2018 Annual Report 

of the Farm Credit Administration 

Regulator of the Farm Credit System
Contents

About this report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

About FCA and the Farm Credit System . . . . . . . . . . . . . . . . . . . . . . . . 3

Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Our authorities and governance . . . . . . . . . . . . . . . . . . . . . . . . . . 4

The Farm Credit System Insurance Corporation . . . . . . . . . . . . . 4

Message from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Our priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Current conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

FCS banks and associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

FCS structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Borrowers served . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

System funding for other lenders . . . . . . . . . . . . . . . . . . . . . . . . 17

Farm debt and market shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Financial condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Serving young, beginning, and small farmers and ranchers . . . . . . . . 27

Quantitative results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Qualitative results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Characteristics of YBS farmers . . . . . . . . . . . . . . . . . . . . . . . . . 33

Examining and regulating the banks and associations . . . . . . . . . . . . 35

Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

National oversight program for FY 2019 . . . . . . . . . . . . . . . . . . . 35

Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Farmer Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Examining and regulating Farmer Mac . . . . . . . . . . . . . . . . . . . 43

Financial condition of Farmer Mac . . . . . . . . . . . . . . . . . . . . . . 44

FCA’s Organization and Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Organization of FCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

FCA’s leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

In Memoriam: Dallas P. Tonsager . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
About this report

This is the Farm Credit Administration’s annual report to Congress. Section 5.17(a)(3) of the Farm Credit Act of 1971, as amended, 

requires this report to include the following:

• An annual report to Congress on the condition of the System 

and its institutions

• A summary and analysis of the annual reports submitted to 

us by System banks regarding programs for serving young, 

beginning, and small farmers and ranchers 

The report also includes information about our agency and the 

work we do to ensure that the Farm Credit System continues to meet 

its mission and to operate safely and soundly.

After many years of following the same format, we decided 

to restructure the report this year to make it more concise and 

consistent with the requirements of section 5.17 of the Farm 

Credit Act. One important change was to eliminate a section titled 

“Challenges Facing the Agricultural Economy and the Farm Credit 

System.” Some of that information is now included in a new section 

called “Message from the Board.”

This report is available on the FCA website at www.fca.gov. 

If you have any questions about it, please contact the Office of 

Congressional and Public Affairs at info-line@fca.gov or 703-883-

4056. Also, please contact the office if you have accessibility issues 

with any of the charts in the report.

For more financial information about the Farm Credit System, 

go to the website for the Federal Farm Credit Banks Funding 

Corporation at www.farmcreditfunding.com. For information about 

the Farm Credit System Insurance Corporation, go to www.fcsic.gov.
FCA’s mission is to ensure that Farm 

Credit System institutions and Farmer 

Mac are safe, sound, and dependable 

sources of credit and related services 

for all creditworthy and eligible persons 

in agriculture and rural America.
2018 Annual Report on the Farm Credit System | 3

About FCA and the Farm Credit System

1 Although Farmer Mac is an FCS institution under the Farm Credit Act, we discuss Farmer Mac separately from the 

other institutions of the FCS. Therefore, throughout this report, unless Farmer Mac is explicitly mentioned, the Farm 

Credit System refers only to the banks and associations of the System. For more information about Farmer Mac, see 

page 43.

The Farm Credit Administration 

is an independent agency in the executive 

branch of the U.S. government. We are 

responsible for regulating and supervising 

the Farm Credit System (its banks, associations, and related entities) and the Federal 

Agricultural Mortgage Corporation (Farmer Mac).1

The System is a nationwide network of 

borrower-owned financial institutions that 

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

and rural utility cooperatives, and other 

eligible borrowers. 

Farmer Mac is a federally chartered corporation that provides a secondary market 

for agricultural real estate loans, government-guaranteed portions of certain 

loans, rural housing mortgage loans, and 

eligible rural utility cooperative loans. 

FCA’s mission is to ensure that Farm 

Credit System institutions and Farmer Mac 

are safe, sound, and dependable sources 

of credit and related services for all creditworthy and eligible persons in agriculture 

and rural America. We have two primary 

functions: examination and regulation.

Examination

We conduct onsite examinations at every 

System institution on a regular basis to 

• evaluate its financial condition; 

• evaluate its compliance with laws and 

regulations;

• identify any risks that may affect the 

institution or the System as a whole; 

and

• ensure it is fulfilling its public mission to serve the credit and related 

needs of farmers and ranchers, including those who are young, beginning, or small.

If a System institution violates a law or 

regulation or operates in an unsafe or 

unsound manner, we use our supervisory 

and enforcement authorities to bring 

about appropriate corrective action.

Regulation

We issue policies and regulations governing how System institutions conduct their 

business and interact with borrowers. 

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. 
4 | Farm Credit Administration

We also approve corporate charter 

changes, System debt issuances, and other 

financial and operational matters.

Our authorities and governance

FCA 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 does not receive a federal appropriation. We maintain a revolving fund financed primarily by assessments from the 

institutions we regulate. Other sources of 

income for the revolving fund are interest 

earned on investments with the U.S. Treasury and reimbursements for services we 

provide to federal agencies and others.

FCA is governed 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 our chief executive 

officer. For information about our current 

board, see page 49.

The Farm Credit System Insurance 

Corporation

FCA board members also serve as the 

board of directors for the Farm Credit System Insurance Corporation (FCSIC), which 

was established by the Agricultural Credit 

Act of 1987 in the wake of the agricultural 

credit crisis of the 1980s. The purpose of 

FCSIC is to protect investors in Systemwide 

debt securities by insuring the timely 

payment of principal and interest on obligations issued by FCS banks.

It fulfills this purpose by maintaining 

the Farm Credit Insurance Fund, a reserve 

that represents the equity of FCSIC. The 

balance in the Insurance Fund at June 

30, 2019, reflects the secure base amount. 

For more information about FCSIC, go to 

www.fcsic.gov. Also see FCSIC’s 2018 annual report.

6 | Farm Credit Administration

Message from the Board

We are pleased to present the 2018 Annual Report of the Farm Credit 

Administration. The late Dallas Tonsager was the FCA chairman in 2018. Under 

his capable leadership, the agency had a successful year of oversight and examination of the Farm Credit System and Farmer Mac. Dallas passed away in May of 

2019. On a personal level, his death was a great loss to FCA’s board and staff, but 

we are pleased to report that we continued to fulfill our mission throughout the 

leadership transition. Jeff Hall has served as a member of the FCA board and as 

chairman of the board of directors of the Farm Credit System Insurance Corporation since November 2016. Glen Smith has served as a member of the FCA 

board since December 2017. On July 17, 2019, President Donald Trump 

designated Glen to be the FCA board chairman and CEO. Together, we bring to 

the board a blend of many years of experience and service to both agriculture 

and government, which will serve us well as we make decisions on how best to 

achieve FCA’s mission of safety and soundness. We would like to share with you 

two of the priorities we’ve identified for the coming year.

FCA Board Chairman and CEO Glen Smith (left) and FCA Board Member Jeff Hall.
2018 Annual Report on the Farm Credit System | 7

Our priorities

Monitoring credit risk

Although the Farm Credit System and 

Farmer Mac remain strong and financially 

sound, monitoring credit risk is our highest priority. The farm economy remains 

in a prolonged slump. Trade uncertainties 

and weather extremes continue to threaten agriculture’s economic outlook. 

Because of the continued downturn in 

profitability, many farmers have used up 

much of the working capital they built 

during the years of stronger profitability. 

They’ve also increased their debt levels. In 

just three years, farmers took on over $45 

billion in additional farm debt. With cash 

flows tight, producers of several key farm 

commodities are finding it more difficult 

to pay back their loans. High-cost producers and those with significant leverage are 

feeling the most financial pressure.

With key commodity prices still relatively low and 2019 yields extremely variable, 

the opportunities to rebuild working 

capital and repair balance sheets are not 

on the immediate horizon. And because 

of trade challenges, this situation is not 

likely to improve in the immediate future. 

President Trump has been renegotiating 

agreements with our trading partners to 

improve our nation’s trade position in the 

long term, but these efforts are certainly 

creating challenges for farmers in the 

short term. 

Another important reason to monitor 

credit risk closely is the danger of declining land values. Although land values have 

stabilized in many markets — especially 

for high-quality farmland, a pronounced 

pullback in values would increase financial stress for farmers and lenders alike. 

Improving service to young, beginning, and 

small producers

Another one of our top priorities is to 

strengthen service for young, beginning, 

and small (YBS) farmers and ranchers. In 

1980, Congress established a mandate for 

the institutions of the Farm Credit System 

to develop and maintain programs to provide credit and related services to these 

farmers and ranchers. 

This country is facing a real challenge from the decline in the number of 

farmers. As the last agricultural census 

revealed, the average age of the American 

farmer has increased to 58. For the U.S. 

agriculture economy to remain strong, the 

country needs new entrants to agriculture. 

Because of the high capital demands of agriculture, these new entrants will require 

affordable, dependable credit. That’s why 

we want to prioritize strengthening service 

to YBS farmers and ranchers. 

We believe improving YBS service will 

involve three key steps:

1. Improve data accuracy and reporting.

2. Identify and share best practices.

3. Evaluate growth and performance.

We are working with the System right now 

to identify ways to improve the accuracy 

of YBS data and reporting. For example, 

System institutions engage in loan participations, whereby multiple institutions 

provide portions of a single loan. The fact 

that each institution counts its portion of 

the loan as a separate loan has created 

an overcounting problem. By addressing 

this issue and others, we will improve the 

accuracy of YBS data and reporting by System institutions. This will give us a better 

picture of the System’s overall service to 

YBS farmers and ranchers.

Also, in February 2019, we issued an 

advance notice of public rulemaking to 

collect information from the public as we 
8 | Farm Credit Administration

consider revisions to our YBS regulations. 

The current guidance is more than 20 

years old. Currently, we are reviewing and 

considering the comments we’ve received 

on this notice. The public feedback we’ve 

received will help us improve our ability to 

measure service to YBS producers.

Improvements in the ability to track service to YBS producers will allow us to see 

which institutions are the most successful 

at serving these producers. This will allow 

us to identify best practices that other 

institutions can adopt to improve their service to these borrowers.

The third and final step will be to evaluate the effectiveness of each institution’s 

YBS program. We plan to contribute additional resources to allow examiners to focus on these evaluations and to encourage 

institutions to use best practices. After all, 

YBS farmers are — literally — the future of 

American agriculture. 

Current conditions

This report covers the condition of the 

Farm Credit System and Farmer Mac in 

2018. However, we’d like to share with you 

a brief update about conditions as they 

stand in September of 2019 when this 

report goes to print. In addition to conditions in the System and Farmer Mac, we’ll 

discuss conditions in the general and farm 

economy as well.

The Farm Credit System and Farmer Mac

Despite continued deterioration in portfolio quality, credit risk remains manageable 

in the Farm Credit System. Nonperforming 

loans (nonaccrual loans, restructured 

loans, and loans that are 90 days or more 

past due) increased by $231 million at 

the end of 2018 and another $252 million 

during the first six months of 2019 to just 

under $2.5 billion. Despite this increase, 

nonperforming loans still represented less 

than 1% (0.89%) of the System’s $276 billion loan portfolio at June 30, 2019.

Loans classified as less than acceptable 

increased to 6.6% of volume at Dec. 31, 

2018, and to 7.2% of volume at June 30, 

2019, compared with 6.1% a year earlier. 

However, System institutions remain 

well capitalized to protect against this increased risk, and loan losses remain very 

low, with net charge-offs representing only 

3 basis points of volume in calendar year 

2018.

Credit quality stress within the System 

is higher in grain-producing areas. Of 

the 10 states with the highest levels of 

less-than-acceptable loans, six are in the 

Midwest, and only Texas and California 

are outside key grain-producing regions. 

We are typically seeing less credit stress 

in areas of the country where off-farm income is higher. 

For several years now, FCA has emphasized the importance of capital in its oversight and guidance of System institutions, 

and two years ago we updated our capital 

regulations to further strengthen capital 

positions. Because of the emphasis that 

both FCA and the System have placed on 

capital, System institutions are now well 

capitalized, which means they are in a 

good position to work with producers who 

may have some difficulty making their 

loan payments. Plus, some institutions 

have dedicated credit staff to help customers experiencing financial difficulties.

What’s more, the System’s strong capital 

position makes System debt attractive to 

investors. This will help ensure that the 

System can meet increases in credit demand from farmers whose working capital 

has eroded.

System institutions not only can use 

their capital to help borrowers, they can 

also provide education. Producers who 

control their costs, keep good records, and 
2018 Annual Report on the Farm Credit System | 9

actively manage risk tend to be profitable 

even when many producers are losing 

money. System institutions can offer additional training opportunities for their customers in the areas of risk management 

and recordkeeping.

Fortunately, despite the current challenges in the farm economy, credit risk 

levels are nothing like they were in the 

1980s. They are even appreciably lower 

than they were during the Great Recession 

of 2008 and 2009, when stress in the general economy weakened the farm economy, 

especially those sectors that relied on offfarm income. Also, although farm sector 

debt-to-asset ratios have increased modestly since 2012, they remain lower than 

those recorded in the 1980s.

Farmer Mac also remains safe and 

sound. For the 12-month period that ended June 30, 2019, its asset growth was moderate. Its portfolio grew $1.22 billion, or 

6.3 percent, to $20.75 billion. The primary 

source of portfolio growth was the rural 

utilities business line, which grew $486.2 

million, or 31%, over the 12-month period. 

Farmer Mac’s credit quality remained 

manageable. Loans classified as 90 days 

past due declined from 0.61% to 0.38% of 

loans outstanding. Special-mention and 

substandard volume increased slightly; 

however, it declined as a percentage of the 

total portfolio because of volume growth. 

Farmer Mac’s core capital was $786.6 

million, up 13.5% for the twelve-month 

period; its core capital was $191.6 million 

above the minimum requirement.

The general and farm economies

Just as our examiners track conditions and 

risks in the System and Farmer Mac, FCA’s 

economists monitor conditions in the general and farm economies. Currently, our 

economists report favorable macro trends 

in the general economy throughout 2019, 

despite an expected slowdown in economic growth later this year. If U.S. consumers 

continue to provide support, the economic 

outlook will stay on firm footing even with 

slower growth.

As mentioned above, trade tension between China and the United States is a major 

concern right now — for both the general 

and the farm economies. Retaliatory tariffs 

on U.S. agricultural products have redirected 

U.S. agricultural exports away from China 

and toward other markets, including Southeast Asia and the European Union. 

As a net exporter, the U.S. farm sector 

depends on export demand to absorb its 

output. An uncertain path toward resolution of trade disagreements elevates the 

risk of economic slowdown and a decline 

in business investment. A slowing economy could weaken employment and income 

growth, which are important for farm loan 

repayment, particularly for smaller farms 

and rural homeowners. 

The unemployment rate, which remains 

historically low even in some rural areas, 

continues to support consumer confidence 

and spending. Also, interest rates are low 

and are expected to remain favorable into 

next year. That will make loan repayment 

easier for all System borrowers.

While government payments from the 

Market Facilitation Program and Farm Bill 

programs are helping farmers through this 

period of low prices, industries servicing 

producers, including supply and marketing cooperatives, are also facing economic 

challenges because of shifts in planting 

acres, lower exports, and lower input 

demand. Many farmers continue to be 

cautious when making large capital investments, such as farm equipment purchases.

Of course, the outlook for the farm 

economy varies significantly by commodity, so let’s look at the primary commodities 

represented in the loan portfolios of System institutions.

For several years 

now, FCA has 

emphasized 

the importance 

of capital in 

its oversight 

and guidance 

of System 

institutions, 

and two years 

ago we updated 

our capital 

regulations 

to further 

strengthen 

capital positions. 
10 | Farm Credit Administration

Cash grains and soybeans: Global grain 

and oilseed supplies remain ample, 

which keeps farm prices weak. Despite 

spring rains that severely delayed or prevented farmers from planting millions 

of acres, the futures market continues 

to suggest harvest prices will be near or 

below breakeven for corn, soybeans, and 

wheat. Government payments will help 

offset some of the weakness into 2020. 

This year’s Market Facilitation Program 

payments are expected to provide positive 

profit margins for some producers, particularly those who harvest above-average 

yields. Those with poor yields will struggle 

to cover their costs of production, even 

with crop insurance indemnities. 

Cotton: Cotton prices are very weak. With 

harvested area expected to be up sharply, 

U.S. production will likely exceed use for 

the third consecutive season, pushing up 

the stocks-to-use ratio to the highest level 

in more than a decade. 

Cattle: Returns for cow-calf producers are 

expected to be slightly above breakeven 

levels for 2019. Herd expansion continues 

to pressure prices, and producer profits 

may hinge on pasture and hay condition. 

For cattle feeders, margins will likely remain tight throughout much of 2019, but 

lower feed costs and feeder pricing opportunities could boost the margin outlook.

Hogs: Herd disease in China has slashed 

production in the world’s biggest market 

for pork, causing a boost in U.S. prices in 

2019. This is a decided improvement over 

2018, during parts of which hog producers 

faced negative margins.

Poultry: Broiler integrator margins should 

perform slightly better than in 2018, but 

the industry faces strong retail competition from beef and pork.

Dairy: For small and higher-cost dairy 

farms, margins are expected to be either 

extremely tight or negative. Margins for 

larger farms are just above breakeven levels. Profitability should improve through 

the year because a contraction in the dairy 

herd is outpacing the increase in productivity. The Dairy Margin Coverage Program 

is providing limited support and may help 

some producers hang on. Nationally, more 

than 55 percent of dairy operations have 

signed up.

The mission

We often hear critics of the Farm Credit 

System say that the System’s mission is no 

longer relevant — that the nation no longer 

needs a GSE dedicated to lending to agriculture. We’d like to state for the record 

that the System’s mission is more relevant 

today than ever.

Reuters News recently analyzed the 

farm-loan holdings of Wall Street banks. 

They found that, between 2008 and 2015, 

when the farm economy was strong, these 

banks grew their farm-loan portfolios 

significantly. Now, however, after several 

years of falling farm income, they have 

significantly reduced their farm-loan 

holdings. 

In fact, according to the analysis, the 

nation’s top 30 banks reduced their farm 

loan holdings by $3.9 billion in March 2019 

from their peak in December 2015. In a 

July 11 Reuters news article, a Minneapolis-St. Paul bankruptcy attorney said, “My 

phone is ringing constantly. It’s all farmers. Their banks are calling in the loans 

and cutting them off.”

This is the reason our nation needs the 

Farm Credit System. Commercial banks 

have the luxury of following the money 

— when the farm economy declines, they 

can invest in other sectors. Not the Farm 

Credit System.

The whole purpose of the System is 

to serve the credit needs of our nation’s 

For the past 

two years, the 

Partnership for 

Public Service 

has ranked 

FCA among the 

top five Best 

Places to Work 

in the Federal 

Government 

among small 

agencies.
2018 Annual Report on the Farm Credit System | 11

farmers and ranchers — both in good times 

and in bad. While most farmers are in a better position than they were in in the 1980s, 

these are not good times. We are encouraged 

by the work the System is doing to support 

farmers in these challenging times.

Diversity

An often-cited strength of the Farm Credit 

System and Farmer Mac is their diversity 

of geographic location and agricultural 

enterprise — they serve farmers and 

ranchers across the nation, producing a 

wide range of commodities. Diversity of 

demographics is also important, which 

is why we require institutions to promote 

diversity and inclusion in their business 

plans.

At FCA, we feel diversity is equally important for our workforce, and we’re proud 

of our record. We regularly recruit at 30 

colleges across the United States, including 

land-grant universities, historically black 

colleges and universities, Hispanic-serving 

institutions, and high minority-enrollment 

schools. 

Not only do we constantly strive to 

maintain a diverse, talented workforce, 

but we also strive to keep them. For the 

past two years, the Partnership for Public 

Service has ranked FCA among the top 

five Best Places to Work in the Federal 

Government among small agencies. And 

for promotion of diversity, the Partnership 

ranked us second in our size category in 

2018. 

One of the ways we promote diversity 

is to support special emphasis programs 

such as the Federal Women’s Program, the 

Hispanic Employment Program, Blacks 

in Government, Pride, Veterans, Asian 

Americans and Pacific Islanders, and the 

Disability Program. These programs are 

important because they raise awareness 

and help with recruiting and outreach.

We recognize that happy employees 

make productive, dedicated employees. 

The board is extremely proud of our staff 

and confident in their abilities. We look 

forward to working with them in the coming year to continue to ensure a dependable, affordable source of credit for our 

nation’s farmers and ranchers.

Glen R. Smith

FCA Board Chairman and CEO

Jeffery S. Hall

FCA Board Member
The Farm Credit Administration 

is responsible for regulating and 

supervising the Farm Credit System 

and Farmer Mac.
2018 Annual Report on the Farm Credit System | 13

FCS banks and associations

The banks and associations of 

the Farm Credit System form 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 nation’s oldest government-sponsored 

enterprise.

As federally chartered cooperatives, 

the banks and associations of the Farm 

Credit System are limited-purpose lenders. 

Congress created them to “improve the income and well-being of American farmers 

and ranchers” by providing credit and related services for them, their cooperatives, 

and “selected farm-related businesses necessary for efficient farm operations.”

Congress formed the FCS as a system of 

farmer-owned cooperatives to ensure that 

farmer- and 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 broad public 

needs by providing 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 farmers, as well as 

rural homeowners.

The System obtains the money it lends 

by selling securities in the national and 

international money markets through 

the Federal Farm Credit Banks Funding 

Corporation. Established under the Farm 

Credit Act, the Funding Corporation issues 

and markets debt securities on behalf of 

the System banks to raise loan funds. The 

System’s debt issuances are subject to FCA 

approval. The U.S. government does not 

guarantee the securities that the System 

issues. 

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 FCA must call all nondefaulting banks to satisfy the liability.

FCS structure

The System is composed of the following 

four banks:

• CoBank, ACB

• AgriBank, FCB

• AgFirst Farm Credit Bank

• Farm Credit Bank of Texas

These banks provide loans to 68 associations, which in turn make loans to 

farmers, ranchers, and other eligible borrowers. (See figure 1.) All but one of these 

associations are structured as agricultural 

credit associations (ACAs) with two subsidiaries — a production credit association 

(PCA) and a federal land credit association 

(FLCA). The PCA primarily makes agricultural production and intermediate-term 

loans, and the FLCA primarily makes real 
14 | Farm Credit Administration

estate loans. The other remaining association is a stand-alone FLCA.

The ACA’s parent-subsidiary structure 

offers several benefits. It allows the association to preserve the tax-exempt status of 

the FLCA and to build and use capital 

more efficiently. It also enables members 

to hold stock in only the ACA but to borrow either from the ACA or from one or 

both of its subsidiaries. This gives the ACA 

and its subsidiaries greater flexibility in 

serving their borrowers, and it allows 

them to deliver credit and related services 

to borrowers more efficiently.

Each 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, FCA treats the ACA and its 

subsidiaries as a single entity; however, 

when appropriate, we may choose to treat 

the parent and subsidiaries as separate 

entities.

CoBank, one of the four Farm Credit 

System banks, is an agricultural credit 

bank (ACB). It 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, CoBank 

provides loan funds to 21 ACAs.

Borrowers served

Under the Farm Credit Act of 1971, as 

amended, the System has the authority, 

Figure 1

Chartered territories of FCS banks

As of July 1, 2019
2018 Annual Report on the Famr Credit System | 15

subject to certain conditions, to make the 

following types of loans:

• Agricultural real estate loans

• Agricultural production and intermediate-term loans (e.g., for farm 

equipment)

• 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

• Rural home mortgages

• Loans that finance agricultural exports and imports

• Loans to rural utilities

• Loans to farmers and ranchers for 

other credit needs

Also, under its similar-entity authority, the 

System may participate with other lenders 

to make loans to those who are not eligible 

to borrow directly from the System but 

whose activities are functionally similar 

to those of eligible borrowers. Through 

these participations, the System diversifies 

its portfolio, reducing the risks associated 

with serving a single industry.

As required by law, borrowers own stock 

or participation certificates in System 

institutions. The FCS had over 1.3 million 

loans and leases and nearly 568,000 stockholders in 2018. Approximately 88% of the 

stockholders were farmers or cooperatives 

with voting stock. The remaining percent 

were nonvoting stockholders, including 

rural homeowners and other financing institutions that borrow from the System. 

Nationwide, the System had $272 billion 

in gross loans outstanding as of Dec. 31, 

2018. Loans for agricultural production 

and agricultural real estate purposes represented by far the largest type of lending, 

with $178 billion, or 66%, of the total dollar amount of loans outstanding. See table 

1 and figure 2 for a breakdown of lending 

by type.

Total loans outstanding at FCS banks 

and associations (net of intra-System 

lending) increased by $13 billion, or 5.1%, 

during the year that ended Dec. 31, 2018. 

This compares with increases of 4.0% in 

2017. Since year-end 2014, total System 

loans outstanding have increased by $54.9 

billion, or 25.3%.

The $13 billion increase in 2018 was 

driven by increases in real estate mortgages and processing and marketing loans. 

With the continued demand for cropland 

and financing for permanent plantings, 

real estate mortgage loans increased $5.4 

billion, or 4.5%. Processing and marketing 

loans increased $3.3 billion or 15.1%. 

Figure 2

Farm Credit System lending by type

As of Dec. 31, 2018

Production and

intermediate-term – 19.7%

cessing and marketing – 9.1%

Loans to cooperatives – 6.5%

Agricultural export finance – 2.4%

Farm-related business – 1.4%

Lease receivables – 1.3%

Other financing institutions – 0.3%

Rural power – 7.4%

Rural homes – 2.7%

Rural communications – 2.5%

Rural water/wastewater – 0.8%

Long-term real estate – 45.9%

Pro

Source: 2018 Federal Farm Credit Banks Funding Corporation Annual Information 

Statement.
16 | Farm Credit Administration

Table 1

FCS gross loans outstanding, 2014 – 2018

As of Dec. 31

Dollars in millions

Loan Type 2014 2015 2016 2017 2018 Percent 

change 

from 

2014

Percent 

change 

from 

2017

Agricultural long-term real estate 

loans

$100,811 $107,813 $114,446 $119,450 $124,876 23.9% 4.5%

Agricultural production and 

intermediate-term loans

46,305 49,204 50,282 51,724 53,447 15.4% 3.3%

Agribusiness loans to the 

following:

Processing and marketing 

operations

16,974 19,949 21,166 21,582 24,832 46.3% 15.1%

Cooperatives 12,553 13,113 15,300 17,335 17,589 40.1% 1.5%

Farm-related businesses 3,408 3,533 3,162 3,293 3,692 8.3% 12.1%

Rural utility loans by type of utility:

Energy 15,036 17,925 19,577 19,689 20,100 33.7% 2.1%

Communication 5,044 6,196 6,023 6,311 6,755 33.9% 7.0%

Water/ wastewater 1,488 1,677 1,840 1,965 2,305 54.9% 17.3%

Rural home loans 6,754 7,117 7,148 7,261 7,308 8.2% 0.6%

Agricultural export loans 4,837 5,075 5,531 5,645 6,581 36.1% 16.6%

Lease receivables 2,976 3,373 3,480 3,665 3,630 22.0% (1.0%)

Loans to other financing 

institutions

868 915 813 857 829 (4.5%) (3.3%)

Total $217,054 $235,890 $248,768 $258,777 $271,944 25.3% 5.1%

Sources: Federal Farm Credit Banks Funding Corporation Annual Information Statements. 
2018 Annual Report on the Farm Credit System | 17

Production and intermediate-term loans 

also increased, going up $1.7 billion, or 

3.3%. This increase was driven by advance 

purchases of production inputs (such as 

fertilizer, seed, and fuel) for 2018. 

All the other lending authorities experienced at least modest increases in 2018 except for lease receivables, which declined 

by 1.0%, and loans to other financing institutions, which declined by 3.3%.

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). These include the following:

• Commercial banks

• Savings institutions

• Credit unions

• Trust companies

• Agricultural credit corporations

• Other specified agricultural lenders 

that are significantly involved in 

lending to agricultural and aquatic 

producers and harvesters

System banks may fund and discount agricultural production 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 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 Dec. 31, 2018, the System served 20 

OFIs, down from 22 in 2017. Outstanding 

loan volume to OFIs was $931 million at 

year-end, up $66 million from 2017. OFI 

loan volume continues to be less than half 

of 1% of the System’s loan portfolio. About 

73% of the System’s OFI lending activity 

occurs in the AgriBank district.

Syndications and loan participations with 

non-FCS lenders

In addition to the authority to provide 

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 syndications and 

participations.

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.

Loan participations are loans in which 

two or more lenders share in providing 

loan funds to a borrower. 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.

Financial institutions primarily use loan 

syndications and participations to reduce 

credit risk and to comply with lending 

limits. 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. 
18 | Farm Credit Administration

Institutions also use syndications and participations to manage and optimize capital, earnings, and liquidity. Syndications 

and participations allow the System to 

more fully meet its mission by serving agricultural and rural borrowers who might 

not otherwise receive funding.

The System’s gross loan syndication volume grew by more than $2 billion over the 

past year to $18.0 billion at year-end 2018. 

This figure includes volume from syndications that System institutions have with 

other System institutions, as well as with 

non-FCS institutions.

At year-end 2018, the System had $5.6 

billion in net eligible-borrower loan 

participations with non-System lenders. 

Net eligible-borrower loan participations 

have increased from their 2012 value of 

$3.7 billion, when sales of these participations were at a low point. The volume 

of eligible-borrower loan participations 

purchased from non-System lenders grew 

from $7.4 billion at Dec. 31, 2014, to $8.8 

billion at year-end 2018, and the volume of 

eligible-borrower loan participations sold 

to non-System lenders was $3.2 billion at 

year-end 2018, unchanged from the prior 

year.

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. A similar entity borrower is not 

Figure 3

Loan participation transactions with non-System lenders, 2014 – 2018

As of Dec. 31

Dollars in billions

$16

$14

$12

$10

$8

$6

$4

$2

$0

Similar-entity loan

 participations

 acquired

Net similar-entity 

loan participations

Participations 

purchased involving 

eligible borrowers

Net loan participations 

involving eligible 

borrowers

Participations sold 

involving eligible 

borrowers

Similar-entity loan 

participations sold

2014 2015 2016 2017 2018

Source: Farm Credit System Call Reports.
2018 Annual Report on the Farm Credit System | 19

eligible to borrow directly from an FCS 

institution, but because the borrower’s operation is functionally similar to that of an 

eligible borrower’s operation, the System 

has authority to participate in the borrower’s loans (the participation interest must 

be less than 50%). Similar-entity loans 

contain other limitations as specified in 

sections 3.1(11)(B) and 4.18A of the Farm 

Credit Act.

The System had $13.5 billion in acquired 

similar-entity loan participations as of 

Dec. 31, 2018, up from $11.9 billion the 

prior year. As figure 3 indicates, the 

volume of similar-entity participations 

that System institutions sell to non-System 

institutions is relatively small, amounting 

to $700 million or less each year over the 

past five years.

Farm debt and market shares

The U.S. Department of Agriculture’s estimate of total farm business debt for the 

year ended Dec. 31, 2018, was $402 billion, 

up 2.3% from its $393 billion estimate for 

year-end 2017. The System’s market share 

of total farm business debt has been relatively stable in recent years and stood at 

41.4% at the end of 2018.

Except for brief periods, the FCS has 

typically had the largest market share of 

farm business debt secured by real estate. 

At year-end 2018, the System held 46% of 

this $246 billion of debt; by comparison, 

commercial banks held 37.8%. Commercial banks have historically dominated 

non-real estate farm lending. At year-end 

2018, commercial banks held 47.9% of this 

$156 billion of debt, and the System held 

34.2%. 

Financial condition

For 2018, the System reported strong financial results, including record earnings, 

increased capital levels, and acceptable 

portfolio credit quality. FCS banks had 

reliable access to debt capital markets and 

maintained liquidity levels well above the 

90-day regulatory minimum. Tables 1 and 

2 provide a summary of the System’s major 

financial indicators.

While the System is financially sound, 

a small number of individual FCS institutions displayed some weaknesses in 2018. 

As the System’s regulator, we addressed 

these weaknesses by increasing our oversight and supervision of these institutions. 

For more information on our supervisory 

and enforcement approach, see pages 35 

to 37. For more information on the condition and performance of the System, see 

the 2018 Annual Information Statement 

of the Farm Credit System on the website 

of the Federal Farm Credit Banks Funding 

Corporation. 

For many agricultural producers, 

2018 was another challenging year. As 

Figure 4

Estimated market shares of U.S. farm business debt 

As of Dec. 31, 2018

Commercial banks – 41.7%

Farm Credit System – 41.4%

Life insurance companies – 3.9%

Individuals and others – 8.5%

Farmer Mac – 1.6%

Farm Service Agency – 2.8%

Source: FCA’s Office of Regulatory Policy, based on Aug. 30, 2019, data from USDA’s 

Economic Research Service.
20 | Farm Credit Administration

Table 2

Farm Credit System major financial indicators, by annual comparison

Dec. 31, 2018 

Dollars in thousands

At and for the 12 months ended 31-Dec-18 31-Dec-17 31-Dec-16 31-Dec-15 31-Dec-14

FCS Banks1

Total assets 306,394,952 289,079,600 281,973,917 267,587,575 249,370,568 

Gross loan volume 239,543,125 228,084,765 220,160,768 208,766,996 192,083,080 

Nonaccrual loans 424,665 324,571 292,938 231,520 227,872 

Cash and marketable investments 64,972,381 59,146,365 60,131,933 57,123,019 55,472,944 

Net income 2,264,932 2,191,414 2,016,110 1,945,693 2,042,527 

Nonperforming loans/Total loans2 0.19% 0.15% 0.16% 0.13% 0.15%

Capital/Assets3 6.34% 6.44% 6.35% 6.28% 6.41%

Unallocated retained earnings/Assets 2.63% 2.64% 2.59% 2.60% 2.62%

Return on assets 0.76% 0.77% 0.73% 0.74% 0.84%

Return on equity 11.67% 11.62% 11.13% 11.47% 12.76%

Net Interest margin4 0.92% 0.96% 0.98% 0.98% 1.05%

Operating expense ratio5 0.32% 0.33% 0.34% 0.33% 0.33%

Efficiency ratio6 26.13% 25.55% 25.37% 25.30% 24.20%

Payout ratio7 74.95% 71.36% 64.84% 59.44% 58.19%

FCS Associations 

Total assets 207,602,451 197,531,420 189,925,697 180,005,335 167,312,405 

Gross loan volume 195,379,456 186,319,454 179,317,967 169,995,422 157,543,635 

Nonaccrual loans 1,463,637 1,349,999 1,305,535 1,095,206 1,146,358 

Net income 4,280,661 3,684,910 3,375,183 3,126,729 3,383,894 

Nonperforming loans/Gross loans2 0.90% 0.88% 0.90% 0.80% 0.92%

Capital/Assets3 19.51% 19.32% 18.84% 18.68% 18.78%

Unallocated retained earnings/Assets 12.31% 11.96% 12.75% 13.24% 13.38%

Return on assets 2.08% 2.05% 1.80% 1.84% 2.07%

Return on equity 10.46% 10.37% 9.33% 9.57% 10.69%

Net interest margin4 2.69% 2.71% 2.66% 2.68% 2.75%

Operating expense ratio5 1.42% 1.42% 1.48% 1.50% 1.51%

Efficiency ratio6 35.65% 32.95% 40.78% 41.38% 39.52%

Payout ratio7 42.52% 33.04% 31.35% 28.31% 25.22%

Total Farm Credit System8

Total assets 348,992,000 329,518,000 319,915,000 303,503,000 282,733,000 

Gross loan volume 271,944,000 258,777,000 248,768,000 235,890,000 217,054,000 

Bonds and notes 283,276,000 267,119,000 260,213,000 246,214,000 229,064,000 

Nonperforming loans 2,198,000 1,967,000 1,962,000 1,629,000 1,737,000 

Nonaccrual loans 1,883,000 1,660,000 1,591,000 1,324,000 1,375,000 

Net income, year-to-date 5,332,000 5,189,000 4,848,000 4,688,000 4,724,000 

Nonperforming loans/Gross loans2 0.81% 0.76% 0.79% 0.69% 0.80%

Capital/Assets3 16.75% 16.81% 16.35% 16.09% 16.17%

Surplus/Assets 13.31% 13.24% 13.50% 13.33% 13.36%

Return on assets 1.58% 1.61% 1.55% 1.62% 1.74%

Return on equity 9.27% 9.48% 9.41% 9.75% 10.50%

Net interest margin4 2.46% 2.48% 2.49% 2.55% 2.64%

Sources: FCA’s Consolidated Reporting System as of December 31, 2018, and the Farm Credit System Quarterly Information 

Statement provided by the Federal Farm Credit Banks Funding Corporation.

1 Includes Farm Credit Banks and the Agricultural Credit Bank.

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

3 Capital includes restricted capital (amount in Farm Credit Insurance Fund) and excludes mandatorily redeemable preferred 

stock and protected borrower capital.

4 Net interest margin ratio measures net income produced by interest-earning assets, including the effect of loanable funds, 

and is a key indicator of loan pricing effectiveness.

5 Operating expenses divided by average gross loans, annualized.

6 The efficiency ratio measures total noninterest expenses for the preceding 12 months divided by net interest income plus 

noninterest income for the preceding 12 months.

7 The percentage of earnings paid out in dividends to shareholders. This ratio is only valid at Dec. 31.

8 Cannot be derived by adding the categories above because of intradistrict and intra-System eliminations used in Reports to 

Investors
2018 Annual Report on the Farm Credit System 2018 Annual Report on the Famr Credit System | 21

of March 2019, the USDA estimated 2018 

net cash farm income at $91.4 billion, 

down 9.6% from 2017. Generally, world 

economic conditions continued to support 

global demand for agricultural products 

in 2018, however, U.S. producer returns 

were affected by trade policy uncertainties, retaliatory tariffs, and strong global 

competition. 

With production levels above demand 

needs, producers in several key crop and 

livestock sectors saw a continuation of low 

prices and tight margins in 2018. Higher 

operating costs associated with labor, farm 

inputs, and other expenses put additional 

pressure on farm cash flows and liquidity 

levels. While high crop yields, trade-related USDA payments and other farm programs provided some relief, many producers continued to face significant financial 

challenges.

As anticipated, the Federal Reserve 

continued to raise its key interest rate in 

2018 in response to strong economic and 

labor market conditions. Farmland values 

remained relatively stable despite higher 

interest rates as the volume of land for 

sale was balanced with demand in many 

markets. 

Table 3

Farm Credit System major financial indicators, by district

December 31, 2018 

Dollars in thousands

District Total Assets Gross Loan 

Volume

NonAccrual 

Loans

Allowance 

for Loan 

Losses

Cash and 

Marketable 

Investments1

Capital 

Stock2

Total 

Capital3

Net 

Income4

Net 

Income 

Year-toDate

Operating 

Expense 

Ratio5

FCS Banks

AgFirst 33,078,462 24,275,882 24,743 18,049 8,520,166 317,840 2,223,697 79,353 305,987 0.56%

AgriBank 109,771,684 92,716,701 54,147 25,571 16,263,117 2,551,085 5,887,765 143,341 577,639 0.14%

CoBank 139,015,657 104,493,855 326,288 621,591 34,051,457 3,415,654 9,534,933 253,645 1,190,775 0.36%

Texas 24,529,149 18,056,687 19,487 11,974 6,137,641 316,463 1,776,932 54,305 190,531 0.60%

Total 306,394,952 239,543,125 424,665 677,185 64,972,381 6,601,042 19,423,327 530,644 2,264,932 0.32%

FCS Associations 

AgFirst 22,701,354 21,771,577 236,438 191,609 98,820 140,834 4,735,341 235,387 554,362 1.85%

AgriBank 106,145,633 98,786,434 742,512 465,236 2,671,445 266,625 20,532,022 662,567 2,078,462 1.31%

CoBank 59,519,370 56,235,203 384,529 309,177 278,005 70,110 12,042,784 296,669 1,248,027 1.41%

Texas 19,236,094 18,586,242 100,158 70,095 25,888 65,361 3,185,783 95,420 399,810 1.47%

Total 207,602,451 195,379,456 1,463,637 1,036,117 3,074,158 542,930 40,495,930 1,290,043 4,280,661 1.42%

Total FCS6 348,992,000 271,944,000 1,883,000 1,713,000 67,905,000 1,937,000 58,444,000 1,320,000 5,332,000

Sources: FCA’s Consolidated Reporting System as of December 31, 2018, and the Farm Credit System Quarterly Information Statement provided by the Federal 

Farm Credit Banks Funding Corporation.

1 Includes accrued interest receivable on marketable investments.

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

3 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 $4.881 billion of restricted capital, which is the amount in the Farm Credit Insurance Fund. Excludes mandatorily 

redeemable preferred stock and protected borrower capital.

4 Net income for the quarter.

5 Operating expense per $100 of gross loans.

6 Cannot be derived by adding the categories above because of intradistrict and intra-System eliminations used in Reports to Investors.
22 | Farm Credit Administration

Earnings

The System reported strong earnings in 

2018. For the year, System net income 

equaled $5.3 billion, up $143 million or 

2.8% from 2017 (See figure 5). Increases in 

net interest income of $264 million and 

noninterest income of $92 million offset 

$128 million in higher noninterest expense 

and $88 million in additional provision for 

income taxes.

The increase in net interest income 

was primarily due to the higher level of 

average earning assets, partially offset by 

a decline in net interest spread. Driven 

largely by growth in loan volume, average 

earning assets increased $13.8 billion, or 

4.4%, to $324.8 billion. Net interest spread 

decreased 13 basis points to 2.12% as the 

rising cost of System debt continued to 

outpace the increase in rate on earning assets. Net interest margin decreased 2 basis 

points to 2.46%. An increase of 11 basis 

points in income earned on earnings assets funded by noninterest-bearing sources (principally capital) helped offset the 

decline in net interest spread. Return on 

average assets decreased to 1.59% in 2018 

from 1.62% in 2017. The return on average 

capital dropped to 9.29% from 9.49%

As cooperative institutions, FCS banks 

and associations typically pass on a portion of their earnings as patronage distributions to their borrower-owners. For 

2018, System institutions declared a total 

of $2.3 billion in patronage distributions 

— $1.91 billion in cash, $257 million in 

allocated retained earnings, and $102 million in stock. This represents 42.6% of the 

System’s net income for 2018 as compared 

with 38.5% in 2017. The System also distributed $242 million in cash from allocated retained earnings related to patronage 

distributions from previous years. 

System growth

The System continued to grow at a moderate pace in 2018. Total assets increased to 

$349.0 billion, up $19.5 billion or 5.9% 

from 2017. Gross loan balances were 

$271.9 billion at year-end, up $13.2 billion 

or 5.1% in 2018, compared with 4.0% in 

2017. (See figure 6.)

Growth in the System’s portfolio was primarily in real estate mortgage, production 

and intermediate-term, and processing 

and marketing loans. Real estate mortgages, the largest segment of the System’s loan 

portfolio at 46%, grew by $5.4 billion, or 

4.5%. Production and intermediate-term 

loans, the System’s second largest loan 

category at 20%, increased $1.7 billion, or 

3.3%, Processing and marketing loans, accounting for 9% of the loan portfolio, were 

up $3.3 billion, or 15.1% in 2018. 

Loan volume was up for all commodity 

categories in 2018. The cash grains and 

Figure 5

FCS net income, 2010 – 2018

As of Dec. 31, Dollars in billions

$3.50

$3.94 $4.12

$4.64 $4.72 $4.69 $4.85 $5.19 $5.33

1.60%

1.71%

1.74%

1.86%

1.77%

1.64%

1.56%

1.62%

1.59%

10.90%

11.21%

10.96%

11.43%

10.62%

9.87%

9.44% 9.49% 9.29%

2010 2011 2012 2013 2014 2015 2016 2017 2018 

0%

2%

4%

6%

8%

10%

12%

14%

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

Net income (loss) Return on

average assets

Return on 

average capital

Rate of return

As of Dec. 31, Dollars in billions

Source: Annual Information Statements of the Federal Farm Credit Banks Funding 

Corporation. 
2018 Annual Report on the Farm Credit System | 23

Figure 6

Annual growth rate of FCS loans outstanding, 2007 – 2018

15.8% 

13.0% 

2.1% 

6.4% 

-0.4% 

9.9% 

4.8% 

8.0% 8.7% 

5.5% 

4.0% 

5.1% 

0%

2%

-2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 

$271.9 B 

$258.8 B 

Source: Annual Information Statements of the Federal Farm Credit Banks Funding 

Corporation.

cattle sectors represent the System’s two 

largest commodity categories, equaling 

just over 25% of the total loan portfolio. 

Lending to the cash grains sector was up 

1% in 2018. Lending to the cattle sector 

was up 4%, reflecting generally favorable 

producer margins during the year.

Asset quality

Loan quality in the System’s portfolio 

continued to be good in 2018 although 

credit risk increased for certain crop and 

livestock sectors. For these sectors, weak 

pricing caused by supply and demand imbalances, trade uncertainties, and rising 

input costs negatively impacted producer 

profits. While some additional deterioration in portfolio credit quality is likely in 

2019, the expected level of credit stress in 

the portfolio is well within the System’s 

risk-bearing capacity. 

As of Dec. 31, 2018, nonperforming 

loans totaled $2.2 billion, or 0.81% of gross 

loans outstanding. This is up from $2.0 billion, or 0.76%, at year-end 2017. (See 

figure 7.) Loan delinquencies (accruing 

loans that are 30 days or more past due) increased to 0.31% of total accruing loans 

from 0.25% at year-end 2017. In total, 

93.4% of System loans were classified as 

acceptable, down from 93.9% at year-end 

2017. 

The allowance for loan losses was $1.7 

billion, or 0.63% of loans outstanding, 

at year-end 2018. This compares with an 

allowance for loan losses of $1.6 billion, 

or 0.62% of loans outstanding, at year-end 

2017. The System recognized provisions 

for loan losses of $194 million in 2018 as 

compared with $197 million in 2017 and 

$266 million in 2016. Net loan charge-offs 

were up slightly but remained relatively 

low at $89 million in 2018 as compared 

with $80 million in 2017.

Figure 7 

FCS nonperforming loans, 2013 – 2018

As of Dec. 31

0.0%

0.5%

1.0%

1.5%

2.0%

1.01%

2013

0.80%

2014

0.69%

2015

0.79%

2016

0.76%

2017

0.81%

2018

As of Dec. 31

Percentage of gross loans

Nonaccrual loans Restructured loans Past-due loans 

Sources: Annual Information Statements of the Federal Farm Credit Banks Funding 

Corporation.
24 | Farm Credit Administration

Funding

Throughout 2018, the System had reliable 

access to the global debt capital markets to 

support its mission, and investor demand 

for System debt securities remained favorable across all products. Year-over-year, 

the amount of Systemwide debt securities 

due within a year increased 6.2% while 

securities with maturities greater than one 

year increased by 6.1%. In total, Systemwide debt increased by 6.1%. 

The System’s funding composition remained unchanged in 2018 with securities 

due within a year accounting for 38.8% 

of total Systemwide debt (See page 39 for 

further discussion of the System’s funding 

activities.)

Liquidity

Each System bank maintains a liquidity 

reserve to ensure it has enough liquidity 

to meet its business and financial needs, 

especially during unforeseen disruptions 

in the capital markets. As of Dec. 31, 2018, 

each System bank was in compliance with 

the regulatory minimum levels required 

for its liquidity reserve. Liquidity position 

is measured by the number of days that a 

bank may operate with no access to funds 

from the capital markets. By regulation, 

banks must maintain a minimum of 90 

days of liquidity. As of year-end 2018, 

the liquidity positions of the four System 

banks ranged from 160 days to 241 days. 

The System’s overall liquidity position on 

a consolidated basis was 182 days, as compared with 175 days as of Dec. 31, 2017. 

System investments available-for-sale 

(based on fair value) increased to $58.5 

billion and had a weighted average yield 

of 2.39%. Under FCA regulations, each 

System bank may hold federal funds and 

available-for-sale securities in an amount 

not to exceed 35% of its average loans outstanding for the quarter.

Excluded from the bank’s liquidity 

calculations and the eligible investment 

Figure 8

FCS capital, 2011 – 2018

As of Dec. 31

$35.9 $38.6 $42.6 $45.7 $48.8

$55.4 $58.4

15.6%

15.7%

16.3%

16.2%

16.1%

16.4%

16.8%

16.7%

12%

13%

14%

15%

16%

17%

18%

19%

20%

21%

22%

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

2011 2012 2013 2014 2015 2016 2017 2018

Capital as a percentage of assets

As of Dec. 31

Dollars in billions

Retained earnings 

and other

Restricted 

capital

Common stock Preferred stock Capital/Assets

$52.3

$35.9 $38.6 $42.6 $45.7 $48.8

$55.4 $58.4

15.6%

15.7%

16.3%

16.2%

16.1%

16.4%

16.8%

16.7%

12%

13%

14%

15%

16%

17%

18%

19%

20%

21%

22%

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70

2011 2012 2013 2014 2015 2016 2017 2018

Capital as a percentage of assets

As of Dec. 31

Dollars in billions

Retained earnings 

and other

Restricted 

capital

Common stock Preferred stock Capital/Assets

$52.3

Sources: Annual Information Statements of the Federal Farm Credit Banks Funding Corporation.
2018 Annual Report on the Farm Credit System | 25

limitation are the System’s mission-related 

investments. Mission-related and other investments available for sale (based on fair 

value) equaled $467 million, with a weighted average yield of 3.21%. Mission-related 

and other investments held to maturity 

equaled $2.7 billion, with a weighted average yield of 3.78%. 

Criteria for eligible investments are defined by FCA regulations. If an investment 

no longer meets the eligibility criteria, it 

becomes ineligible for regulatory liquidity 

calculation purposes, but the bank may 

continue to hold the investment provided 

certain requirements are met.

Capital

Strong earnings continued to support 

System capital growth in 2018. Total capital equaled $58.4 billion at Dec. 31, 2018, 

compared with $55.4 billion at year-end 

2017. At year-end 2018, the System’s capital-to-assets ratio was 16.7%, compared 

with 16.8% in 2017. 

As illustrated in figure 8, retained earnings is the most significant component of 

System capital at 79.5%. FCA regulations 

establish minimum capital levels that each 

System bank and association must achieve 

and maintain. As of Dec. 31, 2018, capital 

levels at all System banks and associations 

were above the regulatory minimum capital requirements.

As an additional layer of protection for 

Systemwide debt securities holders, the 

FCS had $5.0 billion of restricted capital in 

the Farm Credit Insurance Fund as of Dec. 

31, 2018.

Ratings

FCA uses the Financial Institution Rating 

System (FIRS) to assess the safety and 

soundness of each FCS institution. Similar to the systems used by other federal 

banking regulators, FIRS is a framework of 

component and composite ratings to help 

examiners evaluate significant financial, asset quality, and management factors. FIRS 

ratings range from 1 for a sound institution 

to 5 for an institution that is likely to fail.

As figure 9 shows, the financial condition and performance of the FCS remains 

strong. The System’s strength reduces the 

risk to investors in FCS debt, to the Farm 

Credit System Insurance Corporation, and 

to FCS institution stockholders.

Based on the institutions’ Dec. 31, 2018, 

financial information, 66 FCS institutions 

were rated 1 or 2 (90%) and 7 institutions 

were rated 3 or lower (10%). The institutions rated 3 or lower represented less 

than 2.5% of the System’s total assets, 

which is well within the System’s risk-bearing capacity.

Figure 9

Financial Institution Rating System (FIRS) composite 

ratings for the FCS, 2015 – 2019

1 Rated 2 Rated 3 Rated or Worse

0%

20%

40%

60%

80%

100%

44

32

4

01/01/15

46

29

3

01/01/16

44

31

2

01/01/17

39

29

5

01/01/18

34

32

7

01/01/19

Percentage of rated institutions

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. 
Each institution must annually 

report to FCA on the operations and 

achievements of its YBS program.
2018 Annual Report on the Farm Credit System | 27

Serving young, beginning, and small farmers 

and ranchers

FCA supports the Farm 

Credit System’s mission to serve young, 

beginning, and small (YBS) farmers, 

ranchers, and producers and harvesters of 

aquatic products. We define young farmers 

as those who are 35 years old or younger, 

beginning farmers as those who have been 

farming for 10 years or less, and small 

farmers as those with less than $250,000 in 

annual sales.

The System’s YBS mission is outlined in 

the Farm Credit Act, and we have adopted 

regulations to implement the YBS provisions of the act. The Farm Credit Act and 

FCA regulations stipulate that each System 

bank must have written policies that direct 

each association to have the following: 

• A program for furnishing sound and 

constructive credit and financially 

related services to YBS farmers 

• A mission statement describing the 

program’s objectives and specific 

means to achieve the objectives 

• Annual quantitative targets for credit 

to YBS farmers 

• Outreach efforts and annual qualitative goals for offering credit and 

related services that meet the needs 

of YBS farmers 

The association’s board oversight and 

reporting are key parts of every YBS 

program. Each institution must annually report to FCA on the operations and 

achievements of its YBS program. Each 

association must also establish an internal 

control program to ensure that it provides 

credit in a safe and sound manner. 

In addition, FCA regulations require 

association business plans to include a 

marketing plan and strategies with specific 

outreach toward diversity and inclusion 

within each market segment. Operational 

and strategic business plans must include 

the goals and targets for the association’s 

YBS lending. System institutions must also 

coordinate with other government and 

private sources of credit in implementing 

their YBS programs. FCA’s oversight and 

examination activities monitor each institution’s assessment of its performance and 

market penetration in the YBS area. 

Current reporting practices and guidance involve technology, data, and standards developed primarily in the 1990s. To 

provide a more accurate picture of System 

service to YBS producers, we issued an advance notice of public rulemaking on the 

topic in February 2019. The purpose of this 

notice was to solicit public input on how 

we might achieve the following:

• Improve the accuracy, transparency, 

and process by which we ensure that 

YBS farmer data are properly collected and reported by the FCS

• Clarify the definitions of terms related to the collection, reporting, and 

identification of YBS farmer data

• Ensure the definitions of YBS farmers 

and related terms remain relevant 

and reflective of the evolving agricultural economy
28 | Farm Credit Administration

• Evaluate the effectiveness of each FCS 

institution’s YBS program to achieve 

its mission of serving YBS farmers

The 90-day comment period on the public 

notice closed in May 2019. We appreciate 

the comments we received, and we’re in the 

process of reviewing this input and developing additional guidance to enhance the 

reporting, definitions, evaluation, and service related to YBS farmers and ranchers. 

FCA is committed to a long-term strategy 

to improve and modernize these efforts. In 

2020, we plan to provide the System updated guidance regarding the YBS mission. 

Quantitative results 

The following information summarizes 

the quantitative information that System institutions provided for their YBS 

programs. 

In 2018, a total of 257,318 new loans 

were made by the System, totaling $85.7 

billion. The total number of outstanding loans at year-end 2018 was 910,111, 

amounting to $263.8 billion. 

Young: The System reported making 

46,680 new loans to young farmers in 2018, 

and the volume of these loans amounted 

Table 4A

YBS loans made during 2018

YBS category Number of loans Percentage of 

total number of 

System loans

Dollar volume of 

loans in millions

Percentage of 

total volume of 

System loans

Average loan size

Young 46,680 18.1% $9,765 11.4% $209,200

Beginning 62,323 24.2% $13,327 15.6% $213,839

Small 114,817 44.6% $12,479 14.6% $108,684

Table 4B

YBS loans outstanding as of Dec. 31, 2018

YBS category Number of loans Percentage of 

total number of 

System loans

Dollar volume of 

loans in millions

Percentage of 

total volume of 

System loans

Average loan size

Young 177,132 19.5% $30,885 11.7% $174,363

Beginning 268,444 29.5% $47,100 17.9% $175,455

Small 456,305 50.1% $49,533 18.8% $108,552

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

Note: The YBS totals listed in tables 4A and 4B include loans, advancements, commitments, and participation interests to farmers, ranchers, and 

aquatic producers, and exclude rural home loans made under 613.3030, loans to cooperatives, and activities of the Farm Credit Leasing Services 

Corporation.
2018 Annual Report on the Famr Credit System | 29

to $9.8 billion. The new loans made to 

young farmers in 2018 represented 18.1% 

of all loans the System made during the 

year and 11.4% of the dollar volume of 

loans made. At the end of 2018, the System 

reported 177,132 loans outstanding to 

young farmers, totaling $30.9 billion. 

Beginning: The System reported making 

62,323 new loans to beginning farmers 

in 2018, and the volume of these loans 

amounted to $13.3 billion. The new loans 

made to beginning farmers in 2018 represented 24.2% of all System loans made 

during the year and 15.6% of the dollar 

volume of loans made. At the end of 2018, 

the System reported 268,444 loans outstanding to beginning farmers, totaling 

$47.1 billion. 

Small: System institutions reported making 114,817 new loans to small farmers in 

2018, totaling $12.5 billion. The new loans 

made to small farmers in 2018 represented 

44.6% of all System loans made during 

the year and 14.6% of the dollar volume of 

loans made. At the end of 2018, the System 

reported 456,305 loans outstanding to 

small farmers, totaling $49.5 billion. 

Please note: Because the YBS mission is 

focused on each borrower group separately, data are reported separately for each of 

the three YBS categories. Since some loans 

fit more than one category, adding the 

loans across categories does not produce 

an accurate measure of the System’s YBS 

lending involvement. 

New loans made in 2018 by dollar volume 

From December 31, 2017, to December 31, 

2018, the System’s overall new loan dollar 

volume increased by 12.2%. New loan dollar volume to young farmers increased by 

FCA supports the Farm Credit 

System’s mission to serve 

young, beginning, and small 

(YBS) farmers, ranchers, and 

producers and harvesters of 

aquatic products.
30 | Farm Credit Administration

7.6%, to beginning farmers by 7.1%, and 

to small farmers by 6.8%. (See table 5A.)

The number of loans made during the 

year decreased for both total System lending and for all YBS categories. The number 

of total System loans made during the year 

decreased by 21.4%. The number of loans 

to young farmers decreased by 17.7%, 

while the number of loans to beginning 

farmers decreased by 15.5% and to small 

farmers by 16.1%.

The ratio of new YBS loans (by number) 

to total new System loans increased from 

2017 to 2018. For young farmers, the ratio 

increased from 17.3% to 18.1%, for beginning farmers from 22.5% to 24.2%, and for 

small farmers from 41.8% to 44.6%. (See 

figures 10A, 10B, and 10C). 

Outstanding loans by dollar volume 

Both the dollar volume of the System’s total 

loans outstanding and the dollar volume of 

YBS loans outstanding increased in 2018. 

Total System loan dollar volume outstanding increased by 3.2%, and loan dollar volume outstanding to young farmers increased by 6.2%, to beginning farmers by 

4.5%, and to small farmers by 1.8%. (See 

table 5B.)

Outstanding loans by number of loans 

The total number of loans outstanding 

both for the System as a whole and for YBS 

borrowers decreased in 2018. The number 

of System loans outstanding decreased by 

9.5%. The number of loans outstanding 

to young farmers decreased by 5.3%, to 

beginning farmers by 3.8%, and to small 

farmers by 6.8%.

The ratio of outstanding YBS loans (by 

number) to total outstanding System loans 

increased from 2017 to 2018. For young 

farmers, the ratio increased from 18.6% to 

19.5%, for beginning farmers from 27.7% 

to 29.5%, and for small farmers from 

48.7% to 50.1%.

The decrease in the number of new and 

outstanding loans was primarily driven 

by changes in the way System institutions 

have been tracking loan participations — 

which are loans that are shared by two or 

more institutions. Under the current approach and FCA’s direction for reporting, 

an institution may count each participation interest as a separate loan for FCA’s 

YBS reporting. Therefore, each institution 

participating in a multi-lender credit to 

an individual YBS farmer may count that 

credit in its YBS reporting. This leads to 

duplication when the YBS and non-YBS 

numbers are consolidated at the Systemwide level. 

Table 5A

Change in new YBS lending from 2017 

to 2018

YBS category Dollar volume Loan numbers

Young 7.6% -17.7%

Beginning 7.1% -15.5%

Small 6.8% -16.1%

Table 5B

Change in outstanding YBS lending 

from 2017 to 2018

YBS category Dollar volume Loan numbers

Young 6.2% -5.3%

Beginning 4.5% -3.8%

Small 1.8% -6.8%
2018 Annual Report on the Farm Credit System | 31

Figure 10A

Young farmers and ranchers

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

50,000

–

100,000

150,000

200,000

250,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Number of loans in thousands

Percentage of total FCS loans made

Figure 10B

Beginning farmers and ranchers

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

35.0%

30.0%

50,000

100,000

150,000

200,000

250,000

300,000

Number of loans in thousands

Percentage of total FCS loans made

–

Figure 10C

Small farmers and ranchers

0.0%

10.0%

20.0%

30.0%

40.0%

60.0%

50.0%

100,000

200,000

300,000

400,000

500,000

600,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Number of loans in thousands

Percentage of total FCS loans made

–

Number of young, beginning, or small 

loans made (left scale)

Number of young, beginning, or small 

loans outstanding (left scale)

Number of young, beginning, or small 

loans made as a precentage of total FCS 

loans made (right scale)

Number of young, beginning, or small 

loans outstanding as a percentage of total 

FCS loans outstanding (right scale)
32 | Farm Credit Administration

In 2018, a change in how certain credits 

are shared led to a reduction in reported 

loan numbers. FCA issued an advance notice of proposed rulemaking in February 

of this year as a first step in a multi-year 

effort to improve and modernize YBS activities. FCA is actively working to update 

guidance, methodology, data collection, 

and evaluation of YBS activities.

Qualitative results 

System institutions are responsible for 

serving the needs of YBS farmers in a safe 

and sound manner, and they do so in various ways. Most institutions use federal or 

state loan guarantees as part of their YBS 

programs. Some institutions have specific 

YBS capital commitment programs to mitigate credit risk and help them make YBS 

loans. Some institutions also use YBS-specific underwriting standards, personal 

guarantors, and co-signers. 

FCA regulations require institutions 

to establish goals for offering “related” 

services to YBS farmers, as well as credit. 

To provide these services, institutions 

coordinate with other System institutions 

and government and private sources. Examples of services offered in 2018 include 

the following: 

• Crop insurance 

• Risk management seminars

• Financial document preparation

• Educational courses 

• Farm management seminars 

• Generational transfer workshops

Institutions reported networking and partnering with a host of agencies and organizations, including USDA’s Farm Service 

Agency, district funding banks, Extension 

Service staff, other Farm Credit System 

institutions, producer organizations, 

nonprofits, state and local government, 

and the Natural Resources Conservation 

Service. 

Institutions conducted new studies or 

updated previous studies that researched 

the demographic diversity and financial needs of current and potential YBS 

farmers. Through these studies and other 

efforts, institutions identified new market 

segments and worked to reach underserved segments. They tailored their educational programs and market outreach 

to the needs of new and existing markets. 

Some examples of these targeted market 

segments are veterans, women, next-generation farmers, minority farmers, organic 

farmers, and local food hubs.

Outreach programs were used to 

connect with current and potential YBS 

farmers. In 2018, some institutions updated their websites and started new and 

potential borrower relations campaigns. 

Some attended and sponsored tradeshows, 

educational seminars, county fairs, and 

commodity group events. Some gave 

scholarships and grants to those looking to 

continue their education or acquire trade 

skills. Some institutions worked with ethnic organizations and local and regional 

food banks. 

Of the institutions that provided educational opportunities for YBS borrowers, 

some offered one-time classes or webinars, while others had multiyear programs 

with in-depth curriculums, covering such 

topics as ag leadership, business planning, 

personal finance, commodity marketing, 

crop insurance, risk management, and 

succession and retirement planning. 

Some institutions also held economic 

outlook meetings and next-generation 

conferences. 

Institutions employed a variety of advertising methods to reach potential YBS 

farmers in 2018. They increased their social media activity; issued press releases; 
2018 Annual Report on the Farm Credit System | 33

advertised through magazines, radio, and 

television; published blogs and websites; 

and networked person to person. 

Characteristics of YBS farmers 

According to the 2017 Census of Agriculture, approximately 9% of all farmers were 

35 years old or younger, and 12% of farms 

had at least one young farmer on the operation. Approximately 27% of all farmers 

had 10 or fewer years of experience in 

farming or ranching (that is, they were 

“beginning farmers”), and 29% of all farms 

had at least one beginning farmer on the 

operation. The average age of beginning 

farmers in 2017 was 46.3 years old — more 

than a decade younger than the overall 

average age of 57.5 years. 

In 2017 there were 1.8 million small 

farms — that is, farms with $250,000 or 

less in agricultural sales. As shown in 

figure 11, from 2007 to 2017, the number 

of small farms declined. The ratio of small 

farms to all farms also declined. These 

declines are at least partially due to inflation. Because of inflation, more and more 

farms would have grown out of the small 

category. However, despite the decrease in 

the relative share of small farms, they still 

composed a large majority (89%) of all 

farms in 2017.

Figure 11

Number of small farms Number of small farms

2007 2012 2017

# of small farms (le axis)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Source: FCA Office of Regulatory Policy, based on data from the 2017 Census of Agriculture.
Our examiners determine how 

issues affecting agriculture and 

the economy create risk for 

System institutions.
2018 Annual Report on the Farm Credit System | 35

Examining and regulating the banks 

and associations

Examination

Managing risk is a challenge for all kinds 

of lenders but especially for those lending 

to a single sector of the economy — in 

this case, agriculture. To manage this 

risk, Farm Credit 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. Our 

examiners determine how issues affecting 

agriculture and the economy create risk 

for System institutions. 

Our examiners also evaluate whether 

each institution is fulfilling its chartered 

mission to provide credit and financially 

related services to all eligible, creditworthy customers. They do so in a couple 

of ways. They determine whether each institution is complying with mission-related 

laws and regulations. They also evaluate 

System outreach efforts and best practices 

in implementing innovative programs for 

serving the credit needs of eligible agricultural producers and cooperatives, including young, beginning, and small farmers 

and ranchers. 

Our examiners review System institutions’ annual reports and business plans 

and encourage institutions to include a 

discussion of how they are meeting their 

mission. Ongoing oversight and examination efforts continue to address diversity 

and inclusion, along with compliance with 

YBS regulations and YBS data integrity. 

As required by the Farm Credit Act, 

FCA examines each institution at least 

once every 18 months. In the interim between these statutory examinations, we 

also monitor and examine institutions as 

circumstances warrant. We customize our 

examination activities to each institution’s 

specific risks. To monitor and address 

FCS risk as effectively and efficiently as 

possible, we assign highest priority to 

institutions, or the parts of an institution’s 

operations, that present the greatest risk.

We require institutions to develop and 

maintain programs, policies, procedures, 

and controls to identify and manage risk. 

For example, our regulations require FCS 

institutions to have effective loan underwriting and loan administration processes. 

We also have regulations requiring FCS institutions to maintain strong asset-liability 

management capabilities.

National oversight program for FY 2019

In addition to monitoring risks that are 

unique to a single institution, we also 

monitor risks that affect the System as a 

whole. Each year we develop a national 

oversight plan that takes certain systemic 

risks into account. In 2019, we emphasized 

two types of risk:

• Portfolio risk. Production agriculture 

has experienced considerable stress 

in recent years, with a prolonged period of relatively low net farm income 

and low prices for key commodities. 

The stress during this period has 
36 | Farm Credit Administration

eroded the working capital and the 

debt repayment capacity of many 

producers. As a result, we monitored 

credit risk closely in FY 2019, particularly in loans to producers of cash 

grains, cattle, and dairy.

• Internal controls over financial reporting. Ensuring accurate financial 

reporting is critical to the System’s 

ability to sell its debt to investors. In 

examinations completed in 2019, we 

focused on the institutions’ internal 

controls over financial reporting. 

During those examinations, we tested 

to ensure the institutions’ controls 

included logical delegated authorities, clear segregation of duties, 

appropriate access controls to loan 

and accounting systems, and detective and corrective controls.

Three tiers of supervision

In examining and overseeing System institutions, we use a three-tiered 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 guidance 

to address weaknesses, and we give a timeframe for correcting 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 several 

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 

conditions of the enforcement document 

and report back to us on its progress in 

addressing the issues identified. The document may require the institution to take 

corrective actions, such as reducing risk 

exposures, increasing capital, enhancing 

earnings, and strengthening risk management. Our examiners oversee the institution’s performance to ensure compliance 

with the enforcement action.

As of Jan. 1, 2019, no FCS institutions 

were under enforcement action.

Borrower rights

We also examine institutions to make sure 

they are complying with the borrower 

rights provisions of the Farm Credit Act. 

These provisions provide certain System 

borrowers and loan applicants with the 

following rights: 
2018 Annual Report on the Farm Credit System | 37

• To know the current effective rate of 

interest on their loan by the date it 

closes

• To be informed that they are required 

to purchase at-risk stock in their FCS 

institution

• To receive copies of all the documents 

they have signed by the time the loan 

closes

• To be informed promptly as to whether their loan application has been 

accepted, reduced, or denied

• To be informed of their right to request restructuring for their loan if 

they cannot meet current payments

• To obtain a credit committee review 

of a denial or reduction of a loan request and a denial of a restructuring 

request

• To have first refusal when their FCS 

institution decides to sell any agricultural property it has acquired from 

them

We also receive and review complaints 

from borrowers who believe their rights 

have been denied. If we find violations of 

law or regulations, we have several options 

to bring about corrective action. In 2018, 

we received 43 borrower complaints, compared with 39 in 2017.

Regulation

As the regulator of the Farm Credit System, we issue regulations, policy statements, and other guidance to ensure that 

the System, including its banks, associations, Farmer Mac, and other related 

entities, complies with the law, operates in 

a safe and sound manner, and efficiently 

carries out its statutory mission. Our regulatory philosophy is to provide an 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, well-reasoned regulations whose benefits outweigh their costs. With our regulations, we 

seek to meet two general objectives. The 

first is to ensure that the System continues 

to be a dependable source of credit and 

related services for agriculture and rural 

America while also ensuring that System 

institutions comply with the law and with 

the principles of safety and soundness. 

The second is to promote participation by 

member-borrowers in the management, 

control, and ownership of their System 

institutions.

Regulatory activity in 2018

The following paragraphs describe some 

of FCA’s regulatory efforts in 2018, along 

with several projects that will remain 

active in 2019. More information on these 

topics is available on our website. From 

the Laws & Regulations tab at www.fca.

gov, you can read our board policy statements, bookletters, informational memorandums, proposed rules, and any final 

rules whose effective dates are pending.

Investment eligibility — The FCA board 

approved a final rule in May 2018 that 

amended the FCA regulations governing 

eligible investments and investment management at System banks and associations. 

Standards of conduct — The FCA board 

approved a proposed rule in May 2018 

that would require each System institution 

to have a Standards of Conduct Program 

and a code of ethics that put into practice 

core ethical values as part of its corporate 

culture. 
38 | Farm Credit Administration

Margin and capital requirements for 

swap entities — The FCA board approved 

a proposed rule in January 2018 and a final rule in September 2018 that amended 

the definition of “eligible master netting 

agreement” in the final regulation on margin and capital requirements for covered 

swap entities. 

Eligibility criteria for outside directors 

— The FCA board approved a proposed 

rule in July 2018 that would amend the 

eligibility criteria for outside director candidates to ensure independence of outside 

directors. 

Lending and loan servicing controls — 

The FCA board approved a bookletter in 

March 2018 to convey our expectation that 

each System institution will continuously 

assess its lending and loan servicing controls to ensure the controls remain effective and comply with FCA regulations. 

Revised capital treatment for certain 

rural water and wastewater facility 

exposures — The FCA board approved a 

bookletter in November 2018 to convey 

the reduced risk weight for certain rural 

water and wastewater exposures that meet 

specific criteria. 

Regulatory capital treatment of certain 

centrally cleared derivative contracts — 

We issued an informational memorandum 

in April 2018 to provide guidance to System 

institutions on regulatory capital treatment 

of certain centrally cleared derivative contracts. We issued this guidance in response 

to changes certain central counterparties 

have made to their rulebooks. 

Phase-out of LIBOR — We issued an informational memorandum in September 

2018 to provide guidance to System institutions on planning and preparing for the 

expected phase-out of the London Interbank Offered Rate (LIBOR).

Guidance on Farm Credit bank and association nominating committees — The 

FCA board revised an existing bookletter 

in November 2018 that provides guidance 

on organizing the nominating committees 

of System banks and associations. 

National Oversight and Examination Program for 2019 — We issued an informational memorandum in October 2018 that 

summarized the National Oversight Plan 

for 2019. The plan detailed strategies for 

addressing critical risks and other areas of 

focus.

Compensation for 2018 — We issued an informational memorandum in January 2018 

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. 

Loan syndications and assignment markets study — We continued to study loan 

syndications and assignment markets to 

determine whether our regulations should 

be modified to reflect significant changes 

in the markets.

Corporate activity in 2018

In 2018 and early 2019, we analyzed and 

approved two corporate applications. 

• On Jan. 1, 2018, an ACA affiliated with 

AgriBank changed its name.

• On July 1, 2019, an ACA affiliated with 

CoBank, ACB, combined its operations with another ACA in the CoBank 

district. The PCA and FLCA subsidiaries associated with the ACAs also 

combined their operations.
2018 Annual Report on the Farm Credit System | 39

The total number of associations as of 

July 1, 2019, was 68 (67 ACAs and 1 FLCA), 

unchanged from a year earlier. We publish 

information about corporate applications 

on our website at www.fca.gov. 

Funding activity in 2018

During 2018, the System maintained reliable access to the debt capital markets. Investors were attracted by the System’s status as a government-sponsored enterprise 

(GSE), as well as its financial performance 

and strength.

Risk spreads and pricing on System debt 

securities during 2018 remained favorable 

for the System. Since regulatory requirements promote the use of GSE debt, the 

System benefits from its GSE status; it also 

benefits from the continuing decline in 

debt issuances by the two housing-related 

GSEs, which were in conservatorship and 

were congressionally mandated to reduce 

their respective debt outstanding to $250 

billion by Jan. 1, 2019. As a result of the 

strong demand for System debt, the System was able to continue to issue debt on a 

wide maturity spectrum at highly competitive rates.

The System funds loans and investments primarily with a combination of 

consolidated Systemwide debt and equity 

capital. The Funding Corporation, the 

fiscal agent for System banks, sells debt 

securities, such as discount notes, bonds, 

designated bonds, and retail bonds, on 

behalf of the System. This process allows 

funds to efficiently flow from worldwide 

capital-market investors to agriculture and 

rural America, thereby providing rural 

communities with ready access to global 

resources. At year-end 2018, Systemwide 

debt outstanding was $281.5 billion, representing a 6.1% increase from the preceding year-end.

Several factors contributed to the $16.3 

billion increase in Systemwide debt outstanding. Gross loans increased $13.2 

billion in 2018, while the System’s combined investments, federal funds, and cash 

balances increased by $6.1 billion during 

the year.

The System had $2.62 billion in outstanding perpetual preferred stock at the 

end of 2018, $100 million more than at 

the previous year-end. The System had no 

outstanding subordinated debt at year-end 

2018. It also had no outstanding subordinated debt at year-end 2017. 

As the System’s regulator, we have several responsibilities pertaining to System 

funding activities. The Farm Credit Act 

requires the System to obtain our approval before distributing or selling debt. 

Because we make it a high priority to respond efficiently to the System’s requests 

for debt issuance approvals, we have a 

program, which we monitor on an ongoing 

basis, that allows the System to issue discount notes at any time up to an outstanding balance of $60 billion. In addition, we 

approve most longer-term debt issuances 

through a monthly “shelf” approval program. For 2018, we approved $127.5 billion 

in longer-term debt issuances through this 

program. 

The amount of debt issued by the System increased in 2018. For the 12 months 

ended Dec. 31, 2018, the System issued 

$309 billion in debt securities, compared 

with $278 billion in 2017, $334 billion 

in 2016, $298 billion in 2015, and $330 

billion in 2014. The System issued more 

debt in 2018 for two primary reasons: the 

domestic economy continued to grow, 

and the credit needs of System borrowers 

increased because of lower commodity 

prices.

The amount of outstanding debt on 

which the System exercised its call options 

declined substantially because of the 
40 | Farm Credit Administration

persistent increases in yields during 2018. 

The System exercised calls on $29 million 

of its outstanding debt in 2018, compared 

with $5.3 billion in the preceding year.

Favorable investor sentiment and a continuation of relatively low yields on the full 

spectrum of debt instruments allowed the 

System to access a wide range of debt maturities in 2018. The weighted average of 

remaining maturities was unchanged for 

2018 at 2.9 years. Meanwhile, the weighted-average interest rates for insured debt 

increased substantially, going from 1.64% 

as of Dec. 31, 2017, to 2.31% as of Dec. 31, 

2018. 

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. 

Furthermore, our regulations require 

each System bank to maintain a tier 1 

leverage ratio (primarily unallocated retained earnings and common cooperative 

equities divided by total assets) of not less 

than 4%. In addition, FCA regulations provide for a 1% leverage ratio buffer. Certain 

restrictions apply if the buffer does not 

exceed 1%. Throughout 2018, all System 

banks maintained their tier 1 leverage ratios above the required minimum and the 

accompanying buffer, with 5.5% being the 

lowest for any single bank as of Dec. 31, 

2018. 

All System banks have kept their respective days of liquidity above the required 

minimum levels. The lowest liquidity levels at any single bank as of Dec. 31, 2018, 

were as follows: 

• 22 days (15 days regulatory minimum) 

of level 1 assets 

• 70 days (30 days regulatory minimum) 

of level 1 and 2 assets 

• 135 days (90 days regulatory minimum) of level 1, 2, and 3 assets 

• 160 days overall (including the supplemental liquidity buffer) 

In addition to the protections provided by 

the joint and several liability provisions, 

the Funding Corporation and the System 

banks have entered into the following voluntary agreements: 

• The Amended and Restated Market 

Access Agreement, which establishes 

certain financial thresholds and provides the Funding Corporation with 

operational oversight and control 

over the System banks’ participation 

in Systemwide debt obligations. 

• The Amended and Restated Contractual Interbank Performance Agreement, which 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 2018, all 

Farm Credit System banks maintained scores above the benchmarks 

in the Contractual Interbank Performance Agreement. 
2018 Annual Report on the Farm Credit System | 41

Our regulations require each 

System bank to maintain a 

tier 1 leverage ratio (primarily 

unallocated retained earnings 

and common cooperative equities 

divided by total assets) of 

not less than 4%. 
Farmer Mac offers greater liquidity 

and lending capacity to agricultural 

and rural lenders.
2018 Annual Report on the Farm Credit System | 43

Farmer Mac

Created in 1988, the Federal 

Agricultural Mortgage Corporation 

(Farmer Mac) provides a secondary market for agricultural real estate loans, government-guaranteed portions of certain 

loans, rural housing mortgage loans, and 

eligible rural utility cooperative loans. It 

offers greater liquidity and lending capacity to agricultural and rural lenders, including insurance companies, credit unions, 

commercial banks, other FCS institutions, 

and investors.

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 other 

FCS institutions. Any investor may own 

nonvoting stock.

Farmer Mac is 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 conducts activities through 

four major lines of business:

• Farm & Ranch, which involves mortgage loans secured by first liens on 

agricultural real estate and rural 

housing.

• USDA Guarantees, 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 made by cooperative 

lenders to finance rural electric 

facilities. 

• Institutional Credit, which involves 

Farmer Mac’s purchase or guarantee of collateralized bonds known 

as AgVantage securities. AgVantage 

bonds are general obligations of the 

issuer that are secured by pools of 

eligible loans or real estate.

Farmer Mac purchases eligible loans 

directly from lenders, provides advances 

against eligible loans by purchasing obligations secured by those loans or assets 

that qualify as eligible agricultural real estate collateral, 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 held 

either by the originator of the underlying 

assets or by Farmer Mac, or they may be 

sold to third-party investors.

Examining and regulating Farmer Mac

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 
44 | Farm Credit Administration

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 examine Farmer 

Mac at least annually for capital adequacy, 

asset quality, management performance, 

earnings, liquidity, and interest rate sensitivity. We oversee and evaluate Farmer 

Mac’s safety and soundness and its mission achievement. We also supervise and 

issue regulations governing Farmer Mac’s 

operations. 

On Sept. 13, 2018, the FCA board approved a final rule governing eligibility criteria for Farmer Mac’s nonprogram investments. In the final rule, we also revised 

our creditworthiness standards. In doing 

so, we fulfilled a requirement of the DoddFrank Wall Street Reform and Consumer 

Protection Act requiring federal agencies 

to replace references to credit ratings in 

their regulations with some other measure 

of creditworthiness.

Later, in March 2019, the FCA board 

approved a bookletter to provide guidance 

to Farmer Mac on managing interest rate 

risk.

Financial condition of Farmer Mac

OSMO reviews Farmer Mac’s compliance 

with statutory and regulatory minimum 

capital requirements and supervises its 

operations and condition throughout the 

year. Table 6 summarizes Farmer Mac’s 

condensed balance sheets at the end of 

each calendar year from 2013 to 2018.

Capital

As of Dec. 31, 2018, Farmer Mac’s net 

worth (that is, equity capital determined 

using generally accepted accounting 

principles [GAAP]) was $752.6 million, 

compared with $708.1 million a year 

earlier. Its net worth was 4.0% of its onbalance-sheet assets as of Dec. 31, 2018, 

unchanged from 2017 results. Net worth, 

in terms of dollars, went up primarily because of increases in retained earnings. 

When Farmer Mac’s off-balance-sheet 

program assets (essentially its guarantee 

obligations) are added to its total on-balance-sheet assets, net worth was 3.3% as 

of Dec. 31, 2018, compared with 3.2% in 

2017. Farmer Mac continued to be in compliance with all statutory and regulatory 

minimum capital requirements.

At year-end 2018, 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. It totaled $727.6 million, exceeding 

the statutory minimum capital requirements of $545.0 million by $182.6 million 

or 33.5%.

Its regulatory capital (core capital plus 

allowance for losses) exceeded the required amount as determined by the RiskBased Capital Stress Test. Farmer Mac’s 

regulatory capital totaled $736.8 million as 

of Dec. 31, 2018, exceeding the regulatory 

risk-based capital requirement of $119.0 

million by $617.8 million.

Regulatory capital was 4.3% of total 

Farm & Ranch and Rural Utilities Program volume (including both on- and 

off-balance-sheet volume but excluding 

USDA guarantees). Risk exposure on USDA 

guaranteed portions is very low because 

they are backed by the U.S. Department 

of Agriculture. Table 7 offers a historical 

perspective on capital and capital requirements for 2013 through 2018.
2018 Annual Report on the Farm Credit System 2018 Annual Report on the Famr Credit System | 45

Table 6

Farmer Mac condensed balance sheets, 2013 – 2018

As of Dec. 31 

Dollars in millions

Financial statement 

line item

2013 2014 2015 2016 2017 2018 Growth rate 

2017–2018

Total assets $13,361.8 $14,287.8 $15,540.4 $15,606.0 $17,792.3 $18,694.3 5.1%

Total liabilities $12,787.3 $13,506.0 $14,986.6 $14,962.4 $17,084.1 $17,941.8 5.0%

Net worth or equity capital $574.5 $781.8 $553.7 $643.6 $708.1 $752.6 6.3%

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

Table 7

Farmer Mac capital positions, 2013 – 2018

As of Dec. 31 

Dollars in millions

Capital category 2013 2014 2015 2016 2017 2018

GAAP equity $574.5 $781.8 $553.7 $643.6 $708.1 $752.6

Core capital $590.7 $766.3 $564.5 $609.7 $657.1 $727.6

Regulatory capital $604.0 $776.4 $571.1 $617.1 $665.9 $736.8

Statutory requirement $398.5 $421.3 $462.1 $466.5 $520.3 $545.0

Regulatory requirement $90.8 $121.6 $72.2 $104.8 $235.4 $119.0

Surplus core capital over 

statutory requirement*

$192.2 $345.0 $102.4 $143.2 $136.8 $182.6

Capital margin excess 

over the minimum

48.2% 81.9% 22.2% 30.7% 26.3% 33.5%

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

* 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.

Table 8

Farmer Mac condensed statements of operations, 2013 – 2018

As of Dec. 31 

Dollars in millions

Income statement 

category

2013 2014 2015 2016 2017 2018 Growth rate 

2017–2018

Total revenues $164.4 $103.6 $145.9 $160.8 $175.1 $186.1 6%

Total expenses $92.5 $65.4 $98.5 $96.6 $103.8 $91.2 −12%

Net income available to 

common stockholders

$71.8 $38.3 $47.4 $64.2 $71.3 $94.9 33%

Core earnings $54.9 $53.0 $47.0 $53.8 $65.6 $84.0 28%

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K.
46 | Farm Credit Administration

Program activity

Farmer Mac’s total program activity increased to $19.7 billion by year-end 2018, 

up from $19.0 billion a year earlier. (See 

figure 12.) Farmer Mac experienced steady 

growth in its Farm & Ranch loan purchases, as well as its Institutional Credit 

Program, which involves the purchase 

or guarantee of AgVantage securities. 

These bonds are general obligations of 

the issuing financial institution that are 

purchased or guaranteed by Farmer Mac. 

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.

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 2018, 20.2% of program 

activity consisted of off-balance-sheet obligations, as compared with 21.3% a year 

earlier.

Farmer Mac’s Long-Term Standby Purchase Commitment product is similar to 

a guarantee of eligible pools of program 

loans. Under the standbys, a financial 

institution pays a fee in return for Farmer 

Mac’s commitment to stand ready (that is, 

“stand by”) to purchase loans at face value 

even under adverse conditions. As shown 

in figure 13, standbys represented 12.7% 

of Farmer Mac’s total program activity in 

2018.

Asset quality

Figure 14 shows Farmer Mac’s allowance 

for losses, its levels of substandard Farm & 

Ranch assets, and its 90-day delinquencies 

relative to outstanding program volume, 

excluding AgVantage loan volume.

As of Dec. 31, 2018, Farmer Mac’s allowance for losses totaled $9.2 million, 

Figure 12

Farmer Mac program activity and nonprogram investment 

trends

As of Dec. 31

0 

5 

10 

15 

20 

25 

2013 2014 2015 2016 2017 2018 

As of December 31 

Total program activity 

On-balance-sheet 

program assets 

Off-balance-sheet

program activity

Nonprogram investments

Dollars in billions

0 

5 

10 

15 

20 

25 

2013 2014 2015 2016 2017 2018 

As of December 31 

Total program activity 

On-balance-sheet 

program assets 

Off-balance-sheet

program activity

Nonprogram investments

Dollars in billions

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission 

Form 10-K.

Figure 13

Farmer Mac total program activity

Standbys – 12.7% 

AgVantage – 42.5% 

Loans held – 23.3% 

AMBS held – 10.9% 

AMBS sold – 2.6% 

Rural utility – 8.1% 

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

AMBS = agricultural mortgage-backed securities.
2018 Annual Report on the Famr Credit System | 47

Figure 14

Allowance, nonperforming asset, and delinquency trends, 

2013 – 2018

0.0% 

0.5% 

1.0% 

1.5% 

2.0% 

2.5% 

3.0% 

3.5% 

4.0% 

 -

 50

 100

 150

 200

 250

2013 2014 2015 2016 2017 2018 

Percentage of Farm & Ranch 

Allowance for losses (le scale)

Substandard assets (le scale)

Substandard assets as 

percentage of Farm & Ranch

90-day delinquencies(le scale) 90-day delinquencies as 

percentage of Farm & Ranch 

As of December 31 

Dollars in millions

0.0% 

0.5% 

1.0% 

1.5% 

2.0% 

2.5% 

3.0% 

3.5% 

4.0% 

 -

 50

 100

 150

 200

 250

2013 2014 2015 2016 2017 2018 

Percentage of Farm & Ranch 

Allowance for losses (le scale)

Substandard assets (le scale)

Substandard assets as 

percentage of Farm & Ranch

90-day delinquencies(le scale) 90-day delinquencies as 

percentage of Farm & Ranch 

As of December 31 

Dollars in millions

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission 

Form 10-K.

compared with $8.9 million the year 

before. Of its Farm & Ranch program portfolio, $232.7 million was substandard, representing 3.22% of the principal balance 

of Farm & Ranch loans purchased, guaranteed, or committed to be purchased. This 

compares with $221.3 million on Dec. 31, 

2017. The ratio of substandard assets to 

the principal balance of Farm and Ranch 

loans remained the same from 2017 to 

2018, at 3.22%. Assets are considered to 

be substandard when they have a well-defined weakness or weaknesses that, if not 

corrected, are likely to lead to some losses.

As of Dec. 31, 2018, Farmer Mac’s 90-day 

delinquencies decreased to $26.9 million, 

or 0.37% of Farm & Ranch loans, compared with $48.4 million, or 0.71%, as of 

Dec. 31, 2017.

Real estate owned at the end of 2017 was 

$0.13 million, down from $0.14 million 

a year earlier. Farmer Mac reported no 

delinquencies in its pools of rural utility 

cooperative loans.

Earnings

Farmer Mac reported net income available 

to common stockholders of $94.9 million 

(in accordance with GAAP) for the year 

ended Dec. 31, 2018, up from $71.3 million 

reported at year-end 2017. Core earnings 

for 2018 were $84.0 million, compared 

with $65.6 million in 2017. Net interest 

income, which excludes guarantee fee 

income, was reported at $174.2 million in 

2018, up from $155.9 million in 2017. Guarantee fee income was $14.0 million, compared with $14.1 million in 2017. Table 8

shows a six-year trend for the basic components of income.
48 | Farm Credit Administration arm Credit Administration

Figure 15

FCA organizational chart as of September 2019

For an accessible version of this chart, go to 

www.fca.gov/about/fca-organizational-chart

FCA Board

Glen R. Smith, 

Chairman

Jeffery S. Hall, 

Member

⸺Office of the Board 

Chairman and Chief 

Executive Officer 

Glen R. Smith 

⸺Office of Inspector 

General 

Wendy R. Laguarda 

⸺Office of the Chief Operating Officer

S. Robert Coleman

⸺Office of Secondary Market 

Oversight*

Laurie A. Rea

⸺Office of Congressional and Public 

Affairs 

Michael A. Stokke

⸺Designated Agency Ethics Official 

Jane Virga

⸺Equal Employment and Inclusion 

Director 

Thais Burlew

⸺Secretary to the Board 

Dale L. Aultman

⸺Office of the Chief 

Financial Officer

Stephen G. Smith

⸺Office of Agency 

Services

Vonda Bell

⸺Office of Examination

Roger Paulsen (Acting)

⸺Office of Information 

Technology

Jerald Golley

⸺Office of Regulatory 

Policy

David Grahn

⸺Office of General 

Counsel†

Charles R. Rawls

* Reports to the board for policy and to the CEO for administration.

† Maintains a confidential advisory relationship with each of the board members.

A view from inside the Farm 

Credit Building, the headquarters of the Farm Credit 

Administration, located in 

McLean, Virginia.
2018 Annual Report on the Farm Credit System | 49

FCA’s Organization and Leadership

Organization of FCA

FCA’s headquarters and one field office are 

in McLean, Virginia. We also have field 

offices in Bloomington, Minnesota; Dallas, 

Texas; Denver, Colorado; and Sacramento, 

California. As of September 1, 2019, we 

had 317 employees.

FCA’s leadership

Currently, FCA has only two board members: Chairman Glen R. Smith and Board 

Member Jeffery S. Hall. The board has one 

vacancy because former Chairman Dallas 

Tonsager passed away in May 2019. Please 

see “In Memoriam” on page 51.

Glen R. Smith, FCA Board Chairman and CEO

Glen R. Smith was 

appointed to the 

FCA board by President Donald Trump 

on Dec. 8, 2017. Mr. 

Smith will serve a 

term that expires 

May 21, 2022.

He also serves 

as a member of the 

board of directors 

of the Farm Credit System Insurance 

Corporation, an independent U.S. government-controlled corporation that insures 

the timely payment of principal and interest on obligations issued jointly by Farm 

Credit System banks.

Mr. Smith is a native of Atlantic, Iowa, 

where he was raised on a diversified crop 

and livestock farm. His farm experience 

started at a very early age, after his father 

was involved in a disabling farm accident. 

He graduated from Iowa State University in 

1979 with a Bachelor of Science in agricultural business and accepted a position with 

Doane Agricultural Services as state manager of the company’s farm real estate division.

In 1982, Mr. Smith and his wife, Fauzan, 

moved back to his hometown and started 

farming and developing his ag service 

business. Today, their family farm, Smith 

Generation Farms Inc., has grown to encompass about 2,000 acres devoted to corn, 

soybeans, hay, and a small beef cow herd.

Mr. Smith is co-owner and founder of 

Smith Land Service Co., an ag service 

company that specializes in farm management, land appraisal, and farmland 

brokerage, serving about 30 Iowa counties. 

From 2001 to 2016, he was also co-owner 

and manager of S&K Land Co., an entity 

involved in the acquisition, improvement, 

and exchange of Iowa farmland.

Mr. Smith has served on numerous community, church, and professional boards. 

He was elected to the Atlantic Community 

School Board of Education on which he 

served for nine years; during most of this 

time, he served as either president or vice 

president.

In 1990, he earned the title of Accredited Rural Appraiser from the American 

Society of Farm Managers and Rural Appraisers. In 2000, he served as president of 

the Iowa chapter of that organization. He 

is a lifelong member of the Farm Bureau, 

Iowa Corn Growers Association, Iowa Soybean Association, and Iowa Cattlemen’s 

Association.
50 | Farm Credit Administration

The Smiths have four grown children 

and three grandchildren. Two of their 

children are involved in production agriculture. Their son Peter has assumed managerial responsibilities for both the family 

farm and business.

Jeffery S. Hall, Board Member

Jeffery S. Hall was 

appointed to the 

FCA board by President Barack Obama 

on March 17, 2015. 

Mr. Hall is serving 

a term that expired 

on October 13, 2018. 

He will continue 

to serve until his 

successor has been 

named.

Mr. Hall also serves as chairman of 

the board of directors of the Farm Credit 

System Insurance Corporation, an independent U.S. government-controlled corporation that insures the timely payment 

of principal and interest on obligations issued jointly by Farm Credit System banks.

Mr. Hall was president of The Capstone 

Group, an association management and 

consulting firm that he cofounded in 2009. 

He was the state executive director for the 

U.S. Department of Agriculture’s Farm 

Service Agency in Kentucky from 2001 to 

2009. In that role, he had responsibility 

for farm program and farm loan program 

delivery and compliance.

From 1994 to 2001, Mr. Hall served as 

assistant to the dean of the University of 

Kentucky, College of Agriculture, advising 

the dean on state and federal legislative activities and managing a statewide economic 

development initiative called Ag-Project 

2000.

Mr. Hall also served as a senior staff 

member in the office of U.S. Senator Mitch 

McConnell from 1988 until 1994. During 

that time, he was the legislative assistant 

for agriculture, accountable for internal 

and external issue management.

Before joining Senator McConnell’s 

staff, Mr. Hall served on the staff of the 

Kentucky Farm Bureau Federation. Over 

his 30-year career in agriculture, he has 

held leadership positions in the following 

nonprofits: the Kentucky Agricultural 

Council, the Agribusiness Industry Network, the Louisville Agricultural Club, 

the Kentucky Agricultural Water Quality 

Authority, and the Governor’s Commission 

on Family Farms.

Mr. Hall was raised on a family farm in 

southern Indiana, which has been in his 

family for nearly 200 years. He is currently 

a partner in the farm with his mother and 

sister. Mr. Hall received a Bachelor of Science from Purdue University.

Dallas P. Tonsager, Former Chairman

Dallas P. Tonsager was appointed to the 

Farm Credit Administration board by President Barack Obama on March 13, 2015. 

He was designated chairman and CEO by 

President Obama on November 22, 2016. 

He died in office on May 21, 2019.

Mr. Tonsager brought to his position 

on the FCA board extensive experience as 

an agriculture leader and producer, and 

a commitment to promoting and implementing innovative development strategies to benefit rural residents and their 

communities.

Mr. Tonsager served as under secretary 

for rural development at the U.S. Department of Agriculture (USDA) from 2009 to 

2013. In this position, he expanded broadband communication in rural America and 

implemented other key elements of the 

Recovery Act for rural America. He dramatically expanded USDA’s water and wastewater programs, expanded funding for 

first- and second-generation biofuels, and 

funded hospitals and other public facilities 
2018 Annual Report on the Famr Credit System | 51

in rural America. He also worked with the 

Farm Credit System and others to set up 

new venture capital investment funds.

From 2010 to 2013, he was a member 

of the Commodity Credit Corporation 

board of directors. From 2004 to 2009, Mr. 

Tonsager served as a member of the FCA 

board, as well as a member of the FCSIC 

board of directors.

From 2002 to 2004, he was the executive 

director of the South Dakota Value-Added 

Agriculture Development Center. In this 

position, he coordinated initiatives to 

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

Services provided by the center include 

project facilitation, feasibility studies, 

business planning, market assessment, 

technical assistance, and education.

In 1993, he was selected by President 

William J. Clinton to serve as USDA’s state 

director for rural development in South 

Dakota. Mr. Tonsager oversaw a diversified 

portfolio of housing, business, and infrastructure loans in South Dakota. His term 

ended in February 2001.

A longtime member of the South Dakota 

Farmers Union, Mr. Tonsager served two 

terms as president of the organization 

from 1988 to 1993. During that same period, he was a board member of Green 

Thumb Inc., a nationwide job training program for senior citizens. In addition, he 

served on the board of National Farmers 

Union Insurance from 1989 to 1993, and he 

was a member of the advisory board of the 

Commodity Futures Trading Commission 

from 1990 to 1993.

Mr. Tonsager grew up on a dairy farm 

near Oldham, South Dakota. For many 

years, he and his older brother owned Plainview Farm in Oldham, a family farm on 

which they raised corn, soybeans, wheat, 

and hay. He was a graduate of South Dakota State University where he earned a 

Bachelor of Science in agriculture in 1976.

In Memoriam: 

Dallas P. Tonsager

June 24, 1954 - May 21, 2019

2018 Annual Report on the Farm Credit System | 53

Appendix

Glossary

Agricultural credit association — An ACA 

results from the merger of a federal land 

bank association (or a federal land credit association) and a production credit 

association (PCA) and has the combined 

authority of the two institutions. An ACA 

borrows funds from a farm credit bank 

or an agricultural credit bank 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.

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 Co- Bank on 

July 1, 1999.

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 System 

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 
54 | Farm Credit Administration

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’ short- and intermediate-term notes 

made by commercial banks, livestock 

loan companies, and thrift institutions. 

The Farm Credit Act of 1933 authorized 

farmers to organize PCAs, which could discount notes with FICBs. As a result, PCAs 

became the primary entities for delivery 

of short- and intermediate-term credit 

to farmers and ranchers. The FICBs and 

the federal land banks in all Farm Credit 

System 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 before they received their affiliated 

banks’ direct-lending authority to make 

long-term mortgage loans to farmers, 

ranchers, and rural residents for housing. 

As lending agents, the associations did not 

own loan assets but made loans only on 

behalf of the FCBs with which they were 

affiliated. As of Oct. 1, 2000, all active federal land bank associations had received 

direct-lending authority and did not serve 

as lending agents for FCBs.

Federal land credit association — An FLCA 

is the regulatory term FCA uses for 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 
2018 Annual Report on the Farm Credit System | 55

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 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.

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 
56 | Farm Credit Administration

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. The FCS is the oldest 

financial GSE.

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 Jan. 1, 2003, all 

PCAs were eliminated as independent, 

stand-alone, direct-lender associations. All 

PCAs are now subsidiaries of ACAs.

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. 

Abbreviations

ACA — agricultural credit association

ACB — agricultural credit bank

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

and sensitivity

CEO — chief executive officer

Farm Credit 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

GAAP — generally accepted accounting principles

OFIs — other financing institutions

PCA — production credit association

USDA — U.S. Department of Agriculture

YBS — young, beginning, and small (farmers and ranchers)
2018 Annual Report on the Farm Credit System | 57

Additional information

The Farm Credit Administration 2018 

Annual Report on the Farm Credit System 

is available on FCA’s website at www.fca.

gov. For questions about this publication, 

contact FCA:

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

Email: info-line@fca.gov

With support from the System banks, 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. These documents are available on the Funding Corporation’s website at www.farmcreditfunding.com. For copies of these documents, 

contact the Funding Corporation:

Federal Farm Credit Banks Funding 

Corporation

101 Hudson Street, Suite 3505

Jersey City, NJ 07302

Telephone: 201-200-8131

The Farm Credit System Insurance Corporation’s annual report is available on its 

website at www.fcsic.gov. To receive copies of this report, contact FCSIC:

Farm Credit System Insurance 

Corporation

1501 Farm Credit Drive

McLean, VA 22102

Telephone: 703-883-4380