2014

Annual Report

on the Farm Credit System by the 

FARM CREDIT ADMINISTRATION

Regulator of the FCS
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 9

FCS Role 9

FCS Structure 9

The Safety and Soundness of the FCS 11

FCS Banks and Associations 12

	 Financial Condition 12

Borrowers Served 18

	 System Funding for Other Lenders	 20

	 Farm Debt and Market Shares	 22

Serving Young, Beginning, and Small Farmers and Ranchers 24

	 Characteristics of YBS Borrowers	 24

	 FCS Lending to YBS Producers	 25

	 Assessing YBS Results for Individual Associations	 27

	 YBS Programs	 30

Regulatory Policy and Approvals 33

	 Regulatory Activity in 2014	 33

	 Corporate Activity in 2014	 35

	 Funding Activity in 2014	 35

	 Mission-Related Investments	 38

Maintaining a Dependable Source of Credit for Farmers and Ranchers 39

	 Conducting a Risk-Based Examination and Oversight Program	 39

	 Identifying and Responding to Potential Threats to Safety and Soundness	 39

	 Measuring the System’s Safety and Soundness	 40

	 Providing Differential Supervision and Enforcement	 42

	 Protecting Borrower Rights	 42

Condition of Farmer Mac 43

	 Capital	 44

	 Program Activity	 45

	 Asset Quality	 46

	 Earnings	 46

Challenges Facing the Agricultural Economy and the Farm Credit System 49

	 The Farm Economy	 49

	 The General Economy	 54

	 Farm Credit System Portfolio	 58

Appendix 61

	 Farm Credit Administration Offices	 62

	 Agency Officials	 64

	 Glossary	 68

	 Acronyms and Abbreviations	 71

	 Additional Information	 72

Contents

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

stock. Layout and design by Linda Toki. 
2

Farm Credit Administration 2014 Annual Report on the Farm Credit System 
3

July 2015 

Dear Reader,

On behalf of the Board and the staff of the Farm Credit Administration, I present the 2014 Annual Report on the 

Farm Credit System (System). I am pleased to report the System’s overall condition and performance remain sound. 

Its net income was $4.72 billion in 2014, up 1.8 percent from 2013, and its capital position is strong. The System had 

$45.7 billion in total capital at December 31, 2014, compared with $42.6 billion a year earlier.

In general, the quality of System loans remains very good. Credit quality for livestock, dairy, and poultry producers improved in 2014 because of lower feed costs and favorable pricing. Also, the System continued to have reliable 

access to the debt capital markets in 2014, and investor demand for all System debt security products remained 

favorable. Total Systemwide debt increased by 8.7 percent, compared with 4.8 percent in 2013. 

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

and ranchers. In 2014, the pace of new lending to YBS farmers exceeded the pace in overall farm lending by System 

institutions. From 2013 to 2014, the share of total new System farm loans made to each YBS category rose. The dollar 

volume of new loans made to young and beginning categories also rose from 2013 to 2014, but loan volume to small 

farmers declined. 

As the 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 internal controls; portfolio management and 

allowance for loan loss in volatile times; large, complex, and shared assets; and board governance and nominating 

committees.

In 2014, the FCA Board adopted a proposed rule to make extensive revisions to the Agency’s capital regulations. The 

proposed rule would modernize our capital requirements while ensuring that System institutions continue to hold 

enough regulatory capital to fulfill their mission. It would ensure that the System’s capital requirements are appropriate for the System’s cooperative structure and comparable to the Basel III framework and the standardized approach 

that the federal banking regulatory agencies have adopted. Although we had already received considerable input 

during the comment period following publication of our proposed rule, we recently decided to briefly reopen the 

comment period. Because of the complexity of this rule, we want to ensure that we receive input from all interested 

parties. 

I am also pleased to report that the Federal Agricultural Mortgage Corporation (Farmer Mac) remains safe and 

sound. On December 31, 2014, Farmer Mac’s net worth was $781.8 million, compared with $574.5 million a year earlier, and Farmer Mac was in compliance with all minimum capital requirements. 

Economists anticipate a number of challenges for the farm economy in the near future, including a decline in farm 

income. Already, grain prices have dropped from the record-high prices we’ve seen in recent years. When farm 

incomes decline, farmland values and farm loan credit quality often follow suit. We will watch these developments 

closely and provide guidance to help System institutions weather these difficulties. 

Our goal is to ensure that the System remains safe and sound so that it can continue to fulfill its congressional mandate to meet the credit needs of farmers, ranchers, and other eligible borrowers for generations to come.

Sincerely,

Kenneth A. Spearman

Statement of the Board Chairman and CEO
4

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

The Farm Credit Administration ensures 

a safe, sound, and dependable source 

of credit and related services 

for all creditworthy and eligible persons 

in agriculture and rural America.
5

Farm Credit Administration

Overview and Mission

The Farm Credit Administration 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 FCS.

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 customers. These 

policies and regulations focus 

on protecting System safety 

and soundness; implementing 

the Farm Credit Act; providing 

minimum requirements for lending, related services, investments, 

capital, and mission; and ensuring adequate financial disclosure 

and governance. 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, 

three-person Board whose members 

are appointed by the President of 

the United States with the advice 

and consent of the Senate. Board 

members serve a six-year term and 

may remain on the Board until a 

successor is appointed. The President 

designates one member as Chairman of the Board, who serves in that 

capacity until the end of his or her 

own term. The Chairman also serves 

as our Chief Executive Officer.

FCA Board members also serve as 

the Board of Directors for the Farm 

Credit System Insurance Corporation.
6

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Kenneth A. Spearman

Board Chairman and CEO

Kenneth A. Spearman is Chairman 

of the Board and CEO of the Farm 

Credit Administration. Mr. Spearman 

was appointed to the FCA Board by 

President Barack Obama on October 

13, 2009. He was appointed to the 

balance of Dallas Tonsager’s term 

and reappointed to a full six-year 

term that expires on May 21, 2016. 

He was designated Chairman and 

CEO by President Obama on March 

13, 2015.

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 will continue to 

serve concurrently as a member of 

the FCSIC Board of Directors.

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

of experience in finance, agriculture, 

and agricultural cooperatives. He 

spent 28 years in the citrus industry. 

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

cooperative in Orlando, Florida, 

where he was responsible for financial management and reporting and 

the supervision of staff accountants.

He later served as director of internal 

audit for Florida’s Natural Growers, 

where he designed and implemented 

the annual plan for reviewing and 

appraising the soundness, adequacy, 

and application of accounting, financial, and other operating internal 

controls.

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

appointed outside director on the 

AgFirst Farm Credit Bank board in 

Columbia, South Carolina. During his 

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

governance committee. 

Before entering agriculture in central 

Florida, Mr. Spearman served with 

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

public accounting firm Arthur 

Andersen & Co. and was involved 

with the development of a public 

accounting firm in Chicago, Illinois. 

He served as chairman of the board 

of trustees for the Lake Wales Medical Center. He is a member of the 

Institute of Internal Auditors, as well 

as the National Society of Accountants for Cooperatives, 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 and his wife, Maria, 

of Winter Haven, Florida, have three 

children—twin daughters, Michelle 

Springs and Rochelle Puccia, and a 

son, Dr. Kenneth Spearman. 

Note: Before Mr. Spearman’s designation as Board Chairman and CEO, Jill Long Thompson served as Board Chair and CEO from November 27, 2012, 

until March 12, 2015. 
7

Dallas P. Tonsager

Board Member

Dallas P. Tonsager was appointed 

to the Farm Credit Administration 

(FCA) Board by President Barack 

Obama on March 13, 2015, for a term 

that expires May 21, 2020. 

Mr. Tonsager 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. 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 addition, Mr. 

Tonsager worked with the Farm 

Credit System and others to bring 

on line new venture capital investment funds. While at USDA, he was 

a member of the Commodity Credit 

Corporation Board of Directors from 

2010 to 2013. 

Previously, Mr. Tonsager served as 

a member of the FCA Board from 

2004 to 2009, when he also served as 

a member of the Board of Directors 

of the Farm Credit System Insurance Corporation. From 2002 to 2004, 

he was the executive director of the 

South Dakota Value-Added Agriculture Development Center. 

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. As executive director 

of the South Dakota Value-Added 

Agriculture Development Center, 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 

the State Director in South Dakota 

for rural development for the U.S. 

Department of Agriculture. Mr. Tonsager oversaw a diversified portfolio 

of housing, business, and infrastructure loans in South Dakota. 

A long-time member of the South 

Dakota Farmers Union, Mr. Tonsager 

served two terms as president of 

the organization from 1988 to 1993. 

He served on the board of National 

Farmers Union Insurance from 1989 

to 1993, and he was a member of the 

advisory board of the Commodity 

Futures Trading Commission from 

1990 to 1993.

From 1988 to 1993, Mr. Tonsager was 

a board member of Green Thumb, 

Inc., a nationwide job training program for senior citizens.

Mr. Tonsager grew up on a dairy 

farm near Oldham, South Dakota. 

In partnership with his brother, he 

owns Plainview Farm in Oldham, 

a family farming operation that 

includes corn, soybeans, wheat, and 

hay. Mr. Tonsager is a graduate of 

South Dakota State University where 

he earned a B.S. in agriculture in 

1976.

Note: Mr. Tonsager succeeded Jill Long Thompson, who served on the FCA Board from March 2010 until March 2015.
8

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

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 was president of The 

Capstone Group, an association 

management and consulting firm 

that he cofounded in 2009. He was 

the State Executive Director for the 

U.S. Department of Agriculture’s 

Farm Service Agency in Kentucky 

from 2001 to 2009. In that role, he 

had responsibility for farm program 

and farm loan program delivery and 

compliance. 

From 1994 to 2001, Mr. Hall served 

as Assistant to the Dean of the 

University of Kentucky, College of 

Agriculture, advising the Dean on 

State and Federal legislative activities 

and managing a state-wide economic 

development initiative called AgProject 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.

Note: Mr. Hall succeeded Leland A. Strom, who served on the FCA Board from December 2006 until March 2015.
9

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 oldest Governmentsponsored enterprise.1

FCS institutions provide credit and 

financially related services to farmers, ranchers, producers or harvesters 

of aquatic products, and agricultural 

and aquatic cooperatives. They also 

make credit available for agricultural 

processing and marketing activities, 

rural housing, certain farm-related 

businesses, rural utilities, and foreign 

and domestic entities in connection 

with international agricultural trade.

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

the national and international money 

markets; its Systemwide debt funding 

is subject to FCA approval. The U.S. 

Government does not guarantee the 

securities issued by the System.

According to the Farm Credit Act of 

1971, as amended, 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 rancherborrowers participate in the management, control, and ownership of 

their institutions. The participation 

of member-borrowers helps keep the 

institutions focused on serving their 

members’ needs.

The System helps to meet a broad 

public need by preserving liquidity 

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

times. The accomplishment of this 

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

and small farmers, as well as rural 

homeowners. 

FCS Structure 

The Lending Institutions 

As of January 1, 2015, the System 

was composed of 80 banks and 

associations. The following four 

banks provide loans to 74 Agricultural Credit Association (ACA) parent 

organizations and 2 stand-alone 

Federal Land Credit Associations 

(FLCAs)2:

• CoBank, ACB

• AgriBank, FCB

• AgFirst Farm Credit Bank

• Farm Credit Bank of Texas

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

FLCA can make only long-term real 

estate loans. Under the Farm Credit 

Act of 1971, as amended, the FLCA 

is exempt from State and Federal 

income taxes.

CoBank, one of the four Farm Credit 

banks, is an Agricultural Credit 

Bank (ACB), which has a nationwide 

charter to make loans to agricultural 

and aquatic cooperatives and rural 

utilities, as well as to other persons 

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

cooperatives. The ACB finances U.S. 

agricultural exports and imports 

and provides international banking 

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

cooperatives, the ACB provides loan 

funds to 25 ACAs and 1 FLCA.

Each ACA contains two subsidiaries, a Production Credit Association 

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

FLCA.3

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

wholly owned PCA and FLCA as 

subsidiaries, accounted for 97 percent 

of all direct-lender associations as of 

January 1, 2015.

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 

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

1933.

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

Farm Credit Act.

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

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

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

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

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

as a single entity; however, when 

appropriate, we may choose to treat 

the parent and subsidiaries as separate entities.

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

tax-exempt status of the FLCA. 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 customers, 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 memberborrowers. It enables one-stop borrowing—borrowers can obtain long-, 

intermediate-, and short-term loans 

from the same institution.

Special-Purpose Entity and 

Service Corporations

In addition to the banks and lending 

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

as the Federal Farm Credit Banks 

Funding Corporation. Established 

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

debt securities on behalf of the Farm 

Credit banks to raise loan funds. 

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 

Act4

:

AgVantis, Inc., provides technologyrelated and other support services 

to the associations affiliated with 

CoBank, ACB. AgVantis is owned 

by the bank and 16 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, ACB.

Farm Credit Financial Partners, Inc., 

provides support services to five 

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 FCS Building Association is owned by the FCS 

banks, but the FCA Board oversees 

the Building Association’s 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. Employerowners consist of 41 Farm Credit 

associations, one service corporation 

(AgVantis, Inc.), and one Farm Credit 

Bank (AgriBank, FCB).

Farmer Mac 

The Federal Agricultural Mortgage 

Corporation (Farmer Mac), which is 

also recognized by law as an FCS 

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 

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

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

rural lenders, including insurance 

companies, credit unions, 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 entities 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

43.

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 borrower-stockholders. For an 

overview of our Agency, see page 5 

or visit our website at www.fca.gov.

Also serving to protect the safety and 

soundness of the FCS is the Farm 

Credit System Insurance Corporation (FCSIC). FCSIC was established 

by the Agricultural Credit Act of 

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

the FCS, like most lenders heavily 

concentrated in agriculture, experienced severe financial difficulties. 

The purpose of FCSIC is to protect 

investors in Systemwide debt securities by ensuring the timely payment 

of principal and interest on insured 

notes, bonds, and other obligations 

issued on behalf of FCS banks.

FCSIC ensures timely payment by 

maintaining the Farm Credit Insurance Fund, a reserve that represents 

the equity of FCSIC. The balance 

in the Insurance Fund at December 

31, 2014, was $3.7 billion. For more 

information about FCSIC, go to 

www.fcsic.gov. Also see FCSIC’s 2014 

annual report.

Investors in Systemwide debt securities are further protected by the Farm 

Credit Act’s joint and several liability 

provision, which applies to all FCS 

banks. The banks are jointly and 

severally liable for the principal and 

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

to pay the principal or interest on 

a Systemwide debt security and if 

the Farm Credit Insurance Fund has 

been exhausted, then FCA must call 

all nondefaulting banks to satisfy the 

security.
12

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

FCS Banks and Associations

Financial Condition 

The FCS5 continued to be fundamentally safe and sound in 2014. The 

System’s overall condition and performance was strong as it reported 

higher earnings, increased capital, 

and favorable portfolio credit quality. Tables 1 and 2 provide a breakdown of the System’s major financial 

indicators.

While the overall FCS remained 

financially sound, a small number of 

individual System institutions exhibited weaknesses. As the System’s 

regulator, we addressed these weaknesses by increasing our supervision of these institutions. For more 

information on measures we took 

to address these weaknesses, see 

“Maintaining a Dependable Source 

of Credit for Farmers and Ranchers” 

on pages 39 to 42 of this report. For 

more information on the condition 

of the System, see the 2014 Annual 

Information Statement of the Farm 

Credit System on the website of the 

Federal Farm Credit Banks Funding 

Corporation at www.farmcreditfunding.com.

Agriculture faced a generally favorable but changing risk environment 

in 2014. The USDA forecasts net farm 

income for 2014 to be down by more 

than 16 percent from a record high 

in 2013. After dropping sharply in 

the latter part of 2013, grain prices 

fell further in the second half of 2014 

with record yields helping push corn 

and soybean production to all-time 

highs. With the drop in grain prices, 

profit margins for crop producers 

narrowed sharply during the year. 

Margins are expected to remain tight 

in 2015 because the costs of production, especially land rents, are 

expected to be slow to adjust. 

The livestock, dairy, and poultry sectors enjoyed strong profitability for 

much of 2014 in large part because 

of significantly lower feed costs and 

strong product pricing. While profit 

margins are expected to narrow 

somewhat in 2015, the profit outlook is generally favorable although 

the strong dollar could hurt export 

demand for U.S. meat and dairy 

products.

The decline in grain prices in 2014 

also intensified the downward 

pressure on farmland values. In its 

annual fourth quarter survey of agriculture, the Federal Reserve reported 

farmland prices were flat to trending 

down in several districts, particularly 

in the Midwest. A rise in long-term 

interest rates in response to the 

continued strengthening of the U.S. 

economy would put additional pressure on farmland values.

California saw little relief in 2014 

from the exceptional drought that 

has gripped the state for the past 

three years. At year-end 2014, 9.6 

percent of the System’s outstanding 

loan volume was associated with 

California. In general, dry conditions 

persist for much of the Southwest, 

and these conditions will continue 

to pose a risk for agriculture and 

certain System borrowers. 

For a detailed discussion of potential 

risks facing the System in 2015 and 

beyond, see “Challenges Facing the 

Agricultural Economy and the Farm 

Credit System” on pages 49 to 58.

5. Throughout this chapter, when referring to the Farm Credit System, we mean only the banks and direct-lending associations of the System, excluding 

Farmer Mac. The analyses in this section are based on data that System institutions provided to FCA or to the Federal Farm Credit Banks Funding 

Corporation. These analyses are based on publicly available information and, except where noted, are based on the 12-month period ended December 

31, 2014. They are based on a combination of bank and association data; these data exclude transactions between System entities.
13

Table 1 

Farm Credit System Major Financial Indicators, Annual Comparison 

As of December 31

Dollars in Thousands 

At and for the 12 months ended 31-Dec-14 31-Dec-13 31-Dec-12 31-Dec-11 31-Dec-10

Farm Credit System Banksa 

 

Total Assets	 249,370,568 230,427,442 219,043,177 205,087,928 207,098,256

Gross Loan Volume	 192,083,080 179,260,572 173,227,170 158,420,741 161,069,141

Nonaccrual Loans	 227,872 275,228 365,478 384,795 477,341

Cash and Marketable Investments	 	 55,472,944 49,241,806 43,618,788 44,047,407 43,289,148

Net Income	 2,042,527 2,057,199 2,011,314 1,860,347 1,917,143

Nonperforming Loans/Total Loansb	 	 0.15%	 0.18%	 0.23%	 0.27%	 0.33%

Capital/Assetsc 	 6.41%	 6.58%	 6.51%	 6.49%	 6.00%

Unallocated Retained Earnings/Assets	 	 3.42%	 3.39%	 3.23%	 3.25%	 3.03%

Return on Assets	 0.84%	 0.91%	 0.94%	 0.92%	 0.95%

Return on Equity	 12.76%	 13.31%	 13.86%	 13.68%	 15.00%

Net Interest Margind 1.05%	 1.15%	 1.25%	 1.28%	 1.22%

Operating Expense Ratioe 	 0.33%	 0.32%	 0.31%	 0.31%	 0.30%

Efficiency Ratiof 	 24.20%	 22.20%	 20.00%	 20.14%	 18.24%

Payout Ratiog 	 58.19%	 54.61%	 47.79%	 53.76%	 50.43%

 

Associations 

 

Total Assets	 167,313,321 157,131,836 148,778,120 136,717,742 134,048,892

Gross Loan Volume	 157,543,632 146,917,046 138,314,966 126,187,799 124,140,035

Nonaccrual Loans	 1,141,679 1,456,381 1,932,706 2,353,352 2,744,528

Net Income	 3,338,474 3,308,036 2,989,912 3,007,154 2,408,449

Nonperforming Loans/Gross Loansb	 	 0.92%	 1.17%	 1.59%	 2.03%	 2.29%

Capital/Assetsc 	 18.78%	 18.50%	 17.80%	 17.84%	 16.54%

Unallocated Retained Earnings/Assets	 	 17.40%	 17.27%	 16.65%	 16.78%	 15.07%

Return on Assets	 2.05%	 2.14%	 2.06%	 2.24%	 1.84%

Return on Equity	 10.55%	 11.34%	 11.23%	 12.42%	 10.88%

Net Interest Margind 	 2.75%	 2.80%	 2.83%	 2.94%	 2.79%

Operating Expense Ratioe 	 1.51%	 1.48%	 1.45%	 1.43%	 1.38%

Efficiency Ratiof 	 39.52%	 37.14%	 39.13%	 31.27%	 35.12%

Payout Ratiog 	 25.06%	 25.42%	 25.82%	 22.57%	 22.62%

 

Total Farm Credit Systemh 

 

Total Assets	 282,844,000 260,782,000 246,664,000 230,411,000 229,973,000

Gross Loan Volume	 217,054,000 201,060,000 191,904,000 174,664,000 175,351,000

Bonds and Notes	 229,064,000 210,704,000 200,365,000 186,889,000 189,575,000

Nonperforming Loans	 1,737,000 2,040,000 2,608,000 2,997,000 3,386,000

Nonaccrual Loans	 1,375,000 1,736,000 2,300,000 2,738,000 3,229,000

Net Income	 4,724,000 4,640,000 4,118,000 3,940,000 3,495,000

Nonperforming Loans/Gross Loansb	 	 0.80%	 1.01%	 1.36%	 1.72%	 1.93%

Capital/Assetsc 	 16.16%	 16.34%	 15.65%	 15.60%	 14.46%

Surplus/Assets	 13.36%	 13.44%	 12.94%	 12.90%	 11.80%

Return on Assets	 1.74%	 1.84%	 1.73%	 1.71%	 1.59%

Return on Equity	 10.50%	 11.28%	 10.89%	 11.17%	 10.85%

Net Interest Margind 	 2.64%	 2.78%	 2.87%	 2.86%	 2.82%

Sources: Farm Credit Administration’s Consolidated Reporting System as of December 31, 2014, and the Farm Credit System Quarterly Information Statement provided by the Federal Farm Credit Banks Funding Corporation.

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

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

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

capital.

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

loan pricing effectiveness. 

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

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

preceding 12 months.

g. The percentage of earnings paid out in dividends to shareholders. This ratio is only valid at year-end December 31.

h. Cannot be derived by adding the categories above because of intra-district and intra-System eliminations used in Reports to Investors.
14

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Table 2		 	 	 	 	 	 	 	 	

Farm Credit System Major Financial Indicators, by District 

As of December 31, 2014		 	 	 	 	 	 	 	

Dollars in Thousands 

 

 Gross Allowance Cash and Operating

Farm Credit Total Loan Nonaccrual for Loan Marketable Capital Total Expense

System Banks Assets Volume Loans Losses Investmentsa Stockb Surplusc Capitald Ratioe

AgFirst	 29,032,732 20,630,220 46,029 20,181 8,110,288 464,801 1,858,835 2,431,015 	 0.57%

AgriBank	 90,489,117 74,869,690 38,748 11,706 15,149,318 2,157,868 2,725,734 4,880,758 	 0.15%

CoBank	 101,624,422 75,638,203 111,664 407,197 25,027,330 3,673,242 3,398,431 7,061,398 	 0.38%

Texas	 17,263,826 12,704,592 7,536 6,449 4,374,802 820,761 719,162 1,517,069 	 0.59%

 

Total	 238,410,097 183,842,705 203,977 445,533 52,661,738 7,116,672 8,702,162 15,890,240 	 0.33%

 

Associations 

AgFirst	 18,625,985	 17,787,371	 272,586	 161,177 153,030	 225,679	 3,610,033 3,818,660	 2.07%

AgriBank	 82,975,469	 77,309,477	 492,607	 226,466 1,820,602	 338,939 14,854,485	 15,193,424	 1.31%

CoBank	 45,374,520 42,868,829 312,971 298,480 290,791 1,448,769 8,134,601 9,529,972 	 1.41%

Texas	 14,688,175 14,153,693 128,368 52,771 46,977 208,446 2,495,355 2,705,587 	 1.41%

 

Total	 161,664,149	 152,119,370 1,206,532 738,894 2,311,400 2,221,833 29,094,474 31,247,643 	 1.51%

 

Total Farm 

Credit 

Systemf 282,844,000 217,054,000 1,375,000 1,237,000 57,839,000 1,676,000 37,775,000 45,706,000 

Sources: Farm Credit System Call Report as of December 31, 2014, and the Farm Credit System Quarterly Information Statement provided by the Federal 

Farm Credit Banks Funding Corporation.

a. Includes accrued interest receivable on marketable investments.

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

c. Includes allocated and unallocated surplus.

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

Credit System amount, total capital also includes $3.750 billion of restricted capital, which is the amount in the Farm Credit Insurance Fund. Excludes 

mandatorily redeemable preferred stock and protected borrower capital.

e. Operating expense per $100 of gross loans.

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

Earnings

The System reported higher earnings 

in 2014. Net income was $4.72 billion, 

up 1.8 percent from 2013 (See figure 

1). The increase in earnings was the 

result of gains in net interest income 

and noninterest income although 

these gains were partially offset by 

higher provisions for loan losses and 

higher noninterest expenses.

Net interest income increased by 

$130 million in 2014 as higher average earning asset balances offset the 

effect of lower net interest margins. 

Driven largely by growth in loan volume, average earning assets grew by 

$17.15 billion or 7.1 percent to $257 

billion in 2014. Net interest margin 

decreased 14 basis points to 2.64 percent as a result of competitive pressures and loan volume re-pricing at 

lower rates. Return on average assets 

declined to 1.77 percent in 2014 from 

1.86 percent in 2013, and the return 

on average capital decreased to 10.62 

percent from 11.43 percent.

Credit risk in the FCS loan portfolio 

continues to be well managed. For 

2014, the System recognized provisions for loan losses of $40 million 

compared with a loan loss reversal 

of $31 million in 2013 and provisions 

for loan losses of $313 million in 

2012. Included in the 2014 provision 

for loan losses was an out-of-period 

adjustment of $47 million recorded 

by one association, with assets totaling just over $1 billion, related to its 

investigation of a sudden significant 

increase in delinquencies in a discrete 

portion of its loan portfolio.

As cooperative institutions, FCS 

banks and associations typically pass 

a portion of their earnings on to their 

borrower-owners as patronage distributions. For 2014, System institutions 

declared a total of $1.438 billion in 

patronage distributions—$1.051 billion in cash, $321 million in allocated 

retained earnings, and $66 million in 

stock. This represents 30 percent of 

the System’s net income for 2014 as 

compared with 31 percent in 2013. 

Also in 2014, the System distributed 

$144 million in cash from patronage 

allocations of earlier years.

Figure 1

FCS Net Income, 2006–2014

As of December 31

Sources: Federal Farm Credit Banks Funding Corporation Annual Information Statements. 
16

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

System Growth

The System reported moderately 

strong growth in 2014. Total assets 

increased to $282.8 billion, up $22.1 

billion or 8.5 percent from 2013. 

Gross loan balances were $217.1 billion at year-end, up $16.0 billion or 

8.0 percent from 2013 (see figure 2).

The growth in System loan balances was largely due to increases 

in agribusiness, real estate mortgage, 

and production and intermediateterm lending. Agribusiness lending 

was up $5.52 billion or 20.2 percent 

because of increased lending to food 

and agribusiness companies. A lesser 

factor contributing to the growth in 

agribusiness lending was the increase 

in grain inventory levels, which in 

turn increased seasonal demand for 

financing from marketing cooperatives. 

Real estate mortgage loans, which, 

at 45.5 percent, represent the largest component of the System’s loan 

portfolio, were up $4.49 billion or 4.8 

percent. Production and intermediateterm lending increased $3.58 billion 

or 7.9 percent primarily because of 

seasonal financing needs and greater 

utilization of operating lines. 

Asset Quality

In general, the quality of System 

loans remains very good. Credit 

quality for livestock, dairy, and 

poultry producers improved in 2014 

because lower feed costs and favorable pricing led to strong profits. 

Certain other agricultural sectors, 

such as forestry and horticulture, are 

also slowly recovering as the U.S. 

economy continues to strengthen. 

As of December 31, 2014, nonperforming loans totaled $1.7 billion, 

or 0.8 percent of gross loans, down 

from $2.0 billion or 1.01 percent of 

gross loans at year-end 2013 (see figure 3). Loan delinquencies (accruing 

loans that are 30 days or more past 

due) remained a low 0.23 percent of 

total accruing loans, unchanged from 

2013.

The allowance for loan losses was 

$1.237 billion, or 0.57 percent of 

loans outstanding, at year-end 2014. 

This compares with an allowance for 

loan losses of $1.238 billion, or 0.62 

percent of loans outstanding, at yearend 2013. Net loan charge-offs were 

up slightly from $62 million in 2013 

to $68 million in 2014 but remained 

low in comparison with the $236 million in charge-offs in 2012.

Figure 2

Annual Growth Rate of FCS Loans Outstanding, 2003–2014

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

 
17

Figure 3

FCS Nonperforming Loans, 2009–2014

As of December 31

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

 

Funding

Throughout 2014, 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 

24.0 percent while securities with 

maturities greater than one year 

increased by 0.8 percent. In total, 

Systemwide debt increased by 8.7 

percent.

The System’s funding composition 

also changed. Securities due within 

a year accounted for 38.6 percent 

of total Systemwide debt compared 

with 33.8 percent a year ago. (See 

“Funding Activity in 2014” on page 

35 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 unanticipated disruptions in the capital markets. As of December 31, 2014, the 

System’s liquidity position equaled 

173 days, down from 194 days at 

year-end 2013 but significantly above 

the 90-day regulatory minimum.

Investments available for sale (based 

on fair value) increased 14.0 percent to $49.2 billion in 2014, with 

a weighted average yield of 1.2 

percent. Mission-related and other 

investments available for sale (based 

on fair value) decreased 18.9 percent 

to $383 million, with a weighted 

average yield of 2.64 percent. Mission-related and other investments 

held to maturity decreased 6.3 percent to $2.6 billion, with a weighted 

average yield of 3.2 percent. 

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 liquidity calculation purposes, but the bank may 

continue to hold the investment provided certain requirements are met.
18

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Figure 4

FCS Capital, 2007–2014

As of December 31

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

Capital

The System maintained a strong 

capital position in 2014. Total capital 

equaled $45.7 billion at December 31, 

2014, compared with $42.6 billion at 

year-end 2013. The most significant 

contributing factor to the increase in 

capital was net income earned and 

retained. At year-end 2014, the System’s capital-to-assets ratio was 16.2 

percent, compared with 16.3 percent 

in 2013.

As figure 4 shows, surplus accounts 

for the vast majority of capital. FCA 

regulations establish the minimum 

capital requirements that each System 

bank and association must achieve 

and maintain.

As of December 31, 2014, the permanent capital ratios for all System 

banks and associations were above 

the regulatory minimum of 7.0 percent. The ratios ranged between 15.7 

percent and 21.8 percent for System 

banks and between 12.9 percent and 

35.7 percent for System associations. 

In addition, as of December 31, 2014, 

the FCS had $3.75 billion of restricted 

capital in the Farm Credit Insurance 

Fund. 

Borrowers Served

The System fulfills its overall mission by lending to agriculture and 

rural America. Its lending authorities 

include the following:

• Long-term agricultural real estate 

loans and rural home loans

• Short- and intermediate-term 

agricultural loans

• Loans to producers and harvesters of aquatic products

• Loans to certain farmer-owned 

agricultural processing facilities 

and farm-related businesses

• Loans to farmer-owned agricultural cooperatives

• Loans that finance agricultural 

exports and imports

• Loans to rural utilities

• Limited portions of loans to 

entities that qualify under the 

System’s similar-entity authority6

Nationwide, the System had $217 

billion in gross loans outstanding as 

of December 31, 2014 (see table 3). 

Agricultural producers represented 

by far the largest borrower group, 

with $147.7 billion, or 68.1 percent, of 

the total dollar amount of loans outstanding.7

 As of December 31, 2014, 

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

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

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

Table 3

FCS Gross Loans Outstanding, 2010–2014

As of December 31

Dollars in Millions

 Percent Percent

 change change

2010 2011 2012 2013 2014 from 2010 from 2014

Production agriculture

Long-term real estate 

	 	 mortgage loans	 78,021	 80,658	 88,263	 94,194	 98,681	 26.5%	 4.8%

Short- and intermediate-

	 	 term loans	 40,584	 41,276	 43,861	 45,412	 48,991	 20.7%	 7.9%

Agribusiness loansa 29,581	 24,734	 27,090	 27,242	 32,758	 10.7%	 20.2%

Rural utility loansb 15,091	 15,606	 18,702	 19,615	 21,410	 41.9%	 9.2%

Rural residential loans	 5,475	 5,832	 6,210	 6,557	 6,799	 24.2%	 3.7%

Agricultural export finance	 4,036	 3,834	 4,674	 4,588	 4,571	 13.3%	 -0.4%

Lease receivables	 2,021	 2,139	 2,415	 2,706	 2,976	 47.3%	 10.0%

Loans to other financing

	 institutions	 542	 585	 689	 746	 868	 60.1%	 16.4%

Total 175,351 174,664 191,904 201,060 217,054 23.8% 8.0%

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

a. At December 31, 2014, agribusiness loans consisted of $14.7 billion in loans to cooperatives, $14.6 billion in loans to processing and marketing operations, and $3.4 billion in loans to farm-related businesses.

b. At December 31, 2014, rural utility loans consisted of $16.4 billion in loans to energy and water/wastewater utilities and $5.0 billion in loans to communication utilities..

 

45.5 percent of the dollar volume of 

the System’s loans outstanding was 

in long-term real estate loans, 22.6 

percent in short- and intermediateterm loans to agricultural producers, and 15.1 percent in agribusiness 

loans. Agribusiness loans are broken 

down further into 6.8 percent for 

loans to cooperatives, 6.7 percent for 

processing and marketing enterprises, 

and 1.6 percent for farm-related businesses.

Loans to finance rural utilities represented 9.8 percent of the System’s 

loan volume, while rural residential 

loans made up 3.1 percent of the System’s total loans. Agricultural export 

loans represented 2.1 percent of the 

System’s loan portfolio, and lease 

receivables accounted for 1.4 percent 

of the overall portfolio. Finally, loans 

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

but growing segment of the System’s 

portfolio (see “System Funding for 

Other Lenders” below).

As required by law, borrowers own 

stock or participation certificates in 

System institutions. The FCS had 

nearly 1.262 million loans and nearly 

503,000 stockholders in 2014. Approximately 85.0 percent of the stockholders were farmers or cooperatives 

with voting stock. The remaining 

15.0 percent were nonvoting stockholders, including rural homeowners 

and other financing institutions that 

borrow from the System. Over the 

past five years, the number of System 

stockholders has increased gradually, rising 3.3 percent since year-end 

2010.

Total loans outstanding at FCS banks 

and associations (net of intra-System 

lending) increased by $16 billion, or 

8 percent, during the year that ended 

December 31, 2014. This compares 

with increases of 4.8 percent in 2013 

and 9.9 percent in 2012, a decline of 

0.4 percent in 2011, and an increase 

of 6.4 percent in 2010. Since year-end 

2010, total System loans outstanding 

have increased by $41.7 billion, or 

23.8 percent.
20

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

The increase in 2014 was driven by 

increases in real estate mortgage, 

production and intermediate-term, 

agribusiness, processing and marketing, and energy and communication 

loans. Real estate mortgage loans 

increased $4.5 billion, or 4.8 percent, 

primarily because of the continued 

demand for cropland. Short- and 

intermediate-term production loans 

also increased, going up $3.6 billion, 

or 7.9 percent, primarily because of 

advance purchases of 2015 inputs 

(such as fertilizer, seed, and fuel) 

for tax planning purposes and a 

greater utilization of operating lines 

of credit.

Loans to agribusiness cooperatives 

(which mostly include farm supply and grain marketing businesses) 

increased $3.2 billion or 27.5 percent 

during 2014, primarily as a result of 

increased lending to food and agribusiness companies and, to a lesser 

extent, higher levels of seasonal 

demand for financing from grain 

marketing cooperatives. Processing 

and marketing loans increased $1.9 

billion or 14.7 percent during 2014, 

resulting primarily from advances on 

existing loans within certain industries.

Loans to energy and water or wastewater utilities increased by $904 million, or 5.8 percent, largely because 

of increased lending to electric distribution and power supply sectors. 

Communication loans increased $891 

million or 21.5 percent during 2014 

because of growth in lending to new 

and existing customers. The other 

categories also posted significant 

increases for the year; however, agricultural export loans once again fell 

slightly—by 0.4 percent from 2013.8

System Funding for Other 

Lenders

Other Financing Institutions 

Under the Farm Credit Act, System 

banks may further serve the credit 

needs of rural America by providing 

funding and discounting services to 

certain non-System lending institutions described in our regulations as 

“other financing institutions.” OFIs 

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 

short- and intermediate-term loans 

for OFIs that demonstrate a need for 

additional funding to meet the credit 

needs of borrowers who are eligible 

to receive loans from the 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, 2014, the System served 24 OFIs, down from 26 

in 2013, 2012, and 2011, and down 

from 28 in 2010 and 2009. Outstanding loan volume to OFIs was $868 

million at year-end, up $122 million 

from 2013. OFI loan volume continues to be less than half of one percent of the System’s loan portfolio. 

Over three-quarters 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, 

8. A large portion of the System’s agricultural export loan portfolio is guaranteed by the Commodity Credit Corporation through the U.S. Department of Agriculture’s GSM-102 and GSM-103 export credit programs. Overall, 40 percent of the System’s agricultural export finance transactions 

on December 31, 2014, carried a guarantee from the Commodity Credit Corporation.
21

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. However, institutions 

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

The System’s gross loan syndication 

volume has grown by more than $2 

billion over the past three years to 

$13.5 billion at year-end 2014. However, FCA’s Call Report does not 

break out the portion that is associated with non-FCS institutions.

In addition to participating in loans 

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

non-System lenders that originate 

“similar-entity” loans. A similarentity borrower is not eligible to borrow directly from an FCS institution, 

but because the borrower’s operation 

is similar in function 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).

The System had $11.4 billion in net 

similar-entity loan participations as 

of December 31, 2014, up from $9.2 

billion the prior year. As figure 5 

indicates, the volume of similar-entity 

participations that System institutions 

sell to non-System institutions is 

relatively small, amounting to half a 

billion dollars or less each year over 

the past four years.

However, the volume of eligible-borrower loan participations purchased 

from non-System lenders has been 

rising; it grew from $5.9 billion in 

2009 to $7.4 billion in 2014. The volume of eligible-borrower loan participations sold to non-System lenders 

has also grown in recent years, rising 

from $1.4 billion in 2009 to $3.0 billion in 2014. Net eligible-borrower 

loan participations peaked in 2010 

at $5.4 billion when sales of these 

participations were at a low point. 

At year-end 2014, the System had 

$4.4 billion in net loan participations 

involving eligible borrowers.

Figure 5

Loan Participations with Non-System Lenders, 2009–2014

As of December 31

Sources: Farm Credit System Call Reports. 

*A similar-entity borrower is not eligible to borrow directly from an FCS institution, but because the borrower’s operation is similar in function to that of 

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

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

AgDirect, LLP

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

developed by Farm Credit Services 

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

facilitates the financing or leasing of 

equipment for farmers and ranchers through participations in retail 

installment loans or leasing contracts 

originated by equipment dealerships. 

The program enhances financial 

options for customers and institutions, and provides a new revenue 

stream to AgDirect owners and 

AgriBank.

In 2014, FCA approved one additional investment by a System 

association, bringing the total number of institutions participating in 

AgDirect to 16. AgDirect financing 

is now available in many states. 

As of December 31, 2014, the total 

outstanding participation interests 

in loans purchased was nearly $3.0 

billion.

Farm Debt and Market 

Shares

The U.S. Department of Agriculture’s 

forecast of total farm business debt 

for the year ended December 31, 

2014, was $318 billion, up 3 percent 

from its $308 billion estimate for 

year-end 2013. However, USDA’s 

February farm debt estimates could 

be revised later in the year because 

subsequent farm loan data reported 

by the Farm Credit System and commercial banks show that their total 

farm loan portfolios grew by 5.8 

percent and 8.5 percent, respectively, 

during 2014.9

The farm real estate debt portfolios 

of FCS institutions and commercial 

banks grew more slowly in 2014 

as farm real estate markets cooled 

because of lower crop returns. Nonreal estate lending debt portfolios 

rose more quickly in 2014 because 

the need to finance annual production expenses grew and some producers continued to make capital 

purchases. Lower prices for major 

crops in 2014 discouraged crop producers from investing in equipment, 

farm structures, and farmland, but 

strong revenue gains in the livestock 

industry spurred more investment 

there. 

USDA estimates that, from 2004 to 

2014, total farm business debt rose by 

more than $120 billion or 61 percent 

(See figure 6). In inflation-adjusted 

dollars, this is a $72 billion increase 

9. USDA calculates market share for farm business debt only (i.e., debt that is used for farm production and real estate purposes). The estimate for 2014 

debt held by the various lender groups will be released in August 2015 estimate revisions. Market share information is not available for the other 

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

Figure 6

U.S. Farm Business Debt, 1963–2013

Dollars in Billions

Source: USDA, Economic Research Service. 
23

or a 32 percent increase. During this 

period of relative prosperity, farmers 

invested heavily in new capital items, 

and they needed more credit to cover 

rising farm production costs. Much 

of this new debt is owed by relatively few farms. Census of Agriculture data for 2012 shows that nearly 

two-thirds of farms reported no 

interest expense being paid that year, 

meaning they did not incur debt 

during that year. In contrast, just 9 

percent of all U.S. farms accounted 

for more than two-thirds of the total 

farm interest that U.S. farm operators 

paid that year.

On the supply side, lenders had 

ample funds to lend in 2014 because 

demand for credit remained below 

their capacity to lend. Despite the 

competitive lending environment, 

credit underwriting practices remain 

relatively conservative. Indebted 

producers benefited from historically 

low farm loan interest rates throughout the year. 

Even with the prospect for further 

erosion in crop revenues, demand for 

credit could be strong again in 2015 

because of a relatively strong outlook 

for livestock incomes, an improving 

nonfarm economy, and a rising need 

to finance farm production expenses. 

A significant rise in farm interest 

rates during the year could also 

affect debt levels. A change in one or 

more of these factors could change 

the outlook for credit demand. 

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

2013. USDA’s estimate of debt by 

lender shows that the System held 

42.5 percent of total farm business 

debt, while commercial banks held 

40.1 percent (see figure 7). In recent 

years, the System’s market share for 

farm business debt has grown more 

than the commercial banks’ share.

Except for brief periods, the FCS has 

typically had the largest market share 

of farm business debt secured by real 

estate. At year-end 2013, the System 

held 48.7 percent of this debt, compared with 33.9 percent for commercial banks. Commercial banks have 

historically dominated non-real estate 

farm lending—the market share of 

commercial banks in this category 

increased to 48.5 percent at the end 

of 2013, while the System’s share 

increased to 33.9 percent.

Figure 7

Estimated Market Shares of U.S. Farm Business Debt, 1963–2013

Source: USDA, Economic Research Service. 
24

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Serving Young, Beginning, and Small 

Farmers and Ranchers

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 gross 

annual sales of less than $250,000. 

These criteria apply to the date on 

which a loan is made. 

Characteristics of YBS 

Producers 

Generally, the shares of Systemwide 

total farm lending going to the three 

separate YBS categories have been 

consistent with the shares of these 

farmer segments in the total farmer 

population. The smallest share of 

total System farm lending goes to 

the young farmer segment, and 

the largest share goes to the small 

farmer segment. Before we discuss 

the System’s lending to YBS borrowers, let’s look at some trends in these 

categories.

Young

The rising average age of principal 

farm operators (from 50.3 years in 

1982 to 58.3 years in 2012) has led 

to concerns about aging farmers and 

the ability of young farmers to enter 

agriculture. There are a number of 

likely explanations for the increase 

in the average age of farmers. In general, people are living longer lives. 

Also, advances in technologies have 

reduced the physical requirements of 

the profession, allowing farmers to 

work longer. Other factors include 

demographic trends within society, 

such as an aging baby boomer generation. 

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 

2012.10 These percentages have held 

relatively constant from 2002 to 2012. 

Demographic data generally show 

the age trends of U.S. farmers to be 

consistent with age trends among 

other U.S. business owners and 

within the U.S. workforce and the 

general population. In other words, 

the share of those under 35 within 

these populations 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.

In 2012, the Ag Census also asked 

about total years of farm experience, regardless of whether those 

years were associated with the current farming operation. These data 

indicate that 18 percent of principal 

operators and 22 percent of all operators had less than 10 years of farming experience. These percentages 

may be lower because some operators started their careers as employees of other farming operations or 

began by working on their families’ 

operations. 

10. FCA’s definitions of a young farmer and a beginning farmer differ slightly from the Ag Census measures. See the note below table 4B.
25

Small

U.S. farms have been consolidating 

for generations as new technologies have increased productivity and 

reduced the number of farmers 

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. Commodity price inflation, particularly since the mid-2000s, 

has contributed to this decline, with 

total farm revenues and average sales 

per farm nearly doubling. 

Because of their great diversity, the 

1.9 million small farms in the United 

States are difficult to characterize. 

Many small farmers report little, if 

any, in farm sales, and many consider themselves to be retired or 

semiretired from their farming operations. In 2012, 600,000 farms, or 28 

percent of all farms, generated less 

than $1,000 in farm sales that year. 

Small farms such as these typically 

have negative farm incomes and 

small amounts of farm debts. 

Those who operate small farms 

generally seek credit for consumer, 

rather than farm, products. Within 

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

producing higher-margin agricultural 

products for local markets, often on a 

seasonal basis. 

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 borrowers. Associations must 

also coordinate with other Government and private sources of credit in 

implementing their YBS programs. 

In addition, each institution must 

report yearly on the lending volume, 

operations, and achievements of its 

YBS program. (See the YBS Programs 

section on page 30.)

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 producers; 

these targets should be based on 

reliable demographic data for the 

institution’s lending territory. YBS 

programs must also include outreach 

efforts and annual qualitative goals 

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

of YBS farmers.

The association’s board oversight 

and reporting are integral parts of 

each YBS program. Each association’s 

operational and strategic business 

plan must include the goals and 

targets for YBS lending. And each 

association must have an internal 

control program to manage the YBS 

program; it must also have methods 

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

and within the lender’s risk-bearing 

capacity.

FCA’s oversight and examination 

activities encourage System institutions to assess their performance and 

market penetration in the YBS area. 

This self-assessment increases each 

institution’s awareness of its mission 

and prompts it to earmark resources 

to serve the YBS market segment. In 

addition, we 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 producers through loan programs provided 

by USDA’s Farm Service Agency.

YBS information is reported separately to FCA for each of the three 

borrower categories because the 

YBS mission and statutory guidance are focused on each borrower 

group separately. Also, loans cannot 

be added across categories because 

some loans belong in more than one 

category. If, for example, a borrower 

is less than 35 years old, sells less 

than $250,000 in farm products per 

year, and has farmed for less than 10 

years, the borrower’s loan would be 

included in each category. Therefore, 

adding the categories together would 

produce a misleading measurement 

of the System’s YBS lending involvement.
26

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Table 4A

YBS Loans Outstanding

As of December 31, 2014		 	 	 

 Percentage Percentage

 of total Dollar of total

Number number volume volume Average

of of System of loans of System loan

loans farm loans in millions farm loans size

Young farmers/ranchers 181,736 17.9 $25,542 11.2 $140,542

Beginning farmers/ranchers 263,277 26.0 $38,986 17.1 $148,079

Small farmers/ranchers 490,425 48.4 $45,673 20.0 $93,129

 

Table 4B

YBS Loans Made During 2014

As of December 31

 Percentage Percentage

 of total Dollar of total

Number number volume volume Average

of of System of loans of System loan

loans farm loans in millions farm loans size

Young farmers/ranchers 59,145 16.9 $8,729 11.3 $147,587

Beginning farmers/ranchers 74,099 21.2 $11,358 14.8 $153,280

Small farmers/ranchers 140,608 40.2 $10,737 13.9 $76,359

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

Note: A “young” farmer/rancher is defined as 35 years old or younger when the loan is made; a “beginning” farmer/rancher has been operating a farm for 

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

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

4B include loans, advancements, and commitments to farmers, ranchers, and aquatic producers, and exclude rural home loans, loans to cooperatives, and 

activities of the Farm Credit Leasing Services Corporation. In 2014, the Farm Credit System made 349,353 new farm loans, totalling $76.984 billion. As of 

December 31, the System had 1,012,793 farm loans outstanding, amounting to $228.589 billion. 
27

System’s YBS Lending in 201411

The number and volume of loans 

made during the year is an indicator of the extent to which System 

institutions are serving YBS producers. Table 4A contains information on 

loans made in each category during 

the year; table 4B provides information on loans outstanding at the end 

of 2014. Loans and commitments to 

YBS farmers include real estate mortgages and production and intermediate-term credits, but do not include 

rural home loans.

Relative to 2013, the dollar volume 

of new loans made and the number new loans made in 2014 to 

young and beginning farmers rose, 

while the dollar volume and number of loans made to small farmers 

declined.12 The number and dollar 

volume of loans outstanding in all 

three YBS categories increased in 

2014 from those of 2013.

Young—The System made 59,145 

loans, amounting to $8.7 billion, to 

young farmers in 2014. The dollar volume and the number of new 

loans made to young farmers rose 5.0 

percent and 2.0 percent from 2013, 

respectively. The average size of a 

new young farmer loan increased 2.9 

percent in 2014 to $147,587. 

Beginning—The System made 74,099 

loans, amounting to $11.4 billion, to 

beginning farmers in 2014. The dollar 

volume and the number of new loans 

made to beginning farmers rose 3.2 

percent and 1.8 percent from 2013, 

respectively. The average size of a 

new beginning farmer loan increased 

1.3 percent in 2014 to $153,280. 

Small—FCS institutions made 

140,608 loans, totaling $10.7 billion, 

to small farmers in 2014. The dollar 

volume and number of new loans 

made fell 5.2 percent and 1.4 percent, 

respectively. Because of the larger 

drop in loan volume, the average 

size of a new small farmer loan fell 

4.0 percent to $76,359.

Comparing the System’s YBS 

Lending with Overall Lending 

In 2014, the pace of new lending 

to young and beginning farmers 

exceeded the pace in overall System lending to farmers.13 Therefore, 

the share of new total System farm 

loan volume made to these two YBS 

categories rose slightly from that of 

2013 (see figures 8A and 8B). The 

percentage of the total dollar volume 

of System farm loans that went to 

young borrowers increased to 11.3 

percent, while the percentage that 

went to beginning farmers increased 

to 14.8 percent. 

In recent years, the total share of 

new System farm loan volume made 

to young and beginning borrowers 

has been relatively stable. This is 

particularly true for young borrowers, whose share has been around 

11 percent since 2001. The share to 

beginning farmers dipped during 

the last recession but has recovered 

somewhat recently. 

The decline in new small farmer 

lending volume in 2014 caused a 

decline in the share of total System 

farm loan volume that was made 

to these borrowers (see figure 8C). 

The share of total System farm loan 

volume to these borrowers has been 

declining since 2003. The loans made 

in 2014 to farmers in this category 

accounted for 13.9 percent of the 

total dollar volume, down from 15.0 

percent in 2013. 

Reasons for the downward trend in 

the small farmers’ share of the System’s total lending volume include 

the growth in farm incomes and 

the rise in the credit needs of larger 

farms since the mid-2000s. From 2005 

to 2014, gross cash farm income rose 

from $280 billion to an estimated 

$407 billion—a 45 percent increase. 

As a result, more farms now have 

gross farm sales in excess of $250,000 

and therefore no longer qualify as 

small farms. 

Assessing YBS Results for 

Individual Associations

Factors Affecting Results from 

One Institution to the Next

The results for individual associations reflect farmer demographics 

in each institution’s territory and 

the strength of each institution’s 

YBS program. Differences between 

farmer demographics make comparisons among individual associations 

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

11. 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.

12. The loan number and dollar volume data for 2013 were revised slightly after FCA’s 2013 Annual Report on the Farm Credit System was issued last 

year.

13. The volume of all System farm loans made (including commitments) during the year was $77 billion, up 1.8 percent from 2013. However, the total 

number of farm loans made in 2014 (349,353) was down 1.4 percent from 2013.
28

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Figure 8A

Young Farmers and Ranchers

Figures 8A, 8B, and 8C

Loans Made to, and Loans Outstanding for, YBS Farmers and Ranchers, 2001–2014

As of December 31

Figure 8B

Beginning Farmers and Ranchers
29

Figure 8C

Small Farmers and Ranchers
30

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

population of beginning farmers than 

another institution’s territory. That is 

why YBS regulations do not specify 

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

that are appropriate for their lending 

territories. Other factors—such as the 

competitiveness of the local lending 

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

individual associations.

Individual YBS Results Versus the 

System’s Average YBS Results

As a result of the factors described 

above, YBS lending varies considerably across FCS associations. Some 

institutions may have a high number 

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

activity levels for other institutions 

may be just the opposite. Activity 

can vary considerably from one year 

to the next, especially for institutions 

with a small lending base. Outstanding volumes and loan numbers are 

more stable from one year to the 

next, especially for larger institutions.

While the share of total outstanding 

System farm loans to young farmers was 18 percent, this share ranged 

from 5 percent to 25 percent at individual associations. The ranges in the 

share of total outstanding loans to 

beginning farmers were even greater. 

Whereas 26 percent of the System’s 

total farm loans outstanding were to 

beginning farmers in 2014, this share 

ranged across associations from as 

little as 12 percent to as much as 64 

percent. 

The ranges for the small farmer category are greater still. In 2014, 48 percent of the System’s total farm loans 

outstanding went to small farmers, 

but the percentage for individual 

associations ranged from less than 13 

percent to more than 85 percent. For 

this YBS category, almost half of all 

associations had lending shares that 

exceeded the Systemwide average.

With the general increase in loan 

numbers and loan volume to young 

and beginning customers, most 

associations experienced gains in the 

share of their total farm lending to 

these groups. For example, the share 

of total loans and total volumes 

made in 2014 to young and beginning farmers rose in nearly twothirds of the associations. And even 

though new small farmer lending 

as a share of total farm lending was 

down Systemwide in 2014, it actually 

grew in nearly half of the associations. 

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 less stringent underwriting 

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

requirements, to allow potential YBS 

borrowers to qualify for loans. Associations also offer training through 

their YBS programs to help these 

borrowers be successful.

In 2014, System institutions used 

the following methods to help them 

make loans to young, beginning, or 

small farmers.

•	Interest rate concessions—offered 

by 53 percent of associations to 

young farmers, by 55 percent to 

beginning farmers, and by 47 

percent to small farmers. These 

percentages were about the same 

in 2013

•	Exceptions to underwriting

standards—offered to young and 

beginning farmers by 60 percent 

of associations and to small farmers by 53 percent. These percentages were unchanged from 2013

•	Concessionary loan fees—offered 

to young and beginning farmers 

by 40 percent and by 34 percent 

of associations to small farmers. 

All of these percentages increased 

slightly from 2013

•	Specifically designed loan covenants—offered to young and 

beginning farmers by 17 percent 

of associations and by 14 percent 

to small farmers. These percentages were about the same in 2013

•	Extended repayment terms—

offered to young and beginning 

farmers by 17 percent and by 14 

percent of associations to small 

farmers in 2014

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 borrowers. By partnering with 

these Government programs, FCS 
31

institutions are able to better mitigate 

the credit risk to these borrowers. 

In 2014, 26 percent of System institutions used Government loan participations for loans to young and 

beginning borrowers, and 21 percent 

used these participations for loans 

to borrowers in the small category. 

Also, System institutions continued 

to use guarantee programs from Federal, State, and local sources for YBS 

lending. About three-fourths of associations indicated they had obtained 

loan guarantees for YBS loans made 

in 2014, up from two-thirds of associations in 2013.

YBS Program Management

FCS institutions are using various 

approaches and sources of information to more effectively manage and 

assess their YBS programs. They 

continued to develop mission statements that describe program objectives and quantitative measures for 

achieving those objectives. 

Over the past five years, 20 institutions have modified their YBS 

mission statements. Modifications 

include adding references to outreach 

towards diversity and inclusion using 

demographics, geography, and types 

of agriculture practiced; the goal is to 

ensure that the institutions reach out 

to all creditworthy farmers who meet 

YBS criteria. Associations primarily 

measure their performance by goals 

in loan volume and the number of 

loans made each year.

Many associations used advisory 

committees composed of a variety 

of stakeholders—both internal and 

external. YBS advisory committees 

were used by 43 percent of all associations, up 2 percentage points from 

2013. In 2014, these stakeholders 

consisted of the following:

• Current YBS borrowers 

(36 percent)

• Potential YBS borrowers 

(20 percent)

• Association board members 

(22 percent)

• Government organizations 

(10 percent)

• Representatives from other agrelated groups and organizations 

(20 percent)

Of the associations with YBS advisory committees, approximately 60 

percent of them used these committees to provide input to their board 

members more frequently than annually. 

FCS institutions continued to provide 

training to staff on their YBS programs. In 2014 and 2013, 88 percent 

of associations provided training 

at least annually. In addition, more 

associations now link YBS performance criteria to the performance 

evaluations of management and lending staff. The percentage of institutions that do so increased from 33 

percent in 2013 to 39 percent in 2014.

Training, Outreach, and Other 

Services

System institutions offer many 

opportunities to educate existing 

and potential YBS borrowers. System associations offer online training 

programs for YBS farmers, which in 

some cases include mentoring. Associations coordinate with state and 

national agricultural organizations 

and educational centers to offer training and, in some cases, to provide 

funding to allow YBS borrowers to 

attend training.

Examples of training opportunities 

provided by System associations 

include the following:

• Next Generation Program

• AgLeadership Institute

• Emerging Entrepreneurs’ 

Conference

• Ag Biz Planner

• Farm Credit University

• Young Farmer and Rancher 

Executive Institute

In 2014, System associations continued to market to potential YBS borrowers. Many associations attended 

or helped sponsor local trade shows, 

fairs, and training workshops specifically targeting YBS borrowers, 

including local/regional YBS food 

producers and supporters of local 

food systems.

Associations also continue to conduct 

outreach and marketing activities in 

partnership with state or national 

young farmer groups, colleges of 

agriculture, land-grant extensions, 

state or national cooperative association leadership programs, and local 

chapters of 4-H and of the National 

FFA Organization. In addition, many 

FCS associations provide financial 

support for college scholarships and 

for FFA, 4-H, and other agricultural 

organizations.
32

Farm Credit Administration 2014 Annual Report on the Farm Credit System 
33

Regulatory Policy and Approvals

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 enhance the 

System’s relevance in the marketplace 

and in rural America while ensuring 

that System institutions comply with 

the law and with the principles of 

safety and soundness. The second is 

to promote participation by memberborrowers in the management, control, and ownership of their System 

institutions.

Regulatory Activity in 2014 

The following paragraphs describe 

some of FCA’s regulatory efforts in 

2014, along with several projects that 

will remain active in 2015. Full text 

for the items below is available on 

the FCA website.

To access Board Policy Statements, 

FCA Bookletters, and Informational 

Memorandums, go to www.fca.gov/

law/guidance.html. To access proposed rules and final rules whose 

effective dates are pending, go to 

www.fca.gov, under the Law & 

Regulations tab select FCA Regulations, then from the menu on the left 

select FCA Pending Regulations and 

Notices.

Governance 

Advisory Vote—The FCA Board 

adopted an interim final rule in 

March 2014 and a final rule in June 

to remove requirements for a nonbinding, advisory vote on compensation for an institution’s chief executive officer or other senior officers. 

Adoption of this rule effectively 

addressed the petition from the Farm 

Credit System requesting FCA to 

repeal the advisory voting rule.

Standards of Conduct—The FCA 

Board approved a proposed rule in 

January 2014 that would modify the 

standards-of-conduct regulations to 

clarify the rules, strengthen responsibility and accountability, require System institutions to establish a Code 

of Ethics, and enhance the role of the 

standards-of-conduct official.

Mergers, Consolidations, and Charter Amendments—The FCA Board 

approved a proposed rule in December 2014 to amend the regulations 

pertaining to mergers, consolidations 

and charter amendments of System 

banks and associations. The amendments would clarify processes and 

incorporate existing practices into the 

rule.

Pension Benefits Disclosure—The 

FCA Board approved a proposed 

rule in October 2014 and a final 

rule in February 2015 to amend the 

rules for the disclosure requirement 

regarding the summary compensation table. The amendment would 

exclude certain employees and their 

associated compensation amounts 

from the reporting requirement. 

Institution Stockholder Voting Procedure—The FCA Board approved 

a proposed rule in August 2014 to 

clarify and enhance voting procedures related to the tabulation of 

votes, the use of teller committees, 

and the handling of ballots.

Farm Credit System Operating

Expenses—We issued an Informational Memorandum in July 2014 

to System institutions to provide 

guidance on the importance to safety 

and soundness of properly managing 

operating expenses. 

Cybersecurity Framework and

Other Recent Guidance—We issued 

an Informational Memorandum to 

System institutions in December 

2014 to ensure that they are aware 

of best practices and recent guidance 

for managing cybersecurity risk. All 

System institutions should be taking 

appropriate actions to monitor and 

maintain awareness of cybersecurity 

threats and vulnerabilities.
34

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Portfolio Management in Volatile

Times—We issued an Informational 

Memorandum to System institutions 

in January 2015 to discuss emerging 

risks and areas we will be examining to determine how institutions are 

responding to the volatile environment. 

Guidelines for Requesting Certificates of Good Standing, Authenticity, and Merger or Consolidation—

We issued an Informational Memorandum in January 2014 to System 

institutions providing guidelines for 

requesting certificates. The document 

describes the types of certificates we 

issue and explains how to submit 

requests.

Compensation for 2015—We issued 

an Informational Memorandum in 

February 2015 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 proposed rule in November 2014 to require System institutions to escrow premiums and fees 

for flood insurance for any loan 

secured by residential improved 

real estate or a mobile home. The 

amendments also addressed forced 

placement of insurance and detached 

structures. 

Lending, Training, and Outreach

Opportunities with the Farm Service

Agency—We issued an Informational 

Memorandum to System institutions in November 2014 to provide 

information on lending, training, 

and outreach opportunities available 

through the Farm Service Agency of 

the U.S. Department of Agriculture. 

These opportunities may benefit an 

institution when trying to reach a 

broader segment of the agricultural 

community.

Social Media: Consumer Compliance Risk Management Guidance—

We issued an Informational Memorandum in April 2014 on the applicability of Federal consumer protection 

and compliance laws, regulations, 

and policies to activities conducted 

via social media.

Increased Maximum Flood Insurance Coverage for Other Residential

Buildings—We issued an Informational Memorandum in May 2014 

to notify System institutions of the 

coverage increase and to provide 

them with a copy of the “Interagency 

Statement on Increased Maximum 

Flood Insurance Coverage for Other 

Residential Buildings.”

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 proposed rule 

in May 2014 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 sufficient regulatory capital to fulfill their 

mission as a Government-sponsored 

enterprise. The rule would ensure 

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 would also recognize the cooperative structure and the organization 

of the System.

Margin and Capital Requirements

for Noncleared Swaps—The FCA 

Board approved an interagency 

proposed rule in August 2014 that 

would establish margin and capital 

requirements for FCS institutions, 

including Farmer Mac, that engage 

in noncleared swaps and noncleared 

security-based swap transactions. The 

rulemaking would fulfill a requirement of the Dodd-Frank Wall Street 

Reform and Consumer Protection 

Act. 

Investment Eligibility—The FCA 

Board approved a proposed rule in 

July 2014 to amend the regulations 

regarding investment eligibility for 

System institutions.
35

Farmer Mac

Farmer Mac Board Governance and

Standards of Conduct—The FCA 

Board approved an advance notice 

of proposed rulemaking in February 2014 to solicit comments on 

possible regulatory changes related 

to board governance and standards 

of conduct at Farmer Mac. Then, in 

February 2015, the Board approved 

a proposed rule that would enhance 

existing regulations on Farmer Mac 

board governance and standards of 

conduct, including director election 

procedures and conflicts of interest.

Other

National Oversight and Examination Program for 2015—We issued 

an Informational Memorandum in 

September 2014 that summarized the 

National Oversight Plan for 2015. The 

plan detailed strategies for addressing critical risks and other areas of 

focus in the System.

Regulatory Burden, Final Notice—

The FCA Board approved a final 

notice in July 2014 to respond publicly to comments we received from 

the 2013 Regulatory Burden Solicitation.

Corporate Activity in 2014 

In 2014 and early 2015, we analyzed 

and approved six corporate applications.

• On January 1, 2014, two ACAs 

affiliated with CoBank, ACB, 

merged their operations following stockholder approval. The 

PCA and FLCA subsidiaries 

associated with the ACAs also 

merged.

• On January 1, 2014, four ACAs 

affiliated with the Farm Credit 

Bank of Texas, merged their 

operations into two continuing ACAs following stockholder 

approval. The PCA and FLCA 

subsidiaries associated with the 

ACAs also merged.

• On January 1, 2014, a FLCA and 

an ACA affiliated with CoBank, 

ACB, merged their operations 

following stockholder approval. 

In addition, the names of the 

continuing ACA and its subsidiaries were changed.

• On January 1, 2014, an ACA 

affiliated with AgriBank, FCB, 

changed its name. The names of 

the subsidiaries also changed.

• On October 1, 2014, two ACAs 

affiliated with CoBank, ACB, 

merged their operations following stockholder approval. The 

PCA and FLCA subsidiaries 

associated with the ACAs also 

merged.

• On January 1, 2015, two ACAs 

affiliated with the Farm Credit 

Bank of Texas 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, 2015, was 76 (74 ACAs 

and 2 FLCAs), compared with 78 

associations a year earlier. Figure 9 

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.

Note: As of January 1, 2015, CoBank 

was funding 26 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 80 banks 

and associations.

Funding Activity in 2014 

During 2014, the System maintained 

reliable access to the debt capital 

markets. Investors were attracted by 

the System’s status as a Governmentsponsored enterprise, as well as its 

long-term financial performance and 

strength.

Even as the Federal Reserve concluded its quantitative easing policy 

near the end of 2014, risk spreads 

and pricing on System debt securities remained favorable relative to 

corresponding U.S. Treasuries. Also, 

because of the substantial reduction 

in debt issuances by the two housing-related Government-sponsored 

enterprises,14 which are in conservatorship, investors have turned to 

14. The Government-sponsored enterprises are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
36

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Figure 9

Chartered Territories of FCS Banks

As of January 1, 2015

Note: As of January 1, 2015, CoBank was funding 26 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 80 banks and associations.
37

the System as a desirable alternative. 

As a result, 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 System- wide debt 

and equity capital. The Funding 

Corporation, the fiscal agent for the 

System banks, sells debt securities 

such as discount notes, bonds, and 

designated bonds on behalf of the 

System.15 This process allows funds 

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

America, thereby providing rural 

communities with efficient access to 

global resources. At year-end 2014, 

Systemwide debt outstanding was 

$225.4 billion, representing an 8.7 

percent increase from the preceding 

year-end.16

Several factors contributed to the 

$17.9 billion increase in Systemwide debt outstanding. Gross loans 

increased $16.0 billion in 2014, while 

the System’s combined investments, 

Federal funds, and cash balances 

increased by $5.9 billion during the 

year.

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 as quickly 

and efficiently as possible 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 2014, we approved $141.5 billion in longer-term debt issuances 

through this program.

The amount of debt issued by the 

System decreased significantly in 

2014. For the 12 months ended 

December 31, 2014, the System issued 

$330 billion in debt securities, compared with $377 billion for 2013, $371 

billion for 2012, $563 billion for 2011, 

and $534 billion for 2010. The System 

has continued to exercise call options 

on higher-cost debt because global 

events have shifted the yield curve 

downward for limited spans. However, the System has exercised far 

fewer call options than it did when 

the yield curve dropped precipitously 

immediately after the financial crisis.

Investor appetites and continued 

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 

under four months during 2014 to 

2.7 years. Also, the weighted-average 

interest rates for insured debt continued to decrease, going from 0.93 

percent as of December 31, 2013, to 

0.87 percent as of December 31, 2014.

To participate in the issuance of an 

FCS debt security, a System bank 

must maintain, free from any lien or 

other pledge, specified eligible assets 

(available collateral) that are at least 

equal in value to the total amount 

of its outstanding debt securities. 

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

bank is primarily liable, investment 

bonds, and other debt securities that 

the bank may have issued individually.

Furthermore, to ensure safety and 

soundness, our regulations require 

each System bank to maintain a 

net collateral ratio (primarily assets 

divided by liabilities) of not less than 

103 percent. We require certain System banks to maintain higher minimum net collateral ratios. All System 

banks have kept their net collateral 

ratios above the required minimum, 

with 105.9 percent being the lowest 

for any single bank as of December 

31, 2014.

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

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

condition and performance of the System as a whole.

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

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

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

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

well. Debt issued by an individual bank is uninsured, and the issuing bank is solely liable for the principal payments.
38

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

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 December 31, 2014, were 

as follows: 

• 20 days (15 days regulatory 

minimum) of Level 1 assets

• 41 days (30 days regulatory 

minimum) of Level 1 and 2 

assets

• 57 days (90 days regulatory 

minimum) of Level 1, 2, and 3 

assets 

• 147 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.17

• 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 2014, all Farm 

Credit banks maintained scores 

in excess of the benchmarks in 

the Contractual Interbank Performance Agreement.

Mission-Related Investments 

In January 2005, we issued guidance that gave System institutions 

an opportunity to participate in pilot 

programs supporting investments in 

rural America (see FCA Informational 

Memorandum dated January 11, 

2005, Investments in Rural America—

Pilot Investment Programs). The pilot 

programs were intended to provide 

FCS institutions greater flexibility to 

partner with Government agencies 

and other agricultural and rural lenders in fulfilling FCS mission objectives.

On November 14, 2013, the FCA 

Board voted to conclude, effective 

December 31, 2014, each pilot program approved after 2004 as part of 

the Investments in Rural America 

program. The Board’s action permits each System institution that 

is participating in a pilot program 

to continue to hold its investments 

through the maturity dates for the 

investments, provided the institution continues to meet all approval 

conditions. Although we concluded 

the pilot programs, we will consider 

investment requests on a case-by-case 

basis under our existing investment 

regulations.

Because of the Investments in Rural 

America pilot programs, we now 

have a better understanding of the 

diverse financing needs of agriculture 

and rural communities and the ways 

System institution investments can 

help increase the availability and efficiency of funds to these markets. The 

information gathered and experience 

gained through the pilot programs 

will be useful as we evaluate future 

investment requests.

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

Restated Market Access Agreement. The agreement became effective on January 1, 2012.
39

Maintaining a Dependable Source of Credit 

for Farmers and Ranchers

As federally chartered cooperatives, 

the banks and associations of the 

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

“improve the income and well-being 

of American farmers and ranchers” 

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

to “selected farm-related businesses 

necessary for efficient farm operations.”

Making loans exposes the System 

to risk. To manage this risk, System 

institutions must have both sufficient 

capital and effective risk-management 

controls.

As the independent regulator of the 

FCS, the Farm Credit Administration examines and supervises System 

institutions. We monitor specific risks 

in each institution; we also identify 

and monitor risks that affect the System as a whole.

Through our risk-based examination 

and supervisory program, our examiners determine how issues facing an 

institution or the agriculture industry 

may affect the nature and extent of 

risk in that institution.

Our examiners also evaluate whether 

each institution is meeting its public 

mission. They do so by determining 

whether each institution is complying with laws and regulations and 

whether it is serving the credit needs 

of eligible agricultural producers 

and cooperatives, including young, 

beginning, and small farmers and 

ranchers.

Conducting a Risk-Based 

Examination and Oversight 

Program

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 institutionspecific 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.
40

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

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

Currently, we are emphasizing the 

following areas:

	 •	Portfolio Management in

Volatile Times. Volatility in 

the agricultural sector and the 

potential for reduced profitability 

and increased borrower stress are 

expected over the next several 

years. Proactive and diligent 

portfolio management is particularly important and will require 

close attention from both FCS 

institutions and FCA examiners. 

• Allowance for Loan Loss in

Volatile Times. Many FCS institutions have reversed allowances 

in recent periods, which may be 

inconsistent with changing and 

more volatile agricultural conditions. In the current environment, 

the boards and management 

should be increasingly conservative to ensure that allowances 

appropriately reflect credit and 

collateral risks. They should 

complete detailed analysis and 

documentation to support allowance levels.

•	Large, Complex, and Shared

Assets. The System is increasingly involved in large, complex, 

and shared assets. These assets 

are widely participated throughout the System to achieve various 

institutional objectives including 

portfolio diversification and business plan goals. FCA examiners 

plan to evaluate loan conditions, 

covenants, and other credit and 

portfolio controls on these assets 

to determine if risks are managed 

properly. 

•	Board Governance and Nominating Committees. The quality of 

System institutions’ boards and 

operations is vital to the success 

of individual institutions and the 

System as a whole. Our examiners plan to evaluate institutions’ 

board operations and director 

training programs, as well as the 

effectiveness of their nominating 

committees. 

When we identify systemic issues, we 

inform institutions about those issues 

by producing the following:

• Reports of Examination

• FCA Board Policy Statements

• Informational Memoranda

• Bookletters

We keep an online library of these 

documents. Go to our website at 

www.fca.gov, click on the Law & 

Regulations tab, and select Info 

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

Measuring the System’s Safety 

and Soundness

FCA uses the Financial Institution 

Rating System (FIRS) to indicate 

safety and soundness threats in each 

institution. Similar to the systems 

used by other Federal 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.

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.18

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

regularly review and update FIRS 

ratings to reflect current risks and 

conditions. We use both quantitative 

and qualitative benchmarks to help 

examiners apply FIRS ratings consistently from one institution to the 

next. We disclose the FIRS composite 

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

perspective on the safety and soundness of their institution.

We also disclose these ratings to each 

institution’s funding bank to ensure 

that the bank takes any actions 

necessary to address any safety and 

soundness issues as it administers 

its direct loan with the institution. 
41

Figure 10

Financial Institution Rating System (FIRS) 

Composite Ratings for the FCS, 2011–2015

Source: FCA’s FIRS Ratings Database.

Note: Figure 10 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.

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 10 shows, risks were higher 

in 2010 when stresses from the general economy, the credit crisis, and 

volatility in commodity prices surfaced and affected some institutions. 

The ratings have gradually improved 

each year, and the FIRS ratings for 

2014 show that the financial condition and performance of the FCS 

was relatively strong. The System’s 

strength reduces the risk to investors in FCS debt, to the Farm Credit 

System Insurance Corporation, and to 

FCS institution stockholders.

At December 31, 2014, 44 FCS institutions were rated 1 (55 percent), 32 

were rated 2 (40 percent), 3 were 

rated 3 (4 percent), and 1 was rated 

4 (1 percent). Most of the institutions 

rated 3 or 4 were relatively small and 

collectively represent about 1 percent 

of the System’s total assets. There 

were no institutions with a 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 10.)
42

Farm Credit Administration 2014 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 enforcement document and 

report back to us on its progress in 

addressing the issues identified. Our 

examiners oversee the institution’s 

performance to ensure compliance 

with the enforcement action. As of 

December 31, 2014, we had formal 

written agreements with three associations, whose assets totaled $1.2 billion. The written agreements require 

the associations to take corrective 

actions in such areas as financial 

condition and performance, portfolio 

management, asset quality, and institution management or governance. 

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. 

Tthe 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. When a 

System institution acquires agricultural property through liquidation, 

the Farm Credit Act also provides 

borrowers the opportunity to buy or 

lease back their former properties. 

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 

2014, we received 29 borrower complaints. The number of complaints 

has declined in recent years because 

of less financial stress on System borrowers and improved application of 

borrower rights.

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.
43

Condition of Farmer Mac

Farmer Mac is a stockholder-owned, 

federally chartered instrumentality 

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

Farmer Mac provides a secondary 

market for agricultural real estate 

mortgage loans, rural housing loans, 

and rural utility cooperative loans. 

This secondary market is designed 

to increase the availability of longterm credit at stable interest rates 

to America’s rural communities and 

to provide rural borrowers with the 

benefits of capital markets pricing 

and product innovation.

Farmer Mac conducts activities 

through 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 cooperatively 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 long-term standby purchase commitments (standbys) for 

eligible loans. Securities guaranteed 

by Farmer Mac may be held either 

by the originator of the underlying 

assets or by Farmer Mac, or they 

may be sold to third-party investors.

FCA regulates Farmer Mac through 

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

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

of 1991. This office provides for the 

examination and general supervision of Farmer Mac’s safe and sound 

performance of its powers, functions, 

and duties. The statute requires 

OSMO to be a separate office within 

our Agency and to report directly to 

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

the extent practicable, be carried out 

by individuals who are not responsible for supervising the banks and 

associations of the FCS.

Through OSMO, we perform the following functions:

• Examine Farmer Mac at least 

annually for capital adequacy, 

asset quality, management performance, earnings, liquidity, and 

interest rate sensitivity

• Supervise and issue regulations 

governing Farmer Mac’s operations

• Oversee and evaluate Farmer 

Mac’s safety and soundness and 

mission achievement

OSMO reviews Farmer Mac’s compliance with statutory and regulatory 

minimum capital requirements and 

supervises its operations and condition throughout the year. Table 5 

Table 5 

Farmer Mac Condensed Balance Sheets, 2009–2014

As of December 31	 	 	 	 	 	 	

Dollars in Millions

 Percentage 

growth

rate

2009 2010 2011 2012 2013 2014 2013–2014

Total assets	 $6,138.8	 $9,479.9	 $11,883.5	 $12,622.2	 $13,361.8	 $14,287.8	 6.9%

 

Total liabilities	 $5,798.4	 $9,001.0	 $11,329.0	 $12,029.2	 $12,787.3	 $13,506.0	 5.6%

 

Net worth or 

	 equity capital	 $196.2	 $478.9	 $554.5	 $593.0	 $574.5	 $781.8	 36.1%

 

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K.
44

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Table 6	 	 	 	 	 	

Farmer Mac Capital Positions, 2009–2014

As of December 31	 	 	 	 	 	 	

Dollars in Millions

2009 2010 2011 2012 2013 2014

GAAP equity	 $196.2	 $478.9	 $554.5	 $593.0	 $574.5	 $781.8

Core capital	 $337.2	 $460.6	 $475.2	 $519.0	 $590.7	 $766.3

Regulatory capital	 $351.3	 $480.7	 $492.7	 $535.9	 $604.0	 $776.4

Statutory requirement	 $217.0	 $301.0	 $348.6	 $374.0	 $398.5	 $421.3

Regulatory requirement	 $35.9	 $42.1	 $52.9	 $58.1	 $90.8	 $121.6

Excess core capital over statutory requirement*	 $120.2	 $159.6	 $126.5	 $145.0	 $192.2	 $345.0

Capital margin excess over the minimum	 55.4%	 53.0%	 36.3%	 38.8%	 48.2%	 81.9%

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

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

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

 

summarizes Farmer Mac’s condensed 

balance sheets at the end of each 

year from 2009 to 2014.

Capital

On December 31, 2014, Farmer Mac’s 

net worth (that is, equity capital 

determined using generally accepted 

accounting principles [GAAP]) was 

$781.8 million, compared with $574.5 

million a year earlier. Net worth was 

5.5 percent of on-balance-sheet assets 

as of December 31, 2014, compared 

with 4.3 percent at the end of 2013. 

The ratio’s increase was driven by 

the issuance of $150 million in preferred stock during 2014 and a $32 

million increase in retained earnings. 

When Farmer Mac’s off-balance-sheet 

program assets (that is, essentially its 

guarantee obligations) are added to 

its total on-balance-sheet assets, net 

worth was 4.3 percent as of December 31, 2014, compared with 3.3 

percent in 2013. As of December 31, 

2014, Farmer Mac continued to be 

in compliance with all statutory and 

regulatory minimum capital requirements.

At year-end 2014, Farmer Mac’s core 

capital (the sum of the par value of 

outstanding common stock, the par 

value of outstanding preferred stock, 

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

minimum requirement. Its regulatory 

capital (core capital plus allowance 

for losses) exceeded the required 

amount as determined by the RiskBased Capital Stress Test19 Farmer 

Mac’s core capital as of December 31, 

2014, totaled $766.3 million, exceeding the statutory minimum capital 

requirement20 of $421.3 million by 

$345.0 million.

Farmer Mac’s regulatory capital 

totaled $776.4 million as of December 31, 2014, exceeding the regulatory risk-based capital requirement 

of $121.6 million by $654.8 million. 

Regulatory capital was 6.1 percent of 

total Farm & Ranch and rural utility 

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

utility program volume but excluding 

USDA Guarantees). Risk exposure on 

USDA Guarantee loans is extremely 

low because they are guaranteed by 

the U.S. Department of Agriculture. 

Table 6 offers a historical perspective 

on capital and capital requirements 

for 2009 through 2014.

We published a final rule in January 

2014 to revise regulations governing 

Farmer Mac’s capital planning activities. The final rule requires annual 

stress testing of Farmer Mac’s capital 

position; it also requires Farmer Mac 

to adopt an internal economic capital 

model that conforms to guidance 

issued by the Basel Committee on 

International Banking Supervision or 

comparable guidance issued by U.S. 

regulators.

We published a proposed rule in 

March 2015 on Farmer Mac’s corporate governance and standards of 

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

20. The statute requires minimum capital of 2.75 percent for on-balance-sheet assets and 0.75 percent for off-balance-sheet obligations.
45

conduct. The proposed rule requests 

public comment on provisions related 

to board nominations and elections, 

conflicts of interest, and risk governance, among other topics.

Nonprogram investments provide 

liquidity in the event of a short-term 

disruption in the capital markets 

that would prevent Farmer Mac 

from issuing new debt. Nonprogram 

investments consist of investment 

securities, cash, and cash equivalents. 

We intend to publish a proposed rule 

in 2015 to revise regulations governing eligible nonprogram investments.

Program Activity

Farmer Mac’s total program activity 

increased to $14.6 billion on December 31, 2014, from $14.0 billion a 

year earlier (see figure 11). Farmer 

Mac experienced steady growth in 

its Farm & Ranch loan purchases, 

as well as its AgVantage products. 

AgVantage transactions are general 

obligations of the issuing financial 

institution that are purchased or 

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

financial institution, each AgVantage 

security is secured by eligible loans 

under one of Farmer Mac’s programs 

in an amount at least equal to the 

outstanding principal amount of the 

security.

Farmer Mac’s Long-Term Standby 

Purchase Commitment product is 

similar to a guarantee of eligible 

pools of program loans. Under the 

standbys, a financial institution pays 

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 12, 

standbys represented 15.4 percent of 

Farmer Mac’s total program activity 

in 2014.

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 

2014, 26.6 percent of program activity 

consisted of off-balance-sheet obligations, as compared with 28.9 percent 

a year earlier.

Figure 11

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. 
46

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Asset Quality

On December 31, 2014, $132.6 million 

of the Farm & Ranch program portfolio was substandard, representing 

2.45 percent of the principal balance 

of Farm & Ranch loans purchased, 

guaranteed, or committed to be purchased.21 This compares with $194.9 

million, or 3.78 percent, on December 

31, 2013. Assets are considered to be 

substandard when they have a welldefined weakness or weaknesses that, 

if not corrected, are likely to lead to 

some losses.

As of December 31, 2014, Farmer 

Mac’s 90-day delinquencies improved 

for the fourth consecutive year to 

$18.9 million, or 0.35 percent of 

non-AgVantage Farm & Ranch loans, 

compared with $28.3 million, or 0.55 

percent, as of December 31, 2013. 

Real estate owned as of December 31, 

2014, was $0.42 million, down from 

$2.6 million a year earlier. Farmer 

Mac reported no delinquencies in 

its pools of rural utility cooperative 

loans.

On December 31, 2014, Farmer Mac’s 

allowance for losses totaled $10.1 million, compared with $13.3 million on 

December 31, 2013. Figure 13 shows 

the levels of Farmer Mac’s substandard Farm & Ranch assets and its 

90-day delinquencies relative to outstanding program volume, excluding 

AgVantage loan volume.

Earnings

Farmer Mac reported net income 

available to common stockholders 

of $38.3 million (in accordance with 

GAAP) for the year ended December 

31, 2014, down from $71.8 million 

reported at year-end 2013. Core 

earnings for 2014 were $53.0 million, compared with $54.9 million in 

2013.22 Net interest income, which 

excludes guarantee fee income, was 

$60.8 million in 2014, down from 

$98.6 million in 2013. Guarantee fee 

income was $25.2 million, compared 

with $27.0 million in 2013. Table 7 

shows a six-year trend for the basic 

components of income.

Figure 12

Farmer Mac Total Program Activity

21. We have excluded AgVantage volume from the Farm & Ranch loan volume because AgVantage products carry significantly less risk.

22. Core earnings provide a non-GAAP measure of financial results that exclude 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.

Total=$14.60 billion

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

AMBS=agricultural mortgage-back securities
47

Figure 13

Allowance, Nonperforming Asset, and Delinquency Trends, 2009–2014

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

Table 7	 	 	 	 	 	 	

Farmer Mac Condensed Statements of Operations, 2009–2014

As of December 31	 	 	 	 	 	 	

Dollars in Millions 

 

 Growth Rate

2009 2010 2011 2012 2013 2014 2013–2014

 

Total revenues	 $181.8	 $99.1	 $73.3	 $122.0	 $164.4	 $103.6	 -37%

Total expenses	 $99.5	 $77.0	 $59.5	 $78.1	 $92.5	 $65.4	 -29%

Net income available 

	 	 to common shareholders	 $82.3	 $22.1	 $13.8	 $43.9	 $71.8	 $38.3	 -47%

Core earnings	 $16.1	 $25.4	 $42.9	 $49.6	 $54.9	 $53.0	 -3%

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

Farm Credit Administration 2014 Annual Report on the Farm Credit System 
49

Challenges Facing the Agricultural Economy 

and the Farm Credit System

The following paragraphs identify 

the key factors or events that challenge the ability of the Farm Credit 

System and Farmer Mac to fulfill 

their missions. The factors include 

the farm economy, the macroeconomy, foreign trade, Government policies, international events, 

and weather. As the regulator of the 

System, we will continue to closely 

monitor and evaluate the implications of these risks.

The Farm Economy

The U.S. farm economy entered 2014 

in sound financial condition following a year marked by record net 

farm income and farmland values. 

However, early in 2014, USDA was 

already projecting a drop in farm 

income because of a rebound in production both at home and abroad. . 

During the year, concern grew about 

inflated land values and the possible 

end to the recent period of farm 

prosperity. 

While USDA’s mid-year survey 

showed record farm real estate 

values in much of the country, by 

the end of the year other farmland 

surveys showed farmland values 

leveling off or declining slightly in 

response to record grain and soybean 

harvests and lower crop prices. 

Livestock producers benefited from 

strong product prices and low 

feed costs throughout most of 2014 

although profit margins began to 

narrow toward the end of 2014 as 

supplies began to outstrip demand. 

The livestock sector faced a number 

of challenges in 2014 that affected 

the export market: the labor contract 

dispute that caused a slowdown at 

the West Coast port, Russia’s import 

ban on livestock products in retaliation for economic sanctions, and 

the strengthening of the U.S. dollar 

against the currencies of key trade 

partners. 

While the hog industry overcame the 

impacts of the PED virus by the fall 

of 2014, the poultry industry may 

spend much of 2015 dealing with the 

trade effects of avian influenza. The 

disease was discovered in U.S. turkey 

operations in late January 2015 and 

in poultry operations in early February 2015.

Drought 

According to the U.S. Drought Monitor, drought conditions improved 

across the Midwest and Central 

Plains in 2014, while droughts 

worsened or continued in the Southern Plains, Southwest, and in the 

far West, particularly in California. 

California is the largest agricultural 

producing state in the country by 

value, and it accounts for the largest share of the System’s total loan 

volume. By December 2014, 99 

percent of the state was in drought. 

The U.S. drought footprint (moderate to exceptional) was 33.0 percent 

on January 7, 2014, peaked at 40.1 

percent in early May, and ended the 

year at 28.7 percent. 

As a result of the drought, an estimated 420,000 acres of California 

farmland lay fallow in 2014, or about 

5 percent of the total. Harvested 

cropland in California is down 24 

percent since 2011. Acreage and 

yields are down for most crops, as 

well as many fruit and nut varieties. 

About 40 percent of the state’s water 

is used for agriculture, 10 percent for 

urban use, and 50 percent for environmental uses, according to data 

from the Public Policy Institute of 

California. A University of California 

report released in July 2014 projected 

that the 2014 drought will cost the 

state $2.2 billion in agricultural economic loss and 17,100 jobs. 

While some drought relief came to 

parts of California over the winter, 

the drought entered its fourth year in 

2015, and its intensity will continue 

to be a major challenge to farmers 

and ranchers throughout the state. 

As of April 7, 2015, nearly 67 percent 

of California was in the two worst 

drought designations (extreme and 

exceptional), and 44 percent of the 

state was in exceptional drought. 

Because California is one of the 

world’s largest suppliers of fruit, 

vegetables, tree nuts, dairy products, 

and wine, the drought has significant 

implications worldwide for both supplies and prices.

Farm Income

During 2014, the Midwest’s nearly 

ideal growing conditions produced a 

record harvest of corn and soybeans. 

With already large global invento-
50

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

ries, the increase in production led to 

sharply lower crop prices by harvest. 

Wheat production for 2014, while 

not a record, was still large enough 

to sharply raise stocks-to-use levels 

and to weigh down wheat prices. 

As a result, the season average price 

received by farmers for the 2014/15 

marketing year is projected at $3.70 

for corn, $10.20 for soybeans, and 

$6.00 for wheat, down 17 percent, 

22 percent, and nearly 13 percent, 

respectively, from the previous marketing season. See figure 14.

For some producers, the price 

declines pushed gross revenues 

below the cost of production despite 

the gains from the bountiful harvest. 

Corn, soybeans, wheat, and other 

cash grains are the largest commodity group financed with System 

loans, accounting for 18.3 percent of 

the total loan portfolio at the end of 

2014. 

While crop producers were watching their profit margins get squeezed 

through 2014, livestock producers 

were getting a break from the high 

feed cost years of 2012 and 2013 

and enjoying generally strong prices 

for their products. This resulted in 

strong profit margins for the dairy, 

livestock, and poultry sectors for 

2014. Cow-calf producers enjoyed 

particularly strong pricing and were 

rewarded with historically high profit 

margins during the year. 

The 14.4 percent rise in 2014 livestock cash receipts was offset by the 

9.3 percent decline in cash receipts 

for crops, declines in Government 

payments and farm-related income, 

Figure 14

Soybean, Corn, and Wheat Prices per Bushel from 1980/81–2014/15

Source: USDA.
51

Figure 15

Inflation-Adjusted Farm Sector Net Cash Income

Dollars in Billions

and higher production expenses. As 

a result, net cash income for the farm 

sector declined to $115.1 billion in 

2014. Because of the sharp drop in 

crop prices, lower values for crop 

inventories contributed to the 16 percent drop in net farm income to $108 

billion for 2014.

USDA’s February outlook for 2015 

projects net cash income to drop as 

much as 22 percent to $89.4 billion on lower cash receipts for both 

crop and livestock products due 

to a broad base fall in commodity 

prices from large supplies relative to 

demand. Net farm income for 2015 

is projected to drop as much as 32 

percent to just $73.6 billion on lower 

cash receipts as well as lower values 

for crop inventories. This would be 

the lowest level of net farm income 

since 2009. 

According to the USDA, average net 

cash incomes are expected to fall 

for the first time in four years for 

businesses that specialize in livestock production. Farms specializing 

in dairy production are expected to 

see the largest declines in net cash 

income, followed by hog production 

enterprises. 

Production expenses, after increasing around 5 percent for 2014, are 

expected to increase only fractionally if at all in 2015 mostly because 

of the significant drop in the cost 

of petroleum fuel and oil and the 

decline in fertilizer costs. Feed costs 

are projected to decline further 

for 2015 but only by about half as 

much as they declined in 2014. Total 

interest expenses are projected to be 

up about 6 percent for 2015 on the 

expectations that the Federal Reserve 

will begin to raise interest rates later 

in 2015. 

Although farm income fell significantly in 2014 and is forecast to fall 

sharply in 2015, it is important to 

remember that it is falling from a 

record high. After adjusting for inflation, net cash income is forecast to be 

only slightly below the average real 

net cash income for the past 50 years. 

As figure 15 shows, real net cash 

income has largely moved sideways, 

roughly around the $80 billion mark 

(2009 dollars). The graph suggests 

that the boom in farm income of 

the past few years and the one that 

occurred in the early 1970s were 

aberrations in the historical farm 

income trend. Time will tell whether 

this sideways trend will continue.

Source: USDA.
52

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Planted Acreage for Major Crops 

The U.S. Department of Agriculture 

released its Prospective Plantings 

Report for the 2015 crop year on 

March 31, 2015. This report shows 

the number of acres that producers 

of various crops expect to plant in 

2015. 

In response to lower prices for major 

crops, producers are reducing acres 

or shifting production to other crops, 

often to crops that require fewer 

inputs. Some of the acreage cuts are 

occurring in areas that were drawn 

into production in recent years by 

high crop prices. These shifts in production and input usage affect local 

farm input businesses. 

Most of the decline in corn acreage 

(1.4 million acres or 2 percent) is 

expected to occur in South Dakota, 

with 600,000 fewer acres of corn in 

2015. Most of the rest of the decline 

is expected to come from cuts in 

corn acreage in Illinois, Missouri, 

and Ohio. The drop in corn acreage is expected to be largely offset 

by increased plantings of other feed 

grains—mostly sorghum, barley, and 

oats. 

Soybean growers intend to expand 

acreage about 1 percent, or 934,000 

acres, to a new record high of 84.6 

million acres.

The number of acres in wheat is 

also projected to drop 1.45 million 

acres, or 3 percent, with the largest 

amount, 540,000 acres, coming out of 

North Dakota. 

The largest acreage decline for 2015 

is expected for cotton, which is 

projected to drop 1.49 million acres, 

or 13 percent, to 9.55 million acres. 

Most of the adjustment is expected 

from Texas, with a drop of 502,000 

acres, followed by Georgia, with a 

drop of 280,000 acres. 

Projected acres for hay production 

were expected to remain unchanged. 

Cropland Values 

Based on USDA’s annual June 2014 

farm real estate survey, the average value of U.S. cropland rose 7.6 

percent to $4,100 per acre for 2014. 

The booming cropland market, however, has cooled somewhat from the 

double-digit increases of the previous 

three years. Sharply reduced grain 

and soybean prices for 2014 have 

been weighing on farm income and, 

in turn, on cropland markets. 

The number of states with cropland 

values growing by 20 percent or 

more fell from four in 2013 (Colorado, North Dakota, South Dakota, 

and Utah) to just one in 2014 (South 

Dakota). The number of states with 

cropland value growth rates between 

10 percent and 20 percent also 

declined—from 12 in 2013 to 5 in 

2014 (Kansas, Minnesota, Montana, 

North Dakota, and Texas). New York 

and the New England states experienced slight declines in cropland 

values. 

The growth in cropland values may 

have temporarily come to an end. 

Federal Reserve surveys of agricultural bankers, as well as other 

data sources, suggest a slowdown 

in farmland price appreciation and 

even declines by the fourth quarter 

of 2014, particularly in the Corn Belt. 

Weaker farmland markets carried 

over into early 2015 when prices for 

major crops remained near or below 

profitable levels. 

Farmland values for the Chicago 

Federal Reserve district declined 3 

percent during the fourth quarter 

of 2014 from a year ago, the first 

annual decline since the 4 percent 

decline in the third quarter of 2009. 

Despite solid harvests for Minneapolis district farmers, lower crop 

prices led to lower cropland values 

for 2014. However, improved financial conditions for beef and dairy 

producers provided some support to 

ranchland values. Farmland values 

in the Kansas City Federal Reserve 

district generally held steady for 

2014 despite declines in farm income. 

The Dallas district reported moderate increases in value for farm and 

ranchland, reflecting both the easing 

of the long drought in the district 

and the improved profitability of 

cattle ranching.

The sharp rise in farmland values in 

recent years has raised some concerns about a possible asset bubble in 

the farm sector. The two consecutive 

years of large crops in 2013 and 2014, 

which cut prices and cash flows for 

crop producers, have added fuel to 

the debate. However, the farm sector 

has several strengths and advantages that may soften a correction in 

farmland values. These include the 

following: 

• The Renewable Fuel Standard 

program will keep up the 

demand for corn for ethanol production.

• Both the domestic and foreign 

livestock sectors are rebounding 

from the high feed cost era and 

are consuming greater quantities 

of grains and oilseeds.

• Fast-growing economies in countries like China and India should 

continue to provide a robust 

export market for U.S. grains, 

soybeans, livestock, and horticultural products.

• As indicated by historically low 

debt levels, the farm sector has 
53

strong liquidity following three 

back-to-back years of record 

earnings. 

• Interest rates are expected to 

remain stable or increase only 

slowly later in 2015; the low rates 

will continue to stimulate the 

economy and expand employment.

• A restrained lending environment, coupled with risk management tools such as crop insurance and Government commodity programs, will help many 

producers weather an economic 

downturn.

The Farm Credit System is the largest supplier of credit for U.S. farmland purchases. To address the risks 

associated with farmland values, FCA 

has issued guidance on collateral 

risk management to System lenders through a series of Informational 

Memorandums. Many System institutions are improving underwriting 

standards and appraisal guidelines 

on farmland collateral. They are also 

stress testing their portfolios to determine how changes in land values 

may affect credit quality.

U.S. Agricultural Exports 

U.S. agricultural exports reached a 

new high in FY 2014 (October 2013 

to September 2014), increasing 8.2 

percent to a record $152.5 billion. 

U.S. agricultural trade value has 

more than doubled since the mid2000s, making trade very important 

to the economic well-being of many 

U.S. farmers.

Some U.S. products are more 

exposed to the variability of the 

international market. Nine commodities relied on the export market for 

a third or more of their production from 2012 to 2014, while three 

commodities (cotton, walnuts, and 

almonds) shipped more than twothirds of their production abroad 

(figure 16). In some years, 80 percent or more of cotton, whole milk 

powder, and almond production are 

exported, as well as over 60 percent 

of wheat production, 49 percent of 

soybean production, and 40 percent 

of rice production. 

While export markets provide great 

income opportunities for U.S. agriculture, they come with inherent 

risks, including importer buying 

Figure 16

U.S. Agricultural Exports: Percentage Share of Production*

* For crops, the numbers reflect the average percentage share of production for marketing years 2012/13 to 2014/15. For livestock, the numbers reflect average percentage share of production for calendar years 2012 to 2014. 
54

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

behavior, exchange rate changes, and 

changes in Government policy that 

might restrict U.S. products because 

of quality or safety concerns (real or 

imagined). The recent Russian ban 

on products from countries imposing 

economic sanctions for its incursions 

in Ukraine is an example of trade 

disruptions that can have serious 

consequences for U.S. agricultural 

producers.

The U.S. agricultural export picture 

can be quickly altered when a single 

country has an outsized role in the 

world market for a commodity. 

In fiscal 2014, China remained the 

dominant market for U.S. agricultural exports, a position it took over 

from Canada in fiscal 2011. China 

accounted for 17 percent of U.S. agricultural exports in FY 2014, up from 

8 percent in FY 2005, and less than 3 

percent in FY 2000. 

World economic growth is a key to 

export growth for many U.S. commodities, particularly those in the 

protein sector. The International 

Monetary Fund projects world 

economic growth to increase to 3.1 

percent for 2015, up from 2.6 percent 

in 2014. This should bode well for 

U.S. agricultural exports; however, 

the outlook for U.S. agricultural 

exports is to actually decline 7.2 

percent to a projected $141.5 billion. 

Double-digit percentage declines in 

the export of grains and feeds and 

oilseeds and products are projected, 

while livestock, poultry, and dairy 

products are projected to decrease 

about 6 percent. On the positive side, 

U.S. exports of horticultural products 

are projected to increase 8 percent 

to $33.4 billion. About a third of 

the increase is attributed to larger 

exports of tree nuts, mainly almonds 

and walnuts. 

The decline in U.S. agricultural 

export sales projected for FY 2015 is 

due in large part to the rising value 

of the dollar, which makes U.S. 

goods more expensive to importers. 

In addition, other exporters enjoy 

a competitive advantage when the 

dollar strengthens against their own 

currencies. For the period July 1, 

2014, through the end of February 

2015, the U.S. dollar appreciated 27 

percent against the Brazilian real, 20 

percent against the euro, and around 

16 percent against the Japanese yen 

and the Canadian dollar. The dollar’s 

appreciation since the summer of 

2014 is expected to continue through 

2015 and will dampen demand for 

U.S. agricultural products despite 

their lower prices. 

Interest Rate Environment

Interest expenses for U.S. production 

agriculture totaled $16.3 billion for 

2014, accounting for around 5 percent of total cash expenses. Interest 

on real estate mortgages accounted 

for 62 percent of the total interest 

expenses. Changes in interest rates 

can materially affect the funding 

cost of Farm Credit System borrowers, depending on the interest rate 

product and structure of the loans. 

The System’s banks and associations, 

Farmer Mac, and their borrowers 

continue to benefit from extremely 

low interest rates. Three-month 

Treasury bills yielded an average of 

just 0.03 percent for 2014, while the 

10-year Treasury bond had an average annual rate of 2.54 percent. 

Interest rates have been at historic 

lows in recent years to help stimulate 

a sluggish economy. With a slow 

but improving economy expected 

for 2015 and beyond, the Federal 

Reserve has indicated that it will 

likely begin to slowly raise interest 

rates sometime in 2015. However, if 

interest rates begin to rise more than 

anticipated, farmland values could 

come under additional pressure. 

The General Economy 

Real gross domestic product (GDP) 

grew 2.4 percent in 2014 compared 

with 2.2 percent in 2013. The increase 

in real GDP in 2014 reflected positive 

contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, 

State and local government spending, 

private inventory investment, and 

residential fixed investment that were 

partly offset by a decrease in Federal Government spending. Imports, 

which are a subtraction in the calculation of GDP, increased.

The price index for gross domestic 

purchases increased 1.4 percent in 

2014, compared with an increase of 

1.3 percent in 2013. Current-dollar 

GDP increased 3.9 percent, or $650.8 

billion, in 2014 to a level of $17,418.9 

billion, compared with an increase of 

3.7 percent, or $604.9 billion, in 2013. 

The consensus forecast from Consensus Economics projects real GDP 

for the U.S. economy to expand 

3.1 percent for 2015. Real personal 

consumption is projected to increase 

by 3.3 percent, real Government 

consumption is projected to increase 

by 0.8 percent, and real business 

investment is projected to increase 

by 5.2 percent. The U.S. trade deficit 

is projected to widen an additional 

$36 billion, or 8 percent, to $490 billion for 2015 due to sluggish growth 

abroad and a significantly stronger 

dollar, which discourages exports 

and encourages imports. 
55

Employment Prospects 

The labor market strengthened 

further during 2014 as employment rose and the unemployment 

rate declined. Payroll employment 

increased an average of about 280,000 

jobs per month in the second half of 

2014, almost 40,000 jobs per month 

faster than in the first half of 2014. 

The gain in payroll employment 

for 2014 was the largest since 1999. 

However, in March 2015, 126,000 

jobs were created, well below the 

monthly average for the preceding 

12 months of 269,000 new jobs. The 

unemployment rate continued to fall 

throughout 2014, declining to a low 

of 5.6 percent for December 2014. 

The unemployment rate fell to a new 

low of 5.5 percent in February 2015 

and remained at that level for March, 

a rate more than 4 percentage points 

below its peak in 2009. A substantial 

portion of the decline in unemployment over the past year came from a 

decrease in the number of individuals reporting unemployment spells 

longer than six months. 

Because many unemployed people 

got discouraged and dropped out of 

the labor force, the labor force participation rate continued to decline 

not only during the recession, but 

also during much of the recovery 

period when most other indicators 

of labor market health were improving. The labor force participation rate 

remained low in early 2015, with a 

rate of 62.7 percent for March matching the monthly lows of September 

and December 2014. Another sign 

that the labor market remains weaker 

than indicated by the unemployment 

rate alone is the still-elevated share 

of workers who are either marginally 

attached (discouraged) or employed 

part time but would like to work full 

time. The more comprehensive U-6 

measure of labor underutilization 

remains quite elevated at 10.9 percent 

for March 2015, nearly double the 

more widely reported U-3 measure 

of 5.5 percent (total unemployed as a 

percent of the civilian labor force).

Nevertheless, most broad measures of labor market health have 

improved. With employment rising, 

the employment-to-population ratio 

climbed noticeably higher in 2014 

and early 2015 after moving more or 

less sideways for much of the recovery. The quit rate, which is often 

perceived as a measure of worker 

confidence in labor market opportunities, has largely recovered to its 

pre-recession level.

Even as the labor market has been 

improving, most measures of labor 

compensation have continued 

to show only modest gains. The 

employment cost index (ECI) for 

private industry workers, which 

measures both wages and the cost of 

employer-provided benefits, rose 2.25 

percent in 2014, only slightly faster 

than the gains of about 2 percent that 

had prevailed for several years. 

Two other prominent measures of 

compensation—average hourly earnings and business-sector compensation per hour—increased slightly less 

than the ECI over the past year and 

have shown fewer signs of acceleration. Over the past five years, the 

gains in all three of these measures 

of nominal compensation have fallen 

well short of their prerecession averages and have only slightly outpaced inflation. That said, the drop 

in energy prices has pushed up real 

wages in recent months.

Employment in Nonmetropolitan 

Areas 

The recovery of the job market from 

the Great Recession in nonmetro 

areas has lagged behind that of 

metro areas. Over the past several 

years, urban areas of the United 

States have seen moderate employment growth. By the second quarter 

of 2014, urban employment was 

slightly above the level it held at the 

onset of the Great Recession in late 

2007. Urban employment rose by 5.0 

percent between the second quarters 

of 2010 and 2014. 

However, over the same four-year 

period, employment grew by just 

1.1 percent in rural America, and it 

remained more than 3 percentage 

points below prerecession levels as 

of mid-2014, despite a slight uptick 

recently. Employment losses persisted 

in many rural areas, including much 

of the South, Appalachia, Northwest, 

and Mountain West. 

Housing Sector Recovery 

After advancing reasonably well in 

2012 and early 2013, the recovery in 
56

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

residential construction activity has 

slowed markedly in 2014. Singlefamily housing starts only edged up 

in 2014, and multifamily construction 

activity was also little changed. And 

sales of both new and existing homes 

were flat, on net, last year. In all, 

real residential investment rose only 

2.5 percent in 2014, and it remains 

well below its prerecession peak. 

The weak recovery in construction 

likely relates to the rate of household 

formation, which, notwithstanding 

tentative signs of a recent pickup and 

the improvement in the labor market, 

has generally stayed very low. 

Lending policies for home purchases 

remained tight overall although there 

are some indications that mortgage 

credit has started to become more 

widely accessible. Meanwhile, for 

borrowers who can qualify for a 

mortgage, the cost of credit is low. 

After rising appreciably around mid2013, mortgage interest rates have 

since lost much of that increase. The 

average 30-year fixed mortgage rate 

declined roughly 60 basis points in 

2014, and it has edged down further 

in 2014 to a level not far from its alltime low in 2012. 

The gains in house prices slowed in 

2014. For example, the CoreLogic 

national index increased only 5 percent after rising more substantially in 

2012 and 2013, while the Case-Shiller 

U.S. National Home Price Index 

increased by 4.6 percent. 

Movements in home prices showed 

clear regional patterns in 2014. The 

western half of the nation plus 

Miami and Atlanta enjoyed yearover-year increases of 5 percent or 

more. San Francisco and Miami 

were the strongest. Dallas, Denver, 

Las Vegas, and Atlanta also experienced solid gains. Phoenix was an 

exception to the western strength, 

with only a 2.4 percent increase. San 

Diego was a bit under 5 percent at 

4.8 percent. The Midwest and Northeast lagged. Boston was the strongest 

among this weak group, with prices 

up 3.8 percent.

Consumer Price Inflation 

Inflation affects agriculture by raising 

input costs and by curbing consumer 

demand for high-value products like 

dairy, meat, and processed foods; 

it also curbs consumption of food 

away from home. Inflation remained 

low in 2014, with the core personal 

consumption expenditure (PCE) price 

index (or prices of PCE goods and 

services excluding food and energy) 

increasing at an annual rate of about 

1.25 percent. Falling import prices 

likely held down core inflation; lower 

oil prices, and easing prices for commodities more generally, may have 

played a role as well. In addition, 

ongoing slack in labor markets has 

reinforced the low-inflation environment. Though with the improving economy, increased labor force 

utilization could push wages higher, 

contributing to a more inflationary 

environment. 

For the overall basket of items that 

people consume, price increases 

remain muted and below the Federal 

Open Market Committee’s (FOMC’s) 

longer-run objective of 2 percent. 

The central tendencies of the projections of the committee’s participants 

indicate that core PCE inflation will 

move down somewhat in 2015. However, almost all participants project 

that PCE inflation will rise gradually, on balance, from 2015 to 2017, 

getting close to, if not reaching, the 

committee’s 2 percent objective. Amid 

signals from the Federal Reserve that 

current economic conditions are still 

not ripe for an interest rate increase, 

Treasury market expectations for the 

timing of a rate hike shifted from 

June 2015 to September.

International Trade 

The broad nominal value of the dollar has increased markedly since the 

middle of 2014, with the U.S. dollar appreciating against almost all 

currencies. The increase in the value 

of the dollar was driven largely by 

additional monetary easing abroad 

and rising concerns about declines 

in foreign growth—forces similar to 

those that drove benchmark yields 

lower. The dollar is also strengthening as a result of expectations of 

solid U.S. growth and the anticipated 

start of monetary tightening in the 

United States later this year. 

Both the euro and the yen have 

depreciated about 20 percent against 

the dollar since mid- 2014. Despite 

the sharp nominal appreciation of the 

dollar since mid-2014, the real value 

of the dollar, measured against a 

broad basket of currencies, is somewhat below its historical average 

since 1973 and well below its peak in 

early 1985.

U.S. exports of goods and services 

increased $65.2 billion, or 2.9 percent, 

in 2014 to $2.28 trillion, the highest 

on record. Exports of foods, feeds, 

and beverages ($144.2 billion); capital 

goods ($550.0 billion); automotive 

vehicles ($159.5 billion); and consumer goods ($199.2 billion) were the 

highest on record in 2014. 

Imports rose at an even faster 

pace, increasing $93.9 billion, or 3.4 

percent, to a record $2.76 trillion. 

Imports of food, feeds, and beverages 

($125.8 billion); capital goods ($591.4 
57

billion); automotive vehicles ($327.8 

billion); and consumer goods ($558.0 

billion) also set record highs in 2014. 

However, imports of petroleum in 

2014 ($334.1 billion) were the lowest 

since 2009 ($253.7 billion). 

The trade deficit increased $28.7 billion, or 6.0 percent, to $505 billion in 

2014. The trade deficits with China 

($342.6 billion), the European Union 

($141.1 billion), and South Korea 

($25.1 billion) were the highest on 

record, while the deficit with Mexico 

($53.8 billion) was the lowest since 

2009. The 2014 surplus with South 

and Central America ($34.4 billion) 

was the highest on record.

Household and Business 

Borrowing 

Household debt increased in 2014 

despite a continued decline in residential mortgage debt outstanding. 

In contrast to mortgages, consumer 

credit continued to expand through 

late 2014 because auto and student 

loans remained available even to borrowers with lower credit scores. In 

addition, credit cards became somewhat more accessible to individuals 

on the lower end of the credit spectrum, leading to a moderate increase 

in credit card debt in 2014.

The financial condition of large nonfinancial firms generally remained 

solid in the second half of 2014; 

profitability stayed high, and default 

rates on nonfinancial corporate bonds 

were generally very low. Nonfinancial firms have continued to raise 

funds through capital markets at a 

robust pace, given sturdy corporate 

credit quality, historically low interest rates on corporate bonds, and 

highly accommodative lending conditions for most firms. 

Bond issuance by investment-grade 

nonfinancial firms and syndicated 

lending to those firms have both 

been particularly strong. However, 

speculative-grade issuance in those 

markets, which had remained elevated for most of 2014, diminished 

late in the year because volatility 

increased and spreads widened. Perhaps another reason for the decline 

in issuances was the heightened 

scrutiny that regulators gave to syndicated leveraged loans with weaker 

credit quality and lower repayment 

capacity.

Credit also was readily available to 

most bank-dependent businesses. 

According to the October 2014 and 

January 2015 Senior Loan Officer 

Opinion Survey reports, banks generally continued to ease price and 

nonprice terms on commercial and 

industrial loans to firms of all sizes 

in the second half of 2014. That said, 

in the fourth quarter, several banks 

reported having tightened lending 

standards for oil and gas firms; in 

some cases, banks tightened lending standards more broadly, citing 

legislative, supervisory, or accounting 

changes as their reason for doing so. 

In addition, although banks reported 

substantial increases in commercial 

and industrial loans in the second 

half of 2014, loans to businesses in 

amounts of $1 million or less (which 

generally indicate lending to small 

businesses) increased only modestly. 

The weak growth in these small 

loans appears largely due to sluggish demand; however, bank lending 

standards to small businesses are still 

reportedly somewhat tighter than 

over the past decade despite considerable loosening over the past few 

years.

Federal Deficit 

Other factors that may limit economic growth are the Federal budget 

deficit and the Federal debt held 

by the public. The annual deficit 

for fiscal year 2014 fell 29 percent 

to $483.35 billion, the lowest deficit 

since 2008. It amounted to 2.8 percent of the country’s gross domestic 

product. 

However, the Congressional Budget Office (CBO) estimates that the 

Federal deficit will increase for FY 

2015. For the first half of FY 2015 

(October 2014 to March 2015), the 

CBO estimates that the Federal Government ran a budget deficit of $430 

billion, or $17 billion more than the 

shortfall recorded in the same period 

last year. While tax receipts were up 

in the first half of FY 2015, outlays expanded by a greater amount 

because of larger outlays for Fannie 

Mae, Freddie Mac, Medicaid (mostly 

for provisions of the Affordable Care 

Act), and Medicare payments to prescription drug plans. 

While the deficit has been declining in recent years, the accumulation 

of annual deficits continues to raise 

the Federal debt held by the public, 

which increased 6.5 percent to $17.82 

trillion in FY 2014. This amounts 

to almost double the level of 2007. 

Ongoing deficits and debt of these 

magnitudes can lead to imbalances in 

capital and credit markets, which in 

turn can undermine the confidence of 

market participants, leading to inflation and higher interest rates.
58

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Farm Credit System 

Portfolio23

System loan volume grew almost 

8 percent in 2014 despite lingering 

stress in a few sectors. While loan 

volume continued to grow in many 

areas where cash grain is produced, 

it also grew in other regions and 

sectors of agriculture. Lending to 

finance production inputs, inventories, machinery, and real estate purchases increased as high commodity 

prices continued. Mortgage loans 

grew because of continued demand 

for higher valued farmland and continued high commodity prices. Also, 

cooperatives, marketing and processing operations, and utilities contributed significantly to loan growth. 

Although weather conditions were 

challenging, yields increased nearly 

enough in a large part of the Midwest to offset lower prices for most 

crops. Also, many producers benefited from Government support 

programs that helped mitigate the 

impact of reduced crop revenues. 

These revenue sources combined 

to maintain high farm income and 

stable agricultural real estate values through the middle part of the 

United States where most grain producers are located.

Improved commodity prices for 

producers in the animal-based protein sectors combined with reduced 

prices for corn and other feedstuffs 

to improve the profits and financial 

condition of producers in stressed 

sectors, such as animal protein and 

biofuels. As a result, the quality of 

loans to these sectors improved significantly this past year.

Sectors with a direct tie to housing, 

such as horticulture and forestry, are 

recovering as housing demand and 

the overall economy slowly improve. 

However, these sectors still have 

some borrowers who are having 

difficulty recovering from reduced 

demand, a high debt burden, or dramatically reduced borrowing capacity.

Nonaccrual loans in the cattle, dairy, 

poultry, forestry, horticulture, and 

biofuel sectors together accounted 

for about 41 percent, or $0.6 billion, of the System’s $1.4 billion in 

total nonaccrual loans. The System 

also reported $21 million in chargeoffs on loans to these sectors. This 

represented about 30 percent of all 

of the System’s net charge-offs. These 

sectors accounted for $56.6 billion, or 

26 percent, of all System loans. See 

table 8 for a breakdown of financial 

information by sector.

Cattle

The System’s loans outstanding to 

the cattle industry totaled $20.9 billion at year-end 2014, up about 13 

percent from year-end 2013. Cattle 

prices rose in response to reduced 

production during the year. As a 

result, some producers were able to 

remain profitable, but the high costs 

Table 8

Stressed Sectors of the System’s Loan Portfolio

As of December 31, 2014

Dollars in Billions

 Percentage Percentage

of System’s of System’s

Loan Dollar Change from Total Loan Nonaccrual

Volume Prior Year-end Volume Loan Volume

Cattle	 $20.9	 13%	 10%	 10%

Dairy	 $14.3	 (6%)	 7%	 7%

Poultry	 $5.5	 5%	 3%	 4%

Forestry	 $12.6	 3%	 6%	 7%

Horticulture	 $2.5	 (2%)	 1%	 12%

Biofuels	 $0.8	 (25%)	 <1%	 <1%

Source: Farm Credit System Annual Information Statement.

23. When referring to the Farm Credit System in this section, we mean only the banks and direct-lending associations of the System, excluding Farmer 

Mac.
59

of feeder calves cut into the profits of 

feedlot operators, and drought conditions in the Southwest reduced the 

profits of some cow-calf operations. 

However, profits for cow-calf operators in most other regions were very 

good. 

The System’s nonaccrual cattle loans 

declined 20 percent from 2013 to 

$141 million at year-end 2014. These 

loans accounted for 10 percent of the 

System’s nonaccrual loans. Loans to 

cattle operations totaled almost 10 

percent of the System’s loan dollar 

volume and 46 percent of its capital.

Dairy 

System loans outstanding to the 

dairy sector totaled $14.3 billion in 

2014, down 6 percent from a year 

earlier. Producers continued to benefit from higher milk prices as well 

as lower feed costs. Most producers 

reduced their debt or improved their 

financial standing in 2014 although 

some drought-affected areas saw less 

profit improvement.

The System’s nonaccrual dairy loans 

declined 69 percent from 2013 to 

$103 million at year-end 2014. The 

System recognized $11 million in net 

charge-offs on loans to this sector. 

Improved conditions allowed some 

distressed borrowers to refinance or 

pay down more debt than expected. 

Loans to this sector totaled 7 percent 

of the dollar volume of all System 

loans and 31 percent of its capital. 

Dairy accounted for 7 percent of the 

System’s nonaccrual loan volume as 

of December 31, 2014.

Poultry

System loans outstanding to the 

poultry and eggs sector totaled $5.5 

billion, up 5 percent from a year 

earlier. Most producers reported 

good profitability as a result of continued high poultry and egg prices 

and reduced feed costs. For the most 

part, producers used improved profits to pay down debt although many 

began to expand production near the 

end of the year. 

The System’s nonaccrual poultry 

loans fell 43 percent from 2013 to $49 

million at year-end 2014. Loans to 

this sector totaled about 3 percent of 

the System’s loan dollar volume and 

12 percent of its capital.

Forestry

System loans outstanding to the 

forestry sector totaled $12.6 billion, 

up 3 percent from a year earlier. 

Improved demand for housing and 

higher prices for some lumber products spurred loan volume higher, and 

most regions of the United States 

saw improved demand.

The System’s nonaccrual forestry 

loans fell 35 percent from 2013 to 

$91 million at year-end 2014, and the 

System recorded $1 million in recoveries on prior charge-offs. Loans to 

this sector totaled about 6 percent of 

the System’s loan dollar volume and 

27 percent of its capital.

Horticulture

Loans outstanding to horticulture 

operations declined 2 percent from 

last year to $2.5 billion. The decline 

reflected debt reduction and continued soft demand for landscaping material in the housing sector. 

Because many of these operations 

have specialized facilities and are 

located in and around urban areas, 

these properties continued to suffer 

from distressed values for real estate.

The System’s nonaccrual horticulture 

loans declined 16 percent from 2013 

to $170 million at year-end 2014. 

Despite this reduction, these loans 

accounted for 12 percent of System 

nonaccrual loans and $4 million in 

charge-offs. Loans to horticulture 

totaled just over 1 percent of the 

System’s loan dollar volume and 6 

percent of System capital.

Biofuels 

At the end of 2014, loans outstanding to the biofuels (primarily ethanol) 

industry totaled $0.8 billion, down 

25 percent from a year earlier. Most 

plants were profitable and generated 

ample cash flow to pay down debt 

although a few plants remained idle.

The System’s nonaccrual biofuel 

loans totaled only $9 million at 

year-end 2014, a drop of 70 percent 

from a year earlier. Furthermore, $2 

million in recoveries of prior chargeoffs occurred. Biofuel loans outstanding represented only 2 percent of 

capital and less than 1 percent of the 

System’s total dollar volume, both 

of which are small numbers when 

compared to the System’s exposure 

to other industries or commodities. 
60

Farm Credit Administration 2014 Annual Report on the Farm Credit System 
61

Appendix

Figure 17

FCA Organizational Chart

As of May 2015
62

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Offices

As of December 31, 2014, FCA had 

278 full- and part-time employees. 

These employees are divided among 

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

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

The Board approves the policies, 

regulations, charters, and examination and enforcement activities that 

ensure a strong FCS. The Board also 

provides for the examination and 

supervision of the FCS, including 

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

which acquires, manages, and maintains FCA headquarters and field 

office facilities.

The Secretary to the Board serves 

as the Parliamentarian for the Board 

and keeps permanent and complete 

records of the acts and proceedings 

of the Board. He or she ensures that 

the Board complies with statutory, 

regulatory, and internal operation 

reporting requirements. The Secretary 

to the Board also serves as Secretary 

to the Farm Credit System Insurance 

Corporation Board. In addition, he 

or she serves as the Sunshine Act 

Official for the FCA Board.

The Chairman of the FCA Board

serves as the chief executive officer 

(CEO). The CEO enforces the rules, 

regulations, and orders of the FCA 

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

adopted by the FCA Board. The 

Office of the Chief Executive Officer 

plans, organizes, directs, coordinates, 

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

to achieve and manage a diverse 

workforce.

The Office of Congressional and

Public Affairs (OCPA) serves as the 

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

Government agencies, FCS institutions, employees, System borrowers, 

and the public. OCPA develops and 

monitors legislation pertinent to FCA 

and the FCS, serves as the Agency’s 

congressional liaison, facilitates 

intergovernmental relations, and 

prepares testimony for the Chairman 

and other Board members. The office 

also provides information to external 

audiences through news releases, fact 

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

media representatives who report on 

matters related to agriculture and 

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

organizes special meetings, briefings 

for international visitors, and field 

hearings.

The Office of Examination is responsible for examining and supervising 

each FCS institution in accordance 

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

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

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

operates in a safe and sound manner, 

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

purpose. For more information about 

the role of the Office of Examination, 

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

html and click View Board Policy 

Statements to read “Examination 

Policy” (FCA-PS-53).

The Office of General Counsel

(OGC) provides the FCA Board and 

staff with legal counsel as well as 

guidance on 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. 

Farm Credit Administration
63

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 Management Services

(OMS) manages and delivers the 

Agency’s financial, human capital, 

and administrative services. The 

office coordinates planning efforts, 

including information resources 

management, security, human capital, 

and financial plans for the Agency. 

By centrally planning, managing, and 

delivering resource services, OMS 

enables the Agency’s program offices 

to fully focus their time and attention 

on their respective mission-related 

responsibilities.

The Office of Secondary Market

Oversight (OSMO) provides for 

the examination, regulation, and 

supervision of Farmer Mac to ensure 

its safety and soundness and the 

accomplishment of its public policy 

purpose as authorized by Congress. 

OSMO also ensures that Farmer Mac 

complies with applicable laws and 

regulations, and it manages FCA’s 

enforcement activities with respect to 

Farmer Mac.
64

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

Elizabeth M.

Dean is Acting 

Inspector General. 

Before assuming 

this position in 

2013, Ms. Dean 

was the Deputy 

Inspector General and Counsel 

to the Inspector 

General since 1989. As Deputy IG 

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

evaluations, performed legal duties, 

and comanaged the OIG. From 1986 

to 1989, Ms. Dean served as a senior 

attorney in FCA’s Office of General 

Counsel, Litigation and Enforcement 

Division. Ms. Dean served on active 

duty as a U.S. Navy Judge Advocate 

from 1982 until 1986; she retired 

from the U.S. Naval Reserves in 2000. 

Upon completing law school in 1981, 

she worked for the Attorney General 

of the State of Ohio in the Criminal 

Activities Branch.

Samuel Robert Coleman is 

Director of the 

Office of Examination. Before 

accepting this 

position in October 2010, he was 

Director of the 

Agency’s Office 

of Secondary Market Oversight for 

five years. Mr. Coleman joined FCA 

in 1986 as an examiner in the Office 

of Examination. He held various 

positions in that office, providing 

technical support to FCA field offices 

and to the Policy Development 

and Planning Division. During this 

period, Mr. Coleman completed the 

commissioning program and became 

a commissioned examiner in 1990. In 

1994, he transferred to the Office of 

Policy and Analysis, where he served 

as a policy analyst specializing in 

regulation development, and then as 

a senior policy analyst. Mr. Coleman 

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

He holds the Chartered Financial 

Analyst designation, which the CFA 

Institute awarded him in 2000.

Agency Officials 

William J. Hoffman is Chief 

Operating Officer. 

Before accepting 

this position in 

July 2008, Mr. 

Hoffman was 

Executive Assistant to Board 

Member and 

former Chairman and CEO Nancy 

C. Pellett. Prior to this, he served as 

the Associate Director for Examination and Supervision in the Office of 

Secondary Market Oversight, which 

oversees the Federal Agricultural 

Mortgage Corporation. He began 

his career as a credit representative in the Louisville Farm Credit 

District. Mr. Hoffman first joined 

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

Associate Deputy Governor for the 

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

Farm Credit Bank as Vice President 

of Risk Assets. He later was the CEO 

of PennWest Farm Credit, ACA, 

which served western Pennsylvania. 

Before rejoining FCA in 2004, he was 

involved in agricultural finance in 

the private sector and several international projects. 
65

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.

Charles R. Rawls

is the FCA General Counsel. 

Before joining FCA 

in March 2003, 

he was general 

counsel and vice 

president for legal, 

tax, and accounting at the National 

Council of Farmer Cooperatives. 

During the consideration of the 2002 

farm bill, he served as the General 

Counsel of the Senate Committee on 

Agriculture, Nutrition, and Forestry. 

From 1998 to 2001, he was General 

Counsel for the USDA, and from 

1993 to 1998 he was Chief of Staff to 

the Deputy Secretary of Agriculture. 

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

Assistant to Congressman Martin 

Lancaster. From 1985 to 1988, he 

was Associate General Counsel of 

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

Agriculture Subcommittee on Forests, 

Family Farms, and Energy from 1983 

to 1985. 

Stephen G.

Smith is the 

Chief Financial 

Officer and Director of the Office 

of Management 

Services. Previously, 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 new responsibilities as 

Director of the Information Resources 

Division. He was named Chief 

Information Officer in 1996, directing all technology and information 

operations for FCA. Before joining 

the Agency, he worked at the North 

Central Jersey Farm Credit Associations. 
66

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

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. 

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.
67

Thais Burlew is 

Director of Equal 

Employment 

Opportunity and 

Inclusion. Before 

joining FCA in 

September 2011, 

she served as 

Executive Manager in the Office 

of EEO and Inclusiveness at the 

U.S. Postal Service. From 2001 to 

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

Opportunity Commission, including 

attorney advisor to Chair Naomi 

Churchill-Earp and Acting Chief for 

the Intake and Compliance Branch. 

Prior to this, she served as Advocate 

for the Housing and Consumer Law 

Clinic and for the Juvenile Special 

Education Clinic. Ms. Burlew earned 

a J.D. magna cum laude from David 

A. Clarke School of Law at the 

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

and associate editor of the school’s 

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

criminal justice from Middle Tennessee State University.

Wendy R.

Laguarda is 

the Designated 

Agency Ethics 

Official (DAEO). 

As DAEO, Ms. 

Laguarda administers the ethics 

program for FCA 

and the Farm 

Credit System Insurance Corporation. This involves providing for the 

review of financial disclosure reports, 

creating and conducting ethics training programs, counseling Agency 

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

In addition to her responsibilities 

as DAEO, Ms. Laguarda serves as 

assistant general counsel in the Office 

of General Counsel and administers 

the Agency’s Alternative Dispute 

Resolution Program. Before coming 

to FCA in 1990, Ms. Laguarda was 

an attorney advisor at the Office of 

Thrift Supervision and its predecessor Agency, the Federal Home Loan 

Bank Board. A graduate of Tufts 

University and George Washington 

University National Law Center, she 

is a member of the Maryland and 

District of Columbia Bars, as well as 

a mediator certified by the Supreme 

Court of Virginia. 
68

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

A

Agricultural Credit Association—An 

ACA results from the merger of a 

Federal Land Bank Association or an 

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

an FCB or ACB to provide short-, 

intermediate-, and long-term credit 

to farmers, ranchers, and producers 

and harvesters of aquatic products. It 

also makes loans to these borrowers 

for certain processing and marketing activities, to rural residents for 

housing, and to certain farm-related 

businesses. 

Agricultural Credit Bank—An ACB 

results from the merger of a Farm 

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

ACB is also authorized to finance 

U.S. agricultural exports and provide 

international banking services for 

farmer-owned cooperatives. CoBank 

is the only ACB in the FCS. 

B 

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

rural utilities (electric and telephone), 

and rural sewer and water systems. 

It was also authorized to finance 

U.S. agricultural exports and provide 

international banking services for 

farmer-owned cooperatives. The last 

remaining BC in the FCS, the St. Paul 

Bank for Cooperatives, merged with 

CoBank on July 1, 1999. 

F 

Farm Credit Act—The Farm Credit 

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

§§ 2001–2279cc) is the statute under 

which the FCS operates. The Farm 

Credit Act recodified all previous 

acts governing the FCS. 

Farm Credit Bank—FCBs provide 

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

to farmers, ranchers, producers and 

harvesters of aquatic products, rural 

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

6, 1988, the Federal Land Bank and 

the Federal Intermediate Credit Bank 

in 11 of the 12 then-existing Farm 

Credit districts merged to become 

FCBs. The mergers were required by 

the Agricultural Credit Act of 1987. 

Farm Credit Leasing Services

Corporation—The Leasing Corporation is a service entity owned by 

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

eligible borrowers, including agricultural producers, cooperatives, and 

rural utilities. 

Farm Credit System Insurance

Corporation—FCSIC was established 

by the Agricultural Credit Act of 

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

of principal and interest on insured 

notes, bonds, and other obligations 

issued on behalf of FCS banks and to 

act as conservator or receiver of FCS 

institutions. The FCA Board serves ex 

officio as the Board of Directors for 

FCSIC. The chairman of the FCSIC 

board of directors must be an FCA 

Board member other than the current 

Chairman of the FCA Board. 

Federal Agricultural Mortgage

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

a secondary market for agricultural 

real estate and rural housing mortgage loans. 

Federal Farm Credit Banks Funding

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

debt securities to finance the loans 

made by FCS institutions. It uses a 

network of bond dealers to market 

its securities. 

Federal Intermediate Credit Bank—

The Agricultural Credits Act of 

1923 provided for the creation of 12 

FICBs to discount farmers’ shortand intermediate-term notes made 

by commercial banks, livestock loan 

companies, and thrift institutions. 

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

which could discount notes with 

FICBs. As a result, PCAs became 

the primary entities for delivery of 

short- and intermediate-term credit to 

Glossary 
69

farmers and ranchers. The FICBs and 

the Federal Land Banks in all Farm 

Credit districts merged to become 

FCBs or the ACB. Thus, no FICBs 

remain within the FCS. 

Federal Land Bank—The Federal 

Farm Loan Act of 1916 provided for 

the establishment of 12 Federal Land 

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

and later to rural home buyers. All 

Federal Land Banks and FICBs have 

merged to become FCBs or part of 

the ACB. Thus, no Federal Land 

Banks remain. 

Federal Land Bank Association—

These associations were lending 

agents for FCBs. Federal Land Bank 

Associations made and serviced 

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

housing. The associations did not 

own loan assets but made loans only 

on behalf of the FCB with which 

they were affiliated. As of October 1, 

2000, there were no remaining Federal Land Bank Associations serving 

as lending agents for FCBs. 

Federal Land Credit Association—

An FLCA is a Federal Land Bank 

Association that owns its loan assets. 

An FLCA borrows funds from an 

FCB to make and service long-term 

loans to farmers, ranchers, and 

producers and harvesters of aquatic 

products. It also makes and services 

housing loans for rural residents. 

Financial Institution Rating System—The FIRS is similar to the 

Uniform Financial Institutions Rating 

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

Uniform Financial Institutions Rating 

System, the FIRS was designed to 

reflect the nondepository nature of 

FCS institutions. The FIRS provides 

a general framework for assimilating 

and evaluating all significant financial, asset quality, and management 

factors to assign a composite rating 

to each System institution. The ratings are described below.

• Rating 1—Institutions in this 

group are basically sound in 

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

nature and are anticipated to be 

resolved in the normal course 

of business. Such institutions 

are well managed, resistant to 

external economic and financial 

disturbances, and more capable 

of withstanding the uncertainties of business conditions than 

institutions with lower ratings. 

Each institution in this category 

exhibits the best performance and 

risk management practices for its 

size, complexity, and risk profile. 

These institutions give no cause 

for regulatory concern. 

• Rating 2—Institutions in this 

group are fundamentally sound 

but may reflect modest weaknesses correctable in the normal 

course of business. Since the 

nature and severity of deficiencies are not material, such 

institutions are stable and able 

to withstand business fluctuations. Overall risk management 

practices are satisfactory for the 

size, complexity, and risk profile 

of each institution in this group. 

While areas of weakness could 

develop into conditions of greater 

concern, regulatory response is 

limited to the extent that minor 

adjustments are resolved in the 

normal course of business and 

operations continue in a satisfactory manner.

• Rating 3—Institutions in this 

category exhibit a combination 

of financial, management, operational, or compliance weaknesses 

ranging from moderately severe 

to unsatisfactory. When weaknesses relate to asset quality or 

financial condition, such institutions may be vulnerable to the 

onset of adverse business conditions and could easily deteriorate 

if concerted action is not effective in correcting the areas of 

weakness. Institutions that are in 

significant noncompliance with 

laws and regulations may also be 

accorded this rating. Risk management practices are less than 

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

institution in this group. Institutions in this category generally 

give cause for regulatory concern 

and require more than normal 

supervision to address deficiencies. Overall strength and finan-
70

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

cial capacity, however, still make 

failure only a remote possibility 

if corrective actions are implemented. 

• Rating 4—Institutions in this 

group have an immoderate 

number of serious financial or 

operating weaknesses. Serious 

problems or unsafe and unsound 

conditions exist that are not 

being satisfactorily addressed or 

resolved. Unless effective actions 

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

into a situation that will impair 

future viability or constitute a 

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

Risk management practices are 

generally unacceptable for the 

size, complexity, and risk profile 

of each institution in this group. 

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

pronounced. Institutions in this 

category require close regulatory 

attention, financial surveillance, 

and a definitive plan for corrective action. 

• Rating 5—This category is 

reserved for institutions with 

an extremely high, immediate or near-term probability of 

failure. The number and severity of weaknesses or unsafe and 

unsound conditions are so critical 

as to require urgent external 

financial assistance. Risk management practices are inadequate 

for the size, complexity, and risk 

profile of each institution in this 

group. In the absence of decisive 

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

assistance, merger, or acquisition. 

G

Government-sponsored enterprise—

A GSE is typically a federally chartered corporation that is privately 

owned, designed to provide a source 

of credit nationwide, and limited to 

servicing one economic sector. Each 

GSE has a public or social purpose.

GSEs are usually created because 

the private markets did not satisfy 

a purpose that Congress deems 

worthy—either to fill a credit gap or 

to enhance competitive behavior in 

the loan market. Each is given certain 

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

barriers that prevented purely private 

markets from developing. In some 

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

cases, the assistance is ongoing. The 

FCS is the oldest financial GSE. 

P 

Participation—A loan participation is 

usually a large loan in which two or 

more lenders share in providing loan 

funds to a borrower to manage credit 

risk or overcome a legal lending limit 

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

and documents the loan. Generally, 

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

aware of the other participating 

institutions. 

Production Credit Association—

PCAs are FCS entities that deliver 

only short- and intermediate-term 

loans to farmers and ranchers. A 

PCA borrows money from its FCB to 

lend to farmers. PCAs also own their 

loan assets. As of January 1, 2003, all 

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

S 

Syndication—A loan syndication 

(or “syndicated bank facility”) is a 

large loan in which a group of banks 

work together to provide funds for 

a borrower. Usually one bank takes 

the lead, acting as an agent for all 

syndicate members and serving as 

the focal point between them and the 

borrower. All syndicate members are 

known at the outset to the borrower 

and they each have a contractual 

interest in the loan. 
71

ACA—Agricultural Credit Association

ACB—Agricultural Credit Bank

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

CEO—chief executive officer 

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

Farmer Mac—Federal Agricultural Mortgage Corporation 

FCA—Farm Credit Administration

FCB—Farm Credit Bank

FCS—Farm Credit System

FCSIC—Farm Credit System Insurance Corporation

FIRS—Financial Institution Rating System

FLCA—Federal Land Credit Association

GAAP—generally accepted accounting principles

OFIs—other financing institutions

PCA—Production Credit Association 

USDA—U.S. Department of Agriculture

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

Acronyms and Abbreviations
72

Farm Credit Administration 2014 Annual Report on the Farm Credit System 

The Farm Credit Administration 2014 

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 

E-mail: info-line@fca.gov 

Additional Information

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:

Office of Congressional and Public Affairs

Farm Credit Administration

1501 Farm Credit Drive

McLean, VA 22102

703-883-4056

www.fca.gov