later than April 30 of the
following respective years. We recorded a liability of $160 million in
December 2014 and $145 million in December 2013. The 2014 and
2013 nonqualified patronage distributions are also not intended to be
redeemed except in the unlikely event of liquidation.
Our Board has also adopted a patronage program for 2016. The
2016 patronage program will once again be based on each customer’s
eligible average daily balance of eligible loans outstanding during
2016.
AgriBank, FCB Patronage Income
We receive three different types of discretionary patronage from
AgriBank, FCB. AgriBank, FCB’s Board of Directors sets the level of
patronage for each of the following:
• patronage on our notes payable with AgriBank, FCB;
•patronage based on the balance and net earnings of the pool of
loans sold to AgriBank, FCB in October 2008; and
•partnership distribution based on our share of the net earnings of
the loans in the AgDirect trade credit financing program, adjusted
for required return on capital and servicing and origination fees.
We received patronage income based on the average balance of
our notes payable to AgriBank, FCB. We recorded patronage income
of $49.3 million in 2015, $59.1 million in 2014 and $55.8 million in
2013. Changes in our note payable to AgriBank, FCB and patronage
rate changes caused the variances in the patronage income amounts.
The patronage rates paid by AgriBank, FCB were 26 basis points in
2015, 33.5 basis points in 2014 and 34.5 basis points in 2013.
We also received patronage income related to our sale of a
participation interest in certain real estate loans to AgriBank, FCB.
We received patronage income in an amount that approximates the
net earnings of those loans. Net earnings represents the net interest
income associated with these loans adjusted for certain fees and
costs specific to the related loans, as well as adjustments deemed
appropriate by AgriBank, FCB related to the credit performance of
the loans, as applicable. Similar to the patronage on our note payable
described earlier, we also received patronage income based on the
estimated note payable of the asset pool loans. Patronage declared
on these pools is solely at the discretion of the AgriBank, FCB Board
of Directors. We recorded asset pool patronage income of $15.8
million in 2015, $20.0 million in 2014 and $24.3 million in 2013. All
patronage income earned as part of the AgriBank, FCB asset pool is
paid in cash.
The partnership distribution on our share of net earnings of the
loans in the AgDirect trade financing program is described under
“AgDirect, LLP” later in this section of the annual report.
Beginning in 2014, patronage income earned on our note payable
with AgriBank, FCB is paid in cash. Patronage income for 2013 on
our note payable with AgriBank, FCB was paid in the form of cash
and AgriBank, FCB stock.
25
Funding and Liquidity
Our approach to sustaining sufficient liquidity to fund operations
and meet current obligations is to maintain an adequate line of
credit with AgriBank, FCB. At December 31, 2015, we had a $21
billion revolving line of credit with AgriBank, FCB. We generally apply
excess cash to this line of credit.
As described in Note 8 to the consolidated financial statements,
“Notes Payable,” this line of credit is governed by a General Financing
Agreement and is collateralized by a pledge of substantially all of our
assets and is also subject to regulatory borrowing limits. The line of
credit is renegotiated annually. We expect this line of credit to be
sufficient to fund our operations. The note payable related to this line
of credit reprices monthly.
At December 31, 2015, the direct loan balance was $20.1 billion
compared to $18.8 billion at the end of 2014 and $17.3 billion at the
end of 2013.
The interest rate risk inherent in our loan portfolio is substantially
mitigated through this funding relationship. AgriBank, FCB manages
interest rate risk through its direct loan pricing and asset/liability
management processes. The direct loan pricing mechanism
simulates matching the cost of underlying debt with substantially the
same terms as the anticipated terms of our loans to customers. The
primary risks we manage include pipeline risk and basis risk. Pipeline
risk occurs when we commit a fixed interest rate to a customer in
advance of the loan’s closing date and is effectively mitigated through
use of rate-lock agreements. Basis risk occurs when the interest rate
on a loan reprices according to one index, while the debt supporting
that loan reprices according to another index.
We provide financing to eligible customers with various interest
rate programs. New loans are priced with consideration given to the
local competitive conditions, the cost of debt that will be incurred
to fund the loan, the individual risk elements of the loan and profit
objectives. Interest on real estate loans is generally paid in full
annually, while interest on agricultural production loans is generally
paid in full at the annual renewal date of the loan.
We offer variable-rate loan products that include variable-rate
loans repriced at our discretion, as dictated by market conditions,
and market-indexed variable-rate loans that provide customers with
the option of indexing their interest rate to external market indices
such as LIBOR or the prime rate.
We also offer fixed-rate operating loans for up to two years,
fixed-rate installment loans for up to 10 years, and fixed-rate
mortgage loans in yearly increments from 5-35 years.
In addition, we offer real estate adjustable-rate loans that are
indexed to one-, three- or five-year United States Treasury rates.
The loans reprice at one-, three- or five-year intervals at a rate equal
to the corresponding United States Treasury rate plus a contractual
spread. The one-, three- and five-year adjustable-rate loans are
generally subject to periodic caps ranging from 2-2.50 percent with a
6 percent life cap. The cost of debt supporting these loans is capped
accordingly.
We also offer a prepayment-restricted loan product. This is a
fixed-rate product with a prepayment penalty provision if prepayments
are made during the initial three, five or seven years of the loan term.
For agreeing to restricted prepayments, the customer receives a
reduced interest rate that remains in effect for the entire loan term.
A breakdown of the loan portfolio by rate type, as a percentage of
total volume at December 31, is shown in the table below:
December 31,
2015
2014
2013
Variable rate
42.5%
42.4%
38.8%
Fixed rate
57.4
57.4
61.0
Adjustable rate
0.1
0.2
0.2
100.0%
100.0%
100.0%
Our other source of lendable funds is unallocated surplus.
Members’ Equity
Our equity structure is described in Note 9 to the consolidated
financial statements, “Members’ Equity.”
Members’ equity increased to $4.325 billion at December 31,
2015, compared to $3.969 billion at December 31, 2014. The
increase in 2015 was due to net income recorded in 2015 partially
offset by patronage payable and net capital stock issued.
Members’ equity as a percentage of total assets increased to
17.46 percent at December 31, 2015, compared to 17.16 percent at
December 31, 2014. The increase in the members’ equity-to-assets
ratio was due to the growth rate of members’ equity exceeding the
growth rate of assets.
no.
Farm Credit Administration regulations require us to maintain a
permanent capital ratio of at least 7 percent, a total surplus ratio of
at least 7 percent and a core surplus ratio of at least 3.5 percent. The
calculation of these ratios according to Farm Credit Administration
regulations is discussed below:
•The permanent capital ratio is average at-risk capital divided by
average risk-adjusted assets. At December 31, 2015, our ratio
was 15.38 percent compared to 15.20 percent at December 31,
2014.
•
The total surplus ratio is average unallocated surplus less any
deductions made in the computation of permanent capital divided
by average risk-adjusted assets. At December 31, 2015, our ratio
was 15.19 percent compared to 14.99 percent at December 31,
2014.
•The core surplus ratio is average unallocated surplus less any
deductions made in the computation of total surplus divided by
average risk-adjusted assets. At December 31, 2015, our ratio was
15.19 percent compared to 14.99 percent at December 31, 2014.
The capital adequacy ratios are directly impacted by the changes
in members’ equity as more fully explained earlier and the changes
in assets as further discussed in the Loan Portfolio section. In
February 2008, we entered into a credit default swap agreement that
is intended to mitigate risk in our loan portfolio and, consequently,
decrease the risk-weighting of certain assets for regulatory capital
purposes. Further details are discussed in Note 3 to the consolidated
financial statements, “Loans and Allowance for Loan Losses.”
We are not aware of any reason why the capital ratios would fall
below the regulatory requirements during 2016.
Relationship with AgriBank, FCB
We borrow from AgriBank, FCB to fund our lending operations
in accordance with the Farm Credit Act of 1971, as amended.
Approval from AgriBank, FCB is required for us to borrow elsewhere.
A General Financing Agreement, as discussed in Note 8 to the
consolidated financial statements, “Notes Payable,” governs this
lending relationship. Cost of funds under the General Financing
Agreement includes:
• a marginal cost-of-debt component,
•a spread component, which includes cost of servicing, cost of
liquidity and bank profit, and
• a risk-premium component, if applicable.
In the periods presented, we were not subject to the risk-premium
component. The marginal cost-of-debt approach simulates matching
the cost of underlying debt with substantially the same terms as
the anticipated terms of our loans to borrowers. This methodology
substantially protects us from market interest rate risk.
We are required to invest in AgriBank, FCB capital stock as
a condition of borrowing. This investment may be in the form
of purchased stock or stock representing previously distributed
patronage refunds and capital distributions from AgriBank, FCB.
On March 5, 2014, the AgriBank, FCB Board of Directors approved
an amendment to the AgriBank, FCB capital plan, which reduced
the base required stock investment for all affiliated associations,
including Farm Credit Services of America, ACA, from 2.50 percent to
2.25 percent effective March 31, 2014. As of December 31, 2015, we
were required to maintain a stock investment equal to 2.25 percent of
the average quarterly balance of our note payable to AgriBank, FCB,
plus an additional 1 percent on growth that exceeded a targeted rate.
AgriBank, FCB’s current bylaws allow AgriBank, FCB to increase the
required investment to 4 percent. However, AgriBank, FCB currently
has not communicated a plan to increase the required investment.
In addition, we are required to hold AgriBank, FCB common stock
equal to 8 percent of the quarter-end balance of a pool of real estate
loans sold to AgriBank, FCB.
At December 31, 2015, $306.9 million of our investment in
AgriBank, FCB consisted of stock representing distributed AgriBank,
FCB patronage refunds and capital distributions, and $180.4 million
consisted of purchased investment. For the periods presented
in this report, we have received no dividend income on this stock
investment, and we do not anticipate any in future years.
Although it is not a direct association investment in AgriBank, FCB,
AgDirect, LLP, which facilitates the AgDirect trade credit financing
program, is required to own stock in AgriBank, FCB in the amount of
6 percent of the AgDirect program’s outstanding participation loan
balance at quarter-end, plus 6 percent of the expected balance to
be originated during the following quarter. All partners, in turn, are
required to own the same amount of stock in AgDirect, LLP.
We receive patronage income based on the annual average daily
balance of our note payable to AgriBank, FCB, patronage income
in an amount that approximates the net earnings of the asset pool
loans, and patronage income based on the estimated note payable
of the asset pool loans. AgriBank, FCB’s Board of Directors sets the
patronage rates.
Due to the nature of our financial relationship with AgriBank,
FCB, the financial condition and results of operations of AgriBank,
FCB materially affect our stockholders’ investment in Farm Credit
Services of America. To request a free copy of the combined
AgriBank, FCB and affiliated associations’ financial reports, contact
us at PO Box 2409, Omaha, NE 68103-2409, (800) 531-3905 or via
email to [email protected]. You may also contact AgriBank,
FCB at 30 East 7th Street, Suite 1600, St. Paul, MN 55101,
(651) 282-8800 or via email to [email protected].
The reports are also available through AgriBank, FCB’s website at
agribank.com.
27
AgDirect, LLP
Rural Business Investment Company
We have entered into agreements with 15 other Farm Credit
System associations inside and outside of the AgriBank, FCB
District to provide access to our AgDirect trade credit financing
program. The AgDirect program includes origination and refinancing
of agricultural equipment loans through independent equipment
dealers. The Farm Credit Administration has approved requests from
these associations to invest in a limited liability partnership (LLP) that
facilitates this collaborative AgDirect trade credit financing program
and allows us to leverage the AgDirect program for the mutual benefit
of our associations, and the farmers and ranchers we collectively
serve. Our investment is reflected as “AgDirect, LLP investment in
AgriBank, FCB” on our Consolidated Balance Sheet. The LLP is
an unincorporated business entity and purchases participations in
AgDirect loans from us that were originated under the agreements
described earlier. The LLP subsequently sells a like amount of
loan participations to AgriBank, FCB. The LLP pays us a fee for
originating these loans. Total outstanding participations sold to the
LLP at December 31, 2015, were $3.1 billion compared to $2.9 billion
at the end of 2014 and $2.5 billion at the end of 2013. AgriBank,
FCB, at the discretion of its Board of Directors, pays patronage on
these loan participations to AgDirect, LLP. Any patronage declared
is accrued quarterly and paid by AgriBank, FCB in the first month
of the subsequent quarter. AgDirect, LLP distributes any patronage
paid by AgriBank, FCB as partnership distributions to the AgDirect,
LLP partners.
At December 31, 2015, AgDirect, LLP assets primarily consist of
a $185.6 million investment in AgriBank, FCB to capitalize the loan
participations sold to AgriBank, FCB. We hold $73.8 million of this
investment, and other Farm Credit System entities hold the remaining
investment. At December 31, 2015, AgDirect, LLP had liabilities
of $7.2 million consisting of a distribution payable to LLP partners
from patronage declared by AgriBank, FCB for the fourth quarter of
2015. AgDirect, LLP had liabilities of $4.6 million at December 31,
2014, and $2.6 million at December 31, 2013. AgDirect, LLP had net
income of $22.1 million for the year ended 2015, $22.5 million for
the year ended 2014 and $12.7 million for the year ended 2013 from
patronage paid by AgriBank, FCB.
We and other Farm Credit institutions are among the forming limited
partners for a $154.5 million Rural Business Investment Company
established on October 3, 2014. The Rural Business Investment
Company facilitates private equity investments in agriculture-related
businesses that create growth and job opportunities in rural America.
Our total commitment is $20 million through October 2019. The
Rural Business Investment Company investment increased due to
capital calls to fund new investments during 2015. As of December
31, 2015, our investment is $4.2 million compared to $0.8 million at
December 31, 2014. The investment was evaluated for impairment
and is included in “Other assets” on the Consolidated Balance Sheet.
Farm Credit Foundations
We purchase human resource information systems and benefit
and payroll services from Farm Credit Foundations. The Farm Credit
System entities using Farm Credit Foundations’ services contributed
an investment into the service corporation in January 2012. Our
investment was $0.1 million at December 31, 2015; December 31,
2014; and December 31, 2013. The total cost of services purchased
from Farm Credit Foundations was $1.1 million in 2015, $0.9 million
in 2014 and $0.9 million in 2013.
Regulatory Matters
On May 8, 2014, the Farm Credit Administration Board approved a
proposed rule to modify the regulatory capital requirements for Farm
Credit System banks and associations. The stated objectives of the
proposed rule are to:
•
modernize capital requirements while ensuring that institutions
continue to hold sufficient regulatory capital to fulfill their mission
as a government-sponsored enterprise;
•ensure that the Farm Credit System’s capital requirements are
comparable to the Basel III framework and the standardized
approach that the federal banking regulatory agencies have
adopted, but also to ensure that the rules recognize the cooperative
structure and the organization of the Farm Credit System;
•
m ake Farm Credit System regulatory capital requirements
more transparent; and
•meet the requirements of Section 939A of the Dodd-Frank Wall
Street Reform and Consumer Protection Act.
no.
The most recent comment period closed July 10, 2015. The
initial comment period on the proposed rule, after extension, closed
February 16, 2015.
On June 12, 2014, the Farm Credit Administration Board approved
a proposed rule to revise the requirements governing the eligibility
of investments for Farm Credit System banks and associations. The
stated objectives of the proposed rule are to:
•
strengthen the safety and soundness of Farm Credit System
banks and associations;
•ensure that Farm Credit System banks hold sufficient liquidity to
continue operations and pay maturing obligations in the event of
market disruption;
•enhance the ability of the Farm Credit System banks to supply
credit to agricultural and aquatic producers;
•comply with the requirements of Section 939A of the Dodd-Frank
Wall Street Reform and Consumer Protection Act;
•modernize the investment eligibility criteria for Farm Credit System
banks; and
•
revise the investment regulation for Farm Credit System
associations to improve their investment management practices
so they are more resilient to risk.
The public comment period ended on October 23, 2014.
29
Report of Management
We prepare the consolidated financial statements of Farm
Credit Services of America, ACA (Association) and are responsible
for their integrity and objectivity, including amounts that must be
necessarily based on judgments and estimates. The consolidated
financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America. The consolidated financial statements, in our opinion,
fairly present the financial condition of the Association. Other
financial information included in the annual report is consistent with
that in the consolidated financial statements.
To meet our responsibility for reliable financial information, we
depend on accounting and internal control systems designed
to provide reasonable, but not absolute, assurance that assets
are safeguarded and transactions are properly authorized and
recorded. Costs must be reasonable in relation to the benefits
derived when designing accounting and internal control systems.
Financial operations audits are performed to monitor compliance.
PricewaterhouseCoopers LLP, our independent auditors, audit the
consolidated financial statements. They also conduct a review of
internal controls to the extent necessary to comply with generally
accepted auditing standards in the United States of America. The
Farm Credit Administration also performs examinations for safety
and soundness, as well as compliance with applicable laws and
regulations.
The Board of Directors has overall responsibility for our system of
internal control and financial reporting. The Board of Directors and
its Audit Committee consult regularly with us and meet periodically
with the independent auditors and other auditors to review the
scope and results of their work. The independent auditors have
direct access to the Board of Directors, which is composed solely
of directors who are not officers or employees of the Association.
The undersigned certify that we have reviewed the Association’s
annual report and it has been prepared in accordance with all
applicable statutory or regulatory requirements, and the information
contained herein is true, accurate and complete to the best of our
knowledge and belief.
Douglas R. Stark
President and CEO
March 9, 2016
Craig P. Kinnison
Senior Vice President – CFO
March 9, 2016
Jeremy W. Heitmann
Chairperson, Board of Directors
March 9, 2016
no.
Report on Internal Control Over Financial Reporting
Farm Credit Services of America, ACA’s (Association) principal
executives and principal financial officers, or persons performing
similar functions, are responsible for establishing and maintaining
adequate internal control over financial reporting for the Association’s
consolidated financial statements. For purposes of this report,
“internal control over financial reporting” is defined as a process
designed by, or under the supervision of, the Association’s principal
executives and principal financial officers, or persons performing
similar functions, and effected by its Board of Directors, management
and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting information and the preparation
of the consolidated financial statements for external purposes
in accordance with accounting principles generally accepted in
the United States of America, and includes those policies and
procedures that: (1) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Association, (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial information in accordance with accounting
principles generally accepted in the United States of America, and
that receipts and expenditures are being made only in accordance
with authorizations of management and directors of the Association,
and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of
the Association’s assets that could have a material effect on its
consolidated financial statements.
The Association’s management has completed an assessment
of the effectiveness of internal control over financial reporting as of
December 31, 2015. In making the assessment, management used
the 2013 framework in Internal Control – Integrated Framework,
promulgated by the Committee of Sponsoring Organizations of the
Treadway Commission, commonly referred to as the “COSO” criteria.
Based on the assessment performed, the Association concluded
that as of December 31, 2015, the internal control over financial
reporting was effective based upon the COSO criteria. Additionally,
based on this assessment, the Association determined that there
were no material weaknesses in the internal control over financial
reporting as of December 31, 2015.
Douglas R. Stark
President and CEO
March 9, 2016
Craig P. Kinnison
Senior Vice President – CFO
March 9, 2016
31
Report of Audit Committee
The consolidated financial statements of Farm Credit Services of
America, ACA (Association) were prepared under the oversight of
the Audit Committee. The Audit Committee is composed of three
individuals from the Association Board of Directors. In 2015, the
Audit Committee met seven times. The Audit Committee oversees
the scope of the Association’s internal audit program, the approval
and independence of PricewaterhouseCoopers LLP (PwC) as
our independent auditors, the adequacy of the Association’s
system of internal controls and procedures, and the adequacy of
management’s action with respect to recommendations arising from
those auditing activities. The Audit Committee’s responsibilities are
described more fully in the Internal Control Policy and the Audit
Committee Charter.
Management is responsible for internal controls and the
preparation of the consolidated financial statements in accordance
with accounting principles generally accepted in the United States
of America. PwC is responsible for performing an independent
audit of the consolidated financial statements in accordance with
auditing standards generally accepted in the United States of
America and to issue their report based on their audit. The Audit
Committee’s responsibilities include monitoring and overseeing
these processes.
In this context, the Audit Committee reviewed and discussed
the audited consolidated financial statements for the year ended
December 31, 2015, with management. The Audit Committee
also reviewed with PwC the matters required to be discussed
by Statement on Auditing Standards AU-C260, The Auditor’s
Communication With Those Charged With Governance, and both
PwC and the internal auditors directly provided reports on any
significant matters to the Audit Committee.
The Audit Committee had discussions with and received written
disclosures from PwC confirming its independence. The Audit
Committee also reviewed the non-audit services provided by PwC,
if any, and concluded these services were not incompatible with
maintaining PwC’s independence. The Audit Committee discussed
with management and PwC any other matters and received any
assurances from them as the Audit Committee deemed appropriate.
Based on the foregoing review and discussions, and relying
thereon, the Audit Committee recommended that the Board of
Directors include the audited consolidated financial statements in
the annual report for the year ended December 31, 2015.
Jennifer L. Zessin
Chair, Audit Committee
March 9, 2016
Audit Committee Members:
Jim Kortan
Steve Henry
no.
Independent Auditor’s Report
To the Board of Directors of Farm Credit Services of America, ACA,
We have audited the accompanying consolidated financial statements of Farm Credit Services of America, ACA (the Association)
and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2015, 2014 and 2013, and the related
consolidated statements of income, changes in members’ equity and cash flows for the years then ended.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance
of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits
in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control
relevant to the Association’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Association’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Farm Credit Services of America, ACA and its subsidiaries as of December 31, 2015, 2014 and 2013, and the results of its operations
and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
March 9, 2016
PricewaterhouseCoopers LLP, Suite 1400, 225 South Sixth Street, Minneapolis, MN 55402
T: (612) 596 6000, F: (612) 373 7160, www.pwc.com/us
33
Consolidated Balance Sheet
December 31,
2015
2014
2013
$23,638,506
$22,098,426
$20,211,770
65,000
58,000
52,000
23,573,506
22,040,426
20,159,770
Assets
Loans
Less allowance for loan losses
Net loans
60,832
48,246
86,363
Accrued interest receivable
328,690
296,966
265,553
487,333
465,880
486,438
Cash
AgDirect, LLP investment in AgriBank, FCB
Premises and equipment, net
Deferred tax asset, net
Other assets
Total assets
73,783
82,975
86,972
146,219
135,298
130,793
4,279
3,642
6,036
5,848
–
6,106
96,197
47,847
48,892
$24,772,666
$23,127,953
$21,274,271
$20,077,076
$18,790,035
$17,333,892
74,353
66,205
61,031
160,000
160,000
145,000
Liabilities
Notes payable
Accrued interest payable
Patronage payable
8,000
8,000
10,000
128,481
134,361
131,874
20,447,910
19,158,601
17,681,797
Class D common stock
46,644
45,410
45,078
Class E common stock
1,136
1,070
1,040
4,276,976
3,922,872
3,546,356
Reserve for unfunded lending commitments
Other liabilities
Total liabilities
Commitments and contingencies (Note 13)
Members’ Equity
At-risk capital:
Retained earnings
Total members’ equity
Total liabilities and members’ equity
4,324,756
3,969,352
3,592,474
$24,772,666
$23,127,953
$21,274,271
The accompanying notes are an integral part of these consolidated financial statements.
no.
Consolidated Statement of Income
Year Ended December 31,
2015
2014
2013
Interest income
$909,986
$853,808
$788,799
Interest expense
281,532
255,843
233,864
628,454
597,965
554,935
Net Interest Income
Net interest income
12,194
3,015
(18,747)
616,260
594,950
573,682
Patronage income from AgriBank, FCB
65,131
79,082
80,099
Loan fees
21,399
19,493
18,842
Insurance services
46,830
43,957
37,670
AgDirect program fees
35,438
36,896
33,650
AgDirect, LLP patronage income from AgriBank, FCB
13,057
14,792
9,736
1,237
1,485
1,776
32
6,715
3,400
Net interest income after provision for credit losses
Noninterest Income
Servicing fee income from AgriBank, FCB
Gains on other property owned
Other noninterest income
Total noninterest income
6,445
8,223
2,831
189,569
210,643
188,004
Noninterest Expense
182,421
164,054
150,288
Occupancy and equipment expense
25,228
23,740
20,822
Insurance fund premiums
25,979
22,165
16,671
Other operating expenses
44,928
Salaries and employee benefits
52,632
49,422
Capital transaction expense
558
863
1,039
Total noninterest expense
286,818
260,244
233,748
Income before income taxes
519,011
545,349
527,938
4,964
8,868
13,296
$514,047
$536,481
$514,642
Net income
35
Consolidated Statement of Changes in Members’ Equity
At-Risk Capital
Capital
Stock
Retained
Earnings
Total Members’
Equity
$46,978
$3,176,676
$3,223,654
Net income
514,642
514,642
Patronage declared
(145,000)
(145,000)
38
38
Balance at December 31, 2012
Patronage accrual adjustment
Capital stock and participation certificates:
Issued
Retired
4,666
4,666
(5,526)
46,118
(5,526)
3,546,356
3,592,474
Net income
536,481
536,481
Patronage declared
(160,000)
(160,000)
35
35
Capital stock:
Issued
4,937
4,937
Retired
(4,575)
(4,575)
46,480
Net income
Patronage declared
3,922,872
3,969,352
514,047
514,047
(160,000)
(160,000)
57
57
Capital stock:
Issued
Retired
5,124
5,124
(3,824)
$47,780
(3,824)
$4,276,976
$4,324,756
no.
Consolidated Statement of Cash Flows
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in stock patronage received from AgriBank, FCB
Gain on sales of other property owned
(Gain) loss on sales of premises and equipment
Carrying value write-downs on premises and equipment
Carrying value write-downs on other property owned
Depreciation on premises and equipment
Increase in accrued interest receivable
Increase in accrued interest payable
Increase in deferred tax asset
(Increase) decrease in other assets
Income recognized on deferred AgDirect program fees
2015
2014
2013
$514,047
$536,481
$514,642
3,015
(12,350)
(6,728)
(461)
(18,747)
(25,232)
(3,732)
153
12,194
–
(66)
(1,198)
1,317
–
13,491
(31,724)
8,148
(70)
(48,350)
6,772
684
–
–
12,571
(31,413)
5,174
(188)
1,045
292
11,060
(17,634)
3,089
(500)
(2,398)
6,570
5,130
(12,652)
(52,138)
461,909
(4,083)
(26,164)
510,317
1,939
(46,580)
468,062
Cash Flows from Investing Activities:
Increase in loans, net
(Purchases) redemptions of investment in AgriBank, FCB
AgDirect, LLP redemptions (purchases) of investment in AgriBank, FCB
Purchases of premises and equipment, net
Proceeds from sales of other property owned
Proceeds from sales of premises and equipment
Net cash used in investing activities
(1,545,274)
(21,453)
9,192
(27,539)
4,345
3,008
(1,577,721)
(1,890,936)
32,908
3,997
(19,197)
11,356
1,898
(1,859,974)
(1,715,249)
(6,003)
(4,584)
(21,565)
5,440
1,846
(1,740,115)
Cash Flows from Financing Activities:
Increase in notes payable, net
Patronage paid in cash
At-risk capital stock and participation certificates issued
At-risk capital stock and participation certificates retired
Net cash provided by financing activities
1,287,041
(159,943)
5,124
(3,824)
1,128,398
1,456,143
(144,965)
4,937
(4,575)
1,311,540
1,273,129
(129,962)
4,666
(5,526)
1,142,307
(Decrease) increase in other liabilities
Total adjustments
Net cash provided by operating activities
12,586
(38,117)
(129,746)
Cash at beginning of year
Cash at end of year
48,246
$ 60,832
86,363
$ 48,246
216,109
$ 86,363
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Loan amounts transferred to other property owned
Cash patronage distribution declared
$ –
$160,000
$5,265
$160,000
$842
$145,000
$140,974
$8,659
$128,607
$13,080
$230,775
$8,053
Net increase (decrease) in cash
Supplemental Cash Flow Information:
Interest paid on notes payable
Income taxes paid
37
Note 1 – Organization and Operations
Farm Credit System and District
Farm Credit System Lending Institutions
The Farm Credit System is a nationwide system of cooperatively
owned banks and associations established by Congress to meet
the credit needs of American agriculture. As of January 1, 2016,
the Farm Credit System consisted of three Farm Credit Banks,
one Agricultural Credit Bank and 74 customer-owned cooperative
lending institutions (associations). The Farm Credit System serves
all 50 states, Washington, D.C., and Puerto Rico. This network of
financial cooperatives is owned and operated by the rural customers
the Farm Credit System serves – the American farmer and rancher.
AgriBank, FCB and its affiliated associations are collectively referred
to as the AgriBank Farm Credit Bank District. At January 1, 2016,
the AgriBank Farm Credit Bank District consisted of 17 Agricultural
Credit Associations that each has wholly owned Federal Land Credit
Association and Production Credit Association subsidiaries.
Federal Land Credit Associations are authorized to originate longterm real estate mortgage loans. Production Credit Associations
are authorized to originate short-term and intermediate-term loans.
Agricultural Credit Associations are authorized to originate longterm real estate mortgage loans and short-term and intermediateterm loans either directly or through their subsidiaries. Associations
are authorized to provide lease financing options for agricultural
purposes and are also authorized to purchase and hold certain types
of investments including mission-related investments. AgriBank, FCB
provides funding to all associations chartered within the AgriBank
Farm Credit District.
Associations are authorized to provide, either directly or in
participation with other lenders, credit and related services to
eligible borrowers. Eligible borrowers may include farmers, ranchers,
producers or harvesters of aquatic products, rural residents and
farm-related service businesses. In addition, associations can
participate with other lenders in loans to similar entities. Similar
entities are parties that are not eligible for a loan from a Farm Credit
System lending institution but have operations that are functionally
similar to the activities of eligible borrowers.
Farm Credit System Regulator
The Farm Credit Administration is authorized by Congress to
regulate the Farm Credit System banks and associations. We are
examined by the Farm Credit Administration, and certain association
actions are subject to the prior approval of the Farm Credit
Administration and/or AgriBank, FCB.
Farm Credit Insurance Fund
The Farm Credit Act established the Farm Credit System Insurance
Corporation to administer the Farm Credit Insurance Fund. The
Farm Credit Insurance Fund is used to ensure the timely payment of
principal and interest on Farm Credit Systemwide debt obligations,
to ensure the retirement of protected borrower capital at par or
stated value, and for other specified purposes.
At the discretion of the Farm Credit System Insurance Corporation,
the Farm Credit Insurance Fund is also available to provide
assistance to certain troubled Farm Credit System institutions and
for the operating expenses of the Farm Credit System Insurance
Corporation. Each Farm Credit System bank is required to pay
premiums into the Farm Credit Insurance Fund until the assets in
the Farm Credit Insurance Fund equal 2 percent of the aggregated
insured obligations adjusted to reflect the reduced risk on loans
or investments guaranteed by federal or state governments. This
percentage of aggregate obligations can be changed by the Farm
Credit System Insurance Corporation, at its sole discretion, to a
percentage it determines to be actuarially sound. The basis for
assessing premiums is debt outstanding with adjustments made
for nonaccrual loans and impaired investment securities which
are assessed a surcharge, while guaranteed loans and investment
securities are deductions from the premium base. AgriBank, FCB,
in turn, assesses premiums to AgriBank Farm Credit Bank District
associations each year based on similar factors.
Association
Farm Credit Services of America, ACA (ACA) and its subsidiaries,
Farm Credit Services of America, FLCA (FLCA) and Farm Credit
Services of America, PCA (PCA), are lending institutions of the Farm
Credit System. We are a member-owned cooperative providing credit
and credit-related services to, or for the benefit of, eligible members
for qualified agricultural purposes in the states of Iowa, Nebraska,
South Dakota and Wyoming. We borrow from AgriBank, FCB and
provide financing and related services to our members. Our ACA holds
all the stock of the FLCA and PCA subsidiaries. The FLCA makes
secured long-term agricultural real estate and rural home mortgage
loans, and provides lease financing options in collaboration with
Farm Credit Leasing Services and CoBank, ACB. The PCA makes
short-term and intermediate-term loans for agricultural production
or operating purposes, and provides lease financing options in
collaboration with Farm Credit Leasing Services and CoBank, ACB.
We offer risk management services, including crop insurance and
crop-hail insurance, for borrowers and those eligible to borrow.
Alliance with Frontier Farm Credit
On May 20, 2014, the Boards of Directors of Farm Credit Services
of America and Frontier Farm Credit signed a letter of intent to form a
strategic alliance. The alliance is designed to benefit the farmers and
ranchers who own and support the two financial services cooperatives
by ensuring that both Associations have the strength and capacity to
serve agricultural customers’ needs for years to come.
As part of the new alliance, Farm Credit Services of America and
Frontier Farm Credit continue to exist as separate associations while
integrating their day-to-day business operations, technology systems
and leadership teams. Each Association continues to have its own
Board, with representatives participating in a coordinating committee
to facilitate Board governance between the two organizations.
In October 2014, Frontier Farm Credit stockholders voted to
approve the alliance. Farm Credit Services of America provided
information concerning the alliance to its stockholders. The alliance
was implemented January 1, 2015.
no.
Under the alliance agreement, Farm Credit Services of America
and Frontier Farm Credit have agreed to share current-year income
and expenses based on the average total assets of each entity for
the prior calendar year. Due to the transition period required to fully
implement the alliance, the agreement specifies generally that pretax net income will be shared on fixed percentages of 94 percent
for Farm Credit Services of America and 6 percent for Frontier Farm
Credit for 2015, and 93 percent for Farm Credit Services of America
and 7 percent for Frontier Farm Credit for 2016. For the year ending
December 31, 2015, Farm Credit Services of America recorded $10.4
million of operating expense credits under the income and expense
sharing provisions of the alliance agreement primarily due to the
recovery of salary and related expenses incurred by Farm Credit
Services of America for former Frontier Farm Credit employees
added to the Farm Credit Services of America payroll.
Frontier Farm Credit has $1.9 billion in assets and serves multiple
counties in eastern Kansas. Farm Credit Services of America has
$24.8 billion in assets and serves the states of Iowa, Nebraska,
South Dakota and Wyoming.
Note 2 – Summary of Significant Accounting Policies
Our accounting and reporting policies conform to accounting
principles generally accepted in the United States of America and
prevailing practices within the financial services industry.
Preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires
us 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 consolidated financial statements and
the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates. The consolidated
financial statements present the consolidated financial results of
Farm Credit Services of America, ACA (the parent) and Farm Credit
Services of America, FLCA and Farm Credit Services of America,
PCA (the subsidiaries). All material intercompany transactions and
balances have been eliminated in consolidation.
The following are our significant accounting policies:
Loans
Mortgage loan terms range from 5-35 years at origination. Almost
all commercial loans are made for agricultural production or operating
purposes with original terms of 10 years or less.
Loans are carried at their principal amount outstanding net of
any unearned income, cumulative charge-offs and unamortized
premiums or discounts on purchased loans. Loan interest is accrued
and credited to interest income based upon the daily principal
amount outstanding.
We place loans in nonaccrual status when:
•principal or interest is delinquent for 90 days or more (unless the
loan is well-secured and in the process of collection), or
•circumstances indicate that full collection is not expected.
When a loan is placed in nonaccrual status, we reverse accrued
interest to the extent principal plus accrued interest before the transfer
exceeds the net realizable value of the collateral. Any unpaid interest
accrued in a prior year is capitalized to the recorded investment of
the loan. Any cash received on nonaccrual loans is applied to reduce
the recorded investment in the loan, except in those cases where the
collection of the recorded investment is fully expected and the loan
does not have any unrecovered prior charge-offs. Nonaccrual loans
may be returned to accrual status when:
• principal and interest are current,
• prior charge-offs have been recovered,
•the ability of the borrower to fulfill the contractual repayment terms
is fully expected, and
• the loan is not classified as doubtful or loss.
In situations where, for economic or legal reasons related to the
borrower’s financial difficulties, we grant a concession for other
than an insignificant period of time to the borrower that we would
not otherwise consider, the related loan is classified as a troubled
debt restructuring, also known as a restructured loan. A concession
is generally granted in order to minimize economic loss and avoid
foreclosure. Concessions vary by program and borrower, and may
include interest rate reductions, term extensions, payment deferrals
or an acceptance of additional collateral in lieu of payments. In
limited circumstances, principal may be forgiven. Loans classified as
troubled debt restructurings are considered risk loans.
Loans are charged off at the time they are determined to be
uncollectible.
Loans that are sold as participations are transferred as entire
financial assets, groups of entire financial assets or participating
interests in the loans. The transfers of such assets or participating
interests are structured such that control over the transferred assets
or participating interests have been surrendered and that all of the
conditions have been met to be accounted for as a sale.
Allowance for Loan Losses and Reserve for
Unfunded Lending Commitments
appropriate level of allowance for loan losses based on periodic
evaluation of factors such as:
•
•
•
•
•
loan loss history,
changes in credit risk classifications,
changes in collateral values,
changes in risk concentrations, and
changes in economic and environmental conditions.
39
Loans in our portfolio that are considered impaired are analyzed
individually to establish a specific allowance for impaired loans or
are analyzed on a pool basis if they have similar risk characteristics.
A loan is impaired when it is probable that all amounts due under
the contractual terms of the loan agreement will not be collected.
We measure impairment based on the net realizable value of the
collateral. All risk loans are considered to be impaired loans. Risk
loans include:
• nonaccrual loans,
• formally restructured loans, and
• loans that are 90 days or more past due and still accruing interest.
We record a specific allowance to reduce the carrying amount of
the risk loan to the lower of book value or the net realizable value of
collateral. When collection is unlikely, we charge the loan principal
and prior year(s) accrued interest against the allowance for loan
losses. Subsequent recoveries, if any, are added to the allowance for
loan losses.
An allowance is recorded for probable and estimable credit losses
as of the financial statement date for loans that are not individually
assessed as impaired.
Changes in the allowance for loan losses consist of provision
activity, recorded as “Provision for (reversal of) credit losses” on the
Consolidated Statement of Income, and charge-offs and recoveries.
The reserve for unfunded lending commitments is based on our
best estimate of losses inherent in lending commitments made
to customers but not yet disbursed. Factors such as likelihood of
disbursal and likelihood of losses given disbursement were utilized
in determining this contingency. Changes in the reserve for unfunded
commitments consist of provision activity, recorded as “Provision for
(reversal of) credit losses” on the Consolidated Statement of Income.
Accounting for our investment in AgriBank, FCB is on a cost plus
allocated equities basis.
Premises and Equipment
The carrying amount of premises and equipment is at cost, less
accumulated depreciation. Calculation of depreciation is generally
on the straight-line method over the estimated useful lives of the
assets, which are normally 5-40 years for building and improvements
and 3-10 years for furniture and equipment. Gains and losses on
premises and equipment dispositions are reflected in current-year
income. Maintenance and repairs are included in operating expense
and improvements are capitalized.
Leases
We operate under an agreement with CoBank, ACB where we
purchase a participation in loans made by CoBank, ACB to Farm
Credit Leasing Services to fund capital markets leases, agricultural
equipment leases and agricultural facilities leases that we originate.
Under provisions of this agreement, Farm Credit Leasing Services
participates approximately 50 percent funding for these leases to
CoBank, ACB and CoBank, ACB participates a similar amount to us.
Lease participations purchased under this agreement are included in
“Loans” on the Consolidated Balance Sheet and totaled $171 million
at December 31, 2015, $148.9 million at December 31, 2014, and
$148.9 million at December 31, 2013.
Beginning January 1, 2012, we operate under an agreement with
CoBank, ACB where we purchase a participation in loans made by
CoBank, ACB to Farm Credit Leasing Services to fund agricultural
equipment leases that are originated under the AgDirect trade credit
financing program. Under provisions of this agreement, Farm Credit
Leasing Services participates approximately 50 percent funding for
these leases to CoBank, ACB and CoBank, ACB participates a similar
amount to us. We participate a similar amount to AgDirect, LLP and
AgDirect, LLP participates a similar amount to AgriBank, FCB. Farm
Credit Leasing Services pays us a fee for the portion of the funding it
retains and AgDirect, LLP pays us a fee for the portion of the funding
we participate to it. Loans participated to AgDirect, LLP under this
program at December 31, 2015, totaled $265.3 million.
Advance Conditional Payments
AgDirect, LLP Investment in AgriBank, FCB
Accounting for the AgDirect, LLP investment in AgriBank, FCB is
on a cost basis.
Other Property Owned
We record other property owned, consisting of real and personal
property acquired through a collection action, at fair value, less
estimated selling costs at the time of acquisition. Revised estimates
of the fair value, less estimated selling costs, are reported as
adjustments to the carrying amount of the asset, provided that the
adjusted value is not in excess of the carrying amount at acquisition.
Income and expenses from operations, carrying value adjustments
and realized gains on sales are recorded as “Gains on other property
owned” on the Consolidated Statement of Income.
We are authorized under the Farm Credit Act to accept advance
conditional payments from customers. We net the advance
conditional payments against the customer’s related loan balance
to the extent the real estate customer’s loan balance exceeds
the advance payments. Real estate funds held balances totaled
$6.3 million at December 31, 2015, $5.6 million at December 31,
2014, and $11.5 million at December 31, 2013. The amount of
commercial advance conditional payments accepted cannot
exceed the commitment amount of the customer’s note. We
classify commercial advance conditional payments as “Other
liabilities” on the Consolidated Balance Sheet since the limit on
commercial advance conditional payments is based on note
commitments. Commercial advance conditional payments totaled
$0.6 million at December 31, 2015, $4.8 million at December 31,
2014, and $0.9 million at December 31, 2013. We pay interest
on advance conditional payments and they are not insured.
Advance conditional payments are primarily for customers who
are required to maintain them as part of their loan agreement.
no.
Employee Benefit Plans
Our employees participate in a defined contribution plan. Benefit
plans are described in Note 10, “Employee Benefit Plans.” The costs
of the defined contribution plan are funded as accrued. In addition,
we provide a retiree health care benefit to employees who meet
specific hire-date and years-of-service requirements.
Income Taxes
The ACA and PCA accrue federal and state income taxes. Deferred
tax assets and liabilities are recognized for future tax consequences
of temporary differences between the carrying amounts and tax
basis of assets and liabilities. Deferred tax assets are recorded if
the deferred tax asset is more likely than not to be realized. If the
realization test cannot be met, the deferred tax asset is reduced by
a valuation allowance. The expected future tax consequences of
uncertain income tax positions are accrued.
The FLCA is exempt from federal and other taxes to the extent
provided in the Farm Credit Act.
Patronage Program
We accrue patronage distributions as declared by the Board of
Directors, normally in December of each year. We pay the accrued
patronage during the first quarter of each subsequent year. Cash
patronage distributions are referred to as cash-back dividends.
Statement of Cash Flows
For purposes of reporting cash flow, cash includes cash on hand
and on deposit at commercial banks.
Fair Value Measurement
The Financial Accounting Standards Board guidance on Fair Value
Measurements describes three levels of inputs that may be used to
measure fair value.
Level 1: Quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the
measurement date.
Level 2: Observable inputs other than quoted prices included
within Level 1 that are observable for the asset or liability either
directly or indirectly. Level 2 inputs include the following:
• quoted prices for similar assets or liabilities in active markets;
•quoted prices for identical or similar assets or liabilities in markets
that are not active so that they are traded less frequently than
exchange-traded instruments, quoted prices that are not current
or principal market information that is not released publicly;
•inputs that are observable such as interest rates and yield curves,
prepayment speeds, credit risks and default rates; and
•inputs derived principally from, or corroborated by, observable
market data by correlation or other means.
Level 3: Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the assets
or liabilities. These unobservable inputs reflect our own assumptions
that market participants would use in pricing the asset or liability.
Level 3 assets and liabilities include financial instruments whose
value is determined using pricing models, discounted cash flow
methodologies or similar techniques, as well as instruments for
which the determination of fair value requires significant management
judgment or estimation.
We currently have no material financial statement items required
to be accounted for within the consolidated financial statements at
fair value.
Recently Issued or Adopted Accounting Pronouncements
We have assessed the potential impact of accounting standards
that have been issued, but are not yet effective, and have determined
that no such standards are expected to have a material impact to
our consolidated financial statements. Except as noted below, no
accounting pronouncements were adopted during 2015.
In February 2016, the Financial Accounting Standards Board
issued guidance entitled Leases. The guidance modifies the
recognition and accounting for lessees and lessors and requires
expanded disclosures regarding assumptions used to recognize
revenue and expenses related to leases. The guidance is effective
for nonpublic entities for annual reporting periods beginning after
December 15, 2019, and interim periods the subsequent year.
Early adoption is permitted and modified retrospective adoption is
required. We are currently evaluating the impact of the guidance
on our financial condition, results of operations, cash flows and
financial statement disclosures.
In August 2014, the Financial Accounting Standards Board issued
guidance entitled Presentation of Financial Statements-Going
Concern. The guidance requires management to perform interim
and annual assessments of an entity’s ability to continue as a going
concern within one year after the date the financial statements are
issued or within one year after the financial statements are available
to be issued, when applicable. Substantial doubt to continue as a
going concern exists if it is probable that the entity will be unable to
meet its obligations for the assessed period. This guidance becomes
effective for all entities for interim and annual periods ending after
December 15, 2016, and early application is permitted. We do
not expect the adoption of this guidance to have an effect on our
financial condition, results of operations, cash flows or financial
statement disclosures.
In May 2014, the Financial Accounting Standards Board issued
guidance entitled Revenue from Contracts with Customers. The
guidance governs revenue recognition from contracts with customers
and requires an entity to recognize revenue to depict the transfer
of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. Financial instruments and
other contractual rights within the scope of other guidance issued
by the Financial Accounting Standards Board are excluded from
the scope of this new revenue recognition guidance. In this regard,
a majority of our contracts would be excluded from the scope of
this new guidance. The guidance is effective for nonpublic entities
for annual reporting periods after December 15, 2017, and interim
41
periods within annual periods beginning after December 15, 2018.
We are in the process of reviewing contracts to determine the effect,
if any, on our financial condition or our results of operations.
In January 2016, the Financial Accounting Standards Board
issued guidance entitled Recognition and Measurement of Financial
Assets and Financial Liabilities. The guidance is intended to enhance
the reporting model for financial instruments to provide users of
financial statements with more decision-useful information. The
amendments address certain aspects of recognition, measurement,
presentation and disclosure of financial statements. The guidance is
effective for nonpublic entities for annual reporting periods beginning
after December 15, 2018, and interim periods with annual periods
beginning after December 15, 2019. Certain disclosure changes are
permitted to be immediately adopted for annual reporting periods
that have not yet been made available for issuance. Nonpublic
entities are no longer required to include certain fair value of financial
instruments disclosures as part of these disclosure changes. We
have immediately adopted this guidance and have excluded such
disclosures from our “Notes to Consolidated Financial Statements.”
Early adoption is only permitted for interim and annual reporting
periods beginning after December 15, 2017, for other applicable
sections of the guidance. We are currently evaluating the impact
of the remaining guidance on our financial condition, results of
operations, cash flows or financial statement disclosures.
Note 3 – Loans and Allowance for Loan Losses
Loans, including participations purchased and nonaccruals, consisted of the following (in thousands):
December 31,
2015
Long-term agricultural mortgage
2014
Amount
Percentage
Amount
$13,776,611
58.4%
$12,704,711
2013
Percentage
57.5%
Amount
$11,899,951
Percentage
58.9%
Production and intermediate term
6,047,685
25.6
5,901,561
26.7
5,165,416
25.6
Processing and marketing
1,582,609
6.7
1,464,746
6.6
1,252,810
6.2
Rural residential real estate
1,419,664
6.0
1,310,354
5.9
1,215,418
6.0
282,989
1.2
280,219
1.3
360,155
1.8
Farm-related business
Communications
149,147
0.6
123,056
0.5
73,845
0.4
Energy
126,152
0.5
100,710
0.5
127,175
0.6
Mission-related investments
103,737
0.4
123,373
0.6
107,297
0.5
Loans to cooperatives
79,261
0.3
14,908
0.1
International
70,654
0.3
74,799
0.3
Water and waste water
Total loans
(3)
$23,638,506
–
100.0%
(11)
$22,098,426
9,703
–
–
–
–
–
–
100.0%
$20,211,770
100.0%
The negative number for water and waste water results from an unamortized discount on a letter of credit that was purchased and has not
been drawn. This negative number appears on several loan tables within this footnote.
no.
We may purchase or sell participation interests with other parties in order to diversify risk, manage loan volume or comply with Farm Credit
Administration regulations. The following table presents information regarding participations purchased and sold (participations purchased do
not include syndications; amounts are in thousands):
AgriBank, FCB
Participations
Purchased
Sold
As of December 31, 2015
Long-term agricultural
mortgage
Production and
intermediate term
$
Communications
Energy
$636,341
Non-Farm Credit
Institutions
Participations
Purchased
Sold
Total
Participations
Purchased
Sold
$ 414,987
$
3,349
$ 441,958
$ 945,953
2,583,713
3,193,189
3,052,513
164
791,101
898,960
$ 306,263
26,971
$
–
79,032
820,557
389,768
2,372,632
–
–
–
–
76,452
785,084
822,344
6,017
–
–
–
29,196
151,258
127,670
30,578
2,000
1,370
9,808
–
–
–
–
–
39,004
151,258
127,670
30,578
2,000
1,370
–
–
–
–
23,424
–
86,815
–
–
–
–
–
86,815
49,525
70,654
49,525
70,654
–
23,424
–
–
–
–
International
Total
–
Other Farm Credit
Institutions
Participations
Purchased
Sold
–
$
–
$791,825
$2,448,931
$1,575,747
$2,502,243
$2,587,226
$4,951,174
$4,954,798
$
–
$750,210
$ 242,974
$ 231,700
$
$
2,876
$ 278,382
$ 984,786
mortgage
Production and
intermediate term
35,408
–
48,793
786,234
276,321
2,271,424
2,890,825
3,057,658
3,215,939
–
52,066
648,239
742,164
11,709
234
659,948
794,464
–
31,028
30,950
31,028
30,950
–
–
–
Communications
–
–
123,173
–
–
–
123,173
–
Energy
–
–
100,833
–
–
–
100,833
–
–
–
–
–
–
106,392
–
–
–
14,908
–
–
14,908
–
International
Total
–
–
74,799
106,392
–
–
–
–
$
–
$851,069
$2,022,188
$1,281,135
$2,424,933
$2,893,935
$4,447,121
74,799
$5,026,139
–
$
–
$876,085
$ 232,574
$ 204,163
$
$
3,119
$ 260,273
$1,083,367
2,479,033
mortgage
Production and
intermediate term
–
38,964
510,218
257,370
2,085,220
–
74,396
550,408
777,307
15,991
5,775
12,144
–
–
116,714
Communications
–
–
73,866
119,397
Energy
–
–
–
–
Total
–
$
27,699
–
–
$989,445
–
9,703
$1,612,880
–
–
–
–
–
98,453
2,595,438
2,775,367
–
566,399
851,703
–
128,858
–
73,866
–
119,397
–
–
98,453
–
–
–
–
$1,244,615
$2,239,507
$2,482,152
9,703
$3,852,387
5,775
–
–
$4,716,212
43
Participations purchased increased $504.1 million in 2015, while
participations sold decreased by $71.3 million. The changes are
primarily due to activity in our AgDirect agricultural equipment
financing program as described in Note 5, “AgDirect, LLP Investment
in AgriBank, FCB,” and loan participations purchased and sold
by our Agribusiness Finance and Capital Markets teams. At
December 31, 2015, participations purchased under the AgDirect
program were $2.6 billion, while participations sold were $3.1 billion.
On October 1, 2008, we sold a pool of approximately $1.9 billion of
real estate loans to AgriBank, FCB. The sale was intended to enhance
our regulatory capital ratios and reduce credit risk. AgriBank, FCB has
established a separate patronage pool for these assets and intends
to pay the net earnings on the pool to us as patronage. We anticipate
our net income after patronage from the pool will not be materially
affected. Patronage declared on this pool is solely at the discretion
of the AgriBank, FCB Board of Directors. We will continue to provide
servicing for the loans in the pool, and AgriBank, FCB will pay us
a fee for this servicing. As part of this transaction, we purchased
additional common stock in AgriBank, FCB equal to 8 percent of
the pool assets. The volume in this pool of assets at December 31,
2015, was $566.8 million. We have received $15.8 million of asset
pool patronage in 2015, $20 million in 2014 and $24.3 million in 2013
related to this participation.
We have concentrations with individual borrowers within various
agricultural commodities. At December 31, 2015, loans outstanding
plus commitments to our 10 largest borrowers, net of participations
sold, totaled an amount equal to 17.3 percent of members’ equity.
No single borrower’s loans outstanding plus commitments exceeds 5
percent of members’ equity.
Our credit risk concentration in various agricultural commodities
is shown in the following table. While the amounts represent our
maximum potential credit risk related to recorded loan principal, a
substantial portion of our lending activities is collateralized, which
reduces our exposure to credit loss associated with lending activity.
We include an estimate of our credit risk exposure in determining the
allowance for loan losses. Agricultural concentrations were as follows:
Grain
Beef feedlot
Landlords/investors
Cow-calf
Swine
Dairy
Poultry
General livestock
Forest products
Farm supply
Meat/proteins processing
Renewable fuels
Other
Total
2015
45.9%
9.9
9.9
6.8
6.7
4.2
1.7
1.6
1.3
1.0
1.0
0.7
9.3
100.0%
December 31,
2014
2013
46.5%
47.6%
10.6
9.2
9.7
9.7
6.6
6.4
6.4
7.2
4.5
4.6
1.7
1.5
1.6
1.6
1.3
1.6
0.9
0.9
0.9
0.8
0.6
0.8
8.7
8.1
100.0%
100.0%
The amount of collateral obtained, if deemed necessary
upon extension of credit, is based on our credit evaluation of the
borrower. Collateral held varies but typically includes farmland
and income-producing property, such as crops and livestock, as
well as receivables. Long-term real estate loans are secured by a
first lien on the underlying real property. Federal regulations state
that long-term real estate loans are not to exceed 85 percent (97
percent if guaranteed by a government agency) of the property’s
appraised value. However, internal lending procedures require a
more conservative loan-to-value ratio, which results in an average
loan-to-value ratio in the real estate portfolio of less than 50 percent
of current market values.
Risk loans (accruing loans include accrued interest receivable) are
loans for which it is probable that all principal and interest will not
be collected according to the contractual terms. The following table
presents information concerning the recorded investment in risk
loans (in thousands):
December 31,
2015
2014
2013
$44,760
$43,725
$56,601
28,724
17,239
21,688
73,484
60,964
78,289
10,658
6,329
8,799
638
4,900
466
$84,780
$72,193
$87,554
Nonaccrual loans:
Current as to principal
and interest
Past due
Total nonaccrual loans
Impaired accrual loans:
Restructured
90 days or more past due
Total risk loans
Total risk loans have increased since year-end. The increase in
nonaccrual loans is primarily due to several large accounts in the
grain industry being classified as nonaccrual. Restructured loans
increased primarily due to the restructuring of a large account in the
grain industry. Based on our analysis, loans 90 days or more past
due and still accruing interest were adequately secured and in the
process of collection.
At December 31, 2015, there were approximately $2.3 million in
commitments to lend additional funds to customers whose loans
were at risk.
Interest income is recognized and cash payments are applied on
nonaccrual loans as described in Note 2, “Summary of Significant
Accounting Policies.” The following table sets forth interest income
recognized on risk loans (in thousands):
Interest income recognized
on nonaccrual loans
Interest income on risk
accrual loans
Interest income recognized
on risk loans
2015
2014
2013
$1,687
$2,970
$6,963
824
690
686
$2,511
$3,660
$7,649
no.
Risk assets by loan type are as follows (accruing volume includes accrued interest receivable; amounts are in thousands):
December 31,
2015
2014
2013
$33,843
$20,446
$28,468
32,735
33,161
44,673
–
–
Nonaccrual loans:
Total nonaccrual loans
6,591
3,185
4,115
315
349
390
–
Energy
4
3,823
639
$73,484
$60,964
$78,289
$ 5,878
$ 5,013
$ 2,793
4,780
946
1,826
Accruing restructured loans:
–
–
Total accruing restructured loans
–
3,810
370
370
$10,658
$ 6,329
$ 8,799
$
$
$
Accruing loans 90 days or more past due:
Total accruing loans 90 days or more past due
Total risk loans
Total risk assets
638
–
$
67
4,833
638
$ 4,900
84,780
72,193
–
$84,780
466
–
$
466
87,554
4,279
3,642
$76,472
$91,196
45
All risk loans are considered to be impaired loans. The following table provides additional impaired loan information (in thousands):
For the Period Ended
December 31, 2015
Recorded
Investment (1)
Unpaid Principal
Balance (2)
Related
Allowance
Average Impaired
Loans
Interest Income
Recognized
Impaired loans with a related
allowance for loan losses:
$
232
16,069
$
233
$ 182
16,707
4,721
$
146
14,423
$ –
100
152
154
16
156
$16,453
$17,094
$4,919
$14,725
$100
$39,489
$ 49,044
$ –
$33,929
$ 782
22,084
46,382
–
33,235
1,411
Total
–
Impaired loans with no related
Energy
–
–
7
6,439
–
6,984
–
5,660
315
380
–
339
–
1,739
–
–
–
108
1
–
–
–
–
2,158
108
$68,327
$102,790
$ –
$77,067
$2,410
$39,721
$ 49,277
$ 182
$34,075
$ 782
38,153
63,089
4,721
47,658
1,511
Total
Total impaired loans:
–
–
–
6,591
7,138
315
380
7
16
5,816
–
339
–
108
1
Energy
–
–
–
1,739
–
–
–
–
2,158
108
$84,780
$119,884
$4,919
$91,792
$2,510
Total
he recorded investment in the receivable is the face amount increased or decreased by applicable accrued interest and unamortized premium, discount,
T
finance charges or acquisition costs, and may also reflect a previous write-down of the investment.
(2) Unpaid principal balance represents the contractual principal balance of the loan.
(1)
no.
December 31, 2014
Recorded
Investment (1)
Unpaid Principal
Balance (2)
Related
Allowance
Average Impaired
Loans
Interest Income
Recognized
$
38
16,549
$
38
17,633
$
38
7,810
$
40
13,705
$ –
181
Energy
3,823
3,890
2,140
1,415
4
Total
$20,410
$21,561
$9,988
$15,160
$185
$25,423
$33,968
$ –
$29,614
$1,051
17,624
30,486
–
40,194
2,034
–
–
–
1,466
88
3,554
4,029
–
3,775
210
349
371
–
364
12
4,833
4,597
–
1,586
80
$51,783
$73,451
$ –
$76,999
$3,475
$25,461
$34,006
$
38
$29,654
$1,051
34,173
48,119
7,810
53,899
2,215
–
–
–
1,466
88
Total
3,554
4,029
–
3,775
210
349
371
–
364
12
Energy
3,823
3,890
2,140
1,415
4
4,833
4,597
–
1,586
80
$72,193
$95,012
$92,159
$3,660
Total
$9,988
T
(1)
47
December 31, 2013
Recorded
Investment (1)
Unpaid Principal
Balance (2)
Related
Allowance
Average Impaired
Loans
Interest Income
Recognized
$
41
23,549
$
41
$
24,645
41
5,015
$
43
4,015
$ –
380
3
3
1
4
–
Energy
639
657
600
765
–
Total
$24,232
$25,346
$5,657
$4,827
$380
$31,221
$40,952
$ –
$36,903
$1,816
23,415
31,265
–
47,763
4,726
3,814
7,454
–
4,316
262
4,485
5,025
–
5,815
281
387
655
–
488
4
–
–
–
1,517
181
$63,322
$85,351
$ –
$96,802
$7,270
$31,262
$ 40,993
41
$ 36,946
$1,816
46,964
55,910
5,015
51,778
5,106
3,814
7,454
–
4,316
262
4,485
5,025
–
5,815
281
Total
$
390
658
1
492
Energy
639
657
600
765
Total
–
–
–
$87,554
$110,697
$5,657
4
–
1,517
181
$101,629
$7,650
T
(1)
One credit quality indicator we utilize is the Farm Credit
Administration Uniform Loan Classification System that categorizes
loans into five categories. The categories are defined as follows:
•
acceptable – assets are expected to be fully collectible and
represent the highest quality;
•other assets especially mentioned (OAEM) – assets are currently
collectible but exhibit some potential weakness;
•substandard – assets exhibit some serious weakness in repayment
capacity, equity and/or collateral pledged on the loan;
•
doubtful – assets exhibit similar weaknesses to substandard
assets; however, doubtful assets have additional weaknesses in
existing factors, conditions and values that make collection in full
highly questionable; and
• loss – assets are considered uncollectible.
We had no loans categorized as loss at December 31, 2015, 2014
or 2013.
no.
The following table shows loans and related accrued interest classified under the Farm Credit Administration Uniform Loan Classification
System as a percentage of total loans and related accrued interest receivable by loan type:
Acceptable
Amount
OAEM
%
Amount
$13,218,966
94.45%
5,476,899
89.29%
Substandard/Doubtful
%
Amount
$442,051
3.16%
360,333
5.88%
Total
%
Amount
$335,067
2.39%
$13,996,084
296,265
4.83%
6,133,497
1,552,571
97.68%
21,244
1.33%
15,782
0.99%
1,589,597
1,375,047
95.95%
25,201
1.76%
32,856
2.29%
1,433,104
281,717
98.86%
2,330
0.82%
890
0.32%
284,937
Communications
149,306
100.00%
–
–
–
–
149,306
Energy
126,465
100.00%
–
–
–
–
126,465
104,102
100.00%
–
–
–
–
104,102
74,310
93.51%
–
–
6.49%
79,466
International
70,641
100.00%
–
–
–
–
70,641
(3)
100.00%
–
–
–
–
$22,430,021
93.59%
$851,159
3.55%
$686,016
2.86%
$23,967,196
Total
5,156
(3)
$12,592,830
97.60%
$152,424
1.18%
$157,623
1.22%
$12,902,877
5,688,239
95.13%
145,277
2.43%
145,773
2.44%
5,979,289
1,439,148
97.83%
3,492
0.23%
28,528
1.94%
1,471,168
1,288,365
97.44%
13,236
1.00%
20,578
1.56%
1,322,179
279,281
99.05%
711
0.25%
1,962
0.70%
281,954
124,014
100.00%
–
124,014
Communications
–
–
–
123,104
100.00%
–
–
Energy
97,299
96.22%
–
–
International
74,722
100.00%
–
–
9,226
61.61%
–
–
(11)
100.00%
–
–
–
–
$21,716,217
96.97%
$315,140
1.41%
$364,035
1.62%
$22,395,392
$12,077,116
Total
–
3,823
–
5,748
–
123,104
3.78%
101,122
–
74,722
38.39%
14,974
(11)
$11,819,963
97.87%
$ 84,977
0.70%
$172,176
1.43%
4,923,149
94.04%
168,501
3.22%
143,681
2.74%
5,235,331
1,180,860
93.91%
26,041
2.07%
50,705
4.02%
1,257,606
1,196,755
97.67%
7,851
0.64%
20,722
1.69%
1,225,328
350,081
96.48%
10,414
2.87%
2,308
0.65%
362,803
107,769
100.00%
–
–
–
107,769
Communications
Energy
Total
–
73,887
100.00%
–
–
–
–
73,887
121,480
95.10%
–
–
6,262
4.90%
127,742
2,449
25.14%
–
–
7,292
74.86%
9,741
$19,776,393
96.58%
$297,784
1.45%
$403,146
1.97%
$20,477,323
49
The following table provides an aging analysis of past due loans by loan type (accruing volume includes accrued interest receivable; amounts
are in thousands):
30-89 Days
Past Due
90 Days or
More Past Due
Total
Past Due
Not Past Due
or Less Than
30 Days
Past Due
$19,288
$ 5,879
$25,167
$13,970,917
$13,996,084
28,767
16,311
45,078
6,088,419
6,133,497
638
–
–
–
1,589,596
1,589,596
–
Total
Loans
90 Days or
More Past Due
and Accruing
$ –
4,667
2,302
6,969
1,426,135
1,433,104
–
2,838
306
3,144
281,793
284,937
–
Communications
–
–
–
149,306
149,306
–
Energy
–
–
–
126,465
126,465
–
–
–
–
104,102
104,102
–
–
–
–
79,467
79,467
–
International
–
–
–
70,641
70,641
–
–
–
–
(3)
(3)
–
$55,560
$24,798
$80,358
$23,886,838
$23,967,196
$ 3,245
$ 6,143
$ 9,388
$12,893,489
$12,902,877
21,777
4,302
26,079
5,953,210
5,979,289
67
46
1,471,122
1,471,168
–
2,167
1,320,012
1,322,179
–
Total
$638
46
–
2,088
281,095
281,954
–
Communications
–
–
–
123,104
123,104
–
Energy
–
–
–
101,122
101,122
–
4,833
510
79
4,833
859
115,597
124,014
–
–
–
14,974
14,974
–
International
–
–
–
74,722
74,722
–
–
–
–
(11)
(11)
–
$31,250
$15,706
$46,956
$22,348,436
$22,395,392
$4,900
$ 8,093
$ 8,239
$16,332
$12,060,784
$12,077,116
$–
13,146
9,348
22,494
5,212,837
5,235,331
147
4
151
1,257,455
1,257,606
–
2,716
707
3,423
1,221,905
1,225,328
–
387
362,415
362,802
–
73,887
73,887
–
Total
3,584
349
$ –
8,417
–
Communications
–
Energy
Total
–
3,560
387
–
–
–
–
–
3,560
–
–
–
$27,662
$18,685
$46,347
466
127,742
127,742
–
104,209
107,769
–
9,742
9,742
$20,430,976
$20,477,323
–
$466
no.
A restructuring of a loan constitutes a troubled debt restructuring
if the creditor for economic or legal reasons related to the debtor’s
financial difficulties grants a concession to the debtor that it would
not otherwise consider. Concessions vary by program and borrower,
and may include interest rate reductions, term extensions, payment
deferrals or the acceptance of additional collateral in lieu of
payments. In limited circumstances, principal may be forgiven. As
a restructured loan constitutes a troubled debt restructuring, these
loans are included within our risk loans. All risk loans are analyzed
within our allowance for loan losses. The following tables present
information regarding troubled debt restructurings that occurred
during the year ended December 31 (in thousands):
Premodification
Postmodification
Outstanding
Outstanding
Recorded Investment Recorded Investment
2015
Long-term
agricultural
mortgage
Production and
intermediate term
Rural residential
real estate
Total
$1,567
$1,567
5,009
5,031
55
56
$6,631
$6,654
The following table presents information regarding troubled debt
restructurings that occurred within the previous 12 months and for
which there was a subsequent payment default during the respective
reporting period (in thousands):
2015
2014
2013
$–
$–
$87
56
–
$56
$–
–
$87
Troubled debt restructurings outstanding at December 31, 2015,
totaled $13.7 million, of which $3.1 million were in nonaccrual
status, compared to a December 31, 2014, total of $11.1 million,
of which $4.8 million were in nonaccrual status, and $16.4 million
at December 31, 2013, of which $7.6 million were in nonaccrual
status. Additional commitments to lend to borrowers whose loans
have been modified in a troubled debt restructuring were $1.1
million at December 31, 2015.
The “Provision for (reversal of) credit losses” on the Consolidated
Statement of Income includes a provision for (reversal of) loan losses
and a (reversal of) provision for unfunded lending commitments. A
summary of changes in the allowance for loan losses and reserve
for unfunded lending commitments follows (in thousands):
December 31,
2014
Allowance for Loan Losses
2015
2014
2013
Long-term
agricultural
mortgage
Balance at beginning of year
$58,000
$52,000
$60,000
Production and
intermediate term
Total
$2,149
$2,330
554
490
$2,703
$2,820
Provision for (reversal of)
loan losses
12,194
5,015
(15,747)
Loans charged off
(6,530)
(1,523)
(3,598)
Recoveries
Balance at end of year
1,336
2,508
11,345
$65,000
$58,000
$52,000
2013
Long-term
agricultural
mortgage
Production and
intermediate term
Total
$ 797
$ 798
1,241
1,174
$2,038
$1,972
Premodification represents the recorded investment just prior
to restructuring, and postmodification represents the recorded
investment immediately following the restructuring. The recorded
investment is the face amount of the receivable increased or
decreased by applicable accrued interest and unamortized
premium, discount, finance charges or acquisition costs, and may
also reflect a previous direct write-down of the investment.
December 31,
Reserve for Unfunded
Lending Commitments
2015
2014
2013
Balance at beginning of year
$8,000
$10,000
$13,000
(Reversal of) provision
for unfunded lending
commitments
–
(2,000)
(3,000)
Balance at end of year
$8,000
$8,000
$10,000
51
A summary of changes in the allowance for loan losses and period-end recorded investments in loans by loan type is as follows (in thousands):
Allowance for Loan Losses:
Communications
Energy
International
Total
Balance at
December 31, 2014
Provision for
(Reversal of)
Loan Losses
Loan Recoveries
$24,153
21,300
4,768
2,829
425
524
3,389
187
370
55
$12,433
759
(90)
513
223
45
(1,498)
(67)
(180)
56
$ 119
1,155
–
12
–
–
50
–
–
–
Loan Charge-Offs
$
(58)
(5,288)
–
–
–
–
(1,184)
–
–
–
–
–
–
–
$58,000
$12,194
$1,336
$(6,530)
Balance at
December 31, 2013
Communications
Energy
International
Total
$20,517
19,036
6,150
2,836
652
224
2,119
161
305
–
–
$52,000
Provision for
(Reversal of)
Loan Losses
Loan Recoveries
$3,687
1,488
(1,459)
16
(433)
300
1,270
26
65
55
$
51
2,157
83
11
206
–
–
–
–
–
–
$5,015
Loan Charge-Offs
$ (102)
(1,381)
(6)
(34)
–
–
–
–
–
–
–
–
$2,508
$(1,523)
Communications
Energy
Total
Balance at
December 31, 2012
(Reversal of)
Provision for
Loan Losses
$18,933
24,189
8,672
3,549
947
1,230
1,741
421
$ 1,655
(13,244)
(2,495)
(728)
(359)
(1,006)
378
65
318
(13)
$60,000
$(15,747)
Loan Recoveries
$
236
10,902
–
24
183
–
–
–
Loan Charge-Offs
$ (307)
(2,811)
(27)
(9)
(119)
–
–
(325)
–
–
$11,345
$(3,598)
no.
Recorded Investments in Loans Outstanding:
Balance at
December 31, 2015
Ending Balance
Individually Evaluated
for Impairment
Ending Balance
Collectively Evaluated
for Impairment
$36,647
17,926
4,678
3,354
648
569
757
120
190
111
$ 182
4,721
–
16
–
–
–
–
–
–
$36,465
13,205
4,678
3,338
648
569
757
120
190
111
–
–
–
$65,000
$4,919
$60,081
Ending Balance at
December 31, 2015
Ending Balance for
Loans Individually
Evaluated for
Impairment
Ending Balance for
Loans Collectively
Evaluated for
Impairment
$13,996,084
6,133,497
1,589,596
1,433,104
284,937
149,306
126,465
104,102
79,467
70,641
$39,721
38,153
–
6,591
315
–
–
–
–
–
$13,956,363
6,095,344
1,589,596
1,426,513
284,622
149,306
126,465
104,102
79,467
70,641
(3)
$23,967,196
–
$84,780
(3)
$23,882,416
Balance at
December 31, 2014
$24,153
21,300
4,768
2,829
425
524
3,389
187
370
55
Ending Balance
for Impairment
$
38
7,810
–
–
–
–
2,140
–
–
–
Ending Balance
for Impairment
$24,115
13,490
4,768
2,829
425
524
1,249
187
370
55
–
–
–
$58,000
$9,988
$48,012
Ending Balance at
December 31, 2014
Ending Balance for
Loans Individually
Evaluated for
Impairment
Ending Balance for
Loans Collectively
Evaluated for
Impairment
$12,902,877
5,979,289
1,471,168
1,322,179
281,954
123,104
101,122
124,014
14,974
74,722
$25,461
34,173
–
3,554
349
–
3,823
4,833
–
–
$12,877,416
5,945,116
1,471,168
1,318,625
281,605
123,104
97,299
119,181
14,974
74,722
(11)
$22,395,392
–
$72,193
(11)
$22,323,199
Balance at
December 31, 2013
$20,517
19,036
6,150
2,836
652
224
2,119
161
305
$52,000
Ending Balance
for Impairment
$
41
5,015
–
–
1
–
600
–
–
$5,657
Ending Balance
for Impairment
$20,476
14,021
6,150
2,836
651
224
1,519
161
Ending Balance at
December 31, 2013
Ending Balance for
Loans Individually
Evaluated for
Impairment
Ending Balance for
Loans Collectively
Evaluated for
Impairment
$12,077,116
5,235,331
1,257,606
1,225,328
362,802
73,887
127,742
107,769
$31,262
45,881
3,814
4,485
390
–
639
–
$12,045,854
5,189,450
1,253,792
1,220,843
362,413
73,887
127,103
107,769
305
9,742
$46,343
$20,477,323
–
$86,471
9,742
$20,390,852
53
Our adversely classified assets increased during 2015, ending
the year at 2.9 percent of the portfolio, compared to 1.6 percent of
the portfolio at December 31, 2014. Adversely classified assets are
assets we have identified as showing some credit weakness outside
our credit standards.
appropriate level of allowance for loan losses based on the periodic
evaluation of factors such as loan loss history, probability of default,
estimated loss severity, portfolio quality and current economic and
environmental conditions.
We recorded a $12.2 million provision for credit losses for 2015
compared to a $3 million provision for credit losses for 2014. The
provision for credit losses includes the provision for loan losses
and the (reversal of) provision for unfunded lending commitments.
The increase in the provision for credit losses is primarily due to an
increase in the allowance for the grain industry and net charge-offs
partially offset by decreases in the allowance for the energy/electric,
swine and dairy industries.
We recorded net charge-offs of $5.2 million in 2015 (0.02 percent
of average loans). We recorded $1 million of net recoveries of chargeoffs in 2014 ((0.01) percent of average loans) and net charge-offs of
$7.7 million in 2013 (0.04 percent of average loans).
During February 2008, we entered into a credit default swap
with Omaha 2008-A LLC (2008 LLC). The balance of the loans
and accrued interest under the credit default swap was $220.6
million at December 31, 2015. Pursuant to the credit default swap,
following the occurrence of a known loss, the 2008 LLC will be
required to pay us an amount equal to the principal amount of the
defaulted loan, plus covered interest and costs, less any recoveries.
However, the 2008 LLC is not required to pay us until the Retained
Subordinate Notional Amount we hold is reduced to zero. In addition
to loss events, proportionate reductions in the Retained Subordinate
Notional Amount will occur due to reductions of the Aggregate
Notional Amount of the Reference Obligations associated with
nonloss events such as repayment of loan principal. The balance of
the Retained Subordinate Notional Amount at December 31, 2015,
was $1.9 million. The credit default agreement will remain in place
over the life of the loans under the credit default swap. The maximum
amount of losses the 2008 LLC will be required to pay under the
credit default swap as of December 31, 2015, is $8.9 million. As of
December 31, 2015, no losses had been incurred by the 2008 LLC or
us. We capitalized costs of $1.6 million relating to the establishment
of the credit default swap. The capitalized costs are included in other
assets and amortized over the expected remaining life of the loans
under the agreement. Fees related to the credit default swap are
paid based on the volume of loans under the agreement over the
life of the agreement. “Capital transaction expense” presented in
the Consolidated Statement of Income includes fees and amortized
costs for each year presented.
The 2008 LLC is a variable-interest entity created to acquire
eligible securities, which are used as collateral to secure the Failure
to Pay Credit Event payment of the LLC under a credit default
swap with us. The securities are limited to direct obligations of, and
obligations fully guaranteed as to timely payment of principal and
interest by, the United States of America or obligations of any agency
or instrumentality of the United States of America, the obligations
of which are backed by the full faith and credit of the United States
of America. Eligible securities, however, will not include “real estate
mortgages” (or interest therein) as defined in Section 7701(i) of
the Internal Revenue Code and the accompanying United States
Treasury regulations. We are not the primary beneficiary of the
variable-interest entity.
Note 4 – Investment in AgriBank, FCB
We are required to invest in the capital stock of AgriBank, FCB
as a condition for maintaining a readily available source of funds.
The minimum investment required by AgriBank, FCB is based
on our quarterly average notes payable. At December 31, 2015,
the required investment is 2.25 percent. AgriBank, FCB’s current
bylaws allow the required investment to increase to 4 percent. Our
required investment in AgriBank, FCB also includes an additional
1 percent on growth that exceeds a targeted rate set by AgriBank,
FCB. We were not subject to the additional 1 percent requirement
in 2015. The required investment is subject to change quarterly and
increased by $21.5 million in 2015 to $487.3 million at December 31,
2015. At the sole discretion of the AgriBank, FCB Board of Directors,
they may make quarterly equalization payments to us based on the
investment that is in excess of the required investment. In addition,
the investment in AgriBank, FCB makes us eligible for patronage
income paid by AgriBank, FCB. The patronage is paid quarterly
at the sole discretion of the AgriBank, FCB Board of Directors.
Patronage amounts paid on a quarterly basis may be reversed
by AgriBank, FCB at any time during the year should unforeseen
events occur that, had they been known, would have reduced or
eliminated the amount of patronage paid.
In addition to the investment described earlier, as disclosed in
Note 3, “Loans and Allowance for Loan Losses,” we sold a pool
of real estate loans to AgriBank, FCB in the fourth quarter of 2008.
AgriBank, FCB requires us to maintain a stock investment equal to
8 percent of this loan pool. At December 31, 2015, the investment
required by the loan pool was $45.7 million.
Note 5 – AgDirect, LLP Investment in AgriBank, FCB
We have entered into agreements with 15 other Farm Credit
System associations inside and outside of the AgriBank, FCB
District to provide access to our AgDirect trade credit financing
program. The AgDirect program includes origination and refinancing
of agricultural equipment loans through independent equipment
dealers. The Farm Credit Administration has approved requests from
these associations to invest in a limited liability partnership (LLP) that
facilitates this collaborative AgDirect trade credit financing program
and allows us to leverage the AgDirect program for the mutual benefit
of our associations, and the farmers and ranchers we collectively
no.
serve. Our investment is reflected as “AgDirect, LLP investment in
AgriBank, FCB” on our Consolidated Balance Sheet. The LLP is
an unincorporated business entity and purchases participations in
AgDirect loans from us that were originated under the agreements
described earlier. The LLP subsequently sells a like amount of
loan participations to AgriBank, FCB. The LLP pays us a fee for
originating these loans. Total outstanding participations sold to the
LLP at December 31, 2015, were $3.1 billion compared to $2.9 billion
at the end of 2014 and $2.5 billion at the end of 2013. AgriBank,
FCB, at the discretion of its Board of Directors, pays patronage on
these loan participations to AgDirect, LLP. Any patronage declared
is accrued quarterly and paid by AgriBank, FCB in the first month
of the subsequent quarter. AgDirect, LLP distributes any patronage
paid by AgriBank, FCB as partnership distributions to the AgDirect,
LLP partners.
At December 31, 2015, AgDirect, LLP assets primarily consist of
a $185.6 million investment in AgriBank, FCB to capitalize the loan
participations sold to AgriBank, FCB. We hold $73.8 million of this
investment, and other Farm Credit System entities hold the remaining
investment. At December 31, 2015, AgDirect, LLP had liabilities
of $7.2 million consisting of a distribution payable to LLP partners
from patronage declared by AgriBank, FCB for the fourth quarter of
2015. AgDirect, LLP had liabilities of $4.6 million at December 31,
2014, and $2.6 million at December 31, 2013. AgDirect, LLP had net
income of $22.1 million for the year ended 2015, $22.5 million for
the year ended 2014 and $12.7 million for the year ended 2013 from
patronage paid by AgriBank, FCB.
businesses that create growth and job opportunities in rural America.
Our total commitment is $20 million through October 2019. The
Rural Business Investment Company investment increased due to
capital calls to fund new investments during 2015. As of December
31, 2015, our investment is $4.2 million compared to $0.8 million at
December 31, 2014. The investment is included in “Other assets” on
the Consolidated Balance Sheet and was evaluated for impairment.
No impairments were recognized on this investment during 2015 or
2014. We have not received any distributions from the funds during
the years ended December 31, 2015 or 2014.
Note 8 – Notes Payable
The notes payable to AgriBank, FCB represent borrowings to fund
our net assets. This indebtedness is collateralized by a pledge of
substantially all of our assets and is governed by a General Financing
Agreement. AgriBank, FCB has established a $21 billion revolving
line of credit for us that is renegotiated annually. The interest rate is
periodically adjusted by AgriBank, FCB and at December 31, 2015,
was 1.54 percent for the ACA, 1.87 percent for the FLCA and 0.60
percent for the PCA. The consolidated notes payable balance is
presented in the following table (in thousands):
December 31,
Notes payable to
AgriBank, FCB
Note 6 – Premises and Equipment
Premises and equipment consisted of the following (in thousands):
December 31,
Land, buildings and
improvements
Construction/
improvements in progress
Furniture and equipment
Less accumulated
depreciation
Premises and
equipment, net
2015
2014
2013
$158,748
$148,217
$144,631
5,212
5,842
1,205
83,770
79,606
73,905
247,730
233,665
219,741
101,511
98,367
88,948
$146,219
$135,298
$130,793
Note 7 – Other Assets
We and other Farm Credit institutions are among the forming limited
partners for a $154.5 million Rural Business Investment Company
established on October 3, 2014. The Rural Business Investment
Company facilitates private equity investments in agriculture-related
2015
2014
2013
$20,077,076
$18,790,035
$17,333,892
Under the Farm Credit Act, we are obligated to borrow only from
AgriBank, FCB unless AgriBank, FCB approves borrowing from
other funding sources. AgriBank, FCB, consistent with Farm Credit
Administration regulations, has established limitations on our ability
to borrow funds based on specified factors or formulas relating
primarily to credit quality and financial condition. At December 31,
2015, we were within the specified limitations.
Note 9 – Members’ Equity
A description of our capitalization requirements, protection
mechanisms, regulatory capitalization requirements and restrictions,
and equities are provided below.
Capital Stock and Participation Certificates
In accordance with the Farm Credit Act of 1971, as amended, each
borrower is required to invest in us as a condition of obtaining a loan.
Our capitalization bylaws require a customer to invest in capital stock
equal to $1,000 or 2 percent of the amount of the loan, whichever is
less. Our Board of Directors may increase the amount of investment,
if necessary, to meet capital needs. A customer acquires ownership
of the capital stock at the time the loan is made but usually does
not make a cash investment. The aggregate par value is added to
55
the principal amount of the related loan obligation. We retain a first
lien on the stock or participation certificates owned by customers.
Retirement of equities will generally be at the lower of par or book
value, and repayment of a loan does not automatically result in
retirement of the corresponding stock or participation certificates.
Each customer purchasing capital stock is entitled to one vote
as a stockholder regardless of the number of shares held. The
customer acquires ownership of the capital stock at the time the
loan is made.
Regulatory Capitalization Requirements
and Restrictions
The Farm Credit Administration’s capital adequacy regulations
require us to accumulate and maintain permanent capital of at least 7
percent of risk-adjusted assets and off-balance-sheet commitments.
Failure to meet the 7 percent capital requirement can initiate certain
mandatory and possibly additional discretionary actions by the Farm
Credit Administration that, if undertaken, could have a direct material
effect on our consolidated financial statements. We are prohibited
from reducing permanent capital by retiring stock or making certain
other distributions to stockholders unless the prescribed permanent
capital standards are met and maintained. Farm Credit Administration
regulations also require that additional minimum standards for
capital be achieved. These standards require all Farm Credit System
institutions to achieve and maintain ratios of total surplus as a
percentage of risk-adjusted assets of 7 percent and of core surplus
(generally retained earnings less investment in AgriBank, FCB) as a
percentage of risk-adjusted assets of 3.5 percent.
At December 31, 2015, our regulatory capital ratios were:
• 15.38 percent for permanent capital,
• 15.19 percent for total surplus, and
• 15.19 percent for core surplus.
We are not aware of any reason why the regulatory capital
requirements would not be met during 2016.
Effective January 1, 2003, we executed an Allotment Agreement
with AgriBank, FCB that provides the methodology used to determine
the amount of our investment in AgriBank, FCB that we count for
regulatory permanent capital and total surplus ratio calculations. The
amount is subject to change quarterly. At December 31, 2015, all of
our investment in AgriBank, FCB is counted by AgriBank, FCB.
A Farm Credit Administration regulation empowers it to direct a
transfer of funds or equities by one or more Farm Credit System
institutions to another institution of the Farm Credit System under
specified circumstances. We have not been called upon to initiate
any transfers and are not aware of any proposed action under this
regulation.
Description of Equities
The following table presents information regarding the classes and
number of shares of stock outstanding as of December 31, 2015. All
shares are at-risk and have a par or stated value of $5 per share.
Shares Outstanding
Class D common stock
9,328,853
Class E common stock
227,133
Our bylaws authorize us to issue an unlimited number of shares of
Class D common stock and Class E common stock with a par or face
value of $5 per share.
Class D common stock is voting and is issued solely to a farmer,
rancher, or producer or harvester of aquatic products. Class E
common stock has no voting rights and is issued to customers to
capitalize rural home and farm-related business loans or to become
eligible for financial services. Class D common stock and Class
E common stock may be retired at the discretion of the Board, at
book value not to exceed par, provided we meet minimum capital
adequacy standards under Farm Credit Administration regulations.
Subject to our policies, Class D and Class E common stock are
transferable to any person eligible to hold the respective class of
stock. Class D common stock and Class E common stock cannot be
transferred when we do not meet capital adequacy standards under
Farm Credit Administration regulations.
At any time within two years after the loan of a customer is repaid in
full, any voting stock held by the customer is converted to nonvoting
stock. The nonvoting stock may be converted back to voting stock if
the owner of the stock borrows additional funds.
As determined by the Board of Directors, we may declare
dividends in stock, cash or any combination provided we meet capital
adequacy standards under Farm Credit Administration regulations
and no stock is impaired. Losses that result in impairment of stock
and participation certificates will be allocated ratably to stock and
participation certificates. In the event we would liquidate or dissolve,
any assets remaining after payment or retirement of all liabilities would
be distributed to the holders of stock in the following order of priority:
•first, to the holders of common stock and participation certificates,
equally and pro rata in proportion to the number of shares or
units of common stock and participation certificates issued and
outstanding, until an amount equal to the aggregate par value of all
common stock and participation certificates has been distributed;
•second, to the holders of allocated surplus pro rata, on the basis of
oldest allocations first, until an amount equal to the total account
has been distributed; and
•third, any remaining assets would be distributed among current
and former stockholders in the proportion which the aggregate
patronage of each stockholder bears to the total patronage of all
current and former stockholders, to the extent practicable and as
determined by the Board unless otherwise provided by law.
no.
Patronage Distributions
Subject to the Farm Credit Act and Farm Credit Administration
regulations, and provided that at the time of declaration no class
of stock is impaired, patronage distributions may be declared and
paid in amounts determined by the Board of Directors. Patronage
distributions may be paid in any class of stock that the recipient
is eligible to hold, in allocated surplus, in cash, in qualified or
nonqualified notices of allocation, or in any combination, and must
be paid on an equitable and nondiscriminatory basis as determined
by the Board of Directors.
The Board of Directors declared cash patronage distributions,
referred to as cash-back dividends, of $160 million in 2015, $160
million in 2014 and $145 million in 2013. In addition, the 2014 and
2013 patronage programs provided for nonqualified patronage
distributions that are not intended to be redeemed except in the
unlikely event of liquidation.
We are prohibited from distributing earnings on a patronage basis
to the extent they would reduce our permanent capital ratio below the
Farm Credit Administration’s minimum permanent capital adequacy
requirements. We do not foresee any events that would result in this
prohibition in 2016.
Note 10 – Employee Benefit Plans
We participate in the benefits plans administered by Farm
Credit Foundations, a service corporation for Farm Credit System
entities. The Farm Credit Foundations Plan Sponsor and Trust
Committees provide governance and oversight for the benefit
plans. The governance committees are either elected or appointed
representatives (senior leadership or Board of Director members)
from the participating organizations. The Plan Sponsor Committee
is responsible for decisions regarding benefits at the direction of
the participating employers. The Trust Committee is responsible
for fiduciary and plan administration functions. The Association has
senior officers that serve on both committees.
Under the alliance agreement described in Note 1 “Organization
and Operations,” the 2015 benefits expense of $43.8 million was
shared between the Association and Frontier Farm Credit on a 94
percent and 6 percent basis respectively, which excluded any Frontier
Farm Credit pension plans expense in excess of the Association’s
retirement programs. The employee benefits expense is included in
the “Salaries and employee benefits” on the Consolidated Statement
of Income.
Defined Contribution Plan
The Association participates in the Farm Credit Foundations
Defined Contribution/401(k) Plan for benefits-eligible employees. The
plan is a qualified plan up to the limits provided under the Internal
Revenue Code.
The Association matches employee’s contributions dollar for dollar
up to a maximum of 6 percent of the employee’s compensation on
both pre-tax and post-tax contributions. In addition, the Association
contributes a fixed 3 percent of the employee’s compensation to the
plan. For employees hired prior to January 1, 1991, the percentage is
based on the employee’s years of service and is a fixed contribution
that does not change from year to year.
For employees hired prior to January 1, 2007, an additional amount
known as the Integrated Employer Non-Elective Contribution is made
to the plan for the portion of compensation exceeding the Federal
Insurance Contributions Act tax base (Social Security tax limit).
Nonqualified Deferred Compensation Plan
The Farm Credit Foundations Nonqualified Deferred Compensation
Plan serves two purposes. The plan provides for employer matching
or fixed contributions that exceed the Internal Revenue Code limits
of the Defined Contribution Plan. In addition, eligible employees
may defer a portion of their base salary, variable pay and other
compensation into this plan. Under the plan, eligible participants
include the Chief Executive Officer and other employees who meet
certain compensation thresholds as determined by the Internal
Revenue Code.
Pre-409A Frozen Nonqualified Deferred
Compensation Plan
We also participate in the Farm Credit Foundations Pre-409A
Frozen Nonqualified Deferred Compensation Plan. This plan serves
the same purposes as the Nonqualified Deferred Compensation
Plan. However, the plan was frozen effective January 1, 2007. As
such, no additional participants are eligible to enter the plan and no
additional employer contributions are made to the plan.
Retiree Health Care
The Association participates in the Farm Credit Foundations
Retiree Medical Plan. We provide a health care subsidy to retired
employees under the age of 65 who meet certain age and service
requirements. Employees hired January 1, 2002, or later are not
eligible for the subsidy. The subsidy is not considered material to the
Association’s financial position.
Defined Benefit Pension Plan
The Association does not have any defined benefit pension plan
or supplemental pension plans for the Chief Executive Officer,
senior officers or any employees; therefore, there is no current or
future liability for such plans.
57
Note 11 – Income Taxes
Our provision for income taxes follows (in thousands):
2015
2014
$4,287
$7,584
748
1,471
2,159
5,035
9,055
13,796
Federal
(61)
(182)
(510)
State
(10)
(5)
10
(71)
(187)
(500)
$4,964
$8,868
$13,296
2013
Current:
Federal
State
$11,637
Deferred:
Total provision for
income taxes
The decrease in provision for taxes for 2015 is primarily due to a
decrease in taxable income for our taxable subsidiary.
The following table calculates the differences between the
provision for income taxes and income taxes at the statutory rates
(in thousands):
2015
2014
2013
Federal tax at statutory rate $181,654
$190,872
$184,778
523
887
1,935
(142,177)
(146,010)
(135,049)
State tax, net
Tax effect of:
Exempt FLCA earnings
D
eferred tax valuation
allowance
(944)
149
(5,973)
Patronage distribution
(34,357)
(37,333)
(32,622)
265
Other
$
4,964
$
303
227
8,868
$ 13,296
The following table provides the components of deferred tax
assets and liabilities (in thousands):
2015
2014
2013
$10,212
Allowance for loan losses
$9,033
$10,408
Nonaccrual loan interest
1,208
767
814
AgDirect servicing fee
5,247
5,237
5,078
Postretirement benefit
liability
197
200
195
Other
927
874
849
16,612
17,486
17,148
Deferred tax asset
Deferred tax asset valuation
allowance
Net deferred tax asset
(10,506)
(11,450)
(11,300)
$6,106
$ 6,036
$ 5,848
We adopted an annual patronage program beginning in 2004.
Since the qualified cash distributions are estimated to substantially
reduce our taxable income, a valuation reserve has been established
beginning December 31, 2004, for the portion of the net deferred tax
asset for which timing reversals are uncertain.
Deferred income taxes have not been provided on patronage
distributions from AgriBank, FCB prior to January 1, 1993, the
adoption date of the Financial Accounting Standards Board guidance
on income taxes. Our intent is:
•to permanently invest these and other undistributed earnings in
AgriBank, FCB, which indefinitely postpones their conversion to
cash, or
•to pass through any distribution related to pre-1993 earnings to
our borrowers through qualified patronage allocations.
We have also not recorded deferred income taxes on amounts
allocated to us that relate to AgriBank, FCB’s post-1992 earnings
to the extent that these earnings will be passed through to our
borrowers through qualified patronage allocations. Additionally,
deferred income taxes have not been provided on AgriBank, FCB’s
post-1992 unallocated earnings. AgriBank, FCB currently has
no plans to distribute unallocated earnings to us, and we do not
contemplate circumstances that, if distributions were made under
our current structure, would result in taxes being paid.
We have also not recorded deferred income taxes on accumulated
FLCA earnings of $3.6 billion, as it is our intent to permanently
maintain this investment in the FLCA subsidiary or to distribute the
earnings to stockholders in a manner that results in no additional
tax liability.
Our income tax returns are subject to review by various United
States taxing authorities. We record accruals for items that we believe
may be challenged by these taxing authorities. However, we had no
uncertain income tax positions at December 31, 2015. In addition,
we believe we are no longer subject to income tax examinations for
years prior to 2012.
Note 12 – Related Party Transactions
In the ordinary course of business, we may enter into loan
transactions with our directors, senior officers, employees and other
organizations with whom such persons may be associated. These
loans are subject to special approval requirements contained in the
Farm Credit Administration regulations and/or our policy, and are
made on the same terms, including interest rates and collateral,
as those prevailing at that time for comparable transactions with
unrelated customers. Total loans to these persons at December
31, 2015, amounted to $112.7 million compared to $115.9 million
at December 31, 2014, and $105.6 million at December 31, 2013.
The related parties can be different each year-end primarily due
to changes in the composition of the Board of Directors and the
mix of organizations with which such person may be associated.
no.
In our opinion, loans outstanding to directors and senior officers
at December 31, 2015, did not involve more than a normal risk of
collectability.
We purchase human resource information systems and benefit
and payroll services from Farm Credit Foundations. The Farm
Credit System entities using Farm Credit Foundations’ services
contributed an investment into the service corporation when it was
formed as a separate service corporation. Our investment was $0.1
million at December 31, 2015, December 31, 2014, and December
31, 2013. The total cost of services purchased from Farm Credit
Foundations was $1.1 million in 2015, $0.9 million in 2014 and $0.9
million in 2013.
Note 13 – Commitments and Contingencies
In the normal course of business, we have various outstanding
commitments and contingent liabilities, such as commitments
to extend credit, which are not reflected in the accompanying
consolidated financial statements. Commitments to extend credit are
agreements to lend to a customer as long as there is not a violation
of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments may expire
without being drawn upon, the total commitments do not necessarily
represent future cash requirements. We evaluate each customer’s
creditworthiness on a case-by-case basis using the same credit
policies as for on-balance-sheet financial instruments. The amount
of collateral obtained, if deemed necessary upon extension of credit,
is based on our credit evaluation of the counterparty. Collateral held
upon exercise of commitments varies but may include accounts
receivable, inventory, property, plant and equipment, and incomeproducing property. We had remaining commitments for additional
borrowing at December 31, 2015, of approximately $6.7 billion.
We also participate in standby letters of credit to satisfy the
financing needs of customers. These letters of credit are irrevocable
agreements to guarantee payments of specified financial
obligations. At December 31, 2015, $118.6 million of standby letters
of credit were outstanding. Outstanding standby letters of credit
have expiration dates ranging to 2036. The maximum potential
amount of future payments we are required to make under the
guarantees is equal to the total amount of the letters of credit
outstanding.
Actions are pending against us in which claims for money
damages are asserted. In our opinion, based on current information,
the ultimate liability, if any, would not have a material impact on our
financial position.
Note 14 – Fair Value Measurements
The Financial Accounting Standards Board guidance on Fair Value
Measurements and Disclosures defines fair value as the exchange
price that would be received for an asset or paid to transfer a
liability in an orderly transaction between market participants in the
principal or most advantageous market for the asset or liability. The
guidance also establishes a fair value hierarchy, with three levels
of inputs that may be used to measure fair value. See Note 2,
“Summary of Significant Accounting Policies,” for a more complete
description of the three input levels.
We do not have any assets or liabilities measured at fair value
on a recurring basis. We may be required, from time to time, to
measure certain assets at fair value on a nonrecurring basis. The
following tables provide information on assets measured at fair
value on a nonrecurring basis (in thousands):
As of
December
31, 2015
Fair Value
Measurement Using
Level 1
Level 2
Level 3
Total
Fair
Value
Loans
–
–
$17,815
$17,815
Other
property
owned
–
–
–
–
Total
Losses
(Gains)
As of
December
31, 2014
Fair Value
Measurement Using
Total
(Gains)
$(5,069)
$(32)
Level 1
Level 2
Level 3
Total
Fair
Value
Loans
–
–
$17,911
$17,911
$4,331
Other
property
owned
–
–
$4,319
$4,319
$(6,715)
Total
Losses
(Gains)
As of
December
31, 2013
Fair Value
Measurement Using
Level 1
Level 2
Level 3
Total
Fair
Value
Loans
–
–
$38,471
$38,471
$18
Other
property
owned
–
–
$3,668
$3,668
$(3,400)
The amount of loans in the previous tables represents the fair
value of certain loans that were evaluated for impairment based
on the estimated appraised value of the underlying collateral. The
fair value measurement process uses independent appraisals and
other market-based information, but in many cases, it also requires
significant input based on our knowledge of and judgment about
current market conditions, specific issues relating to the collateral
and other matters. As a result, these fair value measurements fall
within Level 3 of the hierarchy. When the value of the collateral, less
estimated costs to sell, is less than the carrying value of the loan, a
specific reserve is established.
The amount of other property owned represents the fair value and
related (gains) of foreclosed assets that were measured at fair value
based on the collateral value. Costs to sell represent transaction
costs and are not included as a component of the asset’s fair value.
59
Note 15 – Subsequent Events
We have evaluated subsequent events through March 9, 2016,
which is the date the consolidated financial statements were
available to be issued. There have been no material subsequent
events that would require recognition in our 2015 consolidated
financial statements or disclosures in the “Notes to Consolidated
Financial Statements.”
no.
Disclosure Information
Required by Farm Credit Administration Regulations (Unaudited)
Description of Business
Description of Liabilities
The description of the territory served, persons eligible to borrow,
types of lending activities engaged in, financial services offered and
related Farm Credit System institutions required to be disclosed in
this section are incorporated herein by reference from Note 1 to the
consolidated financial statements, “Organization and Operations,”
included in this annual report to stockholders.
The description of significant developments that had, or could
have, a material impact on earnings, interest rates to customers,
acquisitions or dispositions of material assets, and material changes
in the manner of conducting the business, if any, required to be
disclosed in this section are incorporated herein by reference from
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” included in this annual report to stockholders.
The description of debt outstanding required to be disclosed in
Description of Property
Our corporate office is located in Omaha, Nebraska, and is owned.
The locations of our retail offices are incorporated herein by reference
to the last page of this annual report to stockholders. All retail office
locations are owned.
During 2015, building additions were completed in Red Oak,
Iowa; Emmetsburg, Iowa; and Norfolk, Nebraska. Construction of
building additions began during 2015 in Carroll, Iowa; Decorah, Iowa;
and Cedar Rapids, Iowa. The construction of a new retail office in
Yankton, South Dakota, was completed and construction of a new
retail office in Pierre, South Dakota, began with completion planned
for 2016. Building additions will begin in DeWitt, Iowa, and Grand
Island, Nebraska, in 2016.
Legal Proceedings
Information required to be disclosed in this section is incorporated
herein by reference from Note 13 to the consolidated financial
statements, “Commitments and Contingencies,” included in this
annual report to stockholders.
Description of Capital Structure
herein by reference from Note 9 to the consolidated financial
statements, “Members’ Equity,” included in this annual report to
stockholders.
this section is incorporated herein by reference from Note 8 to the
consolidated financial statements, “Notes Payable,” included in this
annual report to stockholders.
The description of contingent liabilities required to be disclosed
in this section is incorporated herein by reference from Note 13
to the consolidated financial statements, “Commitments and
Contingencies,” included in this annual report to stockholders.
Customer Privacy
Customer privacy is important to us. We hold customer
financial and other personal information in strict confidence. We
do not sell or trade customers’ personal information to marketing
companies or information brokers for their use. By Farm Credit
Administration regulations, we are required to provide a list of current
stockholders to any stockholder who requests such information
for defined purposes. Additional information regarding this Farm
Credit Administration rule governing the disclosure of customer
information can be obtained by contacting the Farm Credit
Administration or our Legal team at PO Box 2409, Omaha, NE
68103-2409.
Financial and Supervisory Relationship with
the Association’s Funding Bank
herein by reference from the “Relationship with AgriBank, FCB”
section of “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and from Note 8 to the
consolidated financial statements, “Notes Payable.”
Selected Financial Data
The selected financial data for the five years ended December 31,
2015, required to be disclosed in this section is incorporated herein
by reference from the “Consolidated Five-Year Summary of Selected
Financial Data” included in this annual report to stockholders.
61
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
“Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” which appears in this annual report
to stockholders and is required to be disclosed in this section, is
incorporated herein by reference.
Directors and Compensation of Directors
The listing of directors, term of office, business experience during
the past five years, principal occupation and employment during the
past five years, and any other business interests, which are required
to be disclosed in this section, are incorporated herein by reference
from the “FCSAmerica, ACA Directors” section in this annual report
to stockholders.
Our bylaws permit compensation of directors for service on the
Board. Compensation is provided for attendance at Board and
committee meetings, special assignments, training and development,
and travel time associated with these responsibilities. Per diem for
2015 was $500. Monthly retainers for 2015 were $2,300 for the Board
Chairperson, $2,000 for the Board Vice-Chairperson and Committee
Chairpersons, and $1,800 for all other directors. An additional $200
per month is included in the monthly retainer for a director who
serves as a Board Vice-Chairperson and a Committee Chairperson.
no.
Compensation information for each director who served in 2015 follows:
Number of Days At
Name
2015 Board
Committee Assignment(s)
Board
Meetings
Other
Official Duties
Committee
Compensation**
Total 2015
Compensation
Robert Bruxvoort*
Strategic Relations/
Governance
8.0
30.0
$1,500
$ 43,100
Jim Ehlers
Governance
6.5
34.5
$1,250
42,200
Jeremy Heitmann,
Board Chairperson
Executive
8.0
30.0
$1,500
46,700
Steve Henry
Audit
8.0
28.5
$1,500
39,950
Nicholas Hunt,
Board Vice-Chairperson
Executive, Human Capital
8.0
35.5
$2,750
45,850
Robert Joki (1)
Audit
1.5
6.5
$500
9,400
Jim Kortan (2)
Audit
6.5
24.0
$1,000
31,550
Rick Maxfield (2)
Business Risk
6.5
20.5
$1,000
29,800
Cris Miller
Human Capital
8.0
27.0
$1,500
39,200
Randy Peters
Governance
6.5
27.0
$1,000
38,450
John Reisch*
Business Risk
8.0
33.0
$1,250
44,600
Timothy Rowe (3)
Governance
8.0
20.5
$1,500
35,950
Nancy Tarver (1)
Governance
1.5
14.5
$500
13,400
Jon Van Beek
Business Risk
8.0
30.0
$1,250
40,700
Nick Vande Weerd (4)
Human Capital
1.5
14.5
$250
13,400
Kim Vanneman*
Human Capital
7.5
32.5
$1,500
44,100
Susan Voss
Human Capital
8.0
28.5
$1,500
39,950
Mark Weiss
Business Risk
8.0
23.0
$1,250
37,200
Jennifer Zessin*
Audit
8.0
35.5
$1,500
45,850
Total Compensation
* Denotes committee chair.
** Included in total compensation.
(1) Board term ended March 31, 2015.
(2) Joined the Board April 1, 2015.
(3) Total compensation includes $6,500 earned in 2015 and paid in 2016.
(4) Elected to the AgriBank, FCB Board of Directors in March 2015.
Total compensation is rounded to the nearest dollar and includes retainers and all per diems paid in 2015.
$681,350
63
Compensation of CEO and Senior Officers
The CEO and senior officers as of December 31, 2015, are shown below. As of January 1, 2015, the CEO and senior officers provide joint
management for Farm Credit Services of America (Association) and Frontier Farm Credit.
Name
Current Position
Date Started in
Current Position
Previous Position(s) During
Past Five Years
Douglas Stark
President and CEO
March 2005
–
Robert Campbell
Senior Vice President
April 1999
–
Scott Coziahr (1)
Senior Vice President –
General Counsel
February 2006
–
Frank W. (Bill) Davis
Chief Credit Officer
July 2005
–
Ann Finkner (2)
Chief Administrative Officer
July 2005
–
Douglas Hofbauer (3)
Executive Vice President
January 2015
Frontier Farm Credit –
President and CEO
James M. (Mark) Jensen
Chief Risk Officer
September 2013
Enterprise Risk Management
Anthony Jesina
Related Services
June 2015
Vice President –
Country Home Loans
Kenneth Keegan
Executive Vice President
August 2013
Executive Vice President –
Chief Risk Officer;
Chief Risk Officer
Craig Kinnison (4)
Chief Financial Officer
November 2006
–
Jim Knuth
September 2001
–
Timothy Koch
Specialized Lending
June 2015
David Martin (5)
Chief Strategy Officer
December 2008
James Roberge
Commercial Lending
March 2012
Robert Schmidt
May 1999
Vice President –
Agribusiness Credit
–
CoBank – Regional Manager,
Minneapolis Banking Center
–
Scott Coziahr is also managing member of JDI Properties, LLC, a residential rental property company.
Ann Finkner serves on the Farm Credit Foundations Board of Directors and Plan Sponsor Committee.
(3) Douglas Hofbauer was a leased executive to the Association from Frontier Farm Credit.
(4) Craig Kinnison serves on the Farm Credit Foundations Trust Committee.
(5) David Martin is also president and treasurer of DCM Ventures, LLC, a residential rental property company.
(1)
(2)
Compensation Overview: The Association’s compensation
programs are market-based and designed to provide competitive
compensation, including base salary, incentives and benefits
that attract, retain, motivate and reward an engaged and talented
workforce while achieving business results aligned with the best
interests of our shareholders.
The design and governance of our CEO and senior officer
compensation program are consistent with prudent risk
management standards and provide total compensation that
promotes our mission to ensure a safe, sound and dependable
source of credit and related services for agriculture and rural
America. The design of the compensation program supports our risk
management goals and includes (1) a competitive mix of base salary
and variable pay, (2) a balanced use of variable pay performance
measures that are risk-adjusted where appropriate, (3) a pay-forperformance process that allocates individual awards based on
no.
individual performance and contributions, and (4) a long-term portion
of variable pay to align with the strategic direction of the Association,
provide for competitive market-based compensation and align with
shareholder interests.
Compensation for the CEO and senior officers includes base
salary, short-term incentive plan opportunity and long-term incentive
plan opportunity. Compensation for all other employees includes
base salary and short-term incentive plan opportunity. The CEO
and senior officers participate in benefit plans generally available
to all employees. Under the alliance agreement described in Note 1
“Organization and Operations,” the 2015 compensation and benefits
expense for the CEO, senior officers, and all Association and Frontier
Farm Credit employees was shared between the Association and
Frontier Farm Credit on a 94 percent and 6 percent basis respectively,
excluding any Frontier Farm Credit pension plans expense in excess
of the Association’s retirement programs. There were no senior
officers under the Frontier Farm Credit pension plans in 2015.
As of January 1, 2015, the CEO is employed pursuant to
an employment agreement through December 31, 2019. The
agreement provides specified compensation and related benefits
in the event his employment is terminated, except for termination
for cause or voluntary termination without notice. The employment
agreement also provides certain limited payments upon death
or disability. To receive payments and other benefits under the
agreement, the CEO must sign a separation agreement and release
of all legal claims against the Association that relate to his employment
with the Association. The agreement also provides for noncompetition
by the CEO for two years following termination of employment.
Base Salaries: Base salaries for all employees, including
the CEO and senior officers, are determined based upon position,
experience and responsibilities, performance and market-based
compensation data. CEO and senior officers’ base salaries are
reviewed and approved by the Board of Directors. Employer expense
for base salaries is included in “Salaries and employee benefits” on
the Consolidated Statement of Income, which was shared by the
Association and Frontier Farm Credit as part of the overall allocation
of salaries and benefits.
Short-Term Incentive: The Board of Directors approves
the annual short-term incentive plan, including the performance
measures. Select 2015 short-term incentive plan performance
measures included combined results for the Association and Frontier
Farm Credit. The senior officers participate in the annual short-term
incentive plan along with the other eligible Association employees.
Select employees must sign an assignment, nonsolicitation and
nondisclosure agreement to participate in the short-term incentive
plan. Payouts under the short-term incentive plan are based
on financial and business results, select initiatives and credit
performance measures, and are approved by the Board of Directors.
Payouts are not provided unless specific levels of performance are
achieved. No more than one-half of the short-term incentive-plan
award opportunity may be paid in the fourth quarter of the plan year
(first award payout), and the remainder of the award payout (final
award payout) is paid no later than March 15 after the end of the
plan year. The first award payout is based on the results achieved as
of September 30 for select performance measures. The final award
payout is based upon the year-end results net of the first award
payout. The first payout under the 2015 short-term incentive plan
occurred in November 2015. The second and final payout occurred
in February 2016 and was net of the November 2015 payout.
The CEO’s short-term incentive opportunity is established by the
Board of Directors. The Board has full discretion as to the amount
of any payout to the CEO under the short-term incentive plan and
has historically and for 2015 used the results from the short-term
incentive plan to determine the payout amount.
The expense for the annual short-term incentive plan was $27.2
million for 2015, which was shared by the Association and Frontier
Farm Credit as part of the overall allocation of salaries and benefits.
Long-Term Incentive: The CEO and senior officers are eligible
for long-term senior officer incentive plans. The long-term incentive
plans were approved by the Board of Directors to align CEO and senior
officer compensation with the strategic business plan and the goals
of the Association while providing the opportunity for competitive
market-based compensation at a level that will attract, retain and
reward key staff for the accomplishment of Association goals. The
CEO and senior officers must sign an assignment, nonsolicitation and
nondisclosure agreement to participate. The plans are nonqualified
performance unit plans that are effective January 1, 2013, through
December 31, 2015; January 1, 2014, through December 31, 2016;
and January 1, 2015, through December 31, 2017.
The plans have independent performance goals measured over
the three-year term of the plans that include core return on assets,
customer experience index, employee engagement, adverse assets
to risk funds and nonaccrual loans to total classified assets. The 2015
results included in the plans were combined results for the Association
and Frontier Farm Credit. Payments are made no later than March 15
after the end of each three-year plan’s term. The Board of Directors
approves the total dollars available for the long-term incentive
plans, which are then converted into units. The value of each unit is
determined by the results achieved toward the established goals.
The CEO has discretion as to the distribution of the units to the senior
officers for each three-year plan, which is based on consideration of
market compensation and individual contributions and performance.
The CEO’s long-term incentive opportunity is established by the
Board of Directors. The Board has full discretion as to the amount of
any payout to the CEO under the long-term incentive plan and has
historically used the results from the long-term senior officer incentive
plan to determine the unit value for the payout amount.
A liability and salary and benefits expense of $2.6 million was
recorded in 2015 for the long-term incentive plans. The expense
was shared by the Association and Frontier Farm Credit as part
of the overall allocation of salaries and benefits. The payout for
the 2013-2015 plan occurred in February 2016 and is reflected in
the Summary Compensation Table in the “Long-Term Incentive”
column for the calendar year 2015. The payouts for the 2011-2013
and the 2012-2014 plans were paid in the first quarter of 2014 and
first quarter of 2015 respectively, and are reflected in the Summary
Compensation Table in the “Long-Term Incentive” column for the
calendar years 2013 and 2014.
65
The following Summary Compensation Table includes compensation paid to the CEO and the senior officers during fiscal years 2015, 2014
and 2013.
Summary Compensation Table
Salary
Short-Term
Incentive (1)
Long-Term
Incentive (2)
2015 (5)
$635,000
$289,920
Douglas Stark, CEO
2014
$600,000
Douglas Stark, CEO
2013
Aggregate No. of
Sr. Officers in Year
Excluding CEO (6)
Year
Name of CEO
Year
Douglas Stark, CEO
Deferred (3)
Other (4)
Total
$381,700
$204,451
$9,839
$1,520,910
$283,640
$366,792
$177,408
$9,072
$1,436,912
$525,000
$244,024
$340,200
$157,832
$6,348
$1,273,404
Salary
Short-Term
Incentive (1)
Long-Term
Incentive (2)
Deferred (3)
Other (4)
Total
15
2015 (5)
$3,714,420
$1,946,555
$1,546,880
$1,123,728
$133,456
$8,465,039
12
2014
$3,106,980
$1,678,914
$1,578,869
$799,525
$77,908
$7,242,196
13
2013
$3,088,404
$1,483,384
$1,562,625
$788,119
$96,668
$7,019,200
Short-term incentive earned in the fiscal year.
Incentive earned at the end of the respective three-year long-term incentive plan; includes prorated amounts for an executive who retired in 2013 and an
executive who retired in 2015. For 2015, only 12 of the 15 senior officers participated in the long-term incentive.
(3) The amounts represent the Association’s contributions to the Defined Contribution Plan and Nonqualified Deferred Compensation Plan.
(4) The amounts represent executive physicals, vacation-leave payout, recognition and referral awards, health and fitness account payouts, health incentives,
taxable vehicle use, long-term disability premiums and group life insurance imputed income.
(5) The Association paid 94 percent and Frontier Farm Credit paid 6 percent of the compensation expense.
(6) Includes employees designated as senior officers at any time during the fiscal year. The 2015 data includes a senior officer who retired in 2015 plus the
addition of two senior officers and the former Frontier Farm Credit CEO who was a senior officer during the year.
(1)
(2)
Disclosure of the total compensation paid during 2015 to any
senior officer included in the Summary Compensation Table is
available to stockholders upon written request to Farm Credit
Services of America, PO Box 2409, Omaha, NE 68103-2409.
Details of the benefit plans are described in Note 10 to the
consolidated financial statements, “Employee Benefit Plans.”
Travel, Subsistence and Other Related Expenses
Director reimbursements for travel, subsistence and other related
expenses are set forth in the Board’s Governance Guidelines. The
policy regarding employee reimbursements is set forth in the Human
Resources Manual. Each provides authority for and control over
reimbursement of travel and subsistence expenses for authorized
individuals traveling on official business. Copies of the related
Governance Guidelines and Human Resources Manual provisions
are available to our stockholders upon written request to Farm Credit
Services of America, PO Box 2409, Omaha, NE 68103-2409.
The aggregate amount of reimbursement for travel, subsistence
and other related expenses for all our directors was $614 thousand
in 2015, $373 thousand in 2014 and $364 thousand in 2013.
Transactions with Directors, Senior Officers
and Employees
Directors and certain employees may obtain loans from us,
provided they meet all eligibility requirements and provided that such
loans are made on the same terms available to other customers.
Approval of AgriBank, FCB is required for loans to our directors and
employees, and for loans to any customer if a director or employee
is to receive more than $100 thousand of the loan proceeds, has a
significant personal interest in the loan or its security, may exercise
control over the customer, or guarantees or cosigns a loan in excess
of $100 thousand. Further, directors and employees are required to
refrain from taking any part in the consideration or decision on any
loan in which they or their relatives have an interest.
Our bylaws and policies require that directors’ loans be
maintained at a high level of credit quality. Any director whose loan
is classified “substandard” must prepare and obtain approval of a
plan to improve and upgrade the loan within a specified period of
time. For directors, failure to comply with our bylaws and policies
would result in the director’s position being vacated. Directors
whose loans are classified “doubtful” or “loss,” or have any portion
of a loan charged off, must resign immediately.
no.
The Farm Credit Act and Farm Credit Administration regulations
require certain disclosures to stockholders concerning loans to
directors and employees, their relatives, organizations with which
they are affiliated or entities that they may control. Disclosure is
required where such loans were made on terms other than those
available to other customers, or where such loans are considered
to have more than a normal risk of collectability. None of our
loans made to directors or employees, their relatives, affiliated
organizations or entities they may control were made on terms
other than those available to all customers, nor were any such loans
considered to have more than a normal risk of collectability.
Director, senior officer and employee nonloan transactions with
us are regulated by our policy.
Concerning property that was mortgaged or pledged as security
for Farm Credit System debt within the preceding 12 months, the
policy requires that senior officers and employees obtain approval
from the Standards of Conduct officer for purchase of the property.
Concerning property acquired within the preceding 12 months in
satisfaction of Farm Credit System debt, this policy:
•prohibits lease, purchase or acquisition except through inheritance
by senior officers and employees; and
•prohibits lease, purchase or acquisition except through inheritance,
public auction or other open competitive bidding process by
directors.
The policy does permit directors, senior officers and employees
to purchase furniture and equipment owned by us provided that any
item having a value of greater than $5 thousand must be purchased
through an open competitive bidding process.
The Farm Credit Act and Farm Credit Administration regulations
also require certain disclosures to stockholders concerning nonloan
transactions a director or senior officer, or any of his or her relatives,
affiliated organizations or entities he or she may control have with
us. Such disclosure is required if such transactions did not involve
competitive bidding, involved amounts in excess of $5 thousand or
provided a special benefit to the director or senior officer. No such
transactions took place during 2015.
Involvement in Certain Legal Proceedings
Relationship with Qualified Public Accountant
PricewaterhouseCoopers LLP serves as our qualified public
accountant. There were no changes in our qualified public accountant
since the prior annual report to stockholders, and there were no
material disagreements on any matter of accounting principles
or financial statement disclosures during this period. Expenses
recognized in the 2015 consolidated financial statements for
services provided by PricewaterhouseCoopers LLP were approved
by the Board Audit Committee and include $206 thousand for audit
services and $50 thousand for agreed upon procedures related to
the AgDirect trade credit financing program.
Financial Statements
The “Consolidated Financial Statements,” “Notes to Consolidated
Financial Statements,” “Report of Management,” “Report on Internal
Control Over Financial Reporting,” “Report of Audit Committee”
and “Independent Auditor’s Report” required to be disclosed in this
section are incorporated herein by reference from this annual report
to stockholders.
Credit and Services to Young, Beginning and
Small Producers
We have specific programs in place to serve the credit and related
needs of young, beginning and small producers in our territory.
Programs focus on providing sound financial services, education
and networking opportunities. The definitions of young, beginning
and small producers follow:
Definitions
• Young – producers age 35 and under.
•
Beginning – producers with 10 years or less of production
agriculture as their primary source of income.
•Small – producers who generate less than $250,000 in annual
gross sales of agricultural products.
Program Elements
There were no material legal proceedings or enforcement actions
involving Farm Credit Services of America, our directors or senior
officers that require disclosure in this section.
Our program for serving young, beginning and small producers
includes the following:
Conventional Loans: Producers age 35 and under, or with 10
years or less of farming or ranching experience, may have sufficient
capacity, credit history or financial backing to meet our traditional
loan approval standards.
67
AgStart Loans: Producers age 35 and under, or with 10 years
or less experience, can benefit from modified credit approval
standards to help them get started. The goal is to graduate
participating producers from the AgStart program into conventional
product offerings over time.
Development Fund: This new program, which launched January
1, 2015, is designed to assist young, beginning and small producers
who are beginning, growing or enhancing an agriculturally based
operation by providing them with needed working capital loans and
business planning assistance.
Youth in Agriculture Loans for Breeding Livestock: The
Breeding Livestock loan program for youth provides loans for
terms of 1-5 years, up to $10,205 including stock, for the purpose
of purchasing breeding livestock. These loans require a cosigner of
legal age and are approved based on the strength and credit scores
of the cosigner.
Education and Finance Sponsorships: We provide donations
and sponsor state and local FFA activities and conventions, state
4-H activities and conventions, and agricultural leadership programs.
College Scholarships: In 2015, we offered twenty-four $2,500
scholarships to qualified students studying agriculture at land-grant
universities within our four-state territory. In addition, we offered
forty-four $1,000 scholarships to qualified students studying
agriculture at selected junior colleges within our four-state territory.
Small Producer Financing: Small producers are served
primarily through three loan programs: Country Home Loans®,
AgDirect® and the full line of products and services offered through
our retail marketplaces. All of these programs are designed to meet
the needs of small producers, part-time farmers or rural residents
with a convenient and efficient delivery of financial services. Small
producers who also meet the definition of young or beginning are
eligible for the young and beginning program.
Results and Goals
As of December 31, 2015, we had 22,840 unique young,
beginning and small customers, with total loan volume of $5.5
billion. These include:
•5,167 customers who qualify as young, with total loan volume of
$1.4 billion.
•7,195 customers who qualify as beginning, with total loan volume
of $1.7 billion.
•18,634 customers who qualify as small, with total loan volume of
$4.1 billion.
Young and Beginning Segment: In our territory, the young and
beginning definitions result in 14,600 producers age 35 and under
and 27,731 producers with 10 years or less of production experience,
according to the 2012 United States Department of Agriculture
Census of Agriculture. The 2012 data is the most recent census data
available. As of December 31, 2015, we had 5,167 young customers
and 7,195 beginning customers, some of whom are counted in both
categories. This equates to a young market share of 35.39 percent
and a beginning market share of 25.94 percent. Total loan volume to
young and beginning customers was $2.32 billion.
Small Producer Segment: According to 2012 United States
Department of Agriculture Census of Agriculture data, 131,681 farms
representing 72.2 percent of all farms in our four-state territory meet
the definition of small (less than $250,000 in annual gross sales
of agricultural products). The 2012 United States Department of
Agriculture Census of Agriculture includes any operation with farm
income in its definition of a farm. In the census data, 65,933 operations
have gross farm income of less than $10,000, representing 3.14
percent of the total farm sales of the small producers. We believe that
farm income in these operations is incidental to total income and that
our services are likely not needed or may not even be eligible under
the Farm Credit Administration regulations.
Potential
Customers*
FCSAmerica
Customers
Market Share***
Credit Underwriting Standards
Young
14,446
5,167
35.76%
Young and beginning producers who do not meet traditional
credit standards are considered under an outreach loan program
called AgStart. Through this program, applicants’ requests are
analyzed and assessed based primarily on character and capacity
credit factors. Farm Service Agency guarantees are used as deemed
necessary, with additional support provided by our payment of the
first $2,500 of external fees. As of December 31, 2015, AgStart
customers account for 4,312 loans to 2,126 customers with an
outstanding commitment of $557 million. AgStart loan volume grew
by 11 percent in 2015.
Beginning
20,452
7,195
35.17%
Small**
36,038
18,634
51.70%
*2
012 United States Department of Agriculture Census of Agriculture data
of farms with debt.
** P
otential customers in the small category are those who reported annual
gross sales between $10,000 and $249,999.
*** Market share was computed by comparing the number of producers in
the young, beginning or small categories maintaining a loan relationship
with FCSAmerica to the total number of producers with debt in those
categories.
no.
Young, Beginning and Small Producer
New Customer Growth
2016 Goals
2017 Goals
840
885
900
Beginning
1,075
1,115
1,155
Small
1,035
1,075
1,115
Young
2018 Goals
Special Program Goal (AgStart): This program goal will positively
affect all three young, beginning and small categories. Use of this
outreach loan program is seen as a critical component of long-term
success in the marketplace.
The Association’s goal is to increase AgStart loan commitments
by 8-12 percent annually.
Related Services
Young and Beginning Producer Conference: The seventh
annual Side by Side Conference was held in Omaha, Nebraska, on
July 29-31, 2015. There were 240 young and beginning producers in
attendance at this conference, bringing the total number of producers
impacted by this program to more than 890.
Producers benefited from the opportunity to network with one
another, learn from the speakers, and learn more about Farm Credit
Services of America. The conference provided benefits by creating
an opportunity for participants to become better-informed business
managers and by building customer loyalty.
Education and Finance Sponsorships: We awarded $104,000 in
college scholarships for 68 students in 2015. We loaned more than
$80,500 through the Youth in Agriculture and Breeding Livestock
loan programs. We donated $190,000 for state and local FFA and
4-H activities, and provided additional funding and resources for
young and beginning producer education, leadership development
programs and local scholarships.
Awareness
Young and Beginning Team: We maintain a standing team of 10
employees that meets periodically to monitor, review and modify our
young and beginning program to most effectively meet the needs of
the segment and the goals of the organization. The team continues
to periodically rotate members as a way to bring new, innovative
ideas to the team.
69
Farm Credit Services of America Retail Office Locations
4835 Sixth Avenue SE
Aberdeen, SD 57401
81 33rd Street SW
Huron, SD 57350
507 E. Highway 20
O’Neill, NE 68763
2390 Highway 2
Alliance, NE 69301
513 Court Street
Imperial, NE 69033
700 Farm Credit Drive
Ottumwa, IA 52501
4101 N. Sixth Street
Beatrice, NE 68310
4715 Second Avenue
Kearney, NE 68847
105 Theater Circle
Perry, IA 50220
535 S. 10th Avenue
Broken Bow, NE 68822
855 Fallbrook Blvd.
Lincoln, NE 68521
123 W. Missouri Avenue
Pierre, SD 57501
919 Bella Vista Drive
Carroll, IA 51401
1301 W. Main Street
Manchester, IA 52057
2510 N. Plaza Drive
Rapid City, SD 57702
1401 Wilkins Circle
Casper, WY 82601
203 W. Merle Hibbs Blvd.
Marshalltown, IA 50158
700 Senate Avenue
Red Oak, IA 51566
7419 Nordic Drive
Cedar Falls, IA 50613
4056 Fourth Street SW
Mason City, IA 50401
411 Valley View Drive
Scottsbluff, NE 69361
4865 Old Monastery Road
Columbus, NE 68601
1700 N. Highway 83
McCook, NE 69001
3000 E. Park Street
Sheldon, IA 51201
2328 Millennium Road
Decorah, IA 52101
401 Cabela Drive
Mitchell, SD 57301
4512 S. Lakeport Street
Sioux City, IA 51106
1621 11th Street
DeWitt, IA 52742
322 First Avenue E
Mobridge, SD 57601
5011 S. Broadband Lane
Sioux Falls, SD 57108
3675 450th Avenue
Emmetsburg, IA 50536
2216 James Avenue
Mount Pleasant, IA 52641
1015 590th Street
Storm Lake, IA 50588
3333 W. Faidley Avenue
Grand Island, NE 68803
2125 W. 20th Street S
Newton, IA 50208
1114 29th Street SE
Watertown, SD 57201
1812 Hawkeye Avenue
Harlan, IA 51537
207 N. 34th Street
Norfolk, NE 68701
345 Fairmeadow Drive
Webster City, IA 50595
1525 Boyson Road
Hiawatha, IA 52233
3021 E. Philip Avenue
North Platte, NE 69101
3808 Broadway Avenue
Yankton, SD 57078
800-884-FARM // fcsamerica.com
Farm Credit Services of America strives to be environmentally conscious. If you would like to receive an additional copy
of our 2015 annual report, please contact us at 1-800-884-FARM (1-800-884-3276).
Agriculture Works Here, AgriPoint, Country Home Loans and GrowingOn are registered service marks of Farm Credit Services of America.
800-884-FARM
//
fcsamerica.com
AW-MKT 2015

2015 annual report - Farm Credit Services of America

Transcription

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