on the Farm Credit System by the 

FARM CREDIT ADMINISTRATION 

Regulator of the FCS 

Annual Report 2012
Statement of the Board Chair and CEO 2

 

Farm Credit Administration 5

Overview and Mission 5

The Board 5

 

Farm Credit System—An Overview of Events and Conditions 9

FCS Role 9

FCS Structure 9

The Safety and Soundness of the FCS 11

	 Financial Condition of the FCS 11

Borrowers Served 18

System Funding for Other Lenders 19

Farm Debt and Market Shares 22

Serving Young, Beginning, and Small Farmers and Ranchers 23

Characteristics of YBS Borrowers	 23

	 FCS Lending to YBS Producers	 24

	 YBS Borrowing Trends, 2001–2012	 27

	 Assessing YBS Results for Individual Associations	 27

	 YBS Programs	 30

Regulatory Policy and Approvals 32

Regulatory Activity in 2012	 32

	 Corporate Activity in 2012	 34

	 Funding Activity in 2012	 34

	 Mission-Related Investments	 37

Maintaining a Dependable Source of Credit for Farmers and Ranchers 38

Conducting a Risk-Based Examination and Oversight Program	 38

	 Measuring the System’s Safety and Soundness	 39

	 Providing Differential Supervision and Enforcement	 40

	 Protecting Borrower Rights	 41

Condition of Farmer Mac 42

Capital	 43

	 Program Activity	 44

	 Asset Quality	 46

	 Earnings	 46

Challenges Facing the Agricultural Economy and the Farm Credit System 48

The Farm Economy	 48

	 The General Economy	 52

	 Farm Policy Changes on the Horizon	 56

	 Farm Credit System Portfolio	 57

Appendix 59

Farm Credit Administration Offices	 60

	 Agency Officials	 62

	 Glossary	 66

	 Acronyms and Abbreviations	 69

	 Additional Information	 70

Contents

Photo credits: Bachrach (Board member photos) and Maddox Photography (Agency official photos). All other photos taken by Linda Toki or 

Joan Dec or selected from commercial stock. Layout and design by Linda Toki. 
2

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Statement of the Board Chair and CEO

June 2013

On behalf of the Board and the staff of the Farm Credit Administration, I present the 2012 Annual Report on the Farm 

Credit System (FCS or System). I am pleased to report that the System’s overall condition and performance remained 

sound in 2012. Despite the most widespread drought in 50 years and the lingering effects of the 2008 financial crisis 

and recession, the System is well-positioned to withstand current and future challenges.

This document also contains our annual report on the System’s service to young, beginning, and small (YBS) farmers 

and ranchers. At FCA we recognize that lending to YBS farmers and ranchers helps secure the future of U.S. agriculture, and we do all we can to ensure that the System fulfills its responsibilities to this important segment of the farm 

economy. 

Condition of the Farm Economy

In spite of the significant stress caused by the drought to some segments of the U.S. farm economy, U.S. agriculture 

as a whole was in good financial condition in 2012, with near-record farm incomes buoyed by high prices and strong 

exports. In drought-affected regions, producers with crop insurance fared well despite their reduced yields, and producers outside those regions benefited from record prices. Debt use increased moderately, and asset values reached record 

levels. 

Based on USDA data, net cash income for the farm sector in 2012 reached another record at $135.6 billion. Crop receipts 

rose 5.4 percent over 2011 levels, and livestock receipts were up 3.7 percent. Farm expenses were up nearly 8 percent, 

mostly because of a rise in feed costs, higher land rental rates, and higher costs for seeds and pesticides.

Financial Condition of the FCS

The condition and performance of the banks and direct-lending associations of the Farm Credit System remained safe 

and sound throughout 2012. Overall, the System reported strong earnings, improved asset quality, and higher capital 

levels. 

System earnings remained strong in 2012, up 4.5 percent to $4.12 billion as compared with $3.94 billion in 2011. The 

increase in System earnings continues to be driven largely by higher net interest income and lower provisions for loan 

losses.

Credit quality in the System’s loan portfolio continued to gradually improve in 2012. Although credit quality was generally good, the extensive drought, elevated commodity prices, and high input costs adversely affected certain System 

borrowers, particularly those in the protein, dairy, and ethanol sectors. In addition, certain sectors, such as the forestry 

and nursery industries, continue to be under stress. As of December 31, 2012, nonperforming loans amounted to $2.6 

billion, or 1.36 percent of gross loans, down from $3.0 billion, or 1.72 percent, at year-end 2011.

During 2012, the System continued to have reliable access to the debt capital markets, and investor demand for all 

System debt security products was favorable. With the low interest rate environment, the System was able to refinance 

outstanding debt at favorable interest rates, improving net interest spreads from 2.68 percent in 2011 to 2.71 percent in 

2012. Overall, total Systemwide debt increased by 7.1 percent in 2012.

While the overall System remained financially sound, the condition and performance of some individual System institutions declined. As the System’s regulator, we addressed these declines by increasing our supervision of these institutions.

Young, Beginning and Small Farmer Lending

I am pleased to report that the System’s YBS results indicate that lending to young, beginning, and small farmers 

increased from 2011 to 2012. The number of new loans made to beginning farmers rose 11.8 percent from 2011, while 

the number of new loans rose 7.3 percent to young farmers and 4.1 percent to small farmers. 
3

The dollar volume of loans outstanding to young farmers increased by 8.5 percent. The dollar volume of loans outstanding to small farmers increased by 3.0 percent and to beginning farmers by 4.7 percent. 

FCA’s Supervision and Oversight of the System

As the arm’s-length regulator of the System, we use several methods to evaluate systemic risks that can affect an institution, a group of institutions, and the System as a whole. Currently, our examiners emphasize the following areas:

• Drought and Related Risks. Our Office of Examination monitors drought conditions, collects drought-related information, and analyzes the System’s exposure to risks associated with the drought. 

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

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

• Standards of Conduct. Directors and employees of System institutions must maintain high standards of honesty, 

integrity, impartiality, and conduct. Our examiners evaluate institutions’ policies, processes, and disclosures to 

ensure the effectiveness of their standards of conduct programs. 

• Diversity and Inclusion. Through examinations, we focus on how the System is complying with FCA regulation 

618.8440, which requires System institutions to develop human capital and marketing plans that promote diversity 

and inclusion. Our examiners look for tangible strategies and actions to demonstrate that institutions are complying 

with the rule. 

Borrower Rights

The Farm Credit Act provides most System borrowers certain rights when they apply for loans and when they have 

difficulty repaying loans. For example, the Act requires FCS institutions to notify borrowers of the right to seek restructuring of an agricultural loan before beginning foreclosure. It also provides borrowers an opportunity to seek review of 

certain credit and restructuring decisions. 

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

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

been denied or who have concerns about business practices at System institutions. 

Generally, borrowers who contact us with complaints are seeking clarification, additional information, and options to 

redress their concerns. If we find violations of law or regulations, we have several options to bring about corrective 

action.

Condition of Farmer Mac

The Federal Agricultural Mortgage Corporation (Farmer Mac) remained safe and sound throughout 2012. As a chartered 

institution of the Farm Credit System, Farmer Mac is a separate Government-sponsored enterprise with the mission to 

provide a secondary market for agricultural mortgages and rural lending activities. 

On December 31, 2012, Farmer Mac’s net worth was $593.0 million, compared with $554.5 million a year earlier, and 

Farmer Mac was in compliance with all statutory and regulatory minimum capital requirements. It reported net income 

available to common stockholders of $43.9 million for the year ended December 31, 2012, up from the $13.8 million 

reported at year-end 2011. Farmer Mac’s asset quality also improved from 2011 to 2012. 

FCA’s Commitment

At FCA, we will continue to work hard to ensure that the System remains safe and sound and that it fulfills the mission for which Congress created it almost 100 years ago. We recognize that America’s farmers and ranchers require a 

dependable source of affordable credit, and we are committed to helping maintain that source for generations to come. 

Jill Long Thompson
4

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

The Farm Credit Administration ensures 

a safe, sound, and dependable source 

of credit and related services 

for all creditworthy and eligible persons in 

agriculture and rural America.
5

Farm Credit Administration

Overview and Mission

The Farm Credit Administration 

(FCA or Agency) is an independent 

agency in the Executive branch of the 

U.S. Government. FCA is responsible 

for regulating and supervising the 

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

or System), including the Federal 

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

nationwide network of borrowerowned financial institutions that 

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

agricultural and rural utility cooperatives, and other eligible borrowers. 

The Agency derives its powers and 

authorities from the Farm Credit Act 

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

2279cc). The U.S. Senate Committee 

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

oversee FCA and the FCS. 

FCA is responsible for ensuring that 

the System remains a dependable 

source of credit for agriculture and 

rural America. The Agency does this 

in two specific ways: 

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

operate safely and soundly and 

comply with applicable laws and 

regulations. FCA’s examinations 

and oversight strategies focus on 

an institution’s financial condition and any material existing or 

potential risk, as well as on the 

ability of its board of directors 

and management to direct its 

operations. FCA examines each 

institution’s compliance with 

laws and regulations to serve eligible borrowers, including young, 

beginning, and small farmers and 

ranchers. If a System institution 

violates a law or regulation or 

operates in an unsafe or unsound 

manner, FCA uses its supervisory 

and enforcement authorities to 

bring about appropriate corrective action. 

2. It issues policies and regulations 

governing how System institutions conduct their business and 

interact with customers. These 

policies and regulations focus 

on protecting System safety and 

soundness; implementing the 

Farm Credit Act; providing minimum requirements for lending, 

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

adequate financial disclosure and 

governance. FCA also approves 

corporate charter changes, System 

debt issuance, and other financial 

and operational matters. 

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

Virginia. FCA also has field offices 

in Bloomington, Minnesota; Dallas, 

Texas; Denver, Colorado; and Sacramento, California. 

FCA does not receive a Federal 

appropriation. The Agency is primarily funded through assessments paid 

by System institutions.

The Board 

FCA policy, regulatory agenda, and 

supervisory and examination activities are established by a full-time, 

three-person Board whose members 

are appointed by the President of the 

United States with the advice and 

consent of the Senate. Board members serve a six-year term and may 

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

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

term. The Chairman also serves as 

FCA’s Chief Executive Officer (CEO). 

FCA Board members also serve as 

the board of directors for the Farm 

Credit System Insurance Corporation. 
6

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Jill Long Thompson

Board Chair and CEO

Jill Long Thompson is Chair of the 

Board and CEO of the Farm Credit 

Administration. Dr. Long Thompson 

was appointed to the FCA Board by 

President Barack Obama in March 

2010 and was designated Chair and 

CEO on November 27, 2012. Her 

term expires in May 2014. 

Long Thompson also serves as a 

member of the Board of Directors of 

the Farm Credit System Insurance 

Corporation, which is responsible 

for ensuring the timely payment of 

principal and interest on obligations 

issued on behalf of Farm Credit System banks.

Long Thompson has many years of 

leadership experience. From 1989 

to 1995, she represented northeast 

Indiana as a Member of the U.S. 

House of Representatives, serving on 

the Committee on Agriculture, the 

Committee on Veterans’ Affairs, and 

the Select Committee on Hunger. 

She also served as Chair of the Rural 

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

of legislation banning members of 

Congress from accepting gifts; this 

legislation also expanded disclosure 

requirements for lobbying activities. 

From 1995 to 2001, she served as 

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

Agriculture, where she oversaw an 

annual budget of $10 billion and 

a staff of 7,000 employees. In this 

position, she managed programs that 

provide services to the underserved 

areas of rural America.

In addition, Long Thompson served 

as chief executive officer and senior 

fellow at the National Center for 

Food and Agricultural Policy, a nonprofit research and policy organization in Washington, D.C.

The first and only woman nominated 

by a major party to run for Governor 

of Indiana, Long Thompson is also 

the first and only Hoosier woman 

to be nominated by a major party to 

run for the U.S. Senate. 

Long Thompson also has many years 

of experience as an educator, having 

taught at Indiana University, Valparaiso University, and Manchester 

College. She is also a former fellow 

at the Institute of Politics at Harvard University’s John F. Kennedy 

School of Government. She holds an 

M.B.A. and Ph.D. in Business from 

the Kelley School of Business at 

Indiana University and a B.S. in Business Administration from Valparaiso 

University. 

Long Thompson grew up on a family farm outside of Larwill, Indiana; 

today she resides with her husband, 

Don Thompson, on a farm near 

Argos, Indiana.
7

Kenneth A. Spearman was appointed 

to the FCA Board by President 

Barack Obama on October 13, 2009. 

He was appointed to the balance of 

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

expires on May 21, 2016. 

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

the Farm Credit System Insurance 

Corporation, which is responsible 

for ensuring the timely payment of 

principal and interest on obligations 

issued on behalf of Farm Credit System banks.

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

of experience in finance, agriculture, 

and agricultural cooperatives. He 

spent 28 years in the citrus industry. 

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

cooperative in Orlando, Florida, 

where he was responsible for financial management and reporting and 

the supervision of staff accountants.

He later served as director of internal 

audit for Florida’s Natural Growers, 

where he designed and implemented 

the annual plan for reviewing and 

appraising the soundness, adequacy, 

and application of accounting, financial, and other operating internal 

controls.

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

appointed outside director on the 

AgFirst Farm Credit Bank board in 

Columbia, South Carolina. During his 

tenure, he served on the board compensation committee and the board 

governance committee. 

Before entering agriculture in central 

Florida, Mr. Spearman served with 

the U.S. Army and is a Vietnam veteran. He later was employed by the 

public accounting firm Arthur Andersen & Co. and was involved with the 

development of a public accounting 

firm in Chicago, Illinois. He served 

as chairman of the board of trustees 

for the Lake Wales Medical Center. 

He is a member of the Institute of 

Internal Auditors, as well as the 

National Society of Accountants for 

Cooperatives, for which he served a 

term as national president. 

He obtained his master’s degree in 

business administration from Governors State University in University 

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

attended Harvard Kennedy School 

Executive Education, where he completed a program with a concentration in Government Agency Strategic 

Planning.

Mr. Spearman and his wife, Maria, 

of Winter Haven, Florida, have three 

children—twin daughters, Michelle 

Springs and Rochelle Puccia, and a 

son, Dr. Kenneth Spearman. 

Kenneth A. Spearman

Board Member
8

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Leland A. Strom was appointed 

to the Farm Credit Administration 

Board by President George W. Bush 

on December 12, 2006. He served as 

Chairman and CEO from May 22, 

2008, until the designation of his 

successor on November 27, 2012. 

His statutory term expired on October 13, 2012; however, he continues 

to serve as a member of the Board 

until a successor is nominated by the 

President and confirmed by the U.S. 

Senate. 

Mr. Strom also serves as a member 

of the board of directors of the Farm 

Credit System Insurance Corporation (FCSIC), which is responsible 

for ensuring the timely payment 

of principal and interest on obligaLeland A. “Lee” Strom

Board Member

tions issued on behalf of FCS banks. 

Before being named FCA Chairman 

and CEO, he had served as chairman 

of the board of directors of FCSIC 

since December 2006.

For more than 30 years he has been 

active in the agriculture industry. He 

served for more than 25 years on the 

board of 1st Farm Credit Services, 

an FCS institution in Illinois, holding 

various positions, including chairman. During the agriculture crisis of 

the 1980s, he was selected to sit on 

the Restructuring Task Force of the 

Sixth Farm Credit District.

From 2000 to 2006, he was on the 

Federal Reserve Bank of Chicago 

Advisory Council on Agriculture, 

Labor, and Small Business. Part of 

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

investment fund of the Illinois Farm 

Bureau and its Country Financial 

organization.

Other boards Mr. Strom has served 

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

service and supply cooperative in 

Northern Illinois; AgriBank, FCB; and 

the Farm Credit Council, the national 

trade organization representing FCS 

in Government affairs.

Mr. Strom has served in several 

capacities with the Illinois Farm 

Bureau and was a member of the 

Illinois Ag Leadership Program class 

of 1988.

In his community of Kane County, 

Illinois, which lies at the edge of 

suburban Chicago, Mr. Strom helped 

develop a farmland preservation 

program. The original Strom Family 

Farm was the first to be dedicated to 

permanent agricultural use under the 

program.

In 2011, Mr. Strom received the Honorary Doctorate of Humane Letters 

from Northern Illinois University for 

his commitment to sustaining agricultural systems and food security. 

He studied agriculture business at 

Kishwaukee College and business 

administration at Northern Illinois 

University. He also attended the 

Harvard Kennedy School Executive 

Education program.

His community involvement includes 

having served as vice president of 

his local K–12 school district, chairman of his church council, 4-H 

parent leader, and coach of boys’ 

and girls’ sports teams. Mr. Strom 

owns a third-generation family farm 

in Illinois that produces corn and 

soybeans. He and his wife, Twyla, 

have three children and two grandchildren.
9

Farm Credit System—An Overview 

of Events and Conditions

FCS Role 

The Farm Credit System (FCS or 

System) is a network of borrowerowned cooperative financial 

institutions and service organizations serving all 50 States and the 

Commonwealth of Puerto Rico. 

Created by Congress in 1916 to 

provide American agriculture with 

a dependable source of credit, the 

FCS is the oldest Government-sponsored enterprise.1 

FCS institutions provide credit and 

financially related services to farmers, ranchers, producers or harvesters of aquatic products, and agricultural and aquatic cooperatives. 

They also make credit available for 

agricultural processing and marketing activities, rural housing, certain 

farm-related businesses, rural utilities, and foreign and domestic entities in connection with international 

agricultural trade. 

The System raises funds for its 

business activities by selling securities in the national and international money markets; its Systemwide debt funding is subject to 

FCA approval. The U.S. Government does not guarantee the securities issued by the System. 

When Congress established the 

FCS, its purpose was to provide a 

permanent, reliable source of credit 

and related services to agriculture 

and aquatic producers, farmerowned cooperatives, and farmrelated businesses in rural America. 

Congress intended the FCS to 

improve the income and well-being 

of American farmers and ranchers. 

It formed the FCS as a system of 

farmer-owned cooperatives to ensure 

that farmer- and rancher-borrowers 

participate in the management, control, and ownership of their institutions. The participation of memberborrowers helps keep the institutions 

focused on serving their members’ 

needs. 

The System helps to meet a broad 

public need by preserving liquidity 

and competition in rural credit markets in both good and bad economic 

times. The accomplishment of this 

public goal benefits all eligible borrowers, including young, beginning, 

and small farmers, as well as rural 

homeowners. 

FCS Structure 

The Lending Institutions 

As of January 1, 2013, the System 

was composed of 86 banks and 

associations. The following four 

banks provide loans to 79 Agricultural Credit Association (ACA) parent 

organizations and 3 stand-alone 

Federal Land Credit Associations 

(FLCAs)2: 

• CoBank, ACB 

• AgriBank, FCB 

• AgFirst Farm Credit Bank 

• Farm Credit Bank of Texas 

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

FLCA can make only long-term real 

estate loans. Under the Farm Credit 

Act of 1971, as amended, the FLCA 

is exempt from State and Federal 

income taxes. 

CoBank, one of the four Farm Credit 

banks, is an Agricultural Credit 

Bank (ACB), which has a nationwide 

charter to make loans to agricultural 

and aquatic cooperatives and rural 

utilities, as well as to other persons 

or organizations that have transactions with, or are owned by, these 

cooperatives. The ACB finances U.S. 

agricultural exports and imports 

and provides international banking 

services for farmer-owned cooperatives. In addition to making loans 

to cooperatives, the ACB provides 

loan funds to 29 affiliated ACAs and 

FLCAs. 

Each ACA contains two subsidiaries, a Production Credit Association 

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

FLCA.3

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

wholly owned PCA and FLCA as 

subsidiaries, accounted for 96 percent 

of all direct-lender associations as of 

January 1, 2013. 

The ACA and its two subsidiaries 

operate with a common board of 

directors and staff, and each of the 

three entities is responsible for the 

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

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

1933.

2. An FLCA is a Federal Land Bank Association that has received a transfer of direct long-term real estate lending authority under section 7.6 of the Farm 

Credit Act.

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

possessing the appropriate authority. The ACA, the PCA, and the FLCA are jointly and severally liable on the full amount of the indebtedness to the 

bank under the bank’s General Financing Agreement. In addition, the three associations agree to guarantee each other’s debts and obligations, pledge 

their respective assets as security for the guarantee, and share each other’s capital.
10

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

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. 

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

tax-exempt status of the FLCA. Its 

structure offers several other benefits 

as well. It allows the ACA to build 

and use capital more efficiently and 

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

be borrowers of the ACA or of one 

or both subsidiaries. This gives the 

ACA and its subsidiaries greater 

flexibility in serving their customers 

and allows credit and related services 

to be delivered to borrowers more 

efficiently. 

Further, the structure allows an association to provide a broader range of 

specialized services to its memberborrowers. It enables one-stop borrowing—borrowers can obtain long-, 

intermediate-, and short-term loans 

from the same institution. 

Special-Purpose Entity and 

Service Corporations 

In addition to the banks and lending 

associations, the System also contains a special-purpose entity known 

as the Federal Farm Credit Banks 

Funding Corporation. Established 

under the Farm Credit Act, the Funding Corporation issues and markets 

debt securities on behalf of the Farm 

Credit banks to raise loan funds. 

The System also contains the following five service corporations. These 

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

Act4: 

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

services to the associations affiliated with CoBank, ACB. AgVantis is owned by the bank and 17 

of its affiliated associations. 

2. Farm Credit Leasing Services 

Corporation provides equipment 

leasing services to eligible borrowers, including agricultural 

producers, cooperatives, and 

rural utilities. It is wholly owned 

by CoBank, ACB. 

3. Farm Credit Financial Partners, 

Inc., provides support services 

to CoBank, ACB; six associations 

affiliated with CoBank; one association affiliated with AgriBank, 

FCB; and two System-related 

entities. It is owned by CoBank, 

ACB, and the seven associations 

to which the corporation provides services. 

4. The FCS Building Association 

acquires, manages, and maintains 

facilities to house FCA headquarters and field office staff. 

The FCS Building Association is 

owned by the FCS banks, but the 

FCA Board oversees the Building 

Association’s activities. 

5. Farm Credit Foundations provides human resource services 

to its employer-owners, including payroll processing, benefits 

administration, centralized vendor management, and workforce 

management and operations. It is 

owned by 46 participating organizations, including AgriBank, 

FCB, and its affiliated associations; associations affiliated with 

CoBank, ACB; and AgVantis. 

Farmer Mac 

Also part of the FCS is the Federal 

Agricultural Mortgage Corporation 

(Farmer Mac), which provides a 

secondary market arrangement for 

agricultural real estate loans, Government-guaranteed portions of certain 

loans, rural housing mortgage loans, 

and eligible rural utility cooperative 

loans. The purpose of Farmer Mac’s 

activities is to provide greater liquidity and lending capacity to agricultural lenders. 

The Farm Credit Act established 

Farmer Mac as a federally chartered 

instrumentality and an institution of 

the FCS. However, it has no liability for the debt of any other System 

institution, and the other System 

institutions have no liability for 

Farmer Mac debt. 

Farmer Mac is owned by its investors—it is not a member-owned 

cooperative. Investors in voting stock 

may include commercial banks, 

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

services on their behalf. These federally chartered service corporations are prohibited from extending credit or providing insurance services.
11

insurance companies, other financial 

organizations, and FCS institutions. 

Any investor may own nonvoting 

stock. 

FCA regulates and examines Farmer 

Mac through its Office of Secondary 

Market Oversight, whose director 

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

about Farmer Mac, see “Condition of 

Farmer Mac” on page 42. 

The Safety and Soundness 

of the FCS 

FCA regulates the FCS—its lending 

institutions, the Funding Corporation, the service corporations, and 

Farmer Mac. Our regulations, policy 

statements, examinations, chartering 

activities, and other regulatory activities (discussed in later chapters of 

this report) support the System’s mission by ensuring that FCS institutions 

operate in a safe and sound manner, 

without undue risk to taxpayers, 

investors in System securities, or borrower-stockholders. For an overview 

of our agency, see page 5 or visit our 

website at www.fca.gov. 

Also serving to protect the safety and 

soundness of the FCS is the Farm 

Credit System Insurance Corporation (FCSIC). FCSIC was established 

by the Agricultural Credit Act of 

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

the FCS, like most lenders heavily 

concentrated in agriculture, experienced severe financial difficulties. 

The purpose of FCSIC is to protect 

investors in Systemwide debt securities by ensuring the timely payment 

of principal and interest on insured 

notes, bonds, and other obligations 

issued on behalf of FCS banks. 

FCSIC ensures timely payment by 

maintaining the Farm Credit Insurance Fund, a reserve that represents 

the equity of FCSIC. The balance 

in the Insurance Fund at December 

31, 2012, was $3.3 billion. For more 

information about FCSIC, go to 

www.fcsic.gov. Also see FCSIC’s 2012 

annual report. 

Investors in Systemwide debt securities are further protected by the Farm 

Credit Act’s joint and several liability 

provision, which applies to all FCS 

banks. The banks are jointly and 

severally liable for the principal and 

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

to pay the principal or interest on 

a Systemwide debt security and if 

the Farm Credit Insurance Fund has 

been exhausted, then FCA must call 

all nondefaulting banks to satisfy the 

security. 

Financial Condition 

of the FCS5

 

The overall condition and performance of the FCS remained safe and 

sound during 2012. Despite volatile commodity prices and a severe 

drought throughout much of the 

United States, the System’s financial 

position is solid. Overall, the System 

reported strong earnings, improved 

asset quality, and higher capital levels for 2012. The System continues to 

have reliable access to capital markets to support its mission. In 2012, 

investor demand for all Systemwide 

debt security products remained 

favorable. See tables 1 and 2 for a 

breakdown of the System’s major 

financial indicators. 

While the overall FCS remained 

financially sound, the condition and 

performance of some individual 

System institutions declined. As the 

System’s regulator, we addressed 

these declines by increasing our 

supervision of these institutions. For 

more information on measures we 

took to address weaknesses at individual institutions, see “Maintaining 

a Dependable Source of Credit for 

Farmers and Ranchers” on pages 38 

to 41 of this report. For more information on the condition of the System, see the 2012 Annual Information 

Statement of the Farm Credit System 

on the website of the Federal Farm 

Credit Banks Funding Corporation at 

www.farmcreditfunding.com. 

Agriculture faced challenging conditions in 2012. During the second half 

of the year, severe drought developed throughout much of the Corn 

Belt, Great Plains, and Southwest. 

The drought significantly affected 

grain and oilseed production, especially corn. Below-average yields 

during 2012 and already tight supply 

levels drove up grain prices substantially. While the drought eased 

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

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

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

31, 2012. The analyses are based on a combination of bank and association data; these data exclude transactions between System entities.
12

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Table 1 

Farm Credit System Major Financial Indicators, Annual Comparison 

As of December 31

Dollars in Thousands 

At and for the 12 months ended 31-Dec-08 31-Dec-09 31-Dec-10 31-Dec-11 31-Dec-12

Farm Credit System Banksa 

 

Total Assets	 	 194,533,214 194,497,747 207,098,256 205,087,928 219,043,177

Gross Loan Volume	 	 149,491,137 152,412,187 161,069,141 158,420,741 173,227,170

Nonaccrual Loans	 	 582,160 759,134 477,341 384,795 365,478

Cash and Marketable Investments	 	 41,358,881 39,305,172 43,289,148 44,047,407 43,618,788

Net Income	 	 1,231,430 1,442,328 1,917,143 1,860,347 2,011,314

Nonperforming Loans/Total Loansb	 	 0.41%	 0.52%	 0.33%	 0.27%	 0.23%

Capital/Assetsc 	 4.89%	 5.59%	 6.00%	 6.49%	 6.51%

Unallocated Retained Earnings/Assets	 	 2.50%	 2.80%	 3.03%	 3.25%	 3.23%

Return on Assets	 0.65%	 0.74%	 0.95%	 0.92%	 0.94%

Return on Equity	 12.44%	 13.13%	 15.00%	 13.68%	 13.86%

Net Interest Margind 0.97%	 1.17%	 1.22%	 1.28%	 1.25%

Operating Expense Ratioe 	 0.31%	 0.33%	 0.30%	 0.31%	 0.31%

Efficiency Ratiof 	 25.40%	 20.49%	 18.24%	 20.14%	 20.00%

Payout Ratiog 	 62.26%	 56.31%	 50.43%	 53.76%	 47.79%

 

Associations 

 

Total Assets	 	 123,387,794 128,291,508 134,048,892 136,717,742 148,777,963

Gross Loan Volume	 	 114,026,889 118,575,715 124,140,035 126,187,799 138,314,966

Nonaccrual Loans	 1,706,613 2,634,046 2,744,528 2,353,352 1,932,706

Net Income	 	 1,805,929 1,585,984 2,408,449 3,007,154 2,989,755

Nonperforming Loans/Gross Loansb	 	 1.58%	 2.33%	 2.29%	 2.03%	 1.59%

Capital/Assetsc 	 15.46%	 15.82%	 16.54%	 17.84%	 17.80%

Unallocated Retained Earnings/Assets	 	 13.51%	 14.56%	 15.07%	 16.78%	 16.65%

Return on Assets	 1.57%	 1.29%	 1.84%	 2.24%	 2.06%

Return on Equity	 9.84%	 8.13%	 10.88%	 12.42%	 11.23%

Net Interest Margind 	 2.50%	 2.64%	 2.79%	 2.94%	 2.83%

Operating Expense Ratioe 	 1.45%	 1.49%	 1.38%	 1.43%	 1.45%

Efficiency Ratiof 	 44.44%	 39.05%	 35.12%	 31.27%	 39.13%

Payout Ratiog 	 20.41%	 21.51%	 22.62%	 22.57%	 25.85%

 

Total Farm Credit Systemh 

 

Gross Loan Volume	 	 161,423,000 164,830,000 175,351,000 174,664,000 191,904,000

Bonds and Notes	 	 179,769,000 178,358,000 189,575,000 186,889,000 200,365,000

Nonperforming Loans	 	 2,416,000 3,535,000 3,386,000 2,997,000 2,608,000

Nonaccrual Loans	 	 2,282,000 3,369,000 3,229,000 2,738,000 2,300,000

Net Income	 	 2,916,000 2,850,000 3,495,000 3,940,000 4,118,000

Nonperforming Loans/Gross Loansb	 	 1.50%	 2.14%	 1.93%	 1.72%	 1.36%

Capital/Assetsc 	 12.65%	 13.90%	 14.46%	 15.60%	 15.65%

Surplus/Assets	 10.80%	 11.48%	 11.80%	 12.90%	 12.94%

Return on Assets	 1.41%	 1.32%	 1.59%	 1.71%	 1.73%

Return on Equity	 10.70%	 9.86%	 10.85%	 11.17%	 10.89%

Net Interest Margind 	 2.41%	 2.65%	 2.82%	 2.86%	 2.87%

Sources: Farm Credit Administration’s Consolidated Reporting System as of December 31, 2012, and the Farm Credit System Quarterly Information Statement provided by the Federal Farm Credit Banks Funding Corporation.

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

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

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

capital.

d. 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. 

e. Operating expenses divided by average gross loans, annualized.

f. 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.

g. The percentage of earnings paid out in dividends to shareholders.

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

 
13

Table 2 

Farm Credit System Major Financial Indicators, by District 

As of December 31, 2012		 	 	 	 	 	 	 	

Dollars in Thousands 

 

Gross Allowance Cash and Operating

Farm Credit Total Loan Nonaccrual for Loan Marketable Capital Total Expense

System Banks Assets Volume Loans Losses Investmentsa Stockb Surplusc Capitald Ratioe

AgFirst	 28,890,547 	 20,209,251 80,208 44,539 8,372,615 644,534 1,482,228 2,298,230 	 0.48%

AgriBank	 82,299,203 	 69,698,631 51,366 13,275 12,081,321 1,990,047 2,330,060 4,255,781 	 0.14%

CoBank	 92,477,758 71,980,458 170,207 437,376 19,286,722 3,567,683 2,729,031 6,441,144 	 0.38%

Texas	 15,375,669 11,338,830 63,697 17,258 3,878,130 694,588 551,422 1,273,843 	 0.55%

Total	 219,043,177 173,227,170 365,478 512,448 43,618,788 6,896,852 7,092,741 14,268,998 	 0.31%

 

Associations 

AgFirst	 17,777,196 16,588,665 500,702 168,959 382,296 223,708 3,133,297 3,326,533 	 1.99%

AgriBank	 75,410,105 69,201,166 649,465 249,810 2,650,858 235,703 12,452,285 12,687,988 	 1.36%

CoBank	 42,406,562 39,843,495 559,645 322,251 586,465 1,059,253 7,148,891 8,133,179 	 1.38%

Texas	 13,184,100 12,681,640 222,894 88,570 90,125 81,130 2,263,821 2,338,359 	 1.43%

Total	 148,777,963 138,314,966 1,932,706 829,590 3,709,744 1,599,794 24,998,294 26,486,059 	 1.45%

 

Total Farm 

Credit 

Systemf 246,664,000 191,904,000 2,300,000 1,343,000 46,928,000 1,621,000 31,919,000 38,609,000

Sources: Farm Credit Administration’s Consolidated Reporting System as of December 31, 2012, and the Farm Credit System Quarterly Information Statement provided by the Federal Farm Credit Banks Funding Corporation

a. Includes accrued interest receivable on marketable investments.

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

c. Includes allocated and unallocated surplus.

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

Credit System amount, total capital also includes $3.298 billion of restricted capital, which is the amount in the Farm Credit Insurance Fund. Excludes 

mandatorily redeemable preferred stock and protected borrower capital.

e. Operating expense per $100 of gross loans.

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

 

 

.
14

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

somewhat at the end of the year, 

especially in the eastern Corn Belt, 

severe drought persisted in a significant part of the upper Midwest and 

Great Plains. Nonetheless, farmland 

values continued to trend up in 2012, 

particularly in regions where cash 

grains are grown.

Livestock, dairy, and ethanol producers experienced a difficult operating environment during 2012. In 

general, feedlot and dairy producers 

faced negative margins for much of 

the year. As a result of high feed 

costs and extremely poor pasture 

conditions, farmers and ranchers 

continued to reduce the country’s 

collective cattle herd, which has been 

declining for several years. Despite 

strong cattle prices in 2012, the herd 

dropped to a level not seen since the 

1950s. High input costs, tight corn 

supplies, and pricing volatility also 

hurt ethanol producers. 

We expect commodity price volatility 

and general economic uncertainty to 

continue to challenge the System in 

the coming year. For a discussion of 

how these challenges may affect the 

future, see “Challenges Facing the 

Agricultural Economy and the Farm 

Credit System” on pages 48 to 58. 

Earnings 

System earnings remained strong in 

2012, up 4.5 percent to $4.12 billion as compared with $3.94 billion 

in 2011 (See figure 1). The increase 

in System earnings continues to be 

driven largely by higher net interest 

income and lower provisions for loan 

losses.

Net interest income increased by 

$218 million in 2012, primarily as a 

result of the increase in average earning assets. For 2012, average earning 

assets grew by $7.47 billion or 3.4 

percent to $226 billion. The System’s net interest margin increased 

one basis point to 2.87 percent. The 

System’s return on average assets 

increased to 1.74 percent in 2012 

from 1.71 percent the prior year. The 

return on average capital declined 

somewhat to 10.96 percent in 2012 

from 11.21 percent in 2011.

Provisions for loan losses dropped 

by $117 million in 2012, although 

certain agricultural sectors, such as 

livestock, dairy, and ethanol, were 

negatively affected by severe drought 

and volatile input prices. In addition, 

the sluggishness in the U.S. economy 

and weakness in the housing market 

continued to affect System borrowers 

in agricultural sectors like forestry 

and nurseries.

As cooperative institutions, the FCS 

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

borrower-owners as patronage distributions. For 2012, System institutions 

declared a total of $1.249 billion in 

patronage distributions—$863 million in cash, $340 million in allocated 

retained earnings, and $46 million in 

stock. This represents 30 percent of 

the System’s net income for 2012 as 

compared with 29 percent in 2011. 

Also in 2012, the System distributed 

$203 million in cash from patronage 

allocations of earlier years. 

Asset Growth 

Overall, the System experienced 

strong loan growth in 2012, with 

gross loan volume increasing by 9.9 

percent, primarily because of gains 

in real estate mortgage, production 

and intermediate, agribusiness, and 

rural utility lending (see figure 2). 

Real estate mortgage loans were up 

9.4 percent because of strong demand 

for cropland. Production and intermediate-term loans increased by 6.3 

percent because of seasonal financing 

needs and prepayment of 2013 inputs 

for tax planning purposes. Because of 

the severe drought, low grain stocks, 

and commodity price volatility, 

agribusiness lending was up by 9.5 

percent—mainly to farm supply and 

grain marketing businesses. Rural 

utility lending increased by 19.8 percent; loans to electric distribution and 

power supply cooperatives accounted 

for much of this increase. In total, 

System assets grew to $246.7 billion, 

up $16.3 billion or 7.1 percent from 

2011. 

Asset Quality 

Credit quality in the System’s loan 

portfolio continued to gradually 

improve in 2012. Although credit 

quality was generally good, the 

extensive drought, elevated commodity prices, and uncertain economic 

conditions adversely affected certain 

System borrowers, particularly those 

in the protein, dairy, and ethanol sectors. In addition, certain sectors such 

as the forestry and nursery industries 

continue to be under stress. As of 

December 31, 2012, nonperforming 

loans amounted to $2.6 billion, or 

1.36 percent of gross loans, down 
15

Figure 1

FCS Net Income, 2004–2012

As of December 31

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

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

Figure 2

Annual Growth Rate of FCS Loans Outstanding, 2001 to 2012

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

 
16

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

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

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

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

be recognized upon liquidation or sale. CoBank maintains a minimum of 150 days of liquidity as a condition of the January 1, 2012, merger with U.S. 

AgBank.

Figure 3

FCS Nonperforming Loans, 2007–2012

As of December 31

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

 

from $3.0 billion, or 1.72 percent, at 

year-end 2011 (see figure 3). Loan 

delinquencies (that is, accruing loans 

that are 30 days or more past due) 

remained a low 0.28 percent of total 

accruing loans, declining from 0.38 

percent at year-end 2011. 

The allowance for loan losses 

amounted to $1.34 billion, or 0.70 

percent of loans outstanding at 

year-end 2012, compared with $1.29 

billion, or 0.74 percent of loans 

outstanding at year-end 2011. Provisions for loan losses were down in 

2012, declining to $313 million in 

2012 from $430 million in 2011. Net 

charge-offs were also down in 2012, 

dropping to $236 million from $500 

million in 2011. 

Although the 2013 outlook for 

agriculture is favorable, considerable uncertainty surrounds both the 

general and agricultural economies. 

Weather and its influence on commodity prices will significantly affect 

System borrowers in at-risk sectors 

such as livestock, dairy, and ethanol. Although the current level of 

nonperforming loans continues to be 

well within the System’s risk-bearing 

capacity, additional deterioration in 

asset quality is possible in these sectors if commodity prices remain high 

in 2013. 

Funding 

During 2012, the System continued 

to have reliable access to the debt 

capital markets, and investor demand 

for all System debt security products 

was favorable. With the low interest 

rate environment, the System was 

able to refinance outstanding debt at 

favorable interest rates. Overall, total 

Systemwide debt increased by 7.1 

percent in 2012. The System’s funding composition shifted somewhat—

short-term debt made up 32.7 percent 

of total Systemwide debt at December 31, 2012, compared with 35.0 

percent a year earlier. Securities due 

within a year remained essentially 

unchanged from 2011, while securities due after one year increased by 

11 percent. (See “Funding Activity in 

2012” on page 34 for further discussion of the System’s funding environment.) 

Liquidity 

System banks maintain a liquidity 

reserve to cushion against negative 

events in the U.S. and global markets 

and to provide financial flexibility 

when the bank has fewer funding 

options. As of December 31, 2012, the 

System’s liquidity position equaled 

185 days, down slightly from 194 

days at year-end 2011, but significantly above the 90-day regulatory 

minimum.6 The percentage of highly 

liquid securities held by System 

banks decreased to 16 percent of the 

eligible investment portfolio as compared with 18 percent as of December 31, 2011. 
17

Figure 4

FCS Capital, 2005–2012

As of December 31

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

Investments available for sale (based 

on fair value) increased 4.3 percent to 

$39.4 billion in 2012, with a weighted 

average yield of 1.5 percent. Investments held to maturity decreased to 

$3.2 billion, with a weighted average 

yield of 3.2 percent. 

By regulation, System banks may 

acquire and hold certain investments 

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

agency. If the investment no longer 

meets the credit rating criteria, the 

investment becomes ineligible. Under 

FCA regulations in effect through 

December 30, 2012, a bank had to 

dispose of an ineligible investment 

within six months or receive written approval from FCA to divest 

the investment over a longer period. 

Effective December 31, 2012, if an 

investment is eligible when purchased but no longer satisfies the 

eligibility requirement, the bank may 

continue to hold the investment if 

certain requirements are met.

At year-end, the FCS had 186 ineligible securities because of rating 

downgrades, which, at fair value, 

represented 4.3 percent of Federal 

funds and available-for-sale investments. FCA has approved divestiture plans to hold these investments 

longer than six months. For 2012, 

the System recognized $47 million of 

net other-than-temporarily impaired 

losses on investments. 

Capital 

The System maintained its strong 

capital position in 2012. Total capital 

was $38.6 billion at December 31, 

2012, compared with $35.9 billion 

a year before. The most significant 

contributing factor to the increase 

in capital was net income earned 

and retained. At year-end 2012, the 

System’s capital-to-assets ratio was 

15.7 percent, compared with 15.6 

percent in 2011. As figure 4 shows, 

surplus accounts for the vast majority 

of capital. 

FCA regulations establish the minimum capital requirements that each 

System bank and association must 

achieve and maintain. As of December 31, 2012, the permanent capital ratios for all System banks and 

associations were above the regulatory minimum of 7.0 percent. The 

ratios ranged between 16.1 percent 

and 23.6 percent for System banks 

and between 12.2 percent and 35.5 

percent for System associations. In 

addition, as of December 31, 2012, 

the FCS had $3.3 billion of restricted 

capital in the Farm Credit Insurance 

Fund.
18

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Borrowers Served

The System fulfills its overall mission by lending to agriculture and 

rural America. Its lending authorities 

include the following:

• Long-term agricultural real estate 

loans and rural home loans

• Short- and intermediate-term 

agricultural loans

• Loans to producers and harvesters of aquatic products

• Loans to certain farmer-owned 

agricultural processing facilities 

and farm-related businesses

• Loans to farmer-owned agricultural cooperatives

• Loans that finance agricultural 

exports and imports

• Loans to rural utilities

• Limited portions of loans to 

entities that qualify under the 

System’s similar-entity authority7 

Nationwide, the System had $191.9 

billion in gross loans outstanding as 

of December 31, 2012 (see table 3). 

Agricultural producers represented 

by far the largest borrower group, 

with $132.1 billion, or 68.8 percent, of 

the total dollar amount of loans outstanding.8

 As of December 31, 2012, 

46.0 percent of the dollar volume of 

the System’s loans outstanding was 

in long-term real estate loans, 22.8 

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

loans. Agribusiness loans are broken 

down further into 6.6 percent for 

loans to cooperatives, 6.0 percent for 

processing and marketing enterprises, 

and 1.5 percent for farm-related businesses. 

Loans to finance rural utilities represented 9.7 percent of the System’s 

loan volume, while rural residential 

loans made up 3.2 percent of the System’s total loans. Agricultural export 

loans represented 2.4 percent of the 

System’s loan portfolio, and lease 

receivables accounted for 1.3 percent 

of the overall portfolio. Finally, loans 

outstanding to “other financing institutions” (OFIs) represented a small 

but important segment of the System’s portfolio (see “System Funding 

for Other Lenders” below).

As required by law, borrowers own 

stock or participation certificates in 

System institutions. The FCS had 

more than 917,000 loans and 497,000 

stockholders in 2012. Approximately 

85.0 percent of the stockholders were 

farmers or cooperatives with voting 

stock. The remaining 15.0 percent 

were nonvoting stockholders, including rural homeowners and other 

financing institutions that borrow 

from the System. Over the past five 

years, the number of System stockholders has increased gradually, 

rising more than 4.4 percent since 

year-end 2008. 

The U.S. Department of Agriculture 

has forecast $135.6 billion in net cash 

farm income in the United States 

for 2012, up $900 million from 2011 

and up $51.8 billion from its 10-year 

average of $83.8 billion. The System’s 

loan volume increased 9.9 percent. 

Several factors contributed to this 

increase. 

Demand for real estate mortgage 

loans was the most important factor. 

Real estate mortgage loans increased 

$7.6 billion, or 9.4 percent. Two 

causes triggered the demand for 

more real estate mortgage loans: the 

strong demand for cropland in the 

Midwest and uncertainty surrounding tax law changes at the end of 

2012. 

Another contributing factor to 

the increase in gross loans was 

the increase in commodity prices. 

Because of the drought in the Midwest, grain supplies declined, triggering the commodity price increase. 

Because of the higher prices, the 

demand for seasonal loans to agribusiness cooperatives (e.g., farm 

supply and grain marketing businesses) increased. Loans to agribusiness increased by $2.4 billion, or 9.5 

percent.

Short- and intermediate-term production loans also increased, going up 

$2.6 billion, or 6.3 percent. Shortand intermediate-term loan volume 

increased largely because of advance 

purchases of 2013 inputs, such as 

fertilizer, seed, and fuel. 

Rural utility loans increased by 

$3.1 billion, or 19.8 percent, largely 

because of increased lending to 

electric power distribution and power 

generation cooperatives. Rural resi7. A similar-entity borrower is not eligible to borrow directly from an FCS institution, but because the similar-entity borrower’s operation is functionally 

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

8. This amount includes real estate mortgage loans and production (short- and intermediate-term) loans, but excludes leases and loans to “rural homeowners” (as defined in 613.3030 of the FCA regulations).
19

Table 3

FCS Gross Loans Outstanding, 2008–2012

As of December 31

Dollars in Millions

 Percent Percent

 change change

2008 2009 2010 2011 2012 from 2008 from 2011

Production agriculture

Long-term real estate 

	 	 mortgage loans	 71,892	 75,352	 78,021	 80,658	 88,263	 22.8	 9.4

Short- and intermediate-

	 	 term loans	 37,468	 39,610	 40,584	 41,276	 43,861	 17.1	 6.3

Agribusiness loansa 26,901	 23,626	 29,581	 24,734	 27,090	 0.7	 9.5

Rural utility loansb 13,931	 14,562	 15,091	 15,606	 18,702	 34.2	 19.8

Rural residential loans	 4,611	 4,977	 5,475	 5,832	 6,210	 34.7	 6.5

Agricultural export finance	 4,077	 3,956	 4,036	 3,834	 4,674	 14.6	 21.9

Lease receivables	 1,952	 2,160	 2,021	 2,139	 2,415	 23.7	 12.9

Loans to other financing

	 institutions	 591	 587	 542	 585	 689	 16.6	 17.8

Total 161,423 164,830 175,351 174,664 191,904 18.9 9.9

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

a. At December 31, 2012, agribusiness loans consisted of loans to cooperatives of $12.8 billion, processing and marketing loans of $10.3 billion, and farmrelated business loans of $2.8 billion.

b. At December 31, 2012, rural utility loans consisted of loans to energy and water/waste water loans of $14.5 billion and communication loans of $4.2 

billion.

 

dential loans increased $378 million, 

or 6.5 percent. The other categories 

also posted substantial increases for 

the year, including a 21.9 percent 

increase in agricultural export loans.9

Total loans outstanding at FCS banks 

and associations (net of intra-System 

lending) increased by $17.2 billion, 

or 9.9 percent, during the year ended 

December 31, 2012. This compares 

with a decline of 0.4 percent in 2011, 

and increases of 6.4 percent in 2010, 

and 2.1 percent in 2009. However, 

since year-end 2008, total System 

loans outstanding have increased by 

$30.5 billion, or 18.9 percent.

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 

include commercial banks, savings 

institutions, credit unions, trust companies, agricultural credit corporations, and other specified agricultural 

lenders that are significantly involved 

in lending to agricultural and aquatic 

producers and harvesters. 

System banks can fund and discount 

short- and intermediate-term loans 

9. A majority of the System’s agricultural export loan portfolio is guaranteed by the Commodity Credit Corporation through the U.S. Department 

of Agriculture’s GSM-102 and GSM-103 export credit programs. Overall, 75 percent of the System’s agricultural export portfolio in 2012 carried a 

guarantee from the Commodity Credit Corporation.
20

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

credit risk. They also provide 

another advantage. When a borrower seeks a loan that exceeds a 

lender’s legal or internally established lending limit, the lender 

may use a loan participation to 

provide funding for part of the 

loan. 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.

• 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.

Financial institutions primarily use 

loan participations and syndications 

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. However, institutions 

also use them to manage and optimize capital, earnings, and liquidity. 

As figure 5 shows, activity from net 

similar-entity loan participations and 

syndications with non-System lenders has increased since 2010. The first 

group of bars shows gross loan syndications outstanding by FCS banks 

and associations.10 The System’s gross 

loan syndications with non-System 

lenders increased to $12.4 billion, up 

$1.1 billion from that of 2011. 

The increased use of syndications 

reflects the growing complexity of 

commercial credits in agriculture. 

For large loans, lenders are shifting 

from being single-lender originators 

who sell loan participations to other 

institutions to being members of syndicates in which groups of lenders 

originate loans. 

The middle group shows net loan 

participations involving institutions 

that are originating with customers who are also eligible to borrow 

from the FCS. The net total of these 

participations was $8.5 billion, a 10.4 

percent increase above 2011. Much 

of the lending activity in this group 

probably results from gross loan syndications (the first group of bars in 

this figure) and the subsequent sale 

of participations in these loan syndications to other System institutions.

In addition to participating in loans 

to eligible borrowers, FCS institutions have the authority to work with 

non-System lenders that originate 

“similar-entity” loans (third group 

of bars in figure 5). A similar-entity 

borrower is not eligible to borrow 

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 December 31, 2012, the System 

served 26 OFIs, unchanged from 

2011, but down from 28 in 2010 and 

2009. Outstanding loan volume to 

OFIs was $689 million at year-end, 

up $104 million from 2011. OFI loan 

volume continues to be less than one 

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

System’s OFI loan volume is in the 

Midwest.

Loan Participations and 

Syndications with Non-FCS 

Lenders

In addition to the authority to 

provide services to OFIs, the Farm 

Credit Act gives System banks and 

associations the authority to partner 

with financial institutions outside the 

System, including commercial banks, 

in making loans to agriculture and 

rural America. Generally, System 

institutions partner with these financial institutions through loan participations and syndications.

• Loan participations are large 

loans in which two or more lenders share in providing loan funds 

to a borrower. Loan participations help lenders manage their 

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

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

Figure 5

Syndications and Net Loan Participations Involving Non-System Lenders, 2007–2012

As of December 31

Dollars in Billions

Sources: Farm Credit System Call Reports. 

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

eligible borrowers in 2008. Subsequently, that figure was revised to $7.6 billion. 

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

operation is functionally similar to that of an eligible borrower, the System can participate in some of these loans 

(the participation interest must be less than 50 percent).

directly from an FCS institution, but 

because the borrower’s operation 

is functionally similar to that of an 

eligible borrower, the System can 

participate in the borrower’s loans 

(the participation interest must be 

less than 50 percent). 

At the end of 2012, the net amount 

of similar-entity participations in 

the System amounted to $8.8 billion, 

an increase of less than $1 billion, 

or 11.4 percent above 2011 volume. 

The net total of all loan participations involving non-System lenders 

was $17.3 billion at year-end 2012, 

compared with $15.6 billion the year 

before. 

AgDirect, LLP

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

developed by Farm Credit Services 

of America, ACA, which is affiliated with AgriBank, FCB. AgDirect 

facilitates the financing or leasing of 

equipment for farmers and ranchers through participations in retail 

installment loan or leasing contracts 

originated by equipment dealerships. 

The program enhances financial 

options for customers and institutions, and provides a new revenue 

stream to AgDirect owners and 

AgriBank. 

In 2012, FCA approved investments 

by an additional five System associations in AgDirect, LLP. In early 2013, 

we approved investments by two 

more associations, bringing the total 

number of institutions participating 

in AgDirect to 11. AgDirect financing is now available in many states. 

As of December 31, 2012, the total 

outstanding participation interests in 

loans purchased was $2.1 billion.
22

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Farm Debt and Market 

Shares 

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

debt for the year ended December 

31, 2012, was $269 billion, up from 

its $254 billion estimate for yearend 2011. USDA’s estimate for 2012 

farm debt will be revised later in 

2013, but farm loan data reported by 

Farm Credit System and commercial banks show that their total farm 

loan portfolios grew during 2012 by 

more than 8 percent and 6 percent, 

respectively.11 The farm real estate 

debt portfolios of both FCS institutions and commercial banks grew 

more than their non-real estate loan 

portfolios in 2012.

Lender-reported data also show 

that the demand for farm credit 

grew more robustly in the Midwest, 

particularly late in the year. In 2012, 

farmers in the Midwest took advantage of record-high farm incomes and 

low interest rates to invest heavily 

in equipment, farm structures, and 

farmland. 

On the supply side, lenders had 

ample funds to lend in 2012 because 

demand for credit remained below 

the capacity to lend. Credit underwriting practices were relatively 

conservative despite a competitive 

lending environment. Because of the 

forecasts for continued strong farm 

incomes, high real estate values, 

low interest rates, and an improving 

nonfarm economy, credit demand is 

expected to remain strong in 2013. 

However, a change in any one or 

more of these factors could change 

the outlook for credit demand.

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

2011. USDA’s estimate of debt by 

lender shows that commercial banks 

held less than 44 percent of total 

farm business debt, just above the 

System’s market share of 43 percent. 

FCS market share of total farm business debt has been growing relative 

to commercial banks in recent years. 

Except for brief periods, the FCS 

has typically had the largest market 

share of farm business debt secured 

by real estate. At year-end 2011, the 

System held 46 percent of this debt, 

compared with 38 percent for commercial banks. Commercial banks 

have historically dominated non-real 

estate farm lending—commercial 

banks had a 51 percent market share 

at the end of 2011.The System’s share 

of non-real estate farm business debt 

grew slightly to 38 percent at yearend 2011.

11. USDA calculates market share for farm business debt only (i.e., debt that is used for farm production purposes). The information for 2012 and previous years will be altered after USDA releases revisions to its farm debt estimations in August 2012. Market share information is not available for the 

other portions of the System’s portfolio, such as agribusiness lending, rural utility lending, or rural home lending.
23

Serving Young, Beginning, and Small 

Farmers and Ranchers

The Farm Credit Act requires Farm 

Credit System institutions to have 

programs to provide financially 

sound and constructive credit and 

related services to young, beginning, 

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

provide a smooth transition of farm 

businesses to the next generation. 

They also allow System institutions 

to serve a more diversified customer 

base—from very small enterprises to 

large commercial operations. 

At FCA, we are strongly committed 

to ensuring that the System fulfills 

its responsibility to serve YBS producers. We support the YBS mission 

through our regulatory activities, 

data collection and reporting, disclosure requirements, and examination 

activities. 

Characteristics of YBS 

Borrowers 

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

the characteristics of producers who 

would qualify for a YBS loan with 

the System. 

Young

Across the United States, there are 

far fewer young farmers than there 

are small and beginning farmers, and 

this number has been shrinking for 

decades. At FCA, we define young 

farmers as those who are 35 years 

of age or younger. The decline in 

young farmers reflects years of farm 

consolidations and integrations and 

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

only 4 percent of all principal family 

farm operators were under 35 years 

of age in 2011. This percentage has 

remained relatively constant in recent 

years.12 

Many young farmers are also small 

and beginning farmers. However, 

young farmers are somewhat less 

likely than older farmers to operate 

small farms—that is, farms with less 

than $250,000 in gross sales. Still, 85 

percent of young farmers operated 

small farms in 2011. In addition, 76 

percent of all young farmers are also 

beginning farmers—that is, they have 

farmed for 10 years or less. By contrast, only a third of farmers between 

ages 35 and 54 are beginning farmers. Although 2011 farm incomes of 

young farmers were similar to the 

incomes of older farmers, their farm 

net worth was much less.

Beginning 

For 2011, the Agricultural Resource 

Management Survey shows that 

approximately 22 percent of all family farms had principal operators 

who are beginning farmers. Although 

beginning farmers are generally 

believed to be young, only 14 percent 

of these principal operators were 

under 35 years of age, and 12 percent were 65 years or older. The vast 

majority of beginning farmers—96 

percent—operated small farms. Only 

one-quarter of beginning farmers 

consider farming to be their primary 

occupation; most of their income 

comes from off-farm sources. 

Small

Small farms, which represent 89 percent of all family farms in USDA’s 

2011 Agricultural Resource Management Survey, are difficult to characterize. Two-thirds of the 1.9 million 

small farms have less than $10,000 

in gross farm sales. These very small 

farms on average have negative farm 

incomes and no or small amounts 

of farm debts. Their farm production amounted to just 1 percent of 

the total value of U.S. farm production. Those who operate small farms 

generally seek credit for consumer, 

rather than farm, products. Within 

this large segment are farming operations that are growing in size or 

producing higher-margin agricultural 

products for local markets, often on 

a seasonal basis. A higher percentage 

of very small farms are located in the 

East.

Young operators make up just 4 

percent of small farmers, the same 

percentage that they make up of 

all U.S. farmers. Beginning farmers 

make up 23 percent of farmers in the 

small category, but they make up 

just 9 percent of farmers who have 

over $250,000 in annual farm sales. 

Since a third of all small farmers are 

65 years or older, many of them have 

retired from full-time farming or 

will retire soon. Also, because many 

small farmers do not use agricultural 

credit, many small farmers are not 

potential YBS borrowers. 

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

of the farm business is owned by individuals related by blood, marriage, or adoption. 
24

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

FCS Lending to YBS 

Producers 

Generally, the shares of Systemwide 

total farm lending going to the three 

separate YBS categories have been 

consistent with the shares of these 

farmer segments in the total farmer 

population. The smallest share of 

total System farm lending goes to 

the young farmer segment, and the 

largest share goes to the small farm 

segment. 

The range of YBS demographics and 

the changing economic conditions in 

rural America can pose challenges for 

System institutions in meeting their 

YBS program goals. Another challenge for System lenders is meeting 

the wide range of nonagricultural 

credit needs of YBS farmers.

The Farm Credit Act stipulates that 

each System bank must have written 

policies that direct each association 

board to have a program for furnishing sound and constructive credit 

and financially related services to 

YBS borrowers. Associations must 

also coordinate with other Government and private sources of credit in 

implementing their YBS programs. 

In addition, each institution must 

report yearly on its lending volume, 

operations, and achievements in its 

YBS program. (See the YBS Programs 

section on page 30.) 

FCA regulations require that each 

System lender’s YBS program include 

a mission statement that describes 

the program’s objectives and specific 

means to achieve the objectives. The 

regulations also require each program to include annual quantitative 

targets for credit to YBS producers; 

these targets should be based on 

reliable demographic data for the 

institution’s lending territory. YBS 

programs must also include outreach 

efforts and annual qualitative goals 

for offering credit and related services that are responsive to the needs 

of YBS farmers.

The association’s board oversight 

and reporting are integral parts of 

each YBS program. Each association’s 

operational and strategic business 

plan must include the goals and 

targets for YBS lending. And each 

association must have an internal 

control program to manage the YBS 

program; it must also have methods 

in place to ensure that credit is provided in a safe and sound manner 

and within the lender’s risk-bearing 

capacity. 

FCA’s oversight and examination 

activities encourage System institutions to assess their performance and 

market penetration in the YBS area. 

This self-assessment increases each 

institution’s awareness of its mission 

and prompts it to earmark resources 

to serve the YBS market segment. In 

addition, we continue to review and 

consider various policy options for 

supporting the System’s YBS programs. 

Comparing the System’s YBS 

Lending in 2012 with YBS 

Lending in 2011 

The number and volume of loans 

(including new loans and renewals) 

made during the year indicates the 

extent to which System institutions 

are serving YBS producers. In general, during calendar year 2012, new 

lending activity increased across the 

System for each of the three YBS 

categories.13 In recent years, new 

lending to YBS borrowers has been 

relatively flat. 

Lending to small farmers increased 

the least during 2012, with a 4.1 

percent increase in the number of 

loans made from the number made 

in 2011. The number of new loans 

made to beginning farmers rose 11.8 

percent from 2011, while the number 

of new loans made to young farmers 

rose 7.3 percent. Because loans were 

generally larger in 2012 than in 2011, 

the percentage increases in the dollar 

volume to YBS borrowers were much 

higher than the percentage increases 

in loan numbers. The rise in average 

loan sizes reflected sizable increases 

in prices paid for farmland, equipment, and other production costs 

during the year. The dollar volume 

of new lending in 2012 was 17.9 

percent higher to small farmers, 18.4 

percent higher to young farmers, 

and 19.2 percent higher to beginning 

farmers.

The number and dollar volume of 

loans outstanding increased in all 

three YBS categories because repay13. System data on service to YBS farmers and ranchers cover the calendar year and are reported at year-end. The statistics show loans made during the 

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

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

loan and thus the loan numbers reported here do not directly measure the number of borrowers.
25

ments did not keep pace with new 

loan volume. The dollar volume of 

loans outstanding to young farmers increased by 8.5 percent, but the 

increases were smaller for the other 

categories. The dollar volume of 

loans outstanding increased by 3.0 

percent to small farmers and by 4.7 

percent to beginning farmers. 

Comparing the System’s YBS 

Lending with Overall Lending 

In 2012, lending to the three YBS categories exceeded the pace of overall 

System lending to farmers. Therefore, 

the share of total System farm loans 

going to the YBS categories rose from 

that of 2011. In 2012, the volume of 

all System farm loans made (including commitments) during the year 

was $75.6 billion, up 6.0 percent 

over that of 2011, and the volume 

of outstanding farm loans (including 

commitments) at year-end was $202.2 

billion, up 6.7 percent from that of 

2011. The total number of farm loans 

made in 2011 (343,610) was up less 

than 2.9 percent from 2011, while 

the number of outstanding loans 

(943,165) at the end of 2012 was 2.8 

percent higher than at the end of 

2011. 

In the section on YBS borrowing 

trends (page 27), we provide information on the progress in YBS lending activity since 2001, which was 

the first year institutions reported 

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

farmers and ranchers. Table 4A contains information on loans made in 

each category during the year; table 

4B provides information on loans 

outstanding at the end of 2012

Loans and commitments to YBS 

farmers include real estate loans and 

short- and intermediate-term loans, 

but do not include rural home loans. 

In the percentages below, young, 

beginning, and small farmer lending 

is compared with all System lending 

and commitments to farmers. 

Young—In 2012, the System made 

56,659 loans to young farmers—that 

is, to those who are 35 years old or 

younger—amounting to $8.8 billion. 

During 2011, the System made 52,800 

loans to young borrowers, totaling $7.5 billion. The loans made to 

young borrowers in 2012 represented 

16.5 percent of all farm loans the 

System made during the year and 

11.7 percent of the dollar volume 

of loans made. The average size of 

loans made to young farmers in 2012 

increased to $156,014 from $141,360 

in 2011. At the end of 2012, the System had $23.1 billion in outstanding 

loans to young farmers as compared 

with $21.3 billion at the end of 2011. 

Beginning—The System made 69,304 

loans to beginning farmers—that is, 

to those who have been farming for 

10 years or less—amounting to $11.5 

billion in 2012. During 2011, the 

System made 61,995 loans, totaling 

$9.6 billion, to beginning borrowers. 

The loans made to beginning farmers 

in 2012 represented 20.2 percent of 

all farm loans made during the year 

and 15.2 percent of the dollar volume 

of loans made. The average size of 

loans made increased to $165,697 in 

2012 from $155,406 in 2011. At the 

end of 2012, the System had $35.7 

billion in outstanding loans to beginning farmers as compared with $34.1 

billion at the end of 2011. 

Small—FCS institutions made 

143,200 loans, totaling $13.2 billion, 

to small farmers (those with gross 

annual sales of less than $250,000) 

in 2012. By comparison, the System 

made 137,529 loans, totaling $11.2 

billion, to small farmers in 2011. The 

loans made in 2012 to farmers in this 

category represented 41.7 percent 

of all farm loans made during the 

year and 16.8 percent of the dollar 

volume of loans made. The average 

size of loans made rose to $92,161 

from $81,413 in 2011. At the end of 

2012, the System had $44.1 billion in 

outstanding loans to small farmers 

as compared with $42.9 billion at the 

end of 2011. 

The YBS information is reported 

separately for each of the three YBS 

borrower categories because the YBS 

mission is focused on each borrower 

group separately. Also, loans cannot 

be added across categories because 

some loans belong in more than one 

category. If, for example, a borrower 

is less than 35 years old, sells less 

than $250,000 in farm products per 

year, and has farmed for less than 10 
26

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Table 4A

YBS Loans Outstanding

As of December 31, 2012		 	 	 

Percentage Percentage

 of total Dollar of total

Number number volume volume Average

of of System of loans of System loan

loans farm loans in millions farm loans size

Young farmers/ranchers 170,875 18.1 $23,110 11.4 $135,247

Beginning farmers/ranchers 243,354 25.8 $35,733 17.7 $146,834

Small farmers/ranchers 477,248 50.6 $44,123 21.8 $92,453

 

Table 4B

YBS Loans Made During 2012

As of December 31

 Percentage Percentage

 of total Dollar of total

Number number volume volume Average

of of System of loans of System loan

loans farm loans in millions farm loans size

Young farmers/ranchers 56,659 16.5 $8,840 11.7 $156,014

Beginning farmers/ranchers 69,304 20.2 $11,483 15.2 $165,697

Small farmers/ranchers 143,200 41.7 $13,197 17.4 $92,161

 

 

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

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

more than 10 years; and a “small” farmer/rancher generates less than $250,000 in annual sales of agricultural or aquatic products. Since the totals are not 

mutually exclusive, one cannot add across young, beginning, and small categories to count total YBS lending. Also, the totals listed in tables 4A and 4B 

include loans, advancements, and commitments to farmers, ranchers, and aquatic producers, and exclude rural home loans, loans to cooperatives, and 

activities of the Farm Credit Leasing Services Corporation.

 
27

years, the borrower’s loan would be 

included in each category. Therefore, 

adding the categories together would 

produce a misleading measurement 

of the System’s YBS lending involvement. 

YBS Borrowing Trends, 

2001–2012 

Figures 6A, 6B, and 6C show that, 

under the definitions and reporting 

requirements that became mandatory in 2001, the dollar volume of 

System loans made to YBS producers 

increased steadily until 2008. Since 

then, lending trends have been less 

consistent, particularly for the beginning and small farmer categories. In 

2012, lending to all three YBS categories rose, reflecting the increase 

in new Systemwide farm lending 

volume.

The number of new loans made during 2012 also increased for each YBS 

category. However, the percentage 

increase in dollar volume was greater 

than the increase in loan number 

because higher prices for production expenses, farmland, and other 

capital assets drove up the average 

loan size. The dollar volume of loans 

outstanding in each YBS category 

had been relatively constant the past 

several years but rose in 2012 with 

the greater new lending activity. 

Figures 6A, 6B, and 6C also show 

that the percentage of total new farm 

loan volume going to all YBS categories turned upward in 2012. In the 

past year the share of total dollar 

value of farm lending going to beginning farmers rose to 15.2 percent, 

the share to small farmers rose to 

17.4 percent, and the share to young 

farmers rose to 11.7 percent. 

One of the main reasons for the 

downward trend in the small farmers’ share of the System’s total 

lending volume is the growth in 

farm incomes since the mid-2000s. 

From 2005 to 2012, gross cash farm 

income rose from $280 billion to an 

estimated $433 billion—a 55 percent 

increase. As a result of rising prices 

and gross incomes, more farms now 

have gross farm sales in excess of 

$250,000 and therefore no longer 

qualify as small farms. 

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

other organizations is difficult. Other 

Federal regulators do not require 

reporting on young and beginning 

farmer loans. Although large banks 

are required to report on small farm 

loans, they define small farm lending 

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

than $500,000 is considered a small 

farm loan). In addition, because of 

differences in data definitions and 

data collection methods, annual YBS 

data are not directly comparable with 

Census of Agriculture data, which 

are collected only once every five 

years. 

Assessing YBS Results for 

Individual Associations

Factors Affecting Results from 

One Institution to the Next 

The results for individual associations reflect farmer demographics 

in each institution’s territory and 

the strength of each institution’s 

YBS program. Differences between 

farmer demographics make comparisons among individual associations 

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

population of beginning farmers than 

another institution’s territory. That is 

why YBS regulations do not specify 

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

that are appropriate for their lending 

territories. Other factors—such as the 

competitiveness of the local lending 

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

individual associations. 

Individual YBS Results Versus the 

System’s Average YBS Results 

As a result of the factors described 

above, YBS lending varies considerably across FCS associations.14 Some 

institutions may have a high number 

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

activity levels for other institutions 

may be just the opposite. Activity 

can vary considerably from one year 

to the next, especially for institutions 

with a small lending base. While the 

share of total new System farm loans 

made to young farmers was 16.4 per14. Beginning with 1999, specific YBS data by institution, by district, and for the System as a whole are available on FCA’s website at www.fca.gov under 

the Consolidated Reporting System Reports.
28

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Figure 6A

Young Farmers and Ranchers

Figures 6A, 6B, and 6C

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

As of December 31
29

Figure 6B

Beginning Farmers and Ranchers

Figure 6C

Small Farmers and Ranchers
30

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

cent, this share ranged from less than 

5 percent to as much as 28 percent. 

Approximately half of all institutions 

exceeded the System average in the 

percentage of small farmers they 

served, and about half fell below the 

System average. 

The ranges in the share of total new 

loans made to beginning farmers 

were even greater. Whereas 20.2 percent of the System’s total farm loans 

went to beginning farmers in 2012, 

this share ranged across associations 

from as little as 6 percent to as much 

as 64 percent. 

The ranges for the small farmer category are greater still. In 2012, 41.7 

percent of the System’s total farm 

loans went to small farmers, but the 

percentage for individual associations 

ranged from less than 7 percent to 

more than 90 percent. For this YBS 

category, a little fewer than half of all 

associations had lending shares that 

exceeded the Systemwide average.

While the share of total farm loan 

numbers and loan volume that went 

to YBS farmers rose during 2012 for 

the System as a whole, some associations did not experience gains in 

their lending to certain YBS groups. 

For example, one-third of associations reported declines in the dollar volumes of new loans made 

to young farmers, while just over 

one-quarter reported declines in loan 

dollar volumes made to small farmers. Lending shares for each category 

are more likely to vary significantly 

at small associations because of their 

small lending bases. 

YBS Programs 

Delivering Credit Services 

As a Government-sponsored enterprise with a statutory YBS mandate, 

the FCS is in a unique position to 

assist the next generation of American farmers, and System institutions 

have developed YBS programs to 

provide this assistance. Through 

these programs, FCS associations 

may offer lower interest rates and 

less stringent underwriting standards, 

such as higher loan-to-value ratios or 

lower debt coverage requirements, 

to allow potential YBS borrowers to 

qualify for loans. Associations also 

offer training through their YBS 

programs to help these borrowers be 

successful. 

In 2012, System institutions used 

the following methods to help them 

make YBS loans. 

• Interest rate concessions—offered 

by 48 percent of associations, up 

from 41 percent in 2011

• Exceptions to underwriting standards—offered by 60 percent of 

associations, up from 52 percent 

in 2011

• Lower loan fees—offered by 34 

percent of associations, up from 

24 percent in 2011

• Loan covenants designed specifically for YBS borrowers—offered 

by 16 percent of associations, 

similar to 2011 

As a whole, the System offered 

slightly more loan concessions to 

young and beginning farmers than 

it did to small farmers. In 2012, 73 

percent of the System’s associations 

provided some form of loan concessions to young borrowers, 73 percent 

provided concessions to beginning 

borrowers, and 70 percent provided 

concessions to small farmers. Results 

for 2012 exceeded those of 2011 by 

an average of 10 percent. 

As required by the Farm Credit Act, 

System institutions coordinate their 

YBS programs with other Government programs whenever possible. 

Several State and Federal programs 

provide interest rate reductions or 

guarantees for YBS borrowers. By 

partnering with these Government 

programs, FCS institutions are able 

to reduce the credit risk to these 

borrowers. In 2012, all but three 

associations used USDA Farm Service 

Agency loan guarantees for some of 

their YBS lending, while 21 percent 

used Small Business Administration 

loan guarantees and 57 percent of 

the associations used State and local 

programs. 

FCS institutions use guaranteed lending programs from Federal, State, 

and local sources for both conventional and YBS lending. About 36 
31

percent of the System’s overall loans 

made in 2012 with guarantees went 

to young farmers; about 39 percent 

went to beginning farmers; and 

about 45 percent went to small farmers (numbers do not necessarily add 

up to 100 percent because categories 

overlap). 

In 2012, the System made 2,265 loans 

with guarantees to young farmers, 

2,439 loans with guarantees to beginning farmers, and 2,811 loans with 

guarantees to small farmers. System 

associations obtained guarantees on 

more loans in 2012 than in 2011, an 

increase of about 660 loans to young 

farmers, 840 loans to beginning farmers, and 600 loans to small farmers. 

Training and Other Services 

System institutions offer numerous 

opportunities to educate existing 

and potential YBS borrowers. System 

associations offer Systemwide online 

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

mentoring component. Associations 

coordinate with State and national 

agricultural organizations and educational centers to offer educational 

training and, in some cases, to provide funding to allow YBS farmers to 

attend training. 

Examples of training opportunities 

provided by System associations 

include the Emerging Entrepreneurs’ 

Conference, Ag Biz Planner, Farm 

Credit College seminars, and the 

Young Farmer and Rancher Executive 

Institute. 

System associations are actively 

involved in marketing to potential 

YBS borrowers. Some associations 

attend and help sponsor local trade 

shows, fairs, and training workshops 

specifically targeting young farmers. 

Some also conduct outreach and 

marketing activities in partnership 

with State or national young farmer 

groups, colleges of agriculture, State 

or national cooperative association 

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

Organization. In addition, many FCS 

associations provide financial support 

for college scholarships and for FFA, 

4-H, and other agricultural organizations.
32

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Regulatory Policy and Approvals

As the regulator of the Farm Credit 

System, we issue regulations, as well 

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

and sound manner, and efficiently 

carries out its statutory mission. Our 

regulatory philosophy is to provide a 

regulatory environment that enables 

the System to safely and soundly 

offer high-quality, reasonably priced 

credit and related services to farmers 

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

We strive to develop balanced, wellreasoned regulations whose benefits 

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

relevance in the marketplace and in 

rural America while ensuring that 

the System remains consistent with 

the law and safety and soundness 

principles, and (2) to promote participation by member-borrowers in the 

management, control, and ownership 

of their System institutions. 

Regulatory Activity in 2012 

The following paragraphs describe 

some of FCA’s regulatory efforts in 

2012, along with several projects that 

will remain active in 2013. Full text 

for the items below is available on 

the FCA website. To access Board 

Policy Statements, FCA Bookletters, 

and Informational Memorandums, go 

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

To access proposed rules and final 

rules whose effective dates are pending, go to www.fca.gov/law/pending.

html and select “FCA Pending Regulations and Notices database.” 

Governance

System Audit Committee—The FCA 

Board approved a proposed rule in 

January 2012 and a final rule in September 2012 to expand the authorities 

of the System Audit Committee. 

Senior Officer Compensation Disclosures—The FCA Board approved a 

proposed rule in December 2011 and 

a final rule in September 2012 that 

amended our regulations related to 

disclosures made by System banks 

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

rule is to provide full, transparent, 

and consistent disclosures on issues 

related to senior officer compensation. 

Senior Officer Compensation Final 

Rule, Compliance Date Extension—

We issued an Informational Memorandum in December 2012 informing 

System institutions that the FCA 

Board had extended the compliance 

date for the provisions of the final 

rule regarding disclosures to 30 days 

after the effective date of the rule. 

The Board also extended the baseline year to 2013 for the nonbinding 

advisory vote.

Senior Officer Compensation Disclosures—The FCA Board approved 

a Notice of Petition for Regulatory 

Change and Request for Comment in 

February 2013 related to the FCA’s 

final rule on senior officer compensation disclosures. We solicited comments on the merits of the petition, 

and we solicited suggestions for 

reasonable alternatives to the nonbinding, advisory vote provisions of 

the rule. We stressed that the alternatives should comparably engage 

shareholders and increase the transparency of senior officer compensation practices.

Unincorporated Business Entities—

The FCA Board approved a proposed 

rule in August 2012 that would create a regulatory framework for the 

formation of unincorporated business 

entities organized under State law.

Compensation for 2013—We issued 

an Informational Memorandum in 

February 2013 to communicate the 

annual adjustment in the maximum 

annual compensation payable to 

FCS bank directors. The adjustment 

reflects the change in the Consumer 

Price Index. 

Lending 

Operating and Strategic Business 

Planning—The FCA Board approved 

a final rule in April 2012 to require 

that FCS institutions’ operational 

and strategic business plans contain 

human capital plans and marketing plans that include, among other 

things, outreach toward diversity and 

inclusion. 
33

Providing Credit to Farmers and 

Ranchers Operating in Local/

Regional Food Systems—We issued 

a Bookletter in October 2012 to provide guidance to System associations 

on how they can meet the credit and 

related services needs of farmers who 

market their agricultural products 

through local/regional food systems. 

Interagency Statement on the Impact 

of Biggert-Waters Act—We issued 

an Informational Memorandum 

in March 2013 to inform financial 

institutions that provisions related 

to force placement and civil money 

penalties in the Biggert-Waters Flood 

Insurance Reform Act of 2012 took 

effect when the act was signed, and 

that the private flood insurance and 

escrow provisions of the act will 

not be effective until regulations are 

issued.

Establishment and Implementation 

of a Shared-Asset Identifier—We 

issued a Bookletter in October 2012 

stating that we expect each System 

institution and its board of directors to establish and implement an 

automated mechanism to consistently 

identify shared-asset exposures. 

Long-Term Standby Purchase Commitments—We issued an Informational Memorandum in May 2012 

that described treatment of System 

loans covered by the Farmer Mac 

Long-Term Standby Purchase Commitment program. It described the 

lending limits on these loans, how to 

risk-weight the loans for regulatory 

capital ratios, and how to report and 

disclose asset-quality statistics and 

System risk ratings.

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. 

Capital and Investments 

Liquidity and Funding—The FCA 

Board approved a final rule in March 

2013 to ensure that FCS funding 

and liquidity requirements are safe, 

sound, and appropriate. 

Investment Management—The FCA 

Board approved a final rule in October 2012 to amend our investment 

management regulations and related 

regulations governing interest rate 

risk management. The purpose of 

the rule is to enhance the safety and 

soundness of System institutions. 

Association Investments—We issued 

an Informational Memorandum in 

May 2012 to remind System associations that under FCA regulations 

they may hold eligible investments 

for only two purposes—reducing 

interest rate risk and managing surplus short-term funds. 

Investments in Rural America—We 

continued to evaluate how System 

partnerships and investments could 

help increase the availability of funds 

to agriculture and rural America. 

We are reviewing investments made 

under pilot projects to determine 

whether these investments help institutions fulfill their mission. 

Farmer Mac 

Farmer Mac Investment Management—The FCA Board approved a 

proposed rule in October 2012 to 

revise regulations governing Farmer 

Mac’s liquidity and investment management. 

Farmer Mac Capital Planning—The 

FCA Board approved a proposed 

rule in December 2012 to consider 

amending the existing capital planning requirements to ensure that 

Farmer Mac’s capital planning 

process and strategies are robust 

enough to meet regulatory and statutory minimum requirements under 

expected and stressed conditions.

Other 

National Oversight and Examination Program for 2013—We issued 

an Informational Memorandum in 

October 2012 that summarized the 

National Oversight Plan for 2013. The 

plan detailed strategies for addressing critical risks and other areas of 

focus in the System. 
34

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Corporate Activity in 2012

In 2012 and early 2013, we analyzed 

and approved four corporate applications. 

• On December 12, 2011, a Farm 

Credit Bank was chartered as 

a subsidiary of CoBank, ACB. 

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

U.S. AgBank merged with the 

Farm Credit Bank subsidiary of 

CoBank. The resulting entity was 

an Agricultural Credit Bank with 

a Farm Credit Bank subsidiary. 

• On January 1, 2012, two ACAs 

affiliated with U.S. AgBank, FCB, 

merged their operations following stockholder approval. The 

PCA and FLCA subsidiaries 

associated with the ACAs also 

merged. 

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

• On July 1, 2012, two ACAs 

affiliated with the AgFirst Farm 

Credit Bank merged their operations following stockholder 

approval of the merger. The PCA 

and FLCA subsidiaries associated 

with the ACAs also merged. 

The total number of associations as 

of January 1, 2013, was 82 (79 ACAs 

and 3 FLCAs), compared with 83 

associations a year earlier. Figure 7 

shows the chartered territory of each 

FCS bank. Details about specific corporate applications are available on 

FCA’s website at www.fca.gov/info/

mergers.html. 

Funding Activity in 2012

During 2012, the System had ready 

access to the debt capital markets 

despite several sizable shocks to the 

markets stemming primarily from the 

eurozone financial crisis. 

In addition, the Federal Reserve’s 

continued efforts to support economic recovery have benefited the 

System by providing favorable 

pricing of securities and favorable 

spreads to U.S. Treasuries. The System also continued to benefit from 

investors seeking safe haven from 

eurozone concerns; investors were 

attracted by the System’s status as a 

Government-sponsored enterprise, as 

well as its overall financial strength. 

Furthermore, because of the reduction in debt issuances by the two 

housing-related Government-sponsored enterprises,15 which are in conservatorship, investors have turned to 

the System as a desirable alternative. 

As a result, the System was able to 

issue debt at very competitive rates. 

All mandatorily redeemable preferred 

stock outstanding was redeemed in 

2011. The System had $1.72 billion in 

outstanding perpetual preferred stock 

at the end of 2012, $400 million less 

than the previous year-end. It had 

$1.55 billion in outstanding subordinated debt at year-end 2012, down 

by $95 million from year-end 2011.

The System funds its loans with a 

combination of consolidated Systemwide debt and capital. The Funding 

Corporation, the fiscal agent for the 

System banks, sells debt securities 

such as discount notes, bonds, and 

designated bonds on behalf of the 

System.16 This process allows funds 

to flow from worldwide capital-market investors to agriculture and rural 

America, providing rural communities with efficient access to global 

resources. At year-end 2012, outstanding Systemwide debt was $198.0 

billion, up from $184.8 billion a year 

earlier, representing a 6.3 percent 

increase.17

Several factors contributed to the 

$13.2 billion increase in Systemwide debt outstanding. Gross loans 

increased $17.2 billion in 2012 while 

the System’s combined investments, 

Federal funds, and cash balances 

decreased by $353 million in 2012. 

As the System’s regulator, we have 

several responsibilities pertaining 

to System funding activities. As 

required by the Farm Credit Act, the 

System must obtain our approval 

before distributing or selling debt. 

We respond quickly and efficiently 

to the System’s requests for debt 

issuance approvals. For example, 

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

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

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

condition and performance of the System as a whole.

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

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

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

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

well. Debt issued by an individual bank is uninsured, and the issuing bank is solely liable for the principal payments.
35

Figure 7

Chartered Territories of FCS Banks

As of January 1, 2013

Note: As of January 1, 2013, CoBank was funding 29 associations in the indicated areas and serving cooperatives nationwide; Farm Credit Bank of Texas 

was funding 17 associations; AgriBank, FCB, was funding 17 associations; and AgFirst Farm Credit Bank was funding 19 associations. The FCS contains a 

total of 86 banks and associations.
36

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

we have a program that allows the 

System to issue discount notes at 

any time, up to a maximum of $60 

billion, as long as it provides us with 

periodic reports on this activity. In 

addition, we approve the majority of 

longer-term debt issuances through 

a monthly “shelf” approval program. 

For 2012, we approved $179.6 billion 

in longer-term debt issuances. 

To participate in the issuance of an 

FCS debt security, a System bank 

must maintain, free from any lien or 

other pledge, specified eligible assets 

(available collateral) that are at least 

equal in value to the total amount 

of its outstanding debt securities. 

Securities subject to the available collateral requirements include Systemwide debt securities for which the 

bank is primarily liable, investment 

bonds, and other debt securities that 

the bank may have issued individually.

To ensure safety and soundness, our 

regulations require each System bank 

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

not less than 103 percent. We require 

certain System banks to maintain 

higher minimum net collateral ratios. 

All System banks have kept their net 

collateral ratios above the required 

minimum, with 105.2 percent being 

the lowest for any single bank as of 

December 31, 2012. 

In addition, our regulations require 

the banks to maintain a minimum of 

90 days of liquidity to guard against 

a possible interruption in its access 

to the capital markets. In 2010, the 

System banks agreed to improve 

the quality of liquidity by establishing a framework under which each 

bank must at all times meet stringent 

requirements for debt maturing in 

the next 15 days, as well as the subsequent 30 days. All System banks 

have kept their days of liquidity 

above the required minimum, with 

135 days being the lowest for any 

single bank as of December 31, 2012. 

The Funding Corporation and the 

System banks have also entered into 

voluntary agreements to provide for 

mutual protection in support of joint 

and several liability on Systemwide 

debt obligations. 

• First, the System banks have a 

common liquidity standard to 

help ensure their collective ability 

to meet their obligations under 

these mutual agreements. 

• Second, the amended and 

restated Market Access Agreement establishes certain financial 

thresholds that provide the Funding Corporation with operational 

oversight and control over the 

System banks’ participation in 

Systemwide debt obligations.18 

• Third, the amended and restated 

Contractual Interbank Performance Agreement 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 2012, all Farm 

Credit banks maintained scores 

in excess of the benchmarks in 

the Contractual Interbank Performance Agreement. 

The amount of debt issued by the 

System decreased for the first time 

in five years. Because interest rates 

were generally stable after declining 

for a prolonged period, there were 

fewer opportunities to refund callable debt at lower rates. For the 12 

months ended December 31, 2012, 

the System issued $371 billion in 

debt securities, compared with $563 

billion for 2011, $534 billion for 2010, 

$523 billion for 2009, and $519 billion 

for 2008. Despite the decrease in debt 

issuances in 2012, the System has 

continued to exercise call options on 

higher-cost debt. 

Investor interest and continued low 

yields on the full spectrum of debt 

instruments allowed the System to 

continue to extend its debt maturities 

in 2012 because average maturity of 

new issuances increased by nearly 

five months over 2011. The System’s 

weighted-average remaining maturity for all outstanding insured debt 

was 2.9 years as of December 31, 

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

Restated Market Access Agreement. The agreement became effective on January 1, 2012.
37

2012. The weighted-average interest 

rates for insured debt continued to 

decrease, going from 1.32 percent as 

of December 31, 2011, to 0.98 percent 

as of December 31, 2012. 

Mission-Related Investments

At FCA, we are committed to helping 

ensure a dependable and affordable 

flow of funds to agriculture and to 

rural areas so that farmers, ranchers, 

and rural communities can flourish. 

Agriculture and rural America face 

new challenges that require innovative solutions. 

Investments in rural communities can 

help create infrastructure improvements that promote the economic 

vitality of these communities for 

current and future generations of 

American farmers and rural residents. We believe that farm families 

benefit from investment projects 

that promote rural development and 

off-farm income opportunities. Investments in rural communities also 

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

and small farmers and other rural 

entrepreneurs who provide essential 

services for agricultural production. 

Our regulations allow System institutions to make certain mission-related 

investments. Examples include 

investments in farmers’ notes; certain 

debt obligations issued or guaranteed by Federal agencies or State or 

local municipalities for rural utilities 

and other economic development; 

and agricultural mortgage-backed 

securities, which Farmer Mac issues 

or guarantees. As of December 31, 

2012, the mission-related investment 

securities held under these regulatory 

authorities totaled 

• $1.0 billion in agricultural mortgage-backed securities ($502.6 

million in held-to-maturity 

securities and $502.4 million in 

available-for-sale securities), 

• $1.36 billion in securities backed 

by guaranteed portions of USDA 

loans and agricultural equipment 

loans, and 

• $16.6 million in farmer’s notes. 

In addition, in 2005 we approved 

System institution investments in 

successor-in-interest contracts created through the Tobacco Transition 

Payment Program.19 As of December 

31, 2012, investments in successorin-interest contracts totaled $313.1 

million. 

We have also given System institutions a provisional opportunity to 

make additional mission-related 

investments through pilot programs 

supporting investments in rural 

America (see the FCA Informational 

Memorandum dated January 11, 

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

which is available on our website at 

http://www.fca.gov/law/guidance.html). 

The pilot programs are intended to 

strengthen the System’s mission to 

provide for an adequate and flexible flow of funds, under specified 

conditions, to agriculture and to rural 

communities across the country. The 

investments made under the pilot 

programs are expected to support 

and supplement investments by Government and community banks for 

worthwhile community projects. 

The pilot programs provide us with 

the opportunity to study these investments to determine how the System 

can use them to help it fulfill its 

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

areas. The pilot program structure 

also enables us to better understand 

rural financial markets. 

Since creation of the Investments in 

Rural America program, we have 

approved several pilot programs and 

specific investments, such as rural 

housing mortgage securities, agriculture and rural community bonds and 

securities, and equity investments. 

We plan to evaluate the results of the 

pilot programs, take a hard look at 

the key legal and policy questions, 

and make a decision on the future 

direction of the pilot programs and 

the related Rural Community Investments rulemaking project.

19. On October 22, 2004, Congress enacted the Fair and Equitable Tobacco Reform Act of 2004 as part of the American Jobs Creation Act of 2004. The 

Tobacco Act repeals the Federal tobacco price support and quota programs, provides payments to tobacco quota owners and producers for the elimination of the quota, and includes a provision that allows the quota holders to assign to a financial institution the right to receive payments under a 

contract with the Secretary of Agriculture. FCA determined that FCS institutions meet the Tobacco Act’s financial institution criteria and are therefore 

eligible to participate in the Tobacco Transition Payment Program.
38

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Maintaining a Dependable Source of Credit 

for Farmers and Ranchers

As federally chartered cooperatives, 

the banks and associations of the 

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

“improve the income and well-being 

of American farmers and ranchers” 

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

to “selected farm-related businesses 

necessary for efficient farm operations.” 

Making loans exposes the System 

to risk. To manage this risk, System 

institutions must have both sufficient 

capital and effective risk-management 

controls. 

As the independent regulator of the 

FCS, the Farm Credit Administration examines and supervises System 

institutions. We monitor specific risks 

in each institution; we also identify 

and monitor risks that affect the System as a whole. 

Through our risk-based examination 

and supervisory program, our examiners determine how issues facing an 

institution or the agriculture industry 

may affect the nature and extent of 

risk in that institution. 

Our examiners also evaluate whether 

each institution is meeting its public 

mission. They do so by determining 

whether each institution is complying with laws and regulations and 

whether it is serving the credit needs 

of eligible agricultural producers 

and cooperatives, including young, 

beginning, and small farmers and 

ranchers. 

Conducting a Risk-Based 

Examination and Oversight 

Program

We have designed our examination 

and oversight program to monitor 

and address FCS risk as effectively 

and efficiently as possible. Therefore, 

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

also relies in part on the ability 

of FCS institutions to identify and 

manage both institution-specific and 

systemic risks. When institutions are 

either unable or unwilling to address 

unsafe and unsound practices or to 

comply with laws and regulations, 

we take appropriate supervisory or 

enforcement action. 

Through our oversight, we ensure 

that FCS institutions have the programs, policies, procedures, and 

controls to effectively identify and 

manage risks. Our oversight program 

also ensures compliance with laws 

and regulations. For example, our 

regulations require FCS institutions 

to have effective loan underwriting 

and loan administration processes. 

We also have specific regulations 

requiring FCS institutions to maintain 

strong asset-liability management 

capabilities. 

For more than 20 years, we have 

used a comprehensive regulatory and 

supervisory framework for ensuring System safety and soundness. 

FCS institutions, on their own and 

in response to our efforts, continue 

to improve their risk management 

systems. 

Meeting Statutory Examination 

Requirements 

As required by the Farm Credit Act, 

FCA examines each FCS institution at least once every 18 months. 

In the interim between these statutory examinations, we also monitor 

and examine institutions as risk and 

circumstances warrant. This approach 

allows us to customize our examination activities to each institution’s 

specific risks. In addition, we develop 

a National Oversight Plan every year 

that takes systemic risks into account. 

Identifying and Responding to 

Potential Threats to Safety and 

Soundness 

Because of the dynamics and risks 

in the agricultural and financial 

industries, FCA must ensure that 

FCS institutions have the culture, 

governance, policies, procedures, 

and management controls to effectively identify and manage risks. We 

employ various processes for evaluating systemic risks in both agriculture 

and the financial services industry 

that can affect an institution, a group 

of institutions, and the System as a 

whole. Currently, we are emphasizing the following areas:
39

• Drought and Related Risks. 

FCA’s Office of Examination 

monitors drought conditions, 

collects drought-related information, and analyzes the System’s 

exposure to risks associated with 

the drought. Our examiners consider risks to the System overall, 

as well as risks to the institutions 

most affected by the drought.

• Loan Portfolio Management. Our 

examiners review the systems 

and processes that institution 

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

and monitor lending operations. 

• Standards of Conduct. Directors and employees of System 

institutions must maintain high 

standards of honesty, integrity, 

impartiality, and conduct. Our 

examiners evaluate institutions’ 

policies, processes, and disclosures to ensure the effectiveness 

of their standards of conduct 

programs. Examiners also review 

their findings for systemic or 

strategic risks.

• Diversity and Inclusion. Through 

examinations, we focus on how 

the System is complying with 

revised FCA regulation 618.8440, 

which requires System institutions to develop human capital 

and marketing plans that promote diversity and inclusion. 

Our examiners look for tangible 

results to demonstrate that institutions are complying with the 

rule. 

When we identify systemic issues, we 

inform institutions about those issues 

by producing the following: 

• FCA Board Policy Statements 

• Informational Memoranda 

• Bookletters 

We keep an online library of these 

documents. Go to our website at 

www.fca.gov, click on the Law & 

Regulations tab, and select Info 

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

Measuring the System’s 

Safety and Soundness 

FCA uses the Financial Institution 

Rating System (FIRS) to indicate 

safety and soundness threats in each 

institution. Similar to the systems 

used by other Federal financial regulators, the FIRS is a CAMELS-based 

system, with component ratings for 

capital, assets, management, earnings, 

liquidity, and sensitivity all factoring 

into an overall composite rating. The 

FIRS process includes quantitative 

benchmarks for evaluating institution performance, qualitative rating 

criteria for evaluating risk management practices, and outlook ratings 

for evaluating perspective risks. 

Our examiners assign component and 

composite ratings to each institution 

on a scale of 1 to 5 based on their 

evaluation of measures and ratings. 

A composite rating of 1 indicates an 

institution is sound in every respect. 

A rating of 3 means an institution 

displays a combination of financial, 

management, or compliance weaknesses ranging from moderate to 

severe. A 5 rating represents an 

extremely high immediate or nearterm probability of failure.20 

Through our monitoring and oversight program, our examiners continually evaluate institutional risk and 

regularly review and update FIRS 

ratings to reflect current risks and 

conditions. We use both quantitative 

and qualitative benchmarks to help 

examiners apply FIRS ratings consistently from one institution to the 

next. We disclose the FIRS composite 

and component ratings to the institution’s board and CEO to give them 

perspective on the safety and soundness of their institution. 

We also disclose these ratings to each 

institution’s funding bank to ensure 

that the bank takes any actions necessary to safely and soundly oversee 

its direct loan with the institution. 

In addition, we issue examination 

reports and other communications to 

provide the institution board with an 

assessment of management’s performance, the quality of assets, and the 

financial condition and performance 

of the institution. 

As figure 8 shows, risks increased 

considerably in 2009 when stresses 

from the general economy, the credit 

crisis, and volatility in commodity 

prices surfaced and affected some 

institutions. The ratings have gradually improved each year, and the 

20. See the Glossary for a complete description of the FIRS ratings.
40

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

FIRS ratings for 2012 show that the 

financial condition and performance 

of the FCS was relatively 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.

At December 31, 2012, 37 FCS institutions were rated 1 (43 percent), 38 

were rated 2 (44 percent), 10 were 

rated 3 (12 percent), and 1 was rated 

4 (1 percent). Most of the institutions 

rated 3 or 4 were relatively small 

and collectively represent less than 3 

percent of the System’s total assets. 

There were no institutions with a 

rating of 5. (FCA applies FIRS ratings 

only to the banks and associations of 

the FCS, not to the System’s service 

corporations. It also applies a FIRS 

rating to Farmer Mac, but Farmer 

Mac is not included in figure 8.) 

Providing Differential 

Supervision and 

Enforcement 

FCA uses a risk-based supervisory 

and enforcement program to respond 

to the risks and particular oversight 

needs of each FCS institution. Risks 

are inherent in lending, and managing risks associated with a single 

sector of the economy—in this case, 

agriculture—presents an additional 

challenge for FCS lenders. If we discover unacceptable risks, we require 

corrective action to ensure that institutions mitigate the risks. Corrective 

actions include reducing risk exposures; increasing capital and enhancing earnings, and strengthening risk 

management. 

Figure 8

Financial Institution Rating System (FIRS) 

Composite Ratings for the FCS, 2008–2012

Source: FCA’s FIRS Ratings Database.

Note: Figure 8 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.
41

We use a three-tiered supervision 

program: normal supervision, special 

supervision, and enforcement actions. 

Institutions under normal supervision 

are performing in a safe and sound 

manner and are complying with laws 

and regulations. These institutions 

are able to correct weaknesses in the 

normal course of business. 

For those institutions displaying 

more serious or persistent weaknesses, we shift from normal to 

special supervision, and our examination oversight increases accordingly. Under special supervision, we 

give an institution clear and firm 

guidance to address weaknesses, and 

we give the institution time to correct 

the problems. 

If informal supervisory approaches 

have not been or are not likely to be 

successful, we will use our formal 

enforcement authorities to ensure 

that FCS institutions are safe and 

sound and that they comply with 

laws and regulations. We may take 

an enforcement action for a number 

of reasons:

• A situation threatens an institution’s financial stability. 

• An institution has a safety or 

soundness problem or has violated a law or regulation. 

• An institution’s board is unable 

or unwilling to correct problems 

we have identified. 

Our enforcement authorities include 

the following powers: 

• To enter into formal agreements 

• To issue cease-and-desist orders 

• To levy civil money penalties 

• To suspend or remove officers, 

directors, and other persons 

If we take an enforcement action, 

the FCS institution must operate 

under the enforcement document and 

report back to us on its progress in 

addressing the issues identified. Our 

examiners oversee the institution’s 

performance to ensure compliance 

with the enforcement action. As of 

December 31, 2012, we had formal 

written agreements with seven associations, whose assets totaled $4.0 billion. The written agreements require 

the associations to take corrective 

actions in such areas as financial 

condition and performance, portfolio 

management, asset quality, and institution management.

Protecting Borrower Rights 

Agricultural production is risky for 

many reasons—adverse weather, 

changes in Government programs, 

international trade issues, fluctuations 

in commodity prices, and crop and 

livestock diseases. These risks can 

sometimes make it difficult for borrowers to repay loans. 

The Farm Credit Act provides System 

borrowers certain rights when they 

apply for loans and when they have 

difficulty repaying loans. For example, the act requires FCS institutions 

to notify borrowers of the right to 

seek restructuring of loans before the 

institutions begin foreclosure. It also 

provides borrowers an opportunity 

to seek review of certain credit and 

restructuring decisions. When the 

System acquires agricultural property 

through liquidation actions, the Farm 

Credit Act also provides borrowers 

the opportunity to buy or lease back 

their former properties. 

FCA enforces the borrower rights 

provisions of the Farm Credit Act 

and examines institutions to make 

sure that they are complying with 

these provisions. 

We also receive and review complaints from borrowers who believe 

their rights have been denied. In 

2012, we received more than 50 borrower complaints. The number of 

complaints has increased in recent 

years as financial stress on System 

borrowers has increased. 

Generally, borrowers who contact us 

with complaints are seeking clarification, additional information, and 

options to redress their concerns. If 

we find violations of law or regulations, we have several options to 

bring about corrective action.
42

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Condition of Farmer Mac

Farmer Mac is a stockholder-owned, 

federally chartered instrumentality 

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

Farmer Mac provides a secondary 

market for agricultural real estate 

mortgage loans, rural housing loans, 

and rural utility cooperative loans. 

This secondary market is designed 

to increase the availability of longterm credit at stable interest rates 

to America’s rural communities and 

to provide rural borrowers with the 

benefits of capital markets pricing 

and product innovation. 

Farmer Mac conducts activities 

through three programs: 

• Farmer Mac I, which involves 

mortgage loans secured by first 

liens on agricultural real estate 

and rural housing 

• Farmer Mac II, which involves 

cer tain agricultural and rural 

loans guaranteed by the U.S. 

Department of Agriculture, 

including farm ownership loans, 

operating loans, and rural business and community development loans 

• Rural Utilities program, which 

involves loans to finance cooperatively owned rural electrification 

and telecommunications systems 

Farmer Mac purchases eligible loans 

directly from lenders; provides 

advances against eligible loans by 

purchasing obligations secured by 

those loans; securitizes assets and 

guarantees the resulting securities; 

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

eligible loans. Securities guaranteed 

by Farmer Mac may be retained 

by the originator of the underlying 

assets, retained by Farmer Mac, or 

sold to third-party investors. 

FCA regulates Farmer Mac through 

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

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

of 1991. This office provides for 

the examination and supervision of 

Farmer Mac and issues a comprehensive Report of Examination annually. 

Through its oversight, OSMO helps 

ensure the safety and soundness of 

Farmer Mac; it also helps ensure 

that Farmer Mac fulfills its public 

mission. The statute requires OSMO 

to be a separate office within our 

agency and to report directly to the 

FCA Board. The law also stipulates 

that OSMO’s activities must, to the 

extent practicable, be carried out by 

individuals who are not responsible 

for supervising the banks and associations of the FCS. 

Through OSMO, we perform the following functions: 

• Examine Farmer Mac at least 

annually for capital adequacy, 

asset quality, management performance, earnings, liquidity, and 

interest rate sensitivity 

• Supervise and issue regulations 

governing Farmer Mac’s operations 

• Oversee and evaluate Farmer 

Mac’s safety and soundness and 

mission achievement 

OSMO reviews Farmer Mac’s compliance with statutory and regulatory 

minimum capital requirements and 

supervises its operations and condition throughout the year. Table 5 

Table 5 

Farmer Mac Condensed Balance Sheets, 2007–2012

As of December 31	 	 	 	 	 	 	

Dollars in Millions

 Percentage 

growth

rate 

2007 2008 2009 2010 2011 2012 2011–2012

Total assets	 $4,977.6	 $5,107.3	 $6,138.8	 $9,479.9	 $11,883.5	 $12,622.2	 6.2%

 

Total liabilities	 $4,754.0	 $4,947.7	 $5,798.4	 $9,001.0	 $11,329.0	 $12,029.2	 6.2%

 

Net worth or 

	 equity capital	 $223.6	 $15.3	 $196.2	 $478.9	 $554.5	 $593.0	 6.9%

 

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K.
43

summarizes Farmer Mac’s condensed 

balance sheets at the end of each 

year from 2007 to 2012.

Capital

On December 31, 2012, Farmer Mac’s 

net worth (that is, equity capital 

determined using generally accepted 

accounting principles [GAAP]) was 

$593.0 million, compared with $554.5 

million a year earlier. Net worth was 

4.7 percent of on-balance-sheet assets 

as of December 31, 2012, unchanged 

from the year before. When Farmer 

Mac’s off-balance-sheet program 

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

is 3.6 percent—also unchanged from 

a year earlier. As of December 31, 

2012, Farmer Mac continued to be 

in compliance with all statutory and 

regulatory minimum capital requirements. 

At year-end 2012, Farmer Mac’s core 

capital (the sum of the par value of 

outstanding common stock, the par 

value of outstanding preferred stock, 

paid-in capital, and retained earnings) remained above the statutory 

minimum requirement. Its regulatory 

capital (core capital plus allowance 

for losses) exceeded the required 

amount as determined by the RiskBased Capital Stress Test.21 Farmer 

Mac’s core capital as of December 31, 

2012, totaled $519.0 million, exceeding the statutory minimum capital 

requirement22 of $374 million by 

$145.0 million. 

Farmer Mac’s regulatory capital 

totaled $535.9 million as of December 31, 2012, exceeding the regulatory risk-based capital requirement 

of $58.1 million by $477.8 million. 

Regulatory capital was 4.7 percent of 

total Farmer Mac I and rural utility 

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

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

Farmer Mac II loans is extremely low 

because they are guaranteed by the 

U.S. Department of Agriculture. Table 

6 offers a historical perspective on 

capital and capital requirements for 

2007 through 2012. 

We published an advance notice of 

proposed rulemaking in June 2011 to 

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

the Risk-Based Capital Stress Test 

in response to changing financial 

markets, new business practices, 

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

also address the requirements of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 and 

continue to research emerging best 

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

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

Table 6	 	 	 	 	 	

Farmer Mac Capital Positions, 2007–2012

As of December 31	 	 	 	 	 	 	

Dollars in Millions

2007 2008 2009 2010 2011 2012

GAAP equity	 $223.6	 $15.3	 $196.2	 $478.9	 $554.5	 $593.0

Core capital	 $226.4	 $207.0	 $337.2	 $460.6	 $475.2	 $519.0

Regulatory capital	 $230.3	 $223.4	 $351.3	 $480.7	 $492.7	 $535.9

Statutory requirement	 $186.0	 $193.5	 $217.0	 $301.0	 $348.6	 $374.0

Regulatory requirement	 $42.8	 $57.3	 $35.9	 $42.1	 $52.9	 $58.1

Excess over statutory or regulatory requirement*	 $40.4	 $13.5	 $120.2	 $159.6	 $126.5	 $145.0

Capital margin excess > minimum	 21.7%	 7.0%	 55.4%	 53.0%	 36.3%	 38.8%

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.

 
44

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

industry practices in financial modeling and stress testing. 

In addition, we published a final rule 

in November 2012 to revise regulations governing Farmer Mac’s nonprogram investment management. 

Nonprogram investments provide 

liquidity in the event of a short-term 

disruption in the capital markets 

that would prevent Farmer Mac 

from issuing new debt. Nonprogram 

investments consist of investment 

securities, cash, and cash equivalents. 

FCA plans to publish a final rule 

governing Farmer Mac’s liquidity 

management in the spring of 2013.

In January 2013, we issued a proposed rule to revise regulations governing Farmer Mac’s capital planning 

activities. The rule would, among 

other things, require Farmer Mac to 

annually stress test its capital position and to notify FCA of changes in 

dividend policy.

Program Activity 

Farmer Mac’s total program activity 

increased to $13.0 billion on December 31, 2012, from $11.9 billion a 

year earlier (see figure 9). Farmer 

Mac experienced steady growth in 

its AgVantage products. AgVantage 

transactions are general obligations 

of the issuing financial institution 

that are purchased or guaranteed 

by Farmer Mac. In addition to the 

general obligation of the financial 

institution, each AgVantage security 

is secured by eligible loans under 

one of Farmer Mac’s programs in an 

amount at least equal to the outstanding principal of the security. 

Farmer Mac’s Long-Term Standby 

Purchase Commitments are similar 

to a guarantee of eligible pools of 

program loans. Under the standbys, 

a financial institution pays an annual 

fee in return for Farmer Mac’s 

commitment to purchase loans in a 

specific pool if their credit quality 

deteriorates. As shown in figure 10, 

standbys represented 16.6 percent of 

Farmer Mac’s total program activity 

in 2012. 

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 

2012, 31.3 percent of program activity 

consisted of off-balance-sheet obligations, as compared with 28.8 percent 

a year earlier. 

Figure 9

Farmer Mac Program Activity and Nonprogram Investment Trends

As of December 31

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K.
45

Figure 10

Farmer Mac Total Program Activity

As of December 31, 2012

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

AMBS = agricultural mortgage-backed securities

Total = $11.87 billion
46

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Asset Quality 

On December 31, 2012, $186.5 million 

of the Farmer Mac I program portfolio was substandard, representing 

3.93 percent of the principal balance 

of Farmer Mac I loans purchased, 

guaranteed, or committed to be purchased.23 This compares with $197.5 

million, or 4.55 percent, on December 

31, 2011. Substandard assets have a 

well-defined weakness or weaknesses 

and may result in some loss if the 

deficiencies are not corrected.

As of December 31, 2012, Farmer 

Mac’s 90-day delinquencies improved 

marginally to $33.2 million, or 0.70 

percent of non-AgVantage Farmer 

Mac I loans, compared with $40.6 

million, or 0.93 percent as of December 31, 2011. Real estate owned as of 

December 31, 2012, was $4.0 million, 

up from $3.1 million a year earlier. 

Farmer Mac reported no delinquencies or nonperforming loans in its 

pools of rural utility cooperative 

loans. 

On December 31, 2012, Farmer Mac’s 

allowance for losses totaled $16.9 

million, compared with $17.5 million on December 31, 2011. Figure 

11 shows the levels of Farmer Mac’s 

substandard assets and its 90-day 

delinquencies relative to outstanding 

program volume, excluding AgVantage volume. 

Earnings

Farmer Mac reported net income 

available to common stockholders 

of $43.9 million (in accordance with 

GAAP) for the year ended December 31, 2012, up from the $13.8 

million reported at year-end 2011. 

Core earnings for 2012 were $49.6 

million, compared with $42.9 million in 2011.24 Net interest income, 

which excludes guarantee fee income, 

was $122.0 million in 2012, up from 

$121.3 million in 2011. Guarantee 

fee income was $25.0 million, compared with $24.8 million in 2011. 

Nonprogram investments accounted 

for an estimated 9 percent of interest income for 2012, down from 10 

percent for 2011. Table 7 shows a sixyear trend for the basic components 

of income. 

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

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

calculations are at Farmer Mac’s discretion.

23. This ratio excludes AgVantage volume because the risk associated with AgVantage products is significantly mitigated by the general obligation of the 

issuer or over-collateral requirements, or both. 
47

Figure 11

Allowance, Nonperforming Asset, and Delinquency Trends, 2007–2012

As of December 31

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

Table 7	 	 	 	 	 	 	

Farmer Mac Condensed Statements of Operations, 2007–2012

As of December 31	 	 	 	 	 	 	

Dollars in Millions 

 

 Growth Rate

2007 2008 2009 2010 2011 2012 2011–2012

 

Total revenues	 $31.5	 ($140.6)	 $181.8	 $99.1	 $73.3	 $122.0	 66%

Total expenses	 $27.1	 $13.5	 $99.5	 $77.0	 $59.5	 $78.1	 31%

Net income available 

	 	 to shareholders	 $4.4	 ($154.1)	 $82.3	 $22.1	 $13.8	 $43.9	 218%

Core earnings	 $29.9	 ($81.5)	 $16.1	 $25.4	 $42.9	 $49.6	 16%

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

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Challenges Facing the Agricultural Economy 

and the Farm Credit System

The following paragraphs identify a 

number of risk factors—both domestic and foreign—that could affect the 

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

The factors include weather conditions, the farm economy, the macroeconomy, foreign trade, government 

policies, and other challenges. As the 

regulator of the System, we will continue to closely monitor and evaluate 

the implications of these risks.

The Farm Economy

Drought

In 2012, U.S. agriculture was buffeted 

by the most widespread drought in 

more than 50 years, which may turn 

out to be the most costly in U.S. history. The drought affected more than 

half of the continental United States, 

most notably in Kansas, Oklahoma, 

and Nebraska in the Plains States; 

Missouri, Illinois, and Indiana in the 

Midwest; Arkansas and Georgia in 

the South; and Colorado in the West. 

In all of these States, crop harvests 

were sharply reduced, and pasture 

conditions were poor. Figure 12 

shows how widespread the drought 

was on August 14, 2012. 

While rain and snow during the 

winter of 2012 and 2013 brought 

relief to the Midwest and the South, 

extreme to exceptional drought conditions persisted into the spring of 

2013 in most of the Plains States and 

some parts of the West. The continuing drought poses a heightened risk 

environment to certain System borrowers going forward.

Farm Income

In spite of the significant stress 

caused by the drought to some segments of the U.S. farm economy, U.S. 

agriculture as a whole was in good 

financial condition in 2012, with near 

record farm incomes buoyed by high 

prices and strong exports. Debt use 

increased moderately, and asset values reached record levels. 

Crop producers outside of the 

drought-affected regions benefited 

from record prices, while producers with crop insurance fared well 

despite their reduced yields. Total 

indemnity payouts for crop insurance 

are estimated at a record $16.2 billion for crop year 2012, a 50 percent 

increase from 2011. Those without 

crop insurance, including those who 

produce crops for which insurance is 

not available, were not as fortunate. 

Livestock producers experienced 

another year of record feed costs and 

low or negative returns (the third 

since 2007), with limited insurance or 

other government programs. 

Figure 12

U.S. Drought Moniter
49

Table 8

Projected Number of Acres per Major Commodity in 2013

Commodity Acres to Be Planted 

Corn	 97.3 million acres, the highest since 1936

Soybeans	 77.1 million acres, down slightly from last year but the fourth highest on record

Wheat	 56.4 million acres, up 1 percent from 2012

Cotton	 10.0 million acres, 19 percent below last year

Ethanol producers found themselves 

in a cost-price squeeze for most of 

the second half of 2012, with corn 

and ethanol prices insufficient to 

fully offset costs. As a result, 22 of 

the 211 U.S. ethanol refineries were 

shut down at the end of 2012. A 

return to a more favorable operating environment for ethanol depends 

largely on improved growing conditions and a more normal grain 

harvest this fall.

Net cash income for 2012 reached 

another record at $135.6 billion. Crop 

receipts rose 5.4 percent over 2011 

levels, and livestock receipts were up 

3.7 percent. Farm expenses were up 

nearly 8 percent, mostly because of a 

rise in feed costs, higher land rental 

rates, and higher costs for seeds and 

pesticides. 

For 2013, the U.S. Department of 

Agriculture in February forecasted 

that net cash income will fall to 

$123.5 billion. Large increases in production expenses (particularly feed, 

labor, and land rent) are expected to 

offset a smaller projected increase in 

cash receipts. While net cash income 

is projected to fall in 2013, net farm 

income is forecast to increase to a 

record $128 billion, mostly because of 

a projected rise in the value of farm 

inventories and an expected rebound 

in crop production. Both measures of 

farm income are expected to remain 

at historically high levels in 2013 

even after they are adjusted for inflation.

Acreage by Commodity

USDA’s March 28 Prospective Plantings Report provides the numbers 

of acres that producers of various 

commodities expect to plant in 2013. 

Table 8 shows the projections for 

four major crops.

Yields for the 2013 corn and soybean 

crops are expected to be near trend 

levels. However, the likelihood of 

some planting delays, along with lingering drought conditions in western 

areas and possible expansion of those 

conditions into the Midwest, creates 

considerable uncertainty regarding yields and prices for corn and 

soybeans for the 2013–14 marketing 

year. 

While corn may drop below $6 and 

soybeans below $13 if U.S. crop output returns to normal levels, any significant weather damage to Midwest 

crops would lead to prices similar to 

those of the 2012–13 marketing year, 

resulting in another crushing blow to 

livestock, dairy, and ethanol producers. Record harvests of corn and 

soybeans in Brazil and Argentina in 

early 2013 contributed to downward 

pressure on prices.

Source: USDA’s March 28, 2013, Prospective Planning Report.
50

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Farm Expenses 

On the cost side, farm production 

expenses are projected to rise nearly 

6 percent in 2013 to a record $353 

billion, mainly reflecting increases in 

rent, labor, and feed. Crop producers could face a cost-price squeeze 

in 2013 and 2014 if production 

rebounds to trend levels or higher, 

while livestock and ethanol producers would see some relief from 

elevated feedstock costs. The price 

puzzle may not be solved until the 

fall.

This great uncertainty surrounding 

crop yields and prices presents challenges for both producers and their 

lenders. Price volatility on both the 

output and input side increases the 

need for good risk management practices, including enterprise diversification and greater use of insurance 

products and the futures markets. 

Price volatility may also increase the 

need for producers to keep more 

working capital. To reduce risk, 

many lenders are now requiring borrowers to have more collateral and 

higher cash flow levels relative to 

debt. Lenders are also taking borrower risk management practices into 

account when setting loan terms. 

Farm Asset Values and Farm 

Debt Levels

Strong farm income growth combined with record low interest rates 

continued to fuel the rise in U.S. 

farm asset values in 2012, which rose 

6 percent according to USDA estimates. Real estate debt increased by 

5 percent, while non-real estate debt 

increased by 7 percent, for a total 

debt increase of around $15 billion, 

or 6 percent. 

The net impact on the balance sheet 

of the farm sector was a 6.5 percent 

increase in farm equity in 2012 to 

a record $2.3 trillion, resulting in a 

debt-to-equity ratio of 11.9 percent, 

the lowest level since USDA began 

calculating the measure in 1960. The 

debt-to-asset ratio of 10.6 percent for 

2012 is also a record low.

Farmland Values 

Land values continued their upward 

climb during 2012, raising concerns of a possible asset bubble that 

would make land values vulnerable to increases in interest rates 

or decreases in exports stemming 

from an economic or political crisis 

abroad.

With more than 85 percent of the 

farm sector balance sheet made up 

of farm real estate assets, land values 

have an outsized influence on the 

strength of farm balance sheets and 

the creditworthiness of farmers. 

Based on its June 2012 survey, USDA 

reported that U.S. farm real estate 

values, which include the value of 

farm buildings, rose 10.9 percent 

from 2011 values. 

Regional changes ranged from a 26.7 

percent increase in the Northern 

Plains to a 4.1 percent decline in the 

Southeast. Cropland markets were 

more robust, with average values 

increasing by 14.5 percent, and values in the Northern Plains and Corn 

Belt regions increasing 30.4 percent 

and 18.5 percent, respectively. 

More recent land surveys conducted 

by appraisers, universities, and by 

Federal Reserve district banks suggest that Midwest cropland prices 

continued to rise throughout the latter half of 2012 and into 2013. Midwest prices have risen sharply for 

the past three years. In some States, 

average cropland values have more 

than doubled over that period to set 

historic highs. Steep hikes in crop 

prices resulting from last summer’s 

drought, coupled with historically 

low interest rates, fueled the demand 

for land. Falling profit margins and 

rising rates would reduce demand 

for land, causing prices to drop even 

though the supply of land that has 

been put up for sale is limited.

According to the Midwest surveys, 

the strongest price rises have been 

for high-quality corn- and soybeanproducing land. Also, in the aftermath of last summer’s drought, 

buyers have placed a premium on 

irrigation, driving up the prices for 

irrigated land in relation to un-irrigated land. Surveys show irrigated 

cropland in some States rose more 

than 30 percent in 2012. In areas of 

severe drought, land markets were 

somewhat less robust. 

The value of pasture and ranchland 

was more of a mixed picture in 2012, 

with declines in some regions but 
51

gains exceeding 20 percent in the 

central and northern plains States. 

Some of the higher increases are as 

high as the large increases in cropland values. 

Besides farmland, farmers continued 

to make large investments in new 

buildings, equipment, irrigation, and 

other land improvements in 2012. 

Record farm incomes and proposed 

tax law changes encouraged these 

investments, particularly in the latter 

part of the year. According to the 

Association of Equipment Manufacturers, the number of new, large 

farm tractors sold in 2012 was up 

nearly 16 percent—57 percent above 

that of just five years ago. USDA 

price data show that prices for new 

farm machinery rose nearly 5 percent 

in 2012. 

Although interest in farmland has 

been high among nonfarmers, farmers remained the primary purchasers in 2012. While the use of debt 

to make such purchases has been 

generally viewed as modest, in 2012 

the growth of farm real estate debt 

was much less restrained, particularly 

in regions of rapidly rising farmland 

prices. The value of outstanding farm 

real estate loans at System associations within the AgriBank district at 

the end of 2012 was nearly 18 percent above that of the previous year. 

Commercial banks that are defined 

as farm banks by the Federal Deposit 

Insurance Corporation saw their farm 

real estate lending portfolios grow by 

nearly 15 percent in 2012. 

To address the rising risks associated with farmland values, FCA 

has issued guidance on collateral 

risk management to System lenders through a series of Informational 

Memorandums. Many System institutions are improving underwriting 

standards and appraisal guidelines 

on farmland collateral. They are also 

improving their efforts to identify 

portfolio risk through land-value 

studies and the stress testing of 

changes in land value. 

As the regulator of the System, we 

continue to monitor agricultural land 

values and associated risks to loan 

collateral and to discuss these risks 

with other Federal financial regulators. For perspective on the changes 

in farmland values over the past five 

decades, see figure 13.

Figure 13

Net Cash Income, Government Payments, and Farm Real Estate Values

(Nominal Dollars)
52

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Interest Rate Environment

Other factors affecting the outlook for 

the Farm Credit System are funding 

costs and borrower interest rates. The 

System continued to have reliable 

access to the debt capital markets 

here and abroad in 2012. With the 

Federal Reserve’s low interest rate 

policies continuing throughout 2012, 

interest rates paid by System borrowers remained near or at historic lows. 

The three-month Treasury bill was 

up slightly at 0.1 percent at yearend 2012, while the 10-year Treasury 

bond was down slightly at 1.8 percent at year-end 2012, compared with 

1.9 percent at year-end 2011. 

Interest rates are expected to continue to be low through late 2014, 

with Consensus Forecast projecting the three-month Treasury Bill 

to remain at 0.1 percent for the end 

of June 2013, rising slightly to 0.2 

percent by end of March 2014; the 

10-year Treasury Bond is projected 

to rise to 2.1 percent by end of June 

2013, with a further increase to 

2.6 percent by end of March 2014. 

Interest rates are highly unpredictable, so a change in Federal Reserve 

monetary policy or a sudden increase 

in inflation from an oil price spike 

or food price shock could cause the 

current low interest rate environment 

to change quickly, leading to higher 

production costs for farmers and 

ranchers and a decrease in farmland 

values. 

U.S. Agricultural Exports

Economic developments in China and 

other Asian countries are expected to 

continue to have a profound impact 

on the U.S. agricultural economy 

going forward. Asia accounted for 44 

percent of U.S. agricultural exports 

in 2012, and China alone accounted 

for about 17 percent, making China 

the principal export destination for 

the second year in a row, ahead 

of Canada, Mexico, Japan, and the 

European Union. 

China remains the world’s fastestgrowing major economy; it’s the largest exporting economy; and it’s the 

second-largest importing economy. 

However, the Chinese economy has 

been slowing recently. Its annual 

growth dropped to 7.8 percent in 

2012, down from 9.3 percent the 

year before and the slowest in 13 

years, though sufficiently ahead of 

the Chinese government’s 7.5 percent 

target. Both the International Monetary Fund and the Organisation for 

Economic Co-operation and Development are projecting China’s economy 

to grow in the 8.2 to 8.5 percent 

range in 2013 and slightly higher in 

2014.

Global Agricultural Commodity 

Stocks and Price Volatility

The historic drought in the United 

States in 2012, combined with severe 

droughts in southern Europe and the 

Black Sea region, sharply reduced 

global corn, soybean, and wheat 

supplies, leading to tight stocks and 

volatile prices. As figure 14 shows, 

wheat futures jumped 60 percent 

between their low in May and their 

high in July 2012; corn futures were 

up 51 percent in late August from 

their low in early June; and soybean 

futures were up 53 percent in early 

September 2012 from their low in 

mid-January.

Global corn stocks as a percentage of expected use for the 2012–13 

marketing year are projected to be 

the lowest since the 1973–74 marketing year, while global wheat stocks 

are projected to be at their lowest 

since 2008–09. Soybeans stocks are 

expected to increase as a result of 

heavy production in the Southern 

Hemisphere, but stocks as a percentage of use will remain historically 

low. Barring extreme weather events, 

large anticipated global supplies of 

principal grain and oilseed crops in 

2013 should rebuild stocks and lower 

prices in the 2013–14 marketing year, 

but markets will remain volatile 

until production volumes are better 

known. 

The General Economy

The U.S. economy grew moderately 

in 2012 from 2011. However, it grew 

less than it did in 2010. The modest 
53

Figure 14

Crop Futures, Nearby Contract, Daily Closing Price, 2012

Source: FCA’s Office of Regulatory Policy, based on Chicago Board of Trade data.

growth rate in 2012 can be attributed 

to the limited expansion of business 

over concerns about higher health 

care costs, new regulations, budget cuts, and possible tax increases 

beginning in 2013. Businesses with a 

foreign exposure were further limited 

by the continued financial crisis in 

Europe and a slowdown in China’s 

economy. Severe weather—from 

droughts to hurricanes—also disrupted business activity in 2012.

Real GDP grew at an average annual 

rate of 2.2 percent for 2012, a slight 

improvement over 2011’s 1.8 percent 

growth. The economy slowed sharply 

in the fourth quarter of 2012, with 

GDP growth dropping to 0.4 percent 

from 3.1 percent in the third quarter. 

The decline was due largely to the 

sharp cuts in defense spending that 

began with the new fiscal year on 

October 1, 2012. The economy was 

also affected by a drop in exports in 

the fourth quarter, a decline in business inventories, and business disruptions along the East Coast caused 

by Hurricane Sandy, the second-costliest storm in U.S. history.

Moderate economic growth in the 

United States is projected to continue in 2013, but at a slightly slower 

pace than in 2012 as the budgetary 

changes that are scheduled to occur 

under current law affect those sectors of the economy that rely heavily on these expenditures. According 

to Consensus Economics’ panel of 

31 financial forecasters (April 2013), 

real GDP for the U.S. economy is 

projected at 2.1 percent in 2013, little 

changed from 2012. 
54

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

There is still much uncertainty as to 

how cuts in Government spending 

from the sequestration,25 which took 

effect on March 1, 2013, will ultimately affect economic growth over 

the next few years. On the positive 

side, overall manufacturing orders 

increased 3 percent in February 

2013, the largest gain in five months. 

Orders for autos and computers and 

other electronics helped drive the 

increase.

A consumer-led slowdown was 

underway in the first quarter of 2013, 

due in part to an increase in Federal 

taxes that began on January 1. This 

contributed to a drop in disposable 

income, which slowed consumer 

spending, particularly for lowerincome households, which were also 

buffeted by high prices at both the 

grocery store and the gas station. 

Continued low interest rates contributed to the improvement in home 

sales and home values in the first 

quarter of 2013; segments of the 

Farm Credit System’s loan portfolio that are tied to housing will 

likely benefit, too. Also, the Institute of Supply Management survey 

for February 2013, which showed 

gains in both the manufacturing and 

service sectors, provides a positive 

outlook for U.S. industry and offfarm employment opportunities. The 

U.S. stock market showed significant 

strength in the first three months 

of the year; if the trend continues, 

spending should increase later in the 

year. 

Sectors of the economy tied to the 

export market, however, could be 

adversely affected by the strengthening of the U.S. dollar against key 

currencies, such as Japan’s yen. These 

sectors may also suffer if China fails 

to meet its official growth target this 

year. 

Employment Prospects 

The U.S. unemployment rate declined 

in 2012 from a high of 8.3 percent in 

January to a low of 7.8 percent by 

year-end. This compares with unemployment of 8.9 percent for 2011 and 

9.6 percent for 2010. From State to 

State, the unemployment rate varied 

widely, ranging from lows of 3.2 percent in North Dakota to double-digit 

highs in California (11.1 percent). 

An alternative measure of labor 

underutilization provided by the 

Bureau of Labor Statistics is the socalled “underemployment rate,” or 

U-6, which measures “total unemployed, plus all marginally attached 

workers, plus total employed part 

time for economic reasons, as a 

percent of the civilian labor force.” 

This rate dropped from 15.9 percent 

in 2011 to 14.7 percent in 2012, with 

Nevada recording the highest rate at 

20.3 percent.

After a slight uptick in the unemployment rate to 7.9 percent in 

January 2013 because of softer labor 

demand, the rate dropped to 7.7 percent in February 2013 on expanded 

hiring in professional and business 

services, construction, and health 

care. The unemployment rate in February declined in 22 states, remained 

unchanged in 16 states, and increased 

in 12 states. Illinois had the largest 

increase, going from 9.0 percent in 

January to 9.5 percent in February.

According to Consensus Forecasts, 

unemployment for 2013 will slowly 

decline throughout the year, reaching 

a low of 7.5 percent for the fourth 

quarter and averaging 7.6 percent 

for the year versus 8.1 percent for 

2012. In general, rural economies are 

expected to grow modestly in 2013, 

but much will hinge on the relative 

strength of the farm economy and 

energy markets.

Employment in Nonmetropolitan 

Areas

The impacts of the 2007–2009 U.S. 

recession were generally less severe 

in nonmetropolitan areas since two 

of the most affected sectors, financial 

services and housing, play a much 

smaller roll in employment and 

income for nonmetro residents. Metro 

areas and nonmetro areas had nearly 

identical unemployment rates of 4.8 

percent at the end of 2007. Both rates 

peaked in the fourth quarter of 2009 

at around 10 percent for metro areas 

and 9.5 percent for nonmetro areas. 

Since then, both rates have trended 

down slowly. In the third quarter 

of 2012, the unemployment rate was 

8.2 percent in metro areas and 7.7 

percent in nonmetro areas.

25. “Sequestration,” a term adopted by Congress in recent years to describe a new fiscal policy procedure for reducing the size of the Federal Government’s budget deficit. On March 1, 2013, $1.2 trillion in automatic spending cuts took effect, divided equally between defense and various domestic 

spending programs.
55

Nonmetro employment growth 

slowed in the first half of 2012 to 

only 0.1 percent. By contrast, metro 

areas saw the number of jobs rise 

1.1 percent in the first half of 2012. 

The slowdown in the first half of 

2012 was due primarily to lagging 

employment growth in nonfarm 

sectors like manufacturing, health 

services, education, and the hospitality and leisure industries. 

Despite slower employment growth 

in nonmetro areas, 40 States had 

nonmetro job growth between the 

first half of 2011 and the first half of 

2012, while 8 States suffered nonmetro job losses. States that realized 

nonmetro job growth of 2 percent 

or more include Alaska, Delaware, 

Arkansas, Montana, Oklahoma, and 

North Dakota. Many of the nonmetro 

counties that experienced rapid job 

growth in the past year have significant employment in agriculture or 

mining. Record farm incomes over 

the past two years have benefited 

farm-dependent counties, while a 

strong expansion by the oil and gas 

industry stimulated double-digit 

job growth in mining, particularly 

in North Dakota, Pennsylvania, 

Oklahoma, Texas, New Mexico, and 

Colorado.

Housing Sector Recovery

Another risk factor is the housing sector, which historically has 

accounted for 17 to 18 percent of 

GDP. In 2012, housing’s share of 

GDP dropped to 15 percent, reflecting lower investment in housing 

following the financial crisis of 

2007–2008. The average price of existing homes sold in the United States 

peaked at $230,300 in June 2007 and 

bottomed out at $154,600 in January 

2012, representing a one-third loss 

in the average price of a U.S. home 

over this period. 

Since its collapse, the housing market 

has been on a slow recovery for the 

past five years, but continued low 

interest rates and slight improvements in employment and income in 

2012 contributed to a strong rebound 

in new and existing home sales 

in 2012. This pattern continued in 

early 2013 for existing home sales; 

increases for new home sales were 

more subdued. 

Consumer Price Inflation 

The U.S. Consumer Price Index for 

All Urban Consumers increased only 

1.7 percent in 2012, down from 3.0 

percent in 2011, making this the third 

smallest annual increase of the past 

10 years. The average annual inflation rate over the past 10 years was 

2.4 percent. The energy index rose 

0.5 percent in 2012, substantially less 

than the 6.6 percent increase in 2011. 

The index for food rose just 1.8 percent in 2012, down from an increase 

of 4.7 percent in 2011. 

The consensus forecast for consumer 

price inflation in 2013 is for a slight 

uptick to 1.9 percent. Although most 

economists believe inflation will 

remain in check for 2013, inflationary pressures are expected to pick up 

in 2014 and beyond. The U.S. Federal Reserve Board, as well as other 

central banks, is expected to boost 

interest rates to contain inflationary 

pressures. Inflation affects agriculture 

by raising input costs and by curbing consumer demand for high-value 

products like dairy, meat, and processed foods, as well as curbing consumption of food away from home. 

International Trade

U.S. exports of goods and services 

continued to assist the U.S. economy 

in 2012, increasing 4.3 percent to a 

record $2.2 trillion. Over this period, 

foods, feeds, and beverages contributed nearly 10 percent to this 

increase. Imports also reached a 

record in 2012, increasing 2.7 percent 

to $2.73 trillion. Imports of automotive vehicles and capital goods 

accounted for most of the increase. 

Imports of foods, feeds, and beverages accounted for about 4 percent of 

the increase in imports. On balance, 

the trade deficit narrowed to $539 

billion. 

However, international trade 

accounted for a smaller amount of 

U.S. economic activity in 2012. Partly 

in response to a slowdown in world 

economic growth, the growth rate 

of exports in 2012 was almost 10 

percentage points lower than the 14 

percent pace in 2011. The euro zone, 

the second largest U.S. export market, continues to languish from the 

continuing debt crisis, austerity measures, and high unemployment. The 

unemployment rate for the euro zone 
56

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

reached 12 percent in February 2013, 

the highest level since the data series 

was started in 1995. The recession in 

the euro zone is expected to persist 

through the first three quarters of 

2013, with a possible return to positive growth in the final quarter. 

Canada, Mexico, and Japan, other 

major destinations for U.S. exports, 

are projected to have slower economic growth in 2013, while China 

is expected to show slightly higher 

growth. In addition, the value of 

the dollar appreciated about a half 

percent against major trading partner 

currencies in 2012 but is projected to 

depreciate somewhat in 2013, making 

U.S. goods relatively more competitive. This, coupled with higher 

expected growth in developing Asia, 

Latin America, and Eastern Europe, 

could provide a slight lift to U.S. 

exports in 2013, offsetting a likely 

drop in European demand.

Household Debt 

Since it peaked at $13.8 trillion during the first quarter of 2008, just 

prior to the recession, total household debt has declined steadily, 

reaching a low of $12.8 trillion at the 

end of the second quarter of 2012, 

a drop of 7.7 percent. However, 

households took on more debt during the third quarter of 2012, rising 

0.6 percent. 

Household debt relative to disposable 

income has been on the decline since 

peaking at nearly 130 percent in the 

third quarter of 2007, dropping to 

105.5 percent in the fourth quarter of 

2012. This level of debt is still high 

when compared with the average 

debt levels of the 1990s (86 percent) 

and the 1980s (71 percent). Despite 

historically low interest rates and 

some pickup in borrowing activity, 

credit standards remain more stringent relative to the 2001 recession. 

Federal Deficit 

Other factors that may limit economic growth going forward are 

the Federal budget deficit and the 

Federal debt held by the public. The 

Federal budget deficit for fiscal year 

2012 totaled $1.1 trillion (or 7.0 percent of GDP), a drop of 16 percent 

from the previous year. The Congressional Budget Office projects that 

the deficit will decline again in fiscal 

2013 to an estimated $845 billion (5.3 

percent of GDP).

While the deficit has been on a 

downward trend in recent years, the 

accumulation of these deficits continues to raise the Federal debt held 

by the public, which increased 11.4 

percent to $11.3 trillion in fiscal 2012. 

This amounts to 72.5 percent of GDP, 

double the level of 2007. This makes 

U.S. indebtedness the third highest 

in the industrial world behind Japan 

and Italy. Ongoing deficits and debt 

of these magnitudes can lead to 

imbalances in capital and credit markets, which in turn can undermine 

the confidence of market participants, 

leading to inflation and higher interest rates.

Farm Policy Changes on the 

Horizon

Agricultural producers are affected 

by a myriad of Government policies 

and programs at the State, Federal 

and international levels. Farm programs, energy policies, interest rate 

targets, and foreign trade agreements 

influence markets and thus affect 

farm income and borrowers’ ability 

to repay their loans. U.S. Government farm programs have been an 

important source of assistance to 

farmers for sustaining their business since the Great Depression. The 

programs mainly supply controls 

to stabilize commodity prices and 

support producers’ incomes. Today 

Government assistance to farmers 

includes direct payments to producers under a variety of programs; 

direct purchases of certain commodities, like dairy, under price support 

programs; and marketing assistance 

loans for the major crops and some 

minor crops. Also included are crop 

insurance programs and emergency 

and disaster payments. 

The total Federal budget appropriation for food assistance and agriculture-related programs was $137 

billion for fiscal year 2012 (about 

$1,200 per household), an increase of 

$12 billion or nearly 9 percent from 

fiscal year 2011. Food assistance or 

nutrition programs accounted for 76 

percent of the total, and farm-related 

spending accounted for about 14 percent, with the remaining 10 percent 

going to research, rural development, 

foreign aid, food safety, and conservation. Federal budget outlays for 

farm income stabilization programs 

totaled $13.17 billion in fiscal year 

2012, down nearly 18 percent from 

the previous year and 37 percent 

below the average outlays for farm 

income stabilization from 2000 to 

2005. 

The primary framework for establishing agricultural policies and programs is a legislative process by both 

the House and the Senate, which 

occurs about every five years, to 

develop a farm bill that becomes law. 

The principal law addressing food 

and agricultural issues over the past 
57

five years has been the Food, Conservation, and Energy Act of 2008 

(or 2008 Farm Bill), which was to be 

replaced by a new farm bill before it 

expired at the end of fiscal year 2012. 

The House and Senate each introduced their own versions of a new 

farm bill in 2012 but were unable to 

reconcile the differences in the two 

bills before the end of the year, so 

the American Taxpayer Relief Act of 

2012 extended most of the provisions 

of the 2008 Farm Bill through the 

end of fiscal year 2013. The outcome 

of the final legislation remains uncertain because some key differences in 

policies and costs remain between 

the two farm bills. 

Over the 10-year period from 2014 

to 2023, the House version would 

reduce spending by $26.6 billion 

compared with the baseline, and the 

Senate version would reduce spending half as much, at $13.1 billion. The 

final outcome of the farm bill debate 

is a key concern of financial lenders to the agriculture sector because 

of its implications for agriculture’s 

safety net and, consequently, its 

impact on the farm income of its borrowers. 

Farm Credit System Portfolio

System loan volume grew almost 10 

percent in 2012, though high levels of 

stress continued to affect some sectors and regions. The increase in System loans was driven primarily by 

the increased value of farmland and 

higher commodity prices, particularly 

in the middle part of the United 

States. Lending to finance production inputs, inventories, machinery, 

and real estate purchases increased, 

particularly where cash grain is produced. 

Although drought conditions reduced 

yields in many parts of the Midwest, 

most crop producers were buffered 

from the adverse impact through 

insurance and increased prices for 

their crops. Conversely, producers 

in stressed sectors, such as animal 

protein and biofuel, were adversely 

affected because of the higher cost 

for grain and feed. Other sectors, 

such as horticulture and forestry, 

continued to suffer from reduced 

profits as a result of the tepid growth 

of the economy and lingering problems in the housing sector. 

While continued high farm income 

and rising agricultural real estate values benefited some sectors, particularly grain producers in the middle 

part of the United States, high costs 

and soft demand continued to affect 

other regions and sectors of agriculture. Some sectors, such as dairy, 

cattle, poultry, and forestry, saw the 

quality of loans improve modestly. 

However, other sectors, such as biofuels and horticulture, saw continued 

distress in 2012. 

When all these sectors are combined, 

System nonaccrual loans to dairy, 

cattle, poultry, forestry, horticulture, 

and biofuel sectors accounted for $1.2 

billion of the $2.3 billion total. Also, 

the System reported $174 million in 

charge-offs on loans to these sectors; 

this represented about 74 percent of 

all of the System’s net charge-offs. 

These sectors accounted for $52.4 

billion, or 27 percent, of all System 

loans. See table 9 for a breakdown of 

financial information by sector.

Table 9

Stressed Sectors of the System’s Loan Portfolio

As of December 31, 2012

Dollars in Billions

 Percentage Percentage

Loan Dollar Change from of System’s of System’s

Volume Prior Year-end Total Loan Nonaccrual

(in billions) (as of Dec. 31) Volume Loan Volume

Dairy $14.8	 6%	 8%	 16%

Cattle $17.7	 7%	 9%	 11%

Poultry $5.4	 (2%)	 3%	 3%

Forestry $10.2	 7%	 5%	 9%

Horticulture	 $2.7	 (7%)	 1%	 12%

Biofuels $1.7	 2%	 <1%	 4%

Source: USDA.
58

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Dairy 

System loans outstanding to the 

dairy sector totaled $14.8 billion in 

2012, up 6 percent from a year earlier. Producers benefitted from higher 

milk prices, though high feed costs 

reduced the profits of farmers who 

purchased most of their feed. While 

many producers made progress in 

reducing their debt in 2012, others 

remain vulnerable to factors such 

as reduced milk prices, higher feed 

costs, and interest rate increases. 

System loans to the dairy industry 

that were not accruing interest fell 

21 percent from 2011 to $357 million 

at year-end 2012, and the System 

recognized $60 million in charge-offs. 

Loans to this sector totaled 8 percent 

of the dollar volume of all System 

loans and 38 percent of its capital. 

Dairy accounted for 16 percent of the 

System’s nonaccrual loan volume as 

of December 31, 2012.

Cattle 

The System’s loans outstanding to 

the cattle industry totaled $17.7 billion at year-end 2012, up about 7 

percent from year-end 2011. Because 

cattle prices rose in response to 

reduced supply during the year, 

some producers were able to remain 

profitable. However, others suffered 

from increased feed costs, particularly if they depended on feed from 

drought-affected areas. 

System loans to the cattle industry that were not accruing interest declined 20 percent from 2011 

to $242 million at year-end 2012; 

the System recorded $16 million in 

charge-offs for loans to the cattle 

industry. Loans to cattle operations 

totaled more than 9 percent of the 

System’s loan dollar volume and 46 

percent of its capital.

Poultry 

System loans outstanding to the 

poultry and eggs sector totaled $5.4 

billion, down 2 percent from a year 

earlier. Many producers suffered 

operating losses because poultry 

prices were not high enough to offset 

increased feed costs. While most 

producers were able to borrow funds 

to offset operating losses, a few integrated broiler producers either sold 

or curtailed operations. 

System loans to the poultry industry 

that were not accruing interest fell 7 

percent from 2011 to $71 million at 

year-end 2012. Loans to this sector 

totaled 3 percent of the System’s loan 

dollar volume and 14 percent of its 

capital. 

Forestry 

System loans outstanding to the forestry sector totaled $10.2 billion, up 

about 7 percent from a year earlier. 

Improved demand for housing and 

some lumber products spurred loan 

volume higher, though all regions 

did not see improved demand. Some 

producers added debt to finance capital needs to fulfill increased demand, 

while others liquidated property to 

help address cash flow problems. 

System loans to the forestry sector 

that were not accruing interest fell 

31 percent from 2011 to $198 million 

at year-end 2012, and the System 

recorded $15 million in charge-offs. 

Loans to this sector totaled about 5 

percent of the System’s loan dollar 

volume and 26 percent of its capital. 

Horticulture

Loans outstanding to horticulture 

operations declined about 7 percent 

from last year to $2.7 billion. The 

decline reflected low demand for 

landscaping material in the persistently weak housing sector. Because 

many of these operations are located 

in and around urban areas, reduced 

values for properties used in their 

operations aggravated cash flow 

problems. 

As a result, System loans to the 

horticulture industry that were not 

accruing interest rose 12 percent 

from 2011 to $284 million at year-end 

2012, and the System incurred $69 

million in charge-offs. Loans to horticulture totaled about 2 percent of the 

System’s loan dollar volume and 7 

percent of System capital.

Biofuels 

At the end of 2012, loans outstanding to the biofuels (primarily ethanol) industry totaled $1.7 billion, up 

slightly from a year earlier. While 

many of the firms generated cash 

flow sufficient to pay down debt 

during the early part of the year, 

numerous plants reported operating losses from either reduced or 

idled production during the last few 

months of 2012. 

System loans to the biofuels industry that were not accruing interest 

totaled $95 million at year-end 2012, 

and charge-offs totaled $12 million. 

Biofuel loans outstanding represented 

only 4 percent of capital and less 

than 1 percent of the System’s total 

dollar volume, both of which are 

small numbers when compared to 

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

nonaccrual assets are concentrated in 

a few firms. 
59

Appendix

Figure 15

FCA Organizational Chart

As of January 2013
60

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Farm Credit Administration 

Offices

As of December 31, 2012, FCA had 

271 full- and part-time employees. 

These employees are divided among 

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

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

The Board approves the policies, 

regulations, charters, and examination and enforcement activities that 

ensure a strong FCS. The Board also 

provides for the examination and 

supervision of the FCS, including 

Farmer Mac, and oversees the activities of the FCS Building Association, 

which acquires, manages, and maintains FCA headquarters and field 

office facilities. 

The Secretary to the Board serves 

as the Parliamentarian for the Board 

and keeps permanent and complete 

records of the acts and proceedings 

of the Board. He or she ensures that 

the Board complies with statutory, 

regulatory, and internal operation 

reporting requirements. The Secretary 

to the Board also serves as Secretary 

to the Farm Credit System Insurance 

Corporation Board. In addition, he 

or she serves as the Sunshine Act 

Official for the FCA Board. 

The Chairman of the FCA Board

serves as the chief executive officer 

(CEO). The CEO enforces the rules, 

regulations, and orders of the FCA 

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

adopted by the FCA Board. The 

Office of the Chief Executive Officer 

plans, organizes, directs, coordinates, 

and controls FCA’s day-to-day operations and leads the Agency’s efforts 

to achieve and manage a diverse 

workforce. 

The Office of Congressional and 

Public Affairs (OCPA) serves as the 

Agency’s principal point of contact for Congress, the media, other 

Government agencies, FCS institutions, employees, System borrowers, 

and the public. OCPA develops and 

monitors legislation pertinent to FCA 

and the FCS, serves as the Agency’s 

congressional liaison, facilitates 

intergovernmental relations, and 

prepares testimony for the Chairman 

and other Board members. The office 

also provides information to external 

audiences through news releases, fact 

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

media representatives who report on 

matters related to agriculture and 

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

organizes special meetings, briefings 

for international visitors, and field 

hearings. 

The Office of Examination is responsible for examining and supervising 

each FCS institution in accordance 

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

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

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

operates in a safe and sound manner, 

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

purpose. For more information about 

the role of the Office of Examination, 

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

html and click View Board Policy 

Statements to read “Examination 

Policy” (FCA-PS-53). 

The Office of General Counsel

(OGC) provides the FCA Board 

and staff with legal counsel as well 

as guidance on general corporate, 

personnel, ethics, and administrative matters. OGC supports the 

Agency’s development and promulgation of regulations, civil litigation, 

enforcement of applicable laws and 

regulations, and implementation of 

conservatorships and receiverships. 

The office serves as the liaison to 

the Federal Registrar and maintains 

the Agency’s public rulemaking 

files. OGC also handles Freedom of 

Information Act requests and matters 

pertaining to the Privacy Act. 
61

The Office of Inspector General 

provides independent and objective 

oversight of Agency programs and 

operations through audits, inspections, investigations, and the review 

of proposed legislation and regulations. The office promotes economy 

and efficiency within FCA and seeks 

to prevent and detect fraud, waste, 

abuse, and mismanagement in the 

Agency’s programs and operations. 

The Office of Regulatory Policy 

(ORP) manages policy and regulation 

development activities that ensure 

the safety and soundness of the FCS 

and support the System’s mission. 

Policy and regulation development 

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

on the basis of economic trends and 

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

approvals for System institutions 

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

approvals as well as funding approvals. 

The Office of Management Services (OMS) manages and delivers 

the Agency’s information technology, financial, human capital, and 

administrative services. The office 

coordinates planning efforts, including information resources management, security, human capital, and 

financial plans for the Agency. By 

centrally planning, managing, and 

delivering resource services, OMS 

enables the Agency’s program offices 

to fully focus their time and attention 

on their respective mission-related 

responsibilities. 

The Office of Secondary Market 

Oversight (OSMO) provides for the 

examination, regulation, and supervision of Farmer Mac to ensure 

its safety and soundness and the 

accomplishment of its public policy 

purpose as authorized by Congress. 

OSMO also ensures that Farmer Mac 

complies with applicable laws and 

regulations, and it manages FCA’s 

enforcement activities with respect to 

Farmer Mac. 
62

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Elizabeth M. 

Dean is Acting 

Inspector General. 

Before assuming 

this position in 

2013, Ms. Dean 

was the Deputy 

Inspector General and Counsel 

to the Inspector 

General since 1989. As Deputy IG 

and Counsel, she directed the investigative function of FCA’s OIG, periodically conducted inspections and 

evaluations, performed legal duties, 

and comanaged the OIG. From 1986 

to 1989, Ms. Dean served as a senior 

attorney in FCA’s Office of General 

Counsel, Litigation and Enforcement 

Division. Ms. Dean served on active 

duty as a U.S. Navy Judge Advocate 

from 1982 until 1986; she retired 

from the U.S. Naval Reserves in 2000. 

Upon completing law school in 1981, 

she worked for the Attorney General 

of the State of Ohio in the Criminal 

Activities Branch.

Samuel Robert Coleman is 

Director of the 

Office of Examination. Before 

being named to 

this position in 

October 2010, 

he was Director 

of the Agency’s 

Office of Secondary Market Oversight 

for five years. Mr. Coleman joined 

FCA in 1986 as an examiner in the 

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

technical support to FCA field offices 

and to the Policy Development 

and Planning Division. During this 

period, Mr. Coleman completed the 

commissioning program and became 

a commissioned examiner in 1990. In 

1994, he transferred to the Office of 

Policy and Analysis, where he served 

as a policy analyst specializing in 

regulation development, and then as 

a senior policy analyst. Mr. Coleman 

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

He holds the Chartered Financial 

Analyst designation, which the CFA 

Institute awarded him in 2000.

Agency Officials 

William J. Hoffman is Chief 

Operating Officer. 

Before accepting 

this position in 

July 2008, Mr. 

Hoffman was 

Executive Assistant to Board 

Member and 

former Chairman and CEO Nancy 

C. Pellett. Prior to this, he served as 

the Associate Director for Examination and Supervision in the Office of 

Secondary Market Oversight, which 

oversees the Federal Agricultural 

Mortgage Corporation. He began 

his career as a credit representative in the Louisville Farm Credit 

District. Mr. Hoffman first joined 

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

Associate Deputy Governor for the 

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

Farm Credit Bank as Vice President 

of Risk Assets. He later was the CEO 

of PennWest Farm Credit, ACA, 

which served western Pennsylvania. 

Before rejoining FCA in 2004, he was 

involved in agricultural finance in 

the private sector and several international projects. 
63

Laurie A. Rea is 

Director of the 

Office of Secondary Market Oversight (OSMO). 

She was named 

to this position in 

January 2011. Ms. 

Rea joined FCA in 

1986 after graduating from San Diego State University. 

She has held several positions with 

the agency, beginning with the Office 

of Examination where she became 

a commissioned FCA examiner in 

1989. In 1992, she joined the Office 

of Policy and Analysis (now the 

Office of Regulatory Policy), where 

she gained experience in policy 

and regulation development. Since 

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

markets team leader in the Office of 

Regulatory Policy, where she managed the approval of Systemwide 

debt securities and led the agency’s 

regulatory capital and investment 

policy development. Ms. Rea is a 

Chartered Financial Analyst from the 

CFA Institute and a Certified Risk 

Professional.

Charles R. Rawls

is the FCA General Counsel. 

Before joining FCA 

in March 2003, 

he was general 

counsel and vice 

president for legal, 

tax, and accounting at the National 

Council of Farmer Cooperatives. 

During the consideration of the 2002 

farm bill, he served as the General 

Counsel of the Senate Committee on 

Agriculture, Nutrition, and Forestry. 

From 1998 to 2001, he was General 

Counsel for the USDA, and from 

1993 to 1998 he was Chief of Staff to 

the Deputy Secretary of Agriculture. 

From 1988 to 1993, he was Legislative Director and then Administrative 

Assistant to Congressman Martin 

Lancaster. From 1985 to 1988, he 

was Associate General Counsel of 

the House Committee on Agriculture. He was Counsel to the House 

Agriculture Subcommittee on Forests, 

Family Farms, and Energy from 1983 

to 1985. 

Stephen G. 

Smith is the 

Chief Financial Officer and 

Director of the 

Office of Management Services. 

Before accepting this position, he served 

as the Agency’s Inspector General. 

He joined FCA in 1981 as a technical specialist, became an examiner in 

1984, and later served as staff assistant for the Chief Examiner. In 1989, 

he was named Associate Regional 

Director for the Agency’s New York 

field office and then served as Senior 

Staff Director for the Chief Examiner 

before being named Director of the 

Technical and Operations Division. In 

1993, he assumed new responsibilities as Director of the Information 

Resources Division. He was named 

Chief Information Officer in 1996, 

directing all technology and information operations for FCA. Before 

joining the Agency, he worked at the 

North Central Jersey Farm Credit 

Associations. 
64

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Michael Stokke

is Director of the 

Office of Congressional and 

Public Affairs and 

Acting Executive Assistant to 

Leland A. Strom, 

Chairman and 

CEO of FCA. 

Prior to joining FCA, Mr. Stokke 

was founder and president of Prairie 

Strategies, a consulting firm based in 

Illinois, where he advised corporations and nonprofit organizations. He 

served as Deputy Chief of Staff to 

former Speaker of the House Dennis 

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

served as Chief of Staff for the Office 

of the Speaker in the Illinois House 

of Representatives from 1995 to 

1998. He served as Chief of Staff for 

Representative Thomas W. Ewing of 

Illinois from 1991 through 1994. From 

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

Governor of Illinois. He also served 

as Assistant to the Secretary of the 

Illinois Department of Transportation 

from 1985 to 1987. 

Gary K. Van 

Meter is Director of the Office 

of Regulatory 

Policy (ORP).

He was named 

to this position 

in November 

2010 after having served as the 

Deputy Director of ORP for five 

years. Prior to this, he served in the 

Office of General Counsel (OGC) for 

17 years. In OGC, he served first as 

a senior attorney and later as senior 

counsel before joining ORP. Mr. 

Van Meter holds a J.D. from West 

Virginia University College of Law 

and a master of law in taxation from 

Georgetown University Law Center. 

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

Meter was an enlisted member of the 

U.S. Marine Corps, and he was an 

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

to 1986.

Dale L. Aultman 

became Secretary to the FCA 

Board in January 

2011. He began 

working at FCA 

in 1988. For the 

first 10 years, he 

worked in the 

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

he was a policy analyst in the Office 

of Regulatory Policy. Mr. Aultman is 

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

became Virginia’s eighth electronic 

notary. In 2007, he completed FCA’s 

Supervisory Development Program. 

Mr. Aultman graduated with distinction from Southwestern Graduate 

School of Banking at the Southern 

Methodist University and holds a 

finance degree from the University of 

Oklahoma.
65

Thais Burlew is 

Director of Equal 

Employment 

Opportunity and 

Inclusion. Before 

joining FCA in 

September 2011, 

she served as 

Executive Manager in the Office 

of EEO and Inclusiveness at the 

U.S. Postal Service. From 2001 to 

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

Opportunity Commission, including 

attorney advisor to Chair Naomi 

Churchill-Earp and Acting Chief for 

the Intake and Compliance Branch. 

Prior to this, she served as Advocate 

for the Housing and Consumer Law 

Clinic and for the Juvenile Special 

Education Clinic. Ms. Burlew earned 

a J.D. magna cum laude from David 

A. Clarke School of Law at the 

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

and associate editor of the school’s 

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

criminal justice from Middle Tennessee State University.

Wendy R. 

Laguarda is 

the Designated 

Agency Ethics 

Official (DAEO). 

As DAEO, Ms. 

Laguarda administers the ethics 

program for FCA 

and the Farm 

Credit System Insurance Corporation. This involves providing for the 

review of financial disclosure reports, 

creating and conducting ethics training programs, counseling Agency 

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

In addition to her responsibilities 

as DAEO, Ms. Laguarda serves as 

assistant general counsel in the Office 

of General Counsel and administers 

the Agency’s Alternative Dispute 

Resolution Program. Before coming 

to FCA in 1990, Ms. Laguarda was 

an attorney advisor at the Office of 

Thrift Supervision and its predecessor Agency, the Federal Home Loan 

Bank Board. A graduate of Tufts 

University and George Washington 

University National Law Center, she 

is a member of the Maryland and 

District of Columbia Bars, as well as 

a mediator certified by the Supreme 

Court of Virginia.
66

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

Glossary 

A

Agricultural Credit Association—An 

ACA results from the merger of a 

Federal Land Bank Association or an 

FLCA and a PCA and has the combined authority of the two institutions. An ACA borrows funds from 

an FCB or ACB to provide short-, 

intermediate-, and long-term credit 

to farmers, ranchers, and producers 

and harvesters of aquatic products. It 

also makes loans to these borrowers 

for certain processing and marketing activities, to rural residents for 

housing, and to certain farm-related 

businesses. 

Agricultural Credit Bank—An ACB 

results from the merger of a Farm 

Credit Bank and a Bank for Cooperatives and has the combined authorities of those two institutions. An 

ACB is also authorized to finance 

U.S. agricultural exports and provide 

international banking services for 

farmer-owned cooperatives. CoBank 

is the only ACB in the FCS. 

B 

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

rural utilities (electric and telephone), 

and rural sewer and water systems. 

It was also authorized to finance 

U.S. agricultural exports and provide 

international banking services for 

farmer-owned cooperatives. The last 

remaining BC in the FCS, the St. Paul 

Bank for Cooperatives, merged with 

CoBank on July 1, 1999. 

F 

Farm Credit Act—The Farm Credit 

Act of 1971, as amended, (12 U.S.C. 

§§ 2001–2279cc) is the statute under 

which the FCS operates. The Farm 

Credit Act recodified all previous 

acts governing the FCS. 

Farm Credit Bank—FCBs provide 

services and funds to local associations that, in turn, lend those funds 

to farmers, ranchers, producers and 

harvesters of aquatic products, rural 

residents for housing, and some agriculture-related businesses. On July 

6, 1988, the Federal Land Bank and 

the Federal Intermediate Credit Bank 

in 11 of the 12 then-existing Farm 

Credit districts merged to become 

FCBs. The mergers were required by 

the Agricultural Credit Act of 1987. 

Farm Credit Leasing Services 

Corporation—The Leasing Corporation is a service entity owned by 

CoBank, ACB. It provides equipment leasing and related services to 

eligible borrowers, including agricultural producers, cooperatives, and 

rural utilities. 

Farm Credit System Insurance 

Corporation—FCSIC was established 

by the Agricultural Credit Act of 

1987 as an independent U.S. Government-controlled corporation. Its purpose is to ensure the timely payment 

of principal and interest on insured 

notes, bonds, and other obligations 

issued on behalf of FCS banks and to 

act as conservator or receiver of FCS 

institutions. The FCA Board serves ex 

officio as the Board of Directors for 

FCSIC. The chairman of the FCSIC 

board of directors must be an FCA 

Board member other than the current 

Chairman of the FCA Board. 

Federal Agricultural Mortgage 

Corporation—Farmer Mac was created with the enactment of the Agricultural Credit Act of 1987 to provide 

a secondary market for agricultural 

real estate and rural housing mortgage loans. 

Federal Farm Credit Banks Funding 

Corporation—The Funding Corporation, based in Jersey City, New Jersey, manages the sale of Systemwide 

debt securities to finance the loans 

made by FCS institutions. It uses a 

network of bond dealers to market 

its securities. 

Federal Intermediate Credit Bank—

The Agricultural Credits Act of 

1923 provided for the creation of 12 

FICBs to discount farmers’ shortand intermediate-term notes made 

by commercial banks, livestock loan 

companies, and thrift institutions. 

The Farm Credit Act of 1933 authorized farmers to organize PCAs, 

which could discount notes with 

FICBs. As a result, PCAs became 
67

the primary entities for delivery of 

short- and intermediate-term credit to 

farmers and ranchers. The FICBs and 

the Federal Land Banks in all Farm 

Credit districts merged to become 

FCBs or the ACB. Thus, no FICBs 

remain within the FCS. 

Federal Land Bank—The Federal 

Farm Loan Act of 1916 provided for 

the establishment of 12 Federal Land 

Banks to provide long-term mortgage credit to farmers and ranchers, 

and later to rural home buyers. All 

Federal Land Banks and FICBs have 

merged to become FCBs or part of 

the ACB. Thus, no Federal Land 

Banks remain. 

Federal Land Bank Association—

These associations were lending 

agents for FCBs. Federal Land Bank 

Associations made and serviced 

long-term mortgage loans to farmers, ranchers, and rural residents for 

housing. The associations did not 

own loan assets but made loans only 

on behalf of the FCB with which 

they were affiliated. As of October 1, 

2000, there were no remaining Federal Land Bank Associations serving 

as lending agents for FCBs. 

Federal Land Credit Association—

An FLCA is a Federal Land Bank 

Association that owns its loan assets. 

An FLCA borrows funds from an 

FCB to make and service long-term 

loans to farmers, ranchers, and 

producers and harvesters of aquatic 

products. It also makes and services 

housing loans for rural residents. 

Financial Institution Rating System—The FIRS is similar to the 

Uniform Financial Institutions Rating 

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

Uniform Financial Institutions Rating 

System, the FIRS was designed to 

reflect the nondepository nature of 

FCS institutions. The FIRS provides 

a general framework for assimilating 

and evaluating all significant financial, asset quality, and management 

factors to assign a composite rating 

to each System institution. The ratings are described below.

• Rating 1—Institutions in this 

group are basically sound in 

every respect; any negative findings or comments are of a minor 

nature and are anticipated to be 

resolved in the normal course 

of business. Such institutions 

are well managed, resistant to 

external economic and financial 

disturbances, and more capable 

of withstanding the uncertainties of business conditions than 

institutions with lower ratings. 

Each institution in this category 

exhibits the best performance and 

risk management practices for its 

size, complexity, and risk profile. 

These institutions give no cause 

for regulatory concern. 

• Rating 2—Institutions in this 

group are fundamentally sound 

but may reflect modest weaknesses correctable in the normal 

course of business. Since the 

nature and severity of deficiencies are not material, such 

institutions are stable and able 

to withstand business fluctuations. Overall risk management 

practices are satisfactory for the 

size, complexity, and risk profile 

of each institution in this group. 

While areas of weakness could 

develop into conditions of greater 

concern, regulatory response is 

limited to the extent that minor 

adjustments are resolved in the 

normal course of business and 

operations continue in a satisfactory manner.

• Rating 3—Institutions in this 

category exhibit a combination 

of financial, management, operational, or compliance weaknesses 

ranging from moderately severe 

to unsatisfactory. When weaknesses relate to asset quality or 

financial condition, such institutions may be vulnerable to the 

onset of adverse business conditions and could easily deteriorate 

if concerted action is not effective in correcting the areas of 

weakness. Institutions that are in 

significant noncompliance with 

laws and regulations may also be 

accorded this rating. Risk management practices are less than 

satisfactory for the size, complexity, and risk profile of each 

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 finan-
68

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

cial capacity, however, still make 

failure only a remote possibility 

if corrective actions are implemented. 

• Rating 4—Institutions in this 

group have an immoderate 

number of serious financial or 

operating weaknesses. Serious 

problems or unsafe and unsound 

conditions exist that are not 

being satisfactorily addressed or 

resolved. Unless effective actions 

are taken to correct these conditions, they are likely to develop 

into a situation that will impair 

future viability or constitute a 

threat to the interests of investors, borrowers, and stockholders. 

Risk management practices are 

generally unacceptable for the 

size, complexity, and risk profile 

of each institution in this group. 

A potential for failure is present but is not yet imminent or 

pronounced. Institutions in this 

category require close regulatory 

attention, financial surveillance, 

and a definitive plan for corrective action. 

• Rating 5—This category is 

reserved for institutions with 

an extremely high, immediate or near-term probability of 

failure. The number and severity of weaknesses or unsafe and 

unsound conditions are so critical 

as to require urgent external 

financial assistance. Risk management practices are inadequate 

for the size, complexity, and risk 

profile of each institution in this 

group. In the absence of decisive 

corrective measures, these institutions will likely require liquidation or some form of emergency 

assistance, merger, or acquisition. 

G

Government-sponsored enterprise—

A GSE is typically a federally chartered corporation that is privately 

owned, designed to provide a source 

of credit nationwide, and limited to 

servicing one economic sector. Each 

GSE has a public or social purpose.

GSEs are usually created because 

the private markets did not satisfy 

a purpose that Congress deems 

worthy—either to fill a credit gap or 

to enhance competitive behavior in 

the loan market. Each is given certain 

features or benefits (called GSE attributes) to allow it to overcome the 

barriers that prevented purely private 

markets from developing. In some 

cases, the GSE receives public assistance only to get started; in other 

cases, the assistance is ongoing. The 

FCS is the oldest financial GSE. 

P 

Participation—A loan participation is 

usually a large loan in which two or 

more lenders share in providing loan 

funds to a borrower to manage credit 

risk or overcome a legal lending limit 

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

and documents the loan. Generally, 

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

aware of the other participating 

institutions. 

Production Credit Association—

PCAs are FCS entities that deliver 

only short- and intermediate-term 

loans to farmers and ranchers. A 

PCA borrows money from its FCB to 

lend to farmers. PCAs also own their 

loan assets. As of January 1, 2003, all 

PCAs were eliminated as independent, stand-alone, direct-lender associations. All PCAs are now subsidiaries of ACAs. 

S 

Syndication—A loan syndication 

(or “syndicated bank facility”) is a 

large loan in which a group of banks 

work together to provide funds for 

a borrower. Usually one bank takes 

the lead, acting as an agent for all 

syndicate members and serving as 

the focal point between them and the 

borrower. All syndicate members are 

known at the outset to the borrower 

and they each have a contractual 

interest in the loan. 
69

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)

Acronyms and Abbreviations
70

Farm Credit Administration 2012 Annual Report on the Farm Credit System 

The Farm Credit Administration 2012 

Annual Report on the Farm Credit 

System is available on FCA’s website 

at www.fca.gov. For questions about 

this publication, contact 

Office of Congressional and 

Public Affairs 

Farm Credit Administration 

1501 Farm Credit Drive 

McLean, VA 22102-5090 

Telephone: 703-883-4056 

Fax: 703-790-3260 

E-mail: info-line@fca.gov 

Additional Information

The Federal Farm Credit Banks 

Funding Corporation prepares the 

financial press releases, the System’s 

Annual and Quarterly Information 

Statements, and the System’s combined financial statements contained 

therein, with the support of the 

System banks. These documents are 

available on the Funding Corporation’s website at www.farmcreditffcb.com. Copies can be obtained 

from 

Federal Farm Credit Banks 

Funding Corporation 

10 Exchange Place, Suite 1401

Jersey City, NJ 07302

Telephone: 201-200-8000 

The Farm Credit System Insurance 

Corporation’s annual report is available on its website at www.fcsic.gov. 

Copies of this report can be obtained 

from 

Farm Credit System Insurance 

Corporation 

1501 Farm Credit Drive 

McLean, VA 22102 

Telephone: 703-883-4380
 

Copies Available From: 

Office of Congressional and Public Aff airs 

Farm Credit Administration 

1501 Farm Credit Drive 

McLean, VA 22102 

703-883-4056 

www.fca.gov