2017 Annual Report 

on the Farm Credit System by the 

FARM CREDIT ADMINISTRATION 

Regulator of the FCS
Contents

Statement of the Board Chairman and CEO 2

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 21

Farm debt and market shares 24

Serving Young, Beginning, and Small Farmers and Ranchers 26

Characteristics of YBS farmers 26

Fulfilling the YBS mission 26

Quantitative results 26

Regulatory Policy and Approvals 32

Regulatory activity in 2017 32

Corporate activity in 2017 33

Funding activity in 2017 33

Maintaining a Dependable Source of Credit for Farmers and Ranchers 36

Conducting a risk-based examination and oversight program 36

Identifying and responding to potential threats to safety and soundness 36

Measuring the System’s safety and soundness 37

Providing differential supervision and enforcement 38

Protecting borrower rights 39

Farmer Mac 40

Capital 41

Program activity 43

Asset quality 43

Earnings 44

Challenges Facing the Agricultural Economy and the Farm Credit System 45

Prospects for the general economy 45

The rural economy and the farm sector 47

Appendix 51

FCA organizational chart 51

Farm Credit Administration offices and officials 52

Glossary 59

Acronyms and abbreviations 62

Additional information 63
2

Statement of the Board Chairman and CEO

October 2018

Dear Reader,

On behalf of the board and the staff of the Farm Credit Administration, I present the 2017 

Annual Report on the Farm Credit System. I am pleased to report that the System’s overall 

condition and performance remain sound. Its net income was $5.19 billion as of Dec. 31, 

2017, up from $4.85 billion the previous year, and its capital position is strong. At the end 

of 2017, the System’s total capital had increased to $55.4 billion, up from $52.3 billion a 

year earlier.

The condition of the System is inextricably linked to the condition of the agriculture 

economy, so as the regulator of the System, we monitor the ag economy closely. In 2017, 

after three consecutive down years, farm sector profits rebounded slightly. According to estimates by the U.S. Department of Agriculture’s Economic Research Service, 2017 net farm 

income will have increased to $63.8 billion, up from $61.5 billion in 2016. 

Despite the challenges in the farm economy, the overall quality of System loans was very 

good in 2017. The System’s nonperforming gross outstanding loans were 0.76 percent as 

of year-end 2017, compared with 0.79 percent the year before. The Farm Credit Insurance 

Fund further strengthens the financial position of the System by protecting investors in 

Systemwide debt, thus strengthening investor confidence in the System. At year-end 2017, 

the fund held $4.8 billion.

The System obtains its loan funds from the securities it sells to the capital debt markets. In 

2017, Systemwide debt decreased significantly from year-end 2016, dropping from $334 

billion to $278 billion a year later. The System issued less debt in 2017 primarily because 

domestic and global economic growth pushed interest yields persistently higher during the 

year, which all but eliminated any economic opportunity for the System to exercise call options on its outstanding debt.

We regularly 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 

portfolio risk and internal controls over financial reporting.

Portfolio risk. Credit stress is expected to intensify in 2018 because of profit declines 

in certain ag sectors. To help producers withstand the stress, the System will need to be 

proactive by counseling customers, restructuring debt, and establishing stronger credit 

controls. In the more severe cases, System institutions will need to set up special credit 

departments. Institutions must maintain the financial capacity and risk-bearing ability 

to help borrowers experiencing stress. And as always, they must ensure they are fully 

complying with all borrower rights requirements.

Farm Credit Administration 2017 Annual Report on the Farm Credit System
3

Internal controls over financial reporting. All System institutions, regardless 

of size or scope of operations, must have strong internal controls over financial 

reporting. These controls rely on logical delegated authorities, clear segregation 

of duties, appropriate access controls to loan and accounting systems, and detective and corrective controls — including an effective internal audit program. 

System leaders and the System’s Internal Controls Over Financial Reporting Workgroup have focused on improving these controls in recent years. The System must continue to dedicate staff and audit resources to maintaining strong internal controls in 2018 

and beyond to ensure the integrity of institution and Systemwide financial statements and 

FCA call reports. 

This report also contains our annual report on the System’s service to young, beginning, 

and small (YBS) farmers and ranchers. While the dollar volume of loans outstanding to 

YBS farmers increased this year, the number of loans outstanding declined. 

In early 2019, we plan to review the agency’s YBS regulation, which was last updated 20 

years ago. Through the publication of an advance notice of proposed rulemaking, we plan 

to explore ways to improve services to YBS farmers and ranchers and to update System 

reporting requirements. By improving our ability to collect and analyze data about System 

loans to YBS farmers, we can provide better guidance to institutions on how to improve 

their service to these borrowers. 

This document also includes a report on the Federal Agricultural Mortgage Corporation, 

or Farmer Mac. On Dec. 31, 2017, Farmer Mac’s net worth was $708.1 million, compared 

with $643.6 million a year earlier. Net worth went up primarily because of increases in 

after-tax net interest income and gains from the sale of real estate-owned properties. 

The gains were partially offset by normal increases in noninterest expenses, as well as by 

changes in the measurement of net deferred tax assets after the federal corporate income 

tax rate was revised.

I’ll conclude with a note about the cover of our report this year. It features FCA employee 

Jessica Potter (seated on the tractor) and her family. They own and operate a cattle ranch 

in Colorado. Like Jessica, many of our employees are, or once were, involved in agriculture. Their experience and knowledge about agriculture strengthen the agency’s ability to 

understand the needs of farmers and ranchers. 

I am honored to work alongside all of FCA’s employees. We are proud to do our part to 

help ensure a safe, sound, and dependable source of credit and related services for all creditworthy and eligible persons in agriculture and rural America.

Sincerely,

Dallas P. Tonsager

Dallas P. Tonsager
4

Our Mission

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.

Farm Credit Administration 2017 Annual Report on the Farm Credit System
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 

borrowers. These policies and regulations focus on 

protecting System safety and soundness; implementing 

the Farm Credit Act; providing minimum requirements 

for lending, related services, investments, capital, and 

mission; and ensuring adequate financial disclosure and 

governance. We also approve corporate charter changes, 

System debt issuances, and other financial and operational matters.

Our headquarters and one field office are in McLean, 

Virginia. We also have field offices in Bloomington, Minnesota; Dallas, Texas; Denver, Colorado; and Sacramento, 

California.

FCA does not receive a federal appropriation. We maintain 

a revolving fund financed primarily by assessments from 

the institutions we regulate. Other sources of income for the 

revolving fund are interest earned on investments with the 

U.S. Treasury and reimbursements for services we provide 

to federal agencies and others.

The board

FCA policy, regulatory agenda, and supervisory and examination activities are established by a full-time, 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

Dallas P. Tonsager

Board Chairman and CEO

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

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

He also serves as a member of the board of directors of the Farm Credit System 

Insurance Corporation, an independent U.S. government-controlled corporation 

that insures the timely payment of principal and interest on obligations issued 

jointly by Farm Credit System banks.

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

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

communities.

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

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

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

In addition, Mr. Tonsager worked with the Farm Credit System and others to set 

up new venture capital investment funds. From 2010 to 2013, he was a member 

of the Commodity Credit Corporation board of directors. From 2004 to 2009, 

Mr. Tonsager served as a member of the FCA board, as well as a member of the 

FCSIC board of directors.

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

projects. Services provided by the center include project facilitation, feasibility studies, business planning, market assessment, technical assistance, and 

education.

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

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

term ended in February 2001.

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

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

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

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

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

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

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

of South Dakota State University where he earned a Bachelor of Science in agriculture in 1976.

Farm Credit Administration 2017 Annual Report on the Farm Credit System
7

Jeffery S. Hall

Board Member

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

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

expires on Oct. 13, 2018.

Mr. Hall also serves as chairman of the board of directors of the Farm Credit 

System Insurance Corporation, an independent U.S. government-controlled corporation that insures the timely payment of principal and interest on obligations 

issued jointly by Farm Credit System banks.

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

consulting firm that he cofounded in 2009. He was the state executive director 

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

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

program delivery and compliance.

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

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

Ag-Project 2000.

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

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

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

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

held leadership positions in the following nonprofits: the Kentucky Agricultural 

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

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

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

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

and sister. Mr. Hall received a Bachelor of Science from Purdue University.
8

Glen R. Smith

Board Member

Glen R. Smith was appointed to the FCA board by President Donald Trump on 

Dec. 8, 2017. Mr. Smith will serve a term that expires May 21, 2022.

He also serves as a member of the board of directors of the Farm Credit System 

Insurance Corporation, an independent U.S. government-controlled corporation 

that insures the timely payment of principal and interest on obligations issued 

jointly by Farm Credit System banks.

Mr. Smith is a native of Atlantic, Iowa, where he was raised on a diversified 

crop and livestock farm. His farm experience started at a very early age, after 

his father was involved in a disabling farm accident. He graduated from Iowa 

State University in 1979 with a Bachelor of Science in agricultural business and 

accepted a position with Doane Agricultural Services as state manager of the 

company’s farm real estate division.

In 1982, Mr. Smith and his wife, Fauzan, moved back to his hometown and 

started farming and developing his ag service business. Today, their family farm, 

Smith Generation Farms Inc., has grown to encompass about 2,000 acres devoted to corn, soybeans, hay, and a small beef cow herd.

Mr. Smith is co-owner and founder of Smith Land Service Co., an ag service 

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

brokerage, serving about 30 Iowa counties. From 2001 to 2016, he was also 

co-owner and manager of S&K Land Co., an entity involved in the acquisition, 

improvement, and exchange of Iowa farmland.

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

He was elected to the Atlantic Community School Board of Education on which 

he served for nine years; during most of this time, he served as either president 

or vice president.

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

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

of the Iowa chapter of that organization. He is a lifelong member of the Farm 

Bureau, Iowa Corn Growers Association, Iowa Soybean Association, and Iowa 

Cattlemen’s Association.

The Smiths have four grown children and three grandchildren. Three of their 

children are involved in production agriculture. Their son Peter has assumed 

managerial responsibilities for both the family farm and business.

Farm Credit Administration 2017 Annual Report on the Farm Credit System
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 nation’s oldest government-sponsored 

enterprise.

Under the Farm Credit Act of 1971, as amended, the System 

has the authority, subject to certain conditions, to make the 

following types of loans:

• Agricultural real estate loans

• Agricultural production and intermediate-term loans 

(e.g., for farm equipment)

• Loans to producers and harvesters of aquatic products

• Loans to certain farmer-owned agricultural processing 

facilities and farm-related businesses

• Loans to farmer-owned agricultural cooperatives

• Rural home mortgages

• Loans that finance agricultural exports and imports

• Loans to rural utilities

• Loans to farmers and ranchers for other credit needs

Also, under its similar-entity authority, the System may participate with other lenders to make loans to those who are 

not eligible to borrow directly from the System but whose 

activities are functionally like those of eligible borrowers. 

Through these participations, the System diversifies its 

portfolio, reducing the risks associated with serving a single 

industry.

The System raises funds for its business activities by selling 

securities in the national and international money markets; 

its Systemwide debt funding is subject to FCA approval. The 

U.S. government does not guarantee the securities issued by 

the System.

According to the Farm Credit Act, Congress established the 

System to improve the income and well-being of American 

farmers and ranchers.

The System is to provide a permanent, reliable source of 

credit and related services to agriculture and aquatic producers, farmer-owned cooperatives, and farm-related businesses in rural America.

Congress formed the FCS as a system of farmer-owned 

cooperatives to ensure that farmer- and rancher-borrowers 

participate in the management, control, and ownership of 

their institutions. The participation of member-borrowers 

helps keep the institutions focused on serving their members’ needs.

The System helps to meet broad public needs by providing 

liquidity and competition in rural credit markets in both 

good and bad economic times. The accomplishment of this 

public goal benefits all eligible borrowers, including young, 

beginning, and small farmers, as well as rural homeowners.

FCS structure

The lending institutions

The System is composed of the following four banks:

• CoBank, ACB

• AgriBank, FCB

• AgFirst Farm Credit Bank

• Farm Credit Bank of Texas

These banks provide loans to 69 associations that in turn 

make loans to farmers, ranchers, and other eligible borrowers. All but one of these associations are structured as agricultural credit associations (ACAs) with subsidiaries. One 

association is a stand-alone federal land bank association 

with direct long-term real estate lending authority. We refer 

to these as federal land credit associations (FLCAs).
10

Farm Credit Administration 2017 Annual Report on the Farm Credit System

CoBank, one of the four Farm Credit System banks, is an 

agricultural credit bank (ACB), which has a nationwide 

charter to make loans to agricultural and aquatic cooperatives and rural utilities, as well as to other persons or organizations that have transactions with, or are owned by, these 

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 22 ACAs.

An ACA can make agricultural production and intermediate-term loans as well as real estate mortgage loans, while 

an FLCA primarily makes real estate mortgage loans. The 

FLCA is exempt from state and federal income taxes.

Generally, each ACA contains two subsidiaries, a production credit association (PCA), which primarily makes 

agricultural production and intermediate-term loans, and 

an FLCA. The ACA’s parent-subsidiary structure enables the 

ACA to preserve the tax-exempt status of the FLCA. This 

structure offers several other benefits as well. It allows the 

ACA to build and use capital more efficiently, and it enables 

members to hold stock in only the ACA but to borrow either from the ACA or from one or both of its subsidiaries. 

This gives the ACA and its subsidiaries greater flexibility in 

serving their borrowers, and it allows credit and related services to be delivered to borrowers more efficiently.

Further, the structure allows an association to provide a 

broader range of specialized services to its member-borrowers. It enables one-stop borrowing, allowing borrowers to 

obtain agricultural production and intermediate-term loans 

and real estate mortgage loans from the same institution.

The ACA and its two subsidiaries operate with a common 

board of directors and staff, and each of the three entities is 

responsible for the debts of the others. For most regulatory 

and examination purposes, FCA treats the ACA and its subsidiaries as a single entity; however, when appropriate, we 

may choose to treat the parent and subsidiaries as separate 

entities.

1	 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.

Special-purpose entity and service corporations

In addition to the banks and lending associations, the System also contains a special-purpose entity known as the 

Federal Farm Credit Banks Funding Corporation. Established under the Farm Credit Act, the Funding Corporation 

issues and markets debt securities on behalf of the System 

banks to raise loan funds. It also issues quarterly and annual 

information statements for investors.

The System also contains the following five service corporations. These corporations exist under the authority of section 4.25 of the Farm Credit Act1

:

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

support services to the associations affiliated with CoBank, ACB. AgVantis is owned by the bank and 12 of its 

affiliated associations.

• Farm Credit Leasing Services Corporation provides 

equipment leasing services to eligible borrowers, including agricultural producers, cooperatives, and rural 

utilities. It is wholly owned by CoBank.

• Farm Credit Financial Partners, Inc., provides support 

services to four associations affiliated with CoBank; one 

association affiliated with AgriBank, FCB; and the Leasing Corporation. It is owned by four of the associations 

to which the corporation provides services.

• The FCS Building Association acquires, manages, and 

maintains facilities to house FCA headquarters and field 

office staff. The Building Association is owned by the 

FCS banks, but the FCA board oversees its activities.

• Farm Credit Foundations provides human resource 

services to its employer-owners. These services include 

payroll processing, benefits administration, centralized 

vendor management, workforce management and operations, corporate tax and financial reporting services, 

and retirement workshops. Employer-owners consist of 

35 FCS associations, 1 service corporation (AgVantis), 

and 1 FCS bank (AgriBank).
11

Farmer Mac

The Federal Agricultural Mortgage Corporation (Farmer 

Mac) provides a secondary market for agricultural real 

estate loans, government-guaranteed portions of certain 

loans, rural housing mortgage loans, and eligible rural utility cooperative loans. It offers greater liquidity and lending 

capacity to agricultural and rural lenders, including insurance companies, credit unions, commercial banks, other 

FCS institutions, and investors.

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 memberowned cooperative. Investors in voting stock may include 

commercial banks, insurance companies, other financial 

organizations, and other FCS institutions. Any investor may 

own nonvoting stock.

FCA regulates and examines Farmer Mac through its Office 

of Secondary Market Oversight, whose director reports to 

the FCA board on matters of policy.

Although Farmer Mac is an FCS institution under the Farm 

Credit Act, we discuss Farmer Mac separately from the 

other institutions of the FCS. Therefore, throughout this 

report, unless Farmer Mac is explicitly mentioned, the Farm 

Credit System refers only to the banks and associations of 

the System. For more information about Farmer Mac, see 

“Condition of Farmer Mac” on page 40.

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.

The Farm Credit System Insurance Corporation (FCSIC) 

also helps protect the safety and soundness of the Farm 

Credit System. It was established by the Agricultural Credit 

Act of 1987 in the wake of the agricultural credit crisis of 

the 1980s. The purpose of FCSIC is to protect investors 

in Systemwide debt securities by insuring the timely payment of principal and interest on obligations issued by FCS 

banks.

It fulfills this purpose by maintaining the Farm Credit Insurance Fund, a reserve that represents the equity of FCSIC. 

The balance in the Insurance Fund at Dec. 31, 2017, was 

$4.8 billion. For more information about FCSIC, go to www.

fcsic.gov. Also see FCSIC’s 2017 annual report.

Investors in Systemwide debt securities are further protected by the Farm Credit Act’s joint and several liability 

provision, which applies to all FCS banks. The banks are 

jointly and severally liable for the principal and interest on 

all Systemwide debt securities. Therefore, if a bank is unable to pay the principal or interest on a Systemwide debt 

security and if the Farm Credit Insurance Fund has been 

exhausted, then FCA must call all nondefaulting banks to 

satisfy the liability.
12

FCS Banks and Associations

Financial condition

The overall condition and performance of the FCS was 

strong in 2017, and the System continues to be safe and 

sound. For the year, the System reported increased earnings, 

strong capital levels, favorable portfolio credit quality, and 

reliable access to debt capital markets. Tables 1 and 2 provide a summary of the System’s major financial indicators.

While the System is financially sound, a small number of 

individual FCS institutions displayed some weaknesses in 

2017. As the System’s regulator, we addressed these weaknesses by increasing our oversight and supervision of these 

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

supervisory and enforcement approach, see “Maintaining 

a dependable source of credit for farmers and ranchers” on 

page 36 to 39 of this report. For more information on 

the condition and performance of the System, see the 2017 

Annual Information Statement of the Farm Credit System 

on the website of the Federal Farm Credit Banks Funding 

Corporation.

After three consecutive down years, farm sector profits rebounded slightly in 2017. According to estimates by the U.S. 

Department of Agriculture’s Economic Research Service, 

2017 net farm income will increase to $63.8 billion, up from 

$61.5 billion in 2016. Since its 2013 high of $135.6 billion, net 

farm income has now fallen to near its historical average. 

Crop producers continued to experience financial challenges in 2017. Significant global production and ample 

ending stocks kept grain prices low during the year. For 

many producers, profits remained elusive, with prices remaining at or below the cost of production. With little relief 

expected in 2018, financial stress is likely to intensify for 

this sector. For producers, low prices and high production 

levels will continue to present a real challenge. Low margins 

reduce cash flows, working capital, and repayment capacity, 

and they increase the importance of managing risks and 

controlling the costs of production.

Cropland markets appeared to stabilize in 2017, despite 

continued low crop returns and higher interest rates. With 

the run-up of cash grain prices beginning in 2009, cropland 

values soared to record levels by 2014. Since then, with farm 

income declining, land prices have softened, particularly 

in the Midwest. Commodity prices, cash rental rates, input 

costs, and interest rates will continue to be key influences 

on cropland prices.

Strong pricing because of higher-than-expected domestic 

and export demand, in combination with favorable feed 

costs, helped boost profits for most animal protein sectors in 2017. The 2018 outlook for most livestock sectors 

remains generally favorable although margins are expected 

to narrow. For dairy producers, while returns were modestly 

positive for most of 2017, margins are likely to be negative 

for much of 2018. For both the livestock and dairy sectors, 

demand, particularly export demand, will be critical in 2018 

because production levels are projected to rise. 

For a detailed discussion of potential risks facing the System 

in 2018 and beyond, see “Challenges Facing the Agricultural 

Economy and the Farm Credit System” on pages 45 to 50.

Farm Credit Administration 2017 Annual Report on the Farm Credit System
13

Table 1

Farmer Credit System major financial indicators, annual comparison

As of Dec. 31, Dollars in thousands

At and for the 12 months ended 2017 2016 2015 2014 2013

Farm Credit System Banks1

Total assets 289,079,600 281,973,917 267,587,575 249,370,568 230,427,442

Gross loan volume 228,084,765 220,160,768 208,766,996 192,083,080 179,260,572

Nonaccrual loans 324,571 292,938 231,520 227,872 275,228

Cash and marketable investments 59,146,365 60,131,933 57,123,019 55,472,944 49,241,806

Net income 2,191,414 2,016,110 1,945,693 2,042,527 2,057,199

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

Capital/assets3 6.44% 6.35% 6.28% 6.41% 6.58%

Unallocated retained earnings/assets 0.00% 3.48% 3.45% 3.42% 3.39%

Return on assets 0.77% 0.73% 0.74% 0.84% 0.91%

Return on equity 11.62% 11.13% 11.47% 12.76% 13.31%

Net interest margin4 0.96% 0.98% 0.98% 1.05% 1.15%

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

Efficiency ratio6 25.55% 25.37% 25.30% 24.20% 22.20%

Payout ratio7 71.36% 64.84% 59.44% 58.19% 54.61%

Associations 

Total assets 195,818,251 189,932,933 180,005,335 167,312,405 157,085,461

Gross loan volume 184,638,381 179,322,967 169,995,422 157,543,635 146,873,767

Nonaccrual loans 1,342,879 1,303,673 1,095,206 1,146,358 1,465,651

Net income 3,673,321 3,383,152 3,126,729 3,383,894 3,304,680

Nonperforming loans/gross loans2 0.88% 0.90% 0.80% 0.92% 1.17%

Capital/assets3 19.31% 18.84% 18.68% 18.78% 18.48%

Unallocated retained earnings/assets 0.00% 17.50% 17.33% 17.40% 17.24%

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

Return on equity 10.44% 9.36% 9.57% 10.69% 11.34%

Net interest margin4 2.71% 2.66% 2.68% 2.75% 2.80%

Operating expense ratio5 1.41% 1.47% 1.50% 1.51% 1.48%

Efficiency ratio6 32.66% 40.47% 41.38% 39.52% 37.14%

Payout ratio7 34.56% 31.28% 28.31% 25.22% 25.45%

Total Farm Credit System8

Total assets 329,518,000 319,915,000 303,503,000 282,733,000 260,662,000

Gross loan volume 258,777,000 248,768,000 235,890,000 217,054,000 201,060,000

Bonds and notes 267,119,000 260,213,000 246,214,000 229,064,000 210,704,000

Nonperforming loans 1,967,000 1,962,000 1,629,000 1,737,000 2,040,000

Nonaccrual loans 1,660,000 1,591,000 1,324,000 1,375,000 1,736,000

Net income 5,189,000 4,848,000 4,688,000 4,724,000 4,640,000

Nonperforming loans/gross loans2 0.76% 0.79% 0.69% 0.80% 1.01%

Capital/assets3 16.81% 16.35% 16.09% 16.17% 16.34%

Surplus/assets 13.24% 13.50% 13.33% 13.36% 13.45%

Return on assets 1.62% 1.56% 1.64% 1.77% 1.86%

Return on equity 9.49% 9.44% 9.87% 10.62% 11.43%

Net interest margin4 2.48% 2.49% 2.55% 2.64% 2.78%

Sources: FCA call reports as of Dec. 31, 2017, and the Farm Credit System Quarterly Information Statement provided by the Federal Farm Credit Banks Funding

Corporation.

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

1	 Includes Farm Credit Banks and the Agricultural Credit Bank.

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

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

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

effectiveness.

5	 Operating expenses divided by average gross loans.

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

months.

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

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

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

Table 2 

Farm Credit System major financial indicators, by district

Dec. 31, 2017

Dollars in thousands

Category Total Assets

Gross Loan 

Volume

Nonaccrual 

Loans

Allowance 

for Loan 

Losses

Cash and 

Marketable 

Investments1

Capital 

Stock2

Total 

Capital3

Net 

Income4

Net Income, 

Year-to-Date

Operating 

Expense 

Ratio5

Banks

AgFirst 32,487,457 23,359,160 21,303 14,381 8,847,108 313,752 2,242,815 97,379 344,749 0.53%

AgriBank 104,544,725 88,374,923 53,038 26,047 15,550,757 2,345,655 5,641,882 125,577 525,358 0.15%

CoBank 129,210,813 99,265,505 246,837 576,927 29,292,192 3,240,445 9,060,077 391,121 1,125,321 0.40%

Texas 22,836,605 17,085,177 3,393 7,639 5,456,308 301,239 1,667,884 50,794 195,986 0.60%

Total 289,079,600 228,084,765 324,571 624,994 59,146,365 6,201,091 18,612,658 664,871 2,191,414 0.33%

Associations 

AgFirst 21,913,375 20,970,756 217,553 178,685 122,900 143,568 4,538,692 314,207 596,949 1.55%

AgriBank 100,646,824 94,124,666 692,646 410,013 2,266,662 264,976 19,236,044 600,958 1,670,460 1.35%

CoBank 56,161,426 53,017,166 307,046 307,102 337,434 69,407 11,350,338 273,225 1,078,942 1.42%

Texas 17,096,626 16,525,793 125,634 68,375 29,939 58,616 2,693,118 82,488 326,970 1.46%

Total 195,818,251 184,638,381 1,342,879 964,175 2,756,935 536,567 37,818,192 1,270,878 3,673,321 1.41%

Total Farm 

Credit System6 329,518,000 258,777,000 1,660,000 1,596,000 61,784,000 1,879,000 55,382,000 1,473,000 5,189,000 

Sources: Farm Credit System Call Report as of Dec. 31, 2017, and the Farm Credit System Quarterly Information Statement provided by the Federal Farm Credit Banks

Funding Corporation.

1	 Includes accrued interest receivable on marketable investments.

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

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

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

preferred stock and protected borrower capital.

4	 Net income for the quarter.

5	 Operating expense per $100 of gross loans.

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

Farm Credit Administration 2017 Annual Report on the Farm Credit System
15

Earnings

The System reported strong earnings in 2017. For the year, 

System net income equaled $5.2 billion, up $341 million or 

7.0 percent from 2016 (See figure 1). The change was largely 

due to three factors: an increase in net interest income, 

lower provisions for loan losses, and a decrease in the provision for income taxes as a result of 2017 federal tax legislation, which provided $162 million in tax adjustments. The 

increases resulting from these factors were partially offset 

by higher noninterest expenses.

Net interest income increased $265 million to $7.7 billion in 

2017. This increase was primarily due to the higher level of 

average earning assets, partially offset by a decline in net interest spread. Driven largely by growth in loan volume, average earning assets increased $11.4 billion, or 3.8 percent, 

to $311.0 billion. The System’s net interest spread continued 

to compress in 2017, decreasing 6 basis points to 2.25 percent. Net interest margin decreased 1 basis point to 2.48 

percent in 2017. A 5-basis-point increase in income earned 

on earnings assets funded by noninterest-bearing sources 

(principally capital) helped offset the decline in net interest 

spread. Return on average assets increased to 1.62 percent 

in 2017 from 1.56 percent in 2016, and the return on average capital improved to 9.49 percent from 9.44 percent.

Figure 1

FCS net income, 2009 – 2017

As of Dec. 31

Dollars in billions

Source: Annual Information Statements of the Federal Farm Credit Banks Funding Corporation.
16

Farm Credit Administration 2017 Annual Report on the Farm Credit System

As cooperative institutions, FCS banks and associations 

typically pass on a portion of their earnings as patronage 

distributions to their farmer and rancher borrower-owners. 

For 2017, System institutions declared a total of $2.0 billion 

in patronage distributions — $1.51 billion in cash, $399 million in allocated retained earnings, and $88 million in stock. 

This represents 38.5 percent of the System’s net income for 

2017 as compared with 35.6 percent in 2016. Also in 2017, 

the System distributed $233 million in cash from allocated 

retained earnings related to patronage distributions from 

previous years.

System growth

The System continued to grow at a measured pace in 2017. 

Total assets increased to $329.5 billion, up $9.6 billion or 3.0 

percent from 2016. Gross loan balances were $258.8 billion 

at year-end, up $10.0 billion or 4.0 percent in 2017, compared with 5.5 percent in 2016. (See figure 2.)

The growth in System loan balances was largely due to 

increases in real estate mortgages, production and intermediate-term lending, and loans to cooperatives. Real estate 

mortgage lending was up $5.0 billion, or 4.4 percent. Real 

estate mortgage loans represent the largest component of 

the System’s loan portfolio at 46.2 percent. Production and 

intermediate-term loans increased $1.4 billion, or 2.9 percent, and represents the second largest loan category at 20.0 

percent. Loans to cooperatives, accounting for 6.7 percent 

of the loan portfolio, was up $2.0 billion, or 13.3 percent, in 

2017. 

Loan volume grew in all commodity categories except forestry (down less than 1 percent) and horticulture (down 3 

percent). The cash grains and cattle sectors represent the 

System’s two largest commodity categories, equaling almost 

26 percent of the total loan portfolio. Lending to the cash 

grains sector was up 1 percent in 2017. Lending to the cattle 

sector grew by 5 percent, reflecting the modest profits producers enjoyed during 2017.

Asset quality

Loan quality in the System’s portfolio remained relatively 

strong in 2017 although credit risk intensified for certain 

crop and livestock sectors during the year. For these sectors, 

Figure 2

Annual growth rate of FCS loans outstanding, 2006 – 2017

Source: Annual Information Statements of the Federal Farm Credit Banks Funding Corporation.
17

weak pricing caused by supply and demand imbalances and 

relatively high input costs reduced producer profits. Over 

time, low to negative profit margins will diminish available 

liquidity and repayment capacity. In 2018, strong global 

competition, rising interest rates, low prices for cash grains, 

and uncertain ag trade policies will continue to challenge 

System borrowers in certain sectors. Although asset quality 

is expected to decline in 2018 from the relatively strong levels in 2017, the level of credit stress in the loan portfolio will 

remain well within the System’s risk-bearing capacity.

As of Dec. 31, 2017, nonperforming loans totaled $2.0 billion, or 0.76 percent of gross loans outstanding, unchanged 

from $2.0 billion, or 0.79 percent, at year-end 2016. (See 

figure 3.) Loan delinquencies (accruing loans that are 30 

days or more past due) decreased slightly to 0.25 percent of 

total accruing loans from 0.26 percent at year-end 2016. 

Overall, 93.9 percent of System loans were classified as acceptable, down from 94.5 percent at year-end 2016.

The allowance for loan losses was $1.6 billion, or 0.62 percent of loans outstanding, at year-end 2017. This compares 

with an allowance for loan losses of $1.5 billion, or 0.61 

percent of loans outstanding, at year-end 2016. The System 

recognized provisions for loan losses of $197 million in 

2017 as compared with $266 million in 2016 and $106 million in 2015. Net loan charge-offs were somewhat higher 

but remained low at $80 million in 2017 as compared with 

$45 million in 2016.

Funding

Throughout 2017, the System had reliable access to the 

global debt capital markets to support its mission, and 

investor demand for all System debt products remained 

favorable across all products. Securities due within a year 

decreased by 0.9 percent while securities with maturities 

greater than one year increased by 5.4 percent. In total, 

Systemwide debt increased by 2.9 percent.

Figure 3

Performance of FCS nonperforming loans to gross loans, 2012 – 2017

As of Dec. 31

Sources: Annual Information Statements of the Federal Farm Credit Banks Funding Corporation.
18

Farm Credit Administration 2017 Annual Report on the Farm Credit System

The System’s funding composition remained relatively stable 

in 2017. Securities due within a year accounted for 38.8 percent of total Systemwide debt compared with 40.3 percent a 

year ago. (See “Funding activity in 2017” on page 33 for 

further discussion of the System’s funding environment.)

Liquidity

Each System bank maintains a liquidity reserve to ensure 

it has enough liquidity to meet its business and financial 

needs, especially during unforeseen disruptions in the capital markets. As of Dec. 31, 2017, each System bank was in 

compliance with the regulatory minimum levels required 

for its liquidity reserve. Liquidity position is measured by 

the number of days that a bank may operate with no access 

to funds from the capital markets. By regulation, banks 

must maintain a minimum of 90 days of liquidity. As of 

year-end 2017, the liquidity positions of the four System 

banks ranged from 151 days to 227 days. The System’s overall liquidity position on a consolidated basis was 175 days, 

as compared with 180 days as of Dec. 31, 2016.

The System’s mission-related investments are excluded from 

the eligible investment limitation and the bank’s liquidity 

calculations. Mission-related and other investments available for sale (based on fair value) decreased 13.4 percent to 

$298 million, with a weighted average yield of 2.94 percent. 

Mission-related and other investments held to maturity increased 3.5 percent to $2.7 billion, with a weighted average 

yield of 3.39 percent.

As permitted under FCA regulations, each System bank 

may hold federal funds and available-for-sale securities in 

an amount not to exceed 35 percent of its average loans 

outstanding for the quarter. Investments available for sale 

(based on fair value) decreased 1.6 percent to $53.8 billion in 2017, with a weighted average yield of 1.87 percent. 

Criteria for eligible investments are defined by FCA regulations. If an investment no longer meets the eligibility criteria, it becomes ineligible for regulatory liquidity calculation 

purposes, but the bank may continue to hold the investment 

provided certain requirements are met.

Capital

Strong earnings helped the System continue to build capital 

levels in 2017. Total capital equaled $55.4 billion at Dec. 

31, 2017, compared with $52.3 billion at year-end 2016. At 

year-end 2017, the System’s capital-to-assets ratio was 16.8 

percent, compared with 16.4 percent in 2016.

As illustrated in figure 4, surplus accounts for most System 

capital. FCA regulations establish minimum capital levels 

that each System bank and association must achieve and 

maintain. Effective Jan. 1, 2017, new regulatory capital 

requirements for System banks and associations were 

adopted. As of Dec. 31, 2017, all System banks and associations were above the following regulatory minimum capital 

requirements:

• A common equity tier 1 capital (CET1) ratio of 4.5 percent of risk-adjusted assets

• A tier 1 capital ratio of 6.0 percent of risk-adjusted 

assets

• A total capital ratio of 8.0 percent of risk-adjusted assets

• A tier 1 leverage ratio of 4.0 percent of total assets, of 

which at least 1.5 percent must consist of unallocated 

retained earnings (URE) and URE equivalents

• A permanent capital ratio of at least 7.0 percent of riskadjusted assets

In addition, as of Dec. 31, 2017, the FCS had $4.8 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:

• Agricultural real estate loans

• Agricultural production and intermediate-term loans
19

• Loans to producers and harvesters of aquatic products

• Loans to certain farmer-owned agricultural processing 

facilities and farm-related businesses

• Loans to farmer-owned agricultural cooperatives

• Rural home mortgages

• Loans that finance agricultural exports and imports

• Loans to rural utilities

• Loans to farmers and ranchers for other credit needs

Also, under its similar-entity authority, the System may participate with other lenders to make loans to those who are 

not eligible to borrow directly from the System but whose 

activities are functionally like those of eligible borrowers. 

Through these participations, the System diversifies its portfolio, reducing the risks associated with serving a single 

industry.

Figure 4

FCS capital, 2010 – 2017

As of Dec. 31

Dollars in billions

Sources: Annual Information Statements of the Federal Farm Credit Banks Funding Corporation.
20

Farm Credit Administration 2017 Annual Report on the Farm Credit System

Nationwide, the System had $259 billion in gross loans 

outstanding as of Dec. 31, 2017. Agricultural producers 

represented by far the largest borrower group, with $171 

billion, or 66 percent, of the total dollar amount of loans 

outstanding. See table 3 and figure 5 for a breakdown of 

lending by type.

As required by law, borrowers own stock or participation 

certificates in System institutions. The FCS had over a million loans and leases and over 500,000 stockholders in 2017. 

Approximately 87 percent of the stockholders were farmers 

or cooperatives with voting stock. The remaining percent 

were nonvoting stockholders, including rural homeowners and other financing institutions that borrow from the 

System. 

Total loans outstanding at FCS banks and associations (net 

of intra-System lending) increased by $10 billion, or 4 percent, during the year that ended Dec. 31, 2017. This compares with increases of 5.5 percent in 2016 and 8.7 percent 

in 2015. Since year-end 2013, total System loans outstanding have increased by $57.7 billion, or 28.7 percent.

The $10 billion increase in 2017 was driven by increases 

in real estate mortgages and loans to cooperatives. With 

the continued demand for cropland and financing for permanent plantings, real estate mortgage loans increased $5 

billion, or 4.4 percent. Loans to cooperatives increased $2 

billion or 13.3 percent because of greater seasonal financing 

at grain and supply cooperatives. 

Production and intermediate-term loans also increased, going up $1.4 billion, or 2.9 percent. This increase was driven 

by advance purchases of production inputs (such as fertilizer, seed, and fuel) for 2018. 

All the other lending authorities experienced at least modest increases in 2017. At just 0.6 percent, growth in loans to 

power utilities was the slowest. In 2016, lending volume to 

power utilities had grown 9.3 percent.

Table 3

FCS gross loans outstanding, 2013 – 2017

As of Dec. 31

Dollars in millions

Category 2013 2014 2015 2016 2017

Percent 

change 

from 2013

Percent 

change 

from 2016

Long-term real estate loans $95,209 $100,811 $107,813 $114,446 $119,450 25.5% 4.4%

Production and intermediate-term loans 44,309 46,305 49,204 50,282 51,724 16.7% 2.9%

Agribusiness loans to the following:

Processing and marketing operations 13,164 16,974 19,949 21,166 21,582 63.9% 2.0%

Cooperatives 10,885 12,553 13,113 15,300 17,335 59.3% 13.3%

Farm-related businesses 2,999 3,408 3,533 3,162 3,293 9.8% 4.1%

Rural utility loans by type of utility:

Energy 14,304 15,036 17,925 19,577 19,689 37.6% 0.6%

Communication 4,159 5,044 6,196 6,023 6,311 51.7% 4.8%

Water and wastewater 1,325 1,488 1,677 1,840 1,965 48.3% 6.8%

Rural home loans 6,511 6,754 7,117 7,148 7,261 11.5% 1.6%

Agricultural export loans 4,743 4,837 5,075 5,531 5,645 19.0% 2.1%

Lease receivables 2,706 2,976 3,373 3,480 3,665 35.4% 5.3%

Loans to other financing institutions 746 868 915 813 857 14.9% 5.4%

Total $201,060 $217,054 $235,890 $248,768 $258,777 28.7% 4.0%

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

Figure 5

Farm Credit System lending by type

As of Dec. 31, 2017

Source: 2017 Federal Farm Credit Banks Funding Corporation Annual Information Statement.

System funding for other lenders

Other financing institutions 

Under the Farm Credit Act, System banks may further serve 

the credit needs of rural America by providing funding and 

discounting services to certain non-System lending institutions described in our regulations as “other financing institutions” (OFIs). These include the following:

• Commercial banks

• Savings institutions

• Credit unions

• Trust companies

• Agricultural credit corporations

• Other specified agricultural lenders that are significantly involved in lending to agricultural and aquatic 

producers and harvesters

System banks may fund and discount agricultural production and intermediate-term loans for OFIs that demonstrate 

a need for additional funding to meet the credit needs of 

borrowers who are eligible to receive loans from the FCS. 

OFIs benefit by using the System as an additional source of 

liquidity for their own lending activities and by capitalizing 

on the System’s expertise in agricultural lending.

Outstanding loan volume to OFIs was $857 million at yearend, up $44 million from 2016. OFI loan volume continues 

to be less than half of one percent of the System’s loan portfolio. About 70 percent of the System’s OFI lending activity 

occurs in the AgriBank district.
22

Farm Credit Administration 2017 Annual Report on the Farm Credit System

Syndications and loan participations with non-FCS 

lenders

In addition to the authority to provide services to OFIs, the 

Farm Credit Act gives System banks and associations the 

authority to partner with financial institutions outside the 

System, including commercial banks, in making loans to 

agriculture and rural America. Generally, System institutions partner with these financial institutions through loan 

syndications and participations.

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

loan in which a group of financial institutions work together 

to provide funds for a borrower. Usually one financial institution takes the lead, acting as an agent for all syndicate 

members and serving as a liaison between them and the 

borrower. All syndicate members are known at the outset to 

the borrower.

Loan participations are loans in which two or more lenders share in providing loan funds to a borrower. One of the 

participating lenders originates, services, and documents 

the loan. Generally, the borrower deals with the institution 

originating the loan and is not aware of the other participating institutions.

Financial institutions primarily use loan syndications and 

participations to reduce credit risk and to comply with lending limits. For example, a financial institution with a high 

concentration of production loans for a single commodity 

could use participations or syndications to diversify its loan 

portfolio, or it could use them to sell loans that are beyond 

its lending limit. Institutions also use syndications and participations to manage and optimize capital, earnings, and 

liquidity. Syndications and participations allow the System 

to more fully meet its mission by serving agricultural and 

rural borrowers who might not otherwise receive funding.

The System’s gross loan syndication volume has grown by 

more than $2 billion over the past three years to $15.8 billion at year-end 2017. This figure includes volume from syndications that System institutions have with other System 

institutions as well as with non-FCS institutions.

At year-end 2017, the System had $5.0 billion in net eligible-borrower loan participations with non-System lenders. 

Net eligible-borrower loan participations peaked in 2010 at 

$5.4 billion when sales of these participations were at a low 

point. The volume of eligible-borrower loan participations 

purchased from non-System lenders has grown from $6.5 

billion at Dec. 31, 2012, to $8.2 billion at year-end 2017, and 

the volume of eligible-borrower loan participations sold 

to non-System lenders was $3.2 billion at year-end 2017, 

unchanged from the prior year and up from $2.8 billion in 

2012.

In addition to participating in loans to eligible borrowers, 

FCS institutions have the authority to work with non-System lenders that originate “similar-entity” loans. A similar 

entity borrower is not eligible to borrow directly from an 

FCS institution, but because the borrower’s operation is 

functionally similar to that of an eligible borrower’s operation, the System has authority to participate in the borrower’s loans (the participation interest must be less than 

50 percent). Similar-entity loans contain other limitations 

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

Credit Act.

The System had $11.9 billion in acquired similar-entity loan 

participations as of Dec. 31, 2017, down from $12.8 billion 

the prior year. As figure 6 indicates, the volume of similarentity participations that System institutions sell to nonSystem institutions is relatively small, amounting to $700 

million or less each year over the past six years.

AgDirect, LLP

AgDirect is a point-of-sale agricultural equipment financing 

program developed by Farm Credit Services of America, 

ACA, which is affiliated with AgriBank, FCB. AgDirect allows System institutions to participate in retail installment 

loans or leasing contracts originated by equipment dealerships. The program expands financing options for borrowers and institutions, and provides an additional revenue 

stream to AgDirect owners and AgriBank. 

AgDirect financing is available in many states, with 14 System institutions participating through AgDirect. As of Dec. 

31, 2017, the total outstanding participation interests in 

loans purchased was $3.4 billion.
23

Figure 6

Loan participation transactions with non-System lenders, 2012 – 2017

As of Dec. 31

Dollars in billions

Sources: Farm Credit System Call Reports.
24

Farm Credit Administration 2017 Annual Report on the Farm Credit System

Farm debt and market shares

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

business debt for the year ended Dec. 31, 2017, was $385 

billion, up 2.9 percent from its $374 billion estimate for 

year-end 2016.

USDA estimates that, from 2007 to 2017, total farm business debt rose by more than $144 billion, or 60 percent. 

(See figure 7.) During this period, farmers invested heavily 

in new capital items, and they took on debt to cover rising 

farm production costs.

Farm real estate debt grew 4.5 percent in 2017, down from 

the 8.2 percent rise in 2016. Non-real estate debt grew by 

just 0.6 percent in 2017. Non-real estate debt outstanding 

was flat in 2016. Weak profit margins for some crop and 

livestock enterprises in 2017 reduced the rate by which 

producers paid down their debt and led some producers 

to borrow more. Higher farm interest rates could weaken 

demand for credit in 2018, particularly when used for new 

purchases. On the supply side, creditors had sufficient funds 

to lend going into 2018.

The most current market share information from USDA is 

for year-end 2016. USDA’s estimate of debt by lender shows 

that the System held 40.9 percent of total farm business 

Figure 7

U.S. farm business debt, 1997 – 2017

Dollars in billions

Source: FCA’s Office of Regulatory Policy, based on data from USDA, Economic Research Service.
25

debt, while commercial banks held 42.1 percent. (See 

figure 8).

The System’s market share of total farm business debt has 

been relatively stable in recent years. Except for brief periods, the FCS has typically had the largest market share of 

farm business debt secured by real estate. At year-end 2016, 

the System held 45.9 percent of this debt; by comparison, 

commercial banks held 37.4 percent.

Commercial banks have historically dominated non-real estate farm lending. At year-end 2016, commercial banks held 

49.4 percent of this debt, and the System held 33.3 percent.

Figure 8

Estimated market shares of U.S. farm business debt, 1996 – 2017

Source: USDA, Economic Research Service.

Note: Year-end estimates shown.
26

Farm Credit Administration 2017 Annual Report on the Farm Credit System

Serving Young, Beginning, and Small Farmers 

and Ranchers

Here at FCA, we support the Farm Credit System’s mission 

to serve young, beginning, and small (YBS) farmers, ranchers, and producers and harvesters of aquatic products. We 

support this mission by implementing the Farm Credit Act 

and adopting regulations governing the System’s service to 

these borrowers. 

The Farm Credit Act requires System banks and associations to have programs and services to provide financially 

sound and constructive credit and related services to YBS 

farmers. System institutions must also coordinate with other 

government and private sources of credit in implementing 

their YBS programs. In addition, each institution must annually report to FCA on the operations and achievements of 

its YBS program.

Characteristics of YBS farmers

Young farmers are defined as those who are 35 years of age 

or younger; beginning farmers as those who have 10 years 

or less of farming, ranching, or aquatic experience; and 

small farmers as those who generate less than $250,000 in 

annual sales of agricultural or aquatic products.

The 2012 Census of Agriculture reports that the average 

age of the American farmer is 58. The Census also provides 

some insights into the YBS market. About 6 percent of all 

principal farm operators were under 35 years of age in 2012. 

This percentage held relatively constant from 2002 to 2012, 

while the average age rose from 55.3 years to 58.3 years. Approximately 18 percent of farmers reported being on their 

farms for less than 10 years. This is a significant drop compared with 28 percent reported in 2002. 

U.S. farms have been consolidating for generations as new 

technologies have increased productivity. From 2002 to 

2012, the share of total farms considered to be small farms 

— those with $250,000 or less in farm sales — declined 

from 93 percent to 88 percent. This segment includes a variety of operations, including those operated by full-time and 

part-time farmers, those that are expanding, and those that 

produce high-value agricultural products for local markets, 

often on a seasonal basis. 

Fulfilling the YBS mission

FCA supports the YBS mission outlined in the Farm Credit 

Act by adopting regulations governing the System’s service 

to these borrowers, by collecting and reporting data, by 

setting disclosure requirements, and by examining institutions for safety and soundness. The Farm Credit Act and 

FCA regulations stipulate that each System bank must have 

written policies that direct each association to have the 

following:

• A program for furnishing sound and constructive credit 

and financially related services to YBS farmers

• A mission statement describing the program’s objectives 

and specific means to achieve the objectives

• Annual quantitative targets for credit to YBS farmers

• Outreach efforts and annual qualitative goals for offering credit and related services that meet the needs of 

YBS farmers

FCA regulation requires that association business plans 

also include a marketing plan and strategies, with specific 

outreach toward diversity and inclusion within each market 

segment. The association’s board oversight and reporting are 

integral parts of each YBS program. Operational and strategic business plans must include the goals and targets for the 

association’s YBS lending. 

Each association must also establish an internal control 

program to ensure that it provides credit in a safe and sound 

manner. FCA’s oversight and examination activities monitor 

each institution’s assessment of its performance and market 

penetration in the YBS area.

Quantitative results

According to section 5.17(a)(3) of the Farm Credit Act, 

FCA must provide Congress with an annual report that 

summarizes and analyzes the YBS reports that System 

banks submit to FCA under section 4.19(b). The following 

information summarizes the quantitative information that 

System institutions provided for their YBS programs.

In 2017, a total of 327,493 new loans were made by the System, totaling $76.8 billion. The total number of outstanding 

loans at year-end 2017 was 1,006,067, amounting to $260.2 

billion.
27

Young: The System reported making 56,705 new loans 

to young farmers in 2017, and the volume of these loans 

amounted to $9.1 billion. The new loans made to young 

farmers in 2017 represented 17.3 percent of all loans the 

System made during the year and 11.8 percent of the dollar 

volume of loans made. At the end of 2017, the System reported 187,156 loans outstanding to young farmers, totaling 

$29.1 billion.

Beginning: The System reported making 73,752 new loans 

to beginning farmers in 2017, and the volume of these loans 

amounted to $12.4 billion in 2017. The new loans made to 

beginning farmers in 2017 represented 22.5 percent of all 

System loans made during the year and 16.2 percent of the 

dollar volume of loans made. At the end of 2017, the System 

reported 279,027 loans outstanding to beginning farmers, 

totaling $45.1 billion.

Small: System institutions reported making 136,910 new 

loans to small farmers in 2017, totaling $11.7 billion. The 

new loans made to small farmers in 2017 represented 41.8 

percent of all System loans made during the year and 15.2 

percent of the dollar volume of loans made. At the end of 

2017, the System reported 489,694 loans outstanding to 

small farmers, totaling $48.7 billion.

Please note: Because the YBS mission is focused on each 

borrower group separately, data are reported separately 

for each of the three YBS categories. Since some loans fit 

more than one category, adding the loans across categories 

does not produce an accurate measure of the System’s YBS 

lending involvement.

Table 4A

YBS loans made during 2017

As of Dec. 31

YBS Category

Number 

of loans

Percentage of 

total number of 

System loans

Dollar volume 

of loans in 

millions

Percentage of 

total volume of 

System loans

Average 

loan size

Young 56,705 17.3 $9,072 11.8 $159,994

Beginning 73,752 22.5 $12,445 16.2 $168,738

Small 136,910 41.8 $11,688 15.2 $85,367

Table 4B

YBS loans outstanding

As of Dec. 31, 2017

YBS Category

Number 

of loans

Percentage of 

total number 

of System loans

Dollar volume 

of loans in 

millions

Percentage of 

total volume of 

System loans

Average 

loan size

Young 187,156 18.6 $29,105 11.2 $155,513

Beginning 279,027 27.7 $45,073 17.3 $161,535

Small 489,694 48.7 $48,668 18.7 $99,385

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, commitments, and participation interests to farmers, ranchers, and aquatic producers, and exclude rural home loans made under

613.3030, loans to cooperatives, and activities of the Farm Credit Leasing Services Corporation.
28

Farm Credit Administration 2017 Annual Report on the Farm Credit System

New loans made in 2017 by dollar volume

From Dec. 31, 2016, to Dec. 31, 2017, the System’s overall 

new loan dollar volume declined by 0.9 percent.2 New loan 

dollar volume to young farmers declined by 1.5 percent, to 

beginning farmers by 1.8 percent, and to small farmers by 

4.2 percent. (See table 5A.) 

The ratio of new YBS loan dollar volume to total new 

System loan volume also declined from 2016 to 2017. For 

young farmers, it declined from 11.9 percent to 11.8 percent; for beginning farmers, it declined from 16.3 percent to 

16.2 percent; and for small farmers, the ratio declined from 

15.7 percent in 2016 to 15.2 percent in 2017.

New loans in 2017 by number of loans

The number of loans made during the year also fell for both 

total System lending and for all YBS categories. The number 

of total System loans made during the year dropped by 9.8 

percent. The number of loans to young and small farmers 

dropped by 8.5 percent, and the number of loans to beginning farmers dropped by 6.8 percent.

2	 The volume and loan numbers reported for 2016 in last year’s annual report were revised slightly for the 2017 annual report because of corrections submitted by

System institutions.

On the other hand, the ratio of the number of new YBS 

loans to the number of total new System loans increased 

in 2017 over 2016. For young farmers, the ratio increased 

from 17.1 percent to 17.3 percent; for beginning farmers, it 

increased from 21.8 percent to 22.5 percent; and for small 

farmers, the ratio increased from 41.2 percent to 41.8 percent. (See figures 9A, 9B, and 9C.)

Outstanding loans by dollar volume

Both the dollar volume of the System’s total loans outstanding 

and the dollar volume of YBS loans outstanding grew in 

2017. Total System loan dollar volume outstanding grew by 

3.1 percent, and loan dollar volume outstanding to young 

farmers grew by 4.8 percent, to beginning farmers by 5.3 

percent, and to small farmers by 2.0 percent. (See table 5B.)

Outstanding loans by number of loans

The number of System loans outstanding declined by 3.2 

percent. The number of loans outstanding to young farmers 

declined by 1.9 percent but remained the same for beginning farmers, and the number of loans outstanding to small 

farmers declined by 2.3 percent.

Table 5A 

Change in new YBS lending from 2016 to 2017

YBS Category Dollar Volume Loan Numbers

Young −1.5% −8.5%

Beginning −1.8% −6.8%

Small −4.2% −8.5%

Table 5B 

Change in outstanding YBS lending from 

2016 to 2017

YBS Category Dollar Volume Loan Numbers

Young 4.8% −1.9%

Beginning 5.3% 0.1%

Small 2.0% −2.3%

Sources: Annual, Young, Beginning, and Small Farmer Reports submitted by

each System lender through the Farm Credit banks.
29

Qualitative results

This section summarizes the qualitative information that 

System institutions included in their 2017 YBS reports.

During 2017, institutions updated previous studies or conducted new studies and research to understand the demographic diversity and financial needs of current and potential YBS farmers in their service territories. The following 

are examples of information sources used for these studies:

• USDA Ag Census data

• Supervisory funding bank data

• Farm Credit Council reports

• Feedback from System YBS conferences

• Focus groups

• Survey questionnaires

• Feedback from educational and outreach events 

• University studies

Institutions also identified new market segments and 

worked to reach out to underserved segments. They tailored 

their educational programs and market outreach to the 

needs of new and existing markets. Some examples of these 

targeted market segments include military veterans, women, 

next generation farmers, minority farmers, organic farmers, 

and local food hubs. Institutions also participated in 

community service, provided scholarships, and sponsored 

events. 

System institutions employed a variety of advertising methods to reach potential YBS farmers in 2017. They increased 

their social media activity; issued press releases; advertised 

through magazines, radio, and television; published blogs 

and websites; and networked person to person. Institutions 

created micro loan programs, developed new leadership 

programs and educational workshops, and developed 

mobile loan programs where they go to the customer rather 

than waiting for the customer to come to them.

Outreach programs were used to connect with YBS farmers, 

both current and potential. In 2017, some institutions updated their websites and started new and potential borrower 

relation campaigns. Some attended and sponsored tradeshows, educational seminars, county fairs, and commodity 

group events. Some gave scholarships and grants to those 

looking to continue their education or acquire trade skills. 

Some institutions worked with ethnic organizations, chambers of commerce, and local and regional food banks.

Of the institutions that provided educational opportunities 

for YBS borrowers, some offered one-time classes or webinars, and others have multiyear programs with in-depth 

curriculums, covering such topics as ag leadership, business 

planning, personal finance, commodity marketing, crop 

insurance, risk management, and succession and retirement 

planning. Some institutions also hold economic outlook 

meetings and next generation conferences.

Institutions are required to establish goals for offering credit 

and related services to YBS farmers — either directly or in 

coordination with other System institutions and government and private sources. Most institutions use federal or 

state loan guarantees as part of their YBS programs to help 

them make these loans. They also use concessionary interest 

rates and YBS-specific underwriting standards in determining creditworthiness. 

System institutions are required by FCA regulation to 

coordinate with third parties to provide credit and related 

services. Institutions reported networking and partnering 

with USDA, the Natural Resources Conservation Service, 

USDA Rural Development and Extension Service staff, local 

schools, colleges, land grant universities, integrators, commodity groups, nonprofits, civic groups, district funding 

banks, other Farm Credit System institutions, and commercial banks.

Institutions used a variety of methods to receive input on 

ways to better serve the needs of YBS farmers in their territories. One method is to use advisory committees; we 

saw an increase in the number of institutions using these 

committees in 2017. Advisory committees are composed of 

a variety of stakeholders, both internal and external. They 

provide input to institution board members at least annually. In 2017, advisory committees recommended increasing 

mentorship, adopting new marketing strategies and loan 

programs, and offering more educational opportunities.
30

Farm Credit Administration 2017 Annual Report on the Farm Credit System

Figure 9A, 9B, and 9C

Number of loans made to, and number of loans outstanding to, YBS farmers and ranchers, 2008 – 2017

Figure 9A

Young farmers and ranchers

Figure 9B

Beginning farmers and ranchers
31

Figure 9C

Small farmers and ranchers

Sources: Annual YBS reports submitted by System associations through the System banks.

The number of institutions that have developed programs to 

help new farmers increased last year. Some institutions offered mentorship opportunities by pairing new farmers with 

experienced farmers. Some provided formalized training 

and educational courses, grants, and scholarships for borrowers to attend third-party training.

In addition, some institutions developed specialized loan 

underwriting standards for YBS producers or allowed 

underwriting exceptions. Some offered interest rate concessions or interest-only loans for the initial start-up years, 

while others paid Farm Service Agency guarantee fees.

Each association is charged with serving the needs of YBS 

farmers in a safe and sound manner. Some have a YBS 

capital commitment program to address credit risk and 

help them make YBS loans. Some provide services, such as 

crop insurance and risk mitigation seminars, to help farmers manage production risk. Also, to ensure safe and sound 

lending practices, some provide annual staff training and 

employee education on YBS lending.
32

Farm Credit Administration 2017 Annual Report on the Farm Credit System

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, well-reasoned regulations 

whose benefits outweigh their costs. With our regulations, 

we seek to meet two general objectives. The first is to ensure 

that the System continues to be a dependable source of 

credit and related services for agriculture and rural America 

while also ensuring that System institutions comply with 

the law and with the principles of safety and soundness. The 

second is to promote participation by member-borrowers 

in the management, control, and ownership of their System 

institutions.

Regulatory activity in 2017

The following paragraphs describe some of FCA’s regulatory 

efforts in 2017, along with several projects that will remain 

active in 2018. More information on these topics is available 

on our website.

From the Laws & Regulations tab at www.fca.gov, you can 

read our board policy statements, bookletters, informational memorandums, proposed rules, and any final rules whose 

effective dates are pending.

Governance

Third Amended and Restated Marketing Access Agreement — The FCA board approved in January 2017 the 

Third Amended and Restated Market Access Agreement 

among the System banks and the Federal Farm Credit 

Banks Funding Corporation.

Military Lending Act — We issued an informational 

memorandum to System institutions in February 2017 to 

provide information about the Military Lending Act, which 

protects active-duty members of the military, their spouses, 

and their dependents from certain lending practices.

Compensation for 2017 — We issued an informational 

memorandum in January 2018 to communicate the annual 

adjustment in the maximum annual compensation payable 

to FCS bank directors. The adjustment reflects the change in 

the Consumer Price Index.

Lending

Lending and loan servicing controls — The FCA board 

approved a bookletter in March 2018 to convey our expectation that each System institution will continuously assess 

its lending and loan servicing controls to ensure controls 

remain effective and comply with FCA regulations. 

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

Margin and capital requirements for swap entities — The 

FCA board approved a proposed rule in January 2018 that 

would amend the definition of “eligible master netting 

agreement” in the final regulation on margin and capital 

requirements for covered swap entities.

Farmer Mac

Farmer Mac nonprogram investments — Rural enterprise 

bonds backed by agricultural chattel loans — The FCA 

board approved a request in June 2017 from Farmer Mac to 

purchase and hold private placement bonds that are backed 

by pools of farm operating, equipment, or fixture loans.
33

Other

National Oversight and Examination Program for 2018 

— We issued an informational memorandum in September 

2017 that summarized the National Oversight Plan for 

2018. The plan detailed strategies for addressing critical 

risks and other areas of focus.

Regulatory burden — We issued a notice with request 

for comment in May 2017 to solicit comments for the removal or revision of outdated, unnecessary, or burdensome 

regulations.

Civil money penalty adjustment — We published a final 

rule to adjust our civil money penalties for inflation as required by the Federal Civil Penalties Inflation Adjustment 

Act Improvement Act of 2015.

Corporate activity in 2017

In 2017 and early 2018, we analyzed and approved five corporate applications.

• On Jan. 1, 2017, two agricultural credit associations 

(ACAs) affiliated with CoBank, ACB, merged their 

operations following stockholder approval. The production credit association (PCA) and federal land credit association (FLCA) subsidiaries associated with the ACAs 

also merged.

• On July 1, 2017, three ACAs affiliated with AgriBank, 

FCB, merged their operations following stockholder approval. The PCA and FLCA subsidiaries associated with 

the ACAs also merged.

• On July 1, 2017, two ACAs affiliated with AgriBank 

merged their operations following stockholder approval. The PCA and FLCA subsidiaries associated with 

the ACAs also merged.

• On Oct. 1, 2017, a stand-alone FLCA and a FLCA subsidiary associated with an ACA merged their operations 

following stockholder approval. These associations are 

affiliated with AgriBank.

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

changed its name.

The total number of associations as of Jan. 1, 2018, was 69 

(68 ACAs and a FLCA), compared with 73 associations a 

year earlier. Figure 10 shows the chartered territory of each 

FCS bank. Details about specific corporate applications are 

available on FCA’s website at www.fca.gov/info/mergers.

html.

Funding activity in 2017

During 2017, the System maintained reliable access to the 

debt capital markets. Investors were attracted by the System’s status as a government-sponsored enterprise (GSE), as 

well as its long-term financial performance and strength.

Risk spreads and pricing on System debt securities during 

2017 remained favorable for the System. Since regulatory 

requirements promote the use of GSE debt, the System benefits from its GSE status; it also benefits from the continuing 

decline in debt issuances by the two housing-related GSEs, 

which are in conservatorship and are congressionally mandated to reduce their respective debt outstanding to $250 

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

demand for System debt, the System was able to continue to 

issue debt on a wide maturity spectrum at very competitive 

rates.

The System funds loans and investments primarily with a 

combination of consolidated Systemwide debt and equity 

capital. The Funding Corporation, the fiscal agent for 

System banks, sells debt securities, such as discount notes, 

bonds, designated bonds, and retail bonds, on behalf of the 

System. This process allows funds to flow from worldwide 

capital-market investors to agriculture and rural America, 

thereby providing rural communities with efficient access 

to global resources. At year-end 2016, Systemwide debt 

outstanding was $265.2 billion, representing a 2.9 percent 

increase from the preceding year-end.

Several factors contributed to the $7.4 billion increase in 

Systemwide debt outstanding. Gross loans increased $10.0 

billion in 2017, while the System’s combined investments, 

federal funds, and cash balances decreased by $791 million 

during the year.
34

Farm Credit Administration 2017 Annual Report on the Farm Credit System

Figure 10

Chartered territories of FCS banks

As of Jan. 1, 2018

Note: As of Jan. 1, 2018, CoBank was funding 22 associations in the indicated areas and serving cooperatives nationwide; Farm Credit Bank of Texas was funding

14 associations; AgriBank, FCB, was funding 14 associations; and AgFirst Farm Credit Bank was funding 19 associations. The FCS contains a total of 73 banks and

associations.
35

The System had $2.52 billion in outstanding perpetual 

preferred stock at the end of 2017, $20 million more than 

at the previous year-end. The System had no outstanding 

subordinated debt at year-end 2017. It had $499 million in 

outstanding subordinated debt at year-end 2016. 

As the System’s regulator, we have several responsibilities 

pertaining to System funding activities. The Farm Credit 

Act requires the System to obtain our approval before distributing or selling debt. Because we make it a high priority 

to respond efficiently to the System’s requests for debt issuance approvals, we have a program that allows the System to 

issue discount notes at any time up to $60 billion as long as 

it provides us with periodic reports on this activity. In addition, we approve most longer-term debt issuances through 

a monthly “shelf ” approval program. For 2017, we approved 

$133.3 billion in longer-term debt issuances through this 

program.

The amount of debt issued by the System decreased significantly in 2017. For the 12 months ended Dec. 31, 2017, 

the System issued $278 billion in debt securities, compared 

with $334 billion in 2016, $298 billion for 2015, $330 billion 

for 2014, and $377 billion for 2013. The System issued significantly less debt in 2017 primarily because domestic and 

global economic growth pushed yields persistently higher 

during the year, which all but eliminated any economic 

opportunity for the System to exercise call options on its 

outstanding debt. As a result, the System exercised calls on 

only $5 billion of its outstanding debt in 2017, compared 

with $58 billion in the preceding year.

Favorable investor sentiment during 2017 and a continuation of relatively low yields on the full spectrum of debt instruments allowed the System to access a wide range of debt 

maturities. Their weighted average of remaining maturity 

increased by two months during 2017 to 2.9 years. Meanwhile, the weighted-average interest rates for insured debt 

increased substantially, going from 1.18 percent as of Dec. 

31, 2016, to 1.64 percent as of Dec. 31, 2017.

To participate in the issuance of an FCS debt security, a 

System bank must maintain — free from any lien or other 

pledge — specified eligible assets (available collateral) that 

are at least equal in value to the total amount of its outstanding debt securities. Securities subject to the available 

collateral requirements include Systemwide debt securities 

for which the bank is primarily liable, investment bonds, 

and other debt securities that the bank may have issued 

individually.

Furthermore, our regulations require each System bank 

to maintain a tier 1 leverage ratio (primarily unallocated 

retained earnings and common cooperative equities divided 

by total assets) of not less than 4.0 percent. In addition, FCA 

regulations provide for a 1.0 percent leverage ratio buffer. 

Certain restrictions apply if the buffer does not exceed 1.0 

percent. Throughout 2017, all System banks maintained 

their tier 1 leverage ratios above the required minimum and 

the accompanying buffer, with 5.65 percent being the lowest 

for any single bank as of Dec. 31, 2017.

All System banks have kept their respective days of liquidity 

above the required minimum levels. The lowest liquidity 

levels at any single bank as of Dec. 31, 2017, were as follows:

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

• 59 days (30 days regulatory minimum) of level 1 and 2 

assets

• 130 days (90 days regulatory minimum) of level 1, 2, 

and 3 assets

• 151 days overall (including the supplemental liquidity 

buffer)

In addition to the protections provided by the joint and 

several liability provisions, the Funding Corporation and 

the System banks have entered into the following voluntary 

agreements:

• The Amended and Restated Market Access Agreement, 

which establishes certain financial thresholds and provides the Funding Corporation with operational oversight and control over the System banks’ participation 

in Systemwide debt obligations.

• The Amended and Restated Contractual Interbank 

Performance Agreement, which is tied to the Market 

Access Agreement and establishes certain measures that 

monitor the financial condition and performance of 

the institutions in each System bank’s district. For all of 

2017, all Farm Credit System banks maintained scores 

above the benchmarks in the Contractual Interbank 

Performance Agreement.
36

Farm Credit Administration 2017 Annual Report on the Farm Credit System

Maintaining a Dependable Source of Credit for 

Farmers and Ranchers

As federally chartered cooperatives, the banks and associations of the Farm Credit System are limited-purpose lenders. According to Congress, the purpose of the FCS is to 

“improve the income and well-being of American farmers 

and ranchers” by providing credit and related services to 

them, their cooperatives, and to “selected farm-related businesses necessary for efficient farm operations.”

Making loans exposes the System to risk. To manage this 

risk, System institutions must have both sufficient capital 

and effective risk-management controls.

As the independent regulator of the FCS, the Farm Credit 

Administration examines and supervises System institutions. We monitor specific risks in each institution; we also 

identify and monitor risks that affect the System as a whole.

Through our risk-based examination and supervisory program, our examiners determine how issues facing an institution, including issues in the agriculture industry, 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. Using a variety of processes, we evaluate systemic 

risks in both agriculture and the financial services industry 

that can affect an institution, a group of institutions, and the 

System as a whole.

Currently, we are emphasizing the following areas:

• Portfolio risk. Despite considerable volatility in production agriculture over the past several years, the System’s credit quality has remained relatively strong, and 

borrowers have been resilient. However, credit stress is 

expected to intensify as profits decline in 2018 in certain agricultural sectors. 

To help producers weather the storm, the System 

will need to be proactive and responsive by counseling customers, restructuring debts, and establishing 

stronger credit controls. In the more severe cases, 

System institutions will need to update their ability to 

handle increased credit risk by setting up special credit 

departments. 

Institutions must maintain the financial capacity and 

risk-bearing ability to help borrowers experiencing 
37

stress. And as always, institutions must ensure they are 

fully complying with all borrower rights requirements. 

• Internal controls over financial reporting. All System 

institutions, regardless of size or scope of operations, 

must have strong internal controls over financial reporting. These controls rely on logical delegated authorities, 

clear segregation of duties, appropriate access controls 

to loan and accounting systems, and detective and corrective controls — including an effective internal audit 

program. 

Internal controls over financial reporting are critical to 

safeguarding the integrity of financial reporting at all 

levels — institution, district, and Systemwide. All institutions must have effective internal controls over financial reporting to ensure their financial statements and 

FCA call reports are above reproach. System investors, 

shareholders, FCA, and the external auditor rely on 

these controls to safeguard the integrity of FCS financial 

reports. 

An internal controls breakdown could have significant 

consequences and be very expensive to recover from. 

System leaders and the System’s Internal Controls Over 

Financial Reporting Workgroup have focused on improving these controls in recent years. 

This emphasis must continue in 2018 and beyond to 

ensure the integrity of institution and Systemwide 

financial statements and FCA call reports. We encourage every institution to dedicate staff and audit resources to ensuring strong internal controls. 

When we identify systemic issues, we inform institutions 

about those issues by producing the following:

• FCA board policy statements

• Bookletters

• Reports of examination

• Informational memorandums

You can access many of these documents online by going to 

fca.gov, clicking on the Law & Regulations tab, and selecting 

the document type in which you are interested.

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

Measuring the System’s safety and soundness

FCA uses the Financial Institution Rating System (FIRS) to 

measure safety and soundness threats at System institutions. 

Similar to the systems used by other federal banking regulators, FIRS is a CAMELS-based system, with component ratings for capital, assets, management, earnings, liquidity, and 

sensitivity, all factoring into an overall composite rating.

The FIRS process includes quantitative benchmarks for 

evaluating institution performance, qualitative rating criteria for evaluating risk management practices, and outlook 

ratings for evaluating risks. These benchmarks help our 

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

Our examiners assign component and composite ratings to 

each institution on a scale of 1 to 5. A composite rating of 1 

indicates an institution is sound in every respect. A rating 

of 3 means an institution displays a combination of financial, management, or compliance weaknesses ranging from 

moderate to severe. A 5 rating represents an extremely high 

immediate or near-term probability of failure.3

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

review and update FIRS ratings to reflect current risks and 

conditions. We disclose the FIRS composite and component 

ratings to the institution’s board and CEO to give them perspective on the safety and soundness of their institution.

We also disclose these ratings to each association’s funding 

bank to ensure that the bank takes any actions necessary 

to address safety and soundness issues as it administers its 

direct loan with the institution.

In addition, we issue examination reports and other communications to provide the institution board with our 

assessment of management’s performance, the quality of 

assets, and the financial condition and performance of the 

institution.

As figure 11 shows, risks were higher in 2014 when stresses 

from the weather, price volatility, and the global economy 

were affecting some institutions. Despite a slight increase in 

risk in the past year, the FIRS ratings as of Jan. 1, 2018, show 

that the financial condition and performance of the FCS 

remains strong. The System’s strength reduces the risk to 

investors in FCS debt, to the Farm Credit System Insurance 

Corporation, and to FCS institution stockholders.
38

Farm Credit Administration 2017 Annual Report on the Farm Credit System

As of Jan. 1, 2018, 39 FCS institutions were rated 1 (53 

percent), 29 were rated 2 (40 percent), and 5 were rated 3 (7 

percent). The institutions rated 3 represented less than 1.5 

percent of the System’s total assets. There were no institutions with a 4 or 5 rating. 

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, enhancing earnings, and 

strengthening risk management.

We use a three-tiered supervision program: 

• Normal supervision

• Special supervision 

• 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 

Figure 11

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

2014 – 2018

Source: FCA’s FIRS ratings database.

Note: Figure 11 reflects ratings for only the System’s banks and direct-lending associations; it does not include ratings for the System’s service corporations, Farmer

Mac, or the Federal Farm Credit Banks Funding Corporation. Also, the numbers shown on the bars reflect the total number of institutions with a given rating; please

refer to the y-axis to determine the percentage of institutions receiving a given rating.
39

guidance to address weaknesses, and we give the institution 

time to correct the problems.

If informal supervisory approaches have not been or are 

not likely to be successful, we will use our formal enforcement authorities to ensure that FCS institutions are safe and 

sound and that they comply with laws and regulations. We 

may take an enforcement action for a number of reasons:

• A situation threatens an institution’s financial stability.

• An institution has a safety or soundness problem or has 

violated a law or regulation.

• An institution’s board is unable or unwilling to correct 

problems we have identified.

Our enforcement authorities include the following powers:

• To enter into formal agreements

• To issue cease-and-desist orders

• To levy civil money penalties

• To suspend or remove officers, directors, and other 

persons

If we take an enforcement action, the FCS institution must 

operate under the conditions of the enforcement document 

and report back to us on its progress in addressing the issues identified. The document may require the institution to 

take corrective actions in such areas as financial condition 

and performance, portfolio management, asset quality, and 

institution management or governance. Our examiners 

oversee the institution’s performance to ensure compliance 

with the enforcement action.

As of Jan. 1, 2018, no FCS institutions were under enforcement action.

Protecting borrower rights

Agricultural production is risky for many reasons — adverse weather, changes in government programs, international trade issues, fluctuations in commodity prices, and 

crop and livestock diseases. These risks can sometimes 

make it difficult for borrowers to repay loans.

The Farm Credit Act provides System borrowers certain 

rights when they apply for loans and when they have difficulty repaying loans. The act requires FCS institutions to 

notify borrowers of the right to seek restructuring of loans 

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

restructuring decisions. The Farm Credit Act also provides 

borrowers the opportunity to buy or lease back their former 

agricultural properties when System institutions acquire the 

properties through foreclosure. FCA examines institutions 

to make sure they are complying with these provisions.

We also receive and review complaints from borrowers who 

believe their rights have been denied. In 2017, we received 

39 borrower complaints, compared with 42 in 2016. 

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.
40

Farm Credit Administration 2017 Annual Report on the Farm Credit System

Farmer Mac

Farmer Mac is a stockholder-owned, federally chartered instrumentality of the United States and an institution of the 

Farm Credit System. Created in 1988, Farmer Mac provides 

a secondary market for agricultural real estate mortgage 

loans, rural housing loans, and rural utility cooperative 

loans.

This secondary market is designed to increase the availability of long-term credit at stable interest rates to America’s 

rural communities and to provide liquidity and lending 

capacity to rural lenders.

Farmer Mac conducts activities through four major lines of 

business:

• 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 

communication 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 

Table 6

Farmer Mac condensed balance sheets, 2012 – 2017

As of Dec. 31

Dollars in millions

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

Risk-Based Capital Stress Test model, whichever is higher.

Category 2012 2013 2014 2015 2016 2017 2016 – 2017

Total assets $12,622.2 $13,361.8 $14,287.8 $15,540.4 $15,606.0 $17,792.3 14.0%

Total liabilities $12,029.2 $12,787.3 $13,506.0 $14,986.6 $14,962.4 $17,084.1 14.2%

Net worth or equity capital $593.0 $574.5 $781.8 $553.7 $643.6 $708.1 10.0%

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

Table 7

Farmer Mac capital positions, 2012 – 2017

As of Dec. 31

Dollars in millions

Category 2012 2013 2014 2015 2016 2017

GAAP equity $593.0 $574.5 $781.8 $553.7 $643.6 $708.1

Core capital $519.0 $590.7 $766.3 $564.5 $609.7 $657.1

Regulatory capital $535.9 $604.0 $776.4 $571.1 $617.1 $665.9

Statutory requirement $374.0 $398.5 $421.3 $462.1 $466.5 $520.3

Regulatory requirement $58.1 $90.8 $121.6 $72.2 $104.8 $235.4

Excess core capital over statutory requirement1 $145.0 $192.2 $345.0 $102.4 $143.2 $136.8

Capital margin excess over the minimum 38.8% 48.2% 81.9% 22.2% 30.7% 26.3%

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K.
41

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 on matters of policy. The law also stipulates that OSMO’s activities 

must, to the extent practicable, be carried out by individuals 

who are not responsible for supervising the banks and associations of the FCS.

Through OSMO, we perform the following functions:

• Examine Farmer Mac at least annually for capital adequacy, asset quality, management performance, earnings, liquidity, and interest rate sensitivity

• Supervise and issue regulations governing Farmer Mac’s 

operations

• Oversee and evaluate Farmer Mac’s safety and soundness and mission achievement

OSMO reviews Farmer Mac’s compliance with statutory and 

regulatory minimum capital requirements and supervises 

its operations and condition throughout the year. Table 6

summarizes Farmer Mac’s condensed balance sheets at the 

end of each calendar year from 2012 to 2017.

Capital

As of Dec. 31, 2017, Farmer Mac’s net worth (that is, equity 

capital determined using generally accepted accounting 

principles [GAAP]) was $708.1 million, compared with 

$643.6 million a year earlier. Its net worth was 4.0 percent 

of its on-balance-sheet assets as of Dec. 31, 2017, compared 

with 4.1 percent at the end of 2016. Net worth went up primarily because of increases in after-tax net interest income 

and gains from the sale of real estate-owned properties. The 

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

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

gains were partially offset by normal increases in noninterest expenses, as well as by changes in the measurement of 

net deferred tax assets after the federal corporate income 

tax rate was revised.

When Farmer Mac’s off-balance-sheet program assets (essentially its guarantee obligations) are added to its total onbalance-sheet assets, net worth was 3.2 percent as of Dec. 

31, 2017, compared with 3.1 percent in 2016. Farmer Mac 

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

At year-end 2017, Farmer Mac’s core capital (the sum of the 

par value of outstanding common stock, the par value of 

outstanding preferred stock, paid-in capital, and retained 

earnings) remained above the statutory minimum requirement. It totaled $657.1 million, exceeding the statutory 

minimum capital requirements4 of $520.3 million by $136.8 

million or 26.3 percent.

Its regulatory capital (core capital plus allowance for losses) 

exceeded the required amount as determined by the RiskBased Capital Stress Test.5 Farmer Mac’s regulatory capital 

totaled $665.9 million as of Dec. 31, 2017, exceeding the 

regulatory risk-based capital requirement of $235.4 million 

by $430.5 million.

Regulatory capital was 4.0 percent of total Farm & Ranch 

and Rural Utilities Program volume (including both onand off-balance-sheet volume but excluding USDA guarantees). Risk exposure on USDA guarantee loans is very 

low because they are guaranteed by the U.S. Department of 

Agriculture. Table 7 offers a historical perspective on capital 

and capital requirements for 2012 through 2017.

We published a proposed rule in February 2016 governing 

eligibility criteria for Farmer Mac’s nonprogram investments. The proposed rule also includes revised creditworthiness standards; as required by the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, these standards will replace references to credit ratings in FCA regulations. We expect the final rule to be presented for FCA 

board action in 2018.
42

Farm Credit Administration 2017 Annual Report on the Farm Credit System

Figure 12

Farmer Mac program activity and nonprogram investment trends

As of Dec. 31

Dollars in billions

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

2012 2013 2014 2015 2016 2017

Total program activity

On-balance-sheet program assets

Off-balance-sheet program activity

Nonprogram investments

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

Figure 13

Farmer Mac total program activity

As of Dec. 31, 2017

Source: Farmer Mac’s Report on Securities and

Exchange Commission Form 10-K.

AMBS = agricultural mortgage-backed securities.
43

Program activity

Farmer Mac’s total program activity increased to $19.0 billion by year-end 2017, up from $17.4 billion a year earlier. 

(See figure 12.) Farmer Mac experienced steady growth in 

its Farm & Ranch loan purchases, as well as its Institutional 

Credit Program, which involves the purchase or guarantee 

of AgVantage securities. These bonds are general obligations 

of the issuing financial institution that are purchased or 

guaranteed by Farmer Mac. Each AgVantage security is secured by eligible loans under one of Farmer Mac’s programs 

in an amount at least equal to the outstanding principal 

amount of the security.

Off-balance-sheet program activity consists of standbys, 

certain AgVantage securities, and agricultural mortgagebacked securities (AMBS) sold to investors. At the end of 

December 2017, 21.3 percent of program activity consisted 

of off-balance-sheet obligations, as compared with 28.1 percent a year earlier.

Farmer Mac’s Long-Term Standby Purchase Commitment product is similar to a guarantee of eligible pools of 

program loans. Under the standbys, a financial institution 

pays an annual fee in return for Farmer Mac’s commitment 

to purchase loans in a specific pool under specified conditions at the option of the institution. As shown in figure 13, 

standbys represented 12.3 percent of Farmer Mac’s total 

program activity in 2017.

Asset quality

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

of substandard Farm & Ranch assets, and its 90-day delinquencies relative to outstanding program volume, excluding 

AgVantage loan volume.

As of Dec. 31, 2017, Farmer Mac’s allowance for losses totaled $8.9 million, compared with $7.4 million the year before. Of its Farm & Ranch program portfolio, $221.3 million 

was substandard, representing 3.22 percent of the principal 

balance of Farm & Ranch loans purchased, guaranteed, or 

Figure 14

Allowance, nonperforming asset, and delinquency trends, 2012 – 2017

Dollars in millions

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

Farm Credit Administration 2017 Annual Report on the Farm Credit System

committed to be purchased. This compares with $165.2 

million, or 2.69 percent, on Dec. 31, 2016. Assets are considered to be substandard when they have a well-defined 

weakness or weaknesses that, if not corrected, are likely to 

lead to some losses.

As of Dec. 31, 2017, Farmer Mac’s 90-day delinquencies increased to $48.4 million, or 0.71 percent of non-AgVantage 

Farm & Ranch loans, compared with $21.0 million, or 0.34 

percent, as of Dec. 31, 2016.

Real estate owned at the end of 2017 was $0.14 million, 

down from $1.53 million a year earlier. Farmer Mac reported no delinquencies in its pools of rural utility cooperative 

loans.

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

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

discretion.

Earnings

Farmer Mac reported net income available to common 

stockholders of $71.3 million (in accordance with GAAP) 

for the year ended Dec. 31, 2017, up from $64.2 million reported at year-end 2016.6 Core earnings for 2017 were $65.6 

million, compared with $53.8 million in 2016. Net interest 

income, which excludes guarantee fee income, was reported 

at $155.9 million in 2017, up from $139.2 million in 2016. 

Guarantee fee income was $14.1 million, compared with 

$14.9 million in 2016. Table 8 shows a six-year trend for the 

basic components of income.

Table 8

Farmer Mac condensed statements of operations, 2012 – 2017

As of Dec. 31

Dollars in millions

Category 2012 2013 2014 2015 2016 2017 Growth rate 

2016 – 2017

Total revenues $122.0 $164.4 $103.6 $145.9 $160.8 $175.1 9%

Total expenses $78.1 $92.5 $65.4 $98.5 $96.6 $103.8 7%

Net income available to

common shareholders

$43.9 $71.8 $38. $47.4 $64.2 $71.3 11%

Core earnings $49.6 $54.9 $53.0 $47.0 $53.8 $65.6 22%

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

Challenges Facing the Agricultural Economy and 

the Farm Credit System

The U.S. farm economy stabilized in 2017. The farm economy benefitted from stronger cash receipts for the livestock 

sector, higher total agricultural exports, and an uptick in 

U.S. farm income after a sharp three-year decline from 

record levels. USDA estimates that in 2017 net cash income 

was $96.9 billion, up 3 percent from 2016. 

Still, the farm economy in 2017 was considerably weaker 

than it was four years ago. This was primarily because global 

crop supplies continued to be large and markets for grains 

and oilseeds continued to be weak. Both of these factors 

contributed to low or negative profit margins for producers. 

In 2017, despite these downward pressures, U.S. net cash 

income adjusted for inflation was near the historic average 

(1960 to 2016) for the second consecutive year. 

A small increase in farm income, combined with low interest rates, helped support farm asset values in 2017. However, farm debt remains relatively high, at four times the 

income for the sector, whereas the historical average is only 

three times the sector income. As a result, some farmers 

may not have enough liquidity to cover farm expenses and 

repay their loans. For farms with debt, the decline in working capital remains a concern, particularly for grain and 

dairy farms.

With modest growth in outstanding loans, System earnings 

increased from $4.8 billion in 2016 to $5.2 billion in 2017. 

Loan performance declined fractionally for the System 

overall because of some weakening in long-term real estate 

lending and production and intermediate-term lending.

Modest growth in the general economy of the United States 

is expected again in 2018, exceeding the 2.3 percent growth 

in 2017. In general, rural economies are also expected to 

grow modestly in 2018, lifted by employment growth in 

various sectors — including transportation and warehousing, professional and business services, and manufacturing 

— depending on the state. 

The U.S. Department of Agriculture forecasts that net cash 

income for 2018 will fall 5 percent from 2017. If the forecast 

proves correct, net cash income will be the lowest since 

2009. (See figure 15.) The size of this year’s crops in the 

United States and in other major producing countries will 

greatly influence the level of farm income for 2018. Export 

demand will be critical in 2018 as trade policies evolve between the United States and its major trading partners. As a 

net exporter, the U.S. farm sector faces risk from changes in 

trade policy. 

The following paragraphs identify several risk factors — 

both domestic and foreign — that could affect the System’s 

long-term ability to profitably finance agricultural enterprises. The factors include conditions in the general economy 

and the farm economy, government policies, and foreign 

trade. As the regulator of the System, we will continue to 

closely monitor and address these risks.

Prospects for the general economy

According to key economic indicators, the U.S. economy 

in 2018 will likely continue to grow modestly in a range 

of 2.5 to 3.0 percent. In 2017, real GDP growth averaged 

2.3 percent, with economic growth averaging closer to 3 

percent in the latter half. Advances in consumer incomes, 

spending, and confidence, along with advances in business 

incomes and investment, were the drivers behind last year’s 

economic growth. Many positive trends like these carried 

over into 2018. The economy in 2018 will also be shaped by 

new federal tax rules.

A strong job market should continue to support consumer 

confidence, incomes, and spending in 2018. The civilian unemployment rate dropped to 4.1 percent by the end of 2017, 

where it has remained through early 2018. This is the lowest 

rate in 18 years. By some measures, the labor market is the 

tightest in nearly 50 years. This is important to the Farm 

Credit System because off-farm employment is a key source 

of repayment for many System loans. 

While the strong labor market is good for consumer demand, which accounts for 70 percent of the economy, it 

presents a challenge for businesses. Labor shortages in some 

regions and for some occupations are raising labor costs 

as employers bid for scarce workers. In some situations, 

the shortage is hindering the ability of businesses to satisfy 

demand for their products or services. The employment 

cost index is expected to reach 2.7 percent in 2018, up from 

2.5 percent in 2017 and 2.2 percent in 2016.

The tight labor market within the broad economic expansion is contributing to a notable rise in domestic inflation. 

Although many observers believe inflation will remain 

in check this year, there is a risk inflation may rise more 

quickly. Inflation affects agriculture by increasing farm 

input costs, squeezing farm profit margins, and pushing up 

retail food prices.

The rate of inflation as measured by the producer price index (PPI), which measures the average change over time in 
46

Farm Credit Administration 2017 Annual Report on the Farm Credit System

interest costs. The rate increases last year pushed up gross 

interest income on System loans by nearly $600 million over 

2016. If the Federal Reserve continues to raise the target 

rate for federal funds, the rates paid by System borrowers, 

especially for short-term loans, will continue to climb. 

Rate-sensitive sectors of the economy, such as housing, 

also bear watching. Since higher interest rates on home 

mortgages affect housing affordability, demand, and pricing, 

these rates will also affect the health of the System’s forestry 

and housing-related loan segments. Nationally, housing 

values have rebounded to new highs since the sector collapsed 10 years ago. Home values and demand may stall in 

2018 with rising rates. The average rate for a 30-year housing mortgage reached the highest level in four years in the 

spring of 2018. 

U.S. exports grew modestly in 2017 as world economies improved and the dollar weakened. Observers expect exports 

to continue to grow in 2018. The future economic activity of 

major agricultural trading partners, such as China, remains 

most critical. Trade policies and disputes with major trading 

partners could derail potential export gains.

Figure 15

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

In billions of 2009 dollars

Source:	USDA, Economic Research Service.

the prices received by domestic producers for their output, 

rose throughout 2017. The PPI rate topped 3 percent in 

2017 and has remained above 3 percent in early 2018. For 

2015 and much of 2016 the PPI rate was negative. Likewise, 

the consumer price index, which changed little in 2015, rose 

2.1 percent in 2017 and was increasing further in early 2018. 

Another factor that contributes to recent inflationary pressures is rising energy prices. Falling crude oil and natural 

gas prices in 2015 and 2016 contributed to the low inflation 

of that period. However, since bottoming out, prices in early 

2018 had returned to levels not seen since 2014.

With modest inflationary pressures and the economy still 

on a firm footing, the Federal Reserve Board indicates it will 

continue to gradually increase the Federal Funds target rate. 

After making three quarter-point rate increases in 2017, the 

Federal Reserve again raised the target from 1.50 percent to 

1.75 percent in March 2018 and from 1.75 percent to 2.00 

percent in June 2018.

The Fed’s policies and the prospects for inflation are significantly affecting System funding costs and hence borrower 
47

midwestern states, such as in Nebraska, Kansas, South Dakota, or Iowa. Some of this can be attributed to a shrinking 

rural population resulting from long-term outmigration 

of young adults, fewer births, increased mortality, and an 

aging population. Median incomes in rural areas remain below those of urban areas, and rural poverty rates are higher.

The agricultural sector remains a major contributor to the 

rural economy. After significant declines in farm income 

between 2013 and 2016, the sector stabilized in 2017. USDA 

is forecasting net farm income for 2017 at $63.8 billion, up 

from $61.5 billion for 2016. Net cash farm income (reflecting cash transactions during the year) rose slightly more, 

reaching $96.9 billion, up from $94.0 billion in 2016. USDA’s forecast for 2018 suggests that both income measures 

will decline about 3 percent but remain near levels seen 

prior to the run-up that began in 2010. 

The balance sheet of the farm sector improved in 2017. Total asset values increased by 2.8 percent, with a rise in land 

values more than offsetting a decline in machinery, the two 

largest asset categories. 

Figure 16

Ratio of farm sector debt to net cash income, 1960 – 2018

Source:	USDA, Economic Research Service.

The rural economy and the farm sector

Rural areas encompass 72 percent of the nation’s land area 

and house 46 million residents. While the rural economy 

benefits from many of the same trends as the overall 

economy, the rural picture can be mixed. The same rural 

areas that benefited from the past boom in agriculture or 

the extraction of minerals and energy have struggled lately 

as these sectors have weakened. Rural economies closer 

to more urban job centers are benefiting from the overall 

strong employment picture. 

While agriculture and mining (including oil and gas) industries provide significant revenue in rural areas, they provide 

less than 5 percent of the jobs. Rural employment is more 

dependent on manufacturing and service industries. Rural 

employment continues to struggle to return to its prerecession level, and job growth in rural areas has generally not 

kept up with growth in urban areas, in part because of declines in manufacturing jobs.

Rural areas distant from major metro centers can have 

low unemployment rates. This is particularly true in rural 
48

Farm Credit Administration 2017 Annual Report on the Farm Credit System

Debt outstanding rose modestly at 2.9 percent in 2017. 

The increase in debt matched the increase in net cash farm 

income. This left the debt-to-income ratio unchanged at 4.0 

in 2017, above the historical average of 3.0 but below record 

levels above 5.0 in the early 1980s. (See figure 16.)

The sector’s debt-to-asset ratio was 12.7 percent, unchanged 

from 2016 and relatively low historically. However, for 

individual farm lenders, this often-quoted national average 

leverage ratio is not particularly relevant — in part because 

it includes the roughly two-thirds of farms that carry little 

or no debt from one year to the next. 

While inflation-adjusted farm income appears to be stabilizing near its historical average, producers of the major field 

crops had lower incomes in 2017. Some dairy producers 

also experienced losses. In contrast, income recovered modestly in 2017 for hog, beef, and poultry producers. Naturally, conditions vary considerably from region to region, 

depending on the mix of enterprises and local economic 

conditions. 

Farmland values 

Since about 83 percent of the farm sector balance sheet is 

made up of farmland assets, land values have a major influence on the creditworthiness of farmers. Land prices rose 

between 2009 and 2014 as major crop prices soared. Then, 

after consecutive years of declining farm income, the average values softened, particularly in the nation’s midsection. 

In mid-2017, the U.S. average cropland value stabilized at 

$4,090 per acre according to USDA. Despite lower crop 

returns, sufficient underlying demand for farmland by 

farmers and investors has supported the land markets. Also, 

according to the Federal Reserve Bank of Kansas City, the 

limited number of farms for sale has contributed to the stability of farmland values.

On a regional basis, surveys conducted by a variety of 

sources — including universities and Federal Reserve district banks — suggest that farmland prices in 2017 were 

mixed when compared with a year earlier. According to 

Federal Reserve district agricultural credit surveys, fourth 

quarter 2017 values for nonirrigated cropland rose 2 to 3 

percent in Iowa, southern Wisconsin, and northern Indiana, 

but declined 1 percent in Minnesota and northern Illinois. 

Although interest in purchasing farmland has increased 

among nonfarmers, farmers remain the dominant purchasers of farmland. The use of debt to make such purchases is 

generally viewed as modest. Systemwide farm real estate 

debt outstanding rose by 4.4 percent during 2017.

Price and production risks 

Many field crop producers experienced low or negative 

profits in 2017 because prices remained low and production 

costs, including land rental costs, did not fall significantly. 

Cropland rental rates in 2018 are expected to be little 

changed, as are costs for fertilizer and chemicals. Rising interest rates will increase interest expenses. Total labor costs 

are expected to increase as well. 

In 2017, global crop supplies were ample as global production continued unabated. Demand expanded as well, but 

global stocks remained high enough to keep U.S. farm 

prices under $3.50 per bushel for corn and under $10 per 

bushel for soybeans. However, in early 2018, smaller corn 

and soybean crops in Argentina resulted in price volatility 

and lifted U.S. farm prices. Also, according to information 

issued in late March, USDA expects U.S. corn and soybean 

acreage to decline in 2018. 

In early 2018, uncertainty regarding both U.S. and South 

American crops created crop selling opportunities for 

U.S. producers. In June, corn and soybean prices declined 

sharply because of good U.S. crop conditions and escalating 

tariffs by China and others on U.S. agricultural exports. 

The volatility presents decision-making challenges for 

producers and lenders alike, especially since price declines 

have reduced the working capital of many producers in 

recent years. As a result, many lenders today are looking 

more closely at the risk management practices of credit applicants, including the use of risk management tools such as 

forward contracting, futures, options, and crop insurance. 

Livestock and dairy producers benefited from two important market developments in 2017: strong domestic and 

export demand for protein products and low feed costs. An 

unexpected resurgence in calf prices during 2017 — in the 

midst of a cattle expansion, no less — resulted in profitable 

margins for cow-calf producers. However, as cattle supplies 

build in 2018 and spring drought conditions expand in the 

Plains, producers could again see negative returns. 

Despite increases in hog production, hog prices were also 

relatively strong in 2017, supported by strong pork exports 

and an increase in packer competition after two new plants 

opened. In early 2018, hog margins were expected to remain 

positive for most of the year, but large pork supplies and the 
49

imposition of Chinese tariffs on U.S. pork have cut profit 

expectations. Average monthly dairy returns in 2017 were 

modestly positive. Dairy farmers will likely face challenges 

in 2018 because of increased production by major dairy ex-

porters and large stocks of dairy products. 

Export demand remains critical for the animal agriculture 

sector. Given the expected increase in U.S. production in 

2018, any slowdown in U.S. exports pushes more product 

into an already well-supplied domestic market.

For fruit and tree nut producers, factors that have supported 

prices in recent years include strong demand for tree nuts 

and limited growth in the number of acres for noncitrus 

fruit. Labor availability and costs are significant concerns to 

these growers. Also, hurricane damage and long-term issues 

with disease are affecting Florida citrus crops.

Policy concerns 

Since government policies can have a significant effect on 

the level and variability of farm income, they also affect bor-

rower repayment risk. Policies that shape the farm sector in-

clude agricultural, trade, energy, labor, and environmental. 

Agricultural policy is mostly set in the farm bill. Crops 

harvested in 2018 will be the last ones covered under the 

2014 Farm Bill, so a key concern for agricultural lenders 

will be what follows. Most policy observers expect that farm 

programs and crop insurance will not change significantly 

in the next farm bill, although the timing of a reauthoriza-

tion or extension of farm programs is not known. With 

lower crop prices in recent years and their impact on farm 

program revenue guarantees, reference prices for program 

crops established in the 2014 Farm Bill have become the de 

facto minimum level of support going forward. Budget limi-

tations will likely prevent the next farm bill from increasing 

price protections. 

Related to but separate from farm bill deliberations, the Bi-

partisan Budget Act of 2018 upgraded several aspects of the 

federal farm safety net. For example, it brought back cotton 

as a program crop eligible for price- or revenue-based farm 

program payments. It also revised the Margin Protection 

Program for dairy farmers and provided more generous 

disaster payments for livestock producers.

In recent years, crop producers under traditional farm 

programs and livestock producers under disaster programs 

have been the greatest beneficiaries of government pay-

ments that support farm income. Federal crop insurance 
50

Farm Credit Administration 2017 Annual Report on the Farm Credit System

continues to provide a solid backstop for weather-related 

losses, with policies becoming available for an increasing 

number of commodities. However, these programs have 

sometimes come at a heavy cost to taxpayers, generating 

calls for reform. A potential reduction in farm assistance is 

a risk for farmers and lenders because of the effect it would 

have on loan repayment capacity. 

Trade policy is also a concern because at least one-fifth of 

total U.S. farm output is exported. This relatively high dependence on exports makes the sector susceptible to shifts 

in trade policy that could dampen U.S. agricultural exports. 

In 2017, many U.S. producers had hoped that the 12-member Trans-Pacific Partnership (TPP) would boost exports 

for U.S. beef, pork, dairy, soybeans, and other commodities. 

But the Trump administration halted U.S. participation in 

the TPP to address other trade concerns. Similarly, in 2017, 

the administration began renegotiating the North American 

Free Trade Agreement. U.S. agriculture exports have grown 

because of the lower tariffs and improved market access 

under the existing agreement with Canada and Mexico, and 

backsliding could dampen agricultural trade in 2018 and 

beyond. 

China is also a major market for U.S. agricultural products. 

In spring 2018, China imposed additional tariffs on several 

U.S. agricultural products, including pork and citrus, as the 

two countries ratcheted up pressure on trade issues. Trade 

policy events in 2017 and early 2018 have heighted uncertainty surrounding agricultural trade policy and its impact 

on farm prices. 

Energy policy requires the use of U.S. ethanol in transportation fuels under the Renewable Fuel Standard established 

in 2005 and amended in 2007. Since then, the standard has 

contributed to significant growth in corn production and 

an upward shift in grain prices. But beginning in 2015, the 

mandate capped the conventional biofuel volume amounts 

(filled by ethanol), limiting growth in corn use for ethanol 

production. 

Today, ethanol accounts for more than one-third of total 

U.S. corn use. Without changes in policies that encourage 

higher blend rates of ethanol in gasoline, the relative costs 

of feedstocks (crude oil for gasoline; corn for ethanol) and 

U.S. gains in export markets will largely determine how 

much the demand for corn-based ethanol will grow. 

For corn producers and the agricultural sector in general, 

a major change occurs in 2023, when the statute no longer 

specifies a minimum usage amount of conventional biofuel. 

Instead, the level will be determined by the U.S. Environmental Protection Agency, in consultation with the secretaries of energy and agriculture. 

Labor and environmental policies affect business operational costs in agriculture. Immigration polices directly 

affect labor availability and costs, particularly for producers 

of specialty crops and dairy farmers. Labor tends to be a 

significant part of their operational costs, and reports of 

worker shortages and higher costs have increased in recent 

years. Producers are also affected by the cost of complying 

with environmental regulations related to water, endangered 

species, and pesticide usage.
51

Appendix

Figure 17

FCA organizational chart

As of October 2018

For an accessible version of this chart, go to www.fca.gov/about/fca-organizational-chart.

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

†Maintains a confidential relationship with each of the board members.
52

Farm Credit Administration 2017 Annual Report on the Farm Credit System 

Farm Credit Administration offices and 

officials

As of Dec. 31, 2017, FCA had 297 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. Dallas P. Tonsager is the board chairman.

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. Dallas P. Tonsager is the CEO.

The chief operating officer (COO) has broad responsibility for planning, directing, and controlling the operations 

of the Offices of Agency Services, Examination, Regulatory 

Policy, Information Technology, Chief Financial Officer, and 

General Counsel in accordance with the operating philosophy and policies of the FCA board. He or she supervises and 

provides policy direction to the executive staff responsible 

for managing these offices. The COO oversees and coordinates the development and implementation of the agencywide strategic, operating, and budget plans and activities. 

The COO also coordinates the resolution of internal policy, 

personnel, and program issues with agency executive leadership and the FCA board.

William J. Hoffman is chief operating officer. During Mr. Hoffman’s 

tenure as FCA’s COO (from 2008 to 

the present), the agency has issued 

several significant final rules, including a rule that updates and modernizes the agency’s capital regulations 

and a rule requiring System institutions to include strategies in their 

business and marketing plans that 

emphasize diversity and inclusion. 

As COO, Mr. Hoffman has also supported diversity and 

inclusion programs and events at FCA. Before taking this 

position, Mr. Hoffman was executive assistant to Chairman and CEO Nancy C. Pellett. Prior to this, he served as 

the associate director for examination and supervision in 

the Office of Secondary Market Oversight, which oversees 

the Federal Agricultural Mortgage Corporation. He began 

his career as a credit representative in the Louisville Farm 

Credit District. In 1986 he joined the St. Louis Farm Credit 

Bank as vice president of risk assets. He later was the CEO 

of PennWest Farm Credit, ACA. Before joining FCA in 

2004, he was involved in agricultural finance in the private 

sector and several international projects.

Farm Credit Administration 2017 Annual Report on the Farm Credit System
53

The Office of Agency Services, which was created in April 

2016, manages human capital and administrative services 

for the agency. This includes providing the following services to the agency: staffing and placement, job evaluation, 

compensation and benefits, payroll administration, performance management and awards, employee relations, employee training and development, contracting, acquisitions, 

records and property management, supply services, agency 

purchase cards, design, publication, and mail service.

Vonda Bell is FCA’s chief human 

capital officer and the director of the 

Office of Agency Services. Vonda 

joined FCA in May 2017 as FCA’s 

deputy chief human capital officer 

and deputy director of the Office of 

Agency Services. Before joining FCA, 

Vonda served as the human resources 

director for the U.S. Census Bureau, 

where she was responsible for successfully leading an end-to-end optimization of the human resources program. Before this, she 

served as the director of human capital management for the 

Housing and Urban Development’s Office of Inspector General and the director of business services at the Department 

of the Interior’s Office of the Chief Information Officer. 

Vonda is an alumna of the University of Alabama – Huntsville. She also holds a master’s degree in human resources 

from Troy University. She is a senior certified professional 

in the Society of Human Resource Management, as well as a 

certified project management professional.

The Office of the Chief Financial Officer, which was created in April 2016, manages and delivers timely, accurate, 

and reliable financial services to the agency. The office establishes financial policies and procedures and oversees the 

formulation and execution of the agency’s budget. The office 

reports periodically on the status of the agency’s financial 

position, results of operations, and budgetary resources. It 

also oversees the agency’s travel management, internal controls, and personnel security programs.

Stephen G. Smith is chief financial 

officer and director of the Office of 

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

as the agency’s director of the Office 

of Management Services. From 2001 

to 2005, he served as the agency’s 

inspector general. He joined FCA in 

1981 as a technical specialist. He is 

a commissioned FCA examiner and 

served in several leadership roles, including associate regional director for the Albany, New York 

field office; senior staff director for the chief examiner; and 

director of the Technical and Operations Division. In 1993, 

he assumed responsibilities as director of the Information 

Resources Division. He was named chief information officer 

in 1996, directing all technology and information operations for FCA. Before joining the agency, he worked at the 

North Central Jersey Farm Credit Association.
54

The Office of Congressional and Public Affairs serves 

as the agency’s principal point of contact for Congress, 

the media, other government agencies, FCS institutions, 

employees, System borrowers, and the public. The office 

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. It also provides 

information to external audiences through news releases, 

fact sheets, reports, and other publications. The office cultivates relationships with media representatives who report 

on matters related to agriculture and rural credit, and it 

manages the content of the FCA website. It also organizes 

special meetings, briefings for international visitors, and 

field hearings.

Michael Stokke is director of the 

Office of Congressional and Public 

Affairs. Before 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.

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/bank-oversight/guidance

and click board policy statements to read “Examination Philosophy” (FCA-PS-53).

S. Robert Coleman is director of the 

Office of Examination. Before being 

named to this position in October 

2010, he was director of the agency’s 

Office of Secondary Market Oversight for five years. Mr. Coleman 

joined FCA in 1986 as an examiner 

in the Office of Examination. He 

held various positions in that office, providing technical support to 

FCA field offices and in 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.

Farm Credit Administration 2017 Annual Report on the Farm Credit System
55

The Office of General Counsel 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. The office supports the agency’s 

development and promulgation of regulations, enforcement 

of applicable laws and regulations, and implementation of 

conservatorships and receiverships. It 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.

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 U.S. Department of Agriculture, 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.

The Office of Information Technology, 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. It is 

responsible for continuing to leverage FCA’s investment in 

technology by collaborating across agency offices to identify 

and re-engineer business processes. The office provides 

strategies to collaborate across offices on business intelligence tools to develop analysis models to meet the strategic 

needs of the agency.

Jerald Golley is chief information 

officer (CIO) and director of the 

Office of Information Technology. 

Before joining FCA in November 

2015, Mr. Golley had 25 years of 

IT management experience. Most 

recently, he was the deputy CIO for 

the Commodity Futures Trading 

Commission for six years. In 1996, 

he founded AMI Technical Consultants, Inc., a software development, 

internet hosting, and technical consulting company based 

in Denver; he served as CEO there until 2009. He began his 

career as a programmer and geographic information system 

specialist at American Management Systems in Rosslyn, 

Virginia, where he worked from 1990 to 1994. Mr. Golley 

served in the 101st Airborne Division of the U.S. Army 

based out of Ft. Campbell, Kentucky, from 1982 to 1984. 

He holds a bachelor’s degree in geography, with a minor in 

computer science from the State University of New York 

at Oneonta, as well as a Master of Arts in geography and 

geographic information systems from the State University of 

New York at Binghamton.
56

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.

Wendy Laguarda is inspector general. From May 2015 to July 2017, 

Ms. Laguarda served as executive 

assistant to the FCA board chairman and chief executive officer. 

She joined FCA’s Office of General 

Counsel in 1990, eventually becoming assistant general counsel and the 

designated agency ethics official. She 

served as legal counsel for personnel 

issues and undertook assignments 

on rulemaking and policymaking. Before coming to FCA, 

Ms. Laguarda was an attorney adviser at the Office of Thrift 

Supervision and its predecessor agency, the Federal Home 

Loan Bank Board. In 1995 and again in 2004, she was detailed to the White House Counsel’s Office for brief periods 

to work on ethics issues. A graduate of Tufts University and 

George Washington University National Law Center, she is a 

member of the Maryland and District of Columbia Bars and 

is a mediator certified by the Supreme Court of Virginia.

The Office of Regulatory Policy 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. The office 

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.

Gary K. Van Meter is director of the 

Office of Regulatory Policy (ORP). 

He was named to this position in 

June 2011 after having served as 

acting director for seven months 

and deputy director for five years. 

Prior to this, he was in the Office of 

General Counsel for 17 years, where 

he served as a senior attorney and 

later as senior counsel before joining 

the Office of Regulatory Policy. Mr. 

Van Meter holds a Juris Doctor 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 Corps 

from 1981 to 1986.

Farm Credit Administration 2017 Annual Report on the Farm Credit System
57

The Office of Secondary Market Oversight 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. It also 

ensures that Farmer Mac complies with applicable laws and 

regulations, and it manages FCA’s enforcement activities 

with respect to Farmer Mac.

Laurie A. Rea is director of the Office of Secondary Market Oversight. 

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.

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.

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.
58

The Office of Equal Employment Opportunity and Inclusion manages and directs the diversity, inclusion, and equal 

employment opportunity (EEO) program for FCA and 

FCSIC. The office serves as the chief liaison with the Equal 

Employment Opportunity Commission and the Office of 

Personnel Management on all EEO, diversity, and inclusion 

issues. The office provides counsel and leadership to agency 

management to carry out its continuing policy and program 

of nondiscrimination, affirmative action, and diversity.

Thais Burlew is director of the 

Office 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 Juris Doctor 

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 Bachelor of Science in criminal justice from 

Middle Tennessee State University.

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

title I of the Ethics in Government Act of 1978, as amended, 

to coordinate and manage FCA’s ethics program and to provide liaison to the Office of Government Ethics with regard 

to all aspects of FCA’s ethics program.

Philip J. Shebest is the designated 

agency ethics official. As DAEO, 

Mr. Shebest administers the ethics program for FCA and the Farm 

Credit System Insurance Corporation. In addition to serving as DAEO, 

Mr. Shebest is an assistant general 

counsel in the Office of General 

Counsel and the agency contracts 

officer. While at FCA, he has held the 

position of alternate DAEO, as well 

as acting general counsel, chief administrative officer, and 

chief human capital officer. Before joining FCA in 1990, Mr. 

Shebest was a senior attorney with the Drug Enforcement 

Administration and a lieutenant in the U.S. Navy Judge 

Advocate General’s Corps. A graduate of East Stroudsburg 

University of Pennsylvania and Temple School of Law, he 

is a member of the Pennsylvania bar, as well as a certified 

mediator.

Farm Credit Administration 2017 Annual Report on the Farm Credit System
59

Glossary

Agricultural credit association — An ACA results from 

the merger of a federal land bank association (or a federal 

land credit association) and a production credit association 

(PCA) and has the combined authority of the two institutions. An ACA borrows funds from a farm credit bank or 

an agricultural credit bank to provide short-, intermediate-, 

and long-term credit to farmers, ranchers, and producers 

and harvesters of aquatic products. It also makes loans to 

these borrowers for certain processing and marketing activities, to rural residents for housing, and to certain farmrelated 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 farmerowned cooperatives. CoBank is the only ACB in the FCS.

Bank for cooperatives — A BC provided lending and other 

financial services to farmer-owned cooperatives, rural utilities (electric and telephone), and rural sewer and water 

systems. It was also authorized to finance U.S. agricultural 

exports and provide international banking services for 

farmer-owned cooperatives. The last remaining BC in the 

FCS, the St. Paul Bank for Cooperatives, merged with CoBank on July 1, 1999.

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

amended, (12 U.S.C. §§ 2001 – 2279cc) is the statute under 

which the FCS operates. The Farm Credit Act recodified all 

previous acts governing the FCS.

Farm credit bank — FCBs provide services and funds to 

local associations that, in turn, lend those funds to farmers, 

ranchers, producers and harvesters of aquatic products, 

rural residents for housing, and some agriculture-related 

businesses. On July 6, 1988, the federal land bank and the 

federal intermediate credit bank in 11 of the 12 then-existing Farm Credit System districts merged to become FCBs. 

The mergers were required by the Agricultural Credit Act of 

1987.

Farm Credit Leasing Services Corporation — The Leasing 

Corporation is a service entity owned by CoBank, ACB. It 

provides equipment leasing and related services to eligible 

borrowers, including agricultural producers, cooperatives, 

and rural utilities.

Farm Credit System Insurance Corporation — FCSIC 

was established by the Agricultural Credit Act of 1987 as an 

independent U.S. government-controlled corporation. Its 

purpose is to ensure the timely payment of principal and interest on insured notes, bonds, and other obligations issued 

on behalf of FCS banks and to act as conservator or receiver 

of FCS institutions. The FCA board serves ex officio as the 

board of directors for FCSIC. The chairman of the FCSIC 

board of directors must be an FCA board member other 

than the current chairman of the FCA board.

Federal Agricultural Mortgage Corporation — Farmer 

Mac was created with the enactment of the Agricultural 

Credit Act of 1987 to provide a secondary market for agricultural real estate and rural housing mortgage loans.

Federal Farm Credit Banks Funding Corporation — The 

Funding Corporation, based in Jersey City, New Jersey, 

manages the sale of Systemwide debt securities to finance 

the loans made by FCS institutions. It uses a network of 

bond dealers to market its securities.

Federal intermediate credit bank — The Agricultural 

Credits Act of 1923 provided for the creation of 12 FICBs 

to discount farmers’ short- and intermediate-term notes 

made by commercial banks, livestock loan companies, and 

thrift institutions. The Farm Credit Act of 1933 authorized 

farmers to organize PCAs, which could discount notes with 

FICBs. As a result, PCAs became the primary entities for 

delivery of short- and intermediate-term credit to farmers 

and ranchers. The FICBs and the federal land banks in all 

Farm Credit System districts merged to become FCBs or the 

ACB. Thus, no FICBs remain within the FCS.

Federal land bank — The Federal Farm Loan Act of 1916 

provided for the establishment of 12 federal land banks to 

provide long-term mortgage credit to farmers and ranchers, 

and later to rural home buyers. All federal land banks and 

FICBs have merged to become FCBs or part of the ACB. 

Thus, no federal land banks remain.

Federal land bank association — These associations were 

lending agents for FCBs before they received their affiliated banks’ direct-lending authority to make long-term 

mortgage loans to farmers, ranchers, and rural residents 

for housing. As lending agents, the associations did not 

own loan assets but made loans only on behalf of the FCBs 

with which they were affiliated. As of Oct. 1, 2000, all active 

federal land bank associations had received direct-lending 

authority and did not serve as lending agents for FCBs.

Federal land credit association — An FLCA is the regulatory term FCA uses for a federal land bank association that 
60

Farm Credit Administration 2017 Annual Report on the Farm Credit System

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 financial capacity, however, still make 

failure only a remote possibility if corrective actions are 

implemented.

Rating 4 — Institutions in this group have an immoderate number of serious financial or operating 

weaknesses. Serious problems or unsafe and unsound 

conditions exist that are not being satisfactorily addressed or resolved. Unless effective actions are taken to 

correct these conditions, they are likely to develop into 

a situation that will impair future viability or constitute 

a threat to the interests of investors, borrowers, and 

stockholders. Risk management practices are generally 

unacceptable for the size, complexity, and risk profile of 

each institution in this group. A potential for failure is 

present but is not yet imminent or pronounced. Institutions in this category require close regulatory attention, 

financial surveillance, and a definitive plan for corrective action.

Rating 5 — This category is reserved for institutions 

with an extremely high, immediate or near-term probability of failure. The number and severity of weaknesses or unsafe and unsound conditions are so critical 

as to require urgent external financial assistance. Risk 

management practices are inadequate for the size, complexity, and risk profile of each institution in this group. 

In the absence of decisive corrective measures, these 

institutions will likely require liquidation or some form 

of emergency assistance, merger, or acquisition.

Government-sponsored enterprise — A GSE is typically a 

federally chartered corporation that is privately owned, designed to provide a source of credit nationwide, and limited 

to servicing one economic sector. Each GSE has a public or 

social purpose. GSEs are usually created because the private 

markets did not satisfy a purpose that Congress deems worthy — either to fill a credit gap or to enhance competitive 

behavior in the loan market. Each is given certain features 

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

the barriers that prevented purely private markets from developing. The FCS is the oldest financial GSE.
61

Participation — A loan participation is usually a large 

loan in which two or more lenders share in providing loan 

funds to a borrower to manage credit risk or overcome a 

legal lending limit for a single credit. One of the participating lenders originates, services, and documents the loan. 

Generally, the borrower deals with the institution originating the loan and is not aware of the other participating 

institutions.

Production credit association — PCAs are FCS entities 

that deliver only short- and intermediate-term loans to 

farmers and ranchers. A PCA borrows money from its FCB 

to lend to farmers. PCAs also own their loan assets. As 

of Jan. 1, 2003, all PCAs were eliminated as independent, 

stand-alone, direct-lender associations. All PCAs are now 

subsidiaries of ACAs.

Syndication — A loan syndication (or “syndicated bank 

facility”) is a large loan in which a group of banks work 

together to provide funds for a borrower. Usually one bank 

takes the lead, acting as an agent for all syndicate members 

and serving as the focal point between them and the borrower. All syndicate members are known at the outset to the 

borrower and they each have a contractual interest in the 

loan.
62

Acronyms and abbreviations

ACA — agricultural credit association

ACB — agricultural credit bank

CAMELS — capital, assets, management, earnings, 

liquidity, and sensitivity

CEO — chief executive officer

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

Farmer Mac — Federal Agricultural Mortgage Corporation

FCA — Farm Credit Administration

FCB — farm credit bank

FCS — Farm Credit System

FCSIC — Farm Credit System Insurance Corporation

FIRS — Financial Institution Rating System

FLCA — federal land credit association

GAAP — generally accepted accounting principles

OFIs — other financing institutions

PCA — production credit association

USDA — U.S. Department of Agriculture

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

Farm Credit Administration 2017 Annual Report on the Farm Credit System
63

Additional information

The Farm Credit Administration 2017 Annual Report on 

the Farm Credit System is available on FCA’s website at 

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

FCA:

Office of Congressional and Public Affairs

Farm Credit Administration

1501 Farm Credit Drive

McLean, VA 22102-5090

Telephone: 703-883-4056

Fax: 703-790-3260

Email: info-line@fca.gov

With support from the System banks, the Federal Farm 

Credit Banks Funding Corporation prepares the financial 

press releases, the System’s Annual and Quarterly 

Information Statements, and the System’s combined 

financial statements. These documents are available on the 

Funding Corporation’s website at www.farmcreditfunding.

com. For copies of these documents, contact the Funding 

Corporation:

Federal Farm Credit Banks

Funding Corporation

10 Exchange Place, Suite 1401

Jersey City, NJ 07302

Telephone: 201-200-8000

The Farm Credit System Insurance Corporation’s annual 

report is available on its website at www.fcsic.gov. To receive 

copies of this report, contact FCSIC:

Farm Credit System Insurance Corporation

1501 Farm Credit Drive

McLean, VA 22102

Telephone: 703-883-4380
Copies Available From:

Office of Congressional and Public Affairs

Farm Credit Administration

1501 Farm Credit Drive

McLean, VA 22102

703-883-4056

www.fca.gov