Contents 

Statement of the Chairman and CEO .................................................................................... 1


Farm Credit Administration ..................................................................................................... 2


The Mission ............................................................................................................................ 2


The Board ............................................................................................................................... 3


Farm Credit System—An Overview of Events and Conditions ...................................... 7


FCS Role and Structure ....................................................................................................... 7


Financial Condition of the FCS ........................................................................................ 10


Borrowers Served ................................................................................................................ 14 


Funding for Other Lenders ............................................................................................... 17


The System’s Market Share of Farm Debt ..................................................................... 19


Farmer Mac as a Secondary Market ............................................................................... 20


Serving Young, Beginning, and Small Farmers and Ranchers ...................................... 24


YBS Loans Outstanding, 2004 and 2005 ........................................................................ 25


YBS Loans Made, 2004 and 2005 .................................................................................... 27


Assessment of YBS Results for Individual Associations and the System ............... 27


Five Years of Comparable YBS Data ............................................................................... 30


YBS Programs ...................................................................................................................... 33


Regulatory Policy and Approvals ......................................................................................... 35


FCS Corporate Activity in 2005 ....................................................................................... 35


Regulations and Policies .................................................................................................... 36


Funding Activity ................................................................................................................. 43


Mission-Related Investments: 2005 Activity .................................................................. 44


Maintaining a Dependable Source of Credit for Farmers and Ranchers ................... 49


Risk-Based Examination and Oversight Program ........................................................ 49


Meeting Statutory Examination Requirements .............................................................. 50


Identifying and Responding to Potential Threats to Safety and Soundness .......... 51


Measuring the System’s Safety and Soundness ............................................................ 52


Differential Supervision and Enforcement ..................................................................... 54


Working with Financially Stressed Borrowers .............................................................. 55


Condition of Farmer Mac ........................................................................................................ 56


Capital ................................................................................................................................... 56


Program Activity ................................................................................................................. 60


Asset Quality ....................................................................................................................... 60


Earnings ................................................................................................................................ 62


Challenges Facing Agriculture and the FCS ...................................................................... 64


A Slowdown in the Economy .......................................................................................... 64


Darker Clouds for Farm Income ..................................................................................... 66


Risks to Land Values Inside and Outside the Farm Sector ....................................... 69


Food Safety and Security—A Growing Concern .......................................................... 70


Keeping Pace with the Structure of Agriculture .......................................................... 71


Appendix ..................................................................................................................................... 74


Farm Credit Administration Offices ................................................................................ 74


Agency Officials .................................................................................................................. 78


Glossary ................................................................................................................................ 83


List of Acronyms Appearing in Report .......................................................................... 89


Additional Information ...................................................................................................... 90


2005 Annual Report on the Farm Credit System 
Farm Credit Administration

Photo Credits 

Photo on page 9 courtesy of


MidAtlantic Farm Credit, ACA,


Westminster, MD; photos on


pages 34, 40, 42, and 55


courtesy of CoBank, ACB,


Denver.

Statement of the Chairman and CEO 

June 2006 

Dear Reader, 

On behalf of the Farm Credit Administration (FCA or Agency) Board and the dedicated employees of the Agency, 

I am pleased to present our 2005 Annual Report on the Farm Credit System. 

The FCA is the independent Federal agency responsible for examining and regulating the Farm Credit System (FCS or 

System), a nationwide network of borrower-owned financial institutions and service organizations that provide credit 

and related services to agriculture and rural America. FCA also regulates the secondary market activities of the Federal 

Agricultural Mortgage Corporation. 

FCA’s role is to ensure that the System remains a safe, sound, and dependable source of credit for agriculture and 

rural communities. We accomplish this by conducting safety and soundness examinations of each System institution, 

including an assessment of whether it is meeting its mission to serve agriculture and rural America. The Agency also 

develops and adopts regulations and other guidelines that govern the activities of System institutions. This year, 

following a business process review, we restructured the Agency to ensure that it continues to be efficient and effective. 

In 2005, the System again achieved an excellent level of performance, with sound capital levels and good asset quality, 

as described in this report. FCA examinations concluded that System institutions are fundamentally sound in all 

material respects. 

As I indicated in last year’s report, I will continue to be a strong advocate for agriculture and rural communities. In 

2005, the Agency took several significant actions to ensure that the System appropriately serves their needs. FCA 

approved Investment in Rural America initiatives by which FCS institutions facilitate the flow of funds to rural areas. 

The Agency closely monitored the System’s efforts to provide credit and related services to young, beginning, and 

small farmers and ranchers, and supported innovative methods of serving these producers. FCA proposed regulations 

concerning the method by which a System institution could terminate its System status and worked to develop 

regulations that ensure good governance of, and appropriate disclosure by, System institutions. 

While I am happy that progress was made in 2005, I am more excited about what the future holds. My fellow Board 

Members and I are committed to ensuring that the Agency remains a strong yet fair regulator for the Farm Credit 

System. In addition, we are continually working to improve the Agency’s communication with the public. If you have 

any comments or questions, please let us hear from you. 

Sincerely, 

Nancy C. Pellett 

Chairman and Chief Executive Officer 

Farm Credit Administration 

2005 Annual Report on the Farm Credit System 
Farm Credit Administration 

The Farm Credit 

Administration ensures a 

safe, sound, and 

dependable source of credit 

and related services for 

agriculture and rural 

America. 

The Mission 

The Farm Credit Administration (FCA or Agency) is an independent 

agency within the executive branch of the U.S. Government. Its mission 

is to ensure a safe, sound, and dependable source of credit and related 

services for agriculture and rural America. It is responsible for regulating and supervising the banks, associations, and related entities in the 

Farm Credit System (FCS or System). The Agency also oversees the 

Federal Agricultural Mortgage Corporation (Farmer Mac). 

The FCS is a nationwide network of borrower-owned financial institutions that provide credit to farmers, ranchers, and agricultural and rural 

utility cooperatives. Farmer Mac provides secondary market liquidity to 

lenders that originate agricultural mortgages. 

Originally created by a 1933 Executive order of President Franklin D. 

Roosevelt, today’s FCA derives its powers and authorities from the 

Farm Credit Act of 1971, as amended. The U.S. Senate Committee on 

Agriculture, Nutrition, and Forestry and the U.S. House of Representatives Committee on Agriculture oversee the FCA and the FCS. 

The FCA is responsible for ensuring a dependable source of credit for 

agriculture and rural America. We do this in two specific ways. First, 

we conduct examinations of FCS institutions to monitor and oversee the 

safety and soundness of their ongoing activities. These examinations 

also focus on whether System institutions are meeting their public 

mandate to serve all eligible borrowers. Second, we approve corporate 

charter changes and research, develop, and adopt rules, regulations, and 

other guidelines that govern how System institutions conduct their 

business and interact with their customers. 

If a System institution violates a law or regulation, or its operations are 

unsafe or unsound, FCA may use its enforcement authority to ensure 

that the problem is corrected. FCA also protects the rights of borrowers, 

issues and changes the charters of FCS institutions, reports to Congress 

on the financial condition and performance of the FCS, and approves 

the issuance of System debt obligations. 

Farm Credit Administration 2

The FCA does not receive a Federal appropriation. It is funded through 

assessments paid by System institutions. The Agency maintains its 

headquarters and a field office in McLean, Virginia. There are also field 

offices in Bloomington, Minnesota; Dallas, Texas; Denver, Colorado; and 

Sacramento, California. 

The Board 

FCA policy, regulatory agenda, and examination oversight program are 

established by a full-time, three-person Board, whose members are 

appointed by the President of the United States with the advice and 

consent of the Senate. They serve staggered 6-year terms and may not 

be reappointed after serving full terms or more than 3 years of previous 

members’ terms. The President designates one member as Chairman of 

the Board, who also serves as the Agency’s Chief Executive Officer 

(CEO). The FCA Board members also serve as the board of directors of 

the Farm Credit System Insurance Corporation (FCSIC). A Board member other than the FCA Chairman serves as the chairman of the FCSIC. 

3
 2005 Annual Report on the Farm Credit System 
Nancy C. 

Pellett 

Chairman and CEO 

Nancy C. Pellett was appointed to a 6-year term on the FCA Board by President George W. Bush on 

November 26, 2002, and she was designated Chairman on May 22, 2004. Her term expires on May 21, 

2008. She also serves as a member of the Board of Directors of the FCSIC. 

Ms. Pellett brings to her position extensive experience in production agriculture and agribusiness. She 

served as vice president and secretary of Prairie Hills, Ltd., a feedlot, cow-calf, and row-crop operation in 

Atlantic, Iowa, from 1979 until 2002. Ms. Pellett was president and treasurer of Fredrechsen Farms, Ltd., a 

family-owned swine and row-crop operation in Walnut, Iowa, for more than 20 years. 

A long-time beef industry leader, Ms. Pellett has held state and national leadership positions in cattlemen’s 

industry organizations. As a member of the National Cattlemen’s Beef Association, she has served as the 

chairman of the Check-Off Division, chairman of the Consumer Marketing Group, and most recently as a 

member of the Cattlemen’s Beef Board. She has also been president of the Iowa Beef Industry Council. 

She is part owner in Premium Quality Foods, Inc., which markets branded pre-cooked beef entrees. Previously she served as president and consumer marketing director for the company. 

Ms. Pellett served a 6-year term as a member of the Board of Regents for the State of Iowa, which oversees 

the three state universities, as well as the University of Iowa Hospital and its affiliated clinics. She was also 

selected as a member of the Governor’s Student Aid Commission. She is on the Iowa State University (ISU) 

Foundation Board of Governors and has been a member of the advisory committees for the College of 

Agriculture and the College of Family and Consumer Sciences. She is past president of the ISU Alumni 

Association and was awarded the Alumni Medal in 1987. The Pellett family was honored as the “Family of 

the Year” by the university in 1997. 

Dedicated to the future of agriculture, she has worked with 4-H and the National FFA Organization at the 

local and state levels, and has served on the Iowa 4-H Foundation Board. She is a founding member of the 

4-H/FFA “Sale of Champions” Committee for the Iowa State Fair. 

She holds a B.S. from ISU at Ames. She and her husband have four children. The Pellett family received 

the “Friends of Youth Award” in 2000 from the Knights of AkSarBen, a foundation that supports education, 

youth programs, and rural development in Nebraska and western Iowa. She and her husband managed a 

family-owned farm from 1966 until her appointment to the Board. While Ms. Pellett serves her term as 

FCA chairman and CEO, Mr. Pellett, together with a son and daughter-in-law, continues to operate their 

fifth-generation family farm in Atlantic, Iowa. 

Farm Credit Administration 4

Douglas L. 

“Doug” Flory 

Board Member 

Douglas L. “Doug” Flory was appointed to the FCA Board by President George W. Bush on August 1, 

2002, for a term that expires October 13, 2006. Mr. Flory also serves as chairman of the Board of Directors 

of the FCSIC. He was elected to this position in December 2002. 

Mr. Flory brings to his position on the FCA Board extensive experience in production agriculture, 

agribusiness, and both commercial bank and Farm Credit System lending. His farming operation includes 

Bunker Hill Farm; he is also 50 percent owner of S & F, L.L.C., a beef, turkey, grain, and hay farm in 

Augusta County, Virginia. 

Before his appointment to the FCA Board, Mr. Flory was a member of the board of directors of AgFirst 

Farm Credit Bank in Columbia, South Carolina, and a director of Farm Credit of the Virginias, Agricultural 

Credit Association (ACA), in Staunton, Virginia. He also served as a member of the Farmer Mac Appraisal 

Standards Committee. 

He was executive vice president of Dominion Bank from 1971 to 1988 and was president, CEO, and director of Dominion Farm Loan Corporation. During his banking career, he chaired the Virginia Bankers Association Committee on Agriculture and was a member of the executive committee of the American Bankers 

Association’s agricultural division. From 1989 to 1992 he was executive vice president, chief operating 

officer, and a member of the board of WLR Foods, Inc., a publicly traded poultry food company (now part 

of Pilgrims Pride). 

Mr. Flory has also served on several governing boards for the State of Virginia. He was appointed to the 

Virginia Agricultural Council, a state advisory board, and the Virginia Agriculture Credit Committee, which 

he chaired. He also served on the Virginia Agricultural Development Authority, which uses “aggie bonds” 

to finance Virginia farmers. 

Throughout his career, Mr. Flory has been an active participant in agriculture industry associations. He has 

served as president of the Virginia Turkey Association and as president and director of the Rockingham 

County Fair Association. He also served as a director of the Virginia Poultry Federation, the Virginia 

Agribusiness Council, the Virginia Beef Cattle Association, and the Virginia Sheep Association. 

Mr. Flory, a native of Augusta County, Virginia, attended Bridgewater College in Bridgewater, Virginia, and 

earned a bachelor’s degree from Virginia Polytechnic Institute and State University in Blacksburg, Virginia. 

He did graduate work at James Madison University and is a graduate of the Maryland-Virginia School of 

Bank Management at the University of Virginia. He and his wife, Avery, are the parents of two daughters 

and a son. 

5
 2005 Annual Report on the Farm Credit System 
Dallas P. 

Tonsager 

Board Member 

Dallas P. Tonsager was appointed to the FCA Board by President George W. Bush on December 1, 2004, for 

a term that expires May 21, 2010. Mr. Tonsager also serves as a member of the Board of Directors of the 

FCSIC. 

Mr. Tonsager brings to his position on the FCA Board extensive experience as an agricultural leader and 

producer, and a commitment to promoting and implementing rural development strategies to benefit rural 

residents and their communities. As executive director of the South Dakota Value-Added Agriculture 

Development Center in Huron from 2002 until his appointment to the FCA Board, he coordinated initiatives 

to better serve producers interested in developing value-added agricultural projects. 

In 1993, he was selected by President Bill Clinton to serve as the South Dakota State Director for Rural 

Development for the U.S. Department of Agriculture (USDA). The Federal agency promotes rural economic 

development and helps individuals, communities, and businesses obtain financial and technical assistance 

for a variety of needs. Mr. Tonsager oversaw a diversified portfolio of housing, business, and infrastructure 

loans in South Dakota totaling more than $100 million. In 1999, he was recognized as one of two Outstanding State Directors in the nation by Jill Long Thompson, who was then Under Secretary of the USDA. His 

term concluded in February 2001. 

Mr. Tonsager grew up on a dairy farm near Oldham, South Dakota. In partnership with his brother, he 

owns Plainview Farm in Oldham, a family farming operation that includes corn, soybeans, wheat, and hay. 

A long-time member of the South Dakota Farmers Union, Mr. Tonsager served two terms as president of 

the organization, from 1988 to 1993. He served on the board of the National Farmers Union Insurance from 

1989 to 1993, and he was a member of the advisory board of the Commodity Futures Trading Commission 

from 1990 to 1993. 

From 1988 to 1993, Mr. Tonsager was a board member of Green Thumb, Inc., a nationwide job training 

program for senior citizens. He currently serves on the board of the Lutheran Social Services of South 

Dakota. 

Mr. Tonsager is a graduate of South Dakota State University where he earned a B.S. in agriculture in 1976. 

He and his wife, Sharon, have two sons and a daughter-in-law. 

Farm Credit Administration 6

Farm Credit System— 

An Overview of Events and Conditions 

FCS Role and Structure 

The FCS is a network of borrower-owned cooperative financial institutions and related service organizations. It is the largest single agricultural lender in the country and serves all 50 states and the Commonwealth of Puerto Rico. Created by Congress in 1916 to provide American agriculture with a dependable source of credit, the FCS is the oldest 

Government-sponsored enterprise (GSE). 

FCS institutions provide credit and financially related services to farmers, ranchers, producers or harvesters of aquatic products, and farmerowned cooperatives. They also make credit available for agricultural 

processing and marketing activities, rural housing, certain farm-related 

businesses, agricultural and aquatic cooperatives, rural utilities, and 

foreign and domestic entities in connection with international agricultural trade. The System raises funds by selling securities in the national 

and international money markets, subject to approval by the FCA. These 

securities are not guaranteed by the U.S. Government. The funds are 

used to meet the credit needs of rural America through the FCS lending 

institutions. 

As of December 31, 2005, the System was composed of 101 banks and 

associations. Five Farm Credit banks provide loan funds to 85 ACA 

parent organizations1 and 11 Federal Land Credit Associations (FLCAs). 

ACAs make short-, intermediate-, and long-term loans; FLCAs make only 

long-term loans; and Production Credit Associations (PCAs), which are 

subsidiaries of ACAs, make only short- and intermediate-term loans. 

One of the five banks is an Agricultural Credit Bank (ACB), which has 

a nationwide charter to make loans to agricultural and aquatic cooperatives and rural utilities, as well as to other persons or organizations that 

have transactions with, or are owned by, such cooperatives. The ACB 

finances U.S. agricultural exports and imports and provides international banking services for farmer-owned cooperatives. In addition to 

making loans to cooperatives, the ACB provides loan funds to five 

ACAs, which serve New York, New Jersey, Connecticut, Rhode Island, 

Maine, Massachusetts, New Hampshire, Vermont, Alaska, Oregon, 

Washington, Montana, and Idaho. 

1.	 The ACA is the parent company with two 

wholly owned subsidiaries, a PCA and an 

FLCA. Although legally separated, the 

ACA, the PCA, and the FLCA operate an 

integrated lending business, with loans 

made through the subsidiaries appropriate to the authority of each subsidiary. The 

ACA, the PCA, and the FLCA are jointly 

and severally liable on the full amount of 

the indebtedness to the bank under the 

bank’s General Financing Agreement. In 

addition, the three associations agree to 

guarantee each other’s debts and obligations, pledge their respective assets as security for the guarantee, and share each 

other’s capital. The three institutions have 

a common board and management and a 

common set of shareholders. Under the 

Farm Credit Act, the FLCA is exempt from 

Federal income taxes. 

7
 2005 Annual Report on the Farm Credit System 
2.	 The Farm Credit System Financial Assistance Corporation (FAC) will continue in 

existence until no later than 2 years following the maturity and full payment of 

its outstanding debt securities, which 

matured and were repaid in full in June 

2005. The board of directors of the FAC is 

the same as the board of directors of the 

Federal Farm Credit Banks Funding Corporation. 

3.	 The Farm Credit System Assistance Board 

was created by the Agricultural Credit Act 

of 1987 to provide assistance to financially troubled FCS banks, protect the 

stock of System borrowers, restore FCS 

banks to economic viability, and preserve 

their ability to provide credit at reasonable and competitive rates. The Farm 

Credit System Assistance Board terminated on December 31, 1992. 

4.	 Farmer Mac is established in law as a part 

of the FCS. However, Farmer Mac has no 

liability for the debt of any other System 

institution, and the other System institutions have no liability for Farmer Mac 

debt. Farmer Mac is organized as an investor-owned corporation, not a memberowned cooperative. Investors in voting 

stock may include commercial banks, insurance companies, other financial organizations, and FCS institutions. Nonvoting stock may be owned by any investor. 

Farmer Mac is regulated by the FCA 

through the Office of Secondary Market 

Oversight, whose director reports to the 

FCA Board on matters of policy. 

5.	 Section 4.25 of the Farm Credit Act provides that one or more FCS banks or associations may organize a service corporation to perform functions and services 

on their behalf. These federally chartered 

service corporations are prohibited from 

extending credit or providing insurance 

services. 

In addition to the banks and associations described above, FCA examines and regulates the following three entities: 

The Federal Farm Credit Banks Funding Corporation, which markets 

debt securities that the banks sell to raise loan funds. The Funding 

Corporation is owned by the System banks. 

The Farm Credit System Financial Assistance Corporation,2 chartered 

in 1988, which provided needed capital to the System through the sale 

of $1.3 billion in 15-year bonds to the capital markets and the purchase 

of preferred stock. This stock was issued by certain System institutions 

that received financial assistance as authorized by the Farm Credit 

System Assistance Board.3 

Farmer Mac,4 which provides a secondary market arrangement for 

agricultural real estate and rural housing mortgage loans and provides 

greater liquidity and lending capacity to agricultural lenders. Under the 

Farmer Mac I program, Farmer Mac guarantees prompt payment of 

principal and interest on securities representing interests in, or obligations backed by, mortgage loans secured by first liens on agricultural 

real estate or rural housing; it also purchases or commits to purchase 

qualified loans or securities backed by qualified loans directly from 

lenders. Under the Farmer Mac II program, it guarantees securities 

backed by the “guaranteed portions” of farm ownership and operating 

loans, rural business and community development loans, and certain 

other loans guaranteed by the USDA. 

FCA also examines and regulates the following five service corporations 

organized under Section 4.25 of the Farm Credit Act:5 

AgVantis, Inc., which provides technology-related and other support 

services to the associations affiliated with U.S. AgBank, Farm Credit 

Bank (FCB). AgVantis, which was chartered by FCA on August 3, 2001, 

is owned by the bank and 17 of its affiliated associations. 

Farm Credit Finance Corporation of Puerto Rico (FCFCPR), which 

used tax incentives offered to investors to provide low-interest funding 

(other than that from the Federal Farm Credit Banks Funding Corporation) to the Puerto Rico Farm Credit, ACA. Because of changes in the 

tax treatment of the corporation, AgFirst FCB, the sole owner of 

FCFCPR, suspended operations of FCFCPR as of December 31, 2005, 

although the charter remains outstanding. 

Farm Credit Administration 8

Farm Credit Leasing Services Corporation, which provides equipment 

leasing services to eligible borrowers, including agricultural producers, 

cooperatives, and rural utilities. It is a service corporation owned by 

CoBank, ACB. 

Farm Credit Financial Partners, Inc., which provides support services 

to CoBank, ACB; CoBank’s five affiliated associations; the Farm Credit 

Leasing Services Corporation; five associations affiliated with U.S. 

AgBank, FCB; two associations affiliated with AgriBank, FCB; and two 

System-related entities. 

The FCS Building Association, which acquires, manages, and maintains 

facilities to house FCA’s headquarters and field office staff. The FCS 

Building Association was formed in 1981 and is owned by the FCS 

banks. The FCA Board oversees the Building Association’s activities on 

behalf of its owners. 

When Congress established the FCS as a GSE, its purpose was to 

provide a permanent, reliable source of credit and related services to 

agriculture and aquatic producers, their cooperatives, and related 

businesses in rural America. Congress intended the farmer-owned 

cooperative FCS to improve the income and well-being of American 

farmers and ranchers. It further encouraged farmer- and rancherborrower participation in the management, control, and ownership of 

these cooperative institutions to help them remain focused on serving 

their members’ needs. 

The System meets a broad public need by preserving liquidity and 

competition in rural credit markets in both good and bad economic 

times. The accomplishment of this public goal benefits all eligible 

borrowers, including young, beginning, and small (YBS) farmers, as well 

as rural home purchasers. 

FCA’s regulations, policy statements, examinations, chartering activities, 

and other regulatory activities (discussed in later chapters of this report) 

support and facilitate the accomplishment of the System’s mission by 

ensuring that FCS institutions operate in a safe and sound manner 

without undue risk to taxpayers, investors in System securities, or its 

borrower-stockholders. 

9
 2005 Annual Report on the Farm Credit System 
6.	 The information presented in this section 

pertains to all FCBs, the ACB, and their 

affiliated associations. The FCS institutions provided the data used in the overall FCS analysis to the FCA or to the Federal Farm Credit Banks Funding Corporation. The analysis in this report is based 

on publicly available information and, 

except where noted, is based on the 12­

month period ended December 31, 2005. 

See Tables 2 and 3 on pages 22 and 23 

for System measures of financial condition. 

7.	 Nonperforming loans consist of 

nonaccrual loans, accruing restructured 

loans, and accrual loans 90 or more days 

past due. 

8.	 During 2004, System institutions conducted studies to refine their ALL methodologies following FCA requirements, as 

well as Securities and Exchange Commission and Federal Financial Institutions 

Examination Council guidance. As a result, System institutions recorded a reversal of the ALL of $1.167 billion, net of a 

related $95 million deferred-tax expense 

for the year ended December 31, 2004. 

The sections in this chapter first assess the System’s financial strength 

and then its service to rural America. Our discussion relies on commonly used measures, including trends in volume by a variety of loan 

types, volume of funding for non-System rural lenders and participations with other lenders, and the System’s share in the marketplace. 

Discussion in the next chapter also covers lending activity and programs 

that benefit YBS farmers and ranchers and the use of government 

guarantee programs in supporting loans to farmers who are unable to 

meet normal underwriting requirements. 

Financial Condition of the FCS6 

FCS loan volume grew at a strong pace for the year ended December 

31, 2005, (see “Borrowers Served” on page 14). Asset quality remained 

high and nonaccrual loans decreased over the preceding 12 months, 

primarily because of favorable economic conditions in the agricultural 

sector. System earnings continued to improve from the increased loan 

volume and slightly better yield spreads on earning assets. Record-high 

levels of government payments to the agricultural sector supplemented 

the incomes of borrowers and contributed to the System’s financial 

strength. 

Asset Quality—System loan volume expanded at a good rate and loan 

quality remained high for the year ended December 31, 2005. Gross 

loans increased by 10.3 percent to $106.3 billion. Nonperforming loans7 

amounted to $600 million, or 0.56 percent of gross loans, for 2005, a 

19 percent decline from the previous year (see Figure 1). Nonaccrual 

loans totaled $524 million, or 0.49 percent of gross loans, in 2005, 

compared with $646 million, or 0.67 percent, in 2004. The allowance for 

loan losses (ALL) as a percentage of gross loans declined from 

$792 million, or 0.82 percent of gross loans, in 2004 to $755 million, or 

0.71 percent of gross loans, in 2005.8 Delinquencies (accrual loans 90 or 

more days past due) remained low, at just 0.01 percent (1 basis point) of 

total gross loans. 

Farm Credit Administration 10

Percentage of Gross Loans

Figure 1 9. Excluding the $1.167 billion (net of taxes) 

FCS Nonperforming Loans, 2000–2005 ALL reversal in 2004, System earnings for 

As of December 31 2005 increased 14.8 percent from the previous year. 

1.40 

0.09 0.05 0.07 0.09 1.20 

1.00 

0.94 

0.16 

0.02 

0.80 

0.93 

0.14 

0.01 0.60 

0.40 

0.20 0.49 

1.05 0.06

0.12 

0.67 

0.08 

1.13 

0.10 

2000 2001 2002 2003 2004 2005 

Nonaccrual Loans Restructured Loans Past Due Loans 

Sources: Federal Farm Credit Banks Funding Corporation, Annual Information Statements. arm Credit Banks Funding Corporation, Annual Information Statements.

Earnings—Continuing favorable credit quality helped the System produce $2.1 billion in earnings for the year ended December 31, 2005, (see 

Figure 2). Although System earnings in 2005 were less than the earnings 

in 2004,9 earnings continued to reflect an increasing overall trend for the 

past 5 years. Net interest income was the principal source of earnings, 

equaling $3.25 billion in 2005, compared with $2.99 billion in 2004 (an 

8.4 percent increase). In sharp contrast with 2004, when the ALL reversal was $1.2 billion, the System’s reversal in 2005 was only 

$1 million. Systemwide net interest margin increased 2 basis points to 

2.58 percent as of year-end 2005, compared with 2.56 percent a year 

earlier. Noninterest income was $353 million in 2005, compared with 

$340 million in 2004, an increase of 3.8 percent. Noninterest expense 

was $1.41 billion in 2005, compared with $1.35 billion in 2004, an 

increase of 4.1 percent. 

11
 2005 Annual Report on the Farm Credit System 
Dollars in Billions

Percentage Rate of Return

10. Total capital includes perpetual preferred 

stock, capital stock and participation certificates, restricted capital, accumulated 

other comprehensive income, allocated 

surplus, and unallocated surplus. It does 

not include mandatorily redeemable 

term-preferred stock or protected capital. 

Restricted capital ($2.06 billion as of December 31, 2005) represents the total assets under the control of the FCSIC, including assets that have been identified 

for estimated insurance obligations and 

the Farm Credit Insurance Fund balance. 

Accumulated other comprehensive income (negative $242 million as of December 31, 2005) for the System consisted of 

unrealized holding losses on availablefor-sale securities ($142 million), pension 

liability adjustments ($61 million), and 

unrealized losses on cash flow hedges 

($39 million). One System bank had 

$225 million of mandatorily redeemable 

term-preferred stock outstanding. Such 

stock is not included in “total capital” although it qualifies for certain regulatory 

capital purposes. Protected capital 

($17 million as of December 31, 2005) consists of borrower stock, participation certificates, and allocated equities that were 

outstanding as of January 6, 1988, or were 

issued or allocated before October 8, 1988. 

Protection of certain borrower capital is 

provided under the Farm Credit Act of 

1971, as amended, which requires FCS institutions, when retiring protected borrower capital, to retire such capital at par 

or stated value regardless of its book 

value. 

Figure 2

FCS Net Income, 2001–2005

As of December 31

15.10% 3.5 16 

$1.785 $1.773 $1.825 

$2.096 

1.83% 1.69% 1.61% 1.61% 

8 $2.993 

2.48% 

9.21% 

1.52% 

12 

14 

11.69% 

3 

2.5 10.55% 10.20% 

9.43% 10 

2 

1.5 

6 

1 4 

.5 2 

0 0 

2001 2002 2003 2004 2005 

Net Income Return on Assets Return on Equity 

Sources: Federal Farm Credit Banks Funding Corporation, Annual Information Statements. arm Credit Banks Funding Corporation, Annual Information Statements.

Note: The dotted green line and dotted brown line show the return on assets and return on

equity, respectively, that System institutions would have had without the large allow-­

ance-for-loan-losses (ALL) reversal that occurred when they refined their ALL methodolo-­

gies in 2004. See footnote 8. gies in 2004. See footnote 8.

Capital—In 2005, the System continued to strengthen its capital base 

through increased loan volume and earnings.10 Total capital was 

$22.8 billion in 2005, compared with $21.4 billion in 2004, an increase of 

6.5 percent (see Figure 3). Accumulated surplus also increased to 

$18.6 billion, comprising 13.3 percent of System assets and 81.7 percent 

of System capital. For the year ended December 31, 2005, preferred 

stock increased $132 million (or 14.9 percent) to $1.02 billion, which 

equated to 4.5 percent of total capital. 

Farm Credit Administration 12

Percentage of Total Assets

Dollars in Billions

Figure 3

FCS Capital, 2000–2005

As of December 31

18 25 

16 

20 14


12


5 

2 

10 

1.70 1.50 1.35 

1.12 0.95 1.75	 2.04 

1.23 

2.32 

2.03 

13.69 13.30

12.68 12.29 12.32

11.81 

2000 2001 2002 2003 2004 2005 

15 

10


8


6


4


2.12 2.28 

Total Capital Surplus Borrower Stock Other Capital

Sources: Federal Farm Credit Banks Funding Corporation, Annual Information Statements. arm Credit Banks Funding Corporation, Annual Information Statements.

System bank and association capital ratios remained strong for 2005, 

well above regulatory minimum requirements.11 Permanent capital ratios 

for System banks ranged from 13.7 percent to 23.9 percent; however, 

because many of the banks’ assets are risk-weighted at less than 

100 percent, the Agency uses the net collateral ratio as a key capitalization standard for the System’s five banks. The minimum requirement for 

this ratio is 103 percent; as of December 31, 2005, no bank had a net 

collateral ratio of less than 105 percent. 

The results for the other capital ratios were all very favorable. The 

permanent capital ratio for System associations ranged from 11.1 percent 

to 28.9 percent. Total surplus ratios for System banks ranged from 

13.7 percent to 23.8 percent; they ranged from 9.8 percent to 28.1 percent 

for the associations. All System institutions also exceeded the regulatory 

minimum requirement for the core surplus ratio. 

11.	 Banks and associations are required to 

maintain a regulatory minimum permanent capital ratio of 7.0 percent, a total 

surplus ratio of 7.0 percent, and a core 

surplus ratio of 3.5 percent. 

13
 2005 Annual Report on the Farm Credit System 
12. This total does not include loans to rural 

homeowners, as defined in FCA regulation 613.3030, and leases. 

Borrowers Served 

The System fulfills its overall mission by using its authority to lend to 

agriculture and rural America. Since its inception in 1916, the System’s 

authority to serve its customer base has evolved over the years to 

include the following loan products: 

• long-term agricultural real estate loans, including rural home loans; 

• short- and intermediate-term agricultural loans; 

• loans to producers and harvesters of aquatic products; 

• loans to certain farmer-owned agricultural processing facilities and 

farm-related businesses; 

• loans to farmer-owned agricultural cooperatives; 

• loans that finance agricultural exports and imports; and 

• loans for rural utilities. 

Nationwide, the System had $106.3 billion in gross loans outstanding as 

of December 31, 2005, (see Table 1). Agricultural producers represented 

by far the largest borrower group, with $76.6 billion, or 72.1 percent of 

the total dollar amount of loans outstanding.12 As required by law, all 

borrowers also own stock in System institutions. The System had nearly 

729,000 loans and approximately 460,000 stockholders in 2005. 

The aggregate total of loans outstanding at FCS banks and associations 

(net of intra-System lending) grew by $9.9 billion, or 10.3 percent, 

during the year ended December 31, 2005; this was the largest annual 

percentage increase in the past 5 years. The second largest annual 

increase occurred in 2001 when the portfolio grew 9.9 percent. However, 

this figure dropped to as low as 3.4 percent and 3.9 percent in 2003 and 

2004, respectively. Over the past 5 years, total System loans outstanding 

increased by $23.6 billion, or 28.6 percent. 

As of December 31, 2005, about half of the System’s outstanding loans 

(49.6 percent) were in long-term real estate loans, 22.5 percent in shortand intermediate-term loans, and 13.8 percent in agribusiness loans, of 

which 8.3 percent were in loans to cooperatives and 3.8 percent were in 

processing and marketing loans. Loans to finance rural utilities represented 7.6 percent of the System’s loan volume while rural home loans 

made up 2.8 percent of the System’s total loans. International loans 

(export financing) represented 2.1 percent of the System’s loan portfolio, 

and lease receivables accounted for less than 1 percent of the overall 

portfolio. 

Farm Credit Administration 14

Table1

FCS Gross Loans Outstanding, 2001–2005 oans Outstanding, 2001–20

As of December 31

Dollars in Millions

05 

Loan

Category 2001 2002 2003 2004 2005

Percentage

Change

from

2001

Production Agriculture: 

Long-Term Real Estate 

Mortgage Loans $37,660 $43,517 $46,480 $48,704 $52,723 40.0 

Short- and 

Intermediate-Term Loans 20,000 20,491 21,058 21,780 23,902 19.5 

Agribusiness Loans* 10,873 11,802 12,094 12,053 14,673 34.9 

Rural Utility Loans 6,721 6,900 6,451 7,200 8,063 20.0 

Rural Residential 

and Real Estate Loans 2,649 2,327 2,278 2,482 2,950 11.4 

International Loans 2,780 3,062 2,795 2,624 2,277 -18.1 

Lease Receivables 1,668 1,384 1,323 1,168 1,290 -22.7 

Loans to Other Financing Institutions 293 289 311 356 394 34.5 

Total $82,644 $89,772 $92,790 $96,367 $106,272 28.6

Source: Federal Farm Credit Banks Funding Corporation 2005 Annual Information Statement. arm Credit Banks Funding Corporation 2005 Annual Information Statement.

*	 As of December 31, 2005, agribusiness loans consisted of loans to cooperatives of $8.778 billion; processing and marketing loans of

$4.083 billion; and farm-related business loans of $1.812 billion. $4.083 billion; and farm-related business loans of $1.812 billion.

15
 2005 Annual Report on the Farm Credit System 
The System’s increased loan volume over the past 12 months stemmed 

from long-term real estate loans (up $4.0 billion, or 8.3 percent) and 

short- and intermediate-term loans (up $2.1 billion, or 9.7 percent). 

Long-term real estate loans also exhibited the largest percentage increase 

over the previous 5 years, with an increase of about 40.0 percent since 

2001, which translated into an increase of $15.1 billion in nominal terms. 

Agribusiness loans exhibited the second largest overall volume increase 

over the previous 5 years, with an increase of $3.8 billion, or 34.9 percent, since 2001, and they grew $2.6 billion, or 21.7 percent, in 2005 

alone. Several other components also experienced strong growth rates in 

2005, such as loans for rural homes and rural utilities, but the volume 

increases for these categories were small in nominal terms, all less than 

$1 billion. 

Several factors facilitated the System’s strong loan growth in 2005. The 

funding environment remained favorable, allowing the System to offer 

competitive interest rates in a rising rate environment. System institutions also mounted effective marketing campaigns to finance more 

integrated operations and alternative energy production ventures, 

mostly ethanol, through an increased number of processing and marketing loans. Moreover, with strong capital positions, a number of System 

institutions used loan participations and syndications, both inside and 

outside the System, as a way of using their capital base while achieving 

portfolio diversification and risk reduction. 

Of the 96 FCS associations, 22 experienced double-digit growth rates for 

loans to agricultural producers, the largest borrower group category, 

while only 5 associations experienced drops in loan volume to this 

group of borrowers. Moreover, the number of loans to agricultural 

producers increased in 45 states, indicating that the System continued to 

show a strong commitment to its mission of serving agriculture and 

rural communities. 

Farm Credit Administration 16

Funding for Other Lenders 

Other Financing Institutions 

Under the Farm Credit Act, System banks may further serve the credit 

needs of rural America by providing funding and discounting services 

to non-System lending institutions known as “other financing institutions” (OFIs), which include commercial banks, thrifts, credit unions, 

trust companies, agricultural credit corporations, and other specified 

agricultural lenders. System banks can fund and discount short- and 

intermediate-term loans for OFIs that are significantly involved in 

lending to agricultural and aquatic producers and demonstrate a need 

for additional funding to meet the credit needs of eligible borrowers. As 

of December 31, 2005, the System served 26 OFIs, the same number as 

the year before. However, the number of OFI loans increased 12 percent 

to 317 in 2005. Outstanding loan volume to OFIs was $397.8 million for 

2005, an increase of 11.1 percent from 2004. OFI loan volume represented approximately 1.66 percent of the System’s production and 

intermediate-term loan volume in 2005, up very slightly from 1.64 percent for 2004. 

Rising Loan Participations and Syndications with Non-FCS Lenders 

Under conditions prescribed by the Farm Credit Act, System banks and 

associations have authority to participate with commercial banks or 

OFIs in making loans to agriculture and rural America. Financial institutions primarily use loan participations and syndications to reduce 

interest rate risk and credit risk, but they also use them to enhance 

capital, earnings, and liquidity. Agricultural credit providers with high 

commodity concentrations frequently use participations and syndications 

to diversify their portfolios or to fund large loans when they have 

insufficient capital. 

System gross loan participation and syndication purchases with non-FCS 

lenders grew by $2.4 billion, or 27.9 percent, to $11.0 billion during the 

year ended December 31, 2005, and by $7.5 billion, or 213.7 percent, 

over the past 5 years (see Figure 4).13 These purchases continued to 

13. Loan participations with non-FCS lenders include four types of asset purchases 

reported on Call Report Schedule RC-O: 

loan participations, similar entity transactions, lease interest, and other interest 

in loans. Loan syndications are a line item 

reported on Schedule RC-1 Memoranda. 

17
 2005 Annual Report on the Farm Credit System 
Dollars in Billions

Outside Participations/Syndications

as a Percentage of Gross Loans

14. Loan participation sales to non-FCS 

lenders were $1.02 billion for 2005 and 

$716 million for 2004. 

Figure 4

FCS Participations and Syndications with Non-FCS Lenders, 2000–2005

As of December 31

12 12 

10.36% 

8.94% 

10 

$8.61 

8 

10 

8 

6.35%


5.35% 5.67%


6


$5.89 

6 

4.67% 

4 

$4.42 

4 

2 $3.51 2 

$11.01 

$5.09 

2000 2001 2002 2003 2004 2005 

Outside Participations/Syndications 

Outside Participations/Syndications as Percentage of Gross Loans 

Source: FCS Call Reporting System. eporting System.

expand rapidly in relation to the System’s loan portfolio, rising from just 

4.7 percent of gross loans in 2000 to 10.4 percent in 2005. Non-FCS 

gross loan participation purchases were $8.3 billion, or 7.8 percent of 

gross loans, in 2005, up from $6.7 billion, or 6.9 percent of gross loans, 

in 2004.14 Loan syndication purchases were $2.7 billion, or 2.5 percent of 

gross loans, in 2005, compared with $2.0 billion, or 2.0 percent of gross 

loans, in 2004. Favorable market conditions have contributed to the 

increasing collaboration between System and non-FCS lenders; this 

collaboration has expanded the availability of credit to rural America. 

Farm Credit Administration 18

Percentage of Market

Figure 5

FCS Market Share of Total Farm Business Debt, 1985–2005

As of December 31

45


40


35


30


25


20


15


Commercial Banks 

Individuals & Others 

Farm Credit System 

USDA Farm Service Agency


10
 Life Insurance Companies 

5 

0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 

Source: USDA, Economic Research Service. Market share data are based on farm balance- et share data are based on farm balancesheet debt estimates by lender on the USDA Web site, accessed February 10, 2006. Esti- y 10, 2006. Esti­ y 10, 2006. Estimates for 2005 are preliminary.

Note: “Individuals & Others” includes trade credit, seller financing of real estate, Commodity

Credit Corporation storage and drying facility loans, and loans sold to Farmer Mac. Loan

volume guaranteed by Farmer Mac, as well as by the USDA Farm Service Agency, is treated

as being with the originating lender or purchaser of the loan, not the guarantor agency.

The System’s Market Share of Farm Debt 

According to USDA estimates of farm sector debt, the System’s growth 

in loans outstanding to farming operations slowed to 3.6 percent during 

calendar year 2005, compared with about 5 percent during 2003 and 

2004. However, since 2000, the System’s growth rate has outpaced all 

other major farm sector lenders, causing the System’s share of total farm 

business debt to jump from 26.1 percent in 2000 (see Figure 5) to 

30.8 percent in 2005.15 The System’s market share of total farm debt 

15. Market share percentages are for farm 

business debt and are based on USDA’s 

annual year-end estimates. The historical estimates by lender were revised in 

October 2003, and preliminary 2005 estimates were issued on February 10, 2006. 

These data are available on the USDA 

Economic Research Service Web site. 

USDA also periodically surveys debt 

sources used by farm cooperatives. According to the most recent survey (1997), 

the System provided about 54 percent of 

the funds borrowed by those cooperatives surveyed. Market share information 

is not routinely available on the 

nonfarmer segments of the System’s 

lending activity—namely, the financing 

it provides to rural homeowners, marketing and processing firms, rural utilities, 

and international farm commodity sales. 

19
 2005 Annual Report on the Farm Credit System 
reached a low of 23.9 percent in 1994, following a cyclical high of 

33.6 percent in 1982. During the latter half of the 1990s, both System 

institutions and commercial banks generally experienced small gains in 

market share. Market share for “individuals and others,” as well as for 

USDA’s Farm Service Agency (FSA) direct lending program, has generally declined in recent years. Meanwhile, the market share for life 

insurance companies has remained relatively stable over a prolonged 

period. Although commercial banks continued to have the largest 

market share at the end of 2005, their share has moderated since December 31, 2000; it stood at 40.3 percent on December 31, 2005. 

The System’s share of real-estate-secured farm debt increased from 

36.6 percent in 2002 to 37.8 percent at year-end 2005. Its share of nonreal-estate-secured farm debt has held fairly steady, standing at 21.8 percent in 2005, compared with 21.9 percent in 2002. 

While commercial banks edged ahead of the System in the farm real 

estate debt market in 2000 with a 32.7 percent share, their share slipped 

back the following 2 years. At the end of 2005, commercial banks’ share 

of real-estate-secured farm debt was 33.7 percent. Commercial banks 

continue to dominate the non-real-estate-secured farm debt market with 

a 48.8 percent share (2005), but this figure is down from the 52.0 percent average for the 1996–2000 period. 

Farmer Mac as a Secondary Market 

Farmer Mac was created to provide a secondary market arrangement 

for agricultural real estate and rural housing mortgage loans and greater 

liquidity and lending capacity to agricultural lenders. In USDA’s estimates of farm sector debt by lender, Farmer Mac’s purchases of farm 

real estate loans (about $2.9 billion outstanding as of December 31, 

2005) from various lenders are included as a subcategory that USDA 

labels “Individuals and Others.” 

Farm Credit Administration 20

Farmer Mac also plays a role in the farm debt market through a product 

known as the Long-Term Standby Purchase Commitment program, which 

was introduced in 1999. Under a Standby, a financial institution acquires a Farmer Mac guarantee for an annual fee on a loan pool that the 

institution retains. While Farmer Mac’s Standby product is available to 

agricultural lenders generally, System institutions accounted for nearly 

all ($2.3 billion) of the outstanding volume in Standbys as of December 

31, 2005.16 

Since not all farm mortgages are eligible for Farmer Mac funding, 

Farmer Mac calculates market share achievement by estimating the 

portion of the total farm real estate debt market that would qualify as 

eligible mortgages under Farmer Mac’s underwriting criteria. According 

to these calculations, outstanding program volume ($5.3 billion) is about 

11 percent of the eligible farm real estate debt market. 

16. The guaranteed amounts by Farmer Mac 

are reported in USDA’s farm business 

debt estimates as being provided by the 

originating lender. This is also how approximately $10 billion in loans guaranteed by the FSA are treated, i.e., the share 

reported for USDA/FSA is just for its direct lending activity. 

21
 2005 Annual Report on the Farm Credit System 
Table 2

FCS Major Financial Indicators

As of December 31

Dollars in Thousands

FCS Banks1	 2001 2002 2003 2004 2005

Gross Loan Volume $73,908,268 $80,370,840 $82,986,046 $85,411,707 $94,865,873 

Accruing Restructured Loans2 $360,958 $17,264 $9,492 $7,050 $6,131 

Accrual Loans 90 or More Days Past Due $32,074 $54,017 $22,456 $5,420 $1,322 

Nonaccrual Loans $224,987 $353,765 $444,663 $227,003 $152,223 

Nonperforming Loans/Total Loans3 0.84% 0.53% 0.57% 0.28% 0.17% 

Cash and Marketable Investments $14,654,508 $17,076,661 $19,908,823 $23,089,548 $27,788,225 

Capital/Assets4 7.15% 6.70% 6.89% 6.79% 6.20% 

Unallocated Retained Earnings/Assets 3.79% 3.66% 3.49% 3.54% 3.28% 

Net Income $659,469 $751,343 $613,401 $733,012 $740,785 

Return on Assets5 0.74% 0.78% 0.68% 0.68% 0.61% 

Return on Equity5 9.64% 10.67% 9.85% 9.82% 9.48% 

Net Interest Margin 1.23% 1.15% 0.99% 0.92% 0.84% 

Operating Expense Rate6 0.40% 0.36% 0.33% 0.36% 0.33% 

Associations

Gross Loan Volume $59,259,300 $66,606,213 $70,897,369 $75,619,681 $83,253,781 

Accruing Restructured Loans2 $74,629 $90,726 $83,075 $68,439 $53,885 

Accrual Loans 90 or More Days Past Due $36,568 $27,654 $20,742 $15,375 $13,156 

Nonaccrual Loans $546,179 $589,645 $607,351 $419,312 $371,703 

Nonperforming Loans/Gross Loans3 1.11% 1.06% 1.00% 0.67% 0.53% 

Capital/Assets7 16.38% 15.85% 16.34% 17.72% 17.19% 

Unallocated Retained Earnings/Assets 13.85% 13.63% 13.96% 15.28% 14.80% 

Net Income $1,151,750 $1,187,596 $1,341,261 $2,420,251 $1,613,406 

Return on Assets5 2.08% 1.80% 1.83% 3.10% 1.85% 

Return on Equity5 12.71% 11.20% 11.10% 18.22% 10.55% 

Net Interest Margin 2.80% 2.69% 2.72% 2.72% 2.71% 

Operating Expense Rate6 1.59% 1.50% 1.56% 1.58% 1.53% 

Total FCS8

Gross Loan Volume $82,644,000 $89,772,000 $92,790,000 $96,367,000 $106,272,000 

Accruing Restructured Loans2 $113,000 $109,000 $94,000 $76,000 $61,000 

Accrual Loans 90 or More Days Past Due $72,000 $83,000 $43,000 $21,000 $15,000 

Nonaccrual Loans $771,000 $939,000 $1,049,000 $646,000 $524,000 

Nonperforming Loans/Gross Loans3 1.16% 1.26% 1.28% 0.77% 0.56% 

Bonds and Notes $82,339,000 $90,980,000 $95,310,000 $100,330,000 $113,576,000 

Capital/Assets9 15.83% 15.41% 16.19% 17.13% 16.28% 

Surplus/Assets 12.29% 12.32% 12.68% 13.69% 13.30% 

Net Income $1,785,000 $1,773,000 $1,825,000 $2,993,000 $2,096,000 

Return on Assets5 1.82% 1.67% 1.60% 2.46% 1.58% 

Return on Equity5 11.61% 10.58% 10.11% 14.85% 9.38% 

Net Interest Margin 2.82% 2.78% 2.65% 2.56% 2.58% 

Sources: Call Reports received from the FCS and the Sources: Call Reports received from the FCS and the Farm Credit System Annual Information Statement for years 2001 through 2005, provided by the for years 2001 through 2005, provided by the

Federal Farm Credit Banks Funding Corporation. Federal Farm Credit Banks Funding Corporation.

1.	 This category includes Federal Farm Credit Banks and the Agricultural Credit Bank. arm Credit Banks and the Agricultural Credit Bank.

2.	 This category excludes loans 90 days or more past due. cludes loans 90 days or more past due.

3.	 Nonperforming loans include nonaccrual loans, accruing restructured loans, and accrual loans 90 or more days past due. forming loans include nonaccrual loans, accruing restructured loans, and accrual loans 90 or more days past due.

4.	 Capital excludes madatorily redeemable preferred stock. cludes madatorily redeemable preferred stock.

5.	 Income ratios are annualized. Income ratios are annualized.

6.	 Operating expense rate is determined by dividing operating expenses by average gross loans, annualized. Operating expense rate is determined by dividing operating expenses by average gross loans, annualized.

7.	 Capital excludes protected borrower capital. cludes protected borrower capital.

8.	 The data provided in this category cannot be derived through summation of above categories because of intradistrict and intra-System eliminations

used in the used in the Farm Credit System Annual Information Statement. Farm Credit System Annual Information Statement.

9.	 Capital includes restricted capital (amount in Farm Credit Insurance Fund) and excludes mandatorily redeemable preferred stock and protected

borrower capital. borrower capital.

Farm Credit Administration 22

Table 3

Farm Credit System Major Financial Indicators, by District1

As of December 31, 2005

Dollars in Thousands

Allowance Cash

Gross for and

Total Loan Nonaccrual Nonaccrual Loan Marketable Capital Capital Total

Assets Volume Loans Losses Investments2 Stock3 Surplus4 Capital Capital5

FCS Banks

AgFirst $20,483,031 $14,411,043 $19,197 $10,114 $5,826,556 $374,555 $665,445 $1,037,429 

AgriBank 39,866,527 31,608,612 8,361 3,141 7,843,091 842,505 1,288,681 2,113,842 

CoBank 33,834,917 26,297,284 119,846 437,140 7,485,355 1,717,710 1,232,877 2,902,074 

Texas 11,284,788 8,481,501 3,542 142 2,751,372 335,390 315,047 624,307 

U.S. AgBank 18,166,979 14,067,433 1,277 1,209 3,881,851 494,761 560,535 991,996 

Total $123,636,242 $94,865,873 $152,223 $451,746 $27,788,225 $3,764,921 $4,062,585 $7,669,648 

Associations

AgFirst $15,230,615 $14,200,192 $63,615 $77,437 $369,420 $179,375 $2,212,903 $2,391,874 

AgriBank 38,033,687 35,763,097 140,753 75,539 129,176 192,629 6,367,720 6,560,304 

CoBank 8,951,515 8,407,851 66,791 69,823 21,252 36,034 1,519,685 1,537,482 

Texas 9,145,273 8,789,696 25,731 9,341 45,546 75,633 1,435,460 1,511,093 

U.S. AgBank 17,289,266 16,092,945 74,813 64,100 390,875 240,132 3,019,406 3,240,877 

Total $88,650,356 $83,253,781 $371,703 $296,240 $956,269 $723,803 $14,555,174 $15,241,630 

Total FCS $139,886,000 $106,272,000 $524,000 $755,000 $28,427,000 $1,333,000 $18,604,000 $22,774,000

Sources: Call Reports received from the FCS and Sources: Call Reports received from the FCS and theFarm Credit System Annual Information Statement for years 2001 through 2005, for years 2001 through 2005, for years 2001 through 2005,

provided by the Federal Farm Credit Banks Funding Corporation. provided by the Federal Farm Credit Banks Funding Corporation.

1. Aggregations of district data may not equal totals because of eliminations. Aggregations of district data may not equal totals because of eliminations.

2. This category includes accrued interest receivable on marketable investments. etable investments.

3. This category includes capital stock and participation certificates and excludes madatorily redeemable preferred stock and protected

borrower capital. borrower capital.

4. This category includes allocated and unallocated surplus. y includes allocated and unallocated surplus.

5. Total capital includes capital stock, participation certificates, perpetual preferred stock, surplus, accumulated other comprehensive

income, and restricted capital (amount in the Farm Credit Insurance Fund for Farm Credit System total only). Excludes mandatorily

redeemable preferred stock and protected borrower capital. redeemable preferred stock and protected borrower capital.

23
 2005 Annual Report on the Farm Credit System 
Serving Young, Beginning, 

and Small Farmers and Ranchers17 

17. For operational and reporting purposes, 

the System’s YBS mission is defined as 

service to each of the three borrower components (i.e., to the young, beginning, 

and small farmer categories). Thus, our 

focus in this discussion is on the three 

separate components. 

Providing financially sound and constructive credit and related services 

to borrowers identified as YBS farmers and ranchers is a legislated 

mandate and a high priority for the System. Loans to YBS borrowers 

help ensure a smooth transition of agribusiness to the next generation 

and a continued diversified customer base for the FCS, which includes 

operators of everything from very small to large, commercial-sized 

operations. 

The percentage of retirement-age farm operators continues to rise, 

increasing the importance of the System’s role in helping young and 

beginning farmers finance the purchase of land sold by those who are 

exiting the business. The 2002 Census of Agriculture found that 

26.2 percent of principal operators are age 65 or older, compared with 

21.4 percent in 1987. The census also reported a continuing sharp 

decline in the percentage of young operators (i.e., principal operators 

who are age 34 or younger), which dropped from 13.3 percent in 1987 

to 5.8 percent in 2002. Other USDA surveys and studies show that 

potential YBS borrowers have a heavy and increasing reliance on offfarm income, plus a wide range of credit needs beyond their agriculture 

production activities. Such changing demographics and economic 

conditions in many areas of rural America pose challenges to System 

institutions for meeting their YBS program goals. 

Because of its GSE status, the FCS is in a unique position to develop 

YBS programs, to coordinate those programs with other government 

programs that can spread risks, and to make a continuing commitment 

to lend to YBS borrowers. Some YBS borrowers are assisted by the 

various state and Federal programs that provide interest rate reductions 

or guarantees to help commercial lenders and FCS institutions reduce 

credit risks for borrowers. Without such concessions and guarantees, 

credit would not be extended to some YBS borrowers because of repayment risks. 

Each System bank is required (by section 4.19 of the Farm Credit Act 

and FCA regulation 614.4165) to adopt written policies that direct each 

association board to have a program for furnishing sound and constructive credit and financially related services to YBS borrowers. The associations must coordinate with other government and private sources of 

Farm Credit Administration 24

credit in implementing their YBS programs. In addition, each institution 

is required to report yearly on operations and achievements under its 

YBS program. 

FCA’s regulations and its examination activities have encouraged 

System institutions to evaluate their performance in YBS lending by 

analyzing their lending markets and assessing their own market penetration. We also encourage the association’s board of directors to 

develop new programs, to strengthen existing programs, or to provide 

more incentives for YBS farmer participation. Thus, FCA’s oversight 

increases awareness of the mission in this area and prompts associations 

to provide added resources to serve this market segment. 

In establishing their YBS programs, institutions may use a variety of 

tools to fulfill their commitment to YBS lending. Associations may offer 

less stringent underwriting standards or reduced interest rates to make 

it easier for potential YBS borrowers to qualify for loans. Some institutions establish special risk pools in which capital is segregated to 

support YBS lending. One institution is developing a starter farmer 

program under investment authorities approved by the Agency (see 

page 46). Almost all programs involve coordinating with Federal or 

state sources to obtain guarantees on loans to qualifying YBS borrowers. 

Many YBS programs provide for financial or leadership training or 

related business services. In addition, associations donate to or sponsor 

special events for local, regional, and national young or beginning 

farmer groups. 

YBS Loans Outstanding, 2004 and 200518 

As of year-end 2004 and 2005, young farmers and ranchers (defined as 

those who are 35 years old or younger)19 accounted for 17.5 percent and 

17.7 percent, respectively, of the total number of loans outstanding in 

the System (see Tables 4A and 4B). Beginning borrowers (those with 

10 or fewer years of farming experience) accounted for 22.7 percent of 

loans in 2004 and 23.7 percent of loans in 2005. Loans to small farmers 

(those with annual sales of less than $250,000) accounted for 61.8 percent of all loans in 2004 and 60.6 percent in 2005.20 As of December 31 

of 2004 and 2005, the total dollar volume of loans outstanding for 

young farmers was 12.7 percent and 12.3 percent, respectively; for 

beginning farmers, it was 19.1 percent and 19.4 percent, respectively; 

and for small farmers, the total dollar volume of loans outstanding was 

31.0 percent and 29.2 percent, respectively. The System’s 2005 percentages in all six categories (i.e., the number of loans for each of the three 

18. System data on service to YBS farmers 

and ranchers cover the calendar year and 

are reported at year-end. Statistics are reported on loans made during the year 

(counts and volume) as well as loans outstanding at year-end (counts and volume). The volume measure is the loan 

commitment to borrowers; this figure 

may exceed actual loan advances. The 

2004 data became available in April 2005 

and the 2005 data in May 2006. 

19. The System’s definition of “young” is 35 

or younger; the Census of Agriculture’s 

definition is 34 or younger. 

20. YBS data are reported for individual 

young, beginning, or small categories. It 

is not meaningful to add two or three YBS 

categories together since the categories 

are not mutually exclusive. Depending on 

borrower characteristics, a borrower may 

be counted in two or even all three categories. Also, the data on the number of 

loans differ from the data on the number 

of farmers because some individual member-borrowers have multiple loans. 

25
 2005 Annual Report on the Farm Credit System 
Tables 4A and 4B

Loans Outstanding to YBS Borrowers*

Table 4A

As of December 31, 2004

Number Percentage Volume Percentage Average

of of Total of Loans of Total Loan

Loans Number ($ millions) ($ millions) Volume Size

Young Farmers and Ranchers 125,672 17.5 $12,523 12.7 $99,644 

Beginning Farmers and Ranchers 163,454 22.7 $18,821 19.1 $115,146 

Small Farmers and Ranchers

 Loan Size: 

$50,000 or less 263,838 69.6 $4,897 67.3 $18,562

 $50,001–$100,000 93,203 63.7 6,432 63.1 69,014

 $100,001–$250,000 67,668 54.3 9,996 52.3 147,714

 More than $250,000 19,582 28.3 9,211 14.9 470,384 

Total Loans to Small Producers 444,291 61.8 $30,537 31.0 $68,732 

Table 4B

As of December 31, 2005

Number Percentage Volume Percentage Average

of of Total of Loans of Total Loan

Loans Number ($ millions) ($ millions) Volume Size

Young Farmers and Ranchers 131,956 17.7 $13,878 12.3 $105,168 

Beginning Farmers and Ranchers 176,231 23.7 $21,811 19.4 $124,163 

Small Farmers and Ranchers

 Loan Size: 

$50,000 or less 263,775 68.6 $4,929 66.6 $18,686

 $50,001–$100,000 94,468 62.9 6,548 62.3 69,313

 $100,001–$250,000 71,350 53.6 10,595 52.0 148,498 

More than $250,000 21,647 28.3 10,857 14.6 501,543 

Total Loans to Small Producers 451,240 60.6 $32,929 29.2 $72,974 

Sources: Annual YBS reports submitted by each System lender through the Farm Credit banks. arm Credit banks.

* A “young” farmer or rancher is defined as 35 years old or younger when the loan is made; a “beginning” farmer or rancher has been

operating for not more than 10 years; and a “small” farmer generates less than $250,000 in annual sales of agricultural or aquatic products. tic products. tic products.

Since the totals are not mutually exclusive, one cannot add across young, beginning, and small categories to count total YBS loans. Please

note that the ranges in the tables above indicate loan size, not the amount of an operation’s annual sales. note that the ranges in the tables above indicate loan size, not the amount of an operation’s annual sales.

Farm Credit Administration 26

groups and the total dollar volume of loans for each of the three groups) 

were moderately to slightly higher than they were at the end of 2001. As 

of December 31, 2005, the average loan size for YBS loans outstanding 

was $105,168 for young farmers, $124,163 for beginning farmers, and 

$72,974 for small farmers. 

YBS Loans Made, 2004 and 2005 

The number of loans made during the year provides a measure of the 

System’s current performance in serving YBS borrowers (see Tables 5A 

and 5B). FCS institutions made 148,086 loans to small farmers in 2004 

and 148,240 loans to such farmers in 2005. These loans represented 

59.6 percent and 57.6 percent, respectively, of the number of all new 

loans made to farmers in those years. A total of $9.8 billion in loans 

was made to small farmers in 2004, and this increased to $10.9 billion in 

2005. These figures were 25.0 percent and 24.2 percent of the dollar 

volume of loans made during 2004 and 2005, respectively. The average 

loan size of small farmer loans made during 2004 was $66,450; it 

increased to $73,685 in 2005. Because of the greater credit needs of 

larger farmers, the average size for all System farm loans made was 

more than twice the average for small farmer loans. All of the 2005 

measures (count, volume, percentage of loans, average loan size) for the 

young and beginning farmers were near or higher than 2004 levels. 

Assessment of YBS Results for Individual Associations 

and the System 

As in previous years, individual associations vary significantly in their 

YBS lending results. No single association has the highest System 

percentage in all three or even two of the YBS categories. Table 6 shows 

the wide range in the 2005 results for individual associations using 

percentage-of-loan numbers for each YBS category for loans made and 

outstanding loans. A similar range occurs in the loan volume data. 

Likewise, wide ranges appear in the YBS results by association for each 

year.

21 

The range in association results for the number of loans to small farmers is much greater than for young or beginning farmers (from a low of 

14.4 percent of loans made to a high of 88.8 percent). For young farmers, the range is considerably smaller, from 4.3 percent to 27.9 percent of 

loans made, while for beginning farmers the corresponding range is 

from 9.3 percent to 77.8 percent. 

21. Additional YBS data by institution and 

district, and for the whole System, beginning with 1999, are available on FCA’s 

Web site, www.fca.gov. 

27
 2005 Annual Report on the Farm Credit System 
Tables 5A and 5B

Loans Made to YBS Borrowers*

Table 5A

As of December 31, 2004

Number Percentage Volume Percentage Average

of of Total of Loans of Total Loan

Loans Number ($ millions) ($ millions) Volume Size

Young Farmers and Ranchers 39,670 16.0 $4,416 11.2 $111,310 

Beginning Farmers and Ranchers 49,636 20.0 $6,758 17.2 $136,161 

Small Farmers and Ranchers

 Loan Size: 

$50,000 or less 93,907 72.1 $1,597 67.3 $17,001

 $50,001–$100,000 28,175 58.4 1,861 60.4 66,038

 $100,001–$250,000 19,404 47.8 2,944 49.1 151,710 

More than $250,000 6,600 22.5 3,439 12.3 521,114 

Total Loans to Small Producers 148,086 59.6 $9,840 25.0 $66,450 

Table 5B

As of December 31, 2005

Number Percentage Volume Percentage Average

of of Total of Loans of Total Loan

Loans Number ($ millions) ($ millions) Volume Size

Young Farmers and Ranchers 42,359 16.5 $5,032 11.2 $118,801 

Beginning Farmers and Ranchers 54,878 21.3 $8,246 18.3 $150,253 

Small Farmers and Ranchers

 Loan Size: 

$50,000 or less 92,118 71.6 $1,575 66.9 $17,092

 $50,001–$100,000 28,236 56.9 1,818 58.4 64,393

 $100,001–$250,000 20,387 46.9 3,087 48.3 151,406 

More than $250,000 7,499 21.0 4,444 13.6 592,560 

Total Loans to Small Producers 148,240 57.6 $10,923 24.2 $73,685 

Sources: Annual YBS reports submitted by each System lender through the Farm Credit banks. arm Credit banks.

* A “young” farmer or rancher is defined as 35 years old or younger when the loan is made; a “beginning” farmer or rancher has been

operating for not more than 10 years; and a “small” farmer generates less than $250,000 in annual sales of agricultural or aquatic products. tic products. tic products.

Since the totals are not mutually exclusive, one cannot add across young, beginning, and small categories to count total YBS loans. Please

note that the ranges in the tables above indicate loan size, not the amount of an operation’s annual sales. note that the ranges in the tables above indicate loan size, not the amount of an operation’s annual sales.

Farm Credit Administration 28

Table 6

Wide Range in YBS Program Results by Association, 20051

Percentage of Total Loan Numbers2

Range by Association Overall Overall

Program Loans Low High Average

Young Outstanding 7.4 28.5 17.7 

Made 4.3 27.9 16.5 

Beginning Outstanding 12.3 59.6 23.7 

Made 9.3 77.8 21.3 

Small Outstanding 16.9 90.7 60.6 

Made 14.4 88.8 57.6 

Sources: Annual YBS reports submitted by each System lender through the Farm Credit banks. arm Credit banks.

1.	 A “young” farmer or rancher is defined as 35 years old or younger when the loan is made; a

“beginning” farmer or rancher has been operating for not more than 10 years; and a “small” farmer

generates less than $250,000 in annual sales of agricultural or aquatic products. generates less than $250,000 in annual sales of agricultural or aquatic products.

2.	 The percentages shown are of total loan numbers outstanding as of December 31, 2005, and of

total number of loans made in 2005. total number of loans made in 2005.

Significant differences in results among institutions are to be expected 

given the significant differences in farming operation size and farmer 

demographics across the United States. For example, in 2004, the 

average value of farm production in four states was more than $250,000 

per farm, compared with 18 other states with average production values 

of less than $100,000 per farm. The System’s results for small farmer 

portfolio concentrations in these states tend to reflect these differences. 

Census of Agriculture data also show that the average age of farmers, 

and especially the percentage of operators in the “young” group, varies 

considerably from state to state. Such differences make comparisons 

among individual associations difficult and explain why our YBS 

regulations do not specify fixed goals but require individual institutions 

to establish YBS targets appropriate for their lending territory. Other 

factors—such as the competitiveness of the local lending market and the 

availability of state and USDA/FSA guarantees—play a role in individual association results. 

29
 2005 Annual Report on the Farm Credit System 
The 2002 Census of Agriculture classified about 93 percent of all farms 

as small, using the same definition for a small farm as that used for 

YBS reporting. However, the census also found that nearly 39 percent of 

all farms had sales of $2,500 or less; these farms likely had little or no 

farm debt. The census also showed that fewer than half of all small 

farms had interest paid as a farm business expense, which meant that 

more than half of all small farms had no farm debt. The System reported that slightly more than 60 percent of the total number of loans 

outstanding in association portfolios were held by small farmers. When 

one takes into account the fact that small farms are less likely to carry 

debt than larger farms, this figure indicates a strong commitment by the 

FCS to serving the credit needs of small producers. 

Five Years of Comparable YBS Data 

We now have 5 years of System YBS results under the definitions and 

reporting requirements that became mandatory in 2001. In addition, all 

institutions have had examinations of their YBS reporting. In some 

cases, these examinations have resulted in corrections of previously 

reported YBS data. As illustrated in Figures 6A, 6B, and 6C, fairly 

strong upward trends have occurred in loan volumes outstanding for 

each of the three program areas from 2001 to 2005. Similar trends exist 

for the numbers of loans outstanding in each program area. These 

results are for the actual counts and dollar volumes for loans outstanding. The loan counts and volumes for loans made have been somewhat 

more variable. 

While YBS loan volumes over the last 5 years point to a strong upward 

trend, YBS results as a percentage of total loans outstanding present a 

different picture. Slight dips have occurred in the percentages of total 

volumes outstanding for young and small farmers over the past 2 years, 

while the percentage for beginning farmers has continued to rise. 

However, given the downward trend in the percentages of young and 

small farm operators noted in recent Census of Agriculture and USDA 

reports, the YBS results show solid performance. 

Farm Credit Administration 30

Dollars in Billions

Percentage of Total Loans Outstanding

Dollars in Billions

Percentage of Total Loans Outstanding

Figures 6A, 6B, and 6C

Loans Made to, and Loans Outstanding for, YBS Farmers and Ranchers, 2001–2005

As of December 31

Figure 6A

Young Farmers and Ranchers

16 16


2001 2002 2003 2004 2005


Dollars of Loans Made 

Dollars of Loans Outstanding 

Young Farmer/Rancher Loans Outstanding as Percentage of Total Loans Outstanding 

Figure 6B

Beginning Farmers and Ranchers

25 25


2001 2002 2003 2004 2005


Dollars of Loans Made 

Dollars of Loans Outstanding 

Beginning Farmer/Rancher Loans Outstanding as Percentage of Total Loans Outstanding 

0 

2 

4 

6 

8 

10 

12 

14 

0 

2 

4 

6 

8 

10 

12 

14 

0 

5 

10 

15 

20 

0 

5 

10 

15 

20 

31
 2005 Annual Report on the Farm Credit System 
Dollars in Billions

Percentage of Total Loans Outstanding

22. In some cases, the reported results may	 Figure 6C reflect deficiencies in YBS reporting rather Small Farmers and Ranchers

than deficiencies in YBS program management. Examiners sometimes require 35 35 

associations to restate their results and 

correct reporting mechanisms. As a result, 

2001 2002 2003 2004 2005 

30 30 some associations now note improve­


ments in their systems to identify YBS


borrowers. 25
 25 

23. Because the number of associations declined by 18 over this period because of 20 mergers, the 2001 YBS data for 14 cur- 20


rent associations had to be developed


from 32 predecessor associations. 15
 15 

10 10 

5 5 

0 0 

Dollars of Loans Made 

Dollars of Loans Outstandin

Small Farmer/Rancher Loans Outstanding as Percentage of Total Loans Outstanding 

Sources: Annual YBS Reports submitted by each System lender through the Farm Credit Banks. arm Credit Banks.

With the exception of the loan volume percentage made to small farmers, 

more than half of the System’s associations had positive 5-year trends in 

loans made, as well as in the percentages for all six measures for 

outstanding loans (including number of loans and total dollar volume of 

loans) to YBS farmers.22 However, a number of individual institutions 

experienced declines in their percentages for the various YBS measures. 

When results from year-end 2005 were compared with results from yearend 2001, 39 of the 96 associations at year-end 2005 showed declines in 

the percentage of the number of loans made to young farmers, 30 

showed declines in loans to beginning farmers, and 40 showed declines 

in loans to small farmers.23 

Farm Credit Administration 32

Comparisons in YBS lending cannot be made between FCS institutions 

and other lenders because other Federal regulators do not require 

reporting on young and beginning farmer loans. While large banks are 

required to report on small farm loans, small farm lending is defined in 

terms of loan size (a loan of less than $500,000 is considered a small 

farm loan) rather than in terms of the borrower’s annual sales. In 

addition, because of differences in data definitions and data collection 

methods, annual YBS data are not comparable with Census of Agriculture data, which are collected only once every 5 years. 

YBS Programs 

Each FCS association responds to an annual Agency questionnaire on 

the content of its YBS program. While we typically modify or refine the 

questions each year, the survey generally covers program goals, board 

reporting, YBS credit provisions, use of government guarantee programs, and use of training or other related services. As of year-end 

2005, 44 institutions achieved their specific YBS goals. The goals are 

typically stated as a specific percentage of outstanding loans in each 

YBS category; they are set according to results from studies on eligible 

borrower demographics in the institution’s territory. 

YBS programs at many System associations make loan qualification 

easier by applying differential underwriting standards or allowing 

exceptions to normal underwriting standards. The differential underwriting standards often include higher loan-to-market value ratios or 

lower debt-coverage requirements for YBS borrowers. 

During 2005, 70 percent of the associations offered differential underwriting standards, or exceptions, for YBS borrowers, up from 60 percent 

in 2001. Also, some associations reduced borrowing costs through lower 

interest rates or fees. More than half (55 percent) had programs that 

offered lower interest rates or offered lower loan fees for YBS borrowers. In most cases, institutions used more than one credit enhancement 

program. 

33
 2005 Annual Report on the Farm Credit System 
The FSA is the primary agency offering government-guaranteed loans for 

farmers, although a small portion of guaranteed loans is made through 

the Small Business Administration and various state programs. System 

lending institutions use the FSA’s guaranteed lending program, especially for YBS lending. In recent surveys, we asked the System for 

specific figures on the use of Farm Service Agency guarantees for 

separate YBS loan categories. About one-fourth of the overall number of 

the System’s FSA-guaranteed loans outstanding were to young farmers; 

one-fourth were to beginning farmers; and about a third were to small 

farmers (numbers are not additive). However, the number and volume 

of YBS loans with FSA guarantees during 2005 and at year-end represent small percentages (roughly 2 to 3 percent) of the overall YBS 

program figures. 

An increasing number of associations offer a growing array of training 

programs or other services that benefit YBS farmers and ranchers. The 

most common training program focuses on leadership; some 60 percent 

offered this training as of year-end 2005. Approximately 72 percent 

offered training in business and financial management skills. Most 

associations also offer other financial services programs, including estate 

planning, recordkeeping, tax planning and preparation, and farm 

business consulting. Sometimes associations discount or waive the cost 

of these programs for YBS borrowers. 

Other outreach activities are offered in conjunction with such organizations as state or national young farmer groups, colleges of agriculture, 

state or national cooperative association leadership programs, and local 

chapters of 4-H or the National FFA Organization. Many associations 

also provide financial support for scholarships and for FFA, 4-H, and 

other agricultural organizations. 

Farm Credit Administration 34

Regulatory Policy and Approvals 

FCS Corporate Activity in 2005 

In 2005, the level of corporate activity among associations dropped 

significantly from previous years. The parent-subsidiary structure, with 

the ACA as parent and a wholly owned PCA and FLCA as subsidiaries, 

continued as the dominant association structure in the System and 

accounted for 89 percent of all associations as of December 31, 2005.24 

Under this structure, the ACA and its subsidiaries operate with a 

common board of directors and joint employees and are obligated on 

each other’s debts and liabilities. The structure allows the ACA to build 

and use capital more efficiently and enables customers to be stockholders of one entity—the ACA—and borrowers from the ACA or one or 

both subsidiaries. This structure gives the ACA and its subsidiaries 

greater flexibility in serving their customers and allows credit and 

related services to be delivered to borrowers more efficiently. All 85 

ACAs operate with this structure. Eleven FLCAs, which are authorized 

to provide long-term credit only, continue as independent associations. 

This section describes the changes in the FCS structure that occurred 

during 2005. 

Summary of Activity 

•	 The number of corporate applications submitted for FCA Board 

approval declined from the previous year. In 2005, we analyzed and 

approved only one new application, compared with seven applications processed in 2004. The one application processed in 2005 was 

a proposed merger of two ACAs, each operating with subsidiaries. 

The FCA Board preliminarily approved the merger subject to 

approval by the voting stockholders of each ACA. However, when 

voting stockholders of one association voted against it, despite 

support for the merger by the association’s board of directors, the 

merger did not take effect. 

•	 FCA approved three corporate requests in 2004 that took effect on 

January 1, 2005, the first day of the calendar year covered in this 

report. The three applications involved one merger and two 

restructurings to form the ACA parent-subsidiary organizational 

24. FCA, in approving the ACA parent-subsidiary structure, views the ACA and its 

wholly owned operating subsidiaries as 

a single entity for most regulatory and 

examination purposes based on their 

common ownership and control and 

cross-guarantees between and among the 

entities, with each entity responsible for 

the debts of the others and their capital 

and assets combined to absorb any losses. 

35
 2005 Annual Report on the Farm Credit System 
structure. The total number of associations decreased from 97 as of 

December 31, 2004, to 96 as of December 31, 2005. The number of 

banks remains at five. Figure 7 shows the chartered territory of each 

FCS bank. Details about specific corporate applications are available 

on FCA’s Web site, www.fca.gov. 

Regulations and Policies 

FCA routinely issues regulations, policy statements, and other documents to ensure that the FCS complies with the law, operates in a safe 

and sound manner, and effectively carries out its statutory mission. The 

Agency is committed to establishing a flexible regulatory environment 

that enables the System to offer high-quality, reasonably priced credit 

and related services to farmers, ranchers, and their cooperatives; rural 

residents; and other entities on which farming operations depend. To 

meet this commitment, FCA tries to develop balanced, well-reasoned, 

and flexible regulations in which the benefits outweigh the costs. The 

intent of the Agency’s regulations is to allow the System to remain 

competitive in the marketplace. FCA also makes proposals to encourage 

member-borrowers to participate in the management, control, and 

ownership of their institutions. The following paragraphs describe some 

of our regulatory efforts during 2005. 

Borrower Rights Waiver on Loan Syndications 

FCA completed this final rule to allow a borrower to waive borrower 

rights when receiving a loan under a loan syndication arrangement with 

a non-System lender that would otherwise be required by section 

4.14A(a)(6) of the Farm Credit Act of 1971, as amended, to provide 

borrower rights. This rule provides needed flexibility to meet the credit 

needs of borrowers seeking financing as part of certain syndicated 

lending arrangements. Subsequently, in December 2005, the FCA Board 

approved a comprehensive study to determine what changes, if any, are 

needed in FCA’s approach toward syndications and assignments. 

(Adopted March 10, 2005; published April 12, 2005, [70 FR 18965]; 

effective May 26, 2005.) 

Farm Credit Administration 36

Figure 7

Farm Credit System Banks Chartered Territories

As of December 31, 2005

Puerto Rico

Hawaii

AgFirst FCB

CoBank, ACB*

Alaska

U.S. AgBank, FCB

AgriBank, FCB

FCB of Texas

U.S. AgBank, FCB FCB of Texas AgriBank, FCB CoBank, ACB AgFirst FCB

26 ACA Parents 13 ACA Parents 18 ACA Parents 5 ACA Parents 23 ACA Parents

3 FLCAs 8 FLCAs

Note: The lined areas indicate territories in which more than one bank is chartered.

Ag New Mexico, Farm Credit Services, ACA,

is funded by the FCB of Texas. Farm Credit

of New Mexico, ACA, is funded by U.S. AgBank,

FCB.

The FLCAs in Alabama, Louisiana, and Mississippi

are funded by the FCB of Texas. First South Farm

Credit, ACA, is funded by AgFirst FCB.

Louisiana Ag Credit, ACA, is funded by the

FCB of Texas.

* CoBank, ACB, is headquartered in Denver, Colorado,

and serves cooperatives nationwide and ACAs

in the indicated areas.

Designates ACAs that have PCA and FLCA subsidiaries.

AG Credit, ACA, (Ohio);

Central Kentucky, ACA, (Kentucky);

and Chattanooga, ACA, (Tennessee)

are funded by AgFirst FCB.

Mid-America, ACA, funded by

AgriBank, FCB, is also authorized to

lend in this territory.

Idaho, ACA, is funded by U.S. AgBank,

FCB, and Northwest Farm Credit

Services, ACA, is funded by CoBank.

Teton, Lincoln, and Uinta counties in

Wyoming are chartered to AgriBank,

FCB, and U.S. AgBank, FCB.

37
 2005 Annual Report on the Farm Credit System 
Capital Adequacy—Risk-Weighting 

We completed this final rule to change our regulatory capital standards 

on recourse obligations, direct credit substitutes, residual interests, assetand mortgage-backed securities, claims on securities firms, and certain 

residential loans. The final rule modifies our risk-based capital requirements to more closely match a System institution’s relative risk of loss 

on these credit exposures to its capital requirements. In addition, the 

rule makes our regulatory capital treatment more consistent with the 

way other financial regulatory agencies treat transactions and assets 

involving similar risk, and the rule addresses financial structures and 

transactions developed by the market since our last update. We also 

made a number of nonsubstantive changes to our regulations to make 

them easier to use. (Adopted May 12, 2005; published June 17, 2005, 

[70 FR 35336]; effective September 8, 2005.) 

Farmer Mac Nonprogram Investments and Liquidity 

We completed a final rule governing Farmer Mac’s nonprogram investments and liquidity. The intent of the rule is to ensure that Farmer Mac 

maintains nonprogram investments at levels appropriate for a GSE as it 

complies with liquidity reserve and interest rate risk requirements and 

manages short-term surplus funds. (Adopted June 9, 2005; published 

July 14, 2005, [70 FR 40635]; effective September 30, 2005.) 

Investments, Liquidity, and Divestiture 

To ensure that FCS banks have adequate liquidity, we completed a final 

rule to amend the liquidity reserve requirement for FCS banks. The final 

rule increases the minimum liquidity reserve requirement to 90 days, 

raises the eligible investment limit to 35 percent of total outstanding 

loans, and requires FCBs to develop and maintain liquidity contingency 

plans. These requirements improve the ability of FCBs to remain safe 

and sound and to supply agricultural credit in good times and bad. 

(Adopted July 14, 2005; published August 31, 2005, [70 FR 51586]; 

effective October 24, 2005.) 

Capital Adequacy—Preferred Stock 

We completed a final rule to amend the rules governing preferred stock 

issued by FCS banks, associations, and service corporations. This final 

rule requires greater board involvement and oversight in the retirement 

of preferred stock, enhances FCA’s current standards-of-conduct regulations to specifically address insider preferred-stock transactions, modifies and streamlines the FCA review and clearance process of such 

programs, and requires disclosure of senior officer and director preFarm Credit Administration 38

ferred-stock transactions. Lastly, we added a new provision to require 

FCA’s prior approval of investments by FCS banks, associations, and 

service corporations in preferred stock of other System institutions, 

including Farmer Mac. (Adopted August 11, 2005; published September 13, 2005, [70 FR 53901]; effective November 3, 2005; some 

portions of the rule did not become effective until May 3, 2006.) 

Receivership Repudiation 

We completed this final rule to amend the regulations governing how 

FCSIC, as receiver or conservator of an FCS institution, should treat 

financial assets transferred by an FCS institution in connection with a 

securitization or a participation. This final rule will resolve issues raised 

by Financial Accounting Standards Board Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment 

of Liabilities (SFAS 140). In accordance with this final rule, FCSIC will 

not seek to recover or reclaim certain financial assets in exercising its 

authority to repudiate or disaffirm contracts pursuant to 12 CFR 

627.2725(b)(2) and (b)(14), and 627.2780(b) and (d). Also, FCSIC will not 

seek to enforce the contemporaneous requirement of section 5.61(d) of 

the Farm Credit Act of 1971, as amended (12 U.S.C. §§ 2277a-10(d)). The 

final rule is substantially identical to receivership rules issued by the 

Federal Deposit Insurance Corporation and the National Credit Union 

Administration. (Adopted September 8, 2005; published September 22, 

2005, [70 FR 55513]; effective November 14, 2005.) 

Farmer Mac Risk-Based Capital Standards 

We proposed to amend regulations governing Farmer Mac’s risk-based 

capital stress test because an analysis of the model’s results identified a 

need for some updating. The updates would reflect changing financial 

markets, new business practices, and the evolution of the loan portfolio 

at Farmer Mac, as well as continued development of best industry 

practices among leading financial institutions. By modifying regulations 

found at 12 CFR part 652, subpart B, the proposed rule would improve 

the ability of the risk-based capital stress test to accurately reflect risk, 

which, in turn, would improve the reliability of the model’s output— 

Farmer Mac’s regulatory minimum capital level. The proposed rule also 

would make one clarification relating to Farmer Mac’s reporting requirements at 12 CFR 655.50(c). (Adopted October 13, 2005; published 

November 17, 2005, [70 FR 69692], comment period ended April 17, 

2006, but reopened [71 FR 24613] for comments on or before May 17, 

2006.) 

39
 2005 Annual Report on the Farm Credit System 
FCA Organization Regulation 

We completed a final rule to amend the regulations describing FCA’s 

current organization and functions; to update the statutory citation for 

the Farm Credit Act; and to identify those FCA employees responsible 

for various functions named in parts 602, 603, 604, and 606. (Adopted 

November 8, 2005; published November 17, 2005, [70 FR 69644]; effective February 15, 2006.) 

Termination Proposed Rule 

We adopted a proposed rule to amend regulations that allow an FCS 

bank or association to terminate its FCS charter and become a financial 

institution under another Federal or state chartering authority. These 

amendments would clarify our requirements, separate our review of 

stockholder disclosure information from our review of the termination 

itself, improve communication, strengthen the role of an institution’s 

directors in the termination process, and make other changes. (Adopted 

December 8, 2005; published January 11, 2006, [71 FR 1704]; comment 

period ended March 13, 2006.) 

Governance Standards for the System 

We proposed a final rule amending our regulations affecting the governance of the FCS. The final rule would enhance impartiality and disclosure in the election of directors; would require that FCBs and associations establish policies identifying desirable director qualifications; 

would require boards to have a director or an advisor who is a financial 

expert; would require System institutions to establish director training 

procedures; and would ensure that boards conduct annual self-evaluations. The final rule would address the term of service and removal of 

outside directors. It would require all FCBs and associations with assets 

of more than $500 million to have at least two outside directors but 

would exempt associations with small boards from this requirement. 

The rule would further require that FCBs and associations have nominating committees and that all System institutions have audit and 

compensation committees. The final rule would clarify the current rule 

on disclosure of conflicts of interest and compensation. This rule would 

not apply to Farmer Mac, which operates under different statutorybased governance provisions. (Adopted January 6, 2006; published 

February 2, 2006, [71 FR 5740]; effective April 5, 2006, although some 

portions of the rule will be effective April 5, 2007.) 

Farm Credit Administration 40

Disclosure and Reporting 

We proposed a rule to amend the disclosure and reporting regulations 

for FCS institutions by clarifying and enhancing existing disclosures and 

reporting to System shareholders and investors. The rule would provide 

real-time disclosures to shareholders, investors, and the public by 

shortening the time allowed for filing annual and quarterly reports. It 

would also require the Federal Farm Credit Banks Funding Corporation 

to adopt policies and procedures for issuing interim reports and improving the timely and accurate distribution of Systemwide financial 

information. The proposed rule would also enhance financial accuracy 

certifications in periodic reports for all System institutions, requiring the 

Funding Corporation and larger System institutions (i.e., institutions 

with more than $500 million in assets) to review and report on internal 

controls. Further, the proposed rule would create a regulatory section on 

the independence of external auditors, add restrictions on nonaudit 

services and conflicts of interest, and require auditor rotation. (Adopted 

February 9, 2006; published March, 14, 2006, [71 FR 13040]; comment 

period ends June 12, 2006.) 

Regulatory Burden Review 

We adopted a proposed rule to reduce regulatory burden on the FCS by 

repealing or revising five regulations. The proposed rule would also 

correct outdated and erroneous cross-references in two regulations. 

These revisions would provide System banks and associations with 

greater flexibility concerning stock ownership of service corporations, 

employee reporting under standards-of-conduct rules, domestic lending 

to cooperatives, and real property evaluations for certain loans. We also 

published a separate notice that identified regulations on which comments were received that we elected not to change in the proposed rule. 

(Adopted February 9, 2006; published March 28, 2006, [proposed rule 

(71 FR 15343) and notice (71 FR 15413)]; comment period ended 

May 30, 2006.) 

Policy Statement on Regulatory Philosophy 

The FCA Board amended its Policy Statement 59 to more clearly state 

its philosophy for developing regulations. Consistent with the Farm 

Credit Act and other relevant statutes, the FCA Board promulgates 

41
 2005 Annual Report on the Farm Credit System 
regulations for three purposes: (1) to implement the law, (2) to promote 

the mission of the FCS, and (3) to ensure the System’s safety and 

soundness. The amendments to the policy statement also streamlined 

the strategies for accomplishing the FCA Board’s regulatory objectives 

and included guidance for reporting on regulatory development 

achievements. (Adopted June 8, 2005; published November 25, 2005, 

[70 FR 71142]; effective June 8, 2005). 

Policy Statement on Examination and Oversight of FCS 

The Board amended its Policy Statement 53 on risk-based examination. 

The revised policy statement provides our philosophy for examination 

and oversight of the FCS. The FCA Board provided direction for a “riskbased” oversight and examination program that maximizes the Office of 

Examination’s effectiveness and strategically addresses the System’s 

safety and soundness and compliance with law and regulations. The 

Board expects the revised risk-based approach to proactively address 

risks and to promote effective communication with System institutions. 

(Adopted June 8, 2005; published November 25, 2005, [70 FR 71142]; 

effective June 8, 2005.) 

Policy Statements Updated and Adopted in 2005 

The following policy statements were updated and adopted in 2005: 

1.	 Policy Statement 34: Disclosure of the Issuance and Termination of 

Enforcement Documents (adopted January 27, 2005; published 

November 25, 2005, [70 FR 71142]; effective January 27, 2005.) 

2.	 Policy Statement 37: Communications during Rulemaking (adopted 

January 27, 2005; published November 25, 2005, [70 FR 71142]; 

effective January 27, 2005.) 

3.	 Policy Statement 41: Alternative Means of Dispute Resolution 

(adopted January 27, 2005; published November 25, 2005, 

[70 FR 71142]; effective January 27, 2005.) 

4.	 Policy Statement 44: Travel (adopted January 27, 2005; published 

November 25, 2005, [70 FR 71142]; effective January 27, 2005.) 

5.	 Policy Statement 64: Rules for the Transaction of Business of the 

Farm Credit Administration Board (adopted June 27, 2005; published November 25, 2005, [70 FR 71142]; effective June 27, 2005.) 

6.	 Policy Statement 65: Release of Consolidated Reporting System 

Information (adopted January 27, 2005; published November 25, 

2005, [70 FR 71142]; effective January 27, 2005.) 

Farm Credit Administration 42

7.	 Policy Statement 67: Nondiscrimination on the Basis of Disability in 

Agency Programs and Activities (adopted January 27, 2005; published November 25, 2005, [70 FR 71142]; effective January 27, 2005.) 

8.	 Policy Statement 68: FCS Building Association Management Operations Policies and Practices (adopted April 26, 2005; published 

November 25, 2005, [70 FR 71142]; effective April 26, 2005.) 

9.	 Policy Statement 72: Financial Institution Rating System (FIRS) 

(adopted January 27, 2005; published November 25, 2005, 

[70 FR 71142]; effective January 27, 2005.) 

Maximum Bank Director Compensation Bookletter25 

We issued a bookletter (BL-051) to make a one-time adjustment to the 

limit on bank director compensation to allow System banks to pay fair 

and reasonable director compensation for 2006. The adjustment, which 

also applies to future years, was made for safety and soundness reasons. (Issued December 15, 2005, and published on FCA’s Web site). 

Funding Activity 

The FCS funds its loans with a combination of consolidated Systemwide 

debt and capital. Debt securities are sold on its behalf by the Federal 

Farm Credit Banks Funding Corporation, the fiscal agent for the five 

System banks.26 Through this conduit, funds flow from worldwide 

capital market investors to agriculture and rural communities, thereby 

providing Main Street America efficient access to global resources. The 

Funding Corporation issues Systemwide debt securities as discount 

notes, master notes, bonds, and designated bonds. As required by the 

Farm Credit Act, the System must obtain FCA approval for all funding 

requests. 

To participate in the issuance of a System debt security, a System bank 

must maintain, free from any lien or other pledge, specified eligible 

assets (available collateral) that are at least equal in value to the total 

amount of its outstanding debt securities. Securities subject to the 

available collateral requirements include Systemwide debt securities for 

which the bank is primarily liable; investment bonds; and other debt 

securities, which the bank may have issued individually. As a safe and 

sound practice, FCA regulations require the five System banks to 

maintain a net collateral ratio (primarily assets divided by liabilities) of 

25. Bookletters are documents that communicate the following: (1) Agency policy; 

(2) Agency legal interpretations; (3) substantive Agency positions on examination, corporate, or accounting issues; and 

(4) no-action positions on issues that are 

not institution-specific. 

26. The primary function of the Funding Corporation, which is headquartered in the 

greater New York City area, is to issue, 

market, and handle debt securities on 

behalf of the System’s five banks. In addition, the Funding Corporation assists 

the banks with a variety of asset/liability management and specialized funding 

activities. The Funding Corporation is the 

financial spokesperson for the FCS and 

is responsible for financial disclosure and 

the release of public information concerning the financial condition and performance of the System as a whole. 

43
 2005 Annual Report on the Farm Credit System 
27. Payment of principal and interest on 

Systemwide debt securities is insured by 

the FCSIC’s Farm Credit Insurance Fund 

to the extent provided in the Farm Credit 

Act. Some FCS debt, $857 million outstanding as of December 31, 2005, was 

issued by individual banks of the FCS. 

These individual banks are solely liable 

for the principal payments on this uninsured debt. 

28. System banks, as part of an ongoing effort to ensure their collective ability to 

meet their obligations under their mutual 

agreements concerning joint and several 

liability on Systemwide debt, adopted a 

Common Liquidity Standard that requires 

each bank to maintain a minimum of 90 

days of liquidity assuming it has no access to the capital markets. 

not less than 103 percent. Therefore, all of the banks manage their 

operations to achieve net collateral ratios that are higher than the 

required minimum. As of December 31, 2005, the System banks had 

collateral of $122.2 billion on a combined basis, compared with $114.5 

billion of Systemwide debt securities and other obligations; this yielded 

an overall net collateral ratio of almost 107 percent. No bank had a net 

collateral ratio less than 105 percent. 

Since late 2001 and 2002, when the System refinanced substantial 

portions of its callable debt by issuing a significant volume of debt 

securities at lower interest rates, the volume of new issuances has been 

declining. For the 12 months ended December 31, 2005, the System 

issued $288 billion in insured debt securities, compared with $356 billion 

for the prior 12 months.27 By comparison, the System issued $533 billion 

and $414 billion of insured debt in 2001 and 2002, respectively. Longer 

debt maturities, a rising interest rate environment, and the reduced 

volume of called debt accounted for most of this downtrend. 

The FCS continued to extend its debt maturities in a rising rate environment in 2005. The System’s weighted-average remaining maturity for all 

outstanding insured debt increased to 3.0 years as of December 31, 

2005, compared with 2.5 years as of December 31, 2004, and 2.0 years 

as of December 31, 2002. The weighted-average interest rates for the 

insured debt increased from 2.81 percent as of December 31, 2004, to 

4.15 percent as of December 31, 2005. 

As of December 31, 2005, outstanding Systemwide insured debt was 

$112.7 billion, up from $99.1 billion a year earlier, representing a 

13.7 percent increase. The $13.6 billion increase in outstanding debt 

funded the $9.9 billion, or 10.3 percent, increase in gross loans outstanding, with the balance going primarily to fund investments for liquidity 

and other purposes.28 

Mission-Related Investments: 2005 Activity 

The FCA is committed to helping ensure a dependable and affordable 

flow of funds to agriculture and rural areas so that farmers, ranchers, 

and their rural communities can flourish. Rural America and agriculture 

Farm Credit Administration 44

face new and unique challenges that require innovative solutions. Since 

its inception in 1916, the FCS has been a key partner to agriculture and 

rural areas—as they are very much interdependent. Investments in rural 

communities can help ensure their economic vitality for current and 

future generations of American farmers who will increasingly look to 

them as an important source of off-farm income. Investments in rural 

communities also play an important role in attracting and retaining YBS 

farmers and other rural entrepreneurs who provide essential services for 

agricultural production. 

Our current regulations allow Farm Credit institutions to make certain 

mission-related investments. Examples include investments in farmers’ 

notes; agricultural mortgage-backed securities (AMBS), which Farmer 

Mac issues or guarantees; and certain debt obligations issued or guaranteed by Federal agencies or state or local municipalities for rural utilities 

and other economic development. We realize, however, that these 

investment vehicles may no longer be sufficient to help meet the growing and changing demands of agricultural and rural communities for 

dependable, affordable, and flexible financing in the 21st century. In 

particular, we recognize that rural areas have an essential and growing 

need for additional sources of equity capital to support economic 

growth and infrastructure. 

In January 2005, we issued guidance that gave System institutions a 

provisional opportunity to make additional mission-related investments 

through pilot programs supporting investments in rural America (see 

FCA Informational Memorandum dated January 11, 2005, on Investments in Rural America—Pilot Investment Programs, available on the 

FCA Web site). The pilot programs are intended to strengthen the 

System’s mission to provide for an adequate and flexible flow of funds, 

under specified conditions, to agriculture and rural communities across 

the country. Further, the pilot investment programs are intended to 

provide FCS institutions greater flexibility to partner with government 

agencies and other agricultural and rural lenders in fulfilling their 

mission objectives. Through these pilot investment programs, FCA is 

looking to gain a better understanding of the diverse financing needs of 

agriculture and rural communities and how FCS institution investments 

could help increase the availability and efficiency of funds to these 

markets. 

45
 2005 Annual Report on the Farm Credit System 
FCA has placed a number of controls on these pilot investment programs 

to ensure their legal sufficiency, safety and soundness, and mission 

focus. These controls include participation criteria to ensure that only 

well-managed and strongly capitalized institutions may conduct pilot 

programs. The controls also specify the investment purposes that the 

programs should fulfill; impose program and risk limits; require prudent 

investment management standards; and limit the pilot period to 1 to 3 

years. These programs are also subject to special examination and 

reporting. 

In 2005, the FCA approved the following four pilot investment programs, which are being conducted by individual institutions or by 

institutions on a districtwide basis. 

Rural Housing Mortgage Securities—In May 2005, FCA approved a 

request from AgFirst Farm Credit Bank to purchase and hold rural 

housing mortgage securities (RHMS) under a 3-year pilot program. 

(A similar request from the Farm Credit Bank of Texas was approved on 

March 13, 2006.) RHMS must be fully guaranteed by a Government 

agency or another GSE. The rural housing loans backing the RHMS 

must be conforming first-lien residential mortgage loans originated by 

non-System lenders in “rural areas” (as defined by the Farm Security 

and Rural Investment Act of 2002). This program is intended to provide 

additional liquidity for rural housing loans, resulting in more costeffective credit to rural homeowners, by providing economic incentives 

to lenders to create RHMS for sale in the secondary market. As of 

December 31, 2005, the investment securities of the FCB participating in 

this program included $1.35 billion in RHMS classified as held-tomaturity. 

Starter Farmer Program—YBS farmers are the agricultural entrepreneurs 

of the future. FCA is evaluating a variety of investment options to 

provide much needed start-up funds to this market segment. The starter 

farmer program, which is in the early development stage, aims to help 

starter farmers obtain greater access to funds needed to begin or continue operations. On October 24, 2005, the FCA Board authorized First 

Pioneer Farm Credit, ACA, headquartered in Enfield, Connecticut, to 

establish a state-chartered limited-liability partnership to invest up to $2 

million in seed capital for starter farmer operations. As of December 31, 

2005, the partnership had not made any investments in starter farmer 

operations. 

Farm Credit Administration 46

Rural America Bonds—On October 25, 2005, the FCA Board authorized 

the AgFirst FCB, the Farm Credit Bank of Texas, and their affiliated 

associations to make investments in “Rural America Bonds” through a 

pilot program meeting specific legal and safety and soundness criteria. 

This 3-year program focuses on investments that provide funding for 

economic development, infrastructure, essential community facilities, 

and revitalization and stabilization projects that are necessary to maintain a vibrant American agriculture and strong rural communities. A 

key objective of this pilot program is to stimulate FCS partnerships and 

alliances with other agricultural and rural lenders to increase the 

availability of cost-effective funds to agriculture and rural communities. 

At year-end 2005, this pilot program was still in the early stages of its 

development; the total investment outstanding at that time was 

$1.5 million. 

AgPool Securities—In June 2005, FCA authorized Farm Credit of 

Western New York, ACA, (WNY) to establish a 1-year pilot program 

under which it could invest in pass-through notes or similar instruments 

backed by pools of distressed agricultural loans (AgPool securities) 

originated by a commercial lender. This unique partnership is intended 

to leverage the System’s extensive agricultural lending experience to 

help distressed agricultural borrowers and bring economic stabilization 

to a stressed rural community. As of December 31, 2005, WNY held 

$21.5 million in AgPool securities. 

In addition to these four pilot programs, FCA approved several other 

mission-related investments in 2005, which are discussed below. 

Tobacco Buyout—On October 22, 2004, Congress enacted the Fair and 

Equitable Tobacco Reform Act of 2004 as part of the American Jobs 

Creation Act of 2004. The Tobacco Act repeals the Federal tobacco price 

support and quota programs, provides payments to tobacco quota 

owners and producers for the elimination of the quota, and provides an 

assessment mechanism for tobacco manufacturers and importers to pay 

for the buyout. Tobacco quota holders and producers will receive equal 

payments for 10 years under a contract with the Secretary of Agriculture. The Tobacco Act also includes a provision that allows the quota 

holders and producers to assign to a financial institution the right to 

receive the contract payments “so that they (quota holders and 

47
 2005 Annual Report on the Farm Credit System 
29. 70 Federal Register 17150 (April 4, 2005). 

30. The Farm Security and Rural Investment 

Act of 2002 authorizes any FCS institution to establish and invest in RBICs provided that such investments are not 

greater than 5 percent of the capital and 

surplus of the FCS institution. Further, if 

FCS institutions (alone or collectively) 

hold more than 15 percent of the shares 

of an RBIC, the RBIC may not provide 

equity investments or financial assistance 

to entities that are not otherwise eligible 

to receive financing from the FCS under 

the Farm Credit Act. 

producers) may obtain a lump sum or other payment.” On April 4, 2005, 

USDA issued a final rule implementing the Tobacco Transition Payment 

Program.29 

FCA determined that FCS institutions meet the Tobacco Act’s financial 

institution criteria and are, therefore, eligible to participate in the 

Tobacco Transition Payment Program. FCA further recognized that the 

tobacco buyout has significant implications for some FCS institutions 

and the tobacco quota holders and producers they serve. We believe it 

is essential that FCS institutions be able to provide their borrowers the 

option to immediately receive tobacco buyout contract payments and 

reinvest them in future business opportunities. Thus, during 2005, we 

issued a bookletter, BL-050 (updated by BL-052), that provided guidance 

to System institutions on making loans and investments related to the 

tobacco buyout program. As of December 31, 2005, FCS institutions held 

tobacco buyout loan assignments of $85 million and investments in 

successor-in-interest contracts of $463 million. 

Rural Business Investment Companies (RBICs)—The Farm Security 

and Rural Investment Act of 2002 established the Rural Business Investment Program to promote economic development and create wealth and 

job opportunities in rural areas through creation and licensing of 

RBICs.30 These newly formed for-profit entities, or newly formed subsidiaries of existing entities, have management expertise in community 

development financing or venture capital financing in rural areas. RBICs 

are organized under the laws of a state for the purpose of providing 

equity investments in rural enterprises. In 2005, several FCS institutions 

had the opportunity to invest in the two RBICs that were licensed 

under the program. As of December 31, 2005, FCS institutions had 

invested $2.75 million in the two RBICs. 

FCS institutions also made three other equity investments in 2005 

approved by FCA on a case-by-case basis under FCA regulation 

615.5140(e). One FCS institution invested in a renewable energy fund, 

while the other two institutions made de minimis investments in a startup agribusiness. As of December 31, 2005, the aggregate amount of 

these equity investments was $1.25 million. 

Farm Credit Administration 48

Maintaining a Dependable 

Source of Credit for Farmers and Ranchers 

As federally chartered agricultural lending cooperatives, the institutions 

of the FCS are limited-purpose lenders exposed to risk in making loans 

to benefit their borrower-stockholders and meet their public mission. 

While the FCS benefits from preferred access to the capital markets as a 

GSE, the Federal government does not subsidize or back it directly. 

For FCS institutions to maintain their presence in the marketplace as a 

dependable source of credit and financially related services for rural 

America, they must operate profitably and appropriately manage and 

control risk. Accordingly, FCA deploys examination and supervisory 

resources based on systemic risk to the overall FCS, and secondarily to 

the risk specific within each institution. This “risk-based” examination 

and supervisory program requires examiners to determine how existing 

or emerging issues facing an institution or the agriculture industry may 

affect the nature and extent of risks in that institution. The risk-based 

approach helps to ensure that FCA provides the most effective and 

efficient regulatory oversight to the System. 

To evaluate whether an institution is meeting its pubic mission, examiners determine whether it is operating in compliance with applicable 

laws and regulations and whether it is responsive to the credit needs of 

all types of agricultural producers and cooperatives that have a basis 

for credit. As a part of their mission, FCS associations are obligated to 

establish programs that respond to the credit and related services needs 

of YBS farmers and ranchers. 

Risk-Based Examination and Oversight Program 

Our risk-based examination and oversight program is designed to 

maximize FCA’s effectiveness and efficiency while strategically addressing FCS risk. During the establishment and implementation of oversight 

and examination plans for each FCS institution, the FCA allocates 

examination resources to matters of highest priority and potential risk 

within individual institutions and the System as a whole. This differential approach reflects the capacity of FCS institutions to identify and 

manage both institution-specific and systemic risks. When institutions 

49
 2005 Annual Report on the Farm Credit System 
31. The National Consumer Cooperative 

Bank Act of 1978, as amended, provides 

for FCA to examine and report on the 

condition of the National Cooperative 

Bank. Since the passage of this law, FCA 

has conducted safety and soundness examinations of the National Cooperative 

Bank and issued reports to the bank’s 

board. 

are either unable or unwilling to address unsafe and unsound practices 

or to comply with applicable laws and regulations, examination efforts 

are supported by appropriate supervisory action. 

Through our oversight practices, the Agency seeks to ensure that FCS 

institutions have the programs, policies, procedures, and controls to 

effectively identify and manage risks, and that FCA policies and regulations are effective, clear, and minimally intrusive. For example, our 

regulations require FCS institutions to have effective loan underwriting 

and loan administration processes. Our examiners then test those FCS 

processes, and our analysts compare banking industry trends with 

System results to determine relative performance. We also have specific 

regulations requiring FCS institutions to maintain strong asset-liability 

management capabilities. Over the last 15 years, FCA has developed a 

comprehensive regulatory and supervisory framework for ensuring 

System safety and soundness. FCS institutions, on their own and in 

response to FCA efforts, have developed strong risk management 

cultures. 

Meeting Statutory Examination Requirements 

The Farm Credit Act requires FCA to examine each FCS institution at 

least once every 18 months. In addition to meeting this minimum 

requirement, the Agency has embraced an ongoing examination approach where we conduct ongoing monitoring and interim examination 

activities as risk and circumstances warrant in each institution and 

integrate identified systemic risks into our national oversight strategies 

to mitigate such risks Systemwide. This approach provides differential 

risk-driven examination coverage to all institutions throughout their 

respective examination cycles. During 2005, FCA conducted oversight 

and examination activities for 96 FCS direct-lender associations; 4 FCBs; 

1 ACB; 8 service corporations/special purposes entities; Farmer Mac 

(see section titled “Condition of Farmer Mac”); and the National Cooperative Bank, which is not an FCS institution.31 Our examination approach emphasizes the importance of proactive, constructive communication with regulated institutions through a combination of communication methods. For example, we issued 81 formal Reports of Examination 

to FCS institutions during 2005, along with numerous face-to-face 

meetings with management and boards of directors, supplemented by 

written correspondence and telephone contact. 

Farm Credit Administration 50

In addition to our FCS examination activities, the Small Business Administration (SBA) and the USDA continued to use FCA’s examination 

expertise in 2005. SBA contracted with FCA to conduct examinations of 

financial companies licensed by SBA to make guaranteed loans to small 

businesses. USDA contracted with FCA to conduct examinations of 

financial companies authorized by USDA to make guaranteed loans 

under USDA’s Business and Industry Guaranteed Loan program. FCA 

examiners also completed reviews of the Business and Industry Guaranteed Loan program operations at selected USDA state offices. We issued 

11 Reports of Examination as part of these contracted activities during 

2005. While the safety and soundness of the FCS remains our principal 

focus and responsibility, the use of FCA examination expertise to assist 

SBA and USDA broadens FCA’s examination skills while increasing job 

satisfaction and employee retention. Moreover, reimbursable fees earned 

from SBA and USDA reduce assessments on FCS institutions. 

Identifying and Responding to Potential Threats to Safety 

and Soundness 

Because of the continually evolving dynamics and risks in the agricultural and financial industries, FCA must ensure that FCS institutions 

have the culture, policies, procedures, and management controls to 

effectively identify and manage applicable risks. For the Agency to be 

fully effective in meeting this challenge, we have processes for evaluating and responding to systemic risks that can affect an institution, a 

group of institutions, the System as a whole, agriculture, and the 

financial industry. 

Based on risk assessment and analysis activities to date, FCA highlights 

the following four areas within its examination program for FCS institutions: (1) internal control environment and disclosures; (2) governance, 

with special attention to cooperative principles, capital management, 

and compensation practices; (3) risk management systems, especially 

processes related to counterparty risk and collateral risk; and (4) mission 

accomplishment, including investments in rural America, lending to YBS 

farmers and ranchers, and diversity. 

51
 2005 Annual Report on the Farm Credit System 
32. See the Glossary for a complete description of the FIRS ratings. 

Measuring the System’s Safety and Soundness 

The Financial Institution Rating System (FIRS) is a key risk rating 

methodology used by FCA to indicate the safety and soundness threats 

in each institution. Similar to the systems used by other Federal financial regulators, it is a “CAMELS”-based system with component ratings 

for capital, assets, management, earnings, liquidity, and sensitivity, all 

factoring into an overall composite rating. The FIRS provides a general 

framework for evaluating and assimilating all significant financial, asset 

quality, and management factors. It assigns component and composite 

ratings to each institution on a scale of 1 to 5. A composite rating of 1 

indicates an institution is sound in every respect. A rating of 3 means 

an institution displays a combination of financial, management, or 

compliance weaknesses ranging from “moderately severe” to “unsatisfactory.” A 5 rating represents an extremely high, immediate or nearterm probability of failure.32 

Through our ongoing monitoring and oversight programs, examiners 

continually evaluate institutional risk and regularly review and update 

FIRS ratings, as needed, to reflect current risks and conditions in the 

FCS. The Agency maintains both quantitative and qualitative benchmarks as general examiner guidelines to facilitate consistent application 

of the FIRS process. FCA discloses the FIRS composite and component 

ratings to the institution’s board to provide perspective on relative 

safety and soundness. Examination reports and other communication 

also provide the institution board with an assessment of management’s 

performance, the quality of assets, and the financial condition and 

performance of the institution. 

FIRS ratings continued to reflect strong FCS financial condition and 

performance during 2005. As shown in Figure 8, FIRS ratings have 

trended upward for several years. As of December 31, 2005, 84 percent 

of FCS institutions were rated 1, with the remainder receiving a rating 

of 2. Notably, there were no 3-, 4-, or 5-rated institutions. These ratings 

reflect a financially safe and sound FCS. The overall financial strength 

maintained by the System reduces the risk to investors in FCS debt, to 

the FCSIC, and to FCS institution stockholders. 

Farm Credit Administration 52

Percentage of Rated Institutions

Figure 8

Farm Credit System FIRS Composite Ratings, 2001–2005

As of December 31

0 1 0 0 0 

2001 2002 2003 2004 2005 

Rating 1 Rating 2 Rating 3 

Sources: Farm Credit Administration Reports of Examination. eports of Examination.

Note: FIRS ratings are based on capital, asset quality, management performance (including

the board of directors), earnings, liquidity, and sensitivity to interest-rate risk. Ratings

range from 1 (a sound institution) to 5 (an institution that is likely to fail). ely to fail).

In addition to the FIRS process, in 2006 FCA examiners will begin using 

a new set of risk assessment criteria. The risk areas are credit, interest 

rate, liquidity, operational, compliance, strategic, and reputation. This 

tool will be used, along with FIRS ratings and other information, to 

assist in allocating resources in the most risk-based manner. 

76 79 78 77 84

47 33 28 25 16

0% 

10% 

20% 

30% 

40% 

50% 

60% 

70% 

80% 

90% 

100% 

53
 2005 Annual Report on the Farm Credit System 
Differential Supervision and Enforcement 

FCA uses a risk-based supervisory and enforcement program to differentially respond to the risks and particular oversight needs of FCS 

institutions. Risks are inherent in lending, and managing risks associated 

with a single sector of the economy, such as agriculture, presents an 

additional challenge for FCS lenders. If FCA discovers unwarranted 

risks, we take differential and corresponding supervisory action to 

ensure that the identified risks are appropriately mitigated. Corrective 

actions may include reducing risk exposures, increasing capital (i.e., 

risk-bearing ability), and/or strengthening risk management. 

The Agency uses a three-tiered supervision program: normal supervision, special supervision, and formal enforcement. Institutions under 

normal supervision are generally performing in a safe and sound 

manner and operating in compliance with applicable laws and regulations. These institutions are able to correct identified weaknesses in the 

normal course of business. For those institutions displaying more 

serious or protracted weaknesses, we shift from normal to special 

supervision, and our examination oversight increases accordingly. Under 

special supervision, institutions are given clear and firm regulatory 

guidance to address identified weaknesses, and the institution is allowed time to correct the problems. 

If less formal supervisory approaches have not been or are not likely to 

be successful, FCA will use its formal enforcement authorities to ensure 

that the operations of FCS institutions are safe, sound, and in compliance with laws and regulations. Enforcement action may be required for 

a number of reasons, including (1) a situation that threatens an 

institution’s financial stability; (2) uncorrected safety and soundness 

problems or violations of laws or regulations, and (3) the inability or 

unwillingness of the institution’s board and management to correct 

identified problems. 

Farm Credit Administration 54

FCA’s enforcement authorities include the power to enter into formal 

agreements; to issue orders to cease and desist; to levy civil money 

penalties; and to suspend or remove officers, directors, and other 

persons. If an enforcement action is taken, the FCS institution must 

operate and report back to the FCA under the Agency’s enforcement 

program, and FCA examiners oversee the institution’s performance to 

ensure compliance with the enforcement action. It has not been necessary for FCA to use its formal enforcement authorities during the past 

7 years. 

Working with Financially Stressed Borrowers 

Agriculture involves significant inherent risks and volatility because of 

many factors, including adverse weather, changes in government programs, international trade issues, fluctuations in commodity prices, and 

crop and livestock diseases. Such conditions can trigger borrower loan 

performance problems. Unlike other lenders, the System (under provisions of the Farm Credit Act) provides borrowers certain rights when 

they apply for loans and when they have difficulty repaying loans. For 

example, the Farm Credit Act requires FCS institutions to consider 

restructuring an agricultural loan before initiating foreclosure. The Farm 

Credit Act also provides borrowers an opportunity to seek review of 

certain credit and restructuring decisions. If a loan is foreclosed upon, 

the Farm Credit Act also provides borrowers the opportunity to buy 

back their property at the fair market value. 

FCA enforces the borrower rights provisions of the Farm Credit Act. 

FCA examiners routinely review borrower rights compliance during 

examination activities. We also receive and review complaints from 

borrowers regarding their borrower rights. Through these efforts, FCA 

ensures compliance with the law and helps the FCS institutions continue 

to provide sound and constructive credit and related services to eligible 

farmers and ranchers. 

55
 2005 Annual Report on the Farm Credit System 
Condition of Farmer Mac 

Farmer Mac is a stockholder-owned, federally chartered instrumentality 

of the United States, created in 1988 to establish a secondary market for 

agricultural real estate and rural housing mortgage loans. Farmer Mac 

conducts its business primarily through two core programs: Farmer 

Mac I and Farmer Mac II. Under the former, Farmer Mac purchases, or 

commits to purchase, qualified loans or obligations backed by qualified 

loans that are not guaranteed by any instrumentality or agency of the 

United States. Under the latter, Farmer Mac purchases the guaranteed 

portions of farm ownership and farm operating loans, rural business 

and community development loans, and certain other loans guaranteed 

by USDA. 

Farmer Mac is regulated by FCA through the Office of Secondary 

Market Oversight, which was established in 1992 by Public Law 102-237. 

This office provides for the examination and general supervision of 

Farmer Mac’s safe and sound performance of its powers, functions, and 

duties. The statute requires that the Office of Secondary Market Oversight constitute a separate office that reports directly to the FCA Board 

and that its activities, to the extent practicable, be carried out by individuals not responsible for the supervision of the banks and associations 

of the FCS. 

Through this office, the Agency performs annual comprehensive examinations based on capital, asset quality, management, earnings, liquidity, 

and sensitivity; supervises Farmer Mac’s operations; and evaluates its 

safety and soundness and mission achievement. The work of the Office 

of Secondary Market Oversight includes the ongoing review of Farmer 

Mac’s compliance with the risk-based capital regulations and the ongoing supervision of its operations and condition throughout the year. 

Table 7 summarizes Farmer Mac’s balance sheet at the end of the year 

for the past 6 years. 

Capital 

By statutory design, secondary market GSEs, such as Farmer Mac, 

operate with lower statutory capital margins than primary market 

lenders. Accordingly, monitoring the capital levels of Farmer Mac is a 

central component of FCA’s oversight programs. 

Farm Credit Administration 56

Table 7

Farmer Mac Capital Positions, 2000–2005

As of December 31

Dollars in Millions

2000 2001 2002 2003 2004 2005

GAAP Equity 

Core Capital 

Regulatory Capital 

$132.7 

$101.2 

NA 

$134.4 

$126.0 

NA 

$183.6 

$184.0 

$204.0 

$213.3 

$215.5 

$237.6 

$236.9 

$237.7 

$254.8 

$248.1 

$244.8 

$253.4 

Statutory 

Requirement $96.9 $110.6 $137.1 $142.0 $128.9 $142.4 

Regulatory 

Requirement NA NA $73.4 $38.8 $37.1 $32.4 

Amount in Excess of 

Statutory or Regulatory 

Requirement* $4.3 $15.4 $46.9 $73.5 $108.8 $102.4 

Percentage in Excess 

of Minimum Capital 

Requirement 4.4% 13.9% 34.2% 51.8% 84.4% 71.9% 

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K. orm 10-K.

*	 Farmer Mac is required to hold capital in an amount equal to (1) the statutory minimum capital requirement or (2) the amount required by

FCA regulations as determined by the risk-based capital stress test model, whichever is higher.

NA = Not Available

57
 2005 Annual Report on the Farm Credit System 
33. The statute requires 2.75 percent capital 

coverage for on-balance-sheet assets and 

0.75 percent for off-balance-sheet obligations. 

On December 31, 2005, Farmer Mac’s net worth (i.e., equity capital 

determined using generally accepted accounting principles [GAAP]) was 

$248.1 million, compared with $236.9 million a year earlier. Net worth 

was 5.7 percent of on-balance-sheet assets as of December 31, 2005. 

When Farmer Mac’s off-balance-sheet program assets (i.e., guarantee 

obligations) are added to total on-balance-sheet assets, capital coverage 

is 3.3 percent. In August 2004, Farmer Mac established a new common 

stock dividend policy and a stock repurchase program. The stock 

repurchase program was completed in September 2005, and a new stock 

repurchase program was established in November 2005. While these 

policies affect outstanding common equity and number of shares, 

Farmer Mac is expected to continue to meet statutory and regulatory 

capital requirements. 

Farmer Mac’s core capital (the sum of the par value of outstanding 

common stock, the par value of outstanding preferred stock, paid-in 

capital, and retained earnings) remained above the statutory minimum 

requirement, and its regulatory capital (core capital plus allowance for 

losses) exceeded the required amount of regulatory capital as determined by the risk-based capital stress test. Farmer Mac’s core capital 

continued its upward trend and, as of December 31, 2005, totaled 

$244.8 million, exceeding the statutory minimum capital requirement33 of 

$142.4 million by $102.4 million. Farmer Mac’s regulatory capital totaled 

$253.4 million as of December 31, 2005, exceeding the regulatory riskbased capital requirement of $32.4 million by $221.0 million. Regulatory 

capital was 5.7 percent of total Farmer Mac I program volume (on and 

off the balance sheet). Table 8 offers a historical perspective on capital 

and capital requirements for the past 6 years. In 2005, FCA published 

proposed revisions to the risk-based capital regulations that originally 

became effective in 2002. The proposed revisions are intended to update 

the risk-based capital model in response to changing financial markets, 

new business practices, and the evolution of the loan portfolio at 

Farmer Mac, as well as continued development of best industry practices among leading financial institutions. FCA plans to issue final 

revisions to the regulations during 2006. 

Farm Credit Administration 58

Table 8

Farmer Mac Condensed Balance Sheets, 2000–2005

As of December 31

Dollars in Millions

2000 2001 2002 2003 2004 2005

Growth

Rate

2004–2005

Total 

Assets $3,160.9 $3,415.9 $4,222.9 $4,299.7 $3,846.8 $4,340.6 12.8% 

Total 

Liabilities $3,028.2 $3,281.4 $4,039.3 $4,086.4 $3,610.0 $4,092.5 13.4% 

Net Worth or 

Equity Capital $132.7 $134.5 $183.6 $213.3 $236.8 $248.1 4.8% 

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K. orm 10-K.

In addition to program assets, Farmer Mac’s capital supports 

nonprogram investment needs. Nonprogram investments provide 

liquidity in the event of a short-term disruption in the capital markets 

that prevents Farmer Mac from issuing new debt. Nonprogram investments are investment securities, cash, and cash equivalents. FCA regulations governing Farmer Mac’s nonprogram investments and liquidity 

became effective in the third quarter of 2005. Farmer Mac has been in 

compliance with those regulations since their publication. Farmer Mac’s 

policy is to maintain nonprogram investments at levels that provide 

liquidity for a minimum of 60 days of maturing obligations, with a 

target of 90 days. Farmer Mac was in compliance with its liquidity 

policy throughout the year. 

59
 2005 Annual Report on the Farm Credit System 
34. Farmer Mac assumes 100 percent of the 

credit risk on post-1996 Act loans, 

whereas pre-1996 Act loans are supported 

by mandatory 10 percent subordinated 

interests that mitigate Farmer Mac’s exposure. For that reason, pre-1996 Act 

loans are excluded from analysis for comparison purposes. 

Program Activity 

Farmer Mac’s total program activity dropped slightly over the past year 

to $5.3 billion on December 31, 2005, from $5.5 billion a year earlier (see 

Figure 9). Farmer Mac attributes the declining program activity to high 

levels of available capital and liquidity of agricultural lenders; alternate 

sources of funding and credit enhancement for agricultural lenders; 

increased competition in the secondary market for agricultural mortgage 

loans; reduced growth rates in the agricultural mortgage market; and 

the lower rate of growth of the FCS mortgage portfolio. 

Before the recent downward trend in program activity, Farmer Mac’s 

Long-Term Standby Purchase Commitments product was the primary 

source of growth in program activity. Under Farmer Mac Standbys, a 

financial institution pays an annual fee in return for Farmer Mac’s 

commitment to purchase loans in a specific pool under specified conditions at the option of the institution. The Standby product has grown 

rapidly since its introduction in 1999, from $862.8 million as of December 31, 2000, to $2.3 billion as of December 31, 2005. Standby volume 

now accounts for 44.2 percent of Farmer Mac’s total program activities. 

Off-balance-sheet program activity is composed of agricultural mortgage-backed securities sold to investors and Standbys. At the end of 

December 2005, 60.2 percent of program activity consisted of offbalance-sheet obligations (see Figure 10). 

Asset Quality 

On December 31, 2005, the portion of the Farmer Mac I program 

portfolio that was nonperforming was $48.8 million in loan principal, or 

1.11 percent of the principal balance of all loans purchased, guaranteed, 

or committed to be purchased since enactment of the Farm Credit 

System Reform Act of 1996 (1996 Act).34 This compares with $50.6 million, or 1.09 percent, on December 31, 2004. Nonperforming assets are 

(1) those that are 90 or more days past due, in foreclosure, or in bankruptcy, or (2) real estate property acquired by Farmer Mac through 

Farm Credit Administration 60

Dollars in Billions

Figure 9

Farmer Mac Program Activity and Nonprogram Investment Trends, 2000–2005

As of December 31

7 

1 

2 

3 

4 

5 

6 

0 

2000 2001 2002 2003 2004 2005 

Total Program Activity Program Activity off Balance Sheet 

Program Assets on Balance Sheet Nonprogram Investments 

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K. orm 10-K.

Figure 10

Farmer Mac Total Program Activity

As of December 31, 2005

0.5% 14.9% 

AMBS = agricultural mortgage-backed securities

Source: Farmer Mac’s Annual Report on Securities and Exchange Commission Form 10-K. orm 10-K.

Standbys 

44.2% 

AgVantage Loans held 

AMBS held 

24.4% 

AMBS sold 

16.0% 

61
 2005 Annual Report on the Farm Credit System 
35. Core earnings is a non-GAAP measure of 

financial results that excludes the effects 

of certain unrealized gains and losses and 

nonrecurring items. Farmer Mac began 

reporting core earnings to present an alternative measure of earnings performance. The components included in core 

earnings calculations are at the reporting 

entity’s discretion. 

foreclosure. Real estate owned as of December 31, 2005, was $3.5 million, down from $3.8 million a year earlier. After several years of 

improvement, the total dollar amount and percentage of nonperforming 

assets have leveled out. In 2004, Farmer Mac attributed the improvement to the maturing of a significant segment of its portfolio beyond 

the peak default years. During 2005, a smaller segment of its portfolio 

moved outside the peak default years. 

On December 31, 2005, Farmer Mac’s allowance for losses totaled 

$8.7 million, compared with $17.1 million on December 31, 2004. Of the 

$8.7 million allowance, $0.2 million represents specific allowances 

related to under-collateralized nonperforming assets. Farmer Mac 

attributes the decrease in the allowance for losses to the overall improved credit quality of the portfolio, the strong U.S. agricultural 

economy, and the implementation of a new methodology to estimate 

probable losses in the portfolio. Figure 11 shows the level of Farmer 

Mac’s allowance and nonperforming assets relative to outstanding post1996 Act program volume. 

Earnings 

GAAP net income available to common stockholders for the year ended 

December 31, 2005, was $27.3 million, down $0.9 million (3.2 percent) 

from 2004. The decline would have been greater had Farmer Mac not 

reported an approximate $8.8 million reversal in its ALL. Core earnings35 for 2005 were $28.7 million, an increase of 4.7 percent over 2004. 

Net interest income, which excludes guarantee fee income, was $33.2 

million in 2005, unchanged from 2004. Guarantee fee income, at $19.6 

million, was 6.8 percent lower in 2005 than in 2004. The decline reflects 

a decrease in the average balance of outstanding guarantees and Standbys. Nonprogram investments accounted for an estimated 37 percent of 

interest income for 2005, up from 24 percent for 2004. The increase 

resulted from (1) an increase in the average balance of nonprogram 

investments and (2) the rise in the average rates earned on the investments. Table 9 shows a 6-year trend in key income components. 

Farm Credit Administration 62

Percentage of Post-1996 Loans

Dollars in Millions

Figure 11

Allowance, Nonperforming Asset, and Delinquency Trends, 2000–2005

As of December 31

80 1.8 

2000 2001 2002 2003 2004 2005 

70 1.6

1.4 60 

1.2 50 

1.0


40


0.8


30
 0.6


20
 0.4


10
 0.2 

0.0 

Allowance for Losses (left scale) Nonperforming Assets as Percentage of Post-1996 Loans 

90-Day Delinquencies (left scale) 90-Day Delinquencies as Percentage of Post-1996 Loans 

Nonperforming Assets (left scale) 

Source: Farmer Mac’s Annual Report on Securities and Exchange Commission Form 10-K. orm 10-K.

Table 9

Farmer Mac Condensed Statements of Operations, 2000–2005

As of December 31

Dollars in Millions

Growth

Rate

2000 2001 2002 2003 2004 2005 2004–2005

Total Revenues $29.5 $42.0 $51.3 $54.8 $60.7 $53.5 -11.9% 

Total Expenses $19.1 $25.7 $30.0 $29.8 $32.5 $26.2 -19.4% 

Net Income 

Available to 

Shareholders $10.4 $16.3 $21.3 $25.0 $28.2 $27.3 -3.2% 

Core Earnings NA $17.1 $22.9 $23.0 $27.4 $28.7 4.7% 

NA = Not Available

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K. orm 10-K.

63 2005 Annual Report on the Farm Credit System 
Challenges Facing Agriculture 

and the FCS 

While the FCS enjoyed another year of solid earnings and capital growth 

in 2005, several challenges, both domestic and foreign, could affect its 

long-term profitability and performance. With its high capital levels, the 

System’s capacity to grow, bear risk, absorb losses, and sustain operations is at an all-time high. However, a number of risks and uncertainties remain that are largely beyond the control of the System and FCA. 

The Agency uses a strong surveillance system in its regulatory and 

examination activities to monitor and address these challenges. 

A Slowdown in the Economy 

The economy generally has been good to consumers and farmers in 

recent years and the question now becomes, will it perform as well in 

the period ahead? Most of the evidence for 2005 is positive, although 

the forecasting lens is a bit foggy when it comes to assessing the housing market, energy prices, inflation, federal budget deficits, interest rate 

trends, and world trade negotiations, among other uncertainties. 

In general, real gross domestic production (GDP) is expected to grow at 

about its long-term rate of 3.3 percent, down slightly from a 3.5 percent 

rate in 2005 and the robust rate of 4.2 percent in 2004. More jobs will 

increase wages and salaries, which would bolster consumer and business spending and possibly offset any negative wealth effects from a 

softer housing market. Despite the sharp run-up in energy prices after 

Hurricane Katrina hit the Gulf Coast in late August, core inflation (i.e., 

consumer prices less food and energy) remains well anchored at about 

2 percent and is not expected to accelerate significantly in 2006. Thus, 

overall demand for food products from America’s farmers and ranchers 

should remain strong. Plus, a good economy will help support off-farm 

income opportunities for many farm families who rely on this income 

for their livelihood. 

All economic forecasts contain risks, whether the economy is heating up 

or cooling down. This year most of the risks appear to be associated 

with an economic downturn. Thus, policymakers will be judging the 

economy’s progress very carefully, looking for any signs of a significant 

Farm Credit Administration 64

slowdown or accelerating inflation. More than likely, they will face a 

delicate balancing act as they try to find the right blend of policies. 

Some of the key risk factors in the outlook are as follows: 

•	 A slowdown in the housing market would dampen what has been a 

major driver of economic activity in the last 2 years. If other sectors 

fail to pick up the slack, real GDP growth would likely suffer. The 

extent to which housing markets soften will depend on future 

interest rate developments, a possible reversal of our nation’s 

negative savings rate, and regional employment opportunities. 

•	 Volatile and rising energy prices could trigger inflationary expectations and cause the Federal Reserve to tighten monetary policy 

beyond mid-2006. Although energy use per dollar of GDP today is 

half of what it was during the energy crisis period of the 1970s, a 

major disruption in oil supplies, or even the failure of oil prices to 

retreat below $70 per barrel, may be difficult for the economy to 

absorb without inflationary repercussions. However, high energy 

prices might stimulate ethanol and bio-diesel production as alternative fuels, which will help bolster crop income. 

•	 Will the Federal Reserve continue to raise interest rates beyond 

midyear? After 16 consecutive hikes between June 2004 and May 

2006, most observers believe the Federal Open Market Committee, 

starting this summer, will likely call a halt to its practice of increasing the Federal funds rate by 25 basis points each time it meets. 

However, as the nation’s inflation watchdog, the Federal Reserve 

can be expected to head off any unexpected inflationary pressures 

that may emerge in the energy sector or elsewhere by tightening 

monetary policy. While rates are still relatively low by historical 

standards, additional increases would ripple through the economy 

and probably reduce off-farm income opportunities in rural areas. 

65
 2005 Annual Report on the Farm Credit System 
Darker Clouds for Farm Income 

For the past 3 years, farm income has been strong, with net cash income 

hitting an all-time high of $85.5 billion in 2004, followed by $82.8 billion 

in 2005. Most farm lenders are aware that farm income can vary widely, 

not only from year to year, but also from one sector or region to another within a given year. This volatility affects loan repayment ability. 

Lenders are also aware that most farm borrowers employ a number of 

risk management tools to protect themselves from the vagaries of the 

marketplace, including enterprise diversification; yield or revenue 

insurance; and, if they are eligible to receive them, countercyclical and 

other farm program payments. 

The FCS’s loan portfolio is a good snapshot of American agriculture in 

terms of commodities, farm size distribution, and population characteristics. For example, about 60 percent of the System’s customers are 

small farmers, having annual sales of less than $250,000. However, most 

of its loan volume—about 70 percent of it—is with the operators of 

larger, commercial-sized farms. While off-farm income is important to 

both small and large farming operations, large variations in farm 

income can pose serious repayment issues for the latter group, which 

causes FCS institutions to pay close attention to these developments. 

Early indications are that net cash farm income will decline around 

20 percent to $65 billion in 2006, mostly because of lower prices received for farm products and higher production costs. Direct government payments are also projected to drop about $4.5 billion. From a 

historical perspective, however, the 2006 income estimate is in line with 

the average figure for the last 10 years, $64.4 billion. By commodity 

groups, the crop sector may fare somewhat better than the livestock 

sector since red meat and poultry prices will likely decline because of 

large supplies domestically and weak demand internationally. Although 

the farm income picture looks reasonably good for the next couple of 

years, uncertainties about the new farm bill and world trade negotiations could prove worrisome as we move through 2006 and beyond. 

Farm Credit Administration 66

The 2007 Farm Bill—Government payments to farmers have been a key 

component of the farm safety net for more than 50 years. Although 

Congress decoupled payments from production and established a 

schedule to completely phase out subsidies with the 1996 legislation, a 

series of crop and livestock emergencies, as well as a budget surplus, 

induced Congress to reintroduce direct and countercyclical payments in 

the 2002 farm bill. Program payments have averaged almost $16 billion 

annually for the last 10 years but peaked at $23 billion in 2005, just as 

people were starting to think about the new farm bill. 

As the debate commences in earnest on the new farm bill, observers 

will be watching Congress to see how it balances the demands of 

various domestic interest groups, not all of which will be in harmony, 

with the expectations of the world community to reduce agricultural 

subsidies. Under almost any scenario, Congress likely will try to scale 

back expenditures in the new farm bill to mitigate the budget deficit 

problem and to comply with current and future World Trade Organization (WTO) rules on subsidies. However, commodity interest groups will 

lobby hard to preserve their current benefits even though most of the 

payments go to the larger producers. Meanwhile, conservation and 

other interest groups will argue for a reallocation of monies to their 

programs. The risk to the FCS is that, if a sharp reduction in farm 

program benefits were to occur, it could weaken agriculture’s safety net, 

decrease the collateral values of farm real estate, and, in the short run, 

reduce farm income, all of which would probably adversely affect the 

credit quality of the System’s loan portfolio. However, given the long 

history of farm programs, Congress—rather than making draconian cuts 

in commodity program benefits—probably will take a measured approach in the new farm bill to identify ways to use insurance, “green” 

payments, and other innovative programs to offset some of the risks in 

production agriculture. 

World Trade and the Doha Round—Farm exports have been a bright 

spot for the economy for several years. Following record sales in 2004 

and 2005, agricultural exports are projected to increase again in 2006 to 

almost $65 billion, a 3 percent gain. As impressive as these statistics are, 

67
 2005 Annual Report on the Farm Credit System 
36. The WTO is a voluntary association of 149 

countries that meets periodically (in what 

are known as “rounds” of negotiations) 

to set the rules by which all of its members agree to behave in international 

trade. The Doha Round of trade negotiations is the most recent series of meetings, 

which was launched in 2001 in Doha, 

Qatar. Although trade rounds may take 

several years to complete, negotiations in 

the Doha Round are stretching out over 

an unusually long time. 

agricultural imports have also been on a run, climbing even more 

rapidly than exports and taking sharp aim at the long-term trade 

surplus that agriculture has enjoyed since 1959, the last time it experienced a small deficit. If consumers continue to demand value-added 

products from abroad—wines, cheeses, cut flowers, fruits and vegetables—the agricultural trade balance will likely turn into a deficit 

within the next 2 years, barring significant depreciation of the dollar. 

World trade is important to U.S. agriculture because, in general, a 

growing proportion of our output is sold abroad; in fact, exports absorb 

more than 25 percent of total production. Roughly half of our wheat 

and rice and 60 percent of our cotton are exported and, except for 

wheat, these percentages are higher than in the 1990s. More than a third 

of our soybean crop is sold abroad and, again, this percentage has been 

growing. Corn is an exception: the proportion of output sold abroad has 

dropped slightly to around 18 percent recently, but about 15 percent of 

the crop now goes into ethanol production. Although livestock exports 

as a percentage of production are relatively small (about 8 percent for 

red meats and 15 percent for poultry), foreign sales were growing 

rapidly before being hit hard by bovine spongiform encephalopathy 

(BSE) and avian influenza concerns worldwide. 

Against this backdrop, it is clear why the Doha Round of negotiations 

by the WTO is so critical to American agriculture.

36 By reducing subsidies and gaining access to more international markets, U.S. farmers 

presumably would be able to compete more openly and fairly in most 

product areas and boost their foreign sales. Unfortunately, the WTO 

negotiations have been both controversial and contentious and, quite 

conceivably, may not conclude in time for the 2007 farm bill, or in time 

to create Congressional support for renewing the Trade Promotion Act 

(fast-track authority), which expires on July 1, 2007. As a practical 

matter, a new WTO agreement needs to be adopted by the end of 2006 

to keep the farm bill legislation on schedule. Absent this legislation, the 

agricultural community, including the FCS, will face an unusual set of 

challenges as producers try to make key investment decisions in this 

uncertain environment. 

Farm Credit Administration 68

Risks to Land Values Inside and Outside the Farm Sector 

Farm real estate is an important issue for the FCS because about 70 percent of its farm lending portfolio is collateralized by a first mortgage on 

farmland. The value of this collateral has been climbing continuously 

for 18 years, since the collapse of the farmland market in the mid-1980s. 

For most of these years, farm real estate values have been rising faster 

than net cash farm income. Farmland values have grown an average 

annual rate of 6.8 percent in nominal terms (4.7 percent in real terms) 

over the past 5 years (2001–2005). USDA expects land values to increase 

6.5 percent in 2006, a gain that will again outpace total farm income. 

Fueling the upsurge in farm real estate values has been (1) the persistently strong demand for farmland from nonfarm investors looking for 

returns or recreation, (2) record farm income in 2004 and 2005, 

(3) significant farm program payments that both increase farm income 

and reduce income volatility, and (4) historically low interest rates. 

The increasing imbalance between the value of farmland and the 

market-based income derived from it presents significant challenges. 

This imbalance increases lenders’ collateral risk, especially as farmland 

values become more dependent on government payments and events in 

the nonfarm economy. Moreover, the persistent rise in land values, 

while the main source of equity growth for most farmers, does not bode 

well for young and beginning farmers who are finding it increasingly 

difficult to afford a start-up operation or expand an existing one. 

Increasing land values also make generational transfers more difficult to 

accomplish. In addition, they pose a longer-term threat to agriculture’s 

overall profitability and competitiveness because the fixed costs for land 

will be high in relation to the fixed costs of foreign producers. 

USDA expects farm income to decline from record levels because of 

lower commodity prices, a surge in energy costs, higher interest rates, 

and reduced government payments. Since demand from nonfarm 

investors has increasingly been a factor in rising land markets, any 

decrease in this demand will have a bigger impact than in the past. One 

concern is the weaknesses that might occur in the housing market and 

the linkages to farmland through the Section 1031 tax exchanges. These 

exchanges provide an opportunity for investors to roll over capital gains 

from sales of properties in or near metro areas into farmland as a 

means of postponing payment of taxes. 

69
 2005 Annual Report on the Farm Credit System 
While farm real estate values are expected to remain firm in 2006, the 

above-mentioned factors could slow their rise or even reduce values in 

some areas. Especially vulnerable will be farming-dependent counties 

with declining populations, marginal lands, farms near urban areas 

where the housing market may soften significantly, regions with limits 

on water availability or affordability, and land with little or no recreational or scenic value. 

These risks are being closely watched for their effect on land values. In 

a memorandum dated March 9, 2005, the Agency informed System 

institutions about the rising collateral risk in real estate loans. Fortunately, System lenders are in a much stronger financial position today 

than 2 decades ago and generally use conservative underwriting standards. If some rural areas were to experience moderate declines in 

farmland values this year, System institutions are well positioned to 

deal with any credit stress that may arise from this development. 

Food Safety and Security—A Growing Concern 

For years, the United States has been recognized as a world leader in 

food safety and security. U.S. agriculture benefits from this reputation 

by being able to move large quantities of food and fiber into various 

marketing channels. However, all it takes is one incident or breakdown 

in food safety, whether perceived or real, to harm a country’s reputation 

and jeopardize the trust it has worked so hard to earn. 

The discovery of a single case of BSE in the United States in late 2003 

demonstrated how markets can respond to food safety concerns. Several 

countries, most notably Japan, halted beef imports from America, 

causing beef prices to plummet. Prices only strengthened when it 

became apparent that domestic consumers were still buying and eating 

beef. Nevertheless, beef exports are still languishing as two more BSE 

incidents in the United States (the latest occurred in Alabama in March 

2006) have undermined USDA’s efforts to persuade Japan and several 

other foreign countries to reopen their markets to U.S. beef. 

Avian influenza is another animal disease with mounting repercussions. 

Although the United States has largely escaped the problem to date, 

with only a limited outbreak in four states in early 2004, several Asian 

countries have been less fortunate. Not only have a large number of 

flocks been destroyed, but several people have died. The most worrisome issue is the unlikely scenario in which the flu virus mutates and is 

Farm Credit Administration 70

transmitted from human to human. Health experts believe such an 

outcome could kill millions of people worldwide, with terrible economic 

consequences for world trade and commerce. Bird flu bears close 

scrutiny this year because of the growing likelihood it could resurface in 

the United States, despite the fact that much of our poultry is produced 

in confinement facilities and isolated from migratory birds. The chief 

risk to the industry is that an outbreak would choke off exports and 

cause poultry prices to drop sharply. Agency staff is monitoring this 

situation closely and working with FCS institutions whose loan volumes 

are heavily concentrated in poultry. 

Other food security issues relate to the weather, plant diseases, and 

bioterrorism. Katrina and other hurricanes in 2005 devastated local 

production and uprooted lives in several regions, and weather forecasters believe 2006 could be another active hurricane year. Furthermore, drought can hurt production and is a problem that seems to show 

up somewhere in the United States almost every year. Soybean rust, 

after surfacing in the latter half of 2004, did not affect 2005 production 

very much, but it remains a concern because it is highly contagious and 

can significantly reduce yields if it spreads widely. Bioterrorism, no 

matter what form it may take, appears to be a growing threat to the 

safety of our food and water supply, although every effort is being 

made to keep this risk to a minimum. 

Agriculture is inherently risky. As noted above, many events that can 

significantly affect farm income are beyond a producer’s control. That is 

why FCS institutions and their farmer customers need to maintain 

capital and employ appropriate risk management tools to sustain their 

operations when hardships occur. 

Keeping Pace with the Structure of Agriculture 

Understanding agriculture today requires more than examining statistics 

on farm numbers, average acreage, and production concentrations. 

Dynamic forces are changing the structure of agriculture at a rapid 

pace. Among the forces reshaping agriculture are 

•	 declining rural populations and employment opportunities in certain 

regions; 

•	 shifting demographics of farm operators, including age, gender, 

race, tenure arrangements, and preferred lifestyles, including an 

increasing percentage of small, part-time farmers and others who 

like being rural residents; 

71
 2005 Annual Report on the Farm Credit System 
37. “21st Century Rural America: New Horizons for U.S. Agriculture,” The Farm 

Credit Council, January 2006. 

•	 evolving supply chains between producers, integrators, and consumers that help sustain specialized niche farming operations and 

large-volume producers alike; 

•	 increasing reliance on off-farm income and value-added investment 

opportunities across the full spectrum of agriculture; and 

•	 growing importance of government farm policies in influencing the 

welfare of the farm sector and establishing the rules of world trade. 

The result of all these forces is that agriculture now has tremendous 

diversity in size, income and wealth, and operator characteristics. This 

diversity presents daunting challenges to suppliers, marketers, and other 

vendors offering services to the industry. 

In 2005, the FCS, working with many academic experts, devoted considerable effort to conducting an in-depth study of the emerging financial 

and economic needs of agriculture and rural America. The key findings 

in its Horizons report37 provide insight into some of the major trends in 

rural America and new policy solutions that will help farmers, rural 

businesses, and rural communities succeed in the 21st century. The chief 

purpose of this initiative was to develop a better understanding of the 

FCS’s ability to contribute to the financial well-being of agriculture and 

rural America in the future. 

A key concern for any service provider, including the FCS, is making 

sure it can compete in the rapidly changing environment for agriculture 

and rural America. As a GSE, the System provides loans and other 

financial services to agriculture, farmer cooperatives, farm-related 

businesses, and other rural activities under the authority of the Farm 

Credit Act of 1971, as amended. Although the Act and FCA regulations 

have been amended several times since 1971, the magnitude of structural change in rural America continues to challenge the System’s ability 

to be a creative partner in meeting the financial needs of its rural 

customer base. As the farm economy continues to evolve, the number of 

traditional agricultural producers who focus solely on farming for their 

livelihood continues to decline. At the same time, the System has a 

mandate to serve the needs of the YBS producers who are increasingly 

dependent on the off-farm economy to sustain their financial health and 

Farm Credit Administration 72

ability to live in rural areas. Thus, the System needs to continue to 

fulfill its GSE mandate to meet the growing credit needs of YBS farmers 

and other elements of rural America. 

For FCA, the challenge is to create an environment that promotes the 

confidence of customers and shareholders, investors, Congress, and the 

public in the System’s financial strength and future viability. Although 

Congress expects our regulations to be consistent with the law, it also 

expects us to be innovative in helping the FCS fulfill its mission of 

providing an adequate and flexible flow of money into rural areas in a 

safe and sound manner. With this objective in mind, the FCA Board, in 

its revised Policy Statement 59, stated, 

The FCA Board intends to provide System institutions with the 

flexibility consistent with changes in law, agriculture, and rural 

America so institutions can offer high quality, reasonably priced 

credit and related services to farmers, ranchers, their cooperatives, rural residents, and other entities upon which farming 

operations are dependent. 

Bringing more financial resources to agriculture and rural America is a 

laudable policy goal. Achieving it will likely remain a continuing 

challenge because it will require the combined efforts of FCA, the 

System, and other financial service providers to make it a reality. 

73
 2005 Annual Report on the Farm Credit System 
Appendix 

Farm Credit Administration Offices 

The 257 full- and part-time employees of the FCA work together to 

ensure that the FCS remains a dependable source of credit for agriculture and rural America. The following paragraphs explain the functions 

of each of the Agency’s offices. 

The FCA Board approves the policies, regulations, charters, and enforcement activities that ensure a strong FCS. The Board also provides for 

the examination and supervision of the FCS, including Farmer Mac, and 

oversees the activities of the FCS Building Association, which acquires, 

manages, and maintains FCA headquarters and field office facilities. 

The Secretary to the Board ensures that the FCA Board complies with 

statutory, regulatory, and internal operation procedures and requirements. The Board Secretary is the Parliamentarian to the FCA and 

FCSIC Boards. 

The Office of the Chief Executive Officer enforces the rules, regulations, and orders of the FCA Board. The CEO directs the implementation of policies and regulations adopted by the FCA Board. The office 

plans, organizes, directs, coordinates, and controls FCA operations and 

leads the Agency’s efforts to achieve and manage a diverse workforce. 

The Office of Congressional and Public Affairs (OCPA) serves as the 

Agency’s principal point of contact for Congress, the media, other 

government agencies, FCS institutions, employees, System borrowers, 

and the public. OCPA develops and monitors legislation pertinent to 

FCA and the FCS, serves as the Agency’s congressional liaison, and 

prepares testimony for the Chairman and other staff members. The 

office provides information to external audiences through news releases, 

information brochures and fact sheets, the annual FCA Performance and 

Accountability Report, and other publications. OCPA manages media 

relations regarding Agency activities and the content of the FCA Web 

site. The office also coordinates special meetings, briefings for international visitors, and field hearings. 

Farm Credit Administration 74

The Office of Examination is responsible for programs of examination 

and supervision of each FCS institution, in accordance with the Farm 

Credit Act of 1971, as amended, and applicable regulations. The office 

develops oversight plans; conducts examinations; monitors the System’s 

condition, risks, and emerging risks; and develops supervisory strategies 

to ensure that the System operates in a safe and sound manner and 

fulfills its public policy purpose. The FCA Board further defines the 

Office of Examination’s role in Policy Statement 53. 

The Office of the General Counsel provides the FCA Board and staff 

with legal counsel, as well as guidance on general corporate, personnel, 

ethics, and administrative matters. The office supports the Agency’s 

development and promulgation of regulations, civil litigation, enforcement of applicable laws and regulations, and implementation of 

conservatorships and receiverships. The office serves as the liaison to 

the Federal Register, creates and maintains the Agency’s public 

rulemaking files, and handles the Agency’s submission of the Unified 

Agenda of Federal Regulatory and Deregulatory Actions. The office also 

handles Freedom of Information Act requests and matters pertaining to 

the Privacy Act. 

The Office of the Inspector General provides independent and objective oversight of Agency programs and operations through audits, 

inspections, investigations, and the review of proposed legislation and 

regulations. The office promotes economy and efficiency within FCA 

and seeks to prevent and detect fraud, waste, and abuse in the Agency’s 

programs and operations. 

The Office of Regulatory Policy manages all policy and regulation 

development activities that ensure the safety and soundness of the FCS 

and support the System’s mission as a dependable source of credit and 

related services for agriculture and rural America. Policy and regulation 

development activities include the analysis of policy and strategic risks 

to the System, considering economic trends and other risk factors. The 

office also evaluates all regulatory and statutory prior approvals for 

System institutions, including chartering and other corporate approvals, 

as well as funding approvals on behalf of the FCA Board. 

75
 2005 Annual Report on the Farm Credit System 
The Office of Management Services manages and delivers the Agency’s 

information technology, financial, human capital, and administrative 

services. The office coordinates planning efforts, including information 

resources management, security, human capital, and financial plans for 

the Agency. By centrally planning, managing, and delivering resource 

services, the Office of Management Services enables the Agency’s 

program offices to fully focus their time and attention on their respective mission-related responsibilities. 

The Office of Secondary Market Oversight provides for the examination, regulation, and supervision of the activities of Farmer Mac to 

ensure its safety and soundness and the accomplishment of its public 

policy purpose as authorized by Congress. It also ensures that Farmer 

Mac complies with applicable laws and regulations, and it manages 

FCA’s enforcement activities with respect to Farmer Mac. 

The Equal Employment Opportunity (EEO) Program directs the 

Agency’s efforts to achieve and manage a diverse workforce and encourages awareness of, and respect for, diversity in the workplace. The 

office works to prevent employment discrimination, handles employee 

discrimination complaints, and sponsors training and seminars on EEO 

issues. 

The Office of the Ombudsman serves as a neutral and confidential 

resource for institutions of the FCS and other parties that may have 

inquiries or complaints concerning actions of the Agency. This office 

facilitates the resolution of problems or complaints in a fair, impartial, 

and timely manner, and provides recommendations to the Chairman 

and CEO to improve Agency policies, procedures, and practices. 

The Designated Agency Ethics Official administers the provisions of 

Title 1 of the Ethics in Government Act of 1978, as modified by the 

Ethics Reform Act of 1989, within FCA. This office coordinates and 

manages FCA’s ethics program and serves as liaison to the U.S. Office 

of Government Ethics. The responsibilities of the position include 

reviewing financial disclosure reports of FCA staff and prospective 

Presidential appointees to the FCA Board, conducting FCA’s ethics 

training, counseling staff on ethics standards and post-employment 

conflicts of interest, and assisting managers and supervisors in understanding and implementing Agency ethics programs. 

Farm Credit Administration 76

Figure 12

Farm Credit Administration

Organizational Structure

As of January 3, 2006

Office of 

the Chairman 

and CEO 

Equal Employment 

Opportunity/ 

Ombudsman 

Eric Howard 

Regulatory Policy 

Committee 

Farm Credit Administration Board 

, Chairman 

Douglas L. Flory, Member 

Dallas Tonsager, Member 

Nancy C. Pellett 

Risk Committee 

Strategic Planning 

Committee 

Office of


Congressional and


Public Affairs


Martha E. Schober 

Nancy C. Pellett 

Designated 

Secretary Agency 

to the Board Ethics Official 

Roland E. Smith Kathleen V. Buffon 

*Office of 

Office of the Office of the Secondary 

Inspector General Chief of Staff Market Oversight 

Carl A. Clinefelter Keith H. Heffernan S. Robert Coleman 

Office of Office of


Management Office of Regulatory


Services Examination Policy


Stephen G. Smith Thomas G. McKenzie Andrew D. Jacob 

Office of the 

General Counsel 

Charles R. Rawls 

*Reports to the Board for policy and to the CEO for administration. 

Maintains a confidential advisory relationship with each of the Board members. 

77 2005 Annual Report on the Farm Credit System 
Jeanette C. Kathleen V. Carl A.


Brinkley Buffon Clinefelter


Agency Officials 

Jeanette C. Brinkley was Secretary to the FCA Board through the end 

of 2005. She joined FCA in November 1982 as a secretary in the Office 

of Administration. During her tenure with FCA, Ms. Brinkley worked in 

the Office of Examination and Supervision, the Office of Congressional 

and Public Affairs, and the Office of the Chief Operating Officer. In 

1995, she began working for the Office of the Board as the administrative specialist to the Secretary to the FCA Board. 

Kathleen V. Buffon is the Designated Agency Ethics Official. She was 

first appointed to the position in 1992 when she came to FCA as associate general counsel, a position she continues to hold. Before joining 

FCA’s Office of General Counsel, she served as assistant director for 

credit practices at the Federal Trade Commission. Following her graduation from law school, she clerked for the Honorable Henry H. Kennedy, 

Jr., an Associate Judge of the Superior Court of the District of Columbia. 

Carl A. Clinefelter is the Inspector General. Before assuming this 

position in July 2005, he served as the acting director of the Office of 

Communications and Public Affairs and the acting director of the Office 

of Congressional and Legislative Affairs. Mr. Clinefelter has also served 

as the director of the Office of the Ombudsman at FCA and as director 

of the Office of Secondary Market Oversight. Before assuming that 

position in December 1998, Mr. Clinefelter was an assistant director of 

the Office of Policy and Analysis, a regional supervisory officer in the 

Office of Supervision, and an associate regional director in the Office of 

Examination and Supervision. Before joining FCA in 1980, he was 

employed by the Federal Intermediate Credit Bank of New Orleans as 

assistant vice president. 

Farm Credit Administration 78

S. Robert Keith H. Eric Howard


Coleman Heffernan


S. Robert Coleman is Director of the Office of Secondary Market Oversight. Before assuming this position in September 2005, Mr. Coleman 

served as the director of the Agency’s Regulation and Policy Division. 

Mr. Coleman joined FCA in 1986 as an examiner in the Office of Examination. He held various positions in that office, providing technical and 

analytical support to the FCA field offices and in the Policy Development 

and Planning Division. During this period, Mr. Coleman completed the 

commissioning program and became a commissioned examiner in 1990. 

In 1994, Mr. Coleman transferred to the Office of Policy Analysis, where 

he served as a policy analyst specializing in regulation development, 

and then as a senior policy analyst. He was named director of the 

Regulation and Policy Division in June 2003. 

Keith H. Heffernan is the Chief of Staff. Before joining FCA in July 

2004, he served as Chief of Staff for the Under Secretary for Rural 

Development at USDA. His previous experience includes serving as 

assistant director of the Center for Agricultural and Rural Development 

at Iowa State University. From 1983 to 1989, he served the State of Iowa 

as deputy director of the Iowa Development Commission, as administrative assistant to Governor Terry Brandstad, and as director of the 

Department of Commerce. He also served as executive director of the 

Iowa Corn Growers Association from 1977 to 1983. 

Eric Howard is the Equal Employment Opportunity Manager. He joined 

FCA in 1986 as an examiner in FCA’s Oklahoma City field office. In 

1991, he became a policy analyst for the Policy and Risk Analysis 

Division in the Office of Examination in McLean, Virginia. Mr. Howard 

became a senior policy analyst for the Regulation and Policy Division of 

the Office of Policy and Analysis in 1997. 

79
 2005 Annual Report on the Farm Credit System 
Andrew D. Thomas G. James M.


Jacob McKenzie Morris


Andrew D. Jacob is Director of the Office of Regulatory Policy. Before being 

named to this position in July 2005, he served as the director of the Office 

of Secondary Market Oversight. Mr. Jacob joined the Agency in 1986 as a 

credit examiner in the Sacramento field office. In 1988, he transferred to 

FCA’s headquarters in McLean, Virginia, where he served as a commissioned FCA examiner and as an information systems examiner in the 

Office of Examination. In 1997, he transferred to the Office of Policy and 

Analysis, where he served as a senior policy analyst and a senior financial 

analyst before becoming the assistant director of the office in 1999. He was 

named director of the Office of Secondary Market Oversight in 2004. 

Thomas G. McKenzie is Chief Examiner and Director of the Office of 

Examination. He joined the Agency in 1979 and has served as director of 

the Office of Secondary Market Oversight and as director of the Office of 

Policy and Analysis; he has also held regional and division director 

positions in the Office of Examination and the former Office of Supervision. He headed the Agency’s regional offices of examination in Denver 

and Atlanta, where he oversaw the field offices in Albany, New York; 

Atlanta; Dallas; Denver; and Sacramento, California. He began his Federal 

government career with FCA as a management specialist and advisor for 

the Agricultural Bank of Saudi Arabia in Riyadh. Before joining FCA, he 

was a regional manager for a Federal Land Bank; a manager and CEO of 

a Federal Land Bank Association; and a financial analyst for a Bank for 

Cooperatives, where he began his career in agricultural credit in 1971. 

James M. Morris is Executive Assistant to FCA Chairman Nancy C. 

Pellett. Before being named to this position in October 2005, Mr. Morris 

served as senior counsel in FCA’s Office of General Counsel. He has also 

served intermittently as the acting secretary to the FCA Board over the 

past several years. He served as acting secretary and general counsel to 

FCSIC in 1988. Mr. Morris joined FCA’s Office of General Counsel in 1987. 

Before beginning his Federal service, he practiced law in Illinois from 1983 

to 1987. In 1981, Mr. Morris joined the New York law firm of Carter, 

Ledyard & Milburn, where he remained until 1983. From 1980 to 1981, he 

served as senior law clerk for Justice Robert C. Underwood of the Illinois 

Supreme Court. From 1977 to 1980, Mr. Morris practiced law at the New 

York law firm of Reid & Priest. 

Farm Credit Administration 80

Charles R. Martha Roland E.


Rawls Schober Smith


Charles R. Rawls is the FCA General Counsel. Before joining FCA in 

March 2003, he was general counsel and vice president for legal, tax, 

and accounting at the National Council of Farmer Cooperatives. During 

the consideration of the 2002 farm bill, he served as the general counsel 

of the Senate Committee on Agriculture, Nutrition, and Forestry. From 

1998 until 2001, he was general counsel for the USDA. He was chief of 

staff to the Deputy Secretary of Agriculture from 1993 to 1998. From 

1988 to 1993, he was legislative director and then administrative assistant to Congressman Martin Lancaster. From 1985 to 1988, he was 

associate general counsel of the House Committee on Agriculture. He 

was counsel to the House Agriculture Subcommittee on Forests, Family 

Farms, and Energy from 1983 until 1985. 

Martha Schober is the Director of the Office of Congressional and 

Public Affairs. Before joining FCA, she served as a Congressional liaison 

in the Office of Congressional Relations at the USDA. She also served as 

a confidential assistant to the administrator at USDA’s Risk Management Agency. Before entering Government service, Ms. Schober was the 

director of Congressional Relations at the American Cotton Shippers 

Association. 

Roland E. Smith became Secretary to the FCA Board in January 2006. 

He began his career with the FCS in 1974, when he became a loan 

officer for a System association in Greenville, North Carolina. He later 

served as a loan officer and credit reviewer for the Farm Credit Banks 

of Columbia, South Carolina. In 1979, Mr. Smith joined the FCA as an 

examiner in the St. Louis field office. In 1984, he was promoted to 

associate regional director. He later managed FCA’s Oklahoma City field 

office and then the Denver field office. In 1996, Mr. Smith was named 

chief examiner and director of the Office of Examination. He served as 

the Agency’s executive director of planning and projects from August 

2004 until January 2006. 

81
 2005 Annual Report on the Farm Credit System 
Stephen G.


Smith


Stephen G. Smith is the Director of the Office of Management Services. 

Before accepting this position, he had served as the Inspector General of 

the Agency from 2001. He joined FCA in 1981 as a technical specialist. 

He became an examiner in 1984 and later served as staff assistant for 

the Chief Examiner. In 1989, he was named associate regional director 

for the Agency’s Albany, New York, field office. He later served as 

senior staff director for the Chief Examiner and was then named director of the Technical and Operations Division. In 1993, he assumed new 

responsibilities as director of the Information Resources Division. He 

was named Chief Information Officer in 1996, directing all technology 

and information operations for FCA. Before joining the Agency, he 

worked at the North Central Jersey Farm Credit Associations. 

Farm Credit Administration 82

Glossary 

A 

Agricultural Credit Association (ACA)—An ACA results from the 

merger of a Federal Land Bank Association or an FLCA and a PCA, and 

has the combined authority of the two institutions. An ACA borrows 

funds from an FCB or ACB to provide short-, intermediate-, and longterm credit to farmers, ranchers, and producers and harvesters of 

aquatic products. It also makes loans to these borrowers for certain 

processing and marketing activities, to rural residents for housing, and 

to certain farm-related businesses. 

Agricultural Credit Bank (ACB)—An ACB results from the merger of 

an FCB and a Bank for Cooperatives, and has the combined authorities 

of those two institutions. An ACB is also authorized to finance U.S. 

agricultural exports and provide international banking services for 

farmer-owned cooperatives. CoBank is the only ACB in the FCS. 

B 

Bank for Cooperatives (BC)—A BC provides lending and other financial services to farmer-owned cooperatives, rural utilities (electric and 

telephone), and rural sewer and water systems. It is also authorized to 

finance U.S. agricultural exports and provide international banking 

services for farmer-owned cooperatives. The last remaining BC in the 

FCS, the St. Paul Bank for Cooperatives, merged with CoBank on July 1, 

1999. 

F 

Farm Credit Act—The Farm Credit Act of 1971, as amended, 

(12 U.S.C. §§ 2001–2279cc) is the statute under which the FCS operates. 

The Farm Credit Act recodified all previous acts governing the FCS. 

83
 2005 Annual Report on the Farm Credit System 
Farm Credit Bank (FCB)—FCBs provide services and funds to local 

associations that, in turn, lend those funds to farmers, ranchers, 

producers and harvesters of aquatic products, rural residents for housing, and some agriculture-related businesses. On July 6, 1988, the 

Federal Land Bank and the Federal Intermediate Credit Bank in 11 of 

the 12 then-existing Farm Credit districts merged to become FCBs. The 

mergers were required by the Agricultural Credit Act of 1987. As of 

September 30, 2004, there were four FCBs: AgFirst Farm Credit Bank; 

AgriBank, FCB; Farm Credit Bank of Texas; and U.S. AgBank, FCB. 

Farm Credit Leasing Services Corporation—The Leasing Corporation is 

a service entity owned by CoBank, ACB. It provides equipment leasing 

and related services to eligible borrowers, including agricultural producers, cooperatives, and rural utilities. 

Farm Credit System Insurance Corporation (FCSIC)—The FCSIC was 

established by the Agricultural Credit Act of 1987 as an independent 

U.S. government-controlled corporation. Its purpose is to ensure the 

timely payment of principal and interest on insured notes, bonds, and 

other obligations issued on behalf of FCS banks and to act as conservator or receiver of FCS institutions. The FCA Board serves ex officio as 

the Board of Directors for FCSIC; however, the Chairman of the FCA 

Board is not permitted to serve as the Chairman of the FCSIC Board. 

FCA Financial Institution Rating System (FIRS)—The FIRS is similar 

to the Uniform Financial Institutions Rating System used by other 

Federal banking regulators. However, it has been modified by FCA to 

reflect the nondepository nature of FCS institutions. The FIRS provides a 

general framework for assimilating and evaluating all significant financial, asset quality, and management factors to assign a composite rating 

to each System institution. The ratings are described below. 

Rating 1—Institutions in this group are basically sound in every 

respect; any negative findings or comments are of a minor nature 

and are anticipated to be resolved in the normal course of business. 

Such institutions are well managed, resistant to external economic 

Farm Credit Administration 84

and financial disturbances, and more capable of withstanding the 

uncertainties of business conditions than institutions with lower 

ratings. Each institution in this category exhibits the best performance and risk management practices for its size, complexity, and 

risk profile. As a result, these institutions give no cause for regulatory concern. 

Rating 2—Institutions in this group are also fundamentally sound 

but may reflect modest weaknesses correctable in the normal course 

of business. The nature and severity of deficiencies are not considered material, therefore, such institutions are stable and able to 

withstand business fluctuations. Overall risk management practices 

are satisfactory for the size, complexity, and risk profile of each 

institution in this group. While areas of weakness could develop 

into conditions of greater concern, regulatory response is limited to 

the extent that minor adjustments are resolved in the normal course 

of business and operations continue in a satisfactory manner. 

Rating 3—Institutions in this category exhibit a combination of 

financial, management, operational, or compliance weaknesses 

ranging from moderately severe to unsatisfactory. When weaknesses 

relate to asset quality or financial condition, such institutions may 

be vulnerable to the onset of adverse business conditions and could 

easily deteriorate if concerted action is not effective in correcting the 

areas of weakness. Institutions that are in significant noncompliance 

with laws and regulations may also be accorded this rating. Risk 

management practices are less than satisfactory for the size, complexity, and risk profile of each institution in this group. Institutions 

in this category generally give cause for regulatory concern and 

require more than normal supervision to address deficiencies. 

Overall strength and financial capacity, however, still make failure 

only a remote possibility if corrective actions are implemented. 

85
 2005 Annual Report on the Farm Credit System 
Rating 4—Institutions in this group have an immoderate number of 

serious financial or operating weaknesses. Serious problems or 

unsafe and unsound conditions exist that are not being satisfactorily 

addressed or resolved. Unless effective actions are taken to correct 

these conditions, they are likely to develop into a situation that will 

impair future viability or constitute a threat to the interests of 

investors, borrowers, and stockholders. Risk management practices 

are generally unacceptable for the size, complexity, and risk profile 

of each institution in this group. A potential for failure is present 

but is not yet imminent or pronounced. Institutions in this category 

require close regulatory attention, financial surveillance, and a 

definitive plan for corrective action. 

Rating 5—This category is reserved for institutions with an extremely high, immediate or near-term probability of failure. The 

number and severity of weaknesses or unsafe and unsound conditions are so critical as to require urgent external financial assistance. 

Risk management practices are inadequate for the size, complexity, 

and risk profile of each institution in this group. In the absence of 

decisive corrective measures, these institutions will likely require 

liquidation or some form of emergency assistance, merger, or 

acquisition. 

Federal Agricultural Mortgage Corporation (Farmer Mac)—Farmer Mac 

was created with the enactment of the Agricultural Credit Act of 1987 

to provide a secondary market for agricultural real estate and rural 

housing mortgage loans. 

Federal Farm Credit Banks Funding Corporation—The Funding Corporation, based in Jersey City, New Jersey, manages the sale of 

Systemwide debt securities to finance the loans made by FCS institutions. It uses a network of bond dealers to market its securities. 

Farm Credit Administration 86

Federal Intermediate Credit Bank (FICB)—The Agricultural Credits Act 

of 1923 provided for the creation of 12 FICBs to discount farmers’ shortand intermediate-term notes made by commercial banks, livestock loan 

companies, and thrift institutions. The Farm Credit Act of 1933 authorized farmers to organize PCAs, which could discount notes with FICBs. 

As a result, PCAs became the primary entities for delivery of short- and 

intermediate-term credit to farmers and ranchers. The FICBs and the 

Federal Land Banks in all Farm Credit districts have merged to become 

FCBs or the ACB. Thus, no FICBs remain within the FCS. 

Federal Land Bank—The Federal Farm Loan Act of 1916 provided for 

the establishment of 12 Federal Land Banks to provide long-term 

mortgage credit to farmers and ranchers, and later to rural home 

buyers. All Federal Land Banks and FICBs have merged to become 

FCBs or part of the ACB. Thus, no Federal Land Banks remain. 

Federal Land Bank Association—These associations were lending 

agents for FCBs. Federal Land Bank Associations made and serviced 

long-term mortgage loans to farmers, ranchers, and rural residents for 

housing. They did not own loan assets but made loans only on behalf 

of the FCB with which they were affiliated. As of October 1, 2000, there 

were no remaining Federal Land Bank Associations serving as lending 

agents for FCBs. 

Federal Land Credit Association (FLCA)—An FLCA is a Federal Land 

Bank Association that owns its loan assets. An FLCA borrows funds 

from an FCB to make and service long-term loans to farmers, ranchers, 

and producers and harvesters of aquatic products. It also makes and 

services housing loans for rural residents. 

87
 2005 Annual Report on the Farm Credit System 
G 

Government-sponsored enterprise (GSE)—A GSE is a federally chartered corporation that is privately owned, designed to provide a source 

of credit nationwide, and limited to servicing one economic sector. Each 

GSE has a public or social purpose: to improve the availability of credit 

to agriculture, education, or housing. GSEs are usually created because 

the private markets did not satisfy a purpose that Congress deems 

worthy—either to fill a credit gap or to enhance competitive behavior in 

the loan market. Each is given certain features or benefits (called GSE 

attributes) to allow it to overcome the barriers that prevented purely 

private markets from developing. In some cases, the GSE receives public 

assistance only to get started; in other cases, the assistance is ongoing. 

P 

Production Credit Association (PCA)—PCAs are FCS entities that 

deliver only short- and intermediate-term loans to farmers and ranchers. 

A PCA borrows money from its FCB to lend to farmers. PCAs also own 

their loan assets. As of January 1, 2003, all PCAs were eliminated as 

independent, stand-alone, direct-lender associations. All PCAs are now 

subsidiaries of ACAs. 

Farm Credit Administration 88

List of Acronyms Appearing in Report 

1. ACA—Agricultural Credit Association 

2. ACB—Agricultural Credit Bank 

3. ALL—allowance for loan losses 

4. BSE—bovine spongiform encephalopathy 

5. CEO—chief executive officer 

6. EEO—equal employment opportunity 

7. Farmer Mac—Federal Agricultural Mortgage Corporation 

8. FCA—Farm Credit Administration 

9. FCB—Farm Credit Bank 

10. FCS—Farm Credit System 

11. FCSIC—Farm Credit System Insurance Corporation 

12. FIRS—Financial Institution Rating System 

13. FLCAs—Federal Land Credit Associations 

14. FSA—Farm Service Agency 

15. GAAP—generally accepted accounting principles 

16. GDP—gross domestic product 

17. GSE—Government-sponsored enterprise 

18. ISU—Iowa State University 

19. OFIs—other financing institutions 

20. PCA—Production Credit Association 

21. RBICs—rural business investment companies 

22. SBA—Small Business Administration 

23. USDA—U.S. Department of Agriculture 

24. WTO—World Trade Organization 

25. YBS—young, beginning, and small (farmers and ranchers) 

89
 2005 Annual Report on the Farm Credit System 
Additional Information 

The Farm Credit Administration 2005 Annual Report is available on FCA’s 

Web site at www.fca.gov. For questions about this publication, contact 

Office of Congressional and Public Affairs 

Farm Credit Administration 

1501 Farm Credit Drive 

McLean, VA 22102-5090 

Telephone: 703-883-4056 

Fax: 703-790-3260 

E-mail: info-line@fca.gov 

The Federal Farm Credit Banks Funding Corporation prepares the 

financial press releases, the System’s Annual and Quarterly Information 

Statements, and the System’s combined financial statements contained 

therein, with the support of the System banks. These documents are 

available on the Funding Corporation’s Web site at www.farmcreditffcb.com. Copies can also be obtained from 

Federal Farm Credit Banks Funding Corporation 

10 Exchange Place 

Suite 1401 

Jersey City, NJ 07302 

Telephone: 201-200-8000 

The Farm Credit System Insurance Corporation’s annual report is 

available on its Web site at www.fcsic.gov. Copies of this report can also 

be obtained from 

Farm Credit System Insurance Corporation 

1501 Farm Credit Drive 

McLean, VA 22102 

Telephone: 703-883-4380 

In addition, FCS banks and associations are required by regulation to 

prepare annual and quarterly financial reports. Copies of these documents are available for public inspection at FCA headquarters in 

McLean, Virginia. 

Farm Credit Administration 90