2011 Annual Report

on the Farm Credit System by the 

FARM CREDIT ADMINISTRATION

Regulator of the FCS
Statement of the Chairman and CEO 2

Farm Credit Administration 5

Overview and Mission 5

The Board 5

Farm Credit System—An Overview of Events and Conditions 9

FCS Role 9

FCS Structure 9

The Safety and Soundness of the FCS 11

	 Financial Condition of the FCS 11

Borrowers Served 18

System Funding for Other Lenders 19

Farm Debt and Market Shares 22

Serving Young, Beginning, and Small Farmers and Ranchers 25

	 Characteristics of YBS Borrowers	 25

	 FCS Lending to YBS Producers	 25

	 YBS Borrowing Trends, 2001–2010	 28

	 Assessing YBS Results for Individual Associations	 29

	 YBS Programs	 32

Regulatory Policy and Approvals 34

	 Regulatory Activity in 2011	 34

	 Corporate Activity in 2011	 36

	 Funding Activity in 2011	 36

	 Mission-Related Investments	 39

Maintaining a Dependable Source of Credit for Farmers and Ranchers 41

	 Conducting a Risk-Based Examination and Oversight Program	 41

	 Meeting Statutory Examination Requirements	 41

	 Identifying and Responding to Potential Threats to Safety and Soundness	 41

	 Measuring the System’s Safety and Soundness	 42

	 Providing Differential Supervision and Enforcement	 43

	 Protecting Borrower Rights	 44

Condition of Farmer Mac 45

	 Capital	 	 46

	 Program Activity	 46

	 Asset Quality	 49

	 Earnings	 49

Challenges Facing the Agricultural Economy and the Farm Credit System 51

	 Prospects for the General Economy	 51

	 Economic Setting for Agriculture and the Rural Economy	 53

	 Farm Credit System Portfolio	 56

Appendix 58

	 Farm Credit Administration Offices	 58

	 Agency Officials	 60

	 Glossary	 64

	 Acronyms and Abbreviations	 67

	 Additional Information	 68

Contents

Photo credits: Bachrach (Board member and Agency official photos); Becky McLeod (pp. 11, 39, 55, 57); Stock (pp. 32, 33, 44, 48, 56); Walt Gardiner (page 46); 

Joshua Naderi (cover photo of baby goats). All other photos, as well as the report’s layout and design, by Linda Toki.
2

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Statement of the Chairman and CEO

June 2012

Dear Reader, 

On behalf of the Board and the dedicated employees of the Farm Credit Administration, I present the 2011 Annual 

Report on the Farm Credit System (FCS or System). I am pleased to report that, despite volatile commodity prices 

and stress to some individual institutions, the System’s overall condition and performance remained sound in 2011. 

It is well positioned to withstand the continuing challenges posed by the general economy and by stress in some sectors of the agricultural economy.

Condition of the Farm Economy

The rural economy fared somewhat better in 2011 than the general economy. Many rural areas benefitted significantly from booms in agriculture and the extraction of minerals and energy. As a result, regions dependent on commodity production and mineral/energy extraction have added more jobs. 

Many producers enjoyed strong profits in 2011 because prices were high for large-acreage crops like corn and soybeans, and because production costs, including land rental costs, did not rise as much as crop prices. Cropland rental 

rates are expected to rise significantly in 2012, particularly in the Midwest. Higher rental rates and other production 

expenses are reducing profit margins and increasing the financial risk of buying land. 

Financial Condition of the FCS

The overall condition and performance of the FCS remained safe and sound during 2011. Earnings, assets, and capital levels are all strong. System earnings were up 12.70 percent in 2011, increasing to a record $3.94 billion compared 

with $3.50 billion in 2010. The System’s increase in earnings continues to be driven largely by higher net interest 

income and lower provisions for loan losses.

While credit quality in the System’s loan portfolio is generally favorable, certain System borrowers remain under 

stress. In addition, the weakness in the general economy and the housing market continues to affect certain sectors 

such as forestry and horticulture. 

As of December 31, 2011, nonperforming loans accounted for 1.72 percent of gross loans, down from 1.93 percent at 

year-end 2010. Loan delinquencies (that is, accruing loans that are 30 days or more past due) remained a low 0.38 

percent of total accruing loans, compared with 0.33 percent at year-end 2010.

The System’s total capital was $35.9 billion at year-end 2011, compared with $33.3 billion at year-end 2010. The 

most significant factor contributing to the increase in System capital was net income earned and retained. With the 

increase in total capital, the System’s capital-to-assets ratio at year-end improved from 14.5 percent in 2010 to 15.6 

percent in 2011. Surplus accounts for the overwhelming majority of capital. 

System loan volume did not change from 2010 to 2011, and some sectors continued to face high stress levels. An 

increase in farm income and the value of farmland, particularly in the middle part of the United States, offset the 

impact of credit stress created from other regions and sectors on the System’s overall portfolio. Lending to finance 

production inputs, inventories, machinery, and real estate increased in many areas where cash grain is produced. 

Some sectors, such as dairy, hogs, cattle, and biofuels, became profitable again in 2011 after enduring significant 

credit stress in 2010; as a result, the quality of loans to these sectors improved. However, other sectors, such as poultry, horticulture, and forestry, saw continued distress in 2011. Continued weak demand for housing and tepid growth 

in the general economy did not provide enough revenue to cover operating costs and to reduce debt, and in some 

areas, real estate values continued to decline. 
3

Young, Beginning and Small (YBS) Farmer Lending

Because of its status as a Government-sponsored enterprise with a statutory YBS mandate, the FCS is in a unique 

position to assist the next generation of American farmers, and System institutions have developed YBS programs to 

provide this assistance. Through these programs, FCS associations may offer lower interest rates and less stringent 

underwriting standards to allow potential YBS borrowers to qualify for loans. Associations also offer training through 

their YBS programs to help these borrowers be successful.

In 2011, the share of total System farm loans going to young, beginning, and small farmers declined from that of 

2010. However, many associations experienced gains in the share of their total lending to these groups. For example, 

the share of total new farm loan volume going to young farmers rose in 41 percent of the associations, and the share 

going to beginning farmers rose in 28 percent of the associations. 

FCA’s Supervision and Oversight of the System

As the regulator of the System, we employ various processes for evaluating systemic risks in both agriculture and the 

financial services industry that can affect an institution, a group of institutions, and the System as a whole. Currently, 

we are emphasizing the following areas:

•		 Loan Portfolio Management. Our examiners review the systems and processes that institution boards of directors 

and management use to plan, direct, control, and monitor lending operations.

•		 Collateral Risk Management. We evaluate how institutions routinely monitor collateral risk, and we assess 

whether they are adjusting their operations to manage the risk.

•		 Profitability and Repayment Capacity. Our examiners evaluate systemic and prospective risks that may affect 

borrowers’ profits and their ability to repay loans. 

•		 Public Mission. We assess whether FCS institutions are fulfilling their chartered mission to provide credit and 

related services to all eligible, creditworthy customers. 

Borrower Rights

The Farm Credit Act provides System borrowers certain rights when they apply for loans and when they have difficulty repaying loans. For example, the Act requires FCS institutions to notify borrowers of the right to seek restructuring of an agricultural loan before beginning foreclosure. It also provides borrowers an opportunity to seek review 

of certain credit and restructuring decisions. 

FCA enforces the borrower rights provisions of the Farm Credit Act and examines institutions to make sure that they 

are complying with these provisions. We also receive and review complaints from borrowers who believe their rights 

have been denied. 

In 2011, we received more than 40 borrower complaints. The number of complaints has increased in recent years as 

financial stress on System borrowers has increased. Generally, borrowers who contact us with complaints are seeking 

clarification, additional information, and options to redress their concerns. If we find violations of law or regulations, 

we have several enforcement options to bring about corrective action. 

FCA’s Commitment 

FCA will continue working to ensure the safety and soundness of the System. We are mindful that the System was 

designed to be a dependable lender to agriculture and rural communities in both good times and bad. And we 

remain committed to ensuring that the System can fulfill its mandate to current and future generations of farmers 

and ranchers and the rural areas in which they live.

Sincerely,

Leland A. Strom 
4

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

The Farm Credit Administration ensures 

a safe, sound, and dependable source 

of credit and related services 

for agriculture and rural America.
5

Farm Credit Administration

OVERVIEW AND MISSION

The Farm Credit Administration 

(FCA or Agency) is an independent 

agency in the Executive branch of the 

U.S. Government. FCA is responsible 

for regulating and supervising the 

banks, associations, and related entities in the Farm Credit System (FCS 

or System), including the Federal 

Agricultural Mortgage Corporation (Farmer Mac). The System is a 

nationwide network of borrowerowned financial institutions that 

provide credit to farmers, ranchers, residents of rural communities, 

agricultural and rural utility cooperatives, and other eligible borrowers. 

The Agency derives its powers and 

authorities from the Farm Credit Act 

of 1971, as amended (12 U.S.C. 2001-

2279cc). The U.S. Senate Committee 

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

oversee FCA and the FCS. 

FCA is responsible for ensuring that 

the System remains a dependable 

source of credit for agriculture and 

rural America. The Agency does this 

in two specific ways: 

1. It ensures that System institutions, including Farmer Mac, 

operate safely and soundly and 

comply with applicable laws and 

regulations. FCA’s examinations 

and oversight strategies focus on 

an institution’s financial condition and any material existing or 

potential risk, as well as on the 

ability of its board of directors 

and management to direct its 

operations. FCA examines each 

institution’s compliance with 

laws and regulations to serve eligible borrowers, including young, 

beginning, and small farmers and 

ranchers. If a System institution 

violates a law or regulation or 

operates in an unsafe or unsound 

manner, FCA uses its supervisory 

and enforcement authorities to 

bring about appropriate corrective action. 

2. It issues policies and regulations 

governing how System institutions conduct their business and 

interact with customers. These 

policies and regulations focus 

on protecting System safety and 

soundness; implementing the 

Farm Credit Act; providing minimum requirements for lending, 

related services, investments, capital, and mission; and ensuring 

adequate financial disclosure and 

governance. FCA also approves 

corporate charter changes, System 

debt issuance, and other financial 

and operational matters. 

The Agency maintains its headquarters and a field office in McLean, 

Virginia. FCA also has field offices 

in Bloomington, Minnesota; Dallas, 

Texas; Denver, Colorado; and Sacramento, California. 

FCA does not receive a Federal 

appropriation. The Agency is primarily funded through assessments paid 

by System institutions.

THE BOARD 

FCA policy, regulatory agenda, and 

supervisory and examination activities 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. Board members serve a six-year term and may 

remain on the Board until a successor is appointed. The President designates one member as Chairman of 

the Board, who serves in that capacity until the end of his or her own 

term. The Chairman also serves as 

FCA’s Chief Executive Officer (CEO). 

FCA Board members also serve as 

the board of directors for the Farm 

Credit System Insurance Corporation. 

Farm Credit Administration

OVERVIEW AND MISSION

The Farm Credit Administration 

(FCA or Agency) is an independent 

agency in the Executive branch of the 

U.S. Government. FCA is responsible 

for regulating and supervising the 

banks, associations, and related entities in the Farm Credit System (FCS 

or System), including the Federal 

Agricultural Mortgage Corporation (Farmer Mac). The System is a 

nationwide network of borrowerowned financial institutions that 

provide credit to farmers, ranchers, residents of rural communities, 

agricultural and rural utility cooperatives, and other eligible borrowers. 

The Agency derives its powers and 

authorities from the Farm Credit Act 

of 1971, as amended (12 U.S.C. 2001-

2279cc). The U.S. Senate Committee 

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

oversee FCA and the FCS. 

FCA is responsible for ensuring that 

the System remains a dependable 

source of credit for agriculture and 

rural America. The Agency does this 

in two specific ways: 

1. It ensures that System institutions, including Farmer Mac, 

operate safely and soundly and 

comply with applicable laws and 

regulations. FCA’s examinations 

and oversight strategies focus on 

an institution’s financial condition and any material existing or 

potential risk, as well as on the 

ability of its board of directors 

and management to direct its 

operations. FCA examines each 

institution’s compliance with 

laws and regulations to serve eligible borrowers, including young, 

beginning, and small farmers and 

ranchers. If a System institution 

violates a law or regulation or 

operates in an unsafe or unsound 

manner, FCA uses its supervisory 

and enforcement authorities to 

bring about appropriate corrective action. 

2. It issues policies and regulations 

governing how System institutions conduct their business and 

interact with customers. These 

policies and regulations focus 

on protecting System safety and 

soundness; implementing the 

Farm Credit Act; providing minimum requirements for lending, 

related services, investments, capital, and mission; and ensuring 

adequate financial disclosure and 

governance. FCA also approves 

corporate charter changes, System 

debt issuance, and other financial 

and operational matters. 

The Agency maintains its headquarters and a field office in McLean, 

Virginia. FCA also has field offices 

in Bloomington, Minnesota; Dallas, 

Texas; Denver, Colorado; and Sacramento, California. 

FCA does not receive a Federal 

appropriation. The Agency is primarily funded through assessments paid 

by System institutions.

THE BOARD 

FCA policy, regulatory agenda, and 

supervisory and examination activities 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. Board members serve a six-year term and may 

remain on the Board until a successor is appointed. The President designates one member as Chairman of 

the Board, who serves in that capacity until the end of his or her own 

term. The Chairman also serves as 

FCA’s Chief Executive Officer (CEO). 

FCA Board members also serve as 

the board of directors for the Farm 

Credit System Insurance Corporation. 
6

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Leland A. Strom is Chairman of the 

Board and CEO of the Farm Credit 

Administration. Mr. Strom was 

appointed to a six-year term on the 

FCA Board by President George W. 

Bush on December 12, 2006, and was 

designated Chairman and CEO on 

May 22, 2008. His term expires on 

October 13, 2012. 

Mr. Strom also serves as a member 

of the board of directors of the Farm 

Credit System Insurance Corporation (FCSIC), which is responsible 

for ensuring the timely payment 

of principal and interest on obligations issued on behalf of FCS banks. 

Before being named FCA Chairman 

and CEO, he had served as chairman 

of the board of directors of FCSIC 

since December 2006.

Leland A. “Lee” Strom

Chairman and CEO

For more than 30 years he has been 

active in the agriculture industry. He 

served for more than 25 years on the 

board of 1st Farm Credit Services, 

an FCS institution in Illinois, holding 

various positions, including chairman. During the agriculture crisis of 

the 1980s, he was selected to sit on 

the Restructuring Task Force of the 

Sixth Farm Credit District.

From 2000 to 2006, he was on the 

Federal Reserve Bank of Chicago 

Advisory Council on Agriculture, 

Labor, and Small Business. Part of 

this time he also served on the Country Mutual Fund Trust Board, an 

investment fund of the Illinois Farm 

Bureau and its Country Financial 

organization.

Other boards Mr. Strom has served 

on include Northern F.S., Inc., a farm 

service and supply cooperative in 

Northern Illinois; AgriBank, FCB; and 

the Farm Credit Council, the national 

trade organization representing FCS 

in Government affairs.

Mr. Strom has served in several 

capacities with the Illinois Farm 

Bureau and was a member of the 

Illinois Ag Leadership Program Class 

of 1988. 

In his community of Kane County, 

Illinois, which lies at the edge of 

suburban Chicago, Mr. Strom helped 

develop a farmland preservation 

program. The original Strom Family 

Farm was the first to be dedicated to 

permanent agricultural use under the 

program.

Mr. Strom studied agriculture business at Kishwaukee College and 

business administration at Northern 

Illinois University. He also attended 

the Harvard Kennedy School Executive Education program. In 2011 

he received an Honorary Doctorate 

of Humane Letters from Northern 

Illinois University. His community 

involvement includes having served 

as vice president of his local K–12 

school district, chairman of his 

church council, 4-H parent leader, 

and coach of boys’ and girls’ sports 

teams. Mr. Strom owns a thirdgeneration family farm in Illinois that 

produces corn and soybeans. He and 

his wife, Twyla, have three children 

and one grandchild. 
7

Kenneth A. Spearman was appointed 

to the FCA Board by President 

Barack Obama on October 13, 2009. 

He was appointed for the balance of 

Dallas Tonsager’s term and reappointed for a full six-year term that 

expires on May 21, 2016. 

Mr. Spearman also serves as Chairman of the Board of Directors of 

the Farm Credit System Insurance 

Corporation, which is responsible 

for ensuring the timely payment of 

principal and interest on obligations 

issued on behalf of Farm Credit System banks.

Mr. Spearman brings to his position on the FCA Board many years 

of experience in finance, agriculture, 

and agricultural cooperatives. He 

spent 28 years in the citrus industry. 

From 1980 to 1991, he was controller of Citrus Central, a $100 million 

cooperative in Orlando, Florida, 

where he was responsible for financial management and reporting and 

the supervision of staff accountants.

He later served as director of internal 

audit for Florida’s Natural Growers, 

where he designed and implemented 

the annual plan for reviewing and 

appraising the soundness, adequacy, 

and application of accounting, financial, and other operating internal 

controls.

From January 2006 until his appointment to the FCA Board, Mr. Spearman served as an appointed outside 

director on the AgFirst Farm Credit 

Bank board in Columbia, South Carolina. During his tenure, he served on 

the board compensation committee 

and the board governance committee. 

Before entering agriculture, Mr. 

Spearman served in the U.S. Army in 

Vietnam. Later, he was involved with 

development of a public accounting 

firm in Chicago, Illinois, and worked 

as an accountant for a major public 

accounting firm. He served as chairman of the board of trustees for the 

Lake Wales Medical Center. He is a 

member of the Institute of Internal 

Auditors, as well as the National 

Society of Accountants for Cooperatives, where he served at one time as 

president. 

He obtained his master’s degree in 

business administration from Governors State University in University 

Park, Illinois, and his B.S. in accounting from Indiana University.

Mr. Spearman and his wife Maria of 

Winter Haven, Florida, have three 

children—twin daughters, Michelle 

Springs and Rochelle Puccia, and a 

son, Dr. Kenneth Spearman. 

Kenneth A. Spearman

Board Member
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FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Jill Long Thompson

Board Member

Jill Long Thompson was appointed 

to the FCA Board by President 

Barack Obama in March 2010. Her 

term continues to May 2014. She also 

serves as a member of the Board of 

Directors of the Farm Credit System Insurance Corporation, which is 

responsible for ensuring the timely 

payment of principal and interest on 

obligations issued on behalf of Farm 

Credit System banks.

Ms. Long Thompson has many years 

of leadership experience. From 1989 

to 1995, she represented northeast 

Indiana as a Member of the U.S. 

House of Representatives, serving on 

the Committee on Agriculture, the 

Committee on Veterans’ Affairs, and 

the Select Committee on Hunger. 

She also served as Chair of the Rural 

Caucus. While in Congress, she introduced one of the nation’s first pieces 

of legislation banning members of 

Congress from accepting gifts; this 

legislation also expanded disclosure 

requirements for lobbying activities. 

From 1995 to 2001, she served as 

Under Secretary for Rural Development in the U.S. Department of 

Agriculture, where she oversaw an 

annual budget of $10 billion and 

a staff of 7,000 employees. In this 

position, she managed programs that 

provide services to the underserved 

areas of rural America.

In addition, Ms. Long Thompson 

served as chief executive officer and 

senior fellow at the National Center 

for Food and Agricultural Policy, a 

nonprofit research and policy organization in Washington, D.C.

The first and only woman nominated 

by a major party to run for Governor of Indiana, Ms. Long Thompson 

is also the first and only Hoosier 

woman to be nominated by a major 

party to run for the U.S. Senate. 

Ms. Long Thompson also has many 

years of experience as an educator, having taught at Indiana University, Valparaiso University, and 

Manchester College. She is also a 

former fellow at the Institute of 

Politics at Harvard University’s John 

F. Kennedy School of Government. 

She holds an M.B.A. and Ph.D. in 

Business from the Kelley School of 

Business at Indiana University and a 

B.S. in Business Administration from 

Valparaiso University. 

Ms. Long Thompson grew up on 

a family farm outside of Larwill, 

Indiana; today she lives with her 

husband, Don Thompson, on a farm 

near Argos, Indiana. 
9

Farm Credit System—An Overview of Events and Conditions

FCS ROLE

The Farm Credit System (FCS or System) is a network of borrower-owned 

cooperative financial institutions and 

service organizations serving 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 Governmentsponsored enterprise (GSE).1

FCS institutions provide credit and 

financially related services to farmers, ranchers, producers or harvesters 

of aquatic products, and agricultural 

and aquatic cooperatives. They also 

make credit available for agricultural 

processing and marketing activities, 

rural housing, certain farm-related 

businesses, rural utilities, and foreign 

and domestic entities in connection 

with international agricultural trade. 

The System raises funds for its business activities by selling securities in 

the national and international money 

markets; its Systemwide debt funding 

is subject to our approval. The U.S. 

Government does not guarantee the 

securities issued by the System.

When Congress established the FCS, 

its purpose was to provide a permanent, reliable source of credit and 

related services to agriculture and 

aquatic producers, farmer-owned 

cooperatives, and farm-related businesses in rural America. Congress 

intended the FCS to improve the 

income and well-being of American 

farmers and ranchers. It formed the 

FCS as a system of farmer-owned 

cooperatives to ensure that farmerand rancher-borrowers participate 

in the management, control, and 

ownership of their institutions. The 

participation of member-borrowers 

helps keep the institutions focused 

on serving their members’ needs.

The System helps to meet 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 homeowners.

FCS STRUCTURE

The Lending Institutions

As of January 1, 2012, the System 

was composed of 87 banks and 

associations. The following four 

banks provide loans to 80 Agricultural Credit Association (ACA) parent 

organizations and 3 stand-alone 

Federal Land Credit Associations 

(FLCAs):

• CoBank, ACB

• AgriBank, FCB

• AgFirst Farm Credit Bank

• Farm Credit Bank of Texas

An ACA can make short-, intermediate-, and long-term loans; an 

FLCA can make only long-term real 

estate loans. Under the Farm Credit 

Act of 1971, as amended, the FLCA 

is exempt from State and Federal 

income taxes.

CoBank, one of the four Farm Credit 

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, these 

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 29 affiliated ACAs and 

FLCAs. 

Each ACA contains two subsidiaries, a Production Credit Association 

(PCA), which can make only shortand intermediate-term loans, and an 

FLCA.2

 The parent-subsidiary structure, with an ACA as parent and its 

wholly owned PCA and FLCA as 

subsidiaries, accounted for 96 percent 

of all associations as of January 1, 

2012. The ACA and its two subsidiaries operate with a common board of 

directors and staff, and each of the 

three entities is responsible for the 

debts of the others. For most regulatory and examination purposes, we 

treat the ACA and its subsidiaries 

as a single entity; however, when 

appropriate, we may choose to treat 

the parent and subsidiaries as separate entities.

The ACA’s parent-subsidiary structure enables the ACA to preserve the 

tax-exempt status of the FLCA. Its 

structure offers several other benefits 

1. The Federal Land Banks were created in 1916, when the System was originally established. Other major parts of the FCS were created in 1923 and 

1933.

2. Although legally separated, the ACA, the PCA, and the FLCA operate an integrated lending business, with loans made through the subsidiaries 

possessing the appropriate authority. 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.
10

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

as well. It allows the ACA to build 

and use capital more efficiently and 

enables members to be stockholders of one entity—the ACA—and to 

be borrowers of the ACA or of one 

or both subsidiaries. This 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. Further, the structure allows an association to provide a broader range of specialized 

services to its member-borrowers. It 

enables one-stop borrowing—borrowers can obtain long-, intermediate-, 

and short-term loans from the same 

institution.

Special-Purpose Entity and Service 

Corporations

In addition to the banks and lending 

associations, the System also contains 

a special-purpose entity known as 

the Federal Farm Credit Banks Funding Corporation (Funding Corporation). Established under the Farm 

Credit Act, the Funding Corporation 

issues and markets debt securities on 

behalf of the Farm Credit banks to 

raise loan funds.

The System also contains the following six service corporations. These 

corporations exist under the authority of section 4.25 of the Farm Credit 

Act:3

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

services to the associations affiliated with CoBank, ACB. AgVantis is owned by the bank and 18 

of its affiliated associations.

2. Farm Credit Leasing Services 

Corporation provides equipment 

leasing services to eligible borrowers, including agricultural 

producers, cooperatives, and 

rural utilities. It is wholly owned 

by CoBank, ACB. 

3. Farm Credit Financial Partners, 

Inc., provides support services 

to CoBank, ACB; six associations 

affiliated with CoBank; one association affiliated with AgriBank, 

FCB; and two System-related 

entities. It is owned by CoBank, 

ACB, and the seven associations 

to which the corporation provides services.

4. The FCS Building Association 

acquires, manages, and maintains 

facilities to house our headquarters and field office staff. 

The FCS Building Association is 

owned by the FCS banks, but the 

FCA Board oversees the Building 

Association’s activities.

5. Farm Credit Finance Corporation of Puerto Rico previously 

offered tax incentives to investors 

to provide low-interest funding 

(other than that from the Funding Corporation) to Puerto Rico 

Farm Credit, ACA. Because of 

changes in the tax treatment of 

the corporation, its sole owner, 

AgFirst Farm Credit Bank, suspended the corporation’s operations as of December 31, 2005. 

The service corporation remains 

inactive, although the charter is 

still outstanding.

6. Farm Credit Foundations provides human resource services 

to its employer-owners, including payroll processing, benefits administration, centralized 

vendor management, workforce 

management and operations, corporate tax and financial reporting 

services, and retirement workshops. It is owned by AgriBank, 

FCB; each of AgriBank’s affiliated associations; 26 associations 

affiliated with CoBank, ACB; and 

AgVantis.

Farmer Mac

Also part of the FCS is the Federal 

Agricultural Mortgage Corporation (Farmer Mac), which provides 

a secondary market arrangement 

for agricultural real estate loans, 

Government-guaranteed portions of 

certain loans, rural housing mortgage loans, and eligible rural utility 

cooperative loans. The purpose of 

Farmer Mac’s activities is to provide 

greater liquidity and lending capacity to agricultural lenders. The Farm 

Credit Act established Farmer Mac as 

a federally chartered instrumentality 

and an institution of the FCS. However, it 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 owned by its investors—it 

is not a member-owned cooperative. Investors in voting stock may 

include commercial banks, insurance 

companies, other financial organizations, and FCS institutions. Any 

investor may own nonvoting stock. 

3. 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.
11

We regulate and examine Farmer 

Mac through our Office of Secondary Market Oversight, whose director 

reports to the FCA Board on matters of policy. For more information 

about Farmer Mac, see “Condition of 

Farmer Mac” on page 45. 

THE SAFETY AND SOUNDNESS 

OF THE FCS

The Farm Credit Administration 

regulates the FCS—its lending 

institutions, the Funding Corporation, the service corporations, and 

Farmer Mac. Our regulations, policy 

statements, examinations, chartering activities, and other regulatory 

activities (discussed in later chapters 

of this report) support 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 borrower-stockholders. For an 

overview of our agency, see page 5 

or visit our website at www.fca.gov.

Also serving to protect the safety 

and soundness of the FCS is the 

Farm Credit System Insurance Corporation (FCSIC). FCSIC was established by the Agricultural Credit Act 

of 1987 in the wake of the agricultural credit crisis of the 1980s, when 

the FCS, like most lenders heavily 

concentrated in agriculture, experienced severe financial difficulties. 

The purpose of FCSIC is to protect 

investors in Systemwide debt securities by ensuring the timely payment 

of principal and interest on insured 

notes, bonds, and other obligations 

issued on behalf of FCS banks. It 

ensures timely payment by maintaining the Farm Credit Insurance Fund, 

a reserve that represents the equity 

of FCSIC. The balance in the Insurance Fund at December 31, 2011, was 

$3.4 billion. For more information 

about FCSIC, go to www.fcsic.gov. 

Also see FCSIC’s 2011 annual report.

Investors in Systemwide debt securities are further protected by the Farm 

Credit Act’s joint and several liability 

provision, which applies to all FCS 

banks. The banks are jointly and 

severally liable for the principal and 

interest on all Systemwide debt securities. Therefore, if a bank is unable 

to pay the principal or interest on 

a Systemwide debt security and if 

the Farm Credit Insurance Fund has 

been exhausted, then we must call 

all nondefaulting banks to satisfy the 

security. 

FINANCIAL CONDITION 

OF THE FCS4

The overall condition and performance of the FCS remained safe and 

sound during 2011. Despite volatile commodity prices, the System’s 

financial position is solid. Its earnings, assets, and capital levels are 

all strong. See tables 1 and 2 for a 

breakdown of the System’s major 

financial indicators. 

While the overall FCS remained 

financially sound, the condition and 

performance of some individual 

System institutions declined. As the 

System’s regulator, we addressed 

these declines by increasing our 

supervision of these institutions, 

which resulted in some enforcement 

actions. For more information on 

measures we took to address weaknesses at individual institutions, see 

“Maintaining a Dependable Source 

of Credit for Farmers and Ranchers” 

on pages 41 to 44 of this report. For 

more information on the condition 

of the System, see the 2011 Annual 

Information Statement of the Farm 

Credit System on the website of the 

Federal Farm Credit Banks Funding 

Corporation at www.farmcreditfunding.com.

The System faced a generally favorable but volatile operating environment in 2011. Grain prices moved up 

steadily throughout the year before 

reaching a peak at mid-year for some 

commodities and in late summer 

or early fall for others. Grain prices 

generally moderated later in the year 

when USDA revised its estimates 

of supplies higher. Supported by a 

relatively weak dollar and continued 

global economic growth, agricultural 

exports were at record levels in 2011. 

USDA expects 2012 exports to be the 

second highest on record.

High feed costs challenged livestock 

and dairy producers. However, 

strong hog, cattle, and milk prices 

offset these higher feed costs and 

enabled producers to experience a 

profitable year. Broiler producers, 

4. The information presented in this section pertains to all Farm Credit Banks, the Agricultural Credit Bank, and the affiliated associations of the System 

banks. The FCS institutions provided the data used in the overall FCS analyses to FCA or to the Federal Farm Credit Banks Funding Corporation. 

The analyses in this report are based on publicly available information and, except where noted, are based on the 12-month period ended December 

31, 2011. The analyses are based on a combination of bank and association data; these data exclude transactions between System entities.

 
12

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Table 1

Farm Credit System Major Financial Indicators, Annual Comparison	 	 	 	 	

As of December 31

Dollars in Thousands

31-Dec-11 31-Dec-10 31-Dec-09 31-Dec-08 31-Dec-07

Farm Credit System Banksa

Gross loan volume	 158,420,741 161,069,141 152,412,187 149,491,137 131,191,826

Accruing restructured loansb 43,252 48,457 4,651 5,125 4,301

Accrual loans 90 or more days past due	 6,895 8,695 28,816 21,594 12,917

Nonaccrual loans	 384,795 477,341 759,134 582,160 46,069

Net income	 1,860,347 1,917,143 1,442,328 1,231,430 981,688

Nonperforming loans/total loansc 0.27%	 0.33%	 0.52%	 0.41%	 0.05%

Capital/assetsd 6.49%	 6.00%	 5.59%	 4.89%	 5.43%

Unallocated retained earnings/assets	 3.25%	 3.03%	 2.80%	 2.50%	 2.69%

Return on assets	 0.92%	 0.95%	 0.74%	 0.65%	 0.60%

Return on equity	 13.68%	 15.00%	 13.13%	 12.44%	 10.59%

Net interest margin	 1.28%	 1.22%	 1.17%	 0.97%	 0.83%

Efficiency ratioe 20.14%	 18.24%	 20.49%	 25.40%	 25.73%

Payout ratiof 53.76%	 50.43%	 56.31%	 62.26%	 67.65%

Associations

Gross loan volume	 126,189,161 124,140,035 118,575,715 114,026,889 105,620,488

Accruing restructured loansb 170,966 	 65,385 58,926 30,381 47,212

Accrual loans 90 or more days past due	 37,988 33,182 68,508 65,703 43,840

Nonaccrual loans	 2,354,714 2,744,528 2,634,046 1,706,613 465,414

Net income	 3,007,154 2,408,449 1,585,984 1,805,929 1,934,968

Nonperforming loans/gross loansc 2.03%	 2.29%	 2.33%	 1.58%	 0.53%

Capital/assetsf 17.84%	 16.54%	 15.82%	 15.46%	 15.57%

Unallocated retained earnings/assets	 16.78%	 15.07%	 14.56%	 13.51%	 13.58%

Return on assets	 2.24%	 1.84%	 1.29%	 1.57%	 1.74%

Return on equity	 12.42%	 10.88%	 8.13%	 9.84%	 10.82%

Net interest margin	 2.94%	 2.79%	 2.64%	 2.50%	 2.57%

Efficiency ratioe 31.27%	 35.12%	 39.05%	 44.44%	 42.23%

Payout ratiof 22.57%	 22.83%	 22.51%	 23.69%	 25.07%

Total Farm Credit Systemg

Gross loan volume	 174,664,000 175,351,000 164,830,000 161,423,000 142,906,000

Bonds and notes	 186,889,000 189,575,000 178,358,000 179,769,000 155,295,000

Nonperforming loans	 2,997,000 3,386,000 3,535,000 2,416,000 621,000

Nonaccrual loans	 2,738,000 3,229,000 3,369,000 2,282,000 512,000

Net income	 3,940,000 3,495,000 2,850,000 2,916,000 2,703,000

Nonperforming loans/gross loansc 1.72%	 1.93%	 2.14%	 1.50%	 0.43%

Capital/assetsh 15.60%	 14.46%	 13.90%	 12.65%	 14.17%

Surplus/assets	 12.90%	 11.80%	 11.48%	 10.80%	 11.52%

Return on assets	 1.71%	 1.59%	 1.32%	 1.41%	 1.53%

Return on equity	 11.17%	 10.85%	 9.86%	 10.70%	 10.38%

Net interest margin	 2.86%	 2.82%	 2.65%	 2.41%	 2.43%

Sources: Farm Credit System Call Report as of December 31, 2011, and the Farm Credit System Annual Information Statement provided by the Federal 

Farm Credit Banks Funding Corporation. 

a. Includes Farm Credit Banks and the Agricultural Credit Bank. 

b. Excludes loans 90 or more days past due. 

c. Nonperforming loans are defined as nonaccural loans, accruing restructured loans, and accrual loans 90 or more days past due. 

d. Capital excludes mandatorily redeemable preferred stock. 

e. Noninterest expenses as a percentage of net interest income and noninterest income. 

f. Capital excludes protected borrower capital. 

g. Cannot be derived by adding categories above because of intradistrict and intra-System eliminations used in Reports to Investors.

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

capital. 
13

Table 2

Farm Credit System Major Financial Indicators, by Districta

As of December 31, 2011		 	 	 	 	 	 	 	

Dollars in Thousands

Allowance Cash

Gross for and

Total loan Nonaccrual loan marketable Capital Total

FCS Banks assets volume loans losses investmentsb stockc Surplusd capitale

AgFirst	 29,577,506 20,152,065 85,222 27,714 9,099,562 805,767 1,219,506 2,149,271

AgriBank	 73,110,012 62,043,002 62,017 9,208 10,428,685 1,825,177 2,129,036 3,806,187

CoBank	 63,290,215 46,285,142 134,862 388,056 15,795,069 2,354,314 2,439,531 4,895,533

Texas	 14,049,234 10,287,377 102,694 15,659 3,612,134 698,839 486,371 1,210,356

U.S. AgBank	 25,060,961 19,653,155 - 1,504 5,111,957 1,110,815 407,057 1,258,623

Total	 205,087,928 158,420,741 384,795 442,141 44,047,407 6,794,912 6,681,501 13,319,970

Associations 

AgFirst	 17,848,573 16,454,868 581,488 147,261 454,333 213,406 2,970,336 3,157,328

AgriBank	 66,773,742 60,784,014 822,924 291,299 2,648,356 230,664 11,183,869 11,414,345

CoBank	 13,855,837 13,243,073 297,701 200,823 85,154 191,481 2,254,215 2,380,515

Texas	 2,735,232 12,071,647 354,609 98,458 272,498 81,309 2,122,244 2,203,416

U.S. AgBank	 25,505,719 23,635,559 297,992 109,935 459,922 563,773 4,663,473 5,229,191

Total	 136,719,103 126,189,161 2,354,714 847,776 3,920,263 1,280,633 23,194,137 24,384,795

Total Farm 

Credit System	 230,411,000 174,664,000 2,738,000 1,290,000 47,281,000 1,618,000 29,733,000 35,940,000

Sources: Farm Credit System Call Report as of December 31, 2011, and the Farm Credit System Annual Information Statement provided by the Federal 

Farm Credit Banks Funding Corporation.

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

b. Includes accrued interest receivable on marketable investments.

c. Includes capital stock and participation certificates, excludes mandatorily redeemable preferred stock and protected borrower capital.

d. Includes allocated and unallocated surplus.

e. Includes capital stock, participation certificates, perpetual preferred stock, surplus, and accumulated other comprehensive income. For the Total Farm 

Credit System amount, total capital also includes $3.392 billion of restricted capital, which is the amount in the Farm Credit Insurance Fund. Excludes 

mandatorily redeemable preferred stock and protected borrower capital.
14

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

on the other hand, endured a very 

difficult year because of low broiler 

prices and high feed costs. In late 

2011 and early 2012, the broiler 

industry appears to have brought 

its production under control; as a 

result, broiler producers may receive 

higher prices and stronger profits in 

the coming year. Farmland values 

continue to escalate, particularly in 

regions where cash grains are grown.

The System continues to have reliable access to capital markets to 

support its mission. Investor demand 

for Systemwide securities has been 

favorable. The current low interest 

rate environment has enabled System 

banks to lower their cost of funds by 

refinancing callable bonds. If the use 

of derivatives becomes too expensive, 

System banks may have to adjust 

the strategies they use to manage 

risk associated with derivatives. The 

adjustments they make will depend 

on the rules that will be issued to 

implement the Dodd-Frank Wall 

Street Reform and Consumer Protection Act.

We expect continued commodity 

price volatility and global economic 

uncertainty to challenge the System 

in 2012. For a discussion of how this 

environment is likely to affect the 

agricultural economy and the System 

in 2012 and beyond, see “Challenges 

Facing the Agricultural Economy and 

the Farm Credit System” on pages 51 

to 57.

Earnings

System earnings were up 12.70 percent in 2011, increasing to a record 

$3.94 billion compared with $3.50 billion in 2010 (See figure 1). The System’s increase in earnings continues 

to be driven largely by higher net 

interest income and lower provisions 

for loan losses. Net interest income 

increased by $369 million because 

the net interest spread improved by 

7 basis points from year-end 2010 to 

2.68 percent at year-end 2011. The 

System’s return on average assets 

increased to 1.71 percent in 2011 

from 1.60 percent the prior year. The 

return on average capital was also 

higher, increasing to 11.21 percent in 

2011 from 10.90 percent in 2010.

Figure 1

FCS Net Income, 2003–2011

As of December 31

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

Note: The net income for 2004 includes $1.167 billion in net reversals of the allowance for loan losses.
15

Figure 2

Annual Growth Rate of FCS Loans Outstanding, 2000 to 2011

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

Provisions for loan losses dropped 

to $430 million in 2011 from $667 

million in 2010, in part because 

conditions improved in the swine 

and dairy sectors. Credit stress did 

increase in certain agricultural sectors. For example, higher commodity and other input prices adversely 

affected poultry producers. In addition, System borrowers in agricultural 

sectors like forestry continue to feel 

the impact of the recent economic 

downturn, the sluggishness in the 

U.S. economy, and the weakness in 

the housing market.

As cooperative institutions, the FCS 

banks and associations pass a portion of their earnings on to their 

borrower-owners as patronage distributions. For 2011, System institutions 

declared a total of $1.146 billion in 

patronage distributions—$763 million 

in cash, $295 million in the form of 

allocated retained earnings, and $88 

million in stock. This represents 29 

percent of the System’s net income 

for 2011; the percentage was the 

same in 2010. Also in 2011, the System distributed $140 million in cash 

from patronage allocations of earlier 

years. 

Asset Growth

Overall, the System experienced no 

loan growth in 2011, with total loans 

declining 0.4 percent (see figure 2). 

Real estate mortgage loans and 

production and intermediate loans 

increased by 3.4 percent and 1.7 

percent, respectively. However, agribusiness loans declined 16.4 percent 

because of a drop in seasonal financing demand; lower grain prices at the 

year-end prompted many farmers to 

postpone marketing their products to 

cooperative grain elevators. In total, 

System assets grew slightly to $230.4 

billion, up $438 million or just 0.2 

percent from 2010. 

Asset Quality

While credit quality in the System’s 

loan portfolio is generally favorable, 

certain System borrowers, particularly those in the dairy and livestock 

sectors, remain under stress. In 

addition, the weakness in the general 

economy and the housing market 

continues to affect certain sectors 
16

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

such as the forestry and nursery 

industries. As of December 31, 2011, 

nonperforming loans equaled $3.0 

billion, or 1.72 percent of gross loans, 

down from $3.4 billion, or 1.93 percent, at year-end 2010 (see figure 3). 

Loan delinquencies (that is, accruing 

loans that are 30 days or more past 

due) remained a low 0.38 percent of 

total accruing loans, compared with 

0.33 percent at year-end 2010.

The allowance for loan losses 

declined to $1.29 billion, or 0.74 percent of loans outstanding, at year-end 

2011, compared with $1.45 billion, 

or 0.83 percent of loans outstanding, 

at year-end 2010. Provisions for loan 

losses were down in 2011, dropping 

to $430 million in 2011 from $667 

million in 2010. Net charge-offs were 

also down in 2011, declining to $500 

million from $596 million in 2010.

Although the outlook remains favorable for agriculture in 2012, conditions in both the general and agricultural economies remain volatile. 

Additional deterioration in asset 

quality is possible because of the 

effect of high commodity prices on 

certain agricultural sectors. Nevertheless, the overall level of nonperforming loans continues to be well within 

the System’s risk-bearing capacity.

Funding

The System continues to have reliable access to the capital markets, 

and investor demand for System debt 

was favorable across all maturities in 

2011. The System’s funding composition changed slightly in 2011; shortterm debt made up 35.0 percent of 

total Systemwide debt securities at 

December 31, 2011, compared with 

36.1 percent at December 31, 2010. 

Figure 3

FCS Nonperforming Loans, 2006–2011

As of December 31

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

 

Total Systemwide debt declined 2.1 

percent in 2011. Securities due within 

a year declined by 4.9 percent, and 

securities due after one year declined 

by 0.5 percent. (See section titled 

“Funding Activity in 2011” on page 

36 for further discussion of the System’s funding environment.)

Liquidity

As of December 31, 2011, the System’s liquidity position equaled 194 

days, an improvement from 173 

days at year-end 2010. The liquidity position is significantly above the 

90-day regulatory minimum.5 The 

percentage of highly liquid securities held by System banks decreased 

from 20 percent of the eligible 

investment portfolio as of December 

31, 2010, to 18 percent a year later. 

This liquidity provides each bank 
17

with a cushion against negative 

events in the U.S. and global markets and provides financial flexibility 

when the bank has fewer funding 

options. Investments available for 

sale (based on fair value) increased 

0.5 percent to $37.8 billion in 2011, 

with a weighted average yield of 1.6 

percent. Investments held to maturity remained steady at $3.7 billion, 

with a weighted average yield of 3.0 

percent.

By regulation, System banks may 

acquire and hold certain investments 

as long as they have a triple-A rating from at least one major rating 

agency. If the investment no longer 

5. The regulatory liquidity standard requires each FCS bank to maintain a minimum of 90 days of liquidity on a continuous basis to guard against a possible interruption in its access to the capital markets. The number of days of liquidity is calculated by comparing maturing Systemwide debt securities 

and other bonds for which the bank is primarily liable with the total amount of cash, investments, and other liquid assets maintained by that bank. 

For purposes of calculating liquidity, liquid assets are subject to discounts that reflect potential exposure to adverse market value changes that might 

be recognized upon liquidation or sale.

Figure 4

FCS Capital, 2004–2011

As of December 31

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

meets the credit rating criteria, the 

investment becomes ineligible, and 

the investing bank must dispose of 

the investment within six months or 

receive written approval from FCA to 

divest the investment over a longer 

period of time. As of December 31, 

2011, the FCS had 166 ineligible securities because of rating downgrades, 

which, at fair value, represented 4.0 

percent of total investments. FCA 

has approved divestiture plans to 

hold these investments longer than 

six months. For 2011, the System 

recognized $69 million of net otherthan-temporarily impaired losses on 

securities.

Capital

The System’s capital position 

remained strong. Total capital was 

$35.9 billion at year-end 2011, compared with $33.3 billion at year-end 

2010. The most significant factor 

contributing to the increase in System capital was net income earned 

and retained. With the increase in 

total capital, the System’s capitalto-assets ratio at year-end improved 

from 14.5 percent in 2010 to 15.6 

percent in 2011. As figure 4 shows, 

surplus accounts for the overwhelming majority of capital. FCA regulations establish the minimum capital 

requirements that each System bank 

and association must achieve and 

maintain. 
18

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

As of December 31, 2011, the permanent capital ratios for all System 

banks and associations were above 

the regulatory minimum of 7.0 percent. The ratios ranged between 16.4 

percent and 24.3 percent for System 

banks and between 11.7 percent and 

31.1 percent for System associations. 

In addition, at December 31, 2011, 

the FCS had $3.4 billion of restricted 

capital in the Farm Credit Insurance 

Fund. 

BORROWERS SERVED

The System fulfills its overall mission by lending to agriculture and 

rural America. Its lending authorities 

include the following:

• Long-term agricultural real estate 

loans and 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

• Loans to rural utilities

• Limited portions of loans to 

entities that qualify under the 

System’s similar-entity authority6

Nationwide, the System had $174.7 

billion in gross loans outstanding as 

of December 31, 2011 (see table 3). 

Agricultural producers represented 

by far the largest borrower group, 

with $121.9 billion, or 69.8 percent, of 

the total dollar amount of loans outstanding.7

 As of December 31, 2011, 

46.2 percent of the dollar volume of 

the System’s loans outstanding was 

in long-term real estate loans, 23.7 

percent in short- and intermediateterm loans to agricultural producers, and 14.1 percent in agribusiness 

loans. Agribusiness loans are broken 

down further into 6.8 percent for 

loans to cooperatives, 5.9 percent for 

processing and marketing enterprises, 

and 1.4 percent for farm-related businesses. 

Loans to finance rural utilities represented 8.9 percent of the System’s 

loan volume, while rural residential 

loans made up 3.4 percent of the System’s total loans. Agricultural export 

finance loans represented 2.2 percent of the System’s loan portfolio, 

and lease receivables accounted for 

1.2 percent of the overall portfolio. 

Finally, loans outstanding to “other 

financing institutions” represented 

a small but important segment of 

the System’s portfolio (see “System 

Funding for Other Lenders” below).

As required by law, borrowers own 

stock or participation certificates in 

System institutions. The FCS had 

nearly 896,000 loans and approximately 489,000 stockholders in 

2011. Approximately 86.0 percent 

of the stockholders were farmers 

or cooperatives with voting stock. 

The remaining 14.0 percent were 

nonvoting stockholders, including 

rural homeowners and other financing institutions that borrow from the 

System. Over the past five years, the 

number of System stockholders has 

increased gradually, rising more than 

5.4 percent since year-end 2007. 

The U.S. Department of Agriculture 

has forecast $108.7 billion in net cash 

farm income in the United States 

for 2011, up $16.4 billion from 2010 

and up $28.4 billion from its 10-year 

average of $80.3 billion. However, 

loan volume declined slightly in 2011 

from 2010 by 0.4 percent. The drop 

in overall volume was caused by a 

drop in agribusiness loan volume; in 

late 2011, prices for certain commodities fell, causing a drop in demand 

for seasonal financing. In addition, 

grain producers delayed delivery to 

cooperatives, which reduced financing requirements from cooperative 

customers. Another factor contributing to the drop in loan volume 

was the strong financial positions 

of certain agricultural producers 

who have benefitted from favorable 

agricultural conditions over the past 

several years. 

The aggregate total of loans outstanding at FCS banks and associations (net of intra-System lending) 

declined by $687 million, or 0.4 

percent, during the year ended 

December 31, 2011, compared with 

increases of 6.4 percent in 2010, 

6. A similar-entity borrower is not eligible to borrow directly from an FCS institution, but because the similar-entity borrower’s operation is functionally 

similar to that of an eligible borrow, the System can participate in these loans (the participation interest must be less than 50 percent).

7. This amount includes real estate mortgage loans and production- and intermediate-term loans, but excludes leases and loans to “rural homeowners” 

(as defined in 613.3030 of the FCA regulations).
19

2.1 percent in 2009, and 13.0 percent 

in 2008. However, since year-end 

2007, total System loans outstanding 

have increased by $31.8 billion, or 

22.2 percent.

As mentioned above, the decline in 

the System’s loan volume in 2011 

stemmed primarily from a decrease 

in agribusiness loans. Agribusiness 

loans declined by $4.8 billion, or 16.4 

percent. Long-term real estate loans 

increased $2.6 billion, or 3.4 percent, 

primarily because of successful marketing efforts and competitive interest rates, particularly in the Midwest. 

Short- and intermediate-term production loans increased $692 million, 

or 1.7 percent, because of advance 

purchases of 2012 inputs, such as 

fertilizer, seed, and fuel. Rural utility 

loans increased by $515 million, or 

3.4 percent. Rural residential loans 

increased $357 million, or 6.5 percent. The other categories posted 

modest changes for the year, either 

up or down, including a 5.0 percent decrease in agricultural export 

finance loans.8 

SYSTEM 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 

certain non-System lending institutions described in our regulations as 

“other financing institutions” (OFIs). 

OFIs include commercial banks, savings institutions, credit unions, trust 

companies, agricultural credit corporations, and other specified agricultural lenders that are significantly 

involved in lending to agricultural 

and aquatic producers and harvesters. System banks can fund and discount short- and intermediate-term 

loans for OFIs that demonstrate a 

need for additional funding to meet 

the credit needs of borrowers who 

are eligible to receive loans from the 

8. A majority of the System’s agricultural export finance loan portfolio is guaranteed by the Commodity Credit Corporation (CCC) through the U.S. 

Department of Agriculture’s GSM-102 and GSM-103 export credit programs. Overall, 74 percent of the System’s agricultural export portfolio in 2011 

carried a CCC guarantee.

Table 3

FCS Gross Loans Outstanding, 2007–2011

As of December 31

Dollars in Millions

Percent 

change 

2007 2008 2009 2010 2011 from 2007

Long-term real estate 

	 mortgage loans	 63,458	 71,892	 75,352	 78,021	 80,658	 27.1

Short- and intermediate-

	 term loans	 32,267	 37,468	 39,610	 40,584	 41,276	 27.9

Agribusiness loans*	 28,091	 26,901	 23,626	 29,581	 24,734	 -12.0

Rural utility loans	 10,846	 13,931	 14,562	 15,091	 15,606	 43.9

Rural residential loans	 3,965	 4,611	 4,977	 5,475	 5,832	 47.1

International loans	 2,135	 4,077	 3,956	 4,036	 3,834	 79.6

Lease receivables	 1,708	 1,952	 2,160	 2,021	 2,139	 25.2

Loans to other financing

	 institutions	 436	 591	 587	 542	 585	 34.2

Total 142,906 161,423 164,830 175,351 174,664 22.2

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

* At December 31, 2011, agribusiness loans consisted of loans to cooperatives of $11.9 billion, processing and marketing loans of $10.3 

billion, and farm-related business loans of $2.5 billion.
20

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

FCS. OFIs benefit by using the System as an additional source of liquidity for their own lending activities 

and by capitalizing on the System’s 

expertise in agricultural lending.

As of December 31, 2011, the System 

served 26 OFIs, down from 28 in 

2010 and 2009, and 27 in 2008. Outstanding loan volume to OFIs was 

$585 million at year-end, up 

$43 million from 2010. OFI loan 

volume continues to be less than one 

percent of the System’s loan portfolio. More than three-fourths of the 

System’s OFI loan volume is in the 

Midwest.

Loan Participations and Syndications 

with Non-FCS Lenders

In addition to the authority to provide funding and discounting services to OFIs, the Farm Credit Act 

gives System banks and associations 

the authority to partner with financial institutions outside the System, 

including commercial banks, in making loans to agriculture and rural 

America. Generally, System institutions partner with these financial 

institutions through loan participations and syndications.

• A loan participation is a loan 

that is co-owned by two or more 

lenders. Loan participations help 

lenders manage their credit risk. 

They also provide another advantage. When a borrower seeks a 

loan that exceeds a lender’s legal 

or internally established lending 

limit, the lender may use a loan 

participation to provide funding 

for part of the loan. The participating lenders decide who will 

originate, service, and document 

the loan. Generally, the borrower deals with the institution 

originating the loan and is not 

aware of the other participating 

institutions, each of which has an 

interest in the loan.

• A loan syndication (or “syndicated bank facility”) is a large 

loan in which a group of financial institutions work together to 

provide funds for a borrower. 

Usually one financial institution 

takes the lead, acting as an agent 

for all syndicate members and 

serving as a liaison between them 

and the borrower. All syndicate 

members are known at the outset 

to the borrower, and they each 

have a contractual interest in the 

loan.

Financial institutions primarily use 

loan participations and syndications 

to reduce credit risk and to comply 

with lending limits, but they also 

use them to manage and optimize 

capital, earnings, and liquidity. For 

example, a financial institution with 

a high concentration of production 

loans for a single commodity could 

use participations or syndications 

to diversify its loan portfolio, or it 

could use them to sell loans that are 

beyond its lending limit. As figure 5 

shows, activity from net similarentity loan participations and syndications with non-System lenders 

grew from 2006 to 2008 and declined 

through 2010, but rose at year-end 

2011. Loan participations involving 

eligible borrowers rose from 2006 to 

2008 and has remained relatively flat 

since 2008, averaging $7.6 billion.

The first group of bars shows gross 

loan syndications outstanding by 

FCS banks and associations.9

 Gross 

loan syndications by the System with 

non-System lenders totaled $11.3 

billion at year-end 2011, up slightly 

more than $1 billion from the 2010 

figure. The increased use of syndications reflects the growing complexity 

of commercial credits in agriculture. 

For large loans, lenders are shifting 

from being single-lender originators 

who sell loan participations to other 

institutions to being members of syndicates in which groups of lenders 

originate loans. 

The other bars in figure 5 show net 

loan participation activity involving 

non-System lenders for two lending 

categories for the past six years.

• The middle group shows net 

loan participations involving 

institutions that are originating 

with customers who are also 

eligible to borrow from the FCS. 

The net total of these participations was $7.7 billion, a slight 

increase above 2010. Much of 

the lending activity in this group 

probably results from gross loan 

syndications (the first group of 

bars in this figure) and the subsequent sale of participations in 

9. Typically, some of the syndication volume is sold and may be reported by FCS institutions as part of net loan transactions (purchases less sales) with 

non-FCS lenders (see second group of bars). Net loan transactions include traditional loan participations and assignments or other interest in loans.
21

Figure 5

Syndications and Net Loan Participations Involving Non-System Lenders, 2006–2011

As of December 31

Dollars in Billions

Sources: Farm Credit System Call Reports. 

* The 2008 FCA Annual Report on the Farm Credit System reported $9.0 billion in net loan participations involving eligible borrowers in 2008. 

Subsequently, that figure was revised to $7.6 billion. 

Note: A similar-entity borrower is not eligible to borrow directly from an FCS institution, but because the borrower’s operation is functionally 

similar to that of an eligible borrower, the System can participate in some of these loans (the participation interest must be less than 50 percent).
22

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

10. USDA calculates market share for farm business debt only. The information for 2011 will not be available until USDA issues its planned update in 

August 2011. Market share information is not available for the other portions of the System’s portfolio, such as agribusiness lending, rural utility 

lending, or rural home lending.

these loan syndications to other 

System institutions.

• In addition to participating in 

loans to eligible borrowers, FCS 

institutions have the authority 

to work with non-System lenders that originate “similar-entity” 

loans (third group of bars in figure 5). A similar-entity borrower 

is not eligible to borrow directly 

from an FCS institution, but 

because the borrower’s operation 

is functionally similar to that of 

an eligible borrower, the System 

can participate in the borrower’s 

loans (the participation interest 

must be less than 50 percent). At 

the end of 2011, the net amount 

of similar-entity participations 

in the System amounted to $7.9 

billion, an increase of less than 

$1 billion, or 12.6 percent above 

2010 volume. The net total of all 

loan participations involving nonSystem lenders was $15.6 billion 

at year-end 2011 compared with 

$14.6 billion the year before. 

AgDirect, LLP

AgDirect is a point-of-sale agricultural equipment financing program 

developed by Farm Credit Services 

of America, ACA. AgDirect facilitates the financing of equipment 

for farmers and ranchers through 

participations in retail installment 

sales contracts made by equipment 

dealerships. The program enhances 

financial options for customers and 

institutions, and provides a diversified revenue stream to AgriBank and 

the System association owners of 

AgDirect. 

AgDirect financing is now available 

in 14 states with nine System institutions participating through AgDirect, 

LLP. As of December 31, 2011, the 

total outstanding participation interests in loans purchased was 

$1.3 billion.

FARM DEBT AND MARKET 

SHARES

The U.S. Department of Agriculture’s 

estimate of total farm business debt 

for the year ended December 31, 

2011, was $247 billion, up from its 

$242 billion estimate for year-end 

2010. USDA’s estimate for 2011 farm 

debt will not be final until later in 

2012, but farm loan data reported by 

Farm Credit System and commercial 

banks show that their total farm loan 

portfolios grew during 2011 by 3 percent and 2 percent, respectively. 

Lender-reported data also show 

that the demand for farm credit 

grew more robustly in certain 

regions—especially the Midwest. 

In 2011, farmers in the Midwest 

took advantage of record-high farm 

incomes and low interest rates to 

invest in machinery, farm structures, 

and farmland. On the supply side, 

lenders had ample funds to lend in 

2011 as demand for credit remained 

below the capacity to lend. Credit 

underwriting practices remained 

relatively stringent in a competitive 

lending environment. Strong farm 

incomes, high real estate values, low 

interest rates, and an increase in offfarm income opportunities should 

be supportive of only modest credit 

demand once again in 2012.

The most current market share information from USDA is for year-end 

2010.10 USDA’s estimate of debt by 

lender shows that commercial banks 

held 44 percent of total farm business 

debt at the end of 2010. The System’s 

market share rose to 41 percent from 

a 40 percent share the previous year. 

FCS market share of total farm business debt has been rising steadily 

over the past decade, whereas commercial bank share of farm debt has 

been flat over this period. The share 

of total farm business debt owed 

to the USDA and to life insurance 

companies has been relatively stable 

recently, whereas debt owed to individuals, merchants, and other lender 

types continue to decline. (Figure 6 

shows market shares for the major 

lenders since 1990.)

Except for brief periods, the FCS 

has typically had the largest market 

share of farm real estate mortgages. 

The System’s share of debt secured 

by farm real estate increased to 45 

percent at year-end 2010, continuing 

a 10-year upward trend. At year-end 

2010, commercial banks held almost 

the same share of the farm real estate 

debt market as they did at year-end 

2009—38 percent. Commercial banks 

have historically dominated non-real 

estate farm lending, but that dominance has been eroding—commercial 

banks had a 51 percent market share 

at the end of 2010. The System’s 

share of non-real estate farm debt 

grew slightly to 37 percent at yearend 2010, continuing an upward 

trend since the late-1990s when it 

was slightly less than 20 percent. 
23

Figure 6

Market Shares of U.S. Farm Business Debt, 1990–2010

Sources: USDA, Economic Research Service, as of February 14, 2011.

Note: Year-end 2010 figure is a preliminary estimate.
24

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 
25

Serving Young, Beginning, and Small Farmers and Ranchers

The Farm Credit Act requires Farm 

Credit System institutions to have 

programs to provide financially 

sound and constructive credit and 

related services to young, beginning, 

and small (YBS) farmers and ranchers. Loans to YBS borrowers help to 

provide a smooth transition of farm 

businesses to the next generation. 

They also allow System institutions 

to serve a more diversified customer 

base—from very small enterprises to 

large commercial operations. At FCA, 

we are strongly committed to ensuring that the System fulfills its responsibility to serve YBS producers. We 

support the YBS mission through our 

regulatory activities, data collection 

and reporting, disclosure requirements, and examination activities. 

CHARACTERISTICS OF YBS 

BORROWERS

Before we discuss the System’s lending to YBS producers, let’s look at 

the characteristics of producers who 

would qualify for a YBS loan with 

the System.

Young

Across the United States, there are 

far fewer young farmers than there 

are small and beginning farmers, and 

this number has been shrinking for 

decades. At FCA, we define young 

farmers as those who are 35 years 

of age or younger. The decline in 

young farmers reflects years of farm 

consolidations and integrations and 

increasing retirement ages for farmers. According to USDA’s Agricultural Resource Management Survey 

(ARMS), only 4 percent of all principal family farm operators were under 

35 years of age in 2010. This percentage has remained relatively constant 

in recent years.11

Many young farmers are also small 

and beginning farmers. Young 

farmers are somewhat less likely 

than older farmers to operate small 

farms—that is, farms with less than 

$250,000 in gross sales. Still, 85 percent of young farmers operated small 

farms in 2010. In addition, more than 

three-quarters of all young farmers 

are also beginning farmers—that is, 

they have farmed for 10 years or less. 

Beginning

For 2010, the ARMS shows that 

approximately 21 percent of all family farms had principal operators 

who are beginning farmers. Although 

beginning farmers are generally 

believed to be young, only 16 percent 

of these principal operators were 

under 35 years of age, and one-third 

were 55 years or older. The vast 

majority of beginning farmers—95 

percent—operated small farms in 

2010. Only one-quarter of beginning 

farmers consider farming to be their 

primary occupation; most of their 

income comes from off-farm sources.

Small

Small farms, which represent 88 

percent of all U.S. farms in the 2010 

ARMS, are difficult to characterize. 

Two-thirds of the 1.9 million small 

farms have less than $10,000 in gross 

farm sales. Those who operate small 

farms generally seek credit for consumer, rather than farm, products. 

A higher percentage of very small 

farms are located in the East, particularly in southern states. Within this 

large segment are farming operations 

that are growing in size or producing 

higher-margin agricultural products 

for local markets, often on a seasonal 

basis. 

Young operators make up just 4 

percent of small farmers, the same 

percentage that they make up of 

all U.S. farmers. Beginning farmers 

make up 22 percent of farmers in the 

small category. Since nearly a third 

of all small farmers are 65 years or 

older, many of them will retire soon. 

Because many small farms do not 

use agricultural credit, many small 

farmers are not potential YBS borrowers. 

FCS LENDING TO YBS 

PRODUCERS

Generally, the shares of Systemwide 

total farm lending going to the three 

separate YBS categories have been 

consistent with the shares of these 

farmer segments in the total farmer 

population. The smallest share of 

total System farm lending goes to 

the young farmer segment, and the 

largest share goes to the small farm 

segment. 

The range of YBS demographics and 

the changing economic conditions in 

rural America can pose challenges for 

11. FCA’s definition of a young farmer differs slightly from USDA’s definition. See the note below table 4B. A family farm is one for which the majority 

of the farm business is owned by individuals related by blood, marriage, or adoption. In 2009, more than 97 percent of all farms were considered to 

be family farms according to ARMS.
26

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

System institutions in meeting their 

YBS program goals. Another challenge for System lenders is meeting 

the wide range of nonagricultural 

credit needs of YBS farmers. 

Each System bank must have 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 Farm Credit 

Act stipulates that associations must 

coordinate with other Government 

and private sources of credit in 

implementing their YBS programs. 

In addition, each institution must 

report yearly on its lending volume, 

operations, and achievements in its 

YBS program. (See the YBS Programs 

section on page 32.)

Our oversight and examination 

activities encourage System institutions to assess their performance and 

market penetration in the YBS area. 

This self-assessment increases each 

institution’s awareness of its mission 

and prompts it to earmark resources 

to serve the YBS market segment. In 

addition, we continue to review and 

consider various policy options for 

supporting the System’s YBS programs.

Comparing the System’s YBS Lending in 

2011 with Its YBS Lending in 2010 

The number and volume of loans 

(including new loans and renewals) 

made during the year is an indicator 

of the extent to which System institutions are serving YBS producers. In 

general, during calendar year 2011, 

new lending activity declined across 

the System for each of the three YBS 

categories.12 Lending to YBS borrowers has been slowly trending downward in recent years. The decline in 

YBS activity in 2011 was consistent 

with recent trends for all three YBS 

categories.

Lending to small farmers declined 

the most during 2011, with an 8.4 

percent decline in the number of 

loans made and a 10.4 percent 

decline in the dollar volume of new 

loans made. The increase in gross 

farm incomes in 2010 probably 

accounted for much of the percentage decrease in lending to the small 

farmer category. Remember: to be 

considered a small farmer, a producer’s annual gross farm income must 

be less than $250,000. Many producers who would have qualified as 

small farmers in 2010 may not have 

qualified in 2011. 

The decline was less in lending activity to beginning farmers. The number of new loans made to beginning 

farmers fell 5.8 percent from 2010, 

and new loan dollar volume fell 5.1 

percent. Young farmer lending was 

relatively stable in 2011. The number 

of new loans made to young farmers edged down 1.4 percent from 

2010, but new loan dollar volume 

increased 4.9 percent.

In 2011, the dollar volume of loans 

outstanding increased in all three 

YBS categories. It increased by 4.0 

percent to young farmers, but the 

increases were much smaller to the 

other categories. The dollar volume 

of loans outstanding increased by 0.2 

percent to small farmers and by 0.5 

percent to beginning farmers.

Comparing the System’s YBS Lending 

with Its Overall Lending

In 2011, lending to the three YBS 

categories did not keep pace with the 

trends in overall System lending to 

farmers. Therefore, the share of total 

System farm loans going to the YBS 

categories fell from that of 2010. In 

2011, the volume of all System farm 

loans made (including commitments) 

during the year was $71.3 billion, 

up 11.6 percent over that of 2010, 

and the volume of outstanding farm 

loans (including commitments) at 

year-end was $189.6 billion, up 5.2 

percent from that of 2010. The total 

number of farm loans made in 2011 

(333,932) was up less than 1.0 percent 

from 2010, while the number of outstanding loans (917,640) at the end of 

2011 was 2.8 percent higher than at 

the end of 2010.

In the section on YBS borrowing 

trends (page 28), we provide information on the progress in YBS lending activity since 2001, which was 

the first year institutions reported 

their results using the current definitions for young, beginning, and small 

farmers and ranchers. Table 4A contains information on loans outstanding in each category at the end of 

2011; table 4B provides information 

on loans made during the year.

12. System data on service to YBS farmers and ranchers cover the calendar year and are reported at year-end. The statistics show loans made during the 

year (both number of loans and dollar volume of loans), as well as loans outstanding at year-end (both number of loans and dollar volume of loans). 

The volume measure includes loan commitments to borrowers, which typically exceed actual loan advances. Borrowers may have more than one 

loan and thus the loan numbers reported here do not directly measure the number of borrowers.
27

Table 4A

YBS Loans Outstanding

As of December 31, 2011 Dollar

Number Percentage volume Percentage Average

of of total of loans of total loan

loans numbera in millionsb volumea size

Young farmers/ranchers 165,605 18.1 $21,290 11.2 $128,559

Beginning farmers/ranchers 236,033 25.7 $34,113 18.0 $144,525

Small farmers/ranchers 475,310 51.8 $42,850 22.6 $90,152

Table 4B

YBS Loans Made During 2011

As of December 31

Dollar 

Number Percentage volume Percentage Average

of of total of loans of total loan

loans numbera in millionsb volumea size

Young farmers/ranchers 52,800 15.8 $7,464 10.5 $141,360

Beginning farmers/ranchers 61,995 18.6 $9,634 13.5 $155,406

Small farmers/ranchers 137,529 41.2 $11,197 15.7 $81,413

Sources: Annual Young, Beginning, and Small Farmer Reports submitted by each System lender through the Farm Credit banks.

Note: A “young” farmer/rancher is defined as 35 years old or younger when the loan is made; a “beginning” farmer/rancher has been operating for not 

more than 10 years; and a “small” farmer/rancher generates less than $250,000 in annual sales of agricultural or aquatic products. Since the totals are 

not mutually exclusive, one cannot add across young, beginning, and small categories to count total YBS lending.

a. Totals include loans, advancements, and commitments made to farmers, ranchers, and aquatic producers by the associations, and excludes such 

activity from rural home lending, Title III lending, and the Leasing Corporation.

b. The volume figures for loans made and loans outstanding include both advances and commitments. New loans in 2011 totaled 333,932 in number and 

$71.3 billion in value; outstanding loans totaled 917, 640 in number and $189.6 billion in value. 
28

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Loans and commitments to YBS 

farmers include real estate loans, and 

short- and intermediate-term loans, 

but do not include rural home loans. 

In the percentages below, young, 

beginning, and small farmer lending 

is compared with all System lending 

and commitments to farmers.

Young—In 2011, the System made 

52,800 loans to young farmers—that 

is, to those who are 35 years old or 

younger. The volume of total new 

loans to young farmers amounted to 

$7.5 billion. During 2010, the System 

made 53,546 loans to young borrowers, totaling $7.1 billion. The loans 

made to young borrowers in 2011 

represented 15.8 percent of all farm 

loans the System made during the 

year and 10.5 percent of the dollar 

volume of loans made. The average 

size of loans made to young farmers 

in 2011 increased to $141,360. At the 

end of 2011, the System had $21.3 

billion in outstanding loans to young 

farmers as compared with $20.5 billion at the end of 2010.

Beginning—The System made 61,995 

loans to beginning farmers—that 

is, to those who have been farming 

for 10 years or less. The volume of 

total new loans to beginning farmers amounted to $9.6 billion in 

2011. During 2010, the System made 

65,792 loans, totaling $10.2 billion, 

to beginning borrowers. The loans 

made to beginning farmers in 2011 

represented 18.6 percent of all farm 

loans made during the year and 13.5 

percent of the dollar volume of loans 

made. The average size of loans 

made increased to $155,406 in 2011. 

At the end of 2011, the System had 

$34.1 billion in outstanding loans to 

beginning farmers as compared with 

$34.0 billion at the end of 2010.

Small—FCS institutions made 

137,529 loans, totaling $11.2 billion, 

to small farms (those with gross 

annual sales of less than $250,000) 

in 2011. By comparison, the System 

made 150,140 loans, totaling $12.5 

billion, to small farmers in 2010. The 

loans made in 2011 to farmers in this 

category represented 41.2 percent of 

all farm loans made during the year 

and 15.7 percent of the dollar volume 

of loans made. The average size of 

loans made declined to $81,413 in 

2011. At the end of 2011, the System 

had $42.9 billion in outstanding loans 

to small farmers as compared with 

$42.6 billion at the end of 2010.

The YBS information is reported 

separately for each of the three YBS 

borrower categories because the YBS 

mission is focused on each borrower 

group separately. Also, loans cannot 

be added across categories because 

some loans belong in more than one 

category. If, for example, a borrower 

is less than 35 years old, sells less 

than $250,000 in farm products per 

year, and has farmed for less than 10 

years, the borrower’s loan would be 

included in every category. Therefore, adding the categories together 

would produce a misleading measurement of the System’s YBS lending involvement.

YBS BORROWING TRENDS, 

2001–2011

Under the definitions and reporting 

requirements that became mandatory 

in 2001, the System’s lending to YBS 

producers increased steadily until 

2008. Since then, however, the trends 

have changed. The number and dollar value of new lending activity fell 

for all three groups in 2009, as the 

recession and a slower farm economy 

reduced demand for credit in general. 

Then, in 2010, YBS lending 

rebounded when the farm and nonfarm economy improved. In 2011, 

new lending activity once again fell 

for the beginning and small categories but held relatively steady for the 

young category. While outstanding 

loan volume flattened out for beginning and small categories beginning 

in 2008 or 2009, outstanding loan 

volume to young farmers continued 

to grow because of the increase in 

new loan volume to young farmers.

Figures 7A, 7B, and 7C show that the 

percentage of new farm loan volume 

going to the small and beginning 

farmer categories has been declining 

somewhat since the early- to mid2000s, but it fell more sharply in 

2011. Despite an uptick from 2010 in 

new dollar volume to young farmers, 

the percentage share of loan volume 

going to young farmers also fell in 

2011. In the past five years the share 

of total farm lending going to beginning farmers fell to 13.5 percent from 
29

17.8 percent, the share to small farmers fell to 15.7 percent from 22.2 percent, and the share to young farmers 

was unchanged at 10.5 percent. 

One explanation for the decline in 

the share of total loan volume going 

to any of the YBS categories in 2011 

was that the average size of new 

loans to YBS borrowers fell relative 

to the size of new loans to other 

borrowers. We can probably attribute 

the decrease in the YBS share of new 

loan volume in 2011 to the larger 

loans that more established, larger 

farms took out to cover higher prices 

for production expenses, farmland, 

and other capital assets. 

One of the main reasons for the 

decline in the small farmers’ share of 

the System’s total lending volume is 

the growth in farm incomes since the 

mid-2000s. From 2005 to 2010, cash 

farm sales rose from $241 billion to 

$314 billion, a 30 percent increase. As 

a result, the number of farms with 

sales above $250,000 rose by onethird from 2005 to 2010, while farms 

with sales from $100,000 to $250,000 

dropped by almost 12 percent. Total 

U.S. farm sales for 2011 are estimated 

to have increased another 15 percent 

over 2010, suggesting that even fewer 

farms will be defined as small in 

2012. 

Comparing the System’s YBS lending results with results reported by 

other organizations is difficult. Other 

Federal regulators do not require 

reporting on young and beginning 

farmer loans. Although large banks 

are required to report on small farm 

loans, they define small farm lending 

by loan size and not by the borrower’s annual sales (a loan of less 

than $500,000 is considered a small 

farm loan). In addition, because of 

differences in data definitions and 

data collection methods, annual YBS 

data are not directly comparable with 

Census of Agriculture data, which 

are collected only once every five 

years.

ASSESSING YBS RESULTS FOR 

INDIVIDUAL ASSOCIATIONS

Factors Affecting Results from One 

Institution to the Next

The results for individual associations reflect farmer demographics 

in each institution’s territory and 

the strength of each institution’s 

YBS program. Differences between 

farmer demographics make comparisons among individual associations 

difficult. For example, one institution’s territory may have a larger 

population of beginning farmers than 

another institution’s territory. That is 

why YBS regulations do not specify 

fixed goals but, instead, require individual institutions to set YBS targets 

that are appropriate for their lending 

territories. Other factors—such as the 

competitiveness of the local lending 

market and local economic conditions—can also affect YBS results for 

individual associations. 

Individual YBS Results Versus the 

System’s Average YBS Results

As a result of the factors described 

above, YBS lending varies considerably across FCS associations.13 Some 

institutions may have a high number 

or dollar volume of loans in one category and be low in another, while 

activity levels for other institutions 

may be just the opposite. While the 

share of total new System farm loans 

made to young farmers was 15.8 

percent, this share ranged from as 

little as 2.4 percent at one association 

to as high as 26 percent at another. 

In 2011, the percentage of new 

farm loans made to young farmers 

exceeded the Systemwide average in 

39 percent of the associations. 

The ranges in the share of total new 

loans made to beginning farmers 

were even greater. Whereas 18.6 percent of the System’s total farm loans 

went to beginning farmers in 2011, 

this share ranged from as little as 3.4 

percent at one association to as much 

as 64.5 percent at another. For this 

YBS category, just over half of all 

associations had lending shares that 

exceeded the Systemwide average. 

The ranges for the small farm category were the greatest of all. In 

2011, 41.2 percent of the System’s 

total farm loans went to small farmers, but the percentage ranged from 

4.3 percent at one institution to 86 

percent at another. Approximately 

half of all institutions exceeded the 

System average in the percentage of 

small farmers they served, and about 

half fell below the System average. 

13. Beginning with 1999, specific YBS data by institution, by district, and for the System as a whole are available on FCA’s website at www.fca.gov under 

the Consolidated Reporting System Reports.
30

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Figure 7A

Young Farmers and Ranchers

Figures 7A, 7B, and 7C

Loans Made to, and Loans Outstanding for, YBS Farmers and Ranchers, 2001–2011

As of December 31
31

Figure 7B

Beginning Farmers and Ranchers

Figure 7C

Small Farmers and Ranchers
32

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

While the share of total farm loan 

numbers and loan volume that went 

to beginning and small farmers fell 

during 2011 for the System as a 

whole, many associations experienced 

gains in the share of their total lending to YBS groups. For example, the 

share of total new farm loan volume 

going to young farmers rose in 41 

percent of the associations, and the 

share going to beginning farmers 

rose in 28 percent of the associations. 

Lending shares for each category are 

more likely to vary significantly at 

small associations because of their 

small lending bases.

YBS PROGRAMS

Delivering Credit Services

Because of its status as a Government-sponsored enterprise with a 

statutory YBS mandate, the FCS is in 

a unique position to assist the next 

generation of American farmers, and 

System institutions have developed 

YBS programs to provide this assistance. Through these programs, FCS 

associations may offer lower interest 

rates and less stringent underwriting 

standards, such as higher loan-tovalue ratios or lower debt coverage 

requirements, to allow potential YBS 

borrowers to qualify for loans. Associations also offer training through 

their YBS programs to help these 

borrowers be successful.

System institutions employ methods 

to ensure that credit is made to YBS 

farmers and ranchers in a safe and 

sound manner. The following are 

examples of the types of methods 

used during 2011.

• Interest rate concessions—offered 

by 41 percent of associations

• Exceptions to underwriting standards—offered by 52 percent of 

associations

• Lower loan fees—offered by 24 

percent of associations

• Loan covenants designed specifically for YBS borrowers—offered 

by 16 percent of associations

The percentage of associations using 

the first three types of loan concessions remained about the same in 

2011 as in 2010. However, the percentage of associations offering loan 

covenants specifically for YBS borrowers doubled in 2011 from 2010.

As a whole, the System offered 

slightly more loan concessions to 

young and beginning farmers than it 

did to small farmers. In 2011, 63 percent of the System’s 83 associations 

provided some form of loan concessions to young borrowers, 65 percent 

provided concessions to beginning 

borrowers, and 59 percent provided 

concessions to small farmers. Results 

for 2011 were similar to results for 

2010.

As required by the Farm Credit Act, 

System institutions coordinate their 

YBS programs with other Government programs whenever possible. 

Several State and Federal programs 

provide interest rate reductions or 

guarantees for YBS borrowers. By 

partnering with these Government 

programs, FCS institutions are able 

to reduce the credit risk to these 
33

borrowers. In 2011, all but one 

association used USDA Farm Service 

Agency loan guarantees for some of 

their YBS lending, while 17 percent 

used Small Business Administration 

loan guarantees and 41 percent of 

the associations used State and local 

programs.

FCS institutions use guaranteed lending programs from Federal, State, 

and local sources for both conventional and YBS lending. About 30 

percent of the System’s overall loans 

made in 2011 with guarantees went 

to young farmers; about 30 percent 

went to beginning farmers; and about 

40 percent went to small farmers 

(although they do this year, numbers 

do not necessarily add up to 100 

percent because categories overlap). 

Loans made in 2011 with guarantees for young, beginning, and small 

farmer/rancher loans outstanding 

were 1,600, 1,600, and 2,200, respectively. System associations obtained 

guarantees on fewer loans in 2011 

than in 2010, a decrease of about 760 

loans to young farmers, 800 loans to 

beginning farmers, and 2,100 loans to 

small farmers. However, the percentage decline in loan guarantees to YBS 

loans is not as large as the percentage decline in loan guarantees to all 

System loans.

Training and Other Services

System institutions offer numerous 

opportunities to educate existing 

and potential YBS borrowers. System 

associations offer Systemwide online 

training programs for YBS farmers, which in some cases include a 

mentoring component. Associations 

coordinate with State and national 

agricultural organizations and educational centers to offer educational 

training and, in some cases, to 

provide funding to allow YBS farmers to attend training. Examples of 

training opportunities include the Ag 

Leadership Institute, Ag Biz Planner, 

GroundBreakers Education Conference, Emerging Entrepreneurs’ Conference, and the Young Farmer and 

Rancher Executive Institute.

System associations are actively 

involved in marketing to potential 

YBS borrowers. Some associations 

attend and help sponsor local trade 

shows, fairs, and training workshops 

specifically targeting young farmers. Some also conduct outreach and 

marketing activities in partnership 

with State or national young farmer 

groups, colleges of agriculture, State 

or national cooperative association 

leadership programs, and local chapters of 4-H and of the national FFA 

organization. In addition, many FCS 

associations provide financial support 

for college scholarships and for FFA, 

4-H, and other agricultural organizations. 
34

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Regulatory Policy and Approvals

As the regulator of the Farm Credit 

System, we issue regulations, as well 

as policy statements and other guidance, to ensure that the System complies with the law, operates in a safe 

and sound manner, and efficiently 

carries out its statutory mission. Our 

regulatory philosophy is to provide a 

regulatory environment that enables 

the System to safely and soundly 

offer high-quality, reasonably priced 

credit and related services to farmers 

and ranchers, agricultural cooperatives, rural residents, and other entities on which farming depends.

We strive to develop balanced, wellreasoned regulations whose benefits 

outweigh their costs. Our objectives are (1) to enhance the System’s 

relevance in the marketplace and in 

rural America while ensuring that 

it remains consistent with the law 

and safety and soundness principles, 

and (2) to promote participation by 

member-borrowers in the management, control, and ownership of their 

System institutions.

REGULATORY ACTIVITY IN 2011

The following paragraphs describe 

some of FCA’s regulatory efforts in 

2011, along with several projects that 

will remain active in 2012. Full text 

for the items below is available on 

the FCA website. To access Board 

Policy Statements, FCA Bookletters, 

and Informational Memorandums, go 

to www.fca.gov/law/guidance.html. 

To access proposed and final rules, 

go to www.fca.gov/law/pending.html 

and select “FCA Pending Regulations 

and Notices database.”

Governance

System Audit Committee—The FCA 

Board approved a proposed rule in 

January 2012 to expand the authorities of the System Audit Committee. 

Senior Officer Compensation Disclosures—The FCA Board approved a 

proposed rule in December 2011 that 

would amend our regulations related 

to disclosures made by System banks 

and associations to their stockholders and investors. The purpose of the 

rule is to provide full, transparent, 

and consistent disclosures on issues 

related to senior officer compensation.

Compensation for 2012—We issued 

an Informational Memorandum in 

February 2012 to communicate the 

annual adjustment in the maximum 

annual compensation payable to 

FCS bank directors. The adjustment 

reflects the change in the Consumer 

Price Index.

Lending

Operating and Strategic Business

Planning—The FCA Board approved 

a proposed rule in April 2011 and 

a final rule in April 2012 to require 

that FCS institutions’ operational 

and strategic business plans contain 

human capital plans and marketing plans that include, among other 

things, outreach toward diversity and 

inclusion.

Amendments to Regulations Implementing the RESPA, the FACT Act,

and the ECOA—We issued an Informational Memorandum in October 

2011 to inform System institutions 

about amendments to regulations 

implementing the Real Estate Settlement Procedures Act, the Fair and 

Accurate Credit Transactions Act of 

2003, and the Equal Credit Opportunity Act, all of which apply to FCS 

institutions in certain credit transactions.

Lending and Leasing Limits and

Risk Management—The FCA Board 

approved a final rule in May 2011 

to lower the current limit on the 

amount of credit that an institution 

may extend to a single borrower. The 

rule also requires FCS institutions to 

adopt written policies to measure, 

limit, and monitor exposures to concentration risks. 

Loan Purchases from the Federal

Deposit Insurance Corporation—The 

FCA Board approved a final rule 

in May 2011 to permit FCS institutions with direct-lending authority to 

purchase agricultural and cooperative loans from the FDIC that meet 

the System’s eligibility and scope-offinancing requirements.

Registration of Mortgage Loan

Originators—We issued an Informational Memorandum in April 2011 to 

explain the process for System institutions to register their employees 

who serve as residential mortgage 

loan originators. 
35

Loan Underwriting Standards – Borrower Financial Information—We 

issued an Informational Memorandum in March 2011 to explain our 

expectations of System institutions 

regarding the collection and use of 

borrower financial information to 

measure and manage risks.

Accounting and Disclosure of

Troubled Debt Restructurings—We 

issued an Informational Memorandum in March 2011 to provide 

guidance to FCS institutions on 

complying with Financial Accounting Standards Board requirements 

for troubled debt restructurings. The 

Informational Memorandum also provides guidance on how institutions 

should disclose debt restructuring 

information in reports to shareholders.

Loan Syndications and Assignment

Markets Study—We continued to 

study loan syndication and assignment markets to determine whether 

our regulations should be modified 

to reflect significant changes in the 

markets.

Capital and Investments

Liquidity and Funding—The FCA 

Board approved a proposed rule in 

November 2011 to ensure that FCS 

funding and liquidity requirements 

are safe, sound, and appropriate. 

The rule also invited comment on 

the best way to measure the creditworthiness of liquid investments 

purchased by System banks. The 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (DoddFrank Act) requires agencies to adopt 

regulations that use standards of 

creditworthiness other than credit 

ratings issued by Nationally Recognized Statistical Rating Organizations. 

Capital Adequacy – Risk-Weighting

Revisions: Alternatives to Credit

Ratings—The FCA Board approved 

an advance notice of proposed 

rulemaking in August 2011 to solicit 

public input on amending our capital 

regulations to comply with a provision of the Dodd-Frank Act that 

requires agencies to replace the references to credit ratings with references 

to other appropriate standards of 

creditworthiness. 

Investment Management—The FCA 

Board approved a proposed rule in 

July 2011 to strengthen our investment management regulations. In 

addition, the proposed rule solicited 

public input on ways other than 

credit ratings to determine creditworthiness for eligible investments 

purchased by System institutions. 

USDA Guaranteed Investments—We 

issued an Informational Memorandum in June 2011 to reiterate and 

clarify that FCS institutions have 

broad authority to invest in obligations (including loans and bonds) 

that are fully insured or guaranteed 

by the U.S. Department of Agriculture and its agencies.

Investments in Rural America—We 

continued to evaluate how System 

partnerships and investments could 

help increase the availability of funds 

to agriculture and rural America. 

We are reviewing investments made 

under pilot projects to determine 

whether these investments help 

institutions fulfill their mission. These 

projects may be considered in future 

rulemakings.

Farmer Mac

Farmer Mac Nonprogram Investments and Liquidity—The FCA 

Board approved a proposed rule in 

October 2011 to revise regulations 

governing Farmer Mac’s liquidity 

and investment management. The 

rule also addressed the Dodd-Frank 

Act provision requiring agencies to 

replace references to credit ratings 

with other appropriate standards for 

measuring creditworthiness. The rule 

solicited public input on how best 

to replace these references in regulations pertaining to Farmer Mac.

Farmer Mac Risk-Based Capital

Stress Test Revisions—The FCA 

Board approved a final rule in April 

2011 to modify Farmer Mac’s RiskBased Capital Stress Test to accommodate rural utility program business. It also revised the treatment of 

risk mitigations of general obligations 

for the AgVantage Plus program 

and related structures. Then, in June 

2011, the FCA Board approved an 

advance notice of proposed rulemaking to solicit public comments on 

alternatives to using credit ratings in 

regulations governing the Risk-Based 

Capital Stress Test for Farmer Mac. 
36

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

The advance notice also sought input 

on how to revise the test to incorporate counterparty risk to Farmer 

Mac’s portfolio of derivatives. In 

addition, the notice solicited input on 

how to require Farmer Mac to place 

greater emphasis on diversity and 

inclusion in its human capital and 

marketing plans.

Other

Capital and Margin Requirements

for Covered Swap Entities—The 

FCA Board approved a proposed 

rule in April 2011 to establish margin 

and capital requirements for swap 

dealers, major swap participants, 

security-based swap dealers, and 

major security-based swap participants as required by the Dodd-Frank 

Act. The proposed rule was issued 

jointly by FCA, the Board of Governors of the Federal Reserve System, 

the Federal Deposit Insurance Corporation, the Federal Housing Finance 

Agency, and the Office of the Comptroller of the Currency.

National Oversight and Examination Program for 2012—We issued 

an Informational Memorandum in 

January 2012 that summarized the 

National Oversight Plan for 2012. The 

plan detailed strategies for addressing critical risks or other areas of 

focus in the System.

CORPORATE ACTIVITY IN 2011

In 2011 and early 2012, we analyzed 

and approved four corporate applications. 

• On January 1, 2011, three ACAs 

affiliated with the AgFirst Farm 

Credit Bank merged their operations following stockholder 

approval of the merger. The PCA 

and FLCA subsidiaries associated 

with the ACAs also merged. A 

name change for the continuing 

ACA and its subsidiaries also 

took effect on the same date.

• On December 12, 2011, a Farm 

Credit Bank was chartered as 

a subsidiary of CoBank, ACB. 

Then, on January 1, 2012, following stockholder approval, 

U.S. AgBank merged with the 

Farm Credit Bank subsidiary of 

CoBank. The resulting entity was 

an Agricultural Credit Bank with 

a Farm Credit Bank subsidiary.

• On January 1, 2012, two ACAs 

affiliated with U.S. AgBank, FCB, 

merged their operations following stockholder approval. The 

PCA and FLCA subsidiaries 

associated with the ACAs also 

merged.

• On January 1, 2012, a new service corporation was chartered. 

The total number of associations as 

of January 1, 2012, was 83 (80 ACAs 

and 3 FLCAs), compared with 84 

associations a year earlier. The January 1, 2012, merger of two banks 

reduced the number of System banks 

to four. Figure 8 shows the chartered 

territory of each FCS bank. Details 

about specific corporate applications 

are available on FCA’s website at 

www.fca.gov/info/mergers.html.

FUNDING ACTIVITY IN 2011

During 2011, the System had ready 

access to the debt capital markets 

despite several sizable shocks to the 

markets, including the August 2011 

downgrade of Standard and Poor’s 

long-term sovereign credit rating of 

the United States. As a result of Standard and Poor’s Government-related 

entity criteria, the System received 

a similar downgrade. Despite this 

downgrade, however, the System 

continued to have regular access to 

the debt capital markets. 

In addition, further easing in the 

Federal Reserve’s monetary policy 

continued to benefit the System’s 

funding cost—both in terms of the 

overall pricing of securities as well as 

their corresponding spreads to U.S. 

Treasuries. The System also benefited 

from investors seeking safe haven 

from eurozone concerns; investors 

were attracted by the System’s status 

as a Government-sponsored enterprise, as well as its overall financial 

strength. In addition, because of the 

reduction in debt issuances by the 

two housing-related Governmentsponsored enterprises,14 which are 

in conservatorship, investors have 

turned to the System as a desirable 

alternative. As a result, the System 

was able to issue debt at very competitive rates.

14. The Government-sponsored enterprises are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
37

Figure 8

Chartered Territories of FCS Banks

As of January 1, 2012

Note: As of January 1, 2012, CoBank was funding 29 associations in the indicated areas and serving cooperatives nationwide; Farm Credit Bank of Texas 

was funding 17 associations; AgriBank, FCB, was funding 17 associations; and AgFirst Farm Credit Bank was funding 20 associations. The FCS contains a 

total of 87 banks and associations.
38

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

The System continued to enhance its 

marketing programs and strengthen 

its internal liquidity reserve requirements. It introduced a new retail 

bond program in May of 2011 to 

further diversify its investor base. All 

mandatorily redeemable preferred 

stock outstanding was redeemed in 

2011, resulting in a decrease of $225 

million from December 31, 2010. The 

System’s outstanding perpetual preferred stock and outstanding subordinated debt were unchanged from 

2010 at $2.12 billion and $1.65 billion, 

respectively. 

The System funds its loans with a 

combination of consolidated Systemwide debt and capital. The Funding 

Corporation, the fiscal agent for the 

System banks, sells debt securities 

such as discount notes, bonds, and 

designated bonds on behalf of the 

System.15 This process allows funds 

to flow from worldwide capitalmarket investors to agriculture and 

rural America, providing rural communities with highly efficient access 

to global resources. At year-end 2011, 

outstanding Systemwide debt was 

$184.8 billion, down from $188.8 billion a year earlier, representing a 2.1 

percent decrease.16

Several factors contributed to the $4 

billion decrease in Systemwide debt 

outstanding. Gross loans decreased 

$0.6 billion in 2011 while the System’s combined investments, Federal 

funds, and cash balances increased 

by $1 billion in 2010. Record net 

income in 2011 of $3.9 billion and an 

increase in other liabilities provided 

the funding necessary to decrease 

Systemwide debt outstanding.

As the System’s regulator, we have 

several responsibilities pertaining 

to System funding activities. As 

required by the Farm Credit Act, the 

System must obtain our approval 

before distributing or selling debt 

issuances. We have systems and 

processes that enable us to respond 

to requests quickly and efficiently. 

For example, we have a program that 

allows the System to issue discount 

notes at any time, up to a maximum 

of $60 billion, as long as it provides 

us with periodic reports on this 

activity. In addition, we approve the 

majority of longer-term debt issuances through a monthly “shelf” 

approval program. For 2011, we 

approved $352 billion in longer-term 

debt issuances.

To participate in the issuance of an 

FCS 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 that 

the bank may have issued individually. 

To ensure safety and soundness, our 

regulations require each System bank 

to maintain a net collateral ratio (primarily assets divided by liabilities) of 

not less than 103 percent. In connection with preferred stock and subordinated debt offerings, we require 

certain System banks to maintain a 

minimum net collateral ratio of 104 

percent. All System banks have managed their operations to achieve net 

collateral ratios that are higher than 

the required minimum, with 105.2 

percent being the lowest for any 

single bank as of December 31, 2011.

In addition, our regulations require 

the banks to maintain a minimum of 

90 days of liquidity to guard against 

a possible interruption in its access 

to the capital markets. In 2010, the 

System banks agreed to improve 

the quality of liquidity by establishing a framework under which each 

bank must at all times meet stringent 

requirements for debt maturing in 

the next 15 days, as well as the subsequent 30 days.

The Funding Corporation and the 

System banks have also entered into 

voluntary agreements to provide for 

mutual protection in support of joint 

and several liability on Systemwide 

debt obligations. First, the System 

banks have a common liquidity 

standard to help ensure their collective ability to meet their obligations 

under these mutual agreements. 

Second, the amended and restated 

Market Access Agreement establishes 

certain financial thresholds that provide the Funding Corporation with 

operational oversight and control 

15. The primary function of the Funding Corporation, whose headquarters are in Jersey City, New Jersey, is to issue, market, and handle debt securities 

on behalf of the System’s four banks. In addition, the Funding Corporation assists the banks with a variety of asset/liability management and specialized funding activities. The Funding Corporation is responsible for financial disclosure and the release of public information concerning the financial 

condition and performance of the System as a whole.

16. Payment of principal and interest on Systemwide debt securities is insured by the Farm Credit System Insurance Corporation’s Farm Credit Insurance 

Fund to the extent provided in the Farm Credit Act. Investors in Systemwide debt securities are also protected by a joint and several liability provision 

that applies to all System banks. If a bank is unable to pay the principal or interest on a Systemwide debt security and if the Farm Credit Insurance 

Fund has been exhausted, then FCA must call all nondefaulting banks to satisfy the security. However, an FCS bank may issue debt individually, as 

well. Debt issued by an individual bank is uninsured, and the issuing bank is solely liable for the principal payments.
39

over the System banks’ participation 

in Systemwide debt obligations.17

Third, the amended and restated 

Contractual Interbank Performance 

Agreement (CIPA) is tied to the Market Access Agreement and establishes 

certain measures that monitor the 

financial condition and performance 

of the institutions in each System 

bank’s district. For all of 2011, all 

Farm Credit banks maintained scores 

in excess of the established CIPA 

benchmarks.

Debt issuances have increased for 

each of the preceding five years as a 

result of favorable economic conditions in agriculture and strong loan 

demand from System borrowers. 

Declining interest rates, particularly 

since the end of 2008, have also 

contributed to the increase in debt 

issuances; the System has continued 

to exercise call options on highercost debt. For the 12 months ended 

December 31, 2011, the System issued 

$563 billion in debt securities, compared with $534 billion for 2010, $523 

billion for 2009, $519 billion for 2008, 

and $484 billion for 2007.

Investor interest and a continued 

decrease in yields on the full spectrum of debt instruments allowed 

the System to continue to extend its 

debt maturities in 2011. The System’s 

weighted-average remaining maturity for all outstanding insured debt 

was 3.6 years as of December 31, 

2011, compared with 3.5 years as of 

December 31, 2010, and 3.1 years as 

of December 31, 2009. The weightedaverage interest rates for insured 

debt continued to decrease, going 

from 1.5 percent as of December 31, 

2010, to 1.3 percent as of December 

31, 2011.

MISSION-RELATED 

INVESTMENTS

At FCA, we are committed to helping 

ensure a dependable and affordable 

flow of funds to agriculture and to 

rural areas so that farmers, ranchers, 

and rural communities can flourish. 

Agriculture and rural America face 

new challenges that require innovative solutions. Investments in rural 

communities can help create infrastructure improvements that promote the economic vitality of these 

communities for current and future 

generations of American farmers and 

rural residents. We believe that farm 

families benefit from investment projects that promote rural development 

and off-farm income opportunities. 

Investments in rural communities 

also play an important role in attracting and retaining young, beginning, 

and small farmers and other rural 

entrepreneurs who provide essential 

services for agricultural production.

Our regulations allow System institutions to make certain mission-related 

investments. Examples include 

investments in farmers’ notes; certain 

debt obligations issued or guaranteed by Federal agencies or State or 

local municipalities for rural utilities 

and other economic development; 

and agricultural mortgage-backed 

securities, which Farmer Mac issues 

or guarantees. As of December 31, 

2011, the mission-related investment 

securities held under these regulatory 

authorities totaled 

• $1.19 billion in agricultural mortgage-backed securities ($707.0 

million in held-to-maturity 

securities and $480.6 million in 

available-for-sale securities), 

• $1.30 billion in securities backed 

by guaranteed portions of USDA 

loans and agricultural equipment 

loans, and 

• $11.5 million in farmer’s notes. 

In addition, in 2005 we approved 

System institution investments in 

successor-in-interest contracts created 

as a result of the Tobacco Transition 

Payment Program.18 As of December 

31, 2011, investments in successorin-interest contracts totaled $459.1 

million.

We realize, however, that these 

investment vehicles may no longer 

be sufficient to meet the growing and 

changing demands of agriculture and 

of rural communities for dependable, 

affordable, and flexible financing in 

the 21st century. In particular, we 

recognize that rural areas increasingly need additional sources of 

capital to support economic growth 

and infrastructure improvements. 

In response, we have given System 

institutions a provisional opportunity 

to make additional mission-related 

investments through pilot programs 

supporting investments in rural 

17. The banks and the Funding Corporation entered into the Amended and Restated Market Access Agreement in the late 1990s. The agreement is periodically updated to adjust financial targets, economic incentives, and other matters. In 2011, FCA approved the draft of the Second Amended and 

Restated Market Access Agreement. The agreement became effective on January 1, 2012.

18. 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 includes a provision that allows the quota holders to assign to a financial institution the right to receive payments under a 

contract with the Secretary of Agriculture. 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.
40

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

America (see the FCA Informational 

Memorandum dated January 11, 

2005, “Investments in Rural America—Pilot Investment Programs,” 

which is available on our website at 

www.fca.gov).

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 to rural 

communities across the country. The 

investments made under the pilot 

programs are expected to support 

and supplement investments by Government and community banks for 

worthwhile community projects.

The pilot programs provide us with 

the opportunity to study these investments to determine how the System 

can use them to help it fulfill its 

mission and to increase the availability and efficiency of funding to rural 

areas. The pilot program structure 

also enables us to better understand 

rural financial markets.

We have placed controls on these 

pilot investment programs to ensure 

their legal sufficiency, safety and 

soundness, and consistency with the 

FCS mission. The restricted authorizing environment includes special 

examination and reporting for those 

institutions participating in the pilot 

programs.

Since 2005, we have approved a 

number of pilot programs and 

specific investments involving the following investment areas and structures.

Rural Housing Mortgage Securities

(RHMS)—During 2011, three Farm 

Credit banks continued to be authorized to purchase and hold RHMS 

through pilot programs. 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). 

These pilot programs are expected to 

provide additional liquidity for rural 

housing loans by giving economic 

incentives to lenders to create RHMS 

for sale in the secondary market. In 

turn, these programs should create 

more cost-effective credit for rural 

homeowners. As of December 31, 

2011, only one of the Farm Credit 

banks was participating in this program; it had $686.0 million in RHMS 

classified as held to maturity.

Agriculture and Rural Community

Bonds and Securities—During 2011, 

all FCS institutions continued to 

be authorized to participate, under 

specific conditions, in pilot programs 

that provide funding for economic 

development, infrastructure, essential 

community facilities, and revitalization and stabilization projects that 

are necessary to sustain a vibrant 

American agriculture and strong 

rural communities. A key objective 

of these pilot programs is to foster 

FCS partnerships and alliances with 

other agricultural and rural lenders 

to increase the availability of costeffective funds to agriculture and to 

rural communities. Many of these 

projects include collaboration with 

U.S. Department of Agriculture Rural 

Development programs, rural community banks, and regional and local 

economic development authorities. 

As of December 31, 2011, FCS institutions held $759.5 million of investments in these programs.

Equity Investments—We have 

approved several mission-related 

equity investments, including an 

investment in a starter farmer program for beginning farmers and 

producers, as well as investments 

in regional venture capital funds 

focusing on rural areas. In addition, 

since passage of the Farm Security 

and Rural Investment Act of 2002, 

several FCS institutions have made 

equity investments in a rural business investment company to promote economic development and job 

opportunities in rural areas.19 As of 

December 31, 2011, the amount of 

mission-related equity investments 

outstanding totaled $7.2 million for 

investments in the starter farmer 

program, venture capital funds, and 

a rural business investment company.

19. The Farm Security and Rural Investment Act of 2002 authorizes FCS institutions to establish or invest in rural business investment companies, provided that these 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 25 percent of the shares of a rural business investment company, the company 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.
41

Maintaining a Dependable Source of Credit 

for Farmers and Ranchers

As federally chartered cooperatives, 

the banks and associations of the 

Farm Credit System are limitedpurpose lenders. According to Congress, the purpose of the FCS is to 

“improve the income and well-being 

of American farmers and ranchers” 

by providing credit and related services to them, their cooperatives, and 

to “selected farm-related businesses 

necessary for efficient farm operations.” 

Making loans exposes the System 

to risk. To manage this risk, System 

institutions must have both sufficient 

capital and effective risk-management 

controls. 

As the independent regulator of the 

FCS, the Farm Credit Administration examines and supervises System 

institutions. We monitor specific risks 

in each institution; we also identify 

and monitor risks that affect the System as a whole.

Through our risk-based examination 

and supervisory program, our examiners determine how issues facing an 

institution or the agriculture industry 

may affect the nature and extent of 

risk in that institution. 

Our examiners also evaluate whether 

each institution is meeting its public 

mission. They do so by determining 

whether each institution is complying with laws and regulations and 

whether it is serving the credit needs 

of eligible agricultural producers and 

cooperatives, including young, beginning, and small (YBS) farmers and 

ranchers.

CONDUCTING A RISK-BASED 

EXAMINATION AND OVERSIGHT 

PROGRAM

We have designed our examination 

and oversight program to monitor 

and address FCS risk as effectively 

and efficiently as possible. Therefore, 

we assign highest priority to institutions at greatest risk. This approach 

also relies in part on the ability 

of FCS institutions to identify and 

manage both institution-specific and 

systemic risks. When institutions are 

either unable or unwilling to address 

unsafe and unsound practices or to 

comply with laws and regulations, 

we take appropriate supervisory or 

enforcement action.

Through our oversight practices, we 

ensure that FCS institutions have the 

programs, policies, procedures, and 

controls to effectively identify and 

manage risks. Our oversight program 

also ensures compliance with laws 

and regulations. For example, our 

regulations require FCS institutions 

to have effective loan underwriting 

and loan administration processes. 

We also have specific regulations 

requiring FCS institutions to maintain 

strong asset-liability management 

capabilities. 

For more than 20 years, we have 

used a comprehensive regulatory and 

supervisory framework for ensuring System safety and soundness. 

FCS institutions, on their own and 

in response to our efforts, continue 

to improve their risk management 

systems.

MEETING STATUTORY 

EXAMINATION REQUIREMENTS

As required by the Farm Credit Act, 

FCA examines each FCS institution 

at least once every 18 months. In 

the interim between these statutory 

exams, we also monitor and examine 

institutions as risk and circumstances 

warrant. In addition, we develop a 

National Oversight Plan every year 

that takes systemic risks into account. 

This approach allows us to customize our examination activities to each 

institution’s specific risks.

As of January 1, 2012, we were overseeing and examining the following 

FCS institutions:20

• 83 FCS direct-lender associations

• 3 Farm Credit Banks

• 1 Agricultural Credit Bank

• 6 service corporations and 

1 special-purpose entity

• Farmer Mac

IDENTIFYING AND RESPONDING 

TO POTENTIAL THREATS TO 

SAFETY AND SOUNDNESS

Because of the dynamics and risks 

in the agricultural and financial 

industries, FCA must ensure that 

FCS institutions have the culture, 

governance, policies, procedures, 

and management controls to effec20. On a reimbursable basis, FCA performs examinations of certain entities that are not part of the Farm Credit System. As mandated by 12 U.S.C. 3025, 

FCA examines the National Consumer Cooperative Bank, which specializes in non-agriculture cooperative loans. In 2010, FCA also performed contract 

work for the U.S. Department of Agriculture. However, the safety and soundness of the FCS remains FCA’s principal focus and responsibility.
42

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

tively identify and manage risks. We 

employ various processes for evaluating systemic risks in both agriculture 

and the financial services industry 

that can affect an institution, a group 

of institutions, and the System as a 

whole. Currently, we are emphasizing the following areas:

• Loan Portfolio Management. Our 

examiners review the systems 

and processes that institution 

boards of directors and management use to plan, direct, control, 

and monitor lending operations.

• Collateral Risk Management.

We evaluate how institutions 

routinely monitor collateral risk, 

and we assess whether they are 

adjusting their operations to 

manage the risk.

• Profitability and Repayment

Capacity. Our examiners evaluate 

systemic and prospective risks 

that may affect borrowers’ profits 

and their ability to repay loans. 

• Public Mission. We assess 

whether FCS institutions are 

fulfilling their chartered mission 

to provide credit and related services to all eligible, creditworthy 

customers. 

When we identify systemic issues, we 

inform the institutions about those 

issues by producing the following:

• FCA Board Policy Statements

• Informational Memoranda

• Bookletters

We keep an online inventory of 

these documents. Go to our website 

at www.fca.gov, click on the Law 

& Regulations tab, and select Info 

Memos, Bookletters, and Other Guidance from the dropdown menu. 

MEASURING THE SYSTEM’S 

SAFETY AND SOUNDNESS

FCA uses the Financial Institution 

Rating System (FIRS) to indicate 

safety and soundness threats in each 

institution. Similar to the systems 

used by other Federal financial regulators, the FIRS 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 process includes quantitative 

benchmarks for evaluating institution performance, qualitative rating 

criteria for evaluating risk management practices, and outlook ratings 

for evaluating perspective risks. 

Our examiners assign component and 

composite ratings to each institution 

on a scale of 1 to 5 based on their 

evaluation of measures and ratings. 

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 near-term probability of 

failure.21

Through our monitoring and oversight programs, our examiners 

continually evaluate institutional risk 

and regularly review and update 

FIRS ratings to reflect current risks 

and conditions. We use both quantitative and qualitative benchmarks to 

help examiners apply FIRS ratings 

consistently from one institution to 

the next. 

We disclose the FIRS composite and 

component ratings to the institution’s 

board and CEO to give them perspective on the safety and soundness 

of their institution. We also disclose 

these ratings to each institution’s 

funding bank to ensure that the bank 

takes any actions necessary to safely 

and soundly oversee its direct loan 

with the institution. In addition, 

we issue examination reports and 

other communications to provide the 

institution board with an assessment 

of management’s performance, the 

quality of assets, and the financial 

condition and performance of the 

institution.

As figure 9 shows, risks increased 

considerably in 2009 when stresses 

from the general economy, the credit 

crisis, and volatility in commodity 

prices surfaced and affected some 

institutions. Although the ratings 

have not improved very much from 

that time, the FIRS ratings assigned 

for 2011 show that the financial condition and performance of the FCS 

remained relatively strong and stable 

throughout the year. 

21. See the Glossary for a complete description of the FIRS ratings.
43

Figure 9

Financial Institution Rating System (FIRS) 

Composite Ratings for the FCS, 2007–2011

Source: FCA’s FIRS Ratings Database.

Note: Figure 9 reflects ratings for only the System’s banks and direct-lending associations; it does not include ratings for the System’s service 

corporations, Farmer Mac, or the Federal Farm Credit Banks Funding Corporation. Also, the numbers shown on the bars reflect the total 

number of institutions with a given rating; please refer to the y-axis to determine the percentage of institutions receiving a given rating.

At December 31, 2011, 30 FCS institutions were rated 1 (34 percent), 44 

were rated 2 (51 percent), 12 were 

rated 3 (14 percent), and 1 was rated 

4 (1 percent). Most of the institutions 

rated 3 or 4 were relatively small and 

collectively represent less than 2 percent of the System’s total assets. There 

were no institutions with a rating of 5. 

(FCA applies FIRS ratings only to the 

banks and associations of the FCS, not 

to the System’s service corporations. 

It also applies a FIRS rating to Farmer 

Mac, but Farmer Mac is not counted 

in figure 9.) 

Stresses in the dairy, livestock, nursery, timber, and ethanol industries 

continue to keep FIRS ratings low 

in comparison with ratings from 

five years ago; however, the System 

remains financially strong overall. 

And its strength reduces the risk to 

investors in FCS debt, to the Farm 

Credit System Insurance Corporation, 

and to FCS institution stockholders.

PROVIDING DIFFERENTIAL 

SUPERVISION AND 

ENFORCEMENT

FCA uses a risk-based supervisory and enforcement program to 

respond to the risks and particular 

oversight needs of each FCS institution. Risks are inherent in lending, 

and managing risks associated with 

a single sector of the economy—in 

this case, agriculture—presents an 

additional challenge for FCS lend-
44

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

ers. If we discover unacceptable risks, 

we require corrective action to ensure 

that institutions mitigate the risks. 

Corrective actions include reducing 

risk exposures; increasing capital and 

enhancing earnings, which improves 

an institution’s ability to bear risk; 

and strengthening risk management.

We use a three-tiered supervision 

program: normal supervision, special 

supervision, and enforcement actions. 

Institutions under normal supervision 

are performing in a safe and sound 

manner and are complying with laws 

and regulations. These institutions 

are able to correct weaknesses in the 

normal course of business.

For those institutions displaying 

more serious or persistent weaknesses, we shift from normal to special supervision, and our examination oversight increases accordingly. 

Under special supervision, we give 

an institution clear and firm regulatory guidance to address weaknesses, 

and we give the institution time to 

correct the problems. 

If informal supervisory approaches 

have not been or are not likely to be 

successful, we will use our formal 

enforcement authorities to ensure 

that FCS institutions are safe and 

sound and that they comply with 

laws and regulations. We may take 

an enforcement action for a number 

of reasons:

• A situation threatens an institution’s financial stability.

• An institution has a safety or 

soundness problem or has violated a law or regulation.

• An institution’s board is unable 

or unwilling to correct problems 

we have identified.

Our enforcement authorities include 

the following powers:

• To enter into formal agreements

• To issue cease-and-desist orders

• To levy civil money penalties

• To suspend or remove officers, 

directors, and other persons

If we take an enforcement action, 

the FCS institution must operate 

under the enforcement document 

and report back to us on its progress 

in addressing the issues identified. 

Our examiners oversee the institution’s performance to ensure compliance with the enforcement action. 

As of December 31, 2011, we had 

entered into formal written agreements with seven associations, whose 

assets totaled $2.3 billion. The written 

agreements require the associations 

to take corrective actions in such 

areas as financial condition and performance, portfolio management, and 

asset quality.

PROTECTING BORROWER 

RIGHTS

Agricultural production is risky for 

many reasons—bad weather, changes 

in Government programs, international trade issues, fluctuations in 

commodity prices, and crop and 

livestock diseases. These risks can 

sometimes make it difficult for borrowers to repay loans. 

The Farm Credit Act provides System borrowers certain rights when 

they apply for loans and when they 

have difficulty repaying loans. For 

example, the act requires FCS institutions to notify borrowers of the 

right to seek restructuring of the loan 

before beginning foreclosure. It also 

provides borrowers an opportunity 

to seek review of certain credit and 

restructuring decisions. When the 

System acquires agricultural property 

through liquidation actions, the Farm 

Credit Act also provides borrowers 

the opportunity to buy or lease back 

their property. 

FCA enforces the borrower rights 

provisions of the Farm Credit Act 

and examines institutions to make 

sure that they are complying with 

these provisions. 

We also receive and review complaints from borrowers who believe 

their rights have been denied. In 

2011, we received more than 40 borrower complaints. The number of 

complaints has increased in recent 

years as financial stress on System 

borrowers has increased. Generally, borrowers who contact us with 

complaints are seeking clarification, 

additional information, and options 

to redress their concerns. If we find 

violations of law or regulations, we 

have several enforcement options to 

bring about corrective action. 
45

Condition of Farmer Mac

Table 5

Farmer Mac Condensed Balance Sheets, 2006–2011

As of December 31	 	 	 	 	 	 	

Dollars in Millions

Percentage 

growth

rate

2006 2007 2008 2009 2010 2011 2010–2011

Total assets	 $4,953.7	 $4,977.6	 $5,107.3	 $6,138.8	 $9,479.9	 $11,883.5	 25.4%

Total liabilities	 $4,705.2	 $4,754.0	 $4,947.7	 $5,798.4	 $9,001.0	 $11,329.0	 25.9%

Net worth or 

	 equity capital	 $248.5	 $223.6	 $15.3	 $196.2	 $478.9	 $554.5	 15.8%

Sources: Farmer Mac’s Securities and Exchange Commission Form 10-Ks.

Farmer Mac is a stockholder-owned, 

federally chartered instrumentality 

of the United States and an institution of the System. Created in 1988, 

Farmer Mac provides a secondary 

market for agricultural real estate 

mortgage loans, rural housing loans, 

and rural utility cooperative loans. 

This secondary market is designed 

to increase the availability of longterm credit at stable interest rates 

to America’s rural communities and 

to provide rural borrowers with the 

benefits of capital markets pricing 

and product innovation.

Farmer Mac conducts activities 

through three programs:

• Farmer Mac I, which involves 

mortgage loans secured by first 

liens on agricultural real estate 

and rural housing

• Farmer Mac II, which involves 

certain agricultural and rural 

loans guaranteed by the U.S. 

Department of Agriculture, 

including farm ownership loans, 

operating loans, and rural business and community development loans

• Rural Utilities program, which 

involves loans to finance cooperatively owned rural electrification 

and telecommunications systems 

Farmer Mac purchases eligible loans 

directly from lenders; provides 

advances against eligible loans by 

purchasing obligations secured by 

those loans; securitizes assets and 

guarantees the resulting securities; 

and issues long-term standby purchase commitments (standbys) for 

eligible loans. Securities guaranteed 

by Farmer Mac may be retained 

by the originator of the underlying 

assets, retained by Farmer Mac, or 

sold to third-party investors.

FCA regulates Farmer Mac through 

the Office of Secondary Market Oversight (OSMO), which was established 

by the Food, Agriculture, Conservation, and Trade Act Amendments 

of 1991. 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 

OSMO to be a separate office within 

our agency and to report directly to 

the FCA Board. The law also stipulates that OSMO’s activities must, to 

the extent practicable, be carried out 

by individuals who are not responsible for supervising the banks and 

associations of the FCS.

Through OSMO, we perform the following functions:

• Examine Farmer Mac at least 

annually for capital adequacy, 

asset quality, management performance, earnings, liquidity, and 

interest rate sensitivity

• Supervise and issue regulations 

governing Farmer Mac’s operations

• Oversee and evaluate Farmer 

Mac’s safety and soundness and 

mission achievement

OSMO reviews Farmer Mac’s compliance with statutory and regulatory 

minimum capital requirements and 

supervises its operations and condition throughout the year. Table 5 

summarizes Farmer Mac’s condensed 

balance sheets at the end of each 

year from 2006 to 2011.
46

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

CAPITAL

On December 31, 2011, Farmer Mac’s 

net worth (that is, equity capital 

determined using generally accepted 

accounting principles [GAAP]) was 

$554.5 million, compared with $478.9 

million a year earlier. Net worth was 

4.7 percent of on-balance-sheet assets 

as of December 31, 2011, compared 

with 5.1 percent at the end of 2010. 

The ratio declined because of significant growth in on-balance-sheet 

assets, which more than offset a 

reduction in off-balance-sheet obligations during the year. When Farmer 

Mac’s off-balance-sheet program 

assets (that is, its guarantee obligations) are added to its total onbalance-sheet assets, capital coverage 

is 3.6 percent—up from 3.2 percent a 

year earlier. As of December 31, 2011, 

Farmer Mac continued to be in compliance with all statutory and regulatory minimum capital requirements. 

At year-end 2011, 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. Its regulatory 

capital (core capital plus allowance 

for losses) exceeded the required 

amount as determined by the RiskBased Capital Stress Test.22 Farmer 

Mac’s core capital as of December 31, 

2011, totaled $475.2 million, exceeding the statutory minimum capital 

requirement23 of $348.6 million by 

$126.5 million. 

Farmer Mac’s regulatory capital 

totaled $492.7 million as of December 31, 2011, exceeding the regulatory risk-based capital requirement 

of $52.9 million by $439.8 million. 

Regulatory capital was 4.7 percent of 

total Farmer Mac I and rural utility 

program volume (including both onand off-balance-sheet agricultural and 

utility program volume but excluding Farmer Mac II). Risk exposure on 

Farmer Mac II loans is extremely low 

because they are guaranteed by the 

U.S. Department of Agriculture. Table 

6 offers a historical perspective on 

capital and capital requirements for 

2006 through 2011.

We published an advance notice of 

proposed rulemaking in June 2011 to 

revise the risk-based capital regulations. The revisions would update 

the Risk-Based Capital Stress Test 

in response to changing financial 

markets, new business practices, 

and the evolution of the loan portfolio at Farmer Mac. They would 

also address the requirements of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 and 

continue to develop best industry 

practices in financial modeling and 

stress testing. In addition, we are 

working on a proposed rule to revise 

regulations governing Farmer Mac’s 

capital planning activities.

In addition to supporting program 

assets, Farmer Mac’s capital supports nonprogram investments. 

Nonprogram investments provide 

liquidity in the event of a short-term 

disruption in the capital markets 

that would prevent Farmer Mac 

from issuing new debt. Nonprogram 

investments consist of investment 

securities, cash, and cash equivalents. 

Our regulations governing Farmer 

Mac’s nonprogram investments and 

liquidity became effective in the third 

quarter of 2005. 

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. In November 2011, we issued a 

proposed rule to revise our regulations governing Farmer Mac’s nonprogram investment and liquidity 

management. The proposed rule also 

addresses certain requirements of the 

Dodd-Frank Act.

PROGRAM ACTIVITY

Farmer Mac’s total program activity decreased to $11.9 billion on 

December 31, 2011, from $12.2 billion a year earlier (see figure 10). 

Although program volume declined 

slightly overall, Farmer Mac shifted 

much of the volume from its Farmer 

Mac I AgVantage program from off 

the balance sheet to on the balance 

sheet, and this had a positive impact 

on earnings. AgVantage transactions are general obligations of the 

issuing financial institution that are 

guaranteed by Farmer Mac. In addition to the general obligation of the 

financial institution, each AgVantage 

security is secured by eligible loans 

under one of Farmer Mac’s programs 

in an amount at least equal to the 

outstanding principal amount of the 

security.

Farmer Mac’s Long-Term Standby 

Purchase Commitment product also 

generates program activity. Under 

22. See the FCA website at www.fca.gov/info/farmer_mac_test.html for more information about the Risk-Based Capital Stress Test.

23. The statute requires minimum capital coverage of 2.75 percent for on-balance-sheet assets and 0.75 percent for off-balance-sheet obligations.
47

Table 6	 	 	 	 	 	

Farmer Mac Capital Positions, 2006–2011

As of December 31	 	 	 	 	 	 	

Dollars in Millions

2006 2007 2008 2009 2010 2011

GAAP equity	 $248.5	 $223.6	 $15.3	 $196.2	 $478.9	 $554.5

Core capital	 $243.5	 $226.4	 $207.0	 $337.2	 $460.6	 $475.2

Regulatory capital	 $248.1	 $230.3	 $223.4	 $351.3	 $480.7	 $492.7

Statutory requirement	 $174.5	 $186.0	 $193.5	 $217.0	 $301.0	 $348.6

Regulatory requirement	 $42.9	 $42.8	 $57.3	 $35.9	 $42.1	 $52.9

Excess over statutory or regulatory requirement*	 $69.0	 $40.4	 $13.5	 $120.2	 $159.6	 $126.5

Capital margin excess > minimum	 39.6%	 21.7%	 7.0%	 55.4%	 53.0%	 36.3%

Sources: Farmer Mac’s Securities and Exchange Commission Form 10-Ks.

* Farmer Mac is required to hold capital at or above the statutory minimum capital requirement or the amount required by FCA regulations as determined 

by the Risk-Based Capital Stress Test, whichever is higher.

Figure 10

Farmer Mac Program Activity and Nonprogram Investment Trends

As of December 31

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-Ks.
48

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Figure 11

Farmer Mac Total Program Activity

As of December 31, 2011

Source: Farmer Mac’s Annual Report on Securities and Exchange Commission Form 10-K.

AMBS = agricultural mortgage-backed securities

Total = $11.87 billion
49

the 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. As shown in figure 11, standbys represented 14.9 

percent of Farmer Mac’s total program activity in 2011.

Off-balance-sheet program activity 

consists of standbys, certain AgVantage securities, and agricultural mortgage-backed securities (AMBS) sold 

to investors. At the end of December 

2011, 28.8 percent of program activity 

consisted of off-balance-sheet obligations, as compared with 45 percent a 

year earlier.

ASSET QUALITY

On December 31, 2011, $56.7 million 

of the Farmer Mac I program portfolio was nonperforming, representing 

1.3 percent of the principal balance 

of all loans purchased, guaranteed, 

or committed to be purchased.24 

This compares with $81.8 million, or 

1.9 percent, on December 31, 2010. 

Assets are considered to be nonperforming when they are 90 days or 

more past due, in foreclosure, or in 

bankruptcy; real estate properties 

acquired by Farmer Mac through 

foreclosure are also reported as nonperforming assets. 

As of December 31, 2011, Farmer 

Mac’s 90-day delinquencies were 

$40.6 million, or 0.93 percent of all 

loans, compared with $70.2 million, or 1.63 percent of all loans, as 

of December 31, 2010. Real estate 

owned as of December 31, 2011, was 

$3.1 million, up from $2 million a 

year earlier. Delinquencies decreased 

primarily because of improvements 

in the portfolio of loans on crops, 

permanent plantings, livestock, and 

ethanol. Farmer Mac reported no 

delinquencies or nonperforming loans 

in its pools of rural utility cooperative loans.

On December 31, 2011, Farmer Mac’s 

allowance for losses totaled $17.5 

million, compared with $20.1 million 

on December 31, 2010. Farmer Mac 

attributed the change in the allowance for losses primarily to a $2.3 

million net release of funds in the 

provision for loan losses recognized 

during the year, as compared with 

a $4.3 million net release of funds 

in the provision for 2010. Figure 12 

shows the levels of Farmer Mac’s 

nonperforming assets and its 90-day 

delinquencies relative to outstanding 

program volume, excluding volume 

purchased before 1996, when the 

Farm Credit System Reform Act was 

passed.

EARNINGS 

Farmer Mac reported net income 

available to common stockholders 

of $13.8 million (in accordance with 

GAAP) for the year ended December 31, 2011, down from the $22.1 

million reported at year-end 2010. 

Core earnings for 2011 were $42.9 

million, compared with $25.4 million 

in 2010.25 Net interest income, which 

excludes guarantee fee income, was 

$121.3 million in 2011, up from $96.0 

in 2010. Guarantee fee income was 

$24.8 million, compared with $24.1 

million in 2010. The increase in net 

interest income was due in part to 

the fact that the net interest margin 

on new 2011 on-balance-sheet AgVantage volume exceeded the guarantee fee earned on off-balance-sheet 

AgVantage guarantees that matured 

over 2011. Nonprogram investments accounted for an estimated 10 

percent of interest income for 2011, 

down from 12 percent for 2010. Table 

7 shows a six-year trend for the basic 

components of income.

24. Farmer Mac assumes 100 percent of the credit risk on loans purchased (and on most loans underlying standby commitments) after enactment of the 

Farm Credit System Reform Act of 1996, whereas the loans purchased prior to enactment of the act are supported by mandatory 10 percent subordinated interests, which mitigate Farmer Mac’s exposure. For that reason, loans purchased before enactment of the 1996 act are excluded from analysis 

for comparison purposes. These amounts also exclude loans underlying AgVantage guaranteed securities, whose risk is significantly mitigated by 

the general obligation of the issuer.

25. Core earnings provide a non-GAAP measure of financial results that excludes the effects of certain unrealized gains and losses and nonrecurring items. 

Farmer Mac reports core earnings to present an alternative measure of earnings performance. The components included in core earnings calculations 

are at Farmer Mac’s discretion.
50

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Table 7	 	 	 	 	 	 	

Farmer Mac Condensed Statements of Operations, 2006–2011

As of December 31	 	 	 	 	 	 	

Dollars in Millions

Growth Rate

2006 2007 2008 2009 2010 2011 2010–2011

Total revenues	 $67.8	 $31.5	 ($140.6)	 $181.8	 $99.1	 $73.3	 (26%)

Total expenses	 $38.0	 $27.1	 $13.5	 $99.5	 $77.0	 $59.5	 (23%)

Net income available 

	 	 to shareholders	 $29.8	 $4.4	 ($154.1)	 $82.3	 $22.1	 $13.8	 (38%)

Core earnings	 $25.9	 $29.9	 ($81.5)	 $16.1	 $25.4	 $42.9	 69%

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-Ks.

Figure 12

Allowance, Nonperforming Asset, and Delinquency Trends, 2006–2011

As of December 31

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission 10-Ks.
51

Challenges Facing the Agricultural Economy 

and the Farm Credit System

The U.S. farm economy was exceptionally robust in 2011. The farm 

economy benefitted from record 

prices for a number of agricultural 

commodities, record total agricultural 

exports, and record farm incomes. 

Rising demand for commodities from 

emerging markets and tight domestic supplies led to higher prices for 

major grains, oilseeds, and fibers, as 

well as for products from the livestock sector. Total receipts from crop 

sales are expected to have increased 

by 14 percent in 2011, with an even 

larger percentage increase for livestock products. As a result, USDA 

estimates that in 2011 net farm 

income topped $98 billion, up more 

than 24 percent from 2010. The large 

rise in farm income, combined with 

record low interest rates, propelled 

farm asset values higher again in 

2011, boosting the farm sector’s level 

of equity relative to debt to record 

levels.

With the strong farm economy and a 

favorable interest rate environment, 

System earnings grew despite a 

slight decline in outstanding lending 

volume during the year. However, 

growth in earnings was not uniform 

across the System because of weaknesses in certain regions and enterprises. Although loan performance 

improved during the year, financial 

stress remained high in some farm 

lending segments, such as dairy. 

Also, the slow recovery of the housing market continued to adversely 

affect segments of the System’s horticulture portfolio.

Modest economic growth in the 

United States is expected again in 

2012. Consensus forecasts predict 

growth in GDP to be less than 3 

percent. In general, rural economies 

are also expected to grow modestly 

in 2012, bolstered in some areas 

by agricultural and energy sectors. 

The U.S. Department of Agriculture 

forecasts that net farm income for 

2012 will fall 7 percent from 2011. If 

the forecast proves correct, net farm 

income will remain $16 billion above 

the 10-year average (2002–2011) of 

$80 billion. Because of low world 

stocks of key crops, the size of this 

year’s harvest will greatly influence 

the level of farm income for 2012. 

The following paragraphs identify 

several risk factors—both domestic 

and foreign—that could affect the 

System’s long-term ability to profitably finance agricultural enterprises. 

The factors include conditions in 

the macro-economy and the farm 

economy, government policies, 

foreign trade, and other longer-term 

challenges. As the regulator of the 

System, we will continue to closely 

monitor and address these risks.

PROSPECTS FOR THE GENERAL 

ECONOMY

According to key economic indicators 

in early 2012, the U.S. economy will 

probably continue to grow modestly 

in 2012. In 2011, real GDP growth 

averaged an anemic 1.7 percent, but 

economic momentum gained in the 

latter half of 2011, reaching 3.0 percent in the last quarter as consumer 

spending and commercial construction activity picked up and businesses rebuilt inventories. These and 

other positive trends carried over 

into early 2012, but other economic 

indicators showed weakness as the 

first quarter drew to an end. In particular, rising gasoline prices in the 

first quarter slowed consumer spending. As a result, economic growth for 

2012 is forecast to remain in a modest 2 to 3 percent range. 

High unemployment and a chronically weak housing market have 

made consumers cautious through 

much of this recovery. Nevertheless, the jobless rate has steadily 

come down as companies have hired 

more workers and the labor pool 

has shrunk. Unemployment rates, 

which averaged 9.0 percent in 2011, 

declined to 8.2 percent by March 

2012. Consumer confidence has risen 

as the labor market improved, especially in the latter half of the year. 

Increases in real disposable incomes 

drove up retail sales, which rose 

for 10 consecutive months through 

March 2012. Consumer spending is a 

key factor in the economy’s performance, representing 70 percent of the 

U.S. economy. For the job market to 

continue to improve throughout 2012, 

the pace of economic activity will 

probably have to accelerate. 

The nation’s manufacturing sector 

has helped drive economic expansion. Industrial production in the 

fourth quarter of 2011 rose 3.9 
52

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

percent from that of a year earlier, 

and it rose even higher in the early 

months of 2012. Demand for cars is 

helping boost manufacturing output. 

Indicators of capital investment and 

confidence in both the manufacturing and the service sectors showed 

strength in early 2012. As a result, 

businesses borrowed more in 2011 

than they did in 2010. 

Factors to Watch

While the economic outlook for 2012 

looks relatively promising, several factors could hinder economic 

growth and even derail economic 

expansion. Household debt is one 

such factor. Total household debt 

eased again in 2011, declining to 

$13.2 trillion after reaching nearly 

$14 trillion before the recession. 

However, relative to disposable 

income, household debt remains 

high. Therefore, despite historically 

low interest rates, Americans are 

unable to use credit to finance consumer purchases as readily as they 

could in past economic cycles. 

Another factor is the housing sector, 

which was at the epicenter of the 

financial crisis. In a typical recovery, 

housing spurs economic activity as 

confident buyers begin to purchase 

homes, new furniture, and other 

home improvements. This time, however, the long healing process of the 

housing sector is hampering recovery. Declining or stagnating home 

prices in many areas have weakened 

consumer balance sheets and eroded 

consumer confidence. Fortunately, 

the housing recovery appeared more 

solid in the first months of 2012. 

New housing starts and building 

permits increased modestly in early 

2012 and may increase still more 

over the year. New home sales have 

a large impact on the forestry, sod, 

and nursery industries.

Another factor that may limit economic growth is the Federal budget 

deficit and its potential effect on 

inflation. The Congressional Budget 

Office expects the deficit for fiscal 

year 2012 to exceed $1 trillion. Ongoing deficits of this magnitude could 

lead to structural imbalances in capital and credit markets. These imbalances could threaten the confidence 

of market participants—both domestic and foreign—and spark inflationary fears and a rise in interest rates. 

Just as spending cuts by state and 

local governments have slowed GDP 

growth, Federal deficit cuts—whether 

they are achieved by raising taxes, 

cutting spending, or both—may create economic headwind.

The U.S. export sector has been 

expanding as the world economy 

has improved, but future economic 

activity in Europe and China could 

negatively affect the domestic economy in 2012. Sovereign debt burdens 

in Europe continue to rattle world 

financial markets as countries there 

try to grapple with how to repay 

their debts. The eurozone as a whole 

is now facing a deepening recession 

in 2012 because the problems first 

encountered by Greece, Ireland, and 

Portugal are now confronting larger 

European countries. To help their 

economies grow, some European 

countries have begun to adopt policies that make structural adjustments 

to their spending budgets and their 

economies. These adjustments have 

proven to be politically unpopular 

thus far. The course of economic 

activity that results from these 

adjustments will influence U.S. trade 

with the region not only for the balance of 2012, but for years to come.

Perhaps more critical to U.S. agriculture in the near future is economic 

growth in China and other Asian 

countries. Asia accounted for 43 

percent of U.S. agricultural exports 

in 2011, and China alone accounted 

for about 16 percent. China remains 

the world’s fastest-growing major 

economy, its largest exporting 

economy, and its second-largest 

importing economy. However, the 

Chinese economy has been weakening recently. Its annual growth 

during the first quarter of 2012 

was 8.1 percent, its slowest pace in 

almost three years. China is working to transition its economy to one 

that is dependent on domestic, rather 

than foreign, demand. To do so, it is 

trying to keep inflation in check, to 

restrain excesses in its economy, to 

create jobs, and to raise incomes. 

Over 2011, U.S. consumer price inflation was relatively modest despite 

jumps in energy prices. Consumer 

prices increased 3.1 percent on 

average in 2011, and the consensus 
53

forecast for 2012 is just 2.3 percent. 

Although most observers believe 

inflation will remain in check for the 

rest of this year, inflation may rise 

more over the longer term. Inflation affects agriculture by causing increases in input costs and by 

reducing consumer demand for highvalue products like meats.

Other factors affecting the outlook 

for the FCS are funding costs and 

borrower interest rates. As noted on 

page 36, the System had regular and 

flexible access to the debt markets 

in 2011. Because of the Federal 

Reserve’s low interest rate policies, 

rates paid by System borrowers have 

been near historic lows. According 

to signals from the Federal Reserve, 

interest rates will probably continue to be low through late 2014. 

Over the longer term, however, rate 

increases are likely. Interest rates are 

highly unpredictable: events could 

occur at any time that could cause 

the nation’s current low rates to rise 

quickly. 

ECONOMIC SETTING FOR 

AGRICULTURE AND THE RURAL 

ECONOMY

The rural economy has fared somewhat better than the general economy. Many rural areas benefited significantly from booms in agriculture 

and the extraction of minerals and 

energy. As a result, regions dependent on commodity production have 

added more jobs. In particular, rural 

states having both large agricultural 

production and mineral and energy 

extraction industries have fared well. 

For example, the plains states have 

had significantly lower unemployment rates than more urban states 

and have enjoyed stronger personal 

income growth. From 2010 to 2011, 

North Dakota, Iowa, Texas, Oklahoma, and South Dakota were the 

top five states in personal income 

growth. 

Rural manufacturing has also grown 

during the recovery. Employment 

in manufacturing has grown faster 

in rural areas than in urban areas. 

The number of rural manufacturing jobs was up 3.8 percent in 2011. 

Rural manufacturing job growth was 

particularly strong in industries with 

strong export growth or close ties to 

energy or agriculture. 

The agricultural sector, with its nearrecord farm incomes in 2011, has 

been a major contributor to the rural 

economy. USDA estimated net farm 

income for 2011 to have reached $98 

billion, up from $79 billion for 2010. 

Net cash farm income (reflecting cash 

transactions during the year) rose 

even more, reaching nearly $109 billion, up from $92 billion in 2010 and 

$74 billion in 2009. USDA’s forecast 

for 2012 suggests that net cash farm 

income will decline to $96 billion but 

will remain above that of 2010 (forecasts as of February 13, 2012). 

The balance sheet of the farm sector improved in 2011. Larger profits 

and rising land values increased total 

asset values by 7 percent. In 2012, 

total farm assets are forecast to rise 

6 percent more and reach nearly $2.5 

trillion. If they do, total farm equity 

would surpass $2.2 trillion, breaking 

the inflation-adjusted record. 

Debt usage rose modestly again in 

2011. The sector’s debt-to-asset ratio 

was 11 percent, one of the lowest in 

history. However, for individual farm 

lenders, this often-quoted national 

average leverage ratio is not particularly relevant, in part because 

it includes the roughly two-thirds 

of farms that carry little or no debt 

from one year to the next.

Behind the favorable sector-wide picture, some operations remain weak 

financially. Producers of the major 

field crops, as well as hog, cow-calf, 

and dairy producers, had much 

higher incomes in 2011; however, 

poultry and beef producers—particularly those who had to purchase 

their feed—were still recovering 

from poor earnings and an erosion 

of their equity positions from previous years. Likewise, the financial 

circumstances for some producers 

of housing-related products, such as 

nursery plants and timber, have also 

improved more slowly. Naturally, 

conditions vary considerably from 

region to region, depending on the 

mix of enterprises and local economic 

conditions.

Midwest Farmland Values Soar 

With about 85 percent of the farm 

sector balance sheet made up of 
54

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

farmland assets, land values have an 

outsized influence on the strength of 

farm balance sheets and the creditworthiness of farmers. Surveys 

conducted by appraisers, universities, 

and by Federal Reserve district banks 

all suggest that farmland prices in 

the Midwest rose at a record-to-nearrecord pace in 2011.The strongest 

reported gains were for high-quality 

cropland in major corn- and soybeanproducing regions. According to 

statewide surveys, cropland values 

increased by over 30 percent in some 

midwestern states. During the past 

winter, cropland values remained 

strong, but appreciation may have 

moderated somewhat during the 

spring planting season. The value of 

pasture and ranchland also went up 

considerably, with annual increases 

surpassing 10 percent in some states. 

These increases reflected a more 

robust livestock sector in 2011 and 

2012, particularly for cow-calf operations. 

Although interest in purchasing 

farmland has increased among nonfarmers, farmers remain the dominant purchasers of farmland. The use 

of debt to make such purchases is 

generally viewed as modest. Despite 

the rapid rise in farmland values, 

Systemwide farm real estate debt 

outstanding rose by a more modest rate of 3.5 percent during 2011. 

Yet, for some associations, farm real 

estate volumes increased much more 

significantly, particularly in the Midwest. 

To address the rising risks associated 

with farmland values, we have issued 

guidance on collateral risk management to System lenders through a 

series of Informational Memorandums. Many System institutions are 

improving underwriting standards 

and appraisal guidelines on farmland 

collateral. They are also improving their efforts to identify portfolio 

risk through land value studies and 

the stress testing of changes in land 

value. As the regulator of the System, 

we continue to monitor agricultural 

land values and associated risks to 

loan collateral and to discuss these 

risks with other Federal financial 

regulators.

Besides farmland, farmers continued 

to make large investments in new 

buildings and equipment. The number of new, large farm tractors and 

combines sold in 2011 was relatively 

flat compared with sales in recent 

years; however, compared with sales 

from five years ago, the number of 

tractors sold was up by 60 percent, 

and the number of combines sold 

was up by 100 percent. 

Price and Production Risks

Many producers enjoyed strong 

profits in 2011 because prices were 

high for large-acreage crops like corn 

and soybeans, and because production costs, including land rental costs, 

did not rise as much as crop prices. 

Cropland rental rates are expected to 

rise significantly in 2012. Survey data 

suggest that rental rates may rise by 

double-digit percentages in many 

parts of the Midwest. Higher rental 

rates and other production expenses, 

such as fuel, fertilizer, and chemicals, are reducing profit margins and 

increasing the financial risk of buying 

land. 

Although worldwide stocks of wheat, 

rice, and other crops have been 

rebuilt, world stocks of corn and 

soybeans are expected to be low at 

the end of the 2011/12 marketing 

year, with corn stocks the lowest 

since 1973/74. As a result, the size of 

this year’s harvest will have a greater 

influence on corn and soybeans than 

on many other crops. If U.S. farmers plant an anticipated 96 million 

acres in corn and have yields that 

exceed expectations, the harvest will 

replenish world stocks, causing corn 

prices to fall significantly by harvest, 

squeezing profit margins for producers. Conversely, even if farmers plant 

large acreages, poor yields for a third 

year in a row could lead to another 

year of tight stocks and higher prices. 

This uncertainty presents decisionmaking challenges for producers 

and lenders alike. Not only does 

high volatility in profits or margins 

increase the need for risk management, it also increases the need for 

working capital and increases the 

risk of leverage (use of debt relative 

to capital). As a result, many lenders today expect potential borrowers 

to have more collateral and greater 

cash flow relative to debt. They are 

also looking more closely at the 

risk management practices of credit 
55

applicants, including the use of risk 

management tools such as forward 

contracting, futures, options, and 

USDA revenue insurance.

High feed prices have made margins 

very tight for livestock producers for 

several years, but the impact of high 

feed ration costs is not always uniform in livestock. Rising grain prices 

particularly affect farrow-to-finish 

hog farmers and cattle feedlot operators because of the large amount of 

feed they have to purchase. As a 

result of weaker profit margins, these 

producers have become more reluctant to expand production. 

With rising demand in 2011 and limited production, prices for livestock, 

dairy, and poultry have risen significantly; prices either hit record levels 

in 2011 or are forecasted to do so in 

2012. Exports have been a key driver, 

with beef, pork, and broiler exports 

at record levels in 2011 and strong 

export outlook expected for 2012.

Policy Concerns

Farm programs, energy policies, and 

foreign trade agreements are important policy forces that help shape 

farm income and thus affect borrower repayment risk. The flow of 

Government payments has generally 

supported farm income (although 

mostly for crop producers) and has 

helped stabilize prices. However, 

these advantages have sometimes 

come at a heavy cost to taxpayers. 

Recent policies have shifted more of 

this responsibility to Governmentsupported farm revenue insurance 

policies. Affordable insurance products not only protect farmers, they 

protect farm lenders as well, by helping borrowers meet debt payments if 

prices or yields decline significantly. 

The majority of crop producers purchase some type of insurance product to protect their revenues from 

production or price declines or both. 

A key concern for agricultural lenders will be the outcome of the 2012 

Farm Bill debate. The Federal safety 

net for agriculture will not automatically keep pace with structural 

changes in the industry and the rise 

in production costs. In its efforts to 

reduce the Federal budget, Congress 

may cut farm program payments. In 

fact, some legislative proposals that 

rely on crop insurance to deliver 

support may prove to provide less 

of a financial backstop than current 

policies. 

Most observers attribute the increase 

in grain prices since 2005 to energy 

policies that require the use of U.S. 

ethanol in transportation fuels. 

However, without changes in policy, 

future growth in demand will be 

limited because corn-based ethanol 

production is nearing the 15-billiongallon maximum set by the 2007 

renewable fuel standards. Therefore, 

without changes in policy, the cost 

of gasoline in comparison to ethanol 

will largely determine how much the 

demand for corn-based ethanol will 

grow. 

In 2011, because tax benefits were 

set to lapse at the end of the year, 

growth in production volume slowed 

considerably, with the industry producing 13.9 billion gallons of ethanol. 

Corn use for ethanol production is 

forecast to be relatively flat this year 

because the mandate for 2012 is set 

at 13.2 billion gallons. 

U.S. agricultural exports have helped 

drive the growth in farm income 

in the past and will likely continue 

to do so in the future. In the past 

five years, the value of U.S. farm 

exports has nearly doubled. It was 

$136 billion in 2011. The weak tradeweighted value of the U.S. dollar 

has likely contributed to the export 

increases. Agricultural export volume 

is expected to decline somewhat in 

2012, but still remain the second 

highest on record. Export volume 

in 2012 could decline more, if this 

spring’s trend towards a stronger 

dollar continues deeper into 2012. 

While U.S. agricultural exports to 

many countries have increased, the 

most notable growth occurred in 

exports to China, which was the 

largest destination for U.S. agricultural exports last year. Exports to 

China are expected to fall somewhat in 2012, but the actual volume 

is dependent on bulk commodity 

trade—primarily soybeans. As in the 

past, the condition of the U.S. farm 

economy is subject to changes in the 

economic growth and trade policies 

of a handful of our nation’s major 

trading partners.
56

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

FARM CREDIT SYSTEM 

PORTFOLIO

System loan volume did not change 

from 2010 to 2011, and some sectors 

continued to face high stress levels. 

An increase in farm income and the 

value of farmland, particularly in the 

middle part of the United States, offset the impact of credit stress created 

from other regions and sectors on the 

System’s overall portfolio. Lending 

to finance production inputs, inventories, machinery, and real estate 

increased in many areas where cash 

grain is produced. 

Some sectors, such as dairy, hogs, 

cattle, and biofuels, became profitable 

again in 2011 after enduring significant credit stress in 2010; as a result, 

the quality of loans to these sectors 

improved. However, other sectors, 

such as poultry, horticulture, and forestry, saw continued distress in 2011. 

Continued weak demand for housing and tepid growth in the general 

economy did not provide enough 

revenue to cover operating costs 

and to reduce debt, and in some 

areas, real estate values continued to 

decline. As a result, nonaccrual loans 

to livestock, poultry, forestry, horticulture, and biofuel sectors accounted 

for $1.4 billion of the $2.7 billion 

in nonaccruing System loans. Also, 

the System reported $265 million in 

charge-offs for loans to these sectors; 

this represented about 53 percent 

of all FCS charge-offs. These sectors 

accounted for $50.1 billion, or 29 percent, of all System loans. 

Cattle 

The System’s loans outstanding to 

the cattle industry totaled $16.5 billion at year-end 2011, up about 2 

percent from year-end 2010. Because 

cattle prices rose during the year, 

most producers were able to remain 

profitable; however, others suffered 

from increased feed costs, particularly in areas affected by drought. 

Prices rose in response to a return of 

strong export demand. System loans 

not accruing interest declined 

8 percent to $302 million at yearend; the System recorded $43 million 

in charge-offs for loans to the cattle 

industry. Loans to cattle operations 

totaled more than 9 percent of the 

System’s loan dollar volume and 46 

percent of its capital.

Dairy 

System loans outstanding to the 

dairy sector totaled $14.0 billion, 

down slightly from a year earlier. 

Producers benefitted from higher 

milk prices though high feed costs 

continued to reduce the profits of 

farmers who purchased most of their 

feed. While many producers made 

progress in reducing their debt in 

2011, many others remain vulnerable to factors such as reduced milk 

prices, higher feed costs, and interest rate increases. System loans not 

accruing interest fell 31 percent to 

$452 million at year-end 2011, and 

the System recorded $28 million 

in charge-offs. Loans to this sector totaled 8 percent of the dollar 

volume of all System loans and 39 

percent of its capital. 

Forestry 

System loans outstanding to the 

forestry sector totaled $9.5 billion, 

down about 4 percent from a year 

earlier. Loan volume fell because 

demand for housing and lumber 

products remained soft, particularly 

in the Southeast. Some producers 

reduced debt through scheduled 

loan paydowns, and some liquidated 

property to help address cash flow 

problems. System loans not accruing 

interest fell to $289 million at yearend, and the System recorded $77 

million in charge-offs. Loans to this 

sector totaled about 5 percent of the 

System’s loan dollar volume and 26 

percent of its capital. 

Poultry 

System loans outstanding to the 

poultry and eggs sector totaled $5.5 

billion, up 3 percent from a year 

earlier. Most producers suffered substantial operating losses because they 

were unable to offset high feed costs 

through increased poultry prices. 

While most producers were able to 

borrow funds to offset their operating losses, a few large integrated 

broiler producers were unable to 

obtain financing and declared bankruptcy. In a few cases, lenders were 

unable to recoup their loans from 

the sale of the assets of bankrupt 

operations. System loans not accruing 

interest fell 19 percent to $76 million 

at year-end 2011, and the System 

recorded $48 million in charge-offs. 

Loans to this sector totaled 3 percent 

of the System’s loan dollar volume 

and 15 percent of its capital. 
57

Horticulture

System loans outstanding to horticulture operations declined about 

6 percent from last year to $2.9 billion. The decline reflected the low 

demand for landscaping material in a 

persistently weak housing economy. 

Because many of these operations are 

located in and around urban areas, 

soft real estate values for properties 

used in their operations aggravated 

cash flow problems. As a result 

of these factors, System loans not 

accruing interest rose 32 percent to 

$289 million at year-end 2011, and 

the System recorded $19 million in 

charge-offs. Loans to horticulture 

totaled about 2 percent of the System’s loan dollar volume and 

8 percent of System capital.

Biofuels 

At the end of 2011, loans outstanding to the biofuels (primarily ethanol) 

industry totaled $1.6 billion, down 

about 31 percent from a year earlier. 

Loans declined as firms paid down 

debt from their much-improved 

operating margins and their renewed 

ability to raise capital. Some of the 

firms that filed bankruptcy or idled 

plants during 2009 were able to 

restructure debt and restart plants, 

and FCS institutions were able to sell 

some of the plants they had acquired 

through loan collection actions. 

System loans not accruing interest totaled $57 million at year-end, 

and charge-offs totaled $50 million. 

Biofuel loans outstanding represented 

only 5 percent of capital and less 

than 1 percent of the System’s total 

dollar volume, both of which are 

small numbers when compared with 

the System’s exposure to other industries or commodities. Both losses and 

nonaccrual assets are concentrated in 

a few firms.
58

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Appendix

FARM CREDIT ADMINISTRATION 

OFFICES

As of December 31, 2011, FCA had 

282 full- and part-time employees. 

These employees are divided among 

the following offices, with the majority serving in the Office of Examination.

The FCA Board manages, administers, and establishes policies for FCA. 

The Board approves the policies, 

regulations, charters, and examination 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 serves 

as the Parliamentarian for the Board 

and keeps permanent and complete 

records of the acts and proceedings 

of the Board. He or she ensures that 

the Board complies with statutory, 

regulatory, and internal operation 

reporting requirements. The Secretary 

to the Board also serves as Secretary 

to the Farm Credit System Insurance 

Corporation Board. In addition, he 

or she serves as the Sunshine Act 

Official for the FCA Board. 

The Chairman of the FCA Board

serves as the chief executive officer 

(CEO). The CEO enforces the rules, 

regulations, and orders of the FCA 

Board. He or she directs the implementation of policies and regulations 

adopted by the FCA Board. The 

Figure 13

FCA Organizational Structure

As of September 2011
59

Office of the Chief Executive Officer 

plans, organizes, directs, coordinates, 

and controls FCA’s day-to-day 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, facilitates 

intergovernmental relations, and 

prepares testimony for the Chairman 

and other Board members. The office 

also provides information to external 

audiences through news releases, fact 

sheets, reports, and other publications. It cultivates relationships with 

media representatives who report on 

matters related to agriculture and 

rural credit, and it manages the content of the FCA website. OCPA also 

organizes special meetings, briefings 

for international visitors, and field 

hearings. 

The Office of Examination is responsible for examining and supervising 

each FCS institution in accordance 

with the Farm Credit Act and applicable regulations. The office develops 

oversight plans; conducts examinations; monitors the System’s condition and current and emerging risks 

to the System; and develops supervisory strategies to ensure that the FCS 

operates in a safe and sound manner, 

complies with the law and regulations, and fulfills its public policy 

purpose. For more information about 

the role of the Office of Examination, 

go to www.fca.gov/law/guidance.html 

and click View Board Policy 

Statements to read “Examination 

Policy” (FCA-PS-53). 

The Office of General Counsel

(OGC) provides the FCA Board 

and staff with legal counsel as well 

as guidance on general corporate, 

personnel, ethics, and administrative matters. OGC 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 Registrar and maintains 

the Agency’s public rulemaking 

files. OGC also handles Freedom of 

Information Act requests and matters 

pertaining to the Privacy Act. 

The Office of 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, 

abuse, and mismanagement in the 

Agency’s programs and operations. 

The Office of Regulatory Policy

(ORP) manages policy and regulation 

development activities that ensure 

the safety and soundness of the FCS 

and support the System’s mission. 

Policy and regulation development 

activities include the analysis of policy and strategic risks to the System 

on the basis of economic trends and 

other risk factors. ORP also evaluates all regulatory and statutory prior 

approvals for System institutions 

on behalf of the FCA Board, including chartering and other corporate 

approvals as well as funding approvals. 

The Office of Management Services (OMS) 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, OMS 

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 (OSMO) provides for the 

examination, regulation, and supervision of Farmer Mac to ensure 

its safety and soundness and the 

accomplishment of its public policy 

purpose as authorized by Congress. 

OSMO also ensures that Farmer Mac 

complies with applicable laws and 

regulations, and it manages FCA’s 

enforcement activities with respect to 

Farmer Mac. 
60

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Carl A. Clinefelter is the FCA 

Inspector General. 

Before becoming 

Inspector General in July 2005, 

Mr. Clinefelter 

headed several 

offices at FCA 

over a number of 

years. Primarily, his background with 

the Agency is in financial institution 

examination, supervision, and regulation. Before joining the Agency in 

1980, Mr. Clinefelter was an assistant 

vice president in the Federal Intermediate Credit Bank of New Orleans, 

which was regulated by FCA. He 

received an M.B.A. from Auburn 

University in 1975 and served as an 

officer in the U.S. Navy from 1968 to 

1971. In addition to being the Agency’s Inspector General, Mr. Clinefelter has served since January 2009 as 

the Vice Chairperson of the Council 

of the Inspectors General on Integrity 

and Efficiency, which is composed of 

Inspectors General from 73 Federal 

departments and agencies.

Samuel Robert Coleman is 

Director of the 

Office of Examination. Before 

being named to 

this position in 

October 2010, 

he was Director 

of the Agency’s 

Office of Secondary Market Oversight 

for five years. Mr. Coleman joined 

FCA in 1986 as an examiner in the 

Office of Examination. He held various positions in that office, providing 

technical support to FCA field offices 

and to the Policy Development 

and Planning Division. During this 

period, Mr. Coleman completed the 

commissioning program and became 

a commissioned examiner in 1990. In 

1994, he transferred to the Office of 

Policy and Analysis, where he served 

as a policy analyst specializing in 

regulation development, and then as 

a senior policy analyst. Mr. Coleman 

was named Director of the Regulation and Policy Division in June 2003. 

He holds the Chartered Financial 

Analyst designation, which the CFA 

Institute awarded him in 2000.

Carl

felter

Inspector General. 

Before becoming 

Inspector Gen

eral in July 2005, 

Mr. Clinefelter 

headed several 

offices at FCA 

over a number of 

years. Primarily, his background with 

Samuel

ert

Director of the 

Office of Exami

nation.

being named to 

this position in 

October 2010, 

he was Director 

of the Agency’s 

Office of Secondary Market Oversight 

AGENCY OFFICIALS 

William	 J.	Hoffman is Chief 

Operating Officer. 

Before accepting 

this position in 

July 2008, Mr. 

Hoffman was 

Executive Assistant to Board 

Member and 

former Chairman and CEO Nancy 

C. Pellett. Prior to this, he served as 

the Associate Director for Examination and Supervision in the Office of 

Secondary Market Oversight, which 

oversees the Federal Agricultural 

Mortgage Corporation. He began 

his career as a credit representative in the Louisville Farm Credit 

District. Mr. Hoffman first joined 

FCA in 1976 as a credit and operations officer. In 1984 he was named 

Associate Deputy Governor for the 

Office of Examination and Supervision. In 1986 he joined the St. Louis 

Farm Credit Bank as Vice President 

of Risk Assets. He later was the CEO 

of PennWest Farm Credit, ACA, 

which served western Pennsylvania. 

Before rejoining FCA in 2004, he was 

involved in agricultural finance in 

the private sector and several international projects. 

William

man

Operating Officer. 

Before accepting 

this position in 

July 2008, Mr. 

Hoffman was 

Executive Assis

tant to Board 

Member and 

former Chairman and CEO Nancy 
61

Laurie A. Rea is 

Director of the 

Office of Secondary Market Oversight (OSMO). 

She was named 

to this position in 

January 2011. Ms. 

Rea joined FCA in 

1986 after graduating from San Diego State University. 

She has held several positions with 

the agency, beginning with the Office 

of Examination where she became 

a commissioned FCA examiner in 

1989. In 1992, she joined the Office 

of Policy and Analysis (now the 

Office of Regulatory Policy), where 

she gained experience in policy 

and regulation development. Since 

2005, Ms. Rea has served as associate director and finance and capital 

markets team leader in the Office of 

Regulatory Policy, where she managed the approval of Systemwide 

debt securities and led the agency’s 

regulatory capital and investment 

policy development. Ms. Rea is a 

Chartered Financial Analyst from the 

CFA Institute and a Certified Risk 

Professional.

Laurie

Director of the 

Office of Second

ary Market Over

sight (OSMO). 

She was named 

to this position in 

January 2011. Ms. 

Rea joined FCA in 

1986 after graduat

ing from San Diego State University. 

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 to 2001, he was General 

Counsel for the USDA, and from 

1993 to 1998 he was Chief of Staff to 

the Deputy Secretary of Agriculture. 

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 

to 1985. 

Charles

is the FCA Gen

eral Counsel. 

Before joining FCA 

in March 2003, 

he was general 

counsel and vice 

president for legal, 

tax, and account

ing at the National 

Stephen	G.	

Smith is the 

Chief Financial Officer and 

Director of the 

Office of Management Services. 

Before accepting this position, he served 

as the Agency’s Inspector General. 

He joined FCA in 1981 as a technical specialist, 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 New York 

field office and then served as Senior 

Staff Director for the Chief Examiner 

before being 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. 

Stephen

Smith

Chief Finan

cial Officer and 

Director of the 

Office of Manage

ment Services. 

Before accept

ing this posi

tion, he served 

as the Agency’s Inspector General. 
62

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

Michael Stokke

is Director of the 

Office of Congressional and 

Public Affairs and 

Acting Executive Assistant to 

Leland A. Strom, 

Chairman and 

CEO of FCA. 

Prior to joining FCA, Mr. Stokke 

was founder and president of Prairie 

Strategies, a consulting firm based in 

Illinois, where he advised corporations and nonprofit organizations. He 

served as Deputy Chief of Staff to 

former Speaker of the House Dennis 

Hastert from February 1998 to October 2007. Prior to this, Mr. Stokke 

served as Chief of Staff for the Office 

of the Speaker in the Illinois House 

of Representatives from 1995 to 

1998. He served as Chief of Staff for 

Representative Thomas W. Ewing of 

Illinois from 1991 through 1994. From 

1987 to 1991, he was Assistant Director of Personnel for the Office of the 

Governor of Illinois. He also served 

as Assistant to the Secretary of the 

Illinois Department of Transportation 

from 1985 to 1987. 

Gary K. Van

Meter is Director of the Office 

of Regulatory 

Policy (ORP).

He was named 

to this position 

in November 

2010 after having served as the 

Deputy Director of ORP for five 

years. Prior to this, he served in the 

Office of General Counsel (OGC) for 

17 years. In OGC, he served first as 

a senior attorney and later as senior 

counsel before joining ORP. Mr. 

Van Meter holds a J.D. from West 

Virginia University College of Law 

and a master of law in taxation from 

Georgetown University Law Center. 

He is also a certified public accountant. From 1972 to 1974, Mr. Van 

Meter was an enlisted member of the 

U.S. Marine Corps, and he was an 

officer in the U.S. Navy Judge Advocate General’s (JAG) Corps from 1981 

to 1986.

Dale L. Aultman

became Secretary to the FCA 

Board in January 

2011. He began 

working at FCA 

in 1988. For the 

first 10 years, he 

worked in the 

Office of Examination, where he became a commissioned examiner. Then for 12 years, 

he was a policy analyst in the Office 

of Regulatory Policy. Mr. Aultman is 

a member of the National Association of Parliamentarians. In 2010, he 

became Virginia’s eighth electronic 

notary. In 2007, he completed FCA’s 

Supervisory Development Program. 

Mr. Aultman graduated with distinction from Southwestern Graduate 

School of Banking at the Southern 

Methodist University and holds a 

finance degree from the University of 

Oklahoma.

Dale

became Secre

tary to the FCA 

Board in January 

2011.

working at FCA 

in 1988. For the 

first 10 years, he 

worked in the 

Office of Exami

Michael

is Director of the 

Office of Con

gressional and 

Public Affairs and 

Acting Execu

tive Assistant to 

Leland A. Strom, 

Chairman and 

CEO of FCA. 

Gary

Meter

tor of the Office 

of Regulatory 

Policy (ORP).

He was named 

to this position 

in November 

2010 after hav

ing served as the 
63

Wendy R.

Laguarda is 

the Designated 

Agency Ethics 

Official (DAEO). 

As DAEO, Ms. 

Laguarda administers the ethics 

program for FCA 

and the Farm 

Credit System Insurance Corporation. This involves providing for the 

review of financial disclosure reports, 

creating and conducting ethics training programs, counseling Agency 

staff on ethics issues, and monitoring compliance with ethics rules. 

In addition to her responsibilities 

as DAEO, Ms. Laguarda serves as 

assistant general counsel in the Office 

of General Counsel and administers 

the Agency’s Alternative Dispute 

Resolution Program. Before coming 

to FCA in 1990, Ms. Laguarda was 

an attorney advisor at the Office of 

Thrift Supervision and its predecessor Agency, the Federal Home Loan 

Bank Board. A graduate of Tufts 

University and George Washington 

University National Law Center, she 

is a member of the Maryland and 

District of Columbia Bars, as well as 

a mediator certified by the Supreme 

Court of Virginia.

Thais Burlew is 

Director of Equal 

Employment 

Opportunity and 

Inclusion. Before 

joining FCA in 

September 2011, 

she served as 

Executive Manager in the Office 

of EEO and Inclusiveness at the 

U.S. Postal Service. From 2001 to 

2008, Ms. Burlew held several positions at the U.S. Equal Employment 

Opportunity Commission, including 

attorney advisor to Chair Naomi 

Churchill-Earp and Acting Chief for 

the Intake and Compliance Branch. 

Prior to this, she served as Advocate 

for the Housing and Consumer Law 

Clinic and for the Juvenile Special 

Education Clinic. Ms. Burlew earned 

a J.D. magna cum laude from David 

A. Clarke School of Law at the 

University of the District of Columbia, where she served as managing 

and associate editor of the school’s 

law review. She also holds a B.S. in 

criminal justice from Middle Tennessee State University.

Thais

Director of Equal 

Employment 

Opportunity and 

Inclusion. Before 

joining FCA in 

September 2011, 

she served as 

Executive Man

ager in the Office 

Mark L. Johansen is the Special 

Advisor for 

YBS and Local 

Food Systems 

for Chairman 

Strom and the 

FCA Board. In 

this position, 

he provides 

advice on issues related to lending to 

young, beginning, and small farmers 

and ranchers and borrowers involved 

in local food systems. He is also a 

senior policy analyst. Mr. Johansen 

began working at FCA in 1986 as an 

examiner, became a supervisor examiner in 1988 and joined the Office 

of Regulatory Policy in 1999. Before 

coming to FCA, Mr. Johansen served 

as a direct lender working with the 

Farmers Home Administration. He 

graduated from the Banking School 

of the South at Louisiana State University and holds an animal science 

degree from the University of New 

Hampshire, as well as an applied science degree from State University of 

New York at Cobleskill. Mr. Johansen also served in the Peace Corps 

as an agricultural extension agent in 

animal health from 1981 to 1983.

Wendy

Laguarda

the Designated 

Agency Ethics 

Official (DAEO). 

As DAEO, Ms. 

Laguarda admin

isters the ethics 

program for FCA 

and the Farm 
64

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

GLOSSARY 

A

Agricultural Credit Association—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 long-term 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—An ACB 

results from the merger of a Farm 

Credit Bank 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—A BC provided lending and other financial services to farmer-owned cooperatives, 

rural utilities (electric and telephone), 

and rural sewer and water systems. 

It was 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. 

Farm	 Credit	Bank—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. 

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 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. The chairman of the FCSIC 

board of directors must be an FCA 

Board member other than the current 

Chairman of the FCA Board. 

Federal Agricultural Mortgage

Corporation—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. 

Federal Intermediate Credit Bank—

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 autho-
65

rized 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 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. The associations 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—

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. 

Financial Institution Rating System—The FIRS is similar to the 

Uniform Financial Institutions Rating 

System used by other Federal banking regulators. However, unlike the 

Uniform Financial Institutions Rating 

System, the FIRS was designed 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 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. 

These institutions give no cause 

for regulatory concern. 

• Rating 2—Institutions in this 

group are fundamentally sound 

but may reflect modest weaknesses correctable in the normal 

course of business. Since the 

nature and severity of deficiencies are not material, 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 
66

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

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. 

• 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. 

G

Government-sponsored enterprise—

A GSE is typically 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.

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. The 

FCS is the oldest financial GSE. 

P 

Participation—A loan participation is 

usually a large loan in which two or 

more lenders share in providing loan 

funds to a borrower to manage credit 

risk or overcome a legal lending limit 

for a single credit. One of the participating lenders originates, services, 

and documents the loan. Generally, 

the borrower deals with the institution originating the loan and is not 

aware of the other participating 

institutions. 

Production Credit Association—

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. 

S 

Syndication—A loan syndication 

(or “syndicated bank facility”) is a 

large loan in which a group of banks 

work together to provide funds for 

a borrower. Usually one bank takes 

the lead, acting as an agent for all 

syndicate members and serving as 

the focal point between them and the 

borrower. All syndicate members are 

known at the outset to the borrower 

and they each have a contractual 

interest in the loan. 
67

ACA—Agricultural Credit Association

ACB—Agricultural Credit Bank

AMBS—agricultural mortgage-backed securities 

CAMELS—capital, assets, management, earnings, liquidity, and sensitivity

CEO—chief executive officer 

Farm Credit Act, the Act—Farm Credit Act of 1971, as amended

Farmer Mac—Federal Agricultural Mortgage Corporation 

FCA—Farm Credit Administration

FCB—Farm Credit Bank

FCS—Farm Credit System

FCSIC—Farm Credit System Insurance Corporation

FIRS—Financial Institution Rating System

FLCA—Federal Land Credit Association

FSA—Farm Service Agency

GAAP—generally accepted accounting principles

GSE—Government-sponsored enterprise

OFIs—other financing institutions

PCA—Production Credit Association 

RBC—Risk-Based Capital (Model) 

RBIC—rural business investment company

SBA—Small Business Administration

USDA—U.S. Department of Agriculture

WTO—World Trade Organization

YBS—young, beginning, and small (farmers and ranchers)

ACRONYMS AND ABBREVIATIONS
68

FARM CREDIT ADMINISTRATION 2011 ANNUAL REPORT ON THE FARM CREDIT SYSTEM 

The Farm Credit Administration 2011 

Annual Report on the Farm Credit 

System is available on FCA’s website 

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 

ADDITIONAL INFORMATION 

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 website at www.farmcreditffcb.com. Copies can 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 website at www.fcsic.gov. 

Copies of this report can be obtained 

from 

Farm Credit System Insurance 

Corporation 

1501 Farm Credit Drive 

McLean, VA 22102 

Telephone: 703-883-4380
Copies Available From:

Oce of Congressional and Public Aairs

Farm Credit Administration

1501 Farm Credit Drive

McLean, VA 22102

703-883-4056

www.fca.gov