2016 Annual Report 

on the Farm Credit System by 

the 

FARM CREDIT 

ADMINISTRATION 

Regulator of the FCS 
Contents

Statement of the Board Chairman and CEO 3

Farm Credit Administration 5

Overview and mission 5

The Board 5

Farm Credit System — Role, Structure, and Safety and Soundness 10

FCS role 10

FCS structure 10

The safety and soundness of the FCS 12

FCS Banks and Associations 13

Financial condition 13

Borrowers served 21

System funding for other lenders 23

Farm debt and market shares 25

Serving Young, Beginning, and Small Farmers and Ranchers 28

Characteristics of YBS producers 28

FCS lending to YBS borrowers 28

YBS programs 31

Regulatory Policy and Approvals 36

Regulatory activity in 2016 36

Corporate activity in 2016 37

Funding activity in 2016 39

Maintaining a Dependable Source of Credit for Farmers and Ranchers 41

Condition of Farmer Mac 45

Challenges Facing the Agricultural Economy and the Farm Credit System 50

The farm economy 50

The general economy 54

Farm Credit System portfolio 57

Appendix 58

Farm Credit Administration offices 59

Agency officials 61

Glossary 66

Acronyms and abbreviations 69

Additional information 70
2

Farm Credit Administration 2016 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.
3

Statement of the Board Chairman and CEO

July 2017

Dear Reader,

On behalf of the board and the staff of the Farm Credit Administration, I present the 2016 Annual Report on the Farm 

Credit System. I am pleased to report that the System’s overall condition and performance remain sound. Its net income 

was $4.85 billion in 2016, up from $4.69 billion in 2015, and its capital position is strong.

Overall, the quality of System loans remains very good. As of December 31, 2016, 0.79 percent of the System’s gross loans 

outstanding were nonperforming. Although this represented a slight decline in quality from 2015, it is still well within the 

System’s risk-bearing capacity.

We expected some credit quality decline in 2016 because large inventories have been keeping corn and soybean prices low. 

Other factors placing downward pressure on farm prices include the strong dollar, which makes U.S. agricultural products 

less competitive, and a modest increase in interest rates. Also, slower growth in the economies of some of our biggest trading partners, such as China, have suppressed export sales.

Although credit quality is likely to slip further in 2017, it is not expected to be dramatic for several reasons. First, System 

lenders have exercised prudence in their lending activities. For example, they have monitored changes in the value of farmland, which serves as collateral for many System loans, and they have adjusted their lending standards accordingly. 

Second, although interest rates are expected to rise further, they are expected to do so slowly, giving borrowers a chance to 

adjust to any increases by making operational and spending changes. 

The System’s strong capital levels also safeguard the System from credit quality declines. As of December 31, 2016, the System’s total capital had increased to $52.3 billion, up from $48.8 billion a year earlier. 

Because the System obtains its loan funds from the securities it sells to the capital debt markets, investor demand for System securities is also key to the System’s ability to withstand these challenges. In 2016, Systemwide debt increased by 5.9 

percent, and we expect investor demand for System securities to remain strong in 2017. The Farm Credit Insurance Fund, 

which held $4.5 billion at year-end 2016, further strengthens the financial position of the System by protecting investors in 

Systemwide debt, thus strengthening investor confidence in the System. 

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

ranchers. In terms of dollar volume, the pace of YBS lending slightly exceeded the pace of overall farm lending by System 

institutions, but in terms of loan numbers, the pace of YBS lending lagged slightly behind that of overall farm lending.

As the independent, arm’s-length regulator of the System, we examine System institutions for their safety and soundness 

and their compliance with laws and regulations, providing heightened oversight of institutions with higher risk. In addition 

to the areas normally considered, our examiners are currently emphasizing the following areas:

• The intensifying credit risk that the System is facing 

• The implementation of FCA’s new capital regulations
4

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

The factor driving the increase in credit risk is the prolonged period of low commodity prices. Prices are down significantly 

from the highs of 2013 and will likely stay low through 2017. This has created, and will continue to create, hardship for 

many producers, making it difficult to pay their loans, and thereby weakening the credit quality of agricultural lenders. 

Fortunately, System institutions currently have the financial capacity and risk-bearing ability to work with borrowers experiencing stress. As we communicated in an informational memorandum to System institutions in January 2016, we expect 

System institutions to intensify loan servicing efforts for borrowers who encounter increased stress. 

Our examiners are also assessing the strategies and internal controls that System institutions are using to ensure that they 

accurately report their capital and comply with the new capital regulations, which took effect on January 1, 2017. The new 

capital rules modernize our capital requirements while ensuring that System institutions continue to hold the capital they 

need to fulfill their mission. 

This document also includes a report on the Federal Agricultural Mortgage Corporation, or Farmer Mac. On December 31, 

2016, Farmer Mac’s net worth was $643.6 million, compared with $553.7 million a year earlier. Net worth went up primarily because of increases in retained earnings and accumulated other comprehensive income. The increase in accumulated 

other comprehensive income occurred largely because Farmer Mac reclassified $2.0 billion of its USDA-guaranteed securities from available-for-sale to held-to-maturity.

Despite the current challenges in the farm economy, the Farm Credit System continues to meet the credit needs of American farmers, ranchers, and other eligible borrowers. And we, as the regulator of the System, will continue to do our part 

to ensure a safe, sound, and dependable source of credit and related services for all creditworthy and eligible persons in 

agriculture and rural America. 

Sincerely,

Dallas P. Tonsager
5

Farm Credit Administration

Overview and mission

The Farm Credit Administration is 

an independent agency in the executive branch of the U.S. government. 

We are responsible for regulating and 

supervising the Farm Credit System 

(its banks, associations, and related 

entities) and the Federal Agricultural 

Mortgage Corporation (Farmer Mac).

The System is a nationwide network of 

borrower-owned financial institutions 

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

agricultural and rural utility cooperatives, and other eligible borrowers.

FCA derives its powers and authorities 

from the Farm Credit Act of 1971, as 

amended (12 U.S.C. 2001 – 2279cc). 

The U.S. Senate Committee on Agriculture, Nutrition, and Forestry and 

the U.S. House of Representatives 

Committee on Agriculture oversee 

FCA and the Farm Credit System.

FCA is responsible for ensuring that 

the System remains a dependable 

source of credit for agriculture and rural America. We do this in two specific 

ways:

• We ensure that System institutions, 

including Farmer Mac, operate 

safely and soundly and comply with 

applicable laws and regulations. 

Our 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. We examine 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, we use 

our supervisory and enforcement 

authorities to bring about appropriate corrective action.

• We issue policies and regulations 

governing how System institutions 

conduct their business and interact with borrowers. These policies 

and regulations focus on protecting System safety and soundness; 

implementing the Farm Credit 

Act; providing minimum requirements for lending, related services, 

investments, capital, and mission; 

and ensuring adequate financial 

disclosure and governance. We also 

approve corporate charter changes, 

System debt issuances, and other 

financial and operational matters.

Our headquarters and one field office 

are in McLean, Virginia. We also have 

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

and Sacramento, California.

FCA does not receive a federal appropriation. We maintain a revolving 

fund financed primarily by assessments from the institutions we regulate. Other sources of income for the 

revolving fund are interest earned on 

investments with the U.S. Treasury and 

reimbursements for services we provide to federal agencies and others.

The Board

FCA policy, regulatory agenda, and 

supervisory and examination activities 

are established by a full-time, threeperson board whose members are appointed by the president of the United 

States with the advice and consent of 

the Senate. Board members serve a 

six-year term and may remain on the 

board until a successor is appointed. 

The president designates one member 

as chairman of the board, who serves 

in that capacity until the end of his 

or her own term. The chairman also 

serves as our chief executive officer.

FCA board members also serve as the 

board of directors for the Farm Credit 

System Insurance Corporation.
6

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Dallas P. Tonsager 

Board Chairman and CEO

Dallas P. Tonsager is the board chairman and CEO of the Farm Credit Administration. He was appointed to the FCA board by President Barack Obama on 

March 13, 2015, for a term that expires May 21, 2020. He was designated chairman and CEO by President Obama on November 22, 2016. 

Mr. Tonsager brings to his position on the FCA board extensive experience as 

an agriculture leader and producer, and a commitment to promoting and implementing innovative development strategies to benefit rural residents and their 

communities.

Mr. Tonsager served as under secretary for rural development at the U.S. Department of Agriculture (USDA) from 2009 to 2013. In this position, he expanded 

broadband communication in rural America and implemented other key elements of the Recovery Act for rural America. He dramatically expanded USDA’s 

water and wastewater programs, expanded funding for first- and second-generation biofuels, and funded hospitals and other public facilities in rural America. 

In his official USDA capacity, Mr. Tonsager worked with the Farm Credit System 

and others to set up new venture capital investment funds. From 2010 to 2013, he 

was a member of the Commodity Credit Corporation board of directors. 

From 2004 to 2009, Mr. Tonsager served as a member of the FCA board, as well 

as a member of the FCSIC board of directors. 

From 2002 to 2004, he was the executive director of the South Dakota ValueAdded Agriculture Development Center. In this position, he coordinated initiatives to better serve producers interested in developing value-added agricultural 

projects. Services provided by the center include project facilitation, feasibility 

studies, business planning, market assessment, technical assistance, and education.

In 1993, he was selected by President William J. Clinton to serve as USDA’s state 

director for rural development in South Dakota. Mr. Tonsager oversaw a diversified portfolio of housing, business, and infrastructure loans in South Dakota. His 

term ended in February 2001.

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

two terms as president of the organization from 1988 to 1993. During that same 

period, he was a board member of Green Thumb Inc., a nationwide job training program for senior citizens. In addition, he served on the board of National 

Farmers Union Insurance from 1989 to 1993, and he was a member of the advisory board of the Commodity Futures Trading Commission from 1990 to 1993.

Mr. Tonsager grew up on a dairy farm near Oldham, South Dakota. For many 

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

on which they raised corn, soybeans, wheat, and hay. Mr. Tonsager is a graduate 

of South Dakota State University where he earned a B.S. in agriculture in 1976.
7

Jeffery S. Hall 

Board Member

Jeffery S. Hall was appointed to the FCA board by President Barack Obama on 

March 17, 2015. Succeeding Leland A. Strom, Mr. Hall will serve a term that 

expires on October 13, 2018.

Mr. Hall 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 FCS banks. 

Mr. Hall was president of The Capstone Group, an association management and 

consulting firm that he co-founded in 2009. He was the state executive director 

for the U.S. Department of Agriculture’s Farm Service Agency in Kentucky from 

2001 to 2009. In that role, he had responsibility for farm program and farm loan 

program delivery and compliance. 

From 1994 to 2001, Mr. Hall served as assistant to the dean of the University of 

Kentucky, College of Agriculture, advising the dean on state and federal legislative activities and managing a state-wide economic development initiative called 

Ag-Project 2000.

Mr. Hall also served as a senior staff member in the office of U.S. Senator Mitch 

McConnell from 1988 until 1994. During that time, he was the legislative assistant for agriculture, accountable for internal and external issue management. 

Before joining Senator McConnell’s staff, Mr. Hall served on the staff of the 

Kentucky Farm Bureau Federation. Over his 30-year career in agriculture, he has 

held leadership positions in the following nonprofits: the Kentucky Agricultural 

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

the Kentucky Agricultural Water Quality Authority, and the Governor’s Commission on Family Farms.

Mr. Hall was raised on a family farm in southern Indiana, which has been in his 

family for nearly 200 years. He is currently a partner in the farm with his mother 

and sister. Mr. Hall received a B.S. from Purdue University.
8

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Kenneth A. Spearman 

Board Member

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 expired on May 

21, 2016. He served as chairman and CEO from March 13, 2015, until the 

designation of his successor on November 22, 2016. He served as a member of 

the board until his death on March 27, 2017. 

Since his appointment to the FCA board in 2009, Mr. Spearman served 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. He continued to serve 

concurrently as a member of the FCSIC board of directors until his death.

Mr. Spearman brought 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 was 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 was a member of the Institute 

of Internal Auditors, as well as the National Society of Accountants for Cooperatives, where 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 is survived by his wife, Maria, and their three children — twin 

daughters, Michelle Springs and Rochelle Puccia, and a son, Dr. Kenneth 

Spearman.
9

Kenneth A. Spearman

August 26, 1944 – March 27, 2017
10

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Farm Credit System — Role, Structure, and Safety 

and Soundness

FCS role

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

cooperative financial institutions 

and service organizations serving all 

50 states and the Commonwealth of 

Puerto Rico. Created by Congress in 

1916 to provide American agriculture 

with a dependable source of credit, the 

FCS is the nation’s oldest governmentsponsored enterprise.

Under the Farm Credit Act of 1971, as 

amended, the System has the authority, 

subject to certain conditions, to make 

the following types of loans:

• Agricultural real estate loans

• Agricultural production and 

intermediate-term loans (e.g., for 

farm equipment)

• Loans to producers and harvesters 

of aquatic products

• Loans to certain farmer-owned agricultural processing facilities and 

farm-related businesses

• Loans to farmer-owned agricultural 

cooperatives

• Rural home mortgages

• Loans that finance agricultural 

exports and imports

• Loans to rural utilities

• Loans to farmers and ranchers for 

other credit needs

Also, under its similar-entity authority, 

the System may participate with other 

lenders to make loans to those who are 

not eligible to borrow directly from 

the System but whose activities are 

functionally similar to those of eligible 

borrowers. Through these participations, the System diversifies its portfolio, reducing the risks associated with 

serving a single industry. 

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. 

According to the Farm Credit Act, 

Congress established the System to 

improve the income and well-being 

of American farmers and ranchers. 

The System is to provide a permanent, 

reliable source of credit and related 

services to agriculture and aquatic 

producers, farmer-owned cooperatives, 

and farm-related businesses in rural 

America. 

Congress 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 broad public 

needs by providing liquidity and 

competition in rural credit markets in 

both good and bad economic times. 

The accomplishment of this public goal 

benefits all eligible borrowers, including young, beginning, and small farmers, as well as rural homeowners.

FCS structure

The lending institutions

The System is composed of the following four banks:

• CoBank, ACB

• AgriBank, FCB

• AgFirst Farm Credit Bank

• Farm Credit Bank of Texas

These banks provide loans to 73 associations that in turn make loans to 

farmers, ranchers, and other eligible 

borrowers. Most of these associations (71 of them) are structured as 

agricultural credit associations with 

subsidiaries. Two of the associations 

are stand-alone federal land bank associations with direct long-term real 

estate lending authority. We refer to 

these as federal land credit associations 

(FLCAs).

CoBank, one of the four Farm Credit 

System 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 coopera-
11

tives. 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 22 

ACAs and 1 FLCA.

An ACA can make agricultural production and intermediate-term loans 

as well as real estate mortgage loans, 

while an FLCA primarily makes real 

estate mortgage loans. The FLCA is 

exempt from state and federal income 

taxes. 

Generally, each ACA contains two 

subsidiaries, a production credit 

association (PCA), which primarily makes agricultural production 

and intermediate-term loans, and an 

FLCA. The ACA’s parent-subsidiary 

structure enables the ACA to preserve 

the tax-exempt status of the FLCA. 

This structure offers several other 

benefits as well. It allows the ACA to 

build and use capital more efficiently, 

and it enables members to hold stock 

in only the ACA but to borrow either 

from the ACA or from one or both of 

its subsidiaries. This gives the ACA 

and its subsidiaries greater flexibility in 

serving their borrowers, and it allows 

credit and related services to be delivered to borrowers more efficiently.

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

specialized services to its member-borrowers. It enables one-stop borrowing, 

allowing borrowers to obtain agricultural production and intermediate1.	 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.

term loans and real estate mortgage 

loans from the same institution.

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 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.

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 System banks to 

raise loan funds. It also issues quarterly 

and annual information statements for 

investors.

The System also contains the following five service corporations. These 

corporations exist under the authority 

of section 4.25 of the Farm Credit Act1:

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

services to the associations affiliated with CoBank, ACB. AgVantis 

is owned by the bank and 13 of its 

affiliated associations.

• 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.

• Farm Credit Financial Partners, 

Inc., provides support services to 

four associations affiliated with 

CoBank; one association affiliated with AgriBank, FCB; and the 

Leasing Corporation. It is owned 

by four associations to which the 

corporation provides services.

• The FCS Building Association acquires, manages, and maintains facilities to house FCA headquarters 

and field office staff. The Building 

Association is owned by the FCS 

banks, but the FCA board oversees 

its activities.

• Farm Credit Foundations provides 

human resource services to its 

employer-owners. These services 

include payroll processing, benefits 

administration, centralized vendor 

management, workforce management and operations, corporate 

tax and financial reporting services, and retirement workshops. 

Employer-owners consist of 38 FCS 

associations, 1 service corporation 

(AgVantis, Inc.), and 1 FCS bank 

(AgriBank, FCB).

Farmer Mac

The Federal Agricultural Mortgage 

Corporation (Farmer Mac), which 

is also recognized by law as an FCS 
12

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

institution, 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 all agricultural and rural lenders, 

including insurance companies, credit 

unions, commercial banks, and FCS 

lending institutions.

The Farm Credit Act established 

Farmer Mac as a federally chartered instrumentality and an institution of the 

FCS. However, it has no liability for the 

debt of any other System institution, 

and the other System institutions have 

no liability for Farmer Mac debt. 

Farmer Mac is owned by its investors 

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

include commercial banks, insurance 

companies, other financial organizations, and FCS institutions. Any investor may own nonvoting stock. 

FCA regulates and examines Farmer 

Mac through its Office of Secondary 

Market Oversight, whose director 

reports to the FCA board on matters of 

policy. 

Although Farmer Mac is an FCS 

institution under the Farm Credit Act, 

we discuss Farmer Mac separately 

from the other institutions of the FCS. 

Therefore, throughout this report, 

unless Farmer Mac is explicitly mentioned, the Farm Credit System refers 

only to the banks and associations 

of the System. For more information 

about Farmer Mac, see “Condition of 

Farmer Mac” on page 45.

The safety and soundness of 

the FCS

FCA regulates the FCS — its lending 

institutions, the Funding Corporation, 

the service corporations, and Farmer 

Mac. Our regulatory activities and 

examinations 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 borrowerstockholders. For an overview of our 

agency, see page 5 or visit our website 

at www.fca.gov.

The Farm Credit System Insurance 

Corporation (FCSIC) also helps 

protect the safety and soundness of 

the Farm Credit System. It was established by the Agricultural Credit Act 

of 1987 in the wake of the agricultural 

credit crisis of the 1980s. The purpose 

of FCSIC is to protect investors in 

Systemwide debt securities by 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, 2016, 

was $4.5 billion. For more information 

about FCSIC, go to www.fcsic.gov. Also 

see FCSIC’s 2016 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 liability.
13

FCS Banks and Associations

Financial condition

The FCS continued to be fundamentally safe and sound in 2016. The System’s 

overall condition and performance was 

strong. It reported higher earnings, increased capital, and favorable portfolio 

credit quality. Tables 1 and 2 provide a 

summary of the System’s major financial indicators.

While the FCS is financially sound, 

a small number of individual System 

institutions displayed some weaknesses 

in 2016. As the System’s regulator, we 

addressed these weaknesses by increasing our oversight and supervision of 

these institutions. For more information on FCA’s risk-based supervisory 

and enforcement approach, see “Maintaining a Dependable Source of Credit 

for Farmers and Ranchers” on pages 41 

to 44 of this report. For more information on the condition of the System, 

see the 2016 Annual Information 

Statement of the Farm Credit System 

on the website of the Federal Farm 

Credit Banks Funding Corporation at 

www.farmcreditfunding.com. 

The operating environment continued 

to be difficult for agricultural producers in 2016. According to estimates by 

the U.S. Department of Agriculture’s 

Economic Research Service, 2016 net 

farm income will decrease 15.6 percent 

to $68.3 billion, making it the third 

consecutive year that farm income has 

declined.

Since prices for certain commodities 

remained low in 2016, crop producers 

faced continued pressure on margins 

and cash flow. For many producers, 

prices were below the cost of production. Large inventories in the United 

States and abroad, significant global 

production, and a strong dollar are 

expected to keep prices low through 

2017. As a result, financial stress will 

likely continue to intensify for the 

grain sector, pushing producers to 

strengthen their balance sheets and 

change their operating structures to 

reduce their cost of production. 

Cropland markets, especially in the 

Midwest, showed continued weakness 

in 2016, pressured by low grain prices 

and higher interest rates. Farmland 

values will likely remain weak in 2017 

since commodity prices are expected 

to remain low and U.S. interest rates 

are expected to rise.

Livestock producers saw declining 

margins, especially in the first half of 

the year, as production levels pressured 

pricing. Lower feed costs and stronger demand in the latter part of 2016 

resulted in improved profitability for 

most protein sectors. In general, margins are expected to remain favorable 

in 2017. 

For a detailed discussion of potential 

risks facing the System in 2017 and 

beyond, see “Challenges Facing the 

Agricultural Economy and the Farm 

Credit System” on pages 50 to 57.
14

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Table 1

Farmer Credit System major financial indicators, annual comparison

As of December 31, Dollars in thousands

At and for the 12 months ended 31-Dec-16 31-Dec-15 31-Dec-14 31-Dec-13 31-Dec-12

Farm Credit System Banks1

Total	assets 		281,973,917	 		267,587,575	 		249,370,568	 		230,427,442	 		219,043,177	

Gross	loan	volume 		220,160,768	 		208,766,996	 		192,083,080	 		179,260,572	 		173,227,170	

Nonaccrual	loans 									292,938	 									231,520	 									227,872	 									275,228	 									365,478	

Cash	and	marketable	investments 				60,131,933	 				57,123,019	 				55,472,944	 				49,241,806	 				43,618,788	

Net	income 						2,016,110	 						1,945,693	 						2,042,527	 						2,057,199	 						2,011,314	

Nonperforming	loans/total	loans2 0.16% 0.13% 0.15% 0.18% 0.23%

Capital/assets3 6.35% 6.28% 6.41% 6.58% 6.51%

Unallocated	retained	earnings/assets 3.48% 3.45% 3.42% 3.39% 3.23%

Return	on	assets 0.73% 0.74% 0.84% 0.91% 0.94%

Return	on	equity 11.13% 11.47% 12.76% 13.31% 13.86%

Net	interest	margin4	 0.98% 0.98% 1.05% 1.15% 1.25%

Operating	expense	ratio5 0.34% 0.33% 0.33% 0.32% 0.31%

Efficiency	ratio6 25.37% 25.30% 24.20% 22.20% 20.00%

Payout	ratio7 64.84% 59.44% 58.19% 54.61% 47.79%

Associations

Total	assets 		189,932,933	 		180,005,335	 		167,312,405	 		157,085,461	 		148,778,120	

Gross	loan	volume 		179,322,967	 		169,995,422	 		157,543,635	 		146,873,767	 		138,314,966	

Nonaccrual	loans 						1,303,673	 						1,095,206	 						1,146,358	 						1,465,651	 						1,932,706	

Net	income 						3,383,152	 						3,126,729	 						3,383,894	 						3,304,680	 						2,989,912	

Nonperforming	loans/gross	loans2 0.90% 0.80% 0.92% 1.17% 1.59%

Capital/assets3 18.84% 18.68% 18.78% 18.48% 17.80%

Unallocated	retained	earnings/assets 17.50% 17.33% 17.40% 17.24% 16.65%

Return	on	assets 1.81% 1.84% 2.07% 2.14% 2.06%

Return	on	equity 9.36% 9.57% 10.69% 11.34% 11.23%

Net	interest	margin4 2.66% 2.68% 2.75% 2.80% 2.83%

Operating	expense	ratio5 1.47% 1.50% 1.51% 1.48% 1.45%

Efficiency	ratio6 40.47% 41.38% 39.52% 37.14% 39.13%

Payout	ratio7 31.28% 28.31% 25.22% 25.45% 25.82%

Total Farm Credit System8

Total	assets 		319,915,000	 		303,503,000	 		282,733,000	 		260,662,000	 		246,528,000	

Gross	loan	volume 		248,768,000	 		235,890,000	 		217,054,000	 		201,060,000	 		191,904,000	

Bonds	and	notes 		260,213,000	 		246,214,000	 		229,064,000	 		210,704,000	 		200,365,000	

Nonperforming	loans 						1,962,000	 						1,629,000	 						1,737,000	 						2,040,000	 						2,608,000	

Nonaccrual	loans 						1,591,000	 						1,324,000	 						1,375,000	 						1,736,000	 						2,300,000	

Net	income 						4,848,000	 						4,688,000	 						4,724,000	 						4,640,000	 						4,118,000	

Nonperforming	loans/gross	loans2 0.79% 0.69% 0.80% 1.01% 1.36%

Capital/assets3 16.35% 16.09% 16.17% 16.34% 15.66%

Surplus/assets 13.50% 13.33% 13.36% 13.45% 12.95%

Return	on	assets 1.56% 1.64% 1.77% 1.86% 1.74%

Return	on	equity 9.44% 9.87% 10.62% 11.43% 10.96%

Net	interest	margin4 2.49% 2.55% 2.64% 2.78% 2.87%

Sources:	FCA’s	Consolidated	Reporting	System	as	of	December	31,	2016,	and	the	Farm	Credit	System	Quarterly	Information	Statement	provided	by	the	Federal	Farm	

Credit	Banks	Funding	Corporation.

Note:	Changes	to	previous	periods	occasionally	occur	for	accounting	reasons.

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

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

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

4.	 Net	interest	margin	ratio	measures	net	income	produced	by	interest-earning	assets,	including	the	effect	of	loanable	funds,	and	is	a	key	indicator	of	loan	pricing	effectiveness.

5.	 Operating	expenses	divided	by	average	gross	loans.

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

months.

7.	 The	percentage	of	earnings	paid	out	in	patronage	dividends	to	borrower-owners	and	in	dividends	to	holders	of	preferred	stock.	(Patronage	dividends	constitute	the	

majority	of	earnings	paid	out.)	This	ratio	is	only	valid	at	year-end	(December	31).

8.	 Cannot	be	derived	by	adding	the	categories	above	because	of	intradistrict	and	intra-System	eliminations	used	in	Reports	to	Investors.
15

Table 2 

Farm Credit System major financial indicators, by district

December 31, 2016

Dollars in thousands

 Total Assets

Gross Loan 

Volume

Nonaccrual 

Loans

Allowance 

for Loan 

Losses

Cash and 

Marketable 

Investments1

Capital 

Stock2 Surplus3

Total 

Capital4

Operating 

Expense 

Ratio5

Farm Credit System Banks

AgFirst 							32,057,597	 				22,914,682	 			28,978	 			14,783	 				8,853,741	 							410,038								1,817,563								2,225,248	 0.57%

AgriBank 					102,563,296	 				86,078,402	 			53,851	 			21,282	 			15,978,971	 				2,433,701								3,132,432								5,486,103	 0.15%

CoBank 					126,130,626	 					95,258,281	 			207,247	 			558,974	 			30,242,765	 				4,572,232								4,121,409								8,573,758	 0.41%

Texas 							21,222,398	 					15,909,403	 			2,862	 			7,650	 			5,056,456	 							884,038	 										770,793								1,622,252	 0.59%

Total 281,973,917 220,160,768 292,938 602,689 60,131,933 8,300,009 9,842,197 17,907,361 0.34%

Associations

AgFirst 							20,992,378	 20,059,953	 221,606	 	167,818	 	122,479	 							223,143								4,074,529								4,264,702	 2.05%

AgriBank 							97,500,750	 91,372,083	 	624,356	 	365,472	 	2,042,642	 							344,141						17,615,378						17,959,519	 1.35%

CoBank 							53,756,421	 		50,791,698	 	314,853	 296,342	 351,051	 				1,668,961								9,103,251						10,668,131	 1.46%

Texas 							17,683,384	 	17,099,233	 	142,858	 	74,087	 	37,885	 							287,904								2,610,408								2,893,854	 1.49%

Total 189,932,933 179,322,967 1,303,673 903,719 2,554,057 2,524,149 33,403,566 35,786,206 1.47%

Total Farm Credit 

System6 319,915,000 248,768,000 1,591,000 1,506,000 62,575,000 1,800,000 43,183,000 52,311,000

Sources:	Farm	Credit	System	Call	Report	as	of	December	31,	2016,	and	the	Farm	Credit	System	Quarterly	Information	Statement	provided	by	the	Federal	Farm	Credit	

Banks	Funding	Corporation.

1.	 Includes	accrued	interest	receivable	on	marketable	investments.

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

3.	 Includes	allocated	and	unallocated	surplus.

4.	 Includes	capital	stock,	participation	certificates,	perpetual	preferred	stock,	surplus,	accumulated	other	comprehensive	income.	For	the	total	Farm	Credit	System	

amount,	total	capital	also	includes	$4.453	billion	of	restricted	capital,	which	is	the	amount	in	the	Farm	Credit	Insurance	Fund.	Excludes	mandatorily	redeemable	

preferred	stock	and	protected	borrower	capital.

5.	 Operating	expense	per	$100	of	gross	loans.

6.	 Cannot	be	derived	by	adding	the	categories	above	because	of	intradistrict	and	intra-System	eliminations	used	in	Reports	to	Investors.
16

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Earnings

The System reported higher earnings 

in 2016 despite the difficult economic 

conditions faced by U.S. agricultural 

producers. For the year, System net 

income equaled $4.85 billion, up $160 

million or 3.4 percent from 2015 (See 

figure 1). The change was largely due to 

an increase in net interest income 

partially offset by higher provisions for 

loan losses and noninterest expenses.

Net interest income increased $432 

million to $7.4 billion in 2016. This 

increase was due to a higher level of 

average earning assets, partially offset 

by a lower net interest margin. Driven 

Figure 1

FCS net income, 2008 – 2016

As of December 31

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

largely by growth in loan volume, 

average earning assets increased $24.7 

billion, or 9.0 percent, to $299.6 billion. 

The System’s net interest margin continued to compress in 2016, decreasing 

6 basis points to 2.49 percent. Lower 

lending spreads, caused by competitive pressures and higher debt costs, 

negatively affected margins. Return on 

average assets declined to 1.56 percent 

in 2016 from 1.64 percent in 2015, and 

the return on average capital decreased 

to 9.44 percent from 9.87 percent. 

As cooperative institutions, FCS banks 

and associations typically pass on a 

portion of their earnings as patronage 

distributions to their farmer/rancher 

borrower-owners. For 2016, System 

institutions declared a total of $1.7 billion in patronage distributions — $1.27 

billion in cash, $369 million in allocated retained earnings, and $85 million 

in stock. This represents 35.6 percent 

of the System’s net income for 2016 as 

compared with 32.0 percent in 2015. 

Also in 2016, the System distributed 

$130 million in cash from allocated 

retained earnings related to patronage 

distributions from previous years.
17

System growth

The System continued to grow at a 

moderate pace in 2016. Total assets 

increased to $319.9 billion, up $16.4 

billion or 5.4 percent from 2015. Gross 

loan balances were $248.8 billion at 

year-end, up $12.9 billion or 5.5 

percent from the previous year. (See 

figure 2.)

Figure 2

Annual growth rate of FCS loans outstanding, 2005 – 2016

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

The growth in System loan balances 

was largely due to increases in real 

estate mortgage, agribusiness, and 

rural infrastructure lending. Real estate 

mortgage lending was up $6.6 billion, 

or 6.2 percent, mainly due to continued demand for cropland. Real estate 

mortgage loans represent the largest 

component of the System’s loan portfolio at 46.0 percent. 

Agribusiness lending, largely consisting of loans to cooperatives and 

loans for processing and marketing 

operations, was up $3.0 billion, or 8.3 

percent, in 2016. Rural infrastructure 

lending, representing loans to electric 

power, communications, and water and 

wastewater industries, grew by $1.6 billion, or 6.4 percent.
18

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Asset quality

Overall, the quality of System loans 

remains relatively strong. However, 

credit stress continued to intensify for 

the crop and livestock sectors in 2016. 

Weak prices caused by strong production levels and relatively high input 

costs left many producers facing tight 

margins and less liquidity. Profitability 

for much of the livestock sector should 

improve in 2017, but low commodity 

prices will still challenge cash grain 

producers. Although loan delinquencies continued to be low in 2016, they 

are expected to increase in 2017.

As of December 31, 2016, nonperforming loans totaled $2.0 billion, or 0.79 

percent of gross loans outstanding, up 

from $1.6 billion, or 0.69 percent, at 

year-end 2015. (See figure 3.) Loan 

delinquencies (accruing loans that are 

30 days or more past due) increased to 

0.26 percent of total accruing loans 

from 0.20 percent at year-end 2015. 

Figure 3

FCS nonperforming loans, 2011 – 2016

As of December 31

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

The allowance for loan losses was 

$1.510 billion, or 0.61 percent of loans 

outstanding, at year-end 2016. This 

compares with an allowance for loan 

losses of $1.280 billion, or 0.54 percent of loans outstanding, at year-end 

2015. The System recognized provisions for loan losses of $266 million in 

2016 as compared with $106 million 

in 2015 and $40 million in 2014. Net 

loan charge-offs remained low at $45 

million in 2016 as compared with $37 

million in 2015.
19

Funding

Throughout 2016, the System had reliable access to the debt capital markets 

to support its mission, and investor 

demand for all System debt products 

remained favorable. Securities due 

within a year increased by 13.3 percent 

while securities with maturities greater 

than one year increased by 1.5 percent. 

In total, Systemwide debt increased by 

5.9 percent.

The System’s funding composition 

remained relatively stable in 2016. 

Securities due within a year accounted 

for 40.3 percent of total Systemwide 

debt compared with 37.7 percent a year 

ago. (See “Funding Activity in 2016” 

on page 39 for further discussion of the 

System’s funding environment.) 

Liquidity

Each System bank maintains a liquidity 

reserve to ensure adequate liquidity to 

meet its business and financial needs, 

especially during unforeseen disruptions in the capital markets. As of 

December 31, 2016, each System bank 

was in compliance with the regulatory minimum levels required for their 

respective liquidity reserves. Liquidity 

position is measured by the number 

of days that a bank may operate with 

no access to funds from the capital 

markets. By regulation, banks must 

maintain at least 90 days of liquidity. The liquidity positions of the four 

System banks ranged from 117 days to 

192 days. The System’s overall liquidity 

position on a consolidated basis was 

180 days, basically unchanged from 

year-end 2015 when it was 181 days.

Investments available for sale (based 

on fair value) increased 9.5 percent to 

$54.7 billion in 2016, with a weighted 

average yield of 1.49 percent. Missionrelated and other investments available 

for sale (based on fair value) increased 

14.7 percent to $344 million, with a 

weighted average yield of 2.73 percent. 

Mission-related and other investments 

held to maturity increased 6.4 percent 

to $2.6 billion, with a weighted average 

yield of 3.06 percent.

As permitted under FCA regulations, 

each System bank may hold federal 

funds and available-for-sale securities 

in an amount not to exceed 35 percent 

of its average loans outstanding for 

the quarter. Criteria for eligible investments are defined by FCA regulations. 

If an investment no longer meets the 

eligibility criteria, it becomes ineligible 

for regulatory liquidity calculation purposes, but the bank may continue to 

hold the investment provided certain 

requirements are met. 
20

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Capital

The System’s capital position remained 

strong in 2016. Total capital equaled 

$52.3 billion at December 31, 2016, 

compared with $48.8 billion at yearend 2015. The System continued to 

build capital primarily through net 

income earned and retained. At yearend 2016, the System’s capital-to-assets 

ratio was 16.4 percent, compared with 

16.1 percent in 2015.

As illustrated in figure 4, surplus 

accounts for a large majority of total 

capital. FCA regulations establish 

minimum capital levels that each 

System bank and association must 

achieve and maintain. As of December 

31, 2016, the permanent capital ratios 

for all System banks and associations 

were significantly above the regulatory 

minimum of 7.0 percent. The ratios 

ranged between 15.5 percent and 21.3 

percent for System banks and 

between 13.2 percent and 36.6 

percent for System associations. In 

addition, as of December 31, 2016, 

the FCS had $4.5 billion of restricted 

capital in the Farm Credit Insurance 

Fund.

Figure 4

FCS capital, 2009 – 2016

As of December 31

Dollars in billions

Sources: Annual Information Statements of the Federal Farm Credit Banks Funding Corporation.
21

Borrowers served

The System fulfills its overall mission 

by lending to agriculture and rural 

America. Its lending authorities include the following:

• Agricultural real estate loans

• Agricultural production and 

intermediate-term 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

• Rural home mortgages

• Loans that finance agricultural 

exports and imports

• Loans to rural utilities

• Loans to farmers and ranchers for 

other credit needs

Also, under its similar-entity authority, 

the System may participate with other 

lenders to make loans to those who are 

not eligible to borrow directly from 

the System but whose activities are 

functionally similar to those of eligible 

borrowers. Through these participations, the System diversifies its portfolio, reducing the risks associated with 

serving a single industry.

Nationwide, the System had $249 billion in gross loans outstanding as of 

December 31, 2016. Agricultural producers represented by far the largest 

borrower group, with $165 billion, or 

66.2 percent, of the total dollar amount 

of loans outstanding. See table 3 and 

figure 5 for a breakdown of lending by 

type.

As required by law, borrowers own 

stock or participation certificates in 

System institutions. The FCS had 

1,341,000 loans and nearly 510,000 

stockholders in 2016. Approximately 

86.0 percent of the stockholders were 

farmers or cooperatives with voting 

stock. The remaining percent were 

nonvoting stockholders, including 

rural homeowners and other financing 

institutions that borrow from the System. Over the past five years, the total 

number of System stockholders has 

increased gradually, rising 4.5 percent 

since year-end 2011.

Table 3

FCS gross loans outstanding, 2012 – 2016

As of December 31

Dollars in millions

2012 2013 2014 2015 2016

Percent 

change 

from 

2012

Percent 

change 

from 

2015

Agricultural	real	estate	mortgage	loans $92,504	 $95,209	 $100,811	 $107,813	 $114,446	 23.7% 6.2%

Agricultural	production	and	intermediateterm	loans43,446 44,309 46,305 49,204 50,282 15.7% 2.2%

Agribusiness	loans	to	the	following:

					Processing	and	marketing	operations 10,735 13,164 16,974 19,949 21,166 97.2% 6.1%

					Cooperatives 10,255 10,885 12,553 13,113 15,300 49.2% 16.7%

					Farm-related	businesses 2,858 2,999 3,408 3,533 3,162 10.6% −10.5%

Rural	utility	loans	by	type	of	utility:

					Energy 13,193 14,304 15,036 17,925 19,577 48.4% 9.2%

					Communication 3,435 4,159 5,044 6,196 6,023 75.3% −2.8%

					Water/wastewater 1,215 1,325 1,488 1,677 1,840 51.4% 9.7%

Rural	home	loans 6,430 6,511 6,754 7,117 7,148 11.2% 0.4%

Agricultural	export	finance 4,729 4,743 4,837 5,075 5,531 17.0% 9.0%

Lease	receivables 2,415 2,706 2,976 3,373 3,480 44.1% 3.2%

Loans	to	other	financing	institutions 689 746 868 915 813 18.0% −11.1%

Total $191,904 $201,060 $217,054 $235,890 $248,768 29.6% 5.5%

Sources: Federal Farm Credit Banks Funding Corporation Annual Information Statements. 
22

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Total loans outstanding at FCS banks 

and associations (net of intra-System 

lending) increased by $12.9 billion, or 

5.5 percent, during the year that ended 

December 31, 2016. This compares 

with increases of 8.7 percent in 2015 

and 8.0 percent in 2014. Since year-end 

2012, total System loans outstanding 

have increased by $56.9 billion, or 29.6 

percent.

The increase in 2016 was driven by increases in real estate mortgages, loans 

to cooperatives, and loans to electric 

power utilities. Real estate mortgage 

loans increased $6.6 billion, or 6.2 

percent, primarily because of the continued demand for cropland financFigure 5

Farm Credit System lending by type

As of December 31, 2016

Source: 2016 Federal Farm Credit Banks Funding Corporation Annual Information Statement.

ing. Loans to cooperatives increased 

$2.2 billion or 16.7 percent because 

of greater seasonal financing at grain 

cooperatives and greater lending to 

agribusiness. Loans to power utilities 

increased $1.7 billion, or 9.3 percent, 

because of increased lending activity 

in both the electric distribution and 

power supply sectors. 

Production and intermediate-term 

loans also increased, going up $1.1 billion, or 2.2 percent. This increase was 

driven primarily by new loan growth 

and to a lesser extent by the advanced 

purchases of production inputs (such 

as fertilizer, seed, and fuel) for 2017. 

Processing and marketing loans increased $1.2 billion, or 6.1 percent, in 

2016 because of new loan growth and 

advances on existing loans.

Not all lending authorities experienced 

increases in 2016. Compared to 2015, 

loan volumes in 2016 were lower to 

farm-related businesses, communication providers, and to other financial 

institutions.
23

System funding for other 

lenders

Other financing institutions 

Under the Farm Credit Act, System 

banks may further serve the credit 

needs of rural America by providing 

funding and discounting services to 

certain non-System lending institutions described in our regulations as 

“other financing institutions” (OFIs). 

These include the following:

• Commercial banks

• Savings institutions

• Credit unions

• Trust companies

• Agricultural credit corporations

• Other specified agricultural lenders 

that are significantly involved in 

lending to agricultural and aquatic 

producers and harvesters

System banks may fund and discount 

agricultural production and intermediate-term loans for OFIs that demonstrate a need for additional funding 

to meet the credit needs of borrowers 

who are eligible to receive loans from 

the FCS. OFIs benefit by using the System as an additional source of liquidity 

for their own lending activities and by 

capitalizing on the System’s expertise in 

agricultural lending.

As of December 31, 2016, the System 

served 22 OFIs, down from 23 in 2015; 

24 in 2014; 26 in 2013, 2012, and 2011; 

and 28 in 2010 and 2009. Outstanding 

loan volume to OFIs was $816 million 

at year-end, down $101 million from 

2015. OFI loan volume continues to be 

less than half of one percent of the System’s loan portfolio. About 70 percent 

of the System’s OFI lending activity 

occurs in the AgriBank district.

Syndications and loan 

participations with non-FCS 

lenders

In addition to the authority to provide 

services to OFIs, the Farm Credit Act 

gives System banks and associations 

the authority to partner with financial 

institutions outside the System, including commercial banks, in making loans 

to agriculture and rural America. Generally, System institutions partner with 

these financial institutions through 

loan syndications and participations.

• A loan syndication (or “syndicated 

bank facility”) is a large loan in 

which a group of financial institutions work together to provide 

funds for a borrower. Usually one 

financial institution takes the lead, 

acting as an agent for all syndicate 

members and serving as a liaison 

between them and the borrower. 

All syndicate members are known 

at the outset to the borrower.

• Loan participations are large loans 

in which two or more lenders 

share in providing loan funds to a 

borrower. One of the participating 

lenders originates, services, and 

documents the loan. Generally, the 

borrower deals with the institution originating the loan and is not 

aware of the other participating 

institutions.

Financial institutions primarily use 

loan syndications and participations to 

reduce credit risk and to comply with 

lending limits. For example, a financial 

institution with a high concentration of 

production loans for a single commodity could use participations or syndications to diversify its loan portfolio, or 

it could use them to sell loans that are 

beyond its lending limit. Institutions 

also use syndications and participations to manage and optimize capital, 

earnings, and liquidity. Syndications 

and participations allow the System to 

more fully meet its mission by serving 

agricultural and rural borrowers who 

might not otherwise receive funding.

The System’s gross loan syndication 

volume has grown by more than $2 billion over the past three years to $15.4 

billion at year-end 2016. This figure includes volume from syndications that 

System institutions have with other 

System institutions as well as with nonFCS institutions.

At year-end 2016, the System had 

$4.7 billion in net eligible-borrower 

loan participations with non-System 

lenders. Net eligible-borrower loan 

participations peaked in 2010 at $5.4 

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

of eligible-borrower loan participations purchased from non-System 

lenders has grown from $6.3 billion 
24

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

at December 31, 2011, to $7.9 billion 

at year-end 2016, and the volume of 

eligible-borrower loan participations 

sold to non-System lenders was $3.2 

billion at year-end 2016, up from $2.3 

billion in 2011. 

In addition to participating in loans 

to eligible borrowers, FCS institutions 

have the authority to work with nonSystem lenders that originate “similarentity” loans. 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’s 

operation, the System has authority to 

participate in the borrower’s loans (the 

participation interest must be less than 

50 percent). Similar-entity loans contain 

other limitations as specified in section 

4.18A of the Farm Credit Act.

The System had $12.8 billion in acquired 

similar-entity loan participations as of 

December 31, 2016, down from $13.8 

billion the prior year. As figure 6

indicates, the volume of similar-entity 

participations that System institutions 

sell to non-System institutions is 

relatively small, amounting to $700 

million or less each year over the past 

six years.

AgDirect, LLP

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

developed by Farm Credit Services of 

Figure 6

Loan participation transactions with non-System lenders, 2011– 2016

As of December 31

Dollars in billions

Sources: Farm Credit System Call Reports.

America, ACA, which is affiliated with 

AgriBank, FCB. AgDirect allows System institutions to participate in retail 

installment loans or leasing contracts 

originated by equipment dealerships. 

The program expands financing options for borrowers and institutions, 

and provides an additional revenue 

stream to AgDirect owners and AgriBank.

AgDirect financing is available in many 

states, with 16 System institutions 

participating through AgDirect. As of 

December 31, 2016, the total outstanding participation interests in loans 

purchased was $3.3 billion.
25

Farm debt and market shares

The U.S. Department of Agriculture’s 

estimate of total farm business debt 

for the year ended December 31, 2016, 

was $376 billion, up 5.3 percent from 

its $357 billion estimate for year-end 

2015. 

USDA estimates that, from 2006 to 

2016, total farm business debt rose by 

more than $180 billion, or 74 percent. 

(See figure 7.) During this period, 

farmers invested heavily in new capital 

items, and they took on more debt to 

cover rising farm production costs. 

Farm real estate debt grew 7.5 percent 

in 2016, up from the 6.1 percent rise 

in 2015. Non-real estate debt grew 

by 2.3 percent after falling slightly in 

2015. Weak profit margins for major 

crops and livestock enterprises in 2016 

reduced the rate by which producers 

paid down their debt and led some 

producers to borrow more.

Figure 7

U.S. farm business debt, 1996 – 2015

Dollars in billions

Source: FCA’s Office of Regulatory Policy, based on data from USDA, Economic Research Service.

On the supply side, creditors had sufficient funds to lend in 2016. Because 

of the continued need to finance farm 

production expenses, demand for 

credit could remain strong in 2017. On 

the other hand, higher farm interest 

rates could weaken demand for credit, 

particularly when used for new purchases.
26

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

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

2015. USDA’s estimate of debt by 

lender shows that the System held 40.6 

percent of total farm business debt, 

while commercial banks held 42.7 

percent. (See figure 8). 

Figure 8

Estimated market shares of U.S. farm business debt, 1995 – 2015

Source: USDA, Economic Research Service.

Note: Year-end estimates shown.

The System’s market share of total 

farm business debt has been relatively 

stable 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 2015, the System held 46.3 

percent of this debt; by comparison, 

commercial banks held 37.9 percent.

Commercial banks have historically 

dominated non-real estate farm lending. At year-end 2015, commercial 

banks held 49.5 percent of this debt, 

and the System held 32.6 percent.
27
28

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Serving Young, Beginning, and Small Farmers 

and Ranchers

farmer segment, and the largest share 

goes to the small farmer segment. 

Below, we look at some trends in these 

categories, then we discuss the System’s 

lending to YBS borrowers.

Young

According to the 2012 Census of 

Agriculture, less than 6 percent of all 

principal farm operators and just over 

8 percent of all operators (primary, 

secondary, and tertiary operators) were 

under 35 years of age in 2012. These 

percentages have held relatively constant from 2002 to 2012. Demographic 

data generally show the share of those 

under 35 has been relatively stable over 

the past decade, while median or average ages have generally been rising.

Beginning

The Census of Agriculture data show a 

steady decline in the share of principal 

farm operators who have been on their 

farms for less than 10 years. Of the 2.1 

million principal operators in 2012, 

22 percent had been on their farms 

for less than 10 years. Thirty years ago, 

that percentage was much higher: 38 

percent of all principal operators in 

1982 had been on their farms for less 

than 10 years.

Small

U.S. farms have been consolidating for 

generations as new technologies have 

increased productivity and reduced 

the number of farms needed. From 

1982 to 2012, the share of total farms 

considered to be small farms — those 

with $250,000 or less in farm sales — 

declined from 96 percent to 88 percent. 

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.

FCS lending to YBS 

borrowers

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 farmers. 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 

the lending volume, operations, and 

achievements of its YBS program. (See 

the YBS Programs section on page 31.)

FCA regulations require each System 

lender’s YBS program to 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 farmers; 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 

its YBS lending. And each association 

must have an internal control program 

to ensure proper implementation and 

management of 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.

The Farm Credit Act requires Farm 

Credit System banks and associations 

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 can 

help individuals enter the agriculture 

industry, and they can help smooth the 

transition of farm businesses from one 

generation to the next. They also allow 

System institutions to serve a more 

diversified customer base — from very 

small to very large operations, from 

producers of grain staples for export 

to producers of organic foods for local 

and regional food markets.

At FCA, we are strongly committed 

to ensuring that the System fulfills its 

responsibility to serve all creditworthy producers, including those who 

are young, beginning, or small. We 

support the YBS mission through our 

regulatory activities, data collection 

and reporting, disclosure requirements, and examination activities.

We define young farmers as those who 

are 35 years of age or younger, beginning farmers as those who have 10 

years or less of experience at farming 

or ranching, and small farmers as those 

who normally have annual gross sales 

of less than $250,000. These criteria 

apply to the date on which a loan is 

made.

Characteristics of YBS 

producers

Generally, the distribution of Systemwide total farm lending going to the 

three separate YBS categories has 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 
29

FCA’s oversight and examination activities encourage System institutions 

to assess their performance and market 

penetration in the YBS area. This selfassessment increases each institution’s 

awareness of its mission and prompts 

it to allocate resources to serve the YBS 

market segment. 

In addition, we continuously consider 

ways to support and strengthen the 

System’s YBS programs. For example, 

we issued an informational memorandum to System associations in 2014 to 

outline ways they can enhance their 

service to YBS farmers through loan 

2.	 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	and	dollar	volume).	The	volume	measure	includes	loan	

commitments	to	borrowers,	which	typically	exceed	actual	loan	advances.	Borrowers	may	have	more	than	one	loan;	thus	the	loan	numbers	reported	here	do	not	

directly	measure	the	number	of	borrowers.

programs provided by USDA’s Farm 

Service Agency.

Please note that, because the YBS 

mission is focused on each borrower 

group separately, data are reported 

separately for each of the three YBS 

categories. Since some loans fit more 

than one category, adding the loans 

across categories does not produce an 

accurate measure of the System’s YBS 

lending involvement. 

System’s YBS lending in 20162

The number and dollar volume of 

loans made during the year are indicators of the extent to which System 

institutions are serving YBS farmers. 

Table 4A contains information on 

loans made in each category during the 

year; table 4B provides information on 

loans outstanding at the end of 2016.

Loans and commitments to YBS 

farmers include real estate mortgages, 

production and intermediate-term 

loans, loans to processing and marketing operations, and leases. These loan 

types are what we call “farm lending” 

in this analysis; they are a subset of total Farm Credit System lending. They 

do not include rural home loans.

Table 4A

YBS loans made during 2016

As of December 31 

Number of loans

Percentage of 

total number 

of System farm 

loans

Dollar volume of loans 

in millions

Percentage of 

total volume of 

System farm loans Average loan size

Young 62,000 17.0 $9,247 11.7 $149,143

Beginning 79,166 21.7 $12,707 16.0 $160,514

Small 149,691 41.1 $12,207 15.4 $81,545

Table 4B

YBS loans outstanding

As of December 31, 2016

Number of loans

Percentage of 

total number 

of System farm

 loans

Dollar volume of 

loans in millions

Percentage of total 

volume of System 

farm loans Average loan size

Young 190,995 18.3 $27,784 11.0 $145,471

Beginning 279,019 26.7 $42,817 17.0 $153,457

Small 501,874 48.1 $47,699 18.9 $95,042

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

Note: Since the totals are not mutually exclusive, one cannot add across young, beginning, and small categories to count total YBS lending. In 2016, the Farm Credit 

System made 363,988 new farm loans, totaling $79.261 billion. As of December 31, the System had 1,043,246 farm loans outstanding, amounting to $252.341 billion.
30

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

In table 5A, we show the change from 2015 to 2016 in the dollar volume of new loans made to YBS farmers, as well as the 

change in new YBS loan numbers. In table 5B, we show the same information for outstanding YBS lending from 2015 to 

2016.

Table 5A 

Change in new YBS lending from 2015 to 2016

Dollar Volume Loan Numbers

Young −1.9% −0.2%

Beginning	 −0.3% −0.6%

Small 3.3% −0.2%

Table 5B 

Change in outstanding YBS lending from 2015 to 2016

Dollar Volume Loan Numbers

Young 2.6% 1.2%

Beginning	 3.2% 1.5%

Small 2.1% −0.1%

Sources:	Annual,	Young,	Beginning,	and	Small	Farmer	Reports	submitted	by	each	System	lender	through	the	Farm	Credit	banks.
31

Comparing the System’s YBS 

lending with overall lending

In 2016, the YBS shares of the dollar 

volume of all new farm loans made 

generally increased while the YBS 

shares of the System’s total farm loan 

numbers declined slightly. The dollar 

volume of all System farm loans made 

(including commitments) during 2016 

was $79.261 billion, down 5.4 percent 

from 2015, and the total number of 

farm loans made in 2016 (363,988) 

grew by only half a percentage point 

from 2015.

In recent years, the shares of new System farm loans made to young and beginning farmers have been slowly rising. From 2015 to 2016, however, these 

shares declined, albeit very slightly. 

For young farmers, the share fell from 

17.2 percent in 2015 to 17.0 percent in 

2016. For beginning farmers, the share 

fell from 22.0 percent to 21.7 percent. 

(See figures 9A and 9B.) 

However, the shares of loan dollar 

volume crept up slightly — from 11.3 

percent to 11.7 percent for young 

farmers and from 15.2 percent to 16.0 

percent for beginning farmers. 

In 2016, the System’s small farmer 

lending performed much like its young 

and beginning farmer lending. The 

share of the total number of new loans 

to small farmers fell from 41.4 percent 

to 41.1 percent, and the share of loan 

volume increased — from 14.1 percent 

in 2015 to 15.4 percent in 2016. (See 

figure 9C.)

YBS results for individual 

associations versus the System’s 

average YBS results

YBS lending varies across FCS associations. Some institutions may have a 

high number or dollar volume of loans 

in one category and low in another, 

while activity levels for other institutions may be just the opposite. Because 

farming operations differ by type and 

size across lending territories, the need 

for credit and related services of the 

farming base can vary from association 

to association. 

While the share of total outstanding 

System farm loans to young farmers 

was 18 percent, this share ranged from 

4 percent to 27 percent at individual 

associations. Whereas 27 percent of the 

System’s total farm loans outstanding 

were to beginning farmers in 2016, this 

share ranged across associations from 

13 percent to 62 percent.

In 2016, 48 percent of the System’s total 

farm loans outstanding went to small 

farmers, with the range for individual 

associations from 15 percent to 83 

percent. In about 43 percent of all associations, the share of total farm loans 

outstanding going to small farmers 

exceeded the Systemwide average.

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 and 

cultivated YBS programs to provide 

this assistance.

Using these programs, System associations may offer lower interest rates and 

more flexible 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 and education through 

their YBS programs to help these borrowers be successful.

In 2016, System institutions used the 

following methods to help them make 

loans to young, beginning, and small 

farmers.

• Interest rate concessions —

offered to young and beginning 

farmers by more than 60 percent of 

associations and to small farmers 

by 54 percent. These percentages 

were consistent with 2015.
32

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Figure 9A, 9B, and 9C

Loans made to, and loans outstanding to, YBS farmers and ranchers, 2001 – 2016

Figure 9A

Young farmers and ranchers

Figure 9B

Beginning farmers and ranchers
33

Figure 9C

Small farmers and ranchers
34

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

• Customized or YBS-specific underwriting standards — offered by 

61 percent of associations to young 

farmers, by 59 percent to beginning 

farmers, and by 55 percent to small 

farmers. The percentage of associations that used this method for 

young farmers decreased in 2016, 

returning to the 2014 level. The 

percentages using this method for 

beginning and small farmers were 

similar to those in 2015.

• Concessionary loan fees — offered 

to young farmers by 36 percent of 

associations, to beginning farmers 

by 41 percent, and to small farmers 

by 35 percent of associations. These 

percentages were similar to those 

in 2015.

• Specifically designed loan covenants — offered to young farmers 

by 15 percent of associations, to 

beginning farmers by 16 percent, 

and to small farmers by 15 percent. 

These percentages slightly decreased from 2015.

• Personal Guarantors/Co-Signers 

— used by almost 60 percent of associations for young and beginning 

farmers and by over 50 percent of 

associations for small farmers. 

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, guarantees, or 

loan participations for YBS farmers. 

By partnering with these government 

programs, FCS institutions are able to 

better mitigate the credit risk to these 

borrowers.

In 2016, approximately 45 percent 

of System institutions used government loan participations for loans to 

young farmers, 43 percent used them 

for loans to beginning farmers, and 

41 percent of associations used them 

for loans to small farmers. All of these 

percentages were up from 2015.

Also, System institutions continued to 

use guarantee programs from federal, state, and local sources for YBS 

lending. In 2016, about 70 percent of 

associations — almost the same as in 

2015 — indicated they had obtained 

loan guarantees for YBS loans.

YBS program management

FCS institutions are using various approaches and sources of information 

to more effectively manage and assess 

their YBS programs. In 2016, they continued to develop mission statements 

that describe program objectives and 

quantitative measures for achieving 

those objectives.

Through their marketing plans, the 

majority of institutions identified new 

market segments and developed strategies and actions to market to these 

segments, which include YBS farmers 

and ranchers. The goal is to ensure that 

the institutions reach out to all demographics, geographic locations, and 

types of agriculture practiced in their 

territories. To measure performance of 

individual YBS programs, associations 

primarily used annual goals for loan 

volume and the number of loans made.

Many associations use advisory committees to provide input on credit and 

related services to best serve the needs 

of YBS farmers in their territories. The 

percentage of all associations using 

advisory committees went up from 40 

percent in 2015 to 50 percent in 2016. 

Advisory committees are composed of 

a variety of stakeholders, both internal 

and external. 

In general, these YBS advisory committees provide input to board members at least annually. In 2016, advisory 

committees provided valuable input 

that improved outreach efforts and 

services for YBS farmers; for example, 

some committees recommended additional loan programs and more educational efforts.

FCS institutions continued to provide 

training to staff on their YBS programs. 

In 2016, almost all associations (more 

than in 2015) provided training at 
35

least annually. In addition, associations 

continue to link YBS performance 

criteria to the performance evaluations 

of management and lending staff. 

Training, outreach, and education

Most System institutions offer opportunities to educate existing and 

potential YBS borrowers. In 2016, they 

developed or maintained comprehensive educational or outreach programs, 

sponsored seminars delivered by third 

parties, and sponsored local organizations that deliver education and 

training. Associations provide these 

opportunities by using the expertise of 

their own staff, by coordinating with 

other associations, and by partnering 

with district banks. 

FCS institutions continued to conduct 

new studies or market research in 2016 

to better understand the demographics and financial needs of current and 

potential YBS borrowers. The percentage of associations that completed or 

updated studies was comparable to 

2015, and the institutions that didn’t 

conduct studies in 2016 or 2015 relied 

upon either recently completed studies 

or the most recent Ag Census data to 

understand YBS demographics and 

financial needs in their territories.

System institutions use a variety of 

methods to train and educate current 

and potential YBS borrowers. YBS programs continue to evolve to meet the 

needs of changing agricultural markets. FCS programs are specialized for 

the YBS segment and are customized 

to meet the specific needs of YBS farmers through ongoing training and education. These YBS-specific programs 

cover such topics as the following:

• Production and risk management

• Business management, including 

financial recordkeeping

• Succession and estate planning

• Leadership and business start-up

In addition, System institutions continued to work with local groups, collaborating with colleges and universities 

and youth agricultural groups to foster 

continuing education. These organizations provided education in various 

ways: by providing online and in-person workshops and by disseminating 

information through social media and 

web-based resource centers.

Identifying and reaching potential 

YBS borrowers are key to fulfilling 

the System’s mission. FCS institutions 

continue to use a variety of methods to 

market to potential YBS borrowers. Institutions foster early relationships by 

partnering with state or national young 

farmer groups, colleges of agriculture, 

land-grant extension offices, state or 

national cooperative association leadership programs, local chapters of 4-H 

and FFA, Ag in the Classroom, and 

other agricultural organizations. These 

outreach, training, and educational activities include local and regional YBS 

food producers and supporters of local 

food systems, as well as producers who 

are veterans and members of minority 

groups.

Institutions reach out to these potential 

borrowers by providing grant money, 

participating in conferences related to 

local food markets, advertising in different languages and through diverse 

media hubs, and creating specific programs to enhance credit opportunities 

for all YBS borrowers.
36

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Regulatory Policy and Approvals

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.

Under the Law & Regulations tab, select FCA Regulations. Then from the 

menu on the left, select FCA Pending 

Regulations and Notices.

Governance

Freedom of Information Act (FOIA) 

regulations — The FCA board approved a final rule in September 2016 

to amend the regulations to reflect updates required by the FOIA Improvement Act of 2016.

Military Lending Act — We issued 

an informational memorandum to 

System institutions in February 2017 to 

provide information about the Military 

Lending Act, which protects active 

-duty members of the military, their 

spouses, and their dependents from 

certain lending practices.

New accounting standard on financial instruments – credit losses — We 

issued an informational memorandum 

to System institutions in September 

2016 to provide initial information 

about Accounting Standard Update 

No. 2016-13, Financial Instruments 

— Credit Losses (Topic 326): Measurement of Credit Losses on Financial 

Instruments.

Guidelines for proposals to merge 

or consolidate banks and associations — We issued an informational 

memorandum to System institutions 

in June 2016 to help ensure that initial 

merger requests contain all the necessary information.

Compensation for 2017 — We issued 

an informational memorandum in January 2017 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

Flood insurance — The FCA board 

approved a final rule in October 2016 

to amend the regulations on flood insurance to implement the private flood 

insurance provisions of the BiggertWaters Flood Insurance Reform Act of 

2012.

Personal and intangible property — 

We issued an informational memorandum to System institutions in August 

2016 to provide guidance on how collateral evaluation policies and procedures should address the evaluation of 

personal and intangible property that 

is taken as security for a loan.

Servicing loans to borrowers in 

distressed industries — We issued an 

informational memorandum to System institutions in January 2016 as a 

follow-up to the January 2015 memorandum titled “Portfolio Management 

in Volatile Times.” The 2016 memorandum expanded the discussion of the 

As the regulator of the Farm Credit 

System, we issue regulations, policy 

statements, and other guidance to 

ensure that the System, including its 

banks, associations, Farmer Mac, and 

other related entities, complies with 

the law, operates in a safe and sound 

manner, and efficiently carries out 

its statutory mission. Our regulatory 

philosophy is to provide 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. With our regulations, we seek to meet two general objectives. The first is to ensure that the 

System continues to be a dependable 

source of credit and related services for 

agriculture and rural America while 

also ensuring that System institutions 

comply with the law and with the 

principles of safety and soundness. The 

second is to promote participation by 

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

System institutions.

Regulatory activity in 2016

The following paragraphs describe 

some of FCA’s regulatory efforts in 

2016, along with several projects that 

will remain active in 2017. More information on these topics is available on 

our website. 
37

servicing of loans when industries are 

under widespread stress.

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

Capital requirements — The FCA 

board approved a final rule in March 

2016 to modify the regulatory capital 

requirements for System banks and associations. The purpose of the rule is to 

modernize capital requirements while 

ensuring that institutions continue to 

hold enough regulatory capital to fulfill 

their mission as a government-sponsored enterprise. The rule ensures that 

the System’s capital requirements are 

comparable to the Basel III framework 

and the standardized approach that the 

federal banking regulatory agencies 

have adopted, but it also recognizes the 

cooperative structure and the organization of the System.

Margin and capital requirements 

for swap entities — The FCA board 

approved an interagency final rule in 

June 2016 that finalizes the interim 

final rule to implement Title III of the 

Terrorism Risk Insurance Program 

Reauthorization Act of 2015. The rule 

exempts the noncleared swaps and 

noncleared security-based swaps of 

certain counterparties from the initial 

and variation margin requirements 

of the joint final rule on margin and 

capital requirements for covered swap 

entities.

Tier 1/tier 2 capital framework guidance — We issued an informational 

memorandum to System institutions in 

November 2016 to communicate our 

expectations for effective implementation of the tier 1/tier 2 capital regulations. In addition, the FCA board 

approved a bookletter in December 

2016 to clarify and interpret certain 

provisions of the final rule. 

Similar-entity authority — The FCA 

board approved a bookletter in March 

2016 that provides guidance to System 

institutions that purchase participations in loans originated by non-System lenders to qualified similar-entity 

borrowers.

Farmer Mac

Farmer Mac board governance and 

standards of conduct — The FCA 

board approved a final rule in July 2016 

that clarifies and strengthens existing 

regulations on Farmer Mac board governance and standards of conduct.

Farmer Mac investment eligibility

— The FCA board approved a proposed rule in January 2016 that would 

consider changes related to eligible 

investment asset classes and address 

the removal of references to credit ratings as required by section 939A of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act.

Other

National Oversight and Examination Program for 2017 — We issued 

an informational memorandum in 

September 2016 that summarized the 

National Oversight Plan for 2017. The 

plan detailed strategies for addressing 

critical risks and other areas of focus.

Corporate activity in 2016

In 2016 and early 2017, we analyzed 

and approved three corporate applications.

• On January 1, 2016, two agricultural credit associations (ACAs) 

affiliated with CoBank, ACB, 

merged their operations following 

stockholder approval. The production credit association (PCA) and 

federal land credit association 

(FLCA) subsidiaries associated 

with the ACAs also merged.

• On August 1, 2016, an ACA affiliated with the Farm Credit Bank of 

Texas relocated its headquarters.

• On January 1, 2017, two ACAs affiliated with CoBank merged their 

operations following stockholder 

approval. The PCA and FLCA subsidiaries associated with the ACAs 

also merged.

The total number of associations as of 

January 1, 2017, was 73 (71 ACAs and 

2 FLCAs), compared with 74 associations a year earlier. Figure 10 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.
38

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Figure 10

Chartered territories of FCS banks

Note: As of January 1, 2017, CoBank was funding 23 associations in the indicated areas and serving cooperatives nationwide; Farm Credit Bank of Texas was funding 14 

associations; AgriBank, FCB, was funding 17 associations; and AgFirst Farm Credit Bank was funding 19 associations. The FCS contains a total of 77 banks and associations.
39

Funding activity in 2016

During 2016, the System maintained 

reliable access to the debt capital 

markets. Investors were attracted by 

the System’s status as a governmentsponsored enterprise (GSE), as well as 

its long-term financial performance 

and strength.

Risk spreads and pricing on System 

debt securities during 2016 remained 

favorable for the System, with some 

instances of volatility relative to corresponding U.S. Treasuries. Demand for 

GSE debt increased because of regulatory changes promoting its use coupled 

with the continuing decline in debt 

issuances by the two housing-related 

government-sponsored enterprises, 

which are in conservatorship. As a 

result of the strong demand for System 

debt, the System was able to continue 

to issue debt on a wide maturity spectrum at very competitive rates.

The System funds loans and investments primarily with a combination 

of consolidated Systemwide debt and 

equity capital. The Funding Corporation, the fiscal agent for System banks, 

sells debt securities such as discount 

notes, bonds, designated bonds, and 

retail bonds on behalf of the System. 

This process allows funds to flow from 

worldwide capital-market investors to 

agriculture and rural America, thereby 

providing rural communities with 

efficient access to global resources. 

At year-end 2016, Systemwide debt 

outstanding was $257.8 billion, representing a 5.9 percent increase from the 

preceding year-end. 

Several factors contributed to the $14.5 

billion increase in Systemwide debt 

outstanding. Gross loans increased 

$12.9 billion in 2016, while the System’s combined investments, federal 

funds, and cash balances increased by 

$3.2 billion during the year.

The System had $2.50 billion in outstanding perpetual preferred stock at 

the end of 2016, $309 million more 

than at the previous year-end. It had 

$499 million in outstanding subordinated debt at year-end 2016, a decrease 

of $1.05 billion from year-end 2015. 

Some System institutions called their 

subordinated debt after FCA approved 

a new rule that changed the regulatory 

capital treatment of subordinated debt; 

the rule took effect on January 1, 2017.

As the System’s regulator, we have 

several responsibilities pertaining to 

System funding activities. The Farm 

Credit Act requires the System to obtain our approval before distributing or 

selling debt. We make it a high priority 

to respond efficiently to the System’s 

requests for debt issuance approvals. 

For example, we have a program that 

allows the System to issue discount 

notes at any time up to a maximum 

of $60 billion as long as it provides us 

with periodic reports on this activity. 

In addition, we approve the majority 

of longer-term debt issuances through 

a monthly “shelf ” approval program. 

For 2016, we approved $186.5 billion 

in longer-term debt issuances through 

this program.

The amount of debt issued by the System increased significantly in 2016. For 

the 12 months ended December 31, 

2016, the System issued $334 billion 

in debt securities, compared with $298 

billion for 2015, $330 billion for 2014, 

$377 billion for 2013, and $371 billion 

for 2012. The System issued more debt 

in 2016 primarily because it exercised 

more call options on its outstanding 

debt. Unsettling global events, as well 

as intermittent domestic economic 

concerns, caused significant volatility 

during the year, which created advantageous repricing opportunities for 

System callable debt. In fact, the $58 

billion in calls exercised during 2016 

was $5 billion more than the combined 

total for the two preceding years.

Favorable investor sentiment during 

2016 and a continuation of relatively 

low yields on the full spectrum of debt 

instruments allowed the System to 

access a wide range of debt maturities. 

Their weighted average of remaining 

maturity decreased by just over one 

month during 2016 to 2.7 years. The 

weighted-average interest rates for 

insured debt increased for a second 

consecutive year, going from 1.01 percent as of December 31, 2015, to 1.18 

percent as of December 31, 2016.

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 
40

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

requirements include Systemwide debt 

securities for which the bank is 

primarily liable, investment bonds, and 

other debt securities that the bank may 

have issued individually.

Furthermore, until recently, our regulations required each System bank to 

maintain a net collateral ratio (primarily assets divided by liabilities) of not 

less than 103 percent.3 We required 

certain System banks to maintain 

higher minimum net collateral ratios. 

Throughout 2016, all System banks 

kept their net collateral ratios above 

the required minimum, with 105.5 

percent being the lowest for any single 

bank as of December 31, 2016.

All System banks have kept their 

respective days of liquidity above the 

required minimum levels. The lowest 

liquidity levels at any single bank as of 

3.	 FCA’s	new	tier	1/tier	2	capital	regulations,	which	took	effect	on	January	1,	2017,	eliminated	the	net	collateral	ratio	for	the	banks.

December 31, 2016, were as follows:

• 22 days (15 days regulatory minimum) of Level 1 assets

• 52 days (30 days regulatory minimum) of Level 1 and 2 assets

• 117 days (90 days regulatory minimum) of Level 1, 2, and 3 assets

• 143 days overall (including the 

supplemental liquidity buffer)

In addition to the protections provided 

by the joint and several liability provision, the Funding Corporation and the 

System banks have entered into the following voluntary agreements.

• The Amended and Restated Market 

Access Agreement, which establishes certain financial thresholds 

and provides the Funding Corporation with operational oversight 

and control over the System banks’ 

participation in Systemwide debt 

obligations. 

• The Amended and Restated Contractual Interbank Performance 

Agreement, which is tied to the 

Market Access Agreement and 

establishes certain measures that 

monitor the financial condition 

and performance of the institutions 

in each System bank’s district. For 

all of 2016, all Farm Credit System 

banks maintained scores higher 

than the benchmarks in the Contractual Interbank Performance 

Agreement.
41

Maintaining a Dependable Source of Credit for 

Farmers and Ranchers

As federally chartered cooperatives, 

the banks and associations of the Farm 

Credit System are limited-purpose 

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

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 certain 

systemic risks into account.

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, or the 

parts of an institution’s operations, that 

present the greatest risk. This approach 

also considers the ability of an FCS 

institution 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 require 

FCS institutions to have the programs, 

policies, procedures, and controls to 

effectively identify and manage risks. 

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. Our oversight 

program also requires compliance with 

laws and regulations.

We use 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.

Identifying and responding to 

potential threats to safety and 

soundness

Because of the dynamics and risks in 

the agricultural and financial industries, FCA assesses whether FCS institutions have the culture, governance, 

policies, procedures, and management 

controls to effectively identify and 

manage risks. We employ various processes for evaluating certain 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:

• Intensifying credit risk — Deeper 

into the commodities cycle. The 

cycle of declining prices in certain 

key commodities continues with 

many affected producers projecting losses or limited profits in 2017. 

This situation increased credit and 

collateral risk in some agricultural 

sectors. Fortunately, System institutions currently have the financial 

capacity and risk-bearing ability to 
42

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

work with borrowers experiencing 

stress. In January 2016, FCA issued 

an Informational Memorandum 

on servicing loans to borrowers 

in distressed industries. As we 

explained in this memorandum, 

we expect System institutions to 

intensify loan servicing efforts as 

borrowers begin encountering increased stress and we noted this is 

occurring. Conditions in the farm 

economy, as well as the response of 

FCS institutions to borrower stress, 

will require close attention from 

FCA examiners.

• Implementing the New Capital 

Regulations. FCA adopted a final 

rule establishing new capital regulations. These regulations went into 

effect on January 1, 2017. The regulations modernize the capital requirements and ensure institutions 

will hold enough capital to fulfill 

their mission as a governmentsponsored enterprise and remain 

safe and sound. They also update 

the System’s capital requirements 

to make them comparable with the 

Basel III framework regulations 

of other federal banking agencies, and to meet the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act of 2010. We will 

assess the institutions’ strategies 

and internal controls that promote 

accurate capital reporting and 

compliance with the new capital 

regulations over the next year.

When we identify systemic issues, we 

inform institutions about those issues 

by producing the following:

• FCA board policy statements

• Bookletters

4.	 See	the	Glossary	for	a	complete	description	of	the	FIRS	ratings.

• Reports of examination

• Informational memorandums

We keep an online library of 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 banking 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 risks. These benchmarks help our 

examiners apply FIRS ratings consistently from one institution to the next.

Our examiners assign component and 

composite ratings to each institution 

on a scale of 1 to 5. A composite rating 

of 1 indicates an institution is sound in 

every respect. A rating of 3 means an 

institution displays a combination of 

financial, management, or compliance 

weaknesses ranging from moderate 

to severe. A 5 rating represents an extremely high immediate or near-term 

probability of failure.4

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 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 

association’s funding bank to ensure 

that the bank takes any actions necessary to address safety and soundness 

issues as it administers 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 11 shows, risks were higher 

in 2013 when stresses from the weather, price volatility, and the global economy affected some institutions. The 

ratings have improved since then, and 

the FIRS ratings on January 1, 2017, 

show that the financial condition and 

performance of the FCS was 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 January 1, 2017, 44 FCS institutions 

were rated 1 (57 percent), 31 were 

rated 2 (40 percent), and 2 were rated 

3 (3 percent). The institutions rated 3 

were less than 1 percent of the System’s 

total assets. There were no institutions 

with a 4 or 5 rating. (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 11.)
43

Figure 11

Financial Institution Rating System (FIRS) composite ratings for the FCS, 2013 – 2017

Source: FCA’s FIRS ratings database. 

Note: Figure 11 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.
44

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

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 institutions to 

take corrective action to mitigate the 

risks. Some corrective actions include 

reducing risk exposures, increasing 

capital and enhancing earnings, and 

strengthening risk management.

We use a three-tiered supervision 

program: normal supervision, special 

supervision, and enforcement actions.

Institutions under normal supervision 

are performing in a safe and sound 

manner and are complying with laws 

and regulations. These institutions are 

able to correct weaknesses in the normal course of business.

For those institutions displaying more 

serious or persistent weaknesses, we 

shift from normal to special supervision, and our examination oversight 

increases accordingly. Under special 

supervision, we give an institution 

clear and firm 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 conditions of the enforcement 

document and report back to us on its 

progress in addressing the issues identified. The document may require the 

institution to take corrective actions in 

such areas as financial condition and 

performance, portfolio management, 

asset quality, and institution management or governance. Our examiners 

oversee the institution’s performance 

to ensure compliance with the enforcement action. 

As of January 1, 2017, no FCS institutions were under enforcement action.

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. The act requires 

FCS institutions to notify borrowers of 

the right to seek restructuring of loans 

before the institutions begin foreclosure. It provides borrowers an opportunity to seek review of certain credit 

and restructuring decisions. The Farm 

Credit Act also provides borrowers the 

opportunity to buy or lease back their 

former agricultural properties when 

System institutions acquire the properties through foreclosure. FCA 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 2016, we 

received 42 borrower complaints. 

The number of complaints increased 

in 2016 with the decline in the farm 

economy.

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.
45

Condition of Farmer Mac

tively owned rural electrification 

and telecommunications systems.

• Institutional Credit, which involves 

Farmer Mac’s purchase or guarantee of collateralized bonds known 

as AgVantage securities. AgVantage 

bonds are general obligations of 

lenders that are secured by pools of 

eligible loans.

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 longterm standby purchase commitments 

(standbys) for eligible loans. Securities guaranteed by Farmer Mac may 

be held either by the originator of the 

underlying assets or by Farmer Mac, or 

they may be sold to third-party investors.

FCA regulates Farmer Mac through the 

Office of Secondary Market Oversight 

(OSMO), which was established by the 

Food, Agriculture, Conservation, and 

Trade Act Amendments of 1991. This 

office provides for the examination and 

general supervision of Farmer Mac’s 

safe and sound performance of its 

powers, functions, and duties.

The statute requires OSMO to be a 

separate office within our agency and 

to report directly to the FCA board on 

matters of policy. The law also stipulates that OSMO’s activities must, to 

the extent practicable, be carried out by 

individuals who are not responsible for 

supervising the banks and associations 

of the FCS.

Through OSMO, we perform the following functions:

• Examine Farmer Mac at least annually for capital adequacy, asset 

quality, management performance, 

earnings, liquidity, and interest rate 

sensitivity

• Supervise and issue regulations 

governing Farmer Mac’s operations

• Oversee and evaluate Farmer Mac’s 

safety and soundness and mission 

achievement

OSMO reviews Farmer Mac’s compliance with statutory and regulatory 

minimum capital requirements and 

supervises its operations and condition 

throughout the year. Table 5 summarizes Farmer Mac’s condensed balance 

sheets at the end of each calendar year 

from 2011 to 2016.

Farmer Mac is a stockholder-owned, 

federally chartered instrumentality of 

the United States and an institution 

of the Farm Credit 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 long-term 

credit at stable interest rates to America’s rural communities and to provide 

liquidity and lending capacity to rural 

lenders.

Farmer Mac conducts activities 

through four programs:

• Farm & Ranch (formerly Farmer 

Mac I), which involves mortgage 

loans secured by first liens on 

agricultural real estate and rural 

housing.

• USDA Guarantees (formerly 

Farmer Mac II), which involves 

certain agricultural and rural loans 

guaranteed by the U.S. Department 

of Agriculture, including farm 

ownership loans, operating loans, 

and rural business and community 

development loans.

• Rural Utilities Program, which 

involves loans to finance cooperaTable 5

Farmer Mac condensed balance sheets, 2011 – 2016

As of December 31

Dollars in millions

2011 2012 2013 2014 2015 2016 2015 – 2016

Total	assets $11,883.5 $12,622.2 $13,361.8 $14,287.8 $15,540.4 $15,606.0 0.4%

Total	liabilities $11,329.0 $12,029.2 $12,787.3 $13,506.0 $14,986.6 $14,962.4 –0.2%

Net	worth	or	equity	capital $554.5 $593.0 $574.5 $781.8 $553.7 $643.6 16.2%

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

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Capital

On December 31, 2016, Farmer Mac’s 

net worth (that is, equity capital 

determined using generally accepted 

accounting principles [GAAP]) was 

$643.6 million, compared with $553.7 

million a year earlier. Its net worth 

was 4.1 percent of its on-balance-sheet 

assets as of December 31, 2016, compared with 3.6 percent at the end of 

2015. Net worth went up primarily because of increases in retained earnings 

and accumulated other comprehensive 

income. The increase in accumulated 

other comprehensive income occurred 

largely because Farmer Mac reclassified $2.0 billion of its USDA-guaranteed securities from available-for-sale 

to held-to-maturity.

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

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

When Farmer Mac’s off-balance-sheet 

program assets (essentially its guarantee obligations) are added to its total 

on-balance-sheet assets, net worth was 

3.1 percent as of December 31, 2016, 

compared with 2.6 percent in 2015. As 

of December 31, 2016, Farmer Mac 

continued to be in compliance with 

all statutory and regulatory minimum 

capital requirements.

At year-end 2016, 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. As of December 31, 

2016, it totaled $609.7 million, exceeding the statutory minimum capital 

requirements5 of $466.5 million by 

$143.2 million or 30.7 percent.

Its regulatory capital (core capital plus 

allowance for losses) exceeded the 

required amount as determined by 

the Risk-Based Capital Stress Test.6 

Farmer Mac’s regulatory capital totaled 

$617.1 million as of December 31, 

2016, exceeding the regulatory riskbased capital requirement of $104.8 

million by $512.3 million.

Regulatory capital was 4.0 percent of 

total Farm & Ranch and Rural Utilities Program volume (including both 

on- and off-balance-sheet volume but 

excluding USDA guarantees). Risk 

exposure on USDA guarantee loans is 

very low because they are guaranteed 

by the U.S. Department of Agriculture. 

Table 6 offers a historical perspective 

on capital and capital requirements for 

2011 through 2016.

Table 6

Farmer Mac capital positions, 2011 – 2016

As of December 31

Dollars in millions

 2011 2012 2013 2014 2015 2016

GAAP	equity $554.5 $593.0 $574.5 $781.8 $553.7 $643.6

Core	capital $475.2 $519.0 $590.7 $766.3 $564.5 $609.7

Regulatory	capital $492.7 $535.9 $604.0 $776.4 $571.1 $617.1

Statutory	requirement $348.6 $374.0 $398.5 $421.3 $462.1 $466.5

Regulatory	requirement $52.9 $58.1 $90.8 $121.6 $72.2 $104.8

Excess	core	capital	over	statutory	

requirement*

$126.5 $145.0 $192.2 $345.0 $102.4 $143.2

Capital	margin	excess	over	the	minimum 36.3% 38.8% 48.2% 81.9% 22.2% 30.7%

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 model, whichever is higher.
47

We published a proposed rule in February 2016 governing eligibility criteria 

for Farmer Mac’s nonprogram investments. The proposed rule also includes 

revised creditworthiness standards; 

as required by the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, these standards will replace 

references to credit ratings in these 

regulations. We expect the final rule to 

be presented for FCA board action in 

mid-2017. 

We published a final rule in July 2016 

on Farmer Mac’s corporate governance 

and standards of conduct. The rule 

covers essential safety and soundness 

matters, including regulation, exami7.	 Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K.

nation and enforcement authorities, 

required board committees, risk management, internal controls reporting, 

and disclosure requirements. 

Program activity

Farmer Mac’s total program activity 

increased to $17.4 billion on December 31, 2016, from $15.9 billion a year 

earlier. (See figure 12.) Farmer Mac 

experienced steady growth in its Farm 

& Ranch loan purchases, as well as its 

AgVantage program. AgVantage bonds 

are general obligations of the issuing 

financial institution that are purchased 

or guaranteed by Farmer Mac. Each 

AgVantage security is secured by 

eligible loans under one of Farmer 

Mac’s programs in an amount at least 

equal to the outstanding principal 

amount of the security.

Off-balance-sheet program activity 

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

to investors. At the end of December 

2016, 28.1 percent of program activity 

consisted of off-balance-sheet obligations, as compared with 28.8 percent7 a 

year earlier.

Farmer Mac’s Long-Term Standby 

Purchase Commitment product is 

similar to a guarantee of eligible pools 

Figure 12

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.
48

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

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 under specified conditions at the 

option of the institution. As shown in 

figure 13, standbys represented 12.7 

percent of Farmer Mac’s total program 

activity in 2016.

Asset quality

Figure 14 shows Farmer Mac’s allowance for losses, its levels of substandard 

Farm & Ranch assets, and its 90-day 

delinquencies relative to outstanding 

program volume, excluding AgVantage 

loan volume.

On December 31, 2016, Farmer Mac’s 

allowance for losses totaled $7.4 

million, compared with $6.6 million 

on December 31, 2015. Of its Farm 

& Ranch program portfolio, $165.2 

million was substandard, representing 

2.69 percent of the principal balance of 

8.	 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.

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

This compares with $104.5 million, or 

1.83 percent, on December 31, 2015. 

Assets are considered to be substandard when they have a well-defined 

weakness or weaknesses that, if not 

corrected, are likely to lead to some 

losses.

As of December 31, 2016, Farmer 

Mac’s 90-day delinquencies decreased 

to $21.0 million, or 0.34 percent of 

non-AgVantage Farm & Ranch loans, 

compared with $32.1 million, or 0.56 

percent, as of December 31, 2015.

Real estate owned as of December 31, 

2016, was $1.53 million, up from $1.37 

million a year earlier. Farmer Mac 

reported no delinquencies in its pools 

of rural utility cooperative loans.

Earnings

Farmer Mac reported net income 

available to common stockholders 

of $64.2 million (in accordance with 

GAAP) for the year ended December 

31, 2016, up from $47.4 million reported at year-end 2015. Core earnings 

for 2016 were $53.8 million, compared 

with $47.0 million in 2015.8 Net interest income, which excludes guarantee 

fee income, was reported at $139.2 

million in 2016, up from $125.8 million in 2015. Guarantee fee income was 

$14.9 million, compared with $14.1 

million in 2015. Table 7 shows a sixyear trend for the basic components of 

income.

Figure 13

Farmer Mac total program activity

As of December 31, 2016

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

AMBS = agricultural mortgage-backed securities.
49

Figure 14

Allowance, nonperforming asset, and delinquency trends, 2011 – 2016

Dollars in millions

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

Table 7

Farmer Mac condensed statements of operations, 2011 – 2016

As of December 31

Dollars in millions

2011 2012 2013 2014 2015 2016

Growth rate 

2014 – 2015

Total	revenues $73.3 $122.0 $164.4 $103.6 $145.9 $160.8 10%

Total	expenses $59.5 $78.1 $92.5 $65.4 $98.5 $96.6 –2%

Net	income	available	to	

				common	shareholders

$13.8 $43.9 $71.8 $38.3 $47.4 $64.2 35%

Core	earnings $42.9 $49.6 $54.9 $53.0 $47.0 $53.8 14%

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K.
50

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Challenges Facing the Agricultural Economy and the 

Farm Credit System

• A build-up of inventory

• Lower farm prices

Although crop margins were either low 

or negative in 2016, record yields for 

corn, soybeans, and wheat resulted in 

higher-than-expected revenues. Perbushel margins were closer to breakeven than in the previous two years. 

Low feed costs benefited livestock producers, but record meat, broiler, and 

milk output drove down farm prices 

for livestock and livestock products. 

For 2016, producer margins were 

negative for cattle, mixed for hogs and 

dairy (depending on the month), and 

positive for broilers. For both crops 

and livestock products, slow economic 

growth in key export markets and the 

continued strength of the U.S. dollar 

limited gains in export sales, putting 

downward pressure on commodity 

prices.

For the farm sector as a whole, net 

cash income fell for a third consecutive 

year from the historic highs of 2013. 

USDA estimates that net cash income 

fell 12 percent in 2016. Government 

payments helped offset lower crop 

receipts.

Farmers continued to adjust to the 

lower income environment by cutting equipment purchases and other 

expenses, restructuring debt, and using 

lines of credit for operating expenses. 

U.S. farmers carrying large amounts of 

debt are increasingly likely to experience cash flow problems unless profits improve. A continuation of weak 

profits will likely result in more loan 

delinquencies and other credit quality 

issues for agricultural lenders in the 

coming year.

One risk factor for the farm sector in 

2017 is the cost of borrowing. Interest rates began edging up in 2016, 

and the expenses of farm borrowers 

may soon reflect these higher interest 

rates. About 57 percent of System loan 

volume will be repriced in 2017, and 

about a fourth of the volume is to be 

repriced within five years (see Figure 

15).

Major commodity prices

Over the past four years (2013 to 

2016), global production of the major 

crops has generally exceeded consumption. Nearly every year during 

this period, good weather (and higher 

acreage in many cases) generated 

record global crops of corn, soybeans, 

and wheat. Consumption and trade 

expanded as well, but not enough to 

prevent a buildup in world inventories 

and downward pressure on commodity prices. Average U.S. farm prices for 

these three crops dropped each year 

from record highs set in 2012, leading to declines in cash receipts and 

farm incomes. The only exception was 

an increase in soybean prices in 2016 

because of a shortfall in South American production. Farm prices for cotton 

and rice followed a similar downward 

trajectory although cotton prices rose 

in 2016 because of stronger foreign 

demand. 

On the basis of trend yields and potential shifts in acreage, USDA’s early 

forecast (made in May 2017) indicates 

The following paragraphs identify the 

key challenges facing the Farm Credit 

System and Farmer Mac and their ability to fulfill their missions. We discuss 

both the challenges encountered in 

2016 and those expected in 2017. We 

first discuss the challenges arising from 

the farm economy, then the challenges 

arising from the general economy.

The farm economy

A multiyear decline in farm profitability is challenging the agricultural sector in 2017. Margins for both crop and 

livestock producers remain under pressure. Challenges include rising interest 

rates and continued strength in the 

U.S. dollar. Another challenge is the 

uncertainty surrounding trade policy, 

which could produce either positive 

or negative effects for U.S. agriculture. 

Both domestic and global economies 

are expected to improve some in 2017, 

which would likely increase demand 

for U.S. farm products. 

The Farm Credit System portfolio’s 

credit quality remained favorable at the 

end of 2016 although several measures 

of quality slipped a bit. Fortified by 

solid earnings and a buildup of capital 

in recent years, the System appears to 

be in a good position to respond to an 

increase in farm economy stress.

The U.S. agricultural economy in 2016 

was shaped by several factors:

• Good weather for producing crops 

both in the United States and 

around the world

• Record U.S. crop yields
51

that U.S. farm prices for the 2017/18 

marketing year will be flat for corn, 

down for soybeans, and up for wheat. 

USDA also projects a rebound in South 

American corn and soybean production for crops harvested in 2017, which 

is expected to increase competition 

for U.S. exports throughout the rest 

of 2017 and into 2018. The multiyear 

weakness in crop prices has reduced 

margins and working capital for many 

producers.

In the animal sector, farm prices 

peaked two years later in 2014, after 

record-high grain prices had prompted 

livestock producers to scale back 

production. Since then, production 

has increased. Rising supplies in 2016 

resulted in a decline in farm prices for 

steers, hogs, broilers, and milk. The 

USDA outlook for 2017 is for record 

total meat and poultry production 

and record milk production. Prices for 

steers and hogs are expected to decline 

from their 2016 levels while broiler 

prices stay flat and milk prices rebound. A significant advantage for the 

livestock sector is the relatively strong 

domestic and export demand, which 

has supported farm prices in early 

2017. For the poultry sector, however, 

occasional U.S. outbreaks of avian influenza remain a source of uncertainty. 

Farm income

After significant declines in farm income between 2013 and 2016, USDA is 

forecasting mostly stable cash receipts 

and production expenses in 2017. Both 

crop and livestock receipts are expected to be mostly unchanged because 

individual commodities are expected 

to offset one another. For crops, a 

Figure 15

System loan volume by repricing interval

As of December 31, 2016

Source: 2016 Annual Information Statement of the Federal Farm Credit Banks Funding Corporation.
52

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

$1.4-billion decline in wheat receipts 

is expected to offset a $1.3-billion gain 

in cotton receipts. For animal (and 

animal product) receipts, cattle/calf 

receipts are forecast to be down $4.5 

billion, nearly offsetting a projected 

rise in milk receipts of $4.7 billion.

Farm production expenses are forecast 

to remain flat for 2017. Lower expenses 

for feed, livestock purchases, and 

fertilizer are expected to offset higher 

expenses for fuel, interest, and hired 

labor. 

When receipts and expenses are combined, U.S. net cash farm income is 

forecast to rise 1.8 percent in 2017 to 

$93.5 billion primarily because of the 

sale of 2016 crop inventories and an 

increase in farm-related income. When 

adjusted for inflation, net cash income 

is projected to be unchanged from 

2016 to 2017. 

Another aggregate measure, net farm 

income, which counts the value of inventories as part of prior-year income, 

is projected to be down 8.7 percent, 

the fourth consecutive year of declines 

after reaching a record high in 2013. 

Direct government farm program 

payments also continue to support net 

farm income although they are forecast 

to decline 4 percent to $12.5 billion in 

2017, or about 13 percent of net cash 

income.

While net cash income in inflationadjusted terms (2009 dollars) is down 

sharply in recent years from 2012’s 

high of nearly $129 billion, it is still 

near its long-run average of $83.7 billion. Figure 16 indicates that the farm 

economy’s real net cash income has 

fluctuated between $70 billion and $90 

billion. It also suggests that the sharp 

peaks in net cash income in the early 

1970s and in the period from 2011 to 

2014 were aberrations.

Cropland values 

Between 2009 and 2014, the U.S. average cropland value rose sharply as 

major crop prices soared. Then, after 

consecutive years of declining farm 

income, the average value leveled off 

in 2015 and softened in 2016, particularly in the nation’s midsection. USDA’s 

August 2016 land values report shows 

that U.S. cropland values fell 1 percent 

in 2016 (as of June), compared with 

increases of 7.6 percent in 2014 and 

just 0.7 percent in 2015.

Figure 16

Inflation-adjusted net cash income for the farm sector, 1960 – 2017

In billions of 2009 dollars

Source: USDA, World Agricultural Supply and Demand Estimates, May 10, 2016.
53

In the Corn Belt, cropland values 

declined modestly in 2016, with the 

largest drop occurring in Illinois, at 

2.6 percent. The Central and Northern 

Plains states also experienced declines 

for 2016, while small gains in cropland 

value were registered in most states in 

the Southern Plains, Southeast, and 

West.

The Federal Reserve Banks’ quarterly 

surveys of agricultural bankers show 

that, from the fourth quarter of 2015 

to the fourth quarter of 2016, cropland 

values declined 1 percent in the Chicago Federal Reserve District. Bankers 

in the Kansas City Federal Reserve 

District report nonirrigated cropland is 

down 6 percent from 2015, with values 

down 13 percent in Kansas. 

Most of the bankers surveyed expected 

farmland values to remain stable or 

decline in the first quarter of 2017. 

Large global supplies of agricultural 

commodities and continued pressure 

on farm prices are expected to reduce 

farm profits and therefore farmland 

bids. A rise in long-term interest rates 

over the next few years would put additional downward pressure on cropland values.

Some observers currently see farmland 

as “reasonably priced” because the 

capitalized value, defined as the rental 

rate divided by the 10-year Treasury 

rate, remains above the average land 

value in many areas. But the gap is 

narrowing and could easily evaporate 

with a sharp (albeit unexpected) rise 

in interest rates or a deterioration in 

profitability.

U.S. agricultural exports

USDA forecasts agricultural exports in 

fiscal year 2017 to rise to $136 billion, 

led by gains in bulk crops (e.g., wheat, 

corn, soybeans, and cotton), tree nuts, 

and animal products. This is up 5 percent from FY 2016 and a turnaround 

from two consecutive years of declines caused by slow world economic 

growth, a strong U.S. dollar, lower 

exports of high-value products, and 

falling prices for bulk commodities. In 

FY 2017, improved global economic 

conditions have generated additional 

demand, but export competition 

remains keen because of large global 

stocks of most commodities. 

By commodity group, USDA projects 

a 13 percent gain in FY 2017 for bulk 

crops. The largest dollar gains are projected for soybeans following a 2016 

production shortfall in South America 

and for cotton because of improved 

foreign demand by China, Vietnam, 

and several other countries. Horticultural exports are up 3 percent, with 

gains in tree nuts more than offsetting 

small declines in fruits and vegetables. 

On a volume basis, most bulk crops 

(and their products) are forecast to increase except for soybean meal and oil, 

and feeds and fodders such as distillers 

dried grains.

The value of animal product exports 

for FY 2017 is expected to rise 10 

percent. All livestock categories are 

expected to rise as export volume increases. Larger meat supplies and lower 

prices have spurred purchases of U.S. 

products by foreign consumers.

Worldwide economic conditions are 

important to U.S. agricultural export 

demand. Global growth in per capita 

gross domestic product is expected to 

increase from 1.2 percent in 2016 to 

1.6 percent in 2017. An acceleration is 

expected in key agricultural markets, 

including Canada and Mexico, while 

growth is expected to remain above 5 

percent for China. 

Another key export driver is the value 

of the U.S. dollar, which has increased 

substantially since early 2014 relative 

to the currencies of many U.S. agricultural customers and competitors. 

According to USDA, the agricultural 

exports-weighted dollar value index is 

expected to maintain its strength, with 

a 3.7 percent appreciation in 2017. This 

raises the cost of U.S. goods to importing countries and makes competitor 

products a better bargain.

Besides economic growth and exchange rates, trade policy can also affect U.S. agricultural exports. Changes 

in trade policy resulting from recently 

announced U.S. plans to enter into 

trade negotiations with major trading 

partners could have either positive or 

negative effects for U.S. agriculture, 

depending upon the commodity and 

changes in market access or other 

terms of trade.

Regardless of the source of export 

uncertainty, trade disruptions or even 

moderate shifts in export demand that 

create large price impacts can easily 

affect farm borrowers and the Farm 

Credit System. The severity depends on 

the importance of exports for an indi-
54

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

The general economy

Economic growth

Real gross domestic product (GDP) 

for the U.S. economy grew 1.6 percent 

in 2016, slower than the increase of 

2.6 percent in 2015. (See figure 17.) 

The growth in real GDP was driven 

primarily by personal consumption 

expenditures, residential fixed investment, exports, federal government 

spending, and state and local government spending. Downturns in private 

inventory investment and nonresidential fixed investment, combined with 

import growth and slower growth in 

personal consumption expenditures, 

contributed to slower GDP growth.

Figure 17

U.S. real GDP growth, 2009 dollars, quarterly

Seasonally adjusted annualized rate

Source: FCA’s Office of Regulatory Policy, based on data from the U.S. Department of Commerce, Bureau of Economic Analysis.

Note: The long-term rate, which is the average real GDP for 1947 to 2016, is 3.2 percent.

The March 2017 consensus forecast 

from Consensus Economics projects 

real GDP for the U.S. economy to 

increase to 2.2 percent for 2017. Real 

personal consumption is projected to 

increase by 2.7 percent, real government consumption is projected to increase by 0.5 percent, and real business 

investment is projected to increase by 

3.2 percent in 2017.

Real net exports are calculated by 

deducting imports from exports; 

therefore, a negative real export balance indicates that imports exceeded 

exports. Real net exports totaled 

−$562 billion in 2016, and imports are 

expected to further outpace exports in 

2017, with real net exports forecast at 

−$639 billion.

vidual commodity and the prevalence 

of that commodity in the System’s 

loan portfolio. For example, soybean 

exports account for nearly half of that 

crop’s production, and the cash grains 

category (which includes soybeans) 

accounts for 17 percent of the System’s 

loan portfolio. For individual System 

associations, the portfolio shares can 

be substantially higher for specific 

commodities, so exposure at the association level can be greater than for the 

System as a whole. 
55

Employment prospects

Overall, the labor market strengthened further in 2016, but the pace of 

improvement slowed. Payroll employment averaged about 187,000 new jobs 

per month in 2016, almost 39,000 jobs 

per month slower than in 2015. In February 2017, about 235,000 jobs were 

created. The average job growth over 

the first two months of 2017 is right 

in line with the pace for the first two 

months of 2015 and is considerably 

higher than the same period in 2016. 

The number of people filing for unemployment claims has also declined. For 

the week ended March 25, 2017, the 

four-week moving average of seasonally adjusted initial unemployment 

claims was 254,250. The moving average has remained below 300,000 since 

March 2015. The last time the fourweek moving average remained below 

300,000 for this long was the early-tomid 1970s. 

In 2016, the unemployment rate 

declined from 4.9 percent in January 

to 4.7 percent in December 2016, and 

averaged 4.9 percent for the year. The 

unemployment rate in February 2017 

remained relatively unchanged at 4.7 

percent. The consensus forecast from 

Consensus Economics projects a slight 

decline in the unemployment rate for 

2017 to 4.6 percent.

The labor force participation rate is the 

percentage of adult Americans working 

or actively looking for a job. The annual average participation rate increased 

slightly from 62.7 percent in 2015 to 

62.8 percent in 2016. In February 2017, 

the labor force participation rate was 

63.0 percent. This is a 0.1 percentage 

point increase over the prior month 

and 0.2 percentage points higher than 

the 2016 average.

Wages have shown gradual improvement over the past year. In December 

2016, the average hourly earnings for 

all employees on private nonfarm payrolls increased by 2.9 percent over the 

year to $26. In December 2016, growth 

in the employment cost index for the 

wages and salaries of workers in private 

industry increased by 2.2 percent over 

the year — slightly faster than the 1.9 

percent year-over-year increase in December 2015. The consensus forecast 

from Consensus Economics projects 

employment costs to increase by 2.5 

percent in 2017. 

Employment in nonmetropolitan 

areas

According to USDA, unemployment 

in nonmetropolitan areas continues to 

decline and has fallen close to prerecession levels. The rural population 

also stabilized in 2015. Between 2010 

and 2014, the rural population declined by 0.3 percent and remained 

stable in 2015. Meanwhile, rural employment has risen modestly. Seasonally adjusted rural employment grew 

0.5 percent over the first half of 2016 

but still remains below pre-recession 

levels. The labor force participation 

rate has also shown a modest increase 

in nonmetropolitan areas.

Consumer price inflation

Inflation affects agriculture by raising 

input costs, curbing consumer demand 

for high-value products (dairy, meat, 

and processed foods), and reducing 

consumption of food away from home. 

Greater inflationary pressures also 

increase the likelihood of higher longterm interest rates. In 2016, the consumer price index (CPI) for all items 

increased 2.1 percent before seasonal 

adjustments. This is a larger increase 

than the 0.7 percent increase in 2015. It 

is also higher than the average increase 

over the past 10 years of 1.8 percent. 

Increases in energy prices contributed to higher total inflation. The 

CPI energy price index increased 5.4 

percent in 2016 — following declines 

in both 2014 and 2015. While energy 

prices increased in 2016, food prices 

declined. As shown in the table below, 

all six major grocery store food group 

indexes declined in 2016.

Table 8

Price declines by index of grocery store food group from 2015 to 2016

Grocery store food group index Percentage decline in 2016 

Meats,	poultry,	fish,	and	eggs 5.4

Fruits	and	vegetables 2.4

Dairy	and	related	products 1.3

Nonalcoholic	beverages 0.9

Cereals	and	bakery	products 0.7

Other	food	at	home 0.3
56

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

The index for food away from home 

again rose in 2016. The increase of 2.3 

percent in 2016 was preceded by an 

increase of 2.6 percent in 2015. Over 

the past 10 years, average growth was 

2.3 percent. 

The core CPI (excluding food and 

energy prices) increased by 2.2 percent in 2016 — this is 0.1 percentage 

points higher than in 2015. Core CPI 

increased 0.2 percent in February 2017, 

with a year-over-year increase of 2.2 

percent. The forecast from Consensus 

Economics for the change in total CPI 

is 2.5 percent for 2017.

An alternative measure of price 

inflation is the price index for personal consumption expenditures. The 

Federal Reserve uses this measure to 

target inflation for policy decisions. 

The index for personal consumption 

expenditures includes a broader range 

of expenditures than the CPI and 

is based on business surveys rather 

than the consumer surveys used for 

CPI. Like core CPI, the core index for 

personal consumption expenditures 

excludes food and energy prices, which 

are more volatile. In 2016, this index 

increased by 1.5 percent — 1.1 percentage points more than in 2015.

Overall, inflation has increased over 

the past year and moved closer to the 

Federal Reserve’s long-term target level 

of 2.0 percent. With inflation close to 

target levels and strength in the labor 

market, the Federal Reserve decided 

in March 2017 to raise the target 

range for the federal funds rate to 0.75 

percent to 1.0 percent. It has begun to 

slowly tighten monetary policy and to 

raise expectations for future interest 

rate increases. 

The Federal Reserve has also indicated that it may begin shrinking its 

balance sheet in 2017. Following the 

2009 recession, its holdings increased 

significantly when it purchased longermaturity securities and began a policy 

of reinvesting the proceeds of these 

purchases. As the Federal Reserve divests itself of these holdings or changes 

its policy regarding reinvestment, 

changes in longer-term interest rates 

could occur.

Housing sector

According to the Federal Housing 

Finance Agency, the seasonally adjusted house price index increased by 

6.2 percent from the fourth quarter 

of 2015 to the fourth quarter of 2016. 

Home prices rose in 46 states and 

Washington, D.C., during 2016. The 

top five states in annual appreciation 

were Oregon, Colorado, Florida, Washington, and Nevada. Housing starts 

are estimated to have increased by 4.9 

percent in 2016 or 1.17 million homes. 

The consensus forecast from Consensus Economics for housing starts is 

1.27 million homes in 2017.

International trade

The U.S. dollar has been strengthening since 2011 and began appreciating 

more rapidly in mid-2014. It continued 

to strengthen through 2016 as the U.S. 

economy advanced, interest rates in 

the United States started to rise, and 

expectations of further increases in 

interest rates began to materialize. As 

the currency appreciates relative to 

the currencies of trade partners, U.S. 

imports tend to go up, and U.S. exports 

tend to go down.

In the first months of 2017, the dollar 

weakened slightly. The March 2017 

trade-weighted U.S. dollar index level 

was 125.26, which is slightly lower than 

the November 2016 level. Still, the dollar remains strong and poses continued 

challenges for international trade. 

In January 2017, the U.S. total goods 

and services deficit was $48.5 billion. 

This is a year-over-year increase of 

$5.1 billion — meaning the value of 

imported goods and services increased 

relative to exports. Driving this change 

is a $13.3 billion increase in exports 

(7.4 percent growth), which was outpaced by an $18.4 billion increase in 

imports (8.3 percent growth). Because 

imports increased more than exports, 

net exports declined. The largest trade 

deficits for the United States exist with 

China and the European Union; the 

largest trade surpluses exist with South 

and Central America and Hong Kong.

Household and business borrowing

The results of the Federal Reserve’s 

January 2017 Senior Loan Officer 

Opinion Survey on Bank Lending 

Practices show that bank standards 

on commercial and industrial loans 

remained relatively unchanged while 

standards on commercial real estate 

loans were tightened over the fourth 

quarter of 2016. 

Demand for commercial and industrial 

loans remained relatively unchanged 

in the fourth quarter while demand for 

lines of credit increased. Demand for 

commercial real estate loans showed 

some signs of weakening in the fourth 

quarter. Banks indicated that standards 

on residential mortgage loans remain 

relatively unchanged, while demand 

for most types of home-purchase loans 

weakened. 
57

Banks also indicated that they expect 

to see improvements in asset quality 

for commercial and industrial loans, 

as well as residential real estate loans, 

in 2017. Therefore, they expect to relax 

underwriting standards on these loans. 

However, banks expect asset quality 

to remain relatively unchanged on 

commercial real estate loans, and they 

expect to tighten standards on these 

loans. 

In the fourth quarter of 2016, household debt service payments as a 

percentage of disposable income was 

9.98 percent and has varied little since 

mid-2013. The peak value was in the 

fourth quarter of 2007 at 13.21 percent. 

From December 31, 2015, to December 31, 2016, homeowner’s equity in 

real estate increased by 10.9 percent. 

The last year-over-year decline (a drop 

of 4.2 percent) occurred in the second 

quarter of 2011. In the fourth quarter 

of 2008, the decline was 35.1 percent.

Federal deficit

The annual deficit for fiscal year 2016 

was $587 billion — approximately 34 

percent more than the $438 billion 

deficit in 2015. In 2016, the deficit 

totaled 3.2 percent of GDP. Driven by 

increases in mandatory, discretionary, and net interest spending, federal 

spending outpaced revenue growth in 

2016, rising to 20.9 percent of GDP. 

According to the Congressional Budget 

Office (CBO), the deficit is projected to 

decrease by $29 billion to $559 billion 

in fiscal year 2017. The deficit as a percentage of GDP is expected to decrease 

to 2.9 percent, which is a 0.3 percentage point decrease from 2016. 

Debt held by the public increased by 

$1.1 trillion to $14.2 trillion in 2016. 

This increase amounted to 77 percent 

of GDP, about a 4 percent increase over 

2015. In 2017, debt held by the public 

as a percentage of GDP is expected 

to increase to 77.5 percent for a total 

of $14.8 trillion. According to the 

CBO, debt at these levels could have 

significant consequences for both the 

economy and the federal budget. When 

interest rates increase, federal spending 

on interest payments may rise considerably. Therefore, any increases in the 

interest rates in 2017 may drive up the 

federal deficit even higher in 2017. 

Federal borrowing also reduces national savings over time and would 

result in a lower net investment, lower 

productivity, and lower total wages. 

Fiscal policy could also become more 

constrained in its response to unexpected economic events. The likelihood of a fiscal crisis in the United 

States would increase if investors demand significantly higher interest rates 

to compensate them for the additional 

risk of financing the government debt 

at higher levels.

Farm Credit System portfolio 

Total System loan volume grew 5.5 

percent in 2016. Loan volume grew in 

many commodity categories; however, 

growth in loans to the cash grains and 

cattle sectors was below the Systemwide average. Profits were down in 

2016 for both of these sectors.

Lending to finance production inputs, 

inventories, equipment, and real estate 

purchases increased even though commodity prices declined. Mortgage loan 

volume grew because of continued 

demand for farmland. Also, growth 

in loans to cooperatives, marketing 

and processing operations, and rural 

utilities (particularly to electric power 

utilities) contributed to overall loan 

growth.

Portfolio quality remained favorable 

but declined modestly during the year. 

At the end of 2016, 94.5 percent of System loans were classified as acceptable, 

down 1.5 percentage points from a year 

earlier. The largest change in quality 

was for production and intermediateterm lending, for which the share of 

acceptable loans fell 3.5 percentage 

points. In comparison, for real estate 

loans, acceptable volume declined by 

just 1.4 percentage points. 

After declining for six years, nonaccrual loans bounced up in 2016, reflecting the increase in stress in the farm 

economy, particularly for grain, dairy, 

and cattle operations. The System 

reported $2.0 billion in nonperforming 

loans at year-end, or 0.79 percent of 

total System loans, compared with $1.6 

billion in the prior year (0.69 percent). 

Still, the current percentage is well below the peak in 2009 when the nonperforming share of System loans was 2.14 

percent. The System also reported $45 

million in net charge-offs on loans, up 

from $37 million the prior year.

Overall, the System remains in a strong 

financial position despite modest 

declines in credit quality as farmers 

continue to adjust to low or negative 

profit margins. 
58

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Appendix

Figure 18

FCA organizational chart

As of May 2017
59

Farm Credit Administration 

offices

As of December 31, 2016, FCA had 

311 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 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 Chief Operating Officer has 

broad responsibility for planning, 

directing, and controlling the operations of the Offices of Agency Services, 

Examination, Regulatory Policy, and 

General Counsel in accordance with 

the operating philosophy and policies 

of the FCA board. He or she supervises 

and provides policy direction to the 

executive staff responsible for managing these offices. The COO oversees 

and coordinates the development and 

implementation of the agencywide 

strategic, operating, and budget plans 

and activities. The COO also coordinates the resolution of internal policy, 

personnel, and program issues with 

agency executive leadership and the 

FCA board. 

The Office of Agency Services, which 

was created in April 2016, manages 

human capital and administrative 

services for the agency. This includes 

providing the following services to the 

agency: staffing and placement, job 

evaluation, compensation and benefits, 

payroll administration, performance 

management and awards, employee 

relations, employee training and development, contracting, acquisitions, 

records and property management, 

supply services, agency purchase cards, 

design, publication, and mail service.

The Office of the Chief Financial Officer, which was created in April 2016, 

manages and delivers timely, accurate, 

and reliable financial services to the 

agency. The office establishes financial 

policies and procedures and oversees 

the formulation and execution of the 

agency’s budget. The office reports periodically on the status of the agency’s 

financial position, results of operations, and budgetary resources. It also 

oversees the agency’s travel management, internal controls, and personnel 

security programs.

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 
60

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

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 the 

Farm Credit Act and general corporate, 

personnel, ethics, and administrative 

matters. OGC supports the agency’s 

development and promulgation of 

regulations, enforcement of applicable 

laws and regulations, and implementation of conservatorships and receiverships. The office represents and advises 

the agency on civil litigation. It also 

serves as the liaison to the Federal 

Register, administers the agency’s ethics program, and handles Freedom of 

Information Act requests.

The Office of Information Technology 

(OIT), which was created in June 2015, 

manages and delivers the agency’s information technology, data analysis infrastructure, and the security supporting agency technology resources. The 

office is responsible for the planning 

and control of information technology 

investments and leading change to improve the efficiency and effectiveness of 

agency operations. OIT is responsible 

for continuing to leverage FCA’s investment in technology by collaborating 

across agency offices to identify and 

re-engineer business processes. OIT 

provides strategies to collaborate across 

offices on business intelligence tools 

to develop analysis models to meet the 

strategic needs of the agency.

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 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.

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 Office of Equal Employment 

Opportunity and Inclusion manages 

and directs the diversity, inclusion, and 

equal employment opportunity (EEO) 

program for FCA and FCSIC. The office serves as the chief liaison with the 

Equal Employment Opportunity Commission and the Office of Personnel 

Management on all EEO, diversity, and 

inclusion issues. The office provides 

counsel and leadership to agency management to carry out its continuing 

policy and program of nondiscrimination, affirmative action, and diversity.

The Designated Agency Ethics Official is designated by the FCA chairman to administer the provisions of 

title I of the Ethics in Government Act 

of 1978, as amended, to coordinate and 

manage FCA’s ethics program and to 

provide liaison to the Office of Government Ethics with regard to all aspects 

of FCA’s ethics program.
61

Agency officials

William J. Hoffman is chief operating 

officer. During Mr. Hoffman’s tenure as 

FCA’s COO (from 2008 to the present), 

the agency has issued several significant final rules, including a rule that 

updates and modernizes the agency’s 

capital regulations and a rule requiring 

System institutions to include strategies in their business and marketing 

plans that emphasize diversity and 

inclusion. As COO, Mr. Hoffman has 

also supported diversity and inclusion 

programs and events at FCA. Before 

taking this position, Mr. Hoffman was 

executive assistant to 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. 

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. Before joining FCA in 2004, he was involved in 

agricultural finance in the private sector and several international projects.

S. 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.

Elizabeth M. Dean is 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.
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Farm Credit Administration 2016 Annual Report on the Farm Credit System 

A. Jerome Fowlkes is chief human 

capital officer and director of the Office 

of Agency Services. Previously, from 

April to October 2016, he served as 

acting director of the Office of Agency 

Services. From March 2014 to April 

2016, he served as deputy director of 

the Office of Management Services. 

From September 2012 to March 2013, 

he served as the associate director and 

team leader of the Credit and Mission Team in the Office of Regulatory 

Policy. He joined FCA in 2010 as a 

senior financial analyst. Before that, he 

managed a portfolio of venture capital 

loans and investments for the Small 

Business Administration’s Office of 

Liquidation and was responsible for 

negotiating and collecting outstanding 

obligations from portfolio companies. 

He has served as a commercial lender 

and vice president at the predecessors 

to Bank of America and SunTrust. 

He has also worked as an investment 

banker at BIA Capital Strategies. He 

holds an MBA from the College of 

William and Mary and a B.S. in finance 

from Virginia Tech.

Jerald Golley is chief information 

officer and director of the Office 

of Information Technology. Before 

joining FCA in November 2015, Mr. 

Golley had 25 years of IT management experience. Most recently, he 

was the deputy CIO for the Commodity Futures Trading Commission 

for six years. In 1996, he founded 

AMI Technical Consultants, Inc., 

a software development, internet 

hosting, and technical consulting company based in Denver; he 

served as CEO there until 2009. He 

began his career as a programmer 

and geographic information system 

specialist at American Management 

Systems in Rosslyn, Virginia, where 

he worked from 1990 to 1994. Mr. 

Golley served in the 101st Airborne 

Division of the U.S. Army based out 

of Ft. Campbell, Kentucky, from 1982 

to 1984. He holds a bachelor’s degree 

in geography, with a minor in computer science from the State University of New York at Oneonta, as well 

as a Master of Arts in geography and 

geographic information systems from 

the State University of New York at 

Binghamton.

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.
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. From 

2005 until 2011, Ms. Rea 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.

Stephen G. Smith is chief financial 

officer and director of the Office of 

the Chief Financial Officer. Previously, from 2005 to 2016, he served as 

the agency’s director of the Office of 

Management Services. From 2001 to 

2005, he served as the agency’s inspector general. He joined FCA in 1981 

as a technical specialist. He is a commissioned FCA examiner and served 

in several leadership roles, including 

associate regional director for the Albany, New York field office, senior staff 

director for the chief examiner, and director of the Technical and Operations 

Division. In 1993, he assumed 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 Association.

Michael Stokke is director of the 

Office of Congressional and Public Affairs. 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.
64

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

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 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.

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 ChurchillEarp 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.
65

Philip J. Shebest is the designated 

agency ethics official (DAEO). As 

DAEO, Mr. Shebest administers the 

ethics program for FCA and the Farm 

Credit System Insurance Corporation. 

In addition to serving as DAEO, Mr. 

Shebest is an assistant general counsel 

in the Office of General Counsel and 

the agency contracts officer. While at 

FCA, he has held the position of alter-

nate DAEO, as well as acting general 

counsel, chief administrative officer 

and chief human capital officer. Prior 

to joining FCA in 1990, Mr. Shebest 

was a senior attorney with the Drug 

Enforcement Administration and a 

lieutenant in the U.S. Navy Judge Ad-

vocate General’s Corps. A graduate of 

East Stroudsburg University of Penn-

sylvania and Temple School of Law, he 

is a member of the Pennsylvania bar, as 

well as a certified mediator. 
66

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Glossary

Agricultural Credit Association —

An ACA results from the merger of 

a federal land bank association (or a 

federal land credit association) 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.

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 farmerowned cooperatives. The last remaining BC in the FCS, the St. Paul Bank 

for Cooperatives, merged with CoBank 

on July 1, 1999.

Farm Credit Act — The Farm Credit 

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

§§ 2001 – 2279cc) is the statute under 

which the FCS operates. The Farm 

Credit Act recodified all previous acts 

governing the FCS.

Farm Credit Bank — FCBs provide 

services and funds to local associations 

that, in turn, lend those funds to farmers, ranchers, producers and harvesters 

of aquatic products, rural residents for 

housing, and some agriculture-related 

businesses. On July 6, 1988, the Federal 

Land Bank and the Federal Intermediate Credit Bank in 11 of the 12 thenexisting 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’ short- and intermediate-term notes made by commercial banks, livestock loan companies, 

and thrift institutions. The Farm Credit 

Act of 1933 authorized farmers to 

organize PCAs, which could discount 

notes with FICBs. As a result, PCAs 

became the primary entities for delivery of short- and intermediate-term 

credit to farmers and ranchers. The 

FICBs and the federal land banks in all 

Farm Credit System districts merged 

to become FCBs or the ACB. Thus, no 

FICBs remain within the FCS.

Federal Land Bank — The Federal 

Farm Loan Act of 1916 provided for 

the establishment of 12 federal land 

banks to provide long-term mortgage 

credit to farmers and ranchers, and 

later to rural home buyers. All federal 
67

land banks and FICBs have merged to 

become FCBs or part of the ACB. Thus, 

no federal land banks remain.

Federal Land Bank Association — 

These associations were lending agents 

for FCBs before they received their affiliated banks’ direct-lending authority 

to make long-term mortgage loans to 

farmers, ranchers, and rural residents 

for housing. As lending agents, the associations did not own loan assets but 

made loans only on behalf of the FCBs 

with which they were affiliated. As of 

October 1, 2000, all active federal land 

bank associations had received directlending authority and did not serve as 

lending agents for FCBs.

Federal Land Credit Association — 

An FLCA is the regulatory term FCA 

uses for a federal land bank association 

that owns its loan assets. An FLCA 

borrows funds from an FCB to make 

and service long-term loans to farmers, 

ranchers, and producers and harvesters of aquatic products. It also makes 

and services housing loans for rural 

residents.

Financial Institution Rating System 

— The FIRS is similar to the Uniform 

Financial Institutions Rating System 

used by other federal banking regulators. However, unlike the Uniform Financial Institutions Rating System, the 

FIRS were designed to reflect the no 

depository 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 
68

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

cause for regulatory concern and 

require more than normal supervision to address deficiencies. Overall 

strength and financial capacity, 

however, still make failure only a 

remote possibility if corrective actions are implemented.

Rating 4 — Institutions in this 

group have an immoderate number 

of serious financial or operating 

weaknesses. Serious problems or 

unsafe and unsound conditions exist that are not being satisfactorily 

addressed or resolved. Unless effective actions are taken to correct 

these conditions, they are likely to 

develop into a situation that will 

impair future viability or constitute 

a threat to the interests of investors, borrowers, and stockholders. Risk management practices 

are generally unacceptable for the 

size, complexity, and risk profile 

of each institution in this group. A 

potential for failure is present but is 

not yet imminent or pronounced. 

Institutions in this category require 

close regulatory attention, financial 

surveillance, and a definitive plan 

for corrective action.

Rating 5 — This category is 

reserved for institutions with an 

extremely high, immediate or nearterm probability of failure. The 

number and severity of weaknesses 

or unsafe and unsound conditions 

are so critical as to require urgent 

external financial assistance. Risk 

management practices are inadequate for the size, complexity, 

and risk profile of each institution 

in this group. In the absence of 

decisive corrective measures, these 

institutions will likely require liquidation or some form of emergency 

assistance, merger, or acquisition.

Government-sponsored enterprise —

A GSE is typically a federally chartered 

corporation that is privately owned, 

designed to provide a source of credit 

nationwide, and limited to servicing 

one economic sector. Each GSE has 

a public or social purpose. GSEs are 

usually created because the private 

markets did not satisfy a purpose that 

Congress deems worthy — either to 

fill a credit gap or to enhance competitive behavior in the loan market. Each 

is given certain features or benefits 

(called GSE attributes) to allow it to 

overcome the barriers that prevented 

purely private markets from developing. The FCS is the oldest financial 

GSE.

Participation — A loan participation 

is usually a large loan in which two or 

more lenders share in providing loan 

funds to a borrower to manage credit 

risk or overcome a legal lending limit 

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

documents the loan. Generally, the 

borrower deals with the institution 

originating the loan and is not aware of 

the other participating institutions.

Production Credit Association —

PCAs are FCS entities that deliver only 

short- and intermediate-term loans to 

farmers and ranchers. A PCA borrows 

money from its FCB to lend to farmers. 

PCAs also own their loan assets. As of 

January 1, 2003, all PCAs were eliminated as independent, stand-alone, 

direct-lender associations. All PCAs 

are now subsidiaries of ACAs.

Syndication — A loan syndication (or 

“syndicated bank facility”) is a large 

loan in which a group of banks work 

together to provide funds for a borrower. Usually one bank takes the lead, 

acting as an agent for all syndicate 

members and serving as the focal point 

between them and the borrower. All 

syndicate members are known at the 

outset to the borrower and they each 

have a contractual interest in the loan.
69

Acronyms and abbreviations

ACA — agricultural credit association

ACB — agricultural credit bank

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

CEO — chief executive officer

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

Farmer Mac — Federal Agricultural Mortgage Corporation

FCA — Farm Credit Administration

FCB — farm credit bank

FCS — Farm Credit System

FCSIC — Farm Credit System Insurance Corporation

FIRS — Financial Institution Rating System

FLCA — federal land credit association

GAAP — generally accepted accounting principles

OFIs — other financing institutions

PCA — production credit association

USDA — U.S. Department of Agriculture

YBS — young, beginning, and small (farmers and ranchers)
70

Farm Credit Administration 2016 Annual Report on the Farm Credit System 

Additional information

The Farm Credit Administration 2016 Annual Report on the Farm Credit System is available on FCA’s website at 

www.fca.gov. For questions about this publication, contact FCA:

Office of Congressional and Public Affairs

Farm Credit Administration

1501 Farm Credit Drive

McLean, VA 22102-5090

Telephone: 703-883-4056

Fax: 703-790-3260

Email: info-line@fca.gov

With support from the system banks, the Federal Farm Credit Banks Funding Corporation prepares the financial press 

releases, the System’s Annual and Quarterly Information Statements, and the System’s combined financial statements. These 

documents are available on the Funding Corporation’s website at www.farmcreditfunding.com. For copies of these documents, contact the Funding Corporation:

Federal Farm Credit Banks

Funding Corporation

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. To receive 

copies of this report, contact FCSIC:

Farm Credit System Insurance Corporation

1501 Farm Credit Drive

McLean, VA 22102

Telephone: 703-883-4380
Copies Available From: 

Ofce of Congressional and Public Afairs 

Farm Credit Administration 

1501 Farm Credit Drive 

McLean, VA 22102 

703-883-4056

www.fca.gov