on the Farm Credit System by the 

FARM CREDIT ADMINISTRATION

Regulator of the FCS

Annual Report

2013
Contents

Statement of the Board Chair 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	 20

	 Farm Debt and Market Shares	 22

Serving Young, Beginning, and Small Farmers and Ranchers 24

Characteristics of YBS Borrowers	 24

	 FCS Lending to YBS Producers	 24

	 YBS Borrowing Trends, 2001–2013	 27

	 Assessing YBS Results for Individual Associations	 30

	 YBS Programs	 31

Regulatory Policy and Approvals 33

Regulatory Activity in 2013	 33

	 Corporate Activity in 2013	 35

	 Funding Activity in 2013	 35

	 Mission-Related Investments	 38

Maintaining a Dependable Source of Credit for Farmers and Ranchers 39

Conducting a Risk-Based Examination and Oversight Program	 39

	 Meeting Statutory Examination Requirements	 39

	 Measuring the System’s Safety and Soundness	 40

	 Providing Differential Supervision and Enforcement	 41

	 Protecting Borrower Rights	 42

Condition of Farmer Mac 43

Capital	 44

	 Program Activity	 45

	 Asset Quality	 45

	 Earnings	 47

Challenges Facing the Agricultural Economy and the Farm Credit System 49

The Farm Economy	 49

	 The General Economy	 53

	 Farm Credit System Portfolio	 57

Appendix 60

Farm Credit Administration Offices	 61

	 Agency Officials	 63

	 Glossary	 67

	 Acronyms and Abbreviations	 70

	 Additional Information	 71

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

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

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Statement of the Board Chair and CEO

June 2014

On behalf of the Board and the staff of the Farm Credit Administration, I present the 2013 Annual Report on 

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

remained sound in 2013, and the System is well-positioned to withstand current and future challenges. 

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

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

economy. 

Condition of the Farm Economy 

Despite the challenges presented by weather, price volatility, and the global economy, U.S. agriculture as a whole 

remains in good financial condition. Based on USDA data, net cash income for the farm sector in 2013 was $130.1 

billion, down about 3.0 percent from 2012. Crop receipts declined 3.3 percent, but livestock receipts were up by 6.2 

percent, bringing much-needed relief to this sector. 

While the farm economy remains healthy, farm sector net cash income is expected to be down in 2014. Lower grain 

prices have helped boost profitability in the protein and dairy sectors, but crop producers face tighter margins. 

Because of lower crop prices, the market for farmland has also cooled, particularly in the Midwest. Other concerns 

include persistent drought in California and the spread of the porcine epidemic diarrhea virus in the hog sector.

Financial Condition of the FCS 

The System’s financial results continue to be strong. The System’s net income was $4.64 billion in 2013, up 12.7 

percent from 2012. The increase in System earnings was driven largely by lower provisions for loan losses and, to a 

lesser extent, higher net interest income. 

Credit quality of System loans remained strong in 2013. As of December 31, 2013, nonperforming loans amounted to 

$2.0 billion, or 1.01 percent of gross loans, down from $2.6 billion, or 1.36 percent, at year-end 2012. 

During 2013, the System continued to experience reliable access to the debt capital markets, and investor demand 

for all System debt security products was strong. Total Systemwide debt increased by 4.8 percent, compared with 7.1 

percent in 2012. 

Overall, the System remained financially sound, and weaker institutions continued to strengthen. For the first time 

since 2007, no institution in the System received a Financial Institution Rating System rating lower than 3. 

Young, Beginning and Small Farmer Lending 

Along with a slight decline in overall new farm lending, the dollar volume of new loans to YBS farmers also 

declined in 2013. The dollar volume to small farmers decreased the most, representing a 13.3 percent drop from 

2012. One of the main reasons for this decline is the growth in farm incomes since the mid-2000s. As a result of rising prices and gross incomes, more farms now have gross farm sales in excess of $250,000, and therefore, no longer 

qualify as small farms. 

The dollar volume of new loans made to young farmers declined by 6.0 percent, and the dollar volume to beginning farmers fell by 4.2 percent from 2012 to 2013. On the other hand, the number of new loans made to young and 

beginning farmers in 2013 increased by 2.3 percent and 5.0 percent, respectively. 

Because of a decline in repayments, the number and dollar volume of loans outstanding increased in all three YBS 

categories. The dollar volume increased by 3.5 percent to beginning farmers, 3.0 percent to young farmers, and 1.8 

percent to small farmers. 
3

FCA’s Supervision and Oversight of the System 

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

compliance with laws and regulations, providing heightened oversight of institutions with higher risk. We evaluate 

risks that can affect an institution, a group of institutions, and the System as a whole. In addition to the areas normally considered, our examiners are currently emphasizing the following areas: 

• Business Planning and Diversity and Inclusion. Through examinations, we focus on the compliance of System 

institutions with FCA regulation 618.8440, which requires them to develop human capital and marketing plans 

that promote diversity and inclusion. 

• Underwriting in Volatile Times. Volatility in the agricultural industry may increase borrower stress over the next 

several years. We are emphasizing the need for proactive underwriting standards and practices that can safeguard FCS institutions.

• Board Governance. Because of fast-changing business conditions and the growing complexity of financial institutions, effective board governance is critical to the success of System institutions. Our examiners are focusing on 

board committees, governance assessments, and the committees of stockholders that nominate individuals for 

board positions. 

• Standards of Conduct. Our examiners evaluate institutions’ policies, processes, and disclosures to ensure the 

effectiveness of their programs on standards of conduct. 

Condition of Farmer Mac 

The Federal Agricultural Mortgage Corporation (Farmer Mac) remained safe and sound throughout 2013. On December 31, Farmer Mac’s net worth was $574.5 million, compared with $593.0 million a year earlier, and Farmer Mac was 

in compliance with all statutory and regulatory minimum capital requirements. It reported net income available to 

common stockholders of $71.8 million for the year ended December 31, 2013, up from the $43.9 million reported at 

year-end 2012. Farmer Mac’s asset quality also improved from 2012 to 2013. 

Major Regulatory Actions

In June 2013, we issued a revised liquidity regulation requiring banks to maintain three levels of liquidity. It also 

requires each bank to maintain a supplemental liquidity buffer to provide a stable source of funding beyond the 

90-day liquidity reserve. The rule helps ensure that Farm Credit banks keep enough liquidity to continue operating if 

their access to the capital markets is interrupted. 

In addition, FCA staff worked throughout 2013 and into 2014 on extensive revisions to the agency’s capital regulations. The proposed rule, which the Board adopted in May 2014, would modernize our capital requirements while 

ensuring that System institutions continue to hold enough regulatory capital to fulfill their mission. It would ensure 

that the System’s capital requirements are appropriate for the System’s cooperative structure and comparable to the 

Basel III framework and the standardized approach that the federal banking regulatory agencies have adopted. 

Oversight of FCA

The FCA Office of Inspector General oversees FCA by conducting and supervising audits and investigations related 

to our programs and operations. As an agent of positive change, the FCA Office of Inspector General encourages 

integrity and promotes economy, efficiency, and effectiveness within FCA.

FCA’s Commitment 

American agriculture is critical to meeting the food demands of this nation and this world. And the Farm Credit System, which accounts for more than 40 percent of the nation’s farm business debt, is a critical source of financing for 

America’s farmers and ranchers. As the regulator of the FCS and Farmer Mac, we are committed to helping maintain 

this source for generations to come. 

Sincerely,

Jill Long Thompson

Jill Long Thompson
4

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

The Farm Credit Administration ensures 

a safe, sound, and dependable source 

of credit and related services 

for all creditworthy and eligible persons 

in agriculture and rural America.
5

Farm Credit Administration

Overview and Mission 

The Farm Credit Administration is 

an independent agency in the Executive branch of the U.S. Government. 

We are responsible for regulating and 

supervising the Farm Credit System 

(its banks, associations, and related 

entities) and the Federal Agricultural 

Mortgage Corporation (Farmer Mac). 

The System is a nationwide network 

of borrower-owned financial institutions that provide credit to farmers, 

ranchers, residents of rural communities, agricultural and rural utility 

cooperatives, and other eligible borrowers. 

FCA derives its powers and authorities from the Farm Credit Act of 

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

2279cc). The U.S. Senate Committee 

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

oversee FCA and the FCS. 

FCA is responsible for ensuring that 

the System remains a dependable 

source of credit for agriculture and 

rural America. We do this in two 

specific ways: 

• We ensure that System institutions, including Farmer Mac, 

operate safely and soundly and 

comply with applicable laws and 

regulations. Our examinations 

and oversight strategies focus on 

an institution’s financial condition and any material existing 

or potential risk, as well as on 

the ability of its board of directors and management to direct 

its operations. We examine each 

institution’s compliance with 

laws and regulations to serve eligible borrowers, including young, 

beginning, and small farmers and 

ranchers. If a System institution 

violates a law or regulation or 

operates in an unsafe or unsound 

manner, we use our supervisory 

and enforcement authorities to 

bring about appropriate corrective action. 

• We issue policies and regulations 

governing how System institutions conduct their business and 

interact with customers. These 

policies and regulations focus 

on protecting System safety 

and soundness; implementing 

the Farm Credit Act; providing 

minimum requirements for lending, related services, investments, 

capital, and mission; and ensuring adequate financial disclosure 

and governance. We also approve 

corporate charter changes, System 

debt issuances, and other financial and operational matters. 

Our headquarters and one field office 

are in McLean, Virginia. We also 

have field offices in Bloomington, 

Minnesota; Dallas, Texas; Denver, 

Colorado; and Sacramento, California. 

FCA does not receive a Federal 

appropriation. We maintain a revolving fund financed primarily by 

assessments from the institutions we 

regulate. Other sources of income 

for the revolving fund are interest 

earned on investments with the U.S. 

Treasury and reimbursements for services we provide to Federal agencies 

and others. 

The Board 

FCA policy, regulatory agenda, and 

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

three-person Board whose members 

are appointed by the President of 

the United States with the advice 

and consent of the Senate. Board 

members serve a six-year term and 

may remain on the Board until a 

successor is appointed. The President 

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

capacity until the end of his or her 

own term. The Chairman also serves 

as our Chief Executive Officer.

FCA Board members also serve as 

the board of directors for the Farm 

Credit System Insurance Corporation. 
6

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Jill Long Thompson

Board Chair and CEO

Jill Long Thompson is Chair of the 

Board and CEO of the Farm Credit 

Administration. Dr. Long Thompson 

was appointed to the FCA Board by 

President Barack Obama in March 

2010 and was designated Chair and 

CEO on November 27, 2012. 

Long Thompson also serves as a 

member of the Board of Directors of 

the Farm Credit System Insurance 

Corporation, which is responsible 

for ensuring the timely payment of 

principal and interest on obligations 

issued on behalf of Farm Credit System banks. 

As head of FCA, Long Thompson 

also oversees the Agency’s ethics 

program. Her goal is to ensure that 

the Agency adheres to the highest 

ethical standards in carrying out its 

mission as the arm’s-length regulator 

of the Farm Credit System. For more 

information, see “Ethics and Arm’sLength Role” on the FCA website at 

www.fca.gov.

Long Thompson is also a strong 

advocate for diversity and inclusion. 

In 2012, the FCA Board adopted a 

diversity and inclusion regulation 

to encourage System institutions to 

reach out to all eligible, creditworthy 

producers in their lending territories, 

including members of underserved 

groups such as women and minorities. Under her leadership as Board 

Chair, the Agency has emphasized 

compliance with this rule. 

In addition, during her term as 

Board Chair, the FCA Board issued a 

policy statement on its commitment 

to equal employment opportunity 

and diversity. Through leadership 

training programs and monthly 

presentations on a host of diversityrelated issues, she has stressed the 

importance of diversity and inclusion 

among FCA staff. 

Long Thompson has many years of 

leadership experience. From 1989 

to 1995, she represented northeast 

Indiana as a Member of the U.S. 

House of Representatives, serving on 

the Committee on Agriculture, the 

Committee on Veterans’ Affairs, and 

the Select Committee on Hunger. 

She also served as Chair of the Rural 

Caucus. 

Long Thompson has been dedicated 

to integrity in Government for many 

years. As a member of the U.S. 

House of Representatives, she introduced one of the nation’s first pieces 

of legislation banning members of 

Congress from accepting gifts; this 

legislation also expanded disclosure 

requirements for lobbying activities. 

From 1995 to 2001, she served as 

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

Agriculture, where she oversaw an 

annual budget of $10 billion and 

three agencies comprising 7,000 

employees. In this position, she managed programs that provide services 

to the underserved areas of rural 

America. 

In addition, Long Thompson served 

as chief executive officer and senior 

fellow at the National Center for 

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

The first and only woman nominated 

by a major party to run for Governor 

of Indiana, Long Thompson is also 

the first and only Hoosier woman 

to be nominated by a major party to 

run for the U.S. Senate. 

Long Thompson also has many years 

of experience as an educator, having 

taught at Indiana University, Valparaiso University, and Manchester 

College. She is also a former fellow 

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

School of Government. She holds an 

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

the Kelley School of Business at 

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

University. 

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

today she resides with her husband, 

Don Thompson, on a farm near 

Argos, Indiana.

Although Long Thompson’s FCA 

Board term expired on May 21, 2014, 

she continues to serve as Board Chair 

and CEO until the President appoints 

a new Board Chair and CEO. She 

may continue to serve as a member 

of the Board until a new member is 

appointed by the President and confirmed by the Senate.
7

Kenneth A. Spearman was appointed 

to the FCA Board by President 

Barack Obama on October 12, 2009. 

He was appointed to the balance of 

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

expires on May 21, 2016. 

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

the Farm Credit System Insurance 

Corporation, which is responsible 

for ensuring the timely payment of 

principal and interest on obligations 

issued on behalf of Farm Credit System banks.

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

of experience in finance, agriculture, 

and agricultural cooperatives. He 

spent 28 years in the citrus industry. 

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

cooperative in Orlando, Florida, 

where he was responsible for financial management and reporting and 

the supervision of staff accountants.

He later served as director of internal 

audit for Florida’s Natural Growers, 

where he designed and implemented 

the annual plan for reviewing and 

appraising the soundness, adequacy, 

and application of accounting, financial, and other operating internal 

controls.

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

appointed outside director on the 

AgFirst Farm Credit Bank board in 

Columbia, South Carolina. During his 

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

governance committee. 

Before entering agriculture in central 

Florida, Mr. Spearman served with 

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

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

development of a public accounting 

firm in Chicago, Illinois. He served 

as chairman of the board of trustees 

for the Lake Wales Medical Center. 

He is a member of the Institute of 

Internal Auditors, as well as the 

National Society of Accountants for 

Cooperatives, for which he served a 

term as national president. 

He obtained his master’s degree in 

business administration from Governors State University in University 

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

attended Harvard Kennedy School 

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

Planning.

Mr. Spearman and his wife, Maria, 

of Winter Haven, Florida, have three 

children—twin daughters, Michelle 

Springs and Rochelle Puccia, and a 

son, Dr. Kenneth Spearman. 

Kenneth A. Spearman

Board Member
8

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Leland A. “Lee” Strom

Board Member

Leland A. Strom was appointed 

to the Farm Credit Administration 

Board by President George W. Bush 

on December 12, 2006. He served as 

Chairman and CEO from May 22, 

2008, until the designation of his 

successor on November 27, 2012. 

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

to serve as a member of the Board 

until a successor is nominated by the 

President and confirmed by the U.S. 

Senate. 

Mr. Strom also serves as a member 

of the board of directors of the Farm 

Credit System Insurance Corporation (FCSIC), which is responsible 

for ensuring the timely payment of 

principal and interest on obligations 

issued on behalf of Farm Credit System banks. Before being named FCA 

Chairman and CEO, he had served 

as chairman of the board of directors 

of FCSIC since December 2006. 

For more than 35 years he has been 

active in the agriculture industry. He 

served for more than 25 years on the 

board of 1st Farm Credit Services, 

a Farm Credit System institution in 

Illinois, holding various positions, 

including chairman. During the 

agriculture crisis of the 1980s, he was 

selected to serve on the Restructuring 

Task Force of the Sixth Farm Credit 

District. 

From 2000 to 2006, he served on the 

Federal Reserve Bank of Chicago 

Advisory Council on Agriculture, 

Labor, and Small Business. He also 

served on the Country Mutual Fund 

Trust Board, an investment fund 

of the Illinois Farm Bureau and its 

Country Financial organization. 

Other boards Mr. Strom has served 

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

service and supply cooperative in 

Northern Illinois; AgriBank, FCB; and 

the Farm Credit Council, the national 

trade organization representing the 

Farm Credit System in Government 

affairs. 

Mr. Strom has served in several 

capacities with the Illinois Farm 

Bureau and was a member of the 

Illinois Ag Leadership Program class 

of 1988. 

In his community of Kane County, 

Illinois, which lies at the edge of 

suburban Chicago, Mr. Strom helped 

develop a farmland preservation 

program. The original Strom Family 

Farm was the first to be dedicated to 

permanent agricultural use under the 

program. 

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

from Northern Illinois University for 

his commitment to sustaining agricultural systems and food security. 

He studied agriculture business at 

Kishwaukee College and business 

administration at Northern Illinois 

University. He has attended the 

Harvard Kennedy School Executive 

Leadership program and the Harvard 

Business School Agribusiness Seminar. 

His community involvement includes 

having served as vice president of 

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

parent leader, and coach of boys’ 

and girls’ sports teams. Mr. Strom 

owns a fourth-generation family farm 

in Illinois that produces corn and 

soybeans. He and his wife, Twyla, 

have three children and two grandchildren.
9

Farm Credit System—Role, Structure, 

and Safety and Soundness

FCS Role 

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

cooperative financial institutions and 

service organizations serving all 50 

States and the Commonwealth of 

Puerto Rico. Created by Congress in 

1916 to provide American agriculture 

with a dependable source of credit, 

the FCS is the oldest Governmentsponsored enterprise.1

 

FCS institutions provide credit and 

financially related services to farmers, ranchers, producers or harvesters 

of aquatic products, and agricultural 

and aquatic cooperatives. They also 

make credit available for agricultural 

processing and marketing activities, 

rural housing, certain farm-related 

businesses, rural utilities, and foreign 

and domestic entities in connection 

with international agricultural trade. 

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

the national and international money 

markets; its Systemwide debt funding 

is subject to FCA approval. The U.S. 

Government does not guarantee the 

securities issued by the System. 

When Congress established the FCS, 

its purpose was 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 

intended the FCS to improve the 

income and well-being of American 

farmers and ranchers. It formed the 

FCS as a system of farmer-owned 

cooperatives to ensure that farmerand 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 a broad 

public need by preserving liquidity 

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

times. The accomplishment of this 

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

and small farmers, as well as rural 

homeowners. 

FCS Structure 

The Lending Institutions 

As of January 1, 2014, the System 

was composed of 82 banks and 

associations. The following four 

banks provide loans to 76 Agricultural Credit Association (ACA) parent 

organizations and 2 stand-alone 

Federal Land Credit Associations 

(FLCAs)2: 

• CoBank, ACB 

• AgriBank, FCB 

• AgFirst Farm Credit Bank 

• Farm Credit Bank of Texas 

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

FLCA can make only long-term real 

estate loans. Under the Farm Credit 

Act of 1971, as amended, the FLCA 

is exempt from State and Federal 

income taxes. 

CoBank, one of the four Farm Credit 

banks, is an Agricultural Credit 

Bank (ACB), which has a nationwide 

charter to make loans to agricultural 

and aquatic cooperatives and rural 

utilities, as well as to other persons 

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

cooperatives. The ACB finances U.S. 

agricultural exports and imports 

and provides international banking 

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

cooperatives, the ACB provides loan 

funds to 26 ACAs and 1 FLCA. 

Each ACA contains two subsidiaries, a Production Credit Association 

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

FLCA.3

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

wholly owned PCA and FLCA as 

subsidiaries, accounted for 97 percent 

of all direct-lender associations as of 

January 1, 2014. 

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

1933.

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

Credit Act.

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

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

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

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

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

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

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

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

tax-exempt status of the FLCA. This 

structure offers several other benefits 

as well. It allows the ACA to build 

and use capital more efficiently, and 

it enables members to hold stock in 

only the ACA but to borrow either 

from the ACA or from one or both 

of its subsidiaries. This gives the 

ACA and its subsidiaries greater flexibility in serving their customers, and 

it allows credit and related services 

to be delivered to borrowers more 

efficiently. 

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

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

intermediate-, and short-term loans 

from the same institution. 

Special-Purpose Entity and 

Service Corporations 

In addition to the banks and lending 

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

as the Federal Farm Credit Banks 

Funding Corporation. Established 

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

debt securities on behalf of the Farm 

Credit banks to raise loan funds. 

The System also contains the following five service corporations. These 

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

Act4:

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

services to the associations affiliated with CoBank, ACB. AgVantis is owned by the bank and 16 

of its affiliated associations. 

2. Farm Credit Leasing Services 

Corporation provides equipment 

leasing services to eligible borrowers, including agricultural 

producers, cooperatives, and 

rural utilities. It is wholly owned 

by CoBank, ACB. 

3. Farm Credit Financial Partners, 

Inc., provides support services to 

CoBank, ACB; five associations 

affiliated with CoBank; one association affiliated with AgriBank, 

FCB; and two System-related 

entities. It is owned by CoBank, 

ACB, and the six associations to 

which the corporation provides 

services. 

4. The FCS Building Association 

acquires, manages, and maintains 

facilities to house FCA headquarters and field office staff. 

The FCS Building Association is 

owned by the FCS banks, but the 

FCA Board oversees the Building 

Association’s activities.

5. Farm Credit Foundations provides human resource services 

to its employer-owners, including payroll processing, benefits 

administration, centralized vendor management, and workforce 

management and operations. It is 

owned by 45 participating organizations, including AgriBank, 

FCB, and its affiliated associations; associations affiliated with 

CoBank, ACB; and AgVantis. 

Farmer Mac 

The Federal Agricultural Mortgage 

Corporation (Farmer Mac), which is 

also recognized by law as an FCS 

institution, provides a secondary 

market arrangement for agricultural 

real estate loans, Government-guaranteed portions of certain loans, rural 

housing mortgage loans, and eligible 

rural utility cooperative loans. The 

purpose of Farmer Mac’s activities is 

to provide greater liquidity and lending capacity to all agricultural and 

rural lenders, including insurance 

companies, credit unions, and FCS 

lending institutions. 
11

The Farm Credit Act established 

Farmer Mac as a federally chartered 

instrumentality and an institution of 

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

institution, and the other System 

institutions have no liability for 

Farmer Mac debt. 

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

cooperative. Investors in voting stock 

may include commercial banks, 

insurance companies, other financial 

organizations, and FCS institutions. 

Any investor may own nonvoting 

stock. 

FCA regulates and examines Farmer 

Mac through its Office of Secondary 

Market Oversight, whose director 

reports to the FCA Board on matters 

of policy. 

Although Farmer Mac is an FCS 

institution under the Farm Credit 

Act, we discuss Farmer Mac separately from the other entities of the 

FCS. Therefore, throughout this 

report, unless Farmer Mac is explicitly mentioned, the Farm Credit 

System refers only to the banks and 

associations of the System. For more 

information about Farmer Mac, see 

“Condition of Farmer Mac” on page 

43. 

The Safety and Soundness of 

the FCS 

FCA regulates the FCS—its lending 

institutions, the Funding Corporation, the service corporations, and 

Farmer Mac. Our regulatory activities and examinations support the 

System’s mission by ensuring that 

FCS institutions operate in a safe and 

sound manner, without undue risk to 

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

overview of our Agency, see page 5 

or visit our website at www.fca.gov. 

Also serving to protect the safety and 

soundness of the FCS is the Farm 

Credit System Insurance Corporation (FCSIC). FCSIC was established 

by the Agricultural Credit Act of 

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

the FCS, like most lenders heavily 

concentrated in agriculture, experienced severe financial difficulties. 

The purpose of FCSIC is to protect 

investors in Systemwide debt securities by ensuring the timely payment 

of principal and interest on insured 

notes, bonds, and other obligations 

issued on behalf of FCS banks. 

FCSIC ensures timely payment by 

maintaining the Farm Credit Insurance Fund, a reserve that represents 

the equity of FCSIC. The balance 

in the Insurance Fund at December 

31, 2013, was $3.5 billion. For more 

information about FCSIC, go to 

www.fcsic.gov. Also see FCSIC’s 2013 

annual report. 

Investors in Systemwide debt securities are further protected by the Farm 

Credit Act’s joint and several liability 

provision, which applies to all FCS 

banks. The banks are jointly and 

severally liable for the principal and 

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

to pay the principal or interest on 

a Systemwide debt security and if 

the Farm Credit Insurance Fund has 

been exhausted, then FCA must call 

all nondefaulting banks to satisfy the 

security.
12

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

FCS Banks and Associations

Financial Condition

The overall condition and performance of the FCS5

 was strong in 

2013, and the System remained safe 

and sound. For 2013, the System 

reported increased earnings, higher 

levels of capital, and strong portfolio 

credit quality. The System continued to have reliable access to capital 

markets; demand was strong for all 

Systemwide debt security products. 

See tables 1 and 2 for a breakdown 

of the System’s major financial indicators. 

While the overall FCS remained 

financially sound, a small number of 

individual System institutions exhibited weaknesses. As the System’s 

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

information on measures we took 

to address these weaknesses, see 

“Maintaining a Dependable Source 

of Credit for Farmers and Ranchers” 

on pages 39 to 42 of this report. For 

more information on the condition 

of the System, see the 2013 Annual 

Information Statement of the Farm 

Credit System on the website of the 

Federal Farm Credit Banks Funding 

Corporation at 

www.farmcreditfunding.com. 

The System faced a generally favorable but volatile operating environment in 2013. Agricultural exports 

hit a record high in 2013 because 

of strong demand from developing 

economies, especially China. Grain 

prices fell significantly, especially in 

the second half of 2013 when favorable weather and large plantings led 

to record corn and near-record soybean production. Although it delayed 

planting, a wet spring helped ease 

the severe drought that has affected 

much of the upper Midwest and 

Great Plains since the latter part of 

2012. However, dry conditions linger 

in California and the Southwest. 

Because of high feed costs, livestock 

and dairy producers remained under 

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

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

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

31, 2013. They are based on a combination of bank and association data; these data exclude transactions between System entities.

considerable financial stress throughout early 2013 despite strong product 

pricing. Profitability for these sectors 

improved significantly in the latter 

part of 2013 as the decline in grain 

prices accelerated. The sharp drop 

in commodity prices has also had a 

cooling effect on the farmland market, with land prices across much of 

the Midwest leveling off in the fourth 

quarter. 

Crop and livestock disease also 

affected certain farm sectors in 2013. 

The citrus industry remains under 

considerable stress because of a 

bacterial infection of citrus trees 

known as “citrus greening.” Stress 

also increased for the hog industry 

because of the spread of porcine epidemic diarrhea virus.

For a detailed discussion of potential 

risks facing the System in 2014 and 

beyond, see “Challenges Facing the 

Agricultural Economy and the Farm 

Credit System” on pages 49 to 59.
13

Table 1 

Farm Credit System Major Financial Indicators, Annual Comparison 

As of December 31

Dollars in Thousands 

At and for the 12 months ended 31-Dec-13 31-Dec-12 31-Dec-11 31-Dec-10 31-Dec-09

Farm Credit System Banksa 

Total Assets	 230,427,442 219,043,177 205,087,928 207,098,256 194,497,747

Gross Loan Volume	 179,260,572 173,227,170 158,420,741 161,069,141 152,412,187

Nonaccrual Loans	 275,228 365,478 384,795 477,341 759,134

Cash and Marketable Investments	 49,241,806 43,618,788 44,047,407 43,289,148 39,305,172

Net Income	 2,057,199 2,011,314 1,860,347 1,917,143 1,442,328

Nonperforming Loans/Total Loansb	 	 0.18%	 0.23%	 0.27%	 0.33%	 0.52%

Capital/Assetsc 	 6.58%	 6.51%	 6.49%	 6.00%	 5.59%

Unallocated Retained Earnings/Assets	 	 3.39%	 3.23%	 3.25%	 3.03%	 2.80%

Return on Assets	 	 0.91%	 0.94%	 0.92%	 0.95%	 0.74%

Return on Equity	 	 13.31%	 13.86%	 13.68%	 15.00%	 13.13%

Net Interest Margind 	 1.15%	 1.25%	 1.28%	 1.22%	 1.17%

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

Efficiency Ratiof 	 22.20%	 20.00%	 20.14%	 18.24%	 20.49%

Payout Ratiog 	 54.61%	 47.79%	 53.76%	 50.43%	 56.31%

 

Associations 

 

Total Assets	 157,131,836 148,778,120 136,717,742 134,048,892 128,291,508

Gross Loan Volume	 146,917,046 138,314,966 126,187,799 124,140,035 118,575,715

Nonaccrual Loans	 1,456,381 1,932,706 2,353,352 2,744,528 2,634,046

Net Income	 3,308,036 2,989,912 3,007,154 2,408,449 1,585,984

Nonperforming Loans/Gross Loansb	 	 1.17%	 1.59%	 2.03%	 2.29%	 2.33%

Capital/Assetsc 	 18.50%	 17.80%	 17.84%	 16.54%	 15.82%

Unallocated Retained Earnings/Assets	 	 17.27%	 16.65%	 16.78%	 15.07%	 14.56%

Return on Assets	 	 2.14%	 2.06%	 2.24%	 1.84%	 1.29%

Return on Equity	 	 11.34%	 11.23%	 12.42%	 10.88%	 8.13%

Net Interest Margind 	 2.80%	 2.83%	 2.94%	 2.79%	 2.64%

Operating Expense Ratioe 	 1.48%	 1.45%	 1.43%	 1.38%	 1.49%

Efficiency Ratiof 	 37.14%	 39.13%	 31.27%	 35.12%	 39.05%

Payout Ratiog 	 25.42%	 25.82%	 22.57%	 22.62%	 21.51%

 

Total Farm Credit Systemh 

 

Gross Loan Volume	 201,060,000 191,904,000 174,664,000 175,351,000 164,830,000

Bonds and Notes	 210,704,000 200,365,000 186,889,000 189,575,000 178,358,000

Nonperforming Loans	 2,040,000 2,608,000 2,997,000 3,386,000 3,535,000

Nonaccrual Loans	 1,736,000 2,300,000 2,738,000 3,229,000 3,369,000

Net Income	 4,640,000 4,118,000 3,940,000 3,495,000 2,850,000

Nonperforming Loans/Gross Loansb	 	 1.01%	 1.36%	 1.72%	 1.93%	 2.14%

Capital/Assetsc 	 16.34%	 15.65%	 15.60%	 14.46%	 13.90%

Surplus/Assets	 	 13.44%	 12.94%	 12.90%	 11.80%	 11.48%

Return on Assets	 	 1.84%	 1.73%	 1.71%	 1.59%	 1.32%

Return on Equity	 	 11.28%	 10.89%	 11.17%	 10.85%	 9.86%

Net Interest Margind 	 2.78%	 2.87%	 2.86%	 2.82%	 2.65%

Sources: FCA’s Consolidated Reporting System as of December 31, 2013, 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.

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

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

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

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

loan pricing effectiveness.

e. Operating expenses divided by average gross loans.

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

preceding 12 months.

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

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

 
14

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Table 2	 	 	 	 	 	 	 	 	 	

Farm Credit System Major Financial Indicators, by District 

As of December 31, 2013		 	 	 	 	 	 	 	

Dollars in Thousands 

 

Gross Allowance Cash and Operating

Farm Credit Total Loan Nonaccrual for Loan Marketable Capital Total Expense

System Banks Assets Volume Loans Losses Investmentsa Stockb Surplusc Capitald Ratioe

AgFirst	 28,844,342 20,201,234 59,594 22,908 8,348,307 470,801 1,578,403 2,146,747 	 0.53%

AgriBank	 87,725,991 73,677,222 39,653 10,100 13,549,274 2,359,843 2,552,005 4,921,318 	 0.15%

CoBank	 97,644,392 73,603,375 147,849 447,126 23,077,161 3,639,235 3,103,926 6,704,616 	 0.39%

Texas	 16,212,717 11,778,741 28,132 13,660 4,267,064 820,543 605,817 1,393,247 	 0.63%

Total	 230,427,442 179,260,572 275,228 493,794 49,241,806 7,290,422 7,840,151 15,165,928 	 0.32%

 

Associations 

AgFirst	 18,276,193 17,085,676 	 348,481	 164,527 275,091 221,144 3,423,870 3,624,979 	 2.16%

AgriBank	 80,860,611 74,845,181 586,751 226,214 2,138,393 338,165 13,771,455 14,109,620 	 1.34%

CoBank	 44,250,611 41,727,316 387,753 292,618 418,374 1,152,532 7,767,788 8,866,981 	 1.45%

Texas	 13,744,421 13,258,873 133,396 60,507 65,862 80,694 2,387,250 2,470,194 	 1.50%

Total	 157,131,836 146,917,046 1,456,381 743,866 2,897,720 1,792,535 27,350,363 29,071,774 	 1.48%

 

Total Farm 

Credit 

Systemf 260,782,000 201,060,000 1,736,000 1,238,000 51,893,000 1,645,000 35,060,000 42,601,000 

Sources: Farm Credit System Call Report as of December 31, 2013, and the Farm Credit System Quarterly Information Statement provided by the Federal 

Farm Credit Banks Funding Corporation.

a. Includes accrued interest receivable on marketable investments.

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

c. Includes allocated and unallocated surplus.

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

Credit System amount, total capital also includes $3.496 billion of restricted capital, which is the amount in the Farm Credit Insurance Fund. Excludes 

mandatorily redeemable preferred stock and protected borrower capital.

e. Operating expense per $100 of gross loans.

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

 

 

.
15

Earnings 

In 2013, the System posted strong 

net income of $4.64 billion, up 12.7 

percent from 2012 (See figure 1). 

System earnings increased primarily 

because of lower provisions for loan 

losses and, to a lesser extent, higher 

net interest income. The System 

recognized a loan loss reversal of $31 

million in 2013 as compared with a 

loan loss provision of $313 million in 

2012. The loan loss reversal in 2013 

reflected the continued improvement 

in portfolio credit quality at certain 

System institutions. 

Net interest income was up by $197 

million in 2013, primarily because 

of an increase in average earning 

assets. Driven largely by increased 

loan volume, average earning assets 

grew by $14.19 billion or 6.3 percent 

to $240 billion in 2013. Net interest 

margin decreased nine basis points 

to 2.78 percent. The System’s return 

on average assets increased to 1.86 

percent from 1.74 percent the prior 

year. The return on average capital 

increased to 11.43 percent from 10.96 

percent in 2012.

As cooperative institutions, FCS 

banks and associations typically pass 

a portion of their earnings on to their 

borrower-owners as patronage distributions. For 2013, System institutions 

declared a total of $1.449 billion in 

patronage distributions—$937 million in cash, $457 million in allocated 

retained earnings, and $55 million in 

stock. This represents 31 percent of 

the System’s net income for 2013 as 

compared with 30 percent in 2012. 

Also in 2013, the System distributed 

$163 million in cash from patronage 

allocations of earlier years. 

System Growth 

In total, System assets grew to $260.8 

billion, up $14.1 billion or 5.7 percent 

from 2012. Loan growth was modest 

in 2013, with gross loan volume up 

by 4.8 percent (see figure 2). 

Figure 1

FCS Net Income, 2005–2013

As of December 31

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

Note: The net income for 2004 includes $1.167 billion in net reversals of the allowance for loan losses.
16

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Gains in real estate mortgage lending and, to a lesser extent, production and intermediate-term lending 

primarily accounted for the increase. 

Real estate mortgage loans were up 

$5.93 billion or 6.7 percent mainly 

because of continued demand for 

cropland, especially in the Midwest. 

Production and intermediate-term 

lending increased $1.55 billion or 

3.5 percent largely because of seasonal financing needs and increases 

in equipment financing. Lending to 

processing and marketing operations 

and to rural utilities was also up, 

increasing $1.25 billion and $913 million, respectively.

Asset Quality 

In general, the credit quality of 

System loans was strong in 2013. 

High feed costs challenged livestock, 

poultry, ethanol, and dairy producers through the first half of 2013, but 

profit margins improved significantly 

for these sectors in the latter half of 

the year when record corn and nearrecord soybean production caused 

a substantial drop in grain prices. 

Because of the sluggishness of the 

U.S. economic recovery, stress continued to affect certain agricultural sectors, such as the forestry and nursery 

industries, throughout 2013. 

As of December 31, 2013, nonperforming loans totaled $2.0 billion, 

or 1.01 percent of gross loans, down 

from $2.6 billion or 1.36 percent of 

gross loans, at year-end 2012 (see 

figure 3). Loan delinquencies (that 

is, accruing loans that are 30 days 

or more past due) remained a low 

0.23 percent of total accruing loans, 

declining from 0.28 percent at yearend 2012. 

The allowance for loan losses 

equaled $1.24 billion or 0.62 percent 

of loans outstanding at year-end 

2013, compared with $1.34 billion or 

0.70 percent of loans outstanding at 

year-end 2012. For 2013, the System 

recognized a loan loss reversal of 

$31 million, reflecting the continued 

improvement in credit quality in the 

System’s loan portfolio. Provisions 

for loan losses totaled $313 million 

in 2012 and $430 million in 2011. Net 

charge-offs were also down significantly in 2013, dropping to $62 million from $236 million in 2012. 

Funding 

During 2013, the System continued to 

have reliable access to the debt capital markets. Investor demand for all 

System debt products was favorable, 

allowing the System to refinance 

outstanding debt at favorable interFigure 2

Annual Growth Rate of FCS Loans Outstanding, 2002 to 2013

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

 
17

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

 

est rates. In 2013, Systemwide debt 

increased by 4.8 percent. Securities 

due within a year increased by 8.3 

percent while securities with maturities greater than one year increased 

by 3.1 percent.

The System’s funding composition 

also changed slightly. Securities due 

within a year accounted for 33.8 percent of total Systemwide debt compared with 32.7 percent a year ago. 

(See “Funding Activity in 2013” on 

page 35 for further discussion of the 

System’s funding environment.) 

Liquidity 

Each System bank maintains a 

liquidity reserve to ensure that it can 

withstand market disruptions. As 

of December 31, 2013, the System’s 

liquidity position equaled 194 days, 

up from 185 days at year-end 2012 

and significantly above the 90-day 

regulatory minimum. 

Investments available for sale (based 

on fair value) increased 4.3 percent to 

$43.6 billion in 2013, with a weighted 

average yield of 1.3 percent. Investments held to maturity decreased to 

$2.8 billion, with a weighted average 

yield of 3.1 percent. 

Each System bank may hold Federal 

funds and available-for-sale securities in an amount not to exceed 35 

percent of its average loans outstanding for the quarter. If an investment 

no longer meets the eligibility criteria, it becomes ineligible for liquidity 

calculation purposes, but the bank 

may continue to hold the investment 

provided certain requirements are 

met. 

At year-end, the FCS had 218 securities that no longer satisfied eligibility 

criteria because of rating downgrades 

after purchase. At fair value, these 

ineligible securities represented 3.4 

percent of Federal funds and available-for-sale investments. For 2013, 

the System included $11 million in 

earnings of net other-than-temporarily impaired losses on investments. 

Capital 

The System maintained a strong capital position in 2013. Total capital was 

$42.6 billion at December 31, 2013, 

compared with $38.6 billion a year 

before. The most significant contributing factor to the increase in capital 

was net income earned and retained. 

At year-end 2013, the System’s capital-to-assets ratio was 16.3 percent, 

compared with 15.7 percent in 2012. 

Figure 3

FCS Nonperforming Loans, 2008–2013

As of December 31
18

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

As figure 4 shows, surplus accounts 

for the vast majority of capital. FCA 

regulations establish the mini-mum 

capital requirements that each System 

bank and association must achieve 

and maintain. 

As of December 31, 2013, the permanent capital ratios for all System 

banks and associations were above 

the regulatory minimum of 7.0 percent. The ratios ranged between 16.7 

percent and 22.9 percent for System 

banks and between 13.3 percent and 

35.7 percent for System associations. 

In addition, as of December 31, 2013, 

the FCS had $3.5 billion of restricted 

capital in the Farm Credit Insurance 

Fund.

Borrowers Served 

The System fulfills its overall mission by lending to agriculture and 

rural America. Its lending authorities 

include the following: 

• Long-term agricultural real estate 

loans and rural home loans 

• Short- and intermediate-term 

agricultural loans 

• Loans to producers and harvesters of aquatic products 

• Loans to certain farmer-owned 

agricultural processing facilities 

and farm-related businesses 

• Loans to farmer-owned agricultural cooperatives 

• Loans that finance agricultural 

exports and imports 

• Loans to rural utilities 

• Limited portions of loans to 

entities that qualify under the 

System’s similar-entity authority6 

Nationwide, the System had $201.1 

billion in gross loans outstanding as 

of December 31, 2013 (see table 3). 

Agricultural producers represented 

by far the largest borrower group, 

with $139.6 billion, or 69.4 percent, of 

the total dollar amount of loans outstanding.7

 As of December 31, 2013, 

46.8 percent of the dollar volume of 

the System’s loans outstanding was 

in long-term real estate loans, 22.6 

percent in short- and intermediateterm loans to agricultural producers, and 13.5 percent in agribusiness 

loans. Agribusiness loans are broken 

Figure 4

FCS Capital, 2006–2013

As of December 31

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

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

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

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

Table 3

FCS Gross Loans Outstanding, 2009–2013

As of December 31

Dollars in Millions

 Percent Percent

 change change

2009 2010 2011 2012 2013 from 2009 from 2012

Production agriculture

Long-term real estate 

	 	 mortgage loans	 75,352	 78,021	 80,658	 88,263	 94,194	 25.0	 6.7

Short- and intermediate-

	 	 term loans	 39,610	 40,584	 41,276	 43,861	 45,412	 14.6	 3.5

Agribusiness loansa 23,626	 29,581	 24,734	 27,090	 27,242	 15.3	 0.6

Rural utility loansb 14,562	 15,091	 15,606	 18,702	 19,615	 34.7	 4.9

Rural residential loans	 4,977	 5,475	 5,832	 6,210	 6,557	 31.7	 5.6

Agricultural export finance	 3,956	 4,036	 3,834	 4,674	 4,588	 16.0	 -1.8

Lease receivables	 2,160	 2,021	 2,139	 2,415	 2,706	 25.3	 12.0

Loans to other financing

	 institutions	 587	 542	 585	 689	 746	 27.1	 8.3

Total 164,830 175,351 174,664 191,904 201,060 22.0 4.8

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

a. At December 31, 2013, agribusiness loans consisted of $11.6 billion in loans to cooperatives, $12.7 billion in loans to processing and marketing operations, and $3.0 billion in loans to farm-related businesses.

b. At December 31, 2013, rural utility loans consisted of $15.5 billion in loans to energy and water/wastewater utilities and $4.1 billion in loans to communication utilities..

 

down further into 5.7 percent for 

loans to cooperatives, 6.3 percent for 

processing and marketing enterprises, 

and 1.5 percent for farm-related businesses. 

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

loan volume, while rural residential 

loans made up 3.3 percent of the System’s total loans. Agricultural export 

loans represented 2.3 percent of the 

System’s loan portfolio, and lease 

receivables accounted for 1.3 percent 

of the overall portfolio. Finally, loans 

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

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

for Other Lenders” below). 

As required by law, borrowers own 

stock or participation certificates in 

System institutions. The FCS had 

nearly 1.1 million loans and 500,000 

stockholders in 2013. Approximately 

85.0 percent of the stockholders were 

farmers or cooperatives with voting 

stock. The remaining 15.0 percent 

were nonvoting stockholders, including rural homeowners and other 

financing institutions that borrow 

from the System. Over the past five 

years, the number of System stockholders has increased gradually, rising 3.2 percent since year-end 2009. 

Total loans outstanding at FCS banks 

and associations (net of intra-System 
20

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

lending) increased by $9.2 billion, or 

4.8 percent, during the year ended 

December 31, 2013. This compares 

with an increase of 9.9 percent in 

2012, a decline of 0.4 percent in 2011, 

and increases of 6.4 percent in 2010, 

and 2.1 percent in 2009. However, 

since year-end 2009, total System 

loans outstanding have increased by 

$36.2 billion, or 22 percent. 

The increase in 2013 was driven by 

increases in real estate mortgage, 

production and intermediate-term, 

processing and marketing, and 

energy loans. Demand for real estate 

mortgage loans was the most important factor. Real estate mortgage 

loans increased $5.93 billion, or 6.7 

percent, primarily because of the 

strong demand for cropland in the 

Midwest. Short- and intermediateterm production loans also increased, 

going up $1.55 billion, or 3.5 percent, 

mostly because of an increase in 

equipment financing. 

Because of low grain inventory levels, lower commodity prices, and the 

strong cash positions of cooperatives 

and farmers, demand declined for 

seasonal financing from farm supply 

and grain marketing cooperatives. As 

a result, loans to agribusiness cooperatives (which mostly include farm 

supply and grain marketing businesses) decreased $1.21 billion or 9.5 

percent. Processing and marketing 

loans increased $1.25 billion or 10.9 

percent because of increased marketing efforts and higher participations 

with non-System institutions.

Rural utility loans increased by 

$913 million, or 4.9 percent, largely 

because of increased lending to 

electric power distribution and power 

generation cooperatives. Rural residential loans increased $347 million, 

or 5.6 percent. The other categories 

also posted substantial increases for 

the year; however, agricultural export 

loans fell 1.8 percent from 2012.8

System Funding for Other 

Lenders 

Other Financing Institutions 

Under the Farm Credit Act, System 

banks may further serve the credit 

needs of rural America by providing 

funding and discounting services to 

certain non-System lending institutions described in our regulations as 

“other financing institutions.” OFIs 

include commercial banks, savings 

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

lenders that are significantly involved 

in lending to agricultural and aquatic 

producers and harvesters. 

System banks can fund and discount 

short- and intermediate-term loans 

for OFIs that demonstrate a need for 

additional funding to meet the credit 

needs of borrowers who are eligible 

to receive loans from the FCS. OFIs 

benefit by using the System as an 

additional source of liquidity for 

their own lending activities and by 

capitalizing on the System’s expertise 

in agricultural lending. 

As of December 31, 2013, the System 

served 26 OFIs, unchanged from 

2012, but down from 28 in 2010 and 

2009. Outstanding loan volume to 

OFIs was $746 million at year-end, 

up $57 million from 2012. OFI loan 

volume continues to be less than half 

of one percent of the System’s loan 

portfolio. About two-thirds of the 

OFIs are in the AgriBank district.

Syndications and Loan 

Participations with Non-FCS 

Lenders 

In addition to the authority to 

provide services to OFIs, the Farm 

Credit Act gives System banks and 

associations the authority to partner 

with financial institutions outside the 

System, including commercial banks, 

in making loans to agriculture and 

rural America. Generally, System 

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

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

loan in which a group of financial institutions work together to 

provide funds for a borrower. 

Usually one financial institution 

takes the lead, acting as an agent 

for all syndicate members and 

serving as a liaison between them 

and the borrower. All syndicate 

members are known at the outset 

to the borrower. 

• Loan participations are large 

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

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

Agriculture’s GSM-102 and GSM-103 export credit programs. Overall, 57 percent of the System’s agricultural export finance transactions in 2013 carried a guarantee from the Commodity Credit Corporation.
21

Sources: Farm Credit System Call Reports. 

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

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

Note: In past reports, in addition to loan participations involving non-System lenders, this chart included other items as well. For this report, we are including only participations involving non-System lenders, and we have revised the totals for prior years accordingly. 

to a borrower. Loan participations help lenders manage their 

credit risk. They also provide 

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

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

may use a loan participation to 

provide funding for part of the 

loan. One of the participating 

lenders originates, services, and 

documents the loan. Generally, 

the borrower deals with the institution originating the loan and is 

not aware of the other participating institutions. 

Financial institutions primarily use 

loan syndications and participations 

to reduce credit risk and to comply 

with lending limits. For example, a 

financial institution with a high concentration of production loans for a 

single commodity could use participations or syndications to diversify 

its loan portfolio, or it could use 

them to sell loans that are beyond its 

lending limit. However, institutions 

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

The System’s gross loan syndication 

volume has grown by more than $3 

billion during the past three years to 

$13.3 billion at year-end 2013. However, FCA’s Call Report does not 

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

In addition to participating in loans 

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

non-System lenders that originate 

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

but because the borrower’s operation 

is similar in function to that of an 

eligible borrower’s operation, the System can participate in the borrower’s 

loans (the participation interest must 

be less than 50 percent). 

The System had $9.2 billion in net 

similar-entity loan participations as 

of December 31, 2013, down from 

$9.6 billion the prior year. As figure 

5 indicates, the volume of similarentity participations that System 

institutions sell to non-System institutions is relatively small, amounting 

to less than half a billion dollars over 

the past four years.

Figure 5

Loan Participations with Non-System Lenders, 2008–2013

As of December 31
22

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

However, the volume of eligible-borrower loan participations purchased 

from non-System lenders has been 

rising; it grew from $5.6 billion in 

2008 to $7.1 billion in 2013. The volume of eligible-borrower loan participations sold to non-System lenders 

has also grown in recent years, rising 

from $1.2 billion in 2010 to $2.8 billion in 2012 and 2013. Net eligibleborrower loan participations peaked 

in 2010 at $5.4 billion when sales of 

these participations were at a low 

point. At year-end 2013, the System 

had $4.2 billion in net loan participations involving eligible borrowers.

AgDirect, LLP 

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

developed by Farm Credit Services 

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

facilitates the financing or leasing of 

equipment for farmers and ranchers through participations in retail 

installment loans or leasing contracts 

originated by equipment dealerships. 

The program enhances financial 

options for customers and institutions, and provides a new revenue 

stream to AgDirect owners and 

AgriBank. 

In 2013, FCA approved investments by an additional three System associations, bringing the total 

number of institutions participating 

in AgDirect to 13.9

 AgDirect financing is now available in many states. 

As of December 31, 2013, the total 

outstanding participation interests 

in loans purchased was nearly $2.5 

billion.

Farm Debt and Market 

Shares 

The U.S. Department of Agriculture’s 

estimate of total farm business debt 

for the year ended December 31, 

2013, was $309 billion, up 3 percent from its $300 billion estimate 

for year-end 2012. Farm loan data 

reported by Farm Credit System 

and commercial banks show that 

their total farm loan portfolios grew 

during 2013 by 5.7 percent and 5.5 

percent, respectively.10 The farm real 

estate debt portfolios of FCS institutions rose more than their non-real 

estate loan portfolios in 2013, while 

these portfolios grew equally at commercial banks.

Lender-reported data also show that 

the demand for farm credit in 2013 

was generally more robust in the 

Midwest but weakened somewhat 

in the latter half of the year. Lower 

prices for major crops in the latter half of 2013 curtailed what had 

been strong investments in equipment, farm structures, and farmland. 

During previous years, farmers have 

taken advantage of record-high farm 

incomes and low interest rates to 

invest heavily in these items.

On the supply side, lenders had 

ample funds to lend in 2013 because 

demand for credit remained below 

their capacity to lend. However, 

despite the competitive lending environment, credit underwriting practices were relatively conservative. 

Even with the prospect for lower 

crop revenues and weaker farmland 

markets, demand for credit should 

be strong in 2014 because of higher 

livestock incomes, low interest rates, 

and an improving nonfarm economy. 

However, a change in any one or 

more of these factors could change 

the outlook for credit demand.

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

2012. USDA’s estimate of debt by 

lender shows that commercial banks 

held 39.6 percent of total farm business debt, just below the System’s 

market share of 40.7 percent. FCS 

market share of total farm business 

debt has grown slightly more than 

commercial bank market shares 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 2012, the 

System held 46.1 percent of this debt, 

compared with 34.1 percent for commercial banks. Commercial banks 

have historically dominated non-real 

estate farm lending—the market 

share of commercial banks increased 

to 47.0 percent at the end of 2012.

The System’s share of non-real estate 

farm business debt increased to 33.4 

percent at year-end 2012.

9. One association that was previously approved to participate in AgDirect (High Plains Farm Credit, FLCA) is no longer participating; as of January 1, 

2014, this association had no share in the ownership of AgDirect.

10. USDA calculates market share for farm business debt only (i.e., debt that is used for farm production purposes).The estimate for 2013 will be revised 

in August 2014. Market share information is not available for the other portions of the System’s portfolio, such as agribusiness lending, rural utility 

lending, or rural home lending.
23
24

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Serving Young, Beginning, and Small 

Farmers and Ranchers

The Farm Credit Act requires Farm 

Credit System banks and direct-lending associations to have programs to 

provide financially sound and constructive credit and related services 

to young, beginning, and small (YBS) 

farmers and ranchers. Loans to YBS 

borrowers help to provide a smooth 

transition of farm businesses to the 

next generation. They also allow 

System institutions to serve a more 

diversified customer base—from very 

small to very large operations, from 

producers of grain staples for export 

to producers of organic foods for 

local markets. 

At FCA, we are strongly committed 

to ensuring that the System fulfills 

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

through our regulatory activities, 

data collection and reporting, disclosure requirements, and examination 

activities. 

Characteristics of YBS 

Borrowers 

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

the characteristics of producers who 

would qualify for a YBS loan with 

the System. 

Young 

Across the United States, there are 

far fewer young farmers than there 

are small and beginning farmers, and 

this number has been shrinking for 

decades. At FCA, we define young 

farmers as those who are 35 years of 

age or younger. The decline in young 

farmers reflects years of farm consolidations and increasing retirement 

ages for farmers. 

According to the 2012 Census of 

Agriculture, less than 6 percent of all 

principal farm operators were under 

35 years of age in 2012.11 This percentage has remained relatively constant in recent years, with the latest 

Ag Census showing a slight increase 

in the numbers of young operators 

relative to the 2007 Ag Census. The 

Ag Census also reports on secondary and third operators involved in 

the farming operation. When these 

operators are included, 8 percent of 

farm operators were under the age of 

35 in 2012. 

Young farmers are somewhat less 

likely than all farmers to operate 

small farms—that is, farms with less 

than $250,000 in gross sales. The 

Ag Census indicates that 86 percent 

of principal farm operators that are 

young farmers operated a small farm 

in 2012. 

Beginning 

The 2012 Census of Agriculture 

shows that approximately 18 percent 

of all farms had principal operators 

who are beginning farmers—those 

who operated a farm for less than 10 

years. The Census also shows that 

second and third operators in the 

farming operation have less farming 

experience than the primary operator. 

Nearly 27 percent of second operators and 41 percent of third operators 

had less than 10 years of experience 

operating a farm. 

Many beginning farmers operate 

small farms, but not all are young 

farmers. The vast majority of beginning farmers—95 percent—operated 

small farms in 2012. While 20 percent 

of young farmers are also beginning 

farmers, over 12 percent of farmers 65 or older were also beginning 

farmers in 2012.

Small 

Small farms—those with $250,000 or 

less in farm sales—represent 88 percent of all farms in the 2012 Census 

of Agriculture. Small farm numbers declined from 2007 when they 

represented more than 90 percent 

of U.S. farms. Because of their great 

diversity, the 1.9 million small farms 

in the United States are difficult to 

characterize. 

More than 75 percent of farms have 

sales of less than $50,000. These very 

small farms typically have negative 

farm incomes and small amounts of 

farm debts, and they account for just 

3 percent of the total value of U.S. 

farm production. 

Those who operate small farms 

generally seek credit for consumer, 

rather than farm, products. Within 

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

producing higher-margin agricultural 

products for local markets, often on 

a seasonal basis. A higher percentage 

of very small farms are located in the 

East. 

FCS Lending to YBS 

Producers 

Generally, the shares of Systemwide 

total farm lending going to the three 

separate YBS categories have been 

consistent with the shares of these 

farmer segments in the total farmer 

population. The smallest share of 

total System farm lending goes to 

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

the young farmer segment, and the 

largest share goes to the small farm 

segment. 

The range of YBS demographics and 

the changing economic conditions in 

rural America and agriculture can 

pose challenges for System institutions in meeting their YBS program 

goals. Another challenge for System 

lenders is meeting the wide range of 

nonagricultural credit needs of YBS 

farmers. 

The Farm Credit Act stipulates that 

each System bank must have written 

policies that direct each association 

board to have a program for furnishing sound and constructive credit 

and financially related services to 

YBS borrowers. Associations must 

also coordinate with other Government and private sources of credit in 

implementing their YBS programs. 

In addition, each institution must 

report yearly on its lending volume, 

operations, and achievements in its 

YBS program. (See the YBS Programs 

section on page 31.) 

FCA regulations require each System 

lender’s YBS program to include a 

mission statement that describes the 

program’s objectives and specific 

means to achieve the objectives. The 

regulations also require each program to include annual quantitative 

targets for credit to YBS producers; 

these targets should be based on 

reliable demographic data for the 

institution’s lending territory. YBS 

programs must also include outreach 

efforts and annual qualitative goals 

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

of YBS farmers. 

The association’s board oversight 

and reporting are integral parts of 

each YBS program. Each association’s 

operational and strategic business 

plan must include the goals and 

targets for YBS lending. And each 

association must have an internal 

control program to manage the YBS 

program; it must also have methods 

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

and within the lender’s risk-bearing 

capacity. 

FCA’s oversight and examination 

activities encourage System institutions to assess their performance and 

market penetration in the YBS area. 

This self-assessment increases each 

institution’s awareness of its mission 

and prompts it to earmark resources 

to serve the YBS market segment. In 

addition, we continuously consider 

ways to support and strengthen the 

System’s YBS programs. 

Comparing the System’s YBS 

Lending in 2013 with YBS 

Lending in 201212 

The number and volume of loans 

(including new loans and renewals) 

made during the year indicates the 

extent to which System institutions 

are serving YBS producers. Relative 

to 2012, the dollar volume of new 

loans made to each of the three YBS 

categories declined in 2013. This 

contrasts to loan numbers, which 

increased modestly in the young and 

beginning categories but declined 

slightly in the small category.13 

New dollar volume lending to small 

farmers decreased the most during 

2013, with a 13.3 percent decrease 

from 2012 in the dollar volume of 

new loans made. The dollar volume 

of new loans made to beginning 

farmers declined 4.2 percent from 

2012, while the dollar volume of new 

loans made to young farmers fell 6 

percent. The number of new loans to 

beginning farmers rose 5.0 percent 

and the number to young farmers 

rose 2.3 percent in 2013. The average 

size of loans made in 2013 fell for all 

three YBS categories.

The number and dollar volume of 

loans outstanding increased from 

2012 in all three YBS categories 

because of a decline in repayments. 

The dollar volume of loans outstanding increased by 3.5 percent 

to beginning farmers, 3.0 percent to 

young farmers, and 1.8 percent to 

small farmers. Similar increases also 

occurred in the number of loans outstanding for each YBS category. 

Comparing the System’s YBS 

Lending with Overall Lending

In 2013, lending to the three YBS 

categories generally did not keep 

pace with overall System lending to 

farmers. Therefore, the share of total 

System farm loans going to the YBS 

categories fell from that of 2012. The 

only exception to this trend was a 

slight increase in the share of new 

loans made that went to beginning 

farmers. 

12. The loan number and dollar volume data for 2012 were revised slightly after FCA’s 2012 Annual Report on the Farm Credit System was issued last 

year. 

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

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

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

loan and thus the loan numbers reported here do not directly measure the number of borrowers.
26

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Table 4A

YBS Loans Outstanding

As of December 31, 2013		 	 	 

Percentage Percentage

 of total Dollar of total

Number number volume volume Average

of of System of loans of System loan

loans farm loans in millions farm loans size

Young farmers/ranchers 175,583 17.8 $23,788 11.2 $135,478

Beginning farmers/ranchers 253,272 25.7 $36,968 17.3 $145,960

Small farmers/ranchers 484,745 49.3 $44,894 21.1 $92,613

 

Table 4B

YBS Loans Made During 2013

As of December 31

 Percentage Percentage

 of total Dollar of total

Number number volume volume Average

of of System of loans of System loan

loans farm loans in millions farm loans size

Young farmers/ranchers 57,854 16.3 $8,294 11.0 $143,360

Beginning farmers/ranchers 72,662 20.5 $10,989 14.6 $151,228

Small farmers/ranchers 142,357 40.1 $11,433 15.2 $80,310

 

 

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

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

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

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

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

activities of the Farm Credit Leasing Services Corporation.

 
27

In 2013, the volume of all System 

farm loans made (including commitments) during the year was $75.2 

billion, down 0.4 percent from that of 

2012, and the volume of outstanding 

farm loans (including commitments) 

at year-end was $213.2 billion, up 5.6 

percent from that of 2012. The total 

number of farm loans made in 2013 

(354,996) was up 3.3 percent from 

2012, while the number of outstanding loans (984,076) at the end of 2013 

was 4.4 percent higher than at the 

end of 2012. 

In the section below on YBS borrowing trends, we provide information 

on the progress in YBS lending activity since 2001, which was the first 

year institutions reported their results 

using the current definitions for 

young, beginning, and small farmers and ranchers. Table 4A contains 

information on loans made in each 

category during the year; table 4B 

provides information on loans outstanding at the end of 2013.

Loans and commitments to YBS 

farmers include real estate loans and 

short- and intermediate-term loans, 

but do not include rural home loans. 

In the percentages below, young, 

beginning, and small farmer lending 

is compared with all System lending 

and commitments to farmers. 

Young—In 2013, the System made 

57,854 loans to young farmers—that 

is, to those who are 35 years old or 

younger—amounting to $8.3 billion. 

During 2012, the System made 56,568 

loans to young borrowers, totaling $8.8 billion. The loans made to 

young borrowers in 2013 represented 

16.3 percent of all farm loans the 

System made during the year and 

11.0 percent of the dollar volume 

of loans made. The average size of 

loans made to young farmers in 2013 

decreased to $143,360 from $155,955 

in 2012. At the end of 2013, the System had $23.8 billion in outstanding 

loans to young farmers as compared 

with $23.1 billion at the end of 2012. 

Beginning—The System made 72,662 

loans to beginning farmers—that is, 

to those who have been farming for 

10 years or less—amounting to $11.0 

billion in 2013. During 2012, the 

System made 69,213 loans, totaling 

$11.5 billion, to beginning borrowers. 

The loans made to beginning farmers 

in 2013 represented 20.5 percent of 

all farm loans made during the year 

and 14.6 percent of the dollar volume 

of loans made. The average size of 

loans made decreased to $151,228 in 

2013 from $165,655 in 2012. At the 

end of 2013, the System had $37.0 

billion in outstanding loans to beginning farmers as compared with $35.7 

billion at the end of 2012. 

Small—FCS institutions made 

142,357 loans, totaling $11.4 billion, 

to small farmers (those with gross 

annual sales of less than $250,000) 

in 2013. By comparison, the System 

made 143,039 loans, totaling $13.2 

billion, to small farmers in 2012. The 

loans made in 2013 to farmers in this 

category represented 40.1 percent 

of all farm loans made during the 

year and 15.2 percent of the dollar 

volume of loans made. The average 

size of loans made fell to $80,310 

from $92,147 in 2012. At the end of 

2013, the System had $44.9 billion in 

outstanding loans to small farmers 

as compared with $44.1 billion at the 

end of 2012. 

The YBS information is reported 

separately for each of the three YBS 

borrower categories because the YBS 

mission is focused on each borrower 

group separately. Also, loans cannot 

be added across categories because 

some loans belong in more than one 

category. If, for example, a borrower 

is less than 35 years old, sells less 

than $250,000 in farm products per 

year, and has farmed for less than 10 

years, the borrower’s loan would be 

included in each category. Therefore, 

adding the categories together would 

produce a misleading measurement 

of the System’s YBS lending involvement. 

YBS Borrowing Trends, 

2001–2013 

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

under the definitions and reporting 

requirements that became mandatory in 2001, the dollar volume of 

System loans made to YBS producers 

increased steadily until 2008. Since 

then, lending trends have been less 

consistent, particularly for the beginning and small farmer categories. 
28

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Figures 6A, 6B, and 6C

Loans Made to, and Loans Outstanding for, YBS Farmers and Ranchers, 2001–2013

As of December 31

Figure 6A

Young Farmers and Ranchers
29

Figure 6B

Beginning Farmers and Ranchers

Figure 6C

Small Farmers and Ranchers
30

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

In 2013, the volume of new loans to 

each YBS category declined as did 

the volume of all new System farm 

loans. However, because of slower 

repayment rates, the dollar volume 

of loans outstanding in each YBS category, which had been relatively flat 

prior to 2012, once again increased in 

2013. 

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

that the percentage of total new farm 

loan volume going to all YBS categories continued to decline in 2013. In 

the past year the share of total dollar 

value of farm lending going to beginning farmers fell to 14.6 percent, the 

share to small farmers fell to 15.2 

percent, and the share to young 

farmers fell to 11.0 percent. 

One of the main reasons for the 

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

lending volume is the growth in 

farm incomes since the mid-2000s. 

From 2005 to 2013, gross cash farm 

income rose from $280 billion to an 

estimated $445 billion—a 59 percent 

increase. As a result of rising prices 

and gross incomes, more farms now 

have gross farm sales in excess of 

$250,000 and therefore no longer 

qualify as small farms. Citing a 41 

percent increase in farm commodity 

prices from 1995 (when the $250,000 

threshold was defined) to 2010, the 

USDA’s Economic Research Service 

raised its definition of a small farm 

in 2013 to a threshold of $350,000 in 

gross cash farm income. 

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

other organizations is difficult. Other 

Federal regulators do not require 

reporting on young and beginning 

farmer loans. Although large banks 

are required to report on small farm 

loans, they define small farm lending 

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

than $500,000 is considered a small 

farm loan). In addition, because of 

differences in data definitions and 

data collection methods, annual YBS 

data are not directly comparable with 

Census of Agriculture data, which 

are collected only once every five 

years. 

Assessing YBS Results for 

Individual Associations 

Factors Affecting Results from 

One Institution to the Next 

The results for individual associations reflect farmer demographics 

in each institution’s territory and 

the strength of each institution’s 

YBS program. Differences between 

farmer demographics make comparisons among individual associations 

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

population of beginning farmers than 

another institution’s territory. That is 

why YBS regulations do not specify 

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

that are appropriate for their lending 

territories. Other factors—such as the 

competitiveness of the local lending 

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

individual associations. 

Individual YBS Results Versus the 

System’s Average YBS Results 

As a result of the factors described 

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

institutions may have a high number 

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

activity levels for other institutions 

may be just the opposite. Activity 

can vary considerably from one year 

to the next, especially for institutions 

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

more stable from one year to the 

next, especially for larger institutions. 

While the share of total outstanding 

System farm loans made to young 

farmers was 17.8 percent, this share 

ranged from 5 percent to more than 

25 percent at individual associations. 

The ranges in the share of total outstanding loans to beginning farmers were even greater. Whereas 25.7 

percent of the System’s total farm 

loans outstanding were to beginning 

farmers in 2013, this share ranged 

across associations from as little as 13 

percent to as much as 65 percent. 

14. Beginning with 1999, specific YBS data by institution, by district, and for the System as a whole are available on FCA’s website at www.fca.gov under 

the Consolidated Reporting System Reports.
31

The ranges for the small farmer 

category are greater still. In 2013, 

49.3 percent of the System’s total 

farm loans outstanding went to small 

farmers, but the percentage for individual associations ranged from less 

than 13 percent to more than 87 percent. For this YBS category, almost 

half of all associations had lending 

shares that exceeded the Systemwide 

average. 

While the share of total farm loan 

numbers and loan volume that went 

to YBS farmers generally declined 

during 2013 for the System as a 

whole, many associations did experience gains in the share of their total 

farm lending to YBS groups. The 

share of total new loans made in 

2013 to beginning farmers rose in 58 

percent of the associations, while the 

share to young farmers and small 

farmers rose in 52 percent and 45 

percent of the associations, respectively. 

The share of total dollar volume 

made in 2013 to YBS farmers showed 

a similar pattern. Here, just under 

half of the associations had positive 

gains in the share of total dollar volume loaned to beginning and small 

farmers, and over a third had positive gains in the share going to small. 

YBS Programs

Delivering Credit Services 

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

the FCS is in a unique position to 

assist the next generation of American farmers, and System institutions 

have developed and cultivated YBS 

programs to provide this assistance. 

Using such programs, System associations may offer lower interest rates 

and less stringent underwriting standards, such as higher loan-to-value 

ratios or lower debt coverage requirements, to allow potential YBS borrowers to qualify for loans. Associations also offer training via their YBS 

programs to help these borrowers be 

successful. 

In 2013, System institutions used 

the following methods to help them 

make loans to young, beginning, or 

small farmers.

• Interest rate concessions—offered 

to young and beginning farmers 

by 54 percent of associations, up 

from 48 percent in 2012 

• Exceptions to underwriting 

standards—offered to young and 

beginning farmers by approximately 60 percent of associations, 

unchanged from 2012 

• Concessionary loan fees—offered 

to beginning farmers by 37 percent of associations, up from 34 

percent in 2012 

• Loan covenants designed specifically for YBS borrowers—offered 

to young and beginning farmers 

by 17 percent of associations, 

unchanged from 2012 

As required by the Farm Credit Act, 

System institutions coordinate their 

YBS programs with other Government programs whenever possible. 

Several State and Federal programs 

provide interest rate reductions, 

guarantees, or loan participations for 

YBS borrowers. By partnering with 

these Government programs, FCS 

institutions are able to better mitigate the credit risk to these borrowers. In 2013, 29 percent of System 

institutions used Government loan 

participations for loans to young and 

beginning borrowers, and 24 percent 

used these participations for loans to 

borrowers in the small category. 

In 2013, System institutions continued to make use of guaranteed lending programs from Federal, State, 

and local sources for YBS lending. 

About two-thirds of associations indicated they had obtained loan guarantees for YBS loans made in 2013.

YBS Program Management

FCS institutions are using various 

approaches and sources of information to more effectively manage and 

assess their YBS programs. In 2013, 

around 41 percent of System associations used YBS advisory committees to provide input on YBS-related 

issues to their boards of directors. 
32

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Advisory committees were composed 

of a variety of stakeholders—both 

internal and external. In 2013, these 

stakeholders consisted of the following: 

• Current YBS borrowers 

(35 percent)

• Potential YBS borrowers 

(17 percent) 

• Association board members 

(21 percent) 

• Government organizations 

(7 percent) 

• Representatives from other agrelated groups and organizations 

(18 percent) 

Approximately half of YBS advisory 

committees provided input to their 

institutions’ board members annually, 

with the other half providing input 

more frequently.

In addition, in 2013, around onethird of all associations linked YBS 

performance criteria to the performance evaluations of management or 

lending staff.

Training, Outreach and Other 

Services 

System institutions offer a myriad 

of opportunities to educate existing 

and potential YBS borrowers. System associations offer online training 

programs for YBS farmers, which 

in some cases include a mentoring 

component. Associations coordinate 

with State and national agricultural 

organizations and educational centers 

to offer training and, in some cases, 

provide funding to allow YBS borrowers to attend training. 

Examples of training opportunities 

provided by System associations 

include the following:

• Next Generation Program

• AgLeadership Institute

• Emerging Entrepreneurs’ Conference

• Ag Biz Planner

• Farm Credit College seminars

• Young Farmer and Rancher 

Executive Institute

In 2013, System associations continued to be actively involved in marketing to potential YBS borrowers. 

Many associations attended or helped 

sponsor local trade shows, fairs, and 

training workshops specifically targeting YBS borrowers. 

Associations also continue to conduct 

outreach and marketing activities in 

partnership with State or national 

young farmer groups, colleges of 

agriculture, land grant extensions, 

State or national cooperative association leadership programs, and local 

chapters of 4-H and of the National 

FFA Organization. In addition, many 

FCS associations provide financial 

support for college scholarships and 

for FFA, 4-H, and other agricultural 

organizations. 
33

Regulatory Policy and Approvals

As the regulator of the Farm Credit 

System, we issue regulations, policy 

statements, and other guidance to 

ensure that the System, including its 

banks, associations, Farmer Mac, and 

other related entities, complies with 

the law, operates in a safe and sound 

manner, and efficiently carries out 

its statutory mission. Our regulatory 

philosophy is to provide a regulatory environment that enables the 

System to safely and soundly offer 

high-quality, reasonably priced credit 

and related services to farmers and 

ranchers, agricultural cooperatives, 

rural residents, and other entities on 

which farming depends. 

We strive to develop balanced, wellreasoned regulations whose benefits 

outweigh their costs. With our regulations, we seek to meet two general 

objectives. The first is to enhance the 

System’s relevance in the marketplace 

and in rural America while ensuring 

that System institutions comply with 

the law and with the principles of 

safety and soundness. The second is 

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

institutions. 

Regulatory Activity in 2013 

The following paragraphs describe 

some of FCA’s regulatory efforts in 

2013, along with several projects that 

will remain active in 2014. Full text 

for the items below is available on 

the FCA website. 

To access Board Policy Statements, 

FCA Bookletters, and Informational 

Memorandums, go to www.fca.gov/

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

effective dates are pending, go to 

www.fca.gov/law/pending.html and 

select “FCA Pending Regulations and 

Notices database.” 

Governance 

Advisory Vote—The FCA Board 

adopted an interim final rule in 

March 2014 to remove requirements 

for a nonbinding, advisory vote on 

compensation for an institution’s 

chief executive officer or other senior 

officers. Adoption of this rule effectively nullified the petition from the 

Farm Credit System requesting FCA 

to repeal the advisory voting rule.

Standards of Conduct—The FCA 

Board approved a proposed rule in 

January 2014 that would modify the 

standards of conduct regulations to 

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

of Ethics, and enhance the role of the 

Standards of Conduct Official. 

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

We issued an Informational Memorandum in January 2014 to System 

institutions providing guidelines for 

requesting certificates. The document 

describes the types of certificates we 

issue and explains how to submit 

requests.

Unincorporated Business Entities—

The FCA Board adopted a final rule 

in May 2013 that establishes a regulatory framework for the formation 

of unincorporated business entities 

organized under State law. In addition, we issued an Informational 

Memorandum in July 2013 to provide guidance to System institutions 

that invest in or organize unincorporated business entities to carry 

out authorized business functions, 

services or activities.

Compensation for 2014—We issued 

an Informational Memorandum in 

February 2014 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 

Reports of Accounts and Exposures—The FCA Board approved 

a proposed rule in June 2013 and 

a final rule in December 2013 to 

establish a regulatory framework 

for reporting System accounts and 

exposures. We use these reports in 

examining institutions and evaluating 

risk.

Flood Insurance—The FCA Board 

approved a proposed rule in October 2013 to amend our regulations 

on flood insurance to conform to 

the Biggert-Waters Flood Insurance 

Reform Act of 2012.
34

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Repeal of the Regulations Governing Registration of Mortgage 

Loan Originators—The FCA Board 

approved an interim final rule in 

August 2013 that repealed our regulations governing the registration of 

residential mortgage loan originators 

at System institutions.

Social Media: Consumer Compliance Risk Management Guidance—

We issued an Informational Memorandum in April 2014 to provide 

guidance to System institutions on 

the applicability of Federal consumer 

protection and compliance laws, 

regulations, and policies to activities 

conducted via social media. 

Interagency Statement on the Impact 

of Biggert-Waters Act—We issued 

an Informational Memorandum 

in March 2013 to inform financial 

institutions that provisions related 

to force-placement and civil money 

penalties in the Biggert-Waters Flood 

Insurance Reform Act of 2012 took 

effect when the act was signed. The 

Informational Memorandum also 

informed institutions that the private 

flood insurance and escrow provisions of the act would not be effective until regulations were issued. 

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 

Investments in Rural America, 

Conclusion of Pilot Investment 

Programs—The FCA Board adopted 

a resolution in November 2013 to 

withdraw the proposed rule on Rural 

Community Investments and to conclude the pilot investment programs 

on December 31, 2014. The proposed 

rule had been published in the Federal Register (73 FR 33931) on June 

16, 2008.

Liquidity and Funding—The FCA 

Board approved a final rule in March 

2013 to ensure that FCS funding 

and liquidity requirements are safe, 

sound, and appropriate. 

Capital Requirements—The FCA 

Board approved a proposed rule 

in May 2014 to modify the regulatory capital requirements for System 

banks and associations. The purpose 

of the rule is to modernize capital 

requirements while ensuring that 

institutions continue to hold sufficient regulatory capital to fulfill their 

mission as a Government-sponsored 

enterprise. The rule would ensure 

that the System’s capital requirements are comparable to the Basel 

III framework and the standardized 

approach that the federal banking 

regulatory agencies have adopted, 

but would also recognize the cooperative structure and the organization 

of the System. 

Farmer Mac 

Farmer Mac Capital Planning—The 

FCA Board approved a final rule to 

revise capital requirements to place 

more emphasis on the quality and 

level of Farmer Mac’s capital base 

and to promote best practices for 

capital adequacy planning and stress 

testing. 

Farmer Mac Liquidity Management—The FCA Board adopted 

a final rule in October 2013 to 

strengthen the management of liquidity risk at Farmer Mac, improve 

the quality of assets in its liquidity 

reserves, and bolster its ability to 

fund obligations and continue operations during market disruptions. 

Farmer Mac Board Governance and 

Standards of Conduct—The FCA 

Board approved an advance notice 

of proposed rulemaking in February 

2014 to solicit comments on possible 

regulatory changes related to board 

governance and standards of conduct 

at Farmer Mac. The notice asks for 

public input on a series of questions 

related to three topics: nomination of 

directors, fiduciary responsibilities, 

and risk governance. 

Other 

National Oversight and Examination Program for 2014—We issued 

an Informational Memorandum in 

August 2013 that summarized the 

National Oversight Plan for 2014. The 

plan detailed strategies for addressing critical risks and other areas of 

focus in the System. 
35

Regulatory Burden, Notice of 

Intent—The FCA Board approved a 

notice of intent in July 2013 requesting public input and comments on 

regulations that may duplicate other 

requirements, are not effective in 

achieving stated objectives, are not 

based on law, or impose burdens 

that are greater than the benefits 

received. 

Adjusting Civil Money Penalties for 

Inflation—The FCA Board adopted a 

final rule in April 2013 to adjust our 

civil money penalties as required by 

Federal law. 

GAAP References and Conforming Amendments—The FCA Board 

adopted a direct final rule to amend 

our regulations by conforming 

certain references to U.S. generally 

accepted accounting principles to 

the Financial Accounting Standards 

Board Accounting Standards Codification. 

Corporate Activity in 2013 

In 2013 and early 2014, we analyzed 

and approved six corporate applications. 

• On January 31, 2013, an ACA 

affiliated with AgriBank, FCB, 

changed its name. The names of 

its subsidiaries also changed. 

• On January 1, 2014, two ACAs 

affiliated with CoBank, ACB, 

merged their operations following stockholder approval. The 

PCA and FLCA subsidiaries 

associated with the ACAs also 

merged.

• On January 1, 2014, four ACAs 

affiliated with the Farm Credit 

Bank of Texas, merged their 

operations into two continuing ACAs following stockholder 

approval. The PCA and FLCA 

subsidiaries associated with the 

ACAs also merged.

• On January 1, 2014, a FLCA and 

an ACA affiliated with CoBank, 

ACB, merged their operations 

following stockholder approval. 

In addition, the names of the 

continuing ACA and its subsidiaries were also changed. 

• On January 1, 2014, an ACA 

affiliated with AgriBank, FCB, 

changed its name. The names of 

the subsidiaries also changed.

The total number of associations as 

of January 1, 2014, was 78 (76 ACAs 

and 2 FLCAs), compared with 82 

associations a year earlier. Figure 7 

shows the chartered territory of each 

FCS bank. Details about specific corporate applications are available on 

FCA’s website at www.fca.gov/info/

mergers.html. 

Funding Activity in 2013 

During 2013 the System had ready 

access to the debt capital markets. 

Investors were attracted by the System’s status as a Government-sponsored enterprise, as well as its overall 

financial performance and strength.

Even as the Federal Reserve started 

to slowly taper its quantitative easing policy at the end of 2013, risk 

spreads and pricing on System debt 

securities remained favorable relative to corresponding U.S. Treasuries. Also, because of the substantial 

reduction in debt issuances by the 

two housing-related Governmentsponsored enterprises,15 which are 

in conservatorship, investors have 

turned to the System as a desirable 

alternative. As a result, the System 

was able to continue to issue debt 

on a wide maturity spectrum at very 

competitive rates.

The System had $2.47 billion in 

outstanding perpetual preferred 

stock at the end of 2013, $412 million 

more than the previous year-end. 

It had $1.55 billion in outstanding 

subordinated debt at year-end 2013, 

unchanged from year-end 2012. 

The System funds its loans with a 

combination of consolidated Systemwide debt and capital. The Funding 

Corporation, the fiscal agent for the 

System banks, sells debt securities 

such as discount notes, bonds, and 

designated bonds on behalf of the 

System.16 This process allows funds 

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

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

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

condition and performance of the System as a whole.
36

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Figure 7

Chartered Territories of FCS Banks

As of January 1, 2014

Note: As of January 1, 2014, CoBank was funding 27 associations in the indicated areas and serving cooperatives nationwide; Farm Credit Bank of Texas 

was funding 15 associations; AgriBank, FCB, was funding 17 associations; and AgFirst Farm Credit Bank was funding 19 associations. The FCS contains a 

total of 82 banks and associations.
37

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

America, providing rural communities with efficient access to global 

resources. At year-end 2013, Systemwide debt outstanding was $206.6 

billion, crossing the $200 billion mark 

for the first time and representing a 

4.3 percent increase from the preceding year-end.17 

Several factors contributed to the $8.6 

billion increase in Systemwide debt 

outstanding. Gross loans increased 

$9.2 billion in 2013, while the System’s combined investments, Federal 

funds, and cash balances increased 

by $5.0 billion during the year. 

As the System’s regulator, we have 

several responsibilities pertaining 

to System funding activities. As 

required by the Farm Credit Act, the 

System must obtain our approval 

before distributing or selling debt. 

We respond quickly and efficiently 

to the System’s requests for debt 

issuance approvals. For example, 

we have a program that allows the 

System to issue discount notes at 

any time, up to a maximum of $60 

billion, as long as it provides us with 

periodic reports on this activity. In 

addition, we approve the majority of 

longer-term debt issuances through 

a monthly “shelf” approval program. 

For 2013, we approved $154.0 billion 

in longer-term debt issuances. 

To participate in the issuance of an 

FCS debt security, a System bank 

must maintain, free from any lien or 

other pledge, specified eligible assets 

(available collateral) that are at least 

equal in value to the total amount 

of its outstanding debt securities. 

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

bank is primarily liable, investment 

bonds, and other debt securities that 

the bank may have issued individually. 

To ensure safety and soundness, our 

regulations require each System bank 

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

not less than 103 percent. We require 

certain System banks to maintain 

higher minimum net collateral ratios. 

All System banks have kept their net 

collateral ratios above the required 

minimum, with 106.4 percent being 

the lowest for any single bank as of 

December 31, 2013. 

In addition, in June of 2013, our 

amended liquidity regulation 

required the banks to maintain a 

minimum of three levels of liquidity:

• Level 1: Initial 15 days

• Level 2: Next 15 days 

• Level 3: Subsequent 60 days 

These three levels amount to 90 days 

of liquidity. Each bank also has a 

supplemental liquidity buffer tailored 

to its contingency funding plan. 

Together, the 90 days of liquidity 

and the supplemental liquidity buffer 

provide alternative funding sources if 

a bank’s access to the capital markets 

is curtailed or interrupted. 

All System banks have kept their 

respective days of liquidity above 

the required minimum levels, with 

the lowest at any single bank as of 

December 31, 2013, being 23 days 

of Level 1 assets, 28 days of Level 2 

assets, 57 days of Level 3, and 128 

days overall (including the supplemental liquidity buffer). 

In addition to the protections provided by the joint and several liability provision, the Funding Corporation and the System banks have 

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

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

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

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

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

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

entered into the following voluntary 

agreements. 

• First, the amended and restated 

Market Access Agreement establishes certain financial thresholds, 

and it provides the Funding 

Corporation with operational 

oversight and control over the 

System banks’ participation in 

Systemwide debt obligations.18

• Second, the amended and 

restated Contractual Interbank 

Performance Agreement is tied 

to the Market Access Agreement 

and establishes certain measures 

that monitor the financial condition and performance of the 

institutions in each System bank’s 

district. For all of 2013, all Farm 

Credit banks maintained scores 

in excess of the benchmarks in 

the Contractual Interbank Performance Agreement. 

The amount of debt issued by the 

System increased again after a slight 

pullback during 2012. For the 12 

months ended December 31, 2013, 

the System issued $377 billion in 

debt securities, compared with $371 

billion for 2012, $563 billion for 2011, 

$534 billion for 2010, and $523 billion 

for 2009. The System has continued 

to exercise call options on higher-cost 

debt because of the relatively steep 

slope of the yield curve. However, 

the System has exercised far fewer 

call options than it did when the 

yield curve dropped precipitously 

immediately after the financial crisis. 

Investor interest and continued 

low yields on the full spectrum of 

debt instruments allowed the System to continue to extend its debt 

maturities. Their weighted average of 

remaining maturity increased by one 

month during 2013 to 3.0 years. The 

weighted-average interest rates for 

insured debt continued to decrease 

but at a much reduced rate, going 

from 0.98 percent as of December 31, 

2012, to 0.93 percent as of December 

31, 2013.

Mission-Related Investments 

In January 2005, we issued guidance that gave System institutions 

an opportunity to participate in pilot 

programs supporting investments in 

rural America (see FCA Informational 

Memorandum dated January 11, 

2005, Investments in Rural America—

Pilot Investment Programs). The pilot 

programs were intended to provide 

FCS institutions greater flexibility to 

partner with Government agencies 

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

On November 14, 2013, the Farm 

Credit Administration Board voted to 

conclude, effective Dec. 31, 2014, each 

pilot program approved after 2004 

as part of the Investments in Rural 

America program. The Board’s action 

permits each System institution that 

is participating in a pilot program 

to continue to hold its investments 

through the maturity dates for the 

investments, provided the institution continues to meet all approval 

conditions. Although we are concluding these pilot programs, we will 

consider investment requests on a 

case-by-case basis under our existing 

investment regulations. 

Because of the Investments in Rural 

America program, we now have a 

better understanding of the diverse 

financing needs of agriculture and 

rural communities and the ways 

System institution investments can 

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

information gathered and experience 

gained through the pilot programs 

will be useful as we evaluate future 

investment requests.

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

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

Maintaining a Dependable Source of Credit 

for Farmers and Ranchers

As federally chartered cooperatives, 

the banks and associations of the 

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

“improve the income and well-being 

of American farmers and ranchers” 

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

to “selected farm-related businesses 

necessary for efficient farm operations.”

Making loans exposes the System 

to risk. To manage this risk, System 

institutions must have both sufficient 

capital and effective risk-management 

controls. 

As the independent regulator of the 

FCS, the Farm Credit Administration examines and supervises System 

institutions. We monitor specific risks 

in each institution; we also identify 

and monitor risks that affect the System as a whole.

Through our risk-based examination 

and supervisory program, our examiners determine how issues facing an 

institution or the agriculture industry 

may affect the nature and extent of 

risk in that institution.

Our examiners also evaluate whether 

each institution is meeting its public 

mission. They do so by determining 

whether each institution is complying with laws and regulations and 

whether it is serving the credit needs 

of eligible agricultural producers 

and cooperatives, including young, 

beginning, and small farmers and 

ranchers.

Conducting a Risk-Based 

Examination and Oversight 

Program

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 that present the greatest risk. 

This approach also considers the ability of FCS institutions to identify and 

manage both institution-specific and 

systemic risks. When institutions are 

either unable or unwilling to address 

unsafe and unsound practices or to 

comply with laws and regulations, 

we take appropriate supervisory or 

enforcement action.

Through our oversight, we require 

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

controls to effectively identify and 

manage risks. Our oversight program 

also requires compliance with laws 

and regulations. For example, our 

regulations require FCS institutions 

to have effective loan underwriting 

and loan administration processes. 

We also have specific regulations 

requiring FCS institutions to maintain 

strong asset-liability management 

capabilities.

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.

Meeting Statutory 

Examination Requirements

As required by the Farm Credit Act, 

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

In the interim between these statutory examinations, we also monitor 

and examine institutions as risk and 

circumstances warrant. This approach 

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

specific risks. In addition, we develop 

a National Oversight Plan every year 

that takes systemic risks into account.

Identifying and Responding to Potential Threats to Safety and Soundness

Because of the dynamics and risks 

in the agricultural and financial 

industries, FCA must ensure that 

FCS institutions have the culture, 

governance, policies, procedures, 
40

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

and management controls to effectively identify and manage risks. We 

employ various processes for evaluating systemic risks in both agriculture 

and the financial services industry 

that can affect an institution, a group 

of institutions, and the System as a 

whole. 

Currently, we are emphasizing the 

following areas:

• Business Planning and Diversity 

and Inclusion. We are focusing 

on business plan quality, the 

institution’s ability to identify 

key risk factors, and how the 

institution manages those risks. 

We are also examining how the 

System is complying with revised 

FCA regulation 618.8440, which 

requires institutions to develop 

human capital and marketing 

plans that promote diversity and 

inclusion. Our examiners look for 

tangible results to demonstrate 

that institutions are complying 

with the rule.

• Underwriting in Volatile Times. 

Volatility in the agricultural sector and the potential for reduced 

profitability and increased borrower stress are expected over 

the next several years. We are 

emphasizing the need for proactive and diligent underwriting 

standards and practices that 

can safeguard FCS institutions 

through good and bad times. 

• Board Governance. Effective and 

informed board governance is 

paramount in today’s increasingly complex financial institutions and fast-changing business 

conditions. Our examiners are 

focusing on board committees, 

governance assessments, and the 

committees of stockholders that 

nominate individuals for board 

positions.

• Standards of Conduct. Directors and employees of System 

institutions must maintain high 

standards of honesty, integrity, 

impartiality, and conduct. Our 

examiners are evaluating institutions’ policies, processes, and 

disclosures to ensure the effectiveness of their standards of 

conduct programs. Examiners are 

also reviewing their findings for 

systemic or strategic risks and 

communicating these results to 

the institutions.

When we identify systemic issues, we 

inform institutions about those issues 

by producing the following:

• FCA Board Policy Statements

• Informational Memoranda

• Bookletters

We keep an online library of these 

documents. Go to our website at 

www.fca.gov, click on the Law & 

Regulations tab, and select Info 

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

Measuring the System’s 

Safety and Soundness

FCA uses the Financial Institution 

Rating System (FIRS) to indicate 

safety and soundness threats in each 

institution. Similar to the systems 

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

system, with component ratings for 

capital, assets, management, earnings, 

liquidity, and sensitivity, all factoring 

into an overall composite rating. The 

FIRS process includes quantitative 

benchmarks for evaluating institution performance, qualitative rating 

criteria for evaluating risk management practices, and outlook ratings 

for evaluating risks.

Our examiners assign component and 

composite ratings to each institution 

on a scale of 1 to 5 based on their 

evaluation of measures and ratings. 

A composite rating of 1 indicates an 

institution is sound in every respect. 

A rating of 3 means an institution 

displays a combination of financial, 

management, or compliance weaknesses ranging from moderate to 

severe. A 5 rating represents an 

extremely high immediate or nearterm probability of failure.19

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

regularly review and update FIRS 

ratings to reflect current risks and 

conditions. We use both quantitative 

and qualitative benchmarks to help 

examiners apply FIRS ratings consistently from one institution to the 

next. We disclose the FIRS composite 

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

perspective on the safety and soundness of their institution.

We also disclose these ratings to each 

institution’s funding bank to ensure 

that the bank takes any actions nec19. See the Glossary for a complete description of the FIRS ratings.
41

essary to safely and soundly oversee 

its direct loan with the institution.

In addition, we issue examination 

reports and other communications to 

provide the institution board with an 

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

financial condition and performance 

of the institution.

As figure 8 shows, risks increased 

considerably in 2009 when stresses 

from the general economy, the credit 

crisis, and volatility in commodity 

prices surfaced and affected some 

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

FIRS ratings for 2013 show that the 

financial condition and performance 

of the FCS was relatively strong. The 

System’s strength reduces the risk to 

investors in FCS debt, to the Farm 

Credit System Insurance Corporation, 

and to FCS institution stockholders.

At December 31, 2013, 43 FCS institutions were rated 1 (52 percent), 31 

were rated 2 (38 percent), 8 were 

rated 3 (10 percent). Most of the 

institutions rated 3 were relatively 

small and collectively represent 

about 2 percent of the System’s total 

assets. There were no institutions 

with ratings of 4 or 5. (FCA applies 

FIRS ratings only to the banks and 

associations of the FCS, not to the 

System’s service corporations. It also 

applies a FIRS rating to Farmer Mac, 

but Farmer Mac is not included in 

figure 8.)

Providing Differential 

Supervision and 

Enforcement

FCA uses a risk-based supervisory 

and enforcement program to respond 

to the risks and particular oversight 

Figure 8

Financial Institution Rating System (FIRS) 

Composite Ratings for the FCS, 2009–2013

Source: FCA’s FIRS Ratings Database.

Note: Figure 8 reflects ratings for only the System’s banks and direct-lending associations; it does not include ratings for the System’s service 

corporations, Farmer Mac, or the Federal Farm Credit Banks Funding Corporation. Also, the numbers shown on the bars reflect the total number 

of institutions with a given rating; please refer to the y-axis to determine the percentage of institutions receiving a given rating.
42

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

needs of each FCS institution. Risks 

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

sector of the economy—in this case, 

agriculture—presents an additional 

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

institutions to take corrective action 

to mitigate the risks. Some corrective 

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

management.

We use a three-tiered supervision 

program: normal supervision, special 

supervision, and enforcement actions.

Institutions under normal supervision 

are performing in a safe and sound 

manner and are complying with laws 

and regulations. These institutions 

are able to correct weaknesses in the 

normal course of business.

For those institutions displaying 

more serious or persistent weaknesses, we shift from normal to 

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

give an institution clear and firm 

guidance to address weaknesses, and 

we give the institution time to correct 

the problems.

If informal supervisory approaches 

have not been or are not likely to be 

successful, we will use our formal 

enforcement authorities to ensure 

that FCS institutions are safe and 

sound and that they comply with 

laws and regulations. We may take 

an enforcement action for a number 

of reasons:

• A situation threatens an institution’s financial stability.

• An institution has a safety or 

soundness problem or has violated a law or regulation.

• An institution’s board is unable 

or unwilling to correct problems 

we have identified.

Our enforcement authorities include 

the following powers:

• To enter into formal agreements

• To issue cease-and-desist orders

• To levy civil money penalties

• To suspend or remove officers, 

directors, and other persons

If we take an enforcement action, 

the FCS institution must operate 

under the enforcement document and 

report back to us on its progress in 

addressing the issues identified. Our 

examiners oversee the institution’s 

performance to ensure compliance 

with the enforcement action. As of 

December 31, 2013, we had formal 

written agreements with eight associations, whose assets totaled $4.8 billion. The written agreements require 

the associations to take corrective 

actions in such areas as financial 

condition and performance, portfolio 

management, asset quality, and institution management or governance. 

Two of these institutions returned to 

normal supervision in January 2014 

because of improved performance 

and conditions.

Protecting Borrower Rights

Agricultural production is risky for 

many reasons—adverse weather, 

changes in Government programs, 

international trade issues, fluctuations 

in commodity prices, and crop and 

livestock diseases. These risks can 

sometimes make it difficult for borrowers to repay loans.

The Farm Credit Act provides System borrowers certain rights when 

they apply for loans and when they 

have difficulty repaying loans. For 

example, the act requires FCS institutions to notify borrowers of the right 

to seek restructuring of loans before 

the institutions begin foreclosure. It 

also provides borrowers an opportunity to seek review of certain credit 

and restructuring decisions. When a 

System institution acquires agricultural property through liquidation, 

the Farm Credit Act also provides 

borrowers the opportunity to buy or 

lease back their former properties.

FCA enforces the borrower rights 

provisions of the Farm Credit Act 

and examines institutions to make 

sure that they are complying with 

these provisions.

We also receive and review complaints from borrowers who believe 

their rights have been denied. In 

2013, we received 46 borrower complaints. The number of complaints 

has been higher in recent years 

because of the increase in financial 

stress on System borrowers.

Generally, borrowers who contact us 

with complaints are seeking clarification, additional information, and 

options to redress their concerns. If 

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

bring about corrective action.
43

Condition of Farmer Mac

Farmer Mac is a stockholder-owned, 

federally chartered instrumentality 

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

Farmer Mac provides a secondary 

market for agricultural real estate 

mortgage loans, rural housing loans, 

and rural utility cooperative loans. 

This secondary market is designed 

to increase the availability of longterm credit at stable interest rates 

to America’s rural communities and 

to provide rural borrowers with the 

benefits of capital markets pricing 

and product innovation. 

Farmer Mac conducts activities 

through three programs: 

• Farm & Ranch (formerly Farmer 

Mac I), which involves mortgage 

loans secured by first liens on 

agricultural real estate and rural 

housing 

• USDA Guarantees (formerly 

Farmer Mac II), which involves 

certain agricultural and rural 

loans guaranteed by the U.S. 

Department of Agriculture, 

including farm ownership loans, 

operating loans, and rural business and community development loans 

• Rural Utilities program, which 

involves loans to finance cooperatively owned rural electrification 

and telecommunications systems 

Farmer Mac purchases eligible loans 

directly from lenders; provides 

advances against eligible loans by 

purchasing obligations secured by 

those loans; securitizes assets and 

guarantees the resulting securities; 

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

eligible loans. Securities guaranteed 

by Farmer Mac may be held either 

by the originator of the underlying 

assets or by Farmer Mac, or they 

may be sold to third-party investors. 

FCA regulates Farmer Mac through 

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

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

of 1991. This office provides for the 

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

performance of its powers, functions, 

and duties. The statute requires 

OSMO to be a separate office within 

our Agency and to report directly to 

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

the extent practicable, be carried out 

by individuals who are not responsible for supervising the banks and 

associations of the FCS. 

Through OSMO, we perform the following functions: 

• Examine Farmer Mac at least 

annually for capital adequacy, 

asset quality, management performance, earnings, liquidity, and 

interest rate sensitivity 

• Supervise and issue regulations 

governing Farmer Mac’s operations 

• Oversee and evaluate Farmer 

Mac’s safety and soundness and 

mission achievement 

OSMO reviews Farmer Mac’s compliance with statutory and regulatory 

minimum capital requirements and 

supervises its operations and condition throughout the year. Table 5 

summarizes Farmer Mac’s condensed 

balance sheets at the end of each 

year from 2008 to 2013.

Table 5 

Farmer Mac Condensed Balance Sheets, 2008–2013

As of December 31	 	 	 	 	 	 	

Dollars in Millions

 Percentage 

growth

rate 

2008 2009 2010 2011 2012 2013 2012–2013

Total assets	 $5,107.3	 $6,138.8	 $9,479.9	 $11,883.5	 $12,622.2	 $13,361.8	 5.9%

 

Total liabilities	 $4,947.7	 $5,798.4	 $9,001.0	 $11,329.0	 $12,029.2	 $12,787.3	 6.3%

 

Net worth or 

	 equity capital	 $15.3	 $196.2	 $478.9	 $554.5	 $593.0	 $574.5	 -3.1%

 

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

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Capital 

On December 31, 2013, Farmer Mac’s 

net worth (that is, equity capital 

determined using generally accepted 

accounting principles [GAAP]) was 

$574.5 million, compared with $593.0 

million a year earlier. Net worth 

was 4.3 percent of on-balance-sheet 

assets as of December 31, 2013, 

compared with 4.7 percent at the end 

of 2012. The ratio declined because 

on-balance-sheet assets grew and 

net worth declined despite favorable 

earnings results (discussed in greater 

depth below). When Farmer Mac’s 

off-balance-sheet program assets 

(that is, essentially its guarantee 

obligations) are added to its total onbalance-sheet assets, net worth was 

3.3 percent as of December 31, 2013, 

compared with 3.6 percent in 2012. 

As of December 31, 2013, Farmer 

Mac continued to be in compliance 

with all statutory and regulatory 

minimum capital requirements. 

At year-end 2013, Farmer Mac’s core 

capital (the sum of the par value of 

outstanding common stock, the par 

value of outstanding preferred stock, 

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

minimum requirement. Its regulatory 

capital (core capital plus allowance 

for losses) exceeded the required 

amount as determined by the RiskBased Capital Stress Test.20 Farmer 

Mac’s core capital as of December 31, 

2013, totaled $590.7 million, exceeding the statutory minimum capital 

requirement21 of $398.5 million by 

$192.2 million. 

Farmer Mac’s regulatory capital 

totaled $604.0 million as of December 31, 2013, exceeding the regulatory risk-based capital requirement 

of $90.8 million by $513.2 million. 

Regulatory capital was 4.9 percent of 

total Farm & Ranch and rural utility 

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

utility program volume but excluding 

USDA Guarantees). Risk exposure on 

USDA Guarantee loans is extremely 

low because they are guaranteed by 

the U.S. Department of Agriculture. 

Table 6 offers a historical perspective 

on capital and capital requirements 

for 2008 through 2013. 

We published a final rule in January 

2014 to revise regulations governing 

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

stress testing of Farmer Mac’s capital 

position; it also requires Farmer Mac 

to notify FCA of any changes in dividend policy. 

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

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

Table 6	 	 	 	 	 	

Farmer Mac Capital Positions, 2008–2013

As of December 31	 	 	 	 	 	 	

Dollars in Millions

2008 2009 2010 2011 2012 2013

GAAP equity	 $15.3	 $196.2	 $478.9	 $554.5	 $593.0	 $574.5

Core capital	 $207.0	 $337.2	 $460.6	 $475.2	 $519.0	 $590.7

Regulatory capital	 $223.4	 $351.3	 $480.7	 $492.7	 $535.9	 $604.0

Statutory requirement	 $193.5	 $217.0	 $301.0	 $348.6	 $374.0	 $398.5

Regulatory risk-based capital requirement	 $57.3	 $35.9	 $42.1	 $52.9	 $58.1	 $90.8

Excess core capital over statutory requirement*	 $13.5	 $120.2	 $159.6	 $126.5	 $145.0	 $192.2

Capital margin excess over the minimum	 7.0%	 55.4%	 53.0%	 36.3%	 38.8%	 48.2%

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

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

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

 
45

Nonprogram investments provide 

liquidity in the event of a short-term 

disruption in the capital markets 

that would prevent Farmer Mac 

from issuing new debt. Nonprogram 

investments consist of investment 

securities, cash, and cash equivalents. 

We published a final rule governing Farmer Mac’s liquidity management in November 2013. This 

rule increased minimum regulatory 

liquidity requirements. Farmer Mac 

was in compliance with its liquidity 

policy throughout the year.

Program Activity 

Farmer Mac’s total program activity 

increased to $14.0 billion on December 31, 2013, from $13.0 billion a 

year earlier (see figure 9). Farmer 

Mac experienced steady growth in 

its Farm & Ranch loan purchases, 

as well as its AgVantage products. 

AgVantage transactions are general 

obligations of the issuing financial 

institution that are purchased or 

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

financial institution, each AgVantage 

security is secured by eligible loans 

under one of Farmer Mac’s programs 

in an amount at least equal to the 

outstanding principal amount of the 

security. 

Farmer Mac’s Long-Term Standby 

Purchase Commitment product is 

similar to a guarantee of eligible 

pools of program loans. Under the 

standbys, a financial institution pays 

an annual fee in return for Farmer 

Mac’s commitment to purchase 

loans in a specific pool under specified conditions at the option of the 

institution. As shown in figure 10, 

standbys represented 16.2 percent of 

Farmer Mac’s total program activity 

in 2013. 

Off-balance-sheet program activity 

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

to investors. At the end of December 

2013, 28.9 percent of program activity 

consisted of off-balance-sheet obligations, as compared with 31.3 percent 

a year earlier. 

Asset Quality 

On December 31, 2013, $194.9 million 

of the Farm & Ranch program portfolio was substandard, representing 

3.78 percent of the principal balance 

of Farm & Ranch loans purchased, 

guaranteed, or committed to be purchased.22 This compares with $186.5 

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

Figure 9

Farmer Mac Program Activity and Nonprogram Investment Trends

As of December 31

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

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Figure 10

Farmer Mac Total Program Activity

As of December 31, 2013

Total = $13.95 billion

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

AMBS = agricultural mortgage-backed securities
47

million, or 3.93 percent, on December 

31, 2012. Assets are considered to be 

substandard when they have a welldefined weakness or weaknesses that, 

if not corrected, are likely to lead to 

some losses.

As of December 31, 2013, Farmer 

Mac’s 90-day delinquencies improved 

for the fourth consecutive year to 

$28.3 million, or 0.55 percent of 

non-AgVantage Farm & Ranch loans, 

compared with $33.2 million, or 0.70 

percent as of December 31, 2012. Real 

estate owned as of December 31, 

2013, was $2.6 million, down from 

$4.0 million a year earlier. Farmer 

Mac reported no delinquencies in 

its pools of rural utility cooperative 

loans.

On December 31, 2013, Farmer Mac’s 

allowance for losses totaled $13.3 million, compared with $16.9 million on 

December 31, 2012. Figure 11 shows 

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

90-day delinquencies relative to outstanding program volume, excluding 

AgVantage loan volume. 

Earnings 

Farmer Mac reported net income 

available to common stockholders 

of $71.8 million (in accordance with 

GAAP) for the year ended December 31, 2013, up from $43.9 million 

reported at year-end 2012. Core 

earnings for 2013 were $54.9 million, compared with $49.6 million in 

2012.23 Net interest income, which 

excludes guarantee fee income, was 

$98.6 million in 2013, down from 

$118.3 million in 2012.24 Guarantee 

fee income was $27.0 million, compared with $25.0 million in 2012. 

Nonprogram investments accounted 

for an estimated 9.32 percent of interest income for 2013, down from 9.34 

percent for 2012. Table 7 shows a sixyear trend for the basic components 

of income. 

23. 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.

24. In our 2012 Annual Report, we reported net interest income as $122.0 million for 2012 and $121.3 million for 2011 because we mistakenly calculated 

net interest income on a pre-provision basis. The figures should have been $118.3 million for 2012 and $121.0 million for 2011. 
48

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Figure 11

Allowance, Nonperforming Asset, and Delinquency Trends, 2008–2013

As of December 31

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

Table 7	 	 	 	 	 	 	

Farmer Mac Condensed Statements of Operations, 2008–2013

As of December 31	 	 	 	 	 	 	

Dollars in Millions 

 

 Growth Rate

2008 2009 2010 2011 2012 2013 2012–2013

 

Total revenues	 ($140.6)	 $181.8	 $99.1	 $73.3	 $122.0	 $164.4	 35%

Total expenses	 $13.5	 $99.5	 $77.0	 $59.5	 $78.1	 $92.5	 18%

Net income available 

	 	 to common shareholders	 ($154.1)	 $82.3	 $22.1	 $13.8	 $43.9	 $71.8	 64%

Core earnings	 ($81.5)	 $16.1	 $25.4	 $42.9	 $49.6	 $54.9	 11%

Sources: Farmer Mac’s Annual Reports on Securities and Exchange Commission Form 10-K.
49

Challenges Facing the Agricultural Economy 

and the Farm Credit System

The following paragraphs identify a number of risk factors—both 

domestic and foreign—that could 

affect the ability of the Farm Credit 

System and Farmer Mac to fulfill 

their missions. The factors include 

weather conditions, the farm economy, the macro-economy, foreign 

trade, Government policies, and other 

challenges. As the regulator of the 

System, we will continue to closely 

monitor and evaluate the implications of these risks.

The Farm Economy 

Drought 

Drought affected more than half of 

the continental United States in 2013, 

mostly to the west of the Mississippi. 

It sharply reduced crop harvests and 

damaged pastures. The August 6, 

2013, map in figure 12 shows how 

pervasive the drought was for much 

of the country at that time. Exceptionally wet conditions during the 

spring of 2013 brought much relief 

to the Midwest and Southeast, which 

were ravaged by drought in 2012. 

As the March 18, 2014, map shows, 

drought conditions west of the Continental Divide continued into 2014. 

The snowpacks in the Sierra Nevada 

and southern half of the Cascades 

remain in deficit. California has the 

largest moisture deficits among western states, with most of the state in 

severe or extreme drought as of late 

April 2014. Major reservoirs in California remain significantly below historical average levels. In the Southern 

Plains and the western Corn Belt, dry 

conditions prevailed at the beginning 

of the spring planting season.

The continuing drought poses a risk 

for certain System borrowers. Exceptionally dry conditions in California 

have major implications for System 

Farm Income 

borrowers and consumers in general. 

The persistent drought may lead to 

price increases and shortages of agricultural products, and it could create 

credit stress for these producers. 

Forecasts call for lower than normal 

precipitation during the planting 

season. 

Despite the planting delays caused 

by both wet weather and drought, 

U.S. agriculture as a whole remained 

strong in 2013, with near-record 

farm incomes buoyed by high 

prices throughout most of the year. 

However, by November, the USDA 

projected U.S. corn and soybean 

production to be at or near record 

levels, which would cause a drop in 

crop prices. As a result, farm income 

is forecast to decline significantly in 

2014. 

Figure 12

U.S. Drought Moniter
50

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Debt use increased moderately in 

2013, and asset values remain high. 

Both debt use and total asset values 

are forecast to increase in 2014.

Total indemnity payouts for crop 

insurance in 2013 were forecast to 

decline from 2012 levels because 

farmers were able to produce near 

record-sized crops. As of March 24, 

2014, indemnity payouts totaled $11.5 

billion for 2013, down nearly 34 percent from 2012. 

Livestock producers experienced 

another year of record feed costs and 

low or negative returns, with limited insurance or other Government 

programs. Relief during the fourth 

quarter of 2013 came in the form of 

lower feed costs because of the drop 

in crop prices. In addition, tightening 

supplies of hogs and cows has led to 

an increase in product prices, boosting the profitability for these producers. The tight supplies of hogs and 

cows have led to very high prices 

for beef and pork. Consequently, 

consumers may shift consumption 

to more competitively priced meats 

such as poultry. According to industry analysts, most livestock producers 

can expect to have profitable margins 

for 2014 because feed costs are forecast to remain low.

Net cash income for 2013 reached 

$130.1 billion, down about 3 percent 

from 2012. Crop receipts declined 3.3 

percent over 2012 levels, but livestock 

receipts were up 6.2 percent. Farm 

expenses were up 3.3 percent, mostly 

because of a rise in feed costs, higher 

land rental rates, and higher costs for 

seeds and pesticides. 

For 2014, the U.S. Department of 

Agriculture in February forecasted 

that net cash income will fall to 

$101.9 billion, a decline of nearly 

22 percent. The projected decrease 

in net cash income is due to sharp 

declines in cash receipts for crops 

and direct Government payments, 

and a small decrease in farm-related 

income. The elimination of direct 

payments under the Agricultural 

Act of 2014 is the primary reason 

behind the expected large reduction 

in Government payments for 2014. 

Net farm income is also projected to 

fall in 2014 to $95.8 billion, a decline 

of nearly 27 percent, due mostly to 

a projected decrease in crop cash 

receipts, a decrease in the value of 

crop inventories, and a reduction in 

Government payments. Both measures of farm income are expected to 

remain at historically high levels in 

2014 even after they are adjusted for 

inflation. 

Acreage and Yields by 

Commodity 

USDA’s March 31 Prospective Plantings Report provides the numbers 

of acres that producers of various 

commodities expect to plant in 2014. 

Table 8 shows the projections for 

four major crops. 

Yields of corn are expected to hit a 

new record in 2014; soybean yields 

are expected to be stable. According 

to climate forecasts, the Corn Belt 

region will receive normal precipitation through the planting season. 

Soybean-producing states, specifically 

Nebraska, should also have normal 

precipitation, which would alleviate 

the drought they have experienced in 

the past couple of years. 

Table 8

Projected Number of Acres per Major Commodity in 2014

Commodity Acres to Be Planted Change from 2013

Corn	 91.7 million acres, the lowest since 2010, but fifth most since 1944	 -4%

Soybeans	 81.5 million acres, if realized will set be a record level	 6%

Wheat	 55.8 million acres, down 1 percent from 2013	 -1%

Cotton	 11.1 million acres, up 7 percent from last year	 7%

Source: USDA’s March 31, 2014, Prospective Plantings report.
51

If the climate forecasts hold true, 

corn and soybean prices should be 

well below those of the 2012–13 

marketing year, which should lead 

to higher profits for livestock, dairy, 

and ethanol producers. Large harvests of corn and soybeans in Brazil 

and Argentina in early 2014 will also 

place downward pressure on prices 

in 2014.

Farm Expenses 

USDA forecasts that farm production 

expenses will fall roughly 1 percent 

in 2014 to $348 billion. This marks 

only the second time in the past 10 

years that expenses have declined. 

Moderate declines in expenses for 

feed and fertilizer are expected to 

offset higher expenses for seed, 

petroleum products, and labor in 

2014.

The lower crop prices are expected to 

have a positive impact for producers 

and processors who purchase these 

commodities as inputs in the production of livestock, poultry, dairy 

products, and ethanol. However, 

lower commodity prices are expected 

to have a negative impact on crop 

producers.

Farm Asset Values and Farm 

Debt Levels 

Because of moderate to strong commodity prices and favorable interest 

rates, U.S. farm asset values rose 

4.2 percent in 2013 to a record $2.93 

trillion according to USDA estimates. 

Real estate debt increased by nearly 

5 percent, while non-real estate debt 

increased by less than 1 percent, for 

a total debt increase of around $9 billion, or 2.9 percent. Based on conditions in early February 2014, USDA 

projected that farm real estate assets 

could increase a little more than 

2 percent in 2014 to a record $3.0 

trillion.

The net impact on the balance sheet 

of the farm sector for 2013 was a 4.4 

percent increase in farm equity to 

a record $2.6 trillion, resulting in a 

debt-to-equity ratio of 11.8 percent, 

the lowest level since USDA began 

calculating the measure in 1960. The 

debt-to-asset ratio of 10.6 percent 

for 2013 is also a record low and is 

forecast even lower at 10.5 percent in 

2014. 

Farmland Values

Land values continued to climb to 

new highs in the Plains and Midwest 

in 2013. By the fourth quarter, however, agricultural bankers indicated 

that the growth in farmland values 

had begun to moderate and even 

decline in some areas of the country. 

The rebound in grain and soybean 

production, which caused a drop in 

crop prices, triggered the adjustment 

in farmland values. 

Based on its August 2013 Land 

Values Report, USDA reported that 

U.S. farm real estate values (all 

land and buildings) rose 9.4 percent 

from 2012 values. Regional changes 

ranged from a 23.1 percent increase 

in the Northern Plains to no change 

in the Southeast. At the state level, 

farm real estate values ranged from 

declines of 2.2 percent for Florida 

and New Hampshire to increases 

of 36 percent for North Dakota and 

29 percent for South Dakota. Cropland values across the United States 

increased by 13 percent on average. 

This compares to regional increases 

of 25 percent in the Northern Plains 

and 16.1 percent in the Corn Belt. 

However, cropland values in the 

Southeast declined by 2.8 percent 

from values a year ago.

In its fourth quarter 2013 survey 

of agricultural bankers, the Federal 

Reserve reported results from seven 

districts. Three (Chicago, Richmond, 

and St. Louis) indicated increases in 

farmland values, while four districts 

(Dallas, Kansas City, Minneapolis, and San Francisco) had mixed 

results, with declines in some land 

types. 

Creighton University’s monthly 

Farmland-Price Index, which surveys 

agricultural bankers in 10 Midwestern and Plains States, indicated that 

farmland prices on average continued to weaken in April 2014 but at a 

slightly slower pace than in the previous two months. The slower rate of 

decline is attributed to two factors, 

weather-related planting delays and 

trade tensions caused by the crisis 

in Ukraine, both of which helped 

strengthen crop prices since the lows 

of January. Farmland prices declined 

for 7 of the 10 States, increased for 

2 States, and remained unchanged 

for 1 State. Based on the March 2014 
52

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Figure 13

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

(Nominal Dollars)

report of the Iowa Realtors Land 

Institute, Iowa cropland values have 

declined an average 5.4 percent in 

the six months through February 

2014.

To address the risks associated with 

farmland values, FCA has issued 

guidance on collateral risk management to System lenders through a 

series of Informational Memorandums. Many System institutions are 

improving underwriting standards 

and appraisal guidelines on farmland 

collateral. They are also working to 

identify portfolio risk through landvalue studies and the stress testing of 

changes in land value. 

As the regulator of the System and 

Farmer Mac, we continue to monitor 

agricultural land values and associated risks to loan collateral and to 

discuss these risks with other Federal 

financial regulators. For perspective 

on the changes in farmland values 

over the past five decades, see 

figure 13.

Interest Rate Environment 

Other factors affecting the outlook 

for the Farm Credit System are funding costs and borrower interest rates. 

The System and Farmer Mac continued to have reliable access to the 

debt capital markets in 2013. With 

the Federal Reserve’s low interest 

rate policies continuing throughout 

2013, interest rates paid by System 

borrowers remained near or at historic lows. The three-month Treasury 

bill was virtually unchanged at 0.1 

percent at year-end 2013, while the 

10-year Treasury bond was up 120 

basis points to 3.0 percent, compared 

with 1.8 percent at year-end 2012. 

Interest rates on intermediate- and 

longer-term loans have begun to 

rise, but they still remain well below 

the rates seen before the financial 

crisis. Nonetheless, rising interest 

rates affect the cost of credit, and the 

impacts of higher rates are immediate on floating-rate loans and fixedrate loans that reprice in the near 

term. 
53

Interest rates are expected to continue to be low through mid-2015, 

remaining at current levels through 

the summer of 2014 and gradually 

rising in 2015 in line with expected 

improvements in the economy. 

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

monetary policy or a sudden increase 

in inflation from an oil price spike 

or food price shock could cause rates 

to rise quickly, leading to higher 

production costs for farmers and 

ranchers and a decrease in farmland 

values. 

U.S. Agricultural Exports 

Agricultural exports set a new record 

of $140.9 billion in fiscal year 2013 

according to the USDA. In addition, 

the period from 2009 to 2013 was the 

strongest five-year period for agricultural exports in history. Overall 

growth in exports could be tempered 

if economic growth in key importing 

countries like China, India and Russia slows as expected in 2014. 

Economic developments as well 

as policy decisions in China and 

other Asian countries are expected 

to continue to have a significant 

effect on U.S. agricultural trade. Asia 

accounted for 43 percent of U.S. agricultural exports in 2013, with China 

alone accounting for 18 percent, 

ahead of Canada, Mexico, and Japan. 

China, along with many other 

nations, banned imports of U.S. 

beef starting in late December 2003 

because of the discovery of a single 

cow infected with bovine encephalopathy, more commonly known as 

mad cow disease. While most nations 

have eased or lifted their restrictions 

on U.S. beef, China has not yet done 

so. 

In early May 2014, China lifted its 

seven-year ban on Virginia poultry. 

Instituted in response to an avian 

flu outbreak at a single farm, this 

ban cost commonwealth turkey and 

chicken farmers access to the fastgrowing Chinese market. China’s 

decision to lift the ban could significantly boost the state’s poultry 

exports.

The General Economy 

The U.S. economy decelerated in 

2013, with real gross domestic product (GDP) growth slowing to 1.9 percent from 2.8 percent in 2012. Restrictive fiscal policy and a slowdown 

in nonresidential fixed investment 

held back growth. Tax increases for 

high-income households at the beginning of 2013 and an expiration of the 

temporary payroll tax cut restrained 

consumer spending. Moreover, 

sequestration, budget caps on discretionary spending, and the drawdown 

in foreign military operations pushed 

down Federal purchases. 

Although real Federal spending 

declined to an annual rate of more 

than 7 percent in the second half of 

2013, real GDP increased to 3.75 percent during this period, up from 

1.75 percent in the first half of 2013. 

Leading the way was the biggest 

increase in consumer spending in 

three years and improved exports. 

Real personal consumption expenditures rose at a 2.75 percent rate 

during the second half of 2013 after 

increasing at an annual rate of 2 percent in the first half of the year. Real 

exports of goods and services rose 

at an annual rate of 7.5 percent. An 

improvement in business investment 

added to the growth. Business fixed 

investment rose at an annual rate 

of 4.25 percent in the second half of 

2013 after changing little in the first 

half. 

However, investment in the housing 

market was the softest in 14 quarters; builders became cautious in the 

waning months of 2013 when rising 

home prices and higher mortgage 

rates put off would-be buyers.

Despite the generally positive news 

for the second half of 2013, the economic recovery slowed again in the 

final quarter of 2013. The real GDP 

growth rate dropped to 2.6 percent compared with the 4.1 percent 

expansion in the third quarter. A 

downturn in private inventory and 

residential investment and a decrease 

in Government spending accounted 

for the slowdown.
54

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

In the first quarter of 2014, real 

GDP decreased at an annual rate of 

1 percent according to a report by 

the Bureau of Economic Analysis on 

May 29, 2014. The decrease largely 

reflects reductions in private inventory investment, exports, nonresidential fixed investment, State and 

local Government spending, and 

residential fixed investment and a 

rise in imports (which are a subtraction from GDP). The decrease in 

GDP was partly offset by increases in 

personal consumption expenditures 

(mainly on health care, heating, and 

other utilities) and an increase in 

Federal Government spending. The 

last time the economy contracted 

was in the first quarter of 2011 when 

GDP decreased 1.3 percent. 

Experts seem split on whether the 

slowdown is the temporary result of 

extreme winter weather or whether it 

is a sign of some underlying weakness. However, signs indicate that 

economic growth is picking up again. 

Investment activities have increased, 

and the employment report for the 

first quarter of 2014 was positive. In 

addition, capital goods orders have 

gone up as businesses replace capital 

stock that has depreciated since the 

recession. 

Economic forecasters project real 

GDP for the U.S. economy to expand 

somewhere in the range of 2.2 to 

3.1 percent for 2014, up from 1.9 

percent in 2013, but possibly at a 

slightly slower rate than in 2012. 

Fiscal policy drag (higher tax burden 

from the end of payroll tax cuts, the 

Government shutdown, and sequester cuts) is expected to ease further. 

In addition, further increases in 

the price of corporate equities and 

housing are expected to boost household net worth and spending, while 

financing conditions are expected to 

remain favorable in capital markets 

and throughout the banking industry. Moreover, the domestic boom in 

oil and gas production is expected to 

continue and to provide needed jobs 

and spending, particularly in rural 

areas in the Northern Plains and in 

the Southwest.

Because of the Federal Open Market Committee’s policy known as 

“quantitative easing,” interest rates 

are expected to remain low through 

2014, and these low rates are 

expected to stimulate the economy 

and improve the job market. The 

committee began tapering the program last year by reducing its bond 

purchases as the unemployment rate 

continued to decline. 

Employment Prospects 

The labor market continued to 

improve. Payroll employment 

increased an average of about 175,000 

jobs per month in the second half 

of 2013. The unemployment rate 

declined in 2013 from a high of 

7.9 percent in January to a low of 

6.7 percent by year-end and averaged 

7.4 percent versus 8.1 percent for 

2012. For April 2014, payroll employment rose by 288,000 jobs, and the 

unemployment rate fell to 6.3 percent. 

An alternative measure of labor 

underutilization provided by the 

Bureau of Labor Statistics is the 

“underemployment rate,” which 

measures “total unemployed, plus 

all marginally attached workers, plus 

total employed part time for economic reasons, as a percent of the 

civilian labor force plus all marginally attached workers.” Labor that 

falls into this category includes 

workers who are highly skilled but 

working in low-skill or low-paying 

jobs, and part-time workers who 

would prefer to work full-time. During 2013, the underemployment rate 

dropped from a high of 14.1 percent 

in January to 13.1 percent in December and averaged 13.8 percent for the 

year, down from an average of 14.7 

percent for 2012.

The net labor force participation 

rate continued to decline; it was 63 

percent in 2013 versus 67 percent in 

2000. As a result, the employmentto-population ratio, a measure that 

combines the unemployment rate 

and the labor force participation rate, 

has changed little. It remained low 

at about 59 percent in 2013 versus 65 

percent in 2000.

Despite its recent declines, the unemployment rate remains well above the 

Federal Open Market Committee’s 

estimates of the long-run sustainable rate of unemployment and well 

above rates that prevailed before the 

recent recession. Moreover, beyond 

labor force participation, some other 

aspects of the labor market remain 
55

a concern. For example, the share 

of the unemployed who have been 

out of work longer than six months 

and the percentage of the workforce 

that is working part-time but would 

like to work full-time have declined 

only modestly over the recovery. The 

number of long-term unemployed 

declined to 3.5 million and part-time 

workers (7.5 million) changed little 

in April 2014. In addition, the quit 

rate, an indicator of workers’ confidence in the availability of other jobs, 

remains low. 

The trend for wages also shows the 

relatively weak labor market; the 

modest gains in labor compensation 

seen earlier in the recovery continued in 2013. The 12-month change 

in the employment cost index for 

private industry workers, which 

measures both wages and the cost 

to employers of providing benefits, 

has remained at around 1.9 percent 

throughout the recovery. However, 

average hourly earnings for all 

employees increased close to 2 percent in 2013. 

Employment in Nonmetropolitan 

Areas 

The recovery of the job market from 

the Great Recession in nonmetro 

areas has lagged behind that of 

metro areas. At the end of 2007, the 

nonmetro unemployment rate of 

5.2 percent (seasonally adjusted) was 

about half a percentage point higher 

than the metro rate at 4.7 percent. 

Both rates peaked in the fourth 

quarter of 2009 at around 9.9 percent 

for metro areas and 10.1 percent for 

nonmetro areas. Since then, both 

rates have been steadily declining. In 

the fourth quarter of 2013, the unemployment rate declined to 6.9 percent 

in metro areas and 7.2 percent in 

nonmetro areas. 

Housing Sector Recovery 

Another risk factor for the economy 

is the housing sector, which historically has accounted for 17 to 18 percent of GDP. After increasing at close 

to a 15 percent annual rate in 2012 

and the first part of 2013, residential 

investment was little changed in the 

second half of last year. 

Mortgage interest rates increased 

about 1 percentage point to around 

4.25 percent over May and June 

of 2013 and have remained near 

this level since then. Soon after 

the increase, mortgage refinancing 

dropped sharply, while home sales 

declined somewhat and the issuance 

of new single-family housing permits 

leveled off. 

However, relative to historical 

norms, mortgage rates remain low 

and housing is still quite affordable. 

Moreover, steady job growth is likely 

continuing to support growth in 

housing demand. Because new home 

construction is still well below levels 

consistent with population growth, 

the potential for further growth in 

the housing sector is considerable. 

Home prices continued to rise in the 

second half of 2013, although somewhat less quickly than in the first 

half. Over the 12 months that ended 

in December, home prices increased 

11 percent. 

Much of the recent gain in home 

prices has occurred in areas with 

the largest price declines during the 

recession and early recovery. During 

the housing crisis, the price of homes 

in these hard-hit areas often dropped 

below their value as rentals, spurring both large and small investors 

to convert some homes into rental 

properties. This increase in investor 

demand likely accounts for the price 

gains in these areas. The top five 

states experiencing the biggest appreciations in 2013 were Nevada, California, Arizona, Oregon, and Florida.

Consumer Price Inflation

Inflation affects agriculture by raising 

input costs and by curbing consumer 

demand for high-value products like 

dairy, meat, and processed foods; it 

also curbs consumption of food away 

from home. Inflation remained low 

in 2013, with the personal consumption expenditure (PCE) price index 

increasing at an annual rate of 1 

percent, noticeably below the Federal 

Open Market Committee’s long-run 

objective of 2 percent. Core PCE 

prices—or prices of PCE goods and 

services excluding food and energy—

also increased at an annual rate of 

about 1 percent. Other measures of 

core consumer price inflation, such as 

the core consumer price index, were 
56

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

also low, though not as low as core 

PCE inflation. 

Although most economists believe 

inflation will remain mostly in check 

for 2014, inflationary pressures are 

expected to pick up in 2015 and 

beyond. The U.S. Federal Reserve 

Board, as well as other central banks, 

is expected to boost interest rates 

to contain inflationary pressures. 

The outlook is for a slight uptick in 

consumer price inflation in 2014 to 

somewhere between 1.5 and 1.9 percent for the year, with the possibility of its rising to slightly above the 

Federal Open Market Committee’s 

long-run goal of 2 percent for 2015.

International Trade 

U.S. exports of goods and services 

continued to support the U.S. economy in 2013, increasing 3 percent 

to a record $2.3 trillion. Over this 

period, exports of foods, feeds, and 

beverages increased by 2 percent. 

Imports also reached a record in 

2013, increasing slightly to $2.75 

trillion. Over this period, imports of 

foods, feeds, and beverages increased 

by 4 percent. On balance, the trade 

deficit narrowed to $474 billion. 

Exports increased at a higher rate in 

the second half of 2013 than in the 

first half. This increase was driven by 

stronger growth in foreign GDP and 

by soaring sales of petroleum products and agricultural goods. Higher 

shipments to Canada, China, and 

other emerging economies in Asia 

contributed to the robust increase in 

exports. 

Real net trade added an estimated 

0.75 percent to GDP growth over 

the second half of 2013, whereas in 

the first half it had a small negative impact. Owing in part to the 

improvement in net petroleum trade, 

the nominal trade deficit shrank over 

the second half of 2013. 

Canada, the EU, and other major 

destinations for U.S. exports are 

projected to have faster economic 

growth in 2014, while China and 

Japan are projected to have slower 

growth this year. In addition, the 

value of the dollar is projected to 

depreciate somewhat in 2014 against 

the currencies of many trading partners, such as the Canadian dollar 

and the Chinese Renminbi, making 

U.S. goods relatively more competitive. This, coupled with faster economic growth, could provide a lift to 

U.S. exports in 2014.

Household and Business 

Borrowing 

Household debt increased in 2013 

after a steady decline since its peak 

of $13.8 trillion during the first 

quarter of 2008, just prior to the 

recession. Residential mortgage debt 

outstanding has fallen more than $1 

trillion since the end of 2007, making mortgages the major contributor to the phenomenon known as 

“household deleveraging.” In contrast 

to mortgages, consumer credit has 

expanded in each of the past four 

years. The growth in consumer credit 

has been driven by student loans and 

auto loans, while aggregate credit 

card balances have been relatively 

flat. 

Financing conditions for businesses 

were generally quite favorable. 

Interest rates on corporate bonds 

have stayed low relative to historical 

norms, and net issuance of nonfinancial corporate debt appears to have 

remained strong in the second half 

of 2013. Conditions in business loan 

markets also continued to improve. A 

modest fraction of loan officers surveyed by the Federal Reserve indicated that they had eased standards 

on commercial and industrial loans 

over the second half of 2013. 

Financing conditions for small businesses also improved. Reductions in 

loan spreads have been most notable 

for the types of loans that are generally made to small businesses—that 

is, loans of $1 million or less, or 

those originated by small domestic 

banks. Standards on commercial 

real estate bank loans also eased, 

moving closer to long-term norms. 

Still, standards for construction and 

land development loans, a subset of 

commercial real estate loans, likely 

remained relatively tight. 

Federal Deficit 

Other factors that may limit economic growth are the Federal budget 

deficit and the Federal debt held by 

the public. The Federal budget deficit 

for fiscal year 2013 totaled $680 billion (or 4.1 per-cent of GDP), a drop 

of 38 percent from the previous year. 

The Congressional Budget Office 

projects that the deficit will decline 

again in fiscal 2014 to $514 billion, 

the smallest deficit since 2008.
57

While the deficit has been on a 

downward trend in recent years, the 

accumulation of these deficits continues to raise the Federal debt held by 

the public, which increased 6.2 percent to $11.98 trillion in fiscal 2013. 

This amounts to 72.1 percent of GDP, 

more than double the level of 2007. 

Ongoing deficits and debt of these 

magnitudes can lead to imbalances in 

capital and credit markets, which in 

turn can undermine the confidence of 

market participants, leading to inflation and higher interest rates. 

Farm Bill 

The President signed the Agricultural 

Act of 2014 into law on February 7, 

2014. The new five-year farm legislation includes federally subsidized 

insurance programs, which cover 

individual losses, and traditional 

farm programs, which support prices 

or incomes. Most notable among 

the changes were the elimination of 

direct payments to farmers and a 

new milk support program, which 

provides support payments based on 

dairy margins (milk price less feed 

costs) instead of price targets.

Producers of supported commodities, such as feed grains, food grains, 

and oilseeds, will make important 

one-time choices between commodity 

programs that provide “shallow-loss” 

revenue payments through an Agricultural Risk Coverage option and 

“deeper-revenue” guarantees through 

a Price Loss Coverage option. For 

livestock producers, the legislation 

reauthorizes the Livestock Indemnity 

Program, the Livestock Forage Program, and the Emergency Livestock 

Assistance Program. These programs 

were made retroactive to cover losses 

incurred by livestock producers in 

fiscal years 2012 and 2013. 

While existing crop insurance products and subsidy levels for more 

than 100 insurable crops remained 

intact, the Farm Bill created some 

new programs and enhanced some 

existing products. Examples include 

new shallow-loss county-based revenue protection policies beginning in 

2015, separate coverage for organic 

or irrigated crops, and a directive for 

USDA to develop new insurance policies for crop and livestock production. In return, insurance purchasers 

must be in compliance with conservation provisions for highly erodible 

land and wetlands beginning in 2015. 

The legislation also strengthened the 

financial support available to producers of noninsured crops.

Among the legislation’s many other 

provisions are those that support the 

next generation of farmers, local and 

regional food systems, and organic 

production. The legislation increases 

access to credit and risk management tools for beginning farmers. For 

example, it reduces crop insurance 

premiums during the first five years 

of farming. It also increases funding 

for development programs for beginning farmers and ranchers and for 

the promotion of farmers’ markets, 

and it increases grants to support the 

development of local and regional 

food systems.

Farm Credit System 

Portfolio25

System loan volume grew almost 5 

percent in 2013 despite stress in some 

sectors and regions. Higher farmland 

values and continued high commodity prices primarily accounted for the 

increase. While loan volume continued to grow in many areas where 

cash grain is produced, it spread to 

other regions and sectors of agriculture. Lending to finance production 

inputs, inventories, machinery, and 

real estate purchases increased. 

Although weather conditions were 

challenging, yields in many parts of 

the Midwest returned to more normal levels, driving prices down for 

most crops. However, continued high 

farm income and rising agricultural 

real estate values continued to benefit 

grain producers, particularly in the 

middle part of the United States. 

The price drop for corn and other 

feedstuffs brought welcome relief to 

producers in stressed sectors, such as 

animal protein and biofuels. In addition, commodity prices for producers 

in the animal-based protein sectors 

have also improved, helping most 

producers return to profitability. As 

a result, the quality of loans to these 

sectors has improved. 

Sectors with a direct tie to housing, 

such as horticulture and forestry, 

are recovering as housing demand 

improves. However, these sectors still 

have some borrowers who are having 

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

Farmer Mac.
58

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Table 9

Stressed Sectors of the System’s Loan Portfolio

As of December 31, 2013

Dollars in Billions

 Percentage Percentage

of System’s of System’s

Loan Dollar Change from Total Loan Nonaccrual

Volume Prior Year-end Volume Loan Volume

Dairy	 $15.2	 3%	 8%	 19%

Cattle	 $18.5	 5%	 9%	 10%

Poultry	 $5.2	 (4%)	 3%	 5%

Forestry	 $12.2	 19%	 6%	 8%

Horticulture	 $2.5	 (6%)	 1%	 12%

Biofuels	 $1.1	 (33%)	 <1%	 2%

Source: USDA.

difficulty recovering from the loss 

of key markets, a high debt burden, 

or dramatically reduced borrowing 

capacity. 

When all these sectors are combined, 

System nonaccrual loans to the dairy, 

cattle, poultry, forestry, horticulture, 

and biofuel sectors accounted for 

about $1.0 billion of the $1.7 billion 

total. The System also reported $88 

million in charge-offs on loans to 

these sectors. This represented about 

72 percent of all of the System’s net 

charge-offs. These sectors accounted 

for $54.7 billion, or 27 percent, of 

all System loans. See table 9 for a 

breakdown of financial information 

by sector. 

Dairy 

System loans outstanding to the 

dairy sector totaled $15.2 billion 

in 2013, up 3 percent from a year 

earlier. Producers benefitted from 

higher milk prices as well as lower 

feed costs. Most producers reduced 

their debt or improved their financial standing in 2013 although some 

drought-affected areas saw less profit 

improvement. 

The System’s nonaccrual dairy loans 

declined 6 percent from 2012 to $337 

million at year-end 2013. The System 

recognized $60 million in recoveries on loans to this sector because 

improved conditions allowed some 

distressed borrowers to refinance or 

pay down more debt than expected. 

Loans to this sector totaled 8 percent 

of the dollar volume of all System 

loans and 36 percent of its capital. 

Dairy accounted for 19 percent of the 

System’s nonaccrual loan volume as 

of December 31, 2013. 

Cattle 

The System’s loans outstanding to 

the cattle industry totaled $18.5 billion at year-end 2013, up about 5 

percent from year-end 2012. Cattle 

prices rose in response to reduced 

production during the year. As a 

result, some producers were able to 

remain profitable, but the high costs 

of feed cut into the profits of producers in drought-affected areas who 

must purchase feed. 

The System’s nonaccrual cattle loans 

declined 27 percent from 2012 to 

$177 million at year-end 2013. These 

loans accounted for 10 percent of the 

System’s nonaccrual loans. Loans to 

cattle operations totaled more than 

9 percent of the System’s loan dollar 

volume and 43 percent of its capital. 

Poultry 

System loans outstanding to the 

poultry and eggs sector totaled $5.2 

billion, down 4 percent from a year 

earlier. Most producers reported 

good profitability as a result of 

higher poultry and egg prices and 

reduced feed costs. For the most 

part, producers used improved 

profits to pay down debt rather than 

expanding production. As a result, 

prices stayed high enough to offset 

high feed costs. 

The System’s nonaccrual poultry 

loans increased 21 percent from 

2012 to $86 million at year-end 2013. 

Loans to this sector totaled nearly 

3 percent of the System’s loan dollar 

volume and 12 percent of its capital. 

Forestry 

System loans outstanding to the forestry sector totaled $12.2 billion, up 

about 19 percent from a year earlier. 

Improved demand for housing and 

higher prices for some lumber prod-
59

ucts spurred loan volume higher, and 

most regions of the United States 

saw improved demand. 

The System’s nonaccrual forestry 

loans fell 29 percent from 2012 to 

$141 million at year-end 2013, and 

the System recorded $15 million 

in charge-offs. Loans to this sector 

totaled about 6 percent of the System’s loan dollar volume and 

29 percent of its capital. 

Horticulture 

Loans outstanding to horticulture 

operations declined about 6 percent 

from last year to $2.5 billion. The 

decline reflected debt reduction and 

continued soft demand for landscaping material in the housing sector. 

Because many of these operations are 

located in and around urban areas, 

these properties continued to suffer 

from distressed values for real estate 

used in their operations. 

The System’s nonaccrual horticulture loans fell 29 percent from 2012 

to $203 million at year-end 2013. 

Despite this reduction, these loans 

accounted for 12 percent of System 

nonaccrual loans and $33 million in 

charge-offs. Loans to horticulture 

totaled just over 1 percent of the System’s loan dollar volume and 

6 percent of System capital. 

Biofuels 

At the end of 2013, loans outstanding to the biofuels (primarily ethanol) 

industry totaled $1.1 billion, down 

33 percent from a year earlier. Most 

plants were profitable and generated 

enough cash flow to pay down debt 

although a few plants remained idle 

or operated below capacity. 

The System’s nonaccrual biofuel 

loans totaled $30 million at year-end 

2013, a drop of 68 percent from a 

year earlier. However, charge-offs 

totaled $18 million, up 50 percent 

from a year earlier. Biofuel loans outstanding represented only 3 percent 

of capital and less than 1 percent 

of the System’s total dollar volume, 

both of which are small numbers 

when compared to the System’s 

exposure to other industries or commodities. Both losses and nonaccrual 

assets are concentrated in a few 

firms.
60

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Appendix

Figure 14

FCA Organizational Chart

As of January 2014
61

Farm Credit Administration 

Offices

As of December 31, 2013, FCA had 

281 full- and part-time employees. 

These employees are divided among 

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

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

The Board approves the policies, 

regulations, charters, and examination and enforcement activities that 

ensure a strong FCS. The Board also 

provides for the examination and 

supervision of the FCS, including 

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

which acquires, manages, and maintains FCA headquarters and field 

office facilities. 

The Secretary to the Board serves 

as the Parliamentarian for the Board 

and keeps permanent and complete 

records of the acts and proceedings 

of the Board. He or she ensures that 

the Board complies with statutory, 

regulatory, and internal operation 

reporting requirements. The Secretary 

to the Board also serves as Secretary 

to the Farm Credit System Insurance 

Corporation Board. In addition, he 

or she serves as the Sunshine Act 

Official for the FCA Board. 

The Chairman of the FCA Board

serves as the chief executive officer 

(CEO). The CEO enforces the rules, 

regulations, and orders of the FCA 

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

adopted by the FCA Board. The 

Office of the Chief Executive Officer 

plans, organizes, directs, coordinates, 

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

to achieve and manage a diverse 

workforce. 

The Office of Congressional and 

Public Affairs (OCPA) serves as the 

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

Government agencies, FCS institutions, employees, System borrowers, 

and the public. OCPA develops and 

monitors legislation pertinent to FCA 

and the FCS, serves as the Agency’s 

congressional liaison, facilitates 

intergovernmental relations, and 

prepares testimony for the Chairman 

and other Board members. The office 

also provides information to external 

audiences through news releases, fact 

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

media representatives who report on 

matters related to agriculture and 

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

organizes special meetings, briefings 

for international visitors, and field 

hearings. 

The Office of Examination is responsible for examining and supervising 

each FCS institution in accordance 

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

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

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

operates in a safe and sound manner, 

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

purpose. For more information about 

the role of the Office of Examination, 

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

and click View Board Policy Statements to read “Examination Policy” 

(FCA-PS-53). 

The Office of General Counsel

(OGC) provides the FCA Board 

and staff with legal counsel as well 

as guidance on general corporate, 

personnel, ethics, and administrative matters. OGC supports the 

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

enforcement of applicable laws and 

regulations, and implementation of 

conservatorships and receiverships. 

The office serves as the liaison to 

the Federal Registrar and maintains 

the Agency’s public rulemaking 

files. OGC also handles Freedom of 

Information Act requests and matters 

pertaining to the Privacy Act. 
62

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

The Office of Inspector General 

provides independent and objective 

oversight of Agency programs and 

operations through audits, inspections, investigations, and the review 

of proposed legislation and regulations. The office promotes economy 

and efficiency within FCA and seeks 

to prevent and detect fraud, waste, 

abuse, and mismanagement in the 

Agency’s programs and operations. 

The Office of Regulatory Policy 

(ORP) manages policy and regulation 

development activities that ensure 

the safety and soundness of the FCS 

and support the System’s mission. 

Policy and regulation development 

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

on the basis of economic trends and 

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

approvals for System institutions 

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

approvals as well as funding approvals. 

The Office of Management Services (OMS) manages and delivers 

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

administrative services. The office 

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

financial plans for the Agency. By 

centrally planning, managing, and 

delivering resource services, OMS 

enables the Agency’s program offices 

to fully focus their time and attention 

on their respective mission-related 

responsibilities. 

The Office of Secondary Market 

Oversight (OSMO) provides for the 

examination, regulation, and supervision of Farmer Mac to ensure 

its safety and soundness and the 

accomplishment of its public policy 

purpose as authorized by Congress. 

OSMO also ensures that Farmer Mac 

complies with applicable laws and 

regulations, and it manages FCA’s 

enforcement activities with respect to 

Farmer Mac. 
63

Agency Officials 

William J. Hoffman is Chief 

Operating Officer. 

Before accepting 

this position in 

July 2008, Mr. 

Hoffman was 

Executive Assistant to Board 

Member and 

former Chairman and CEO Nancy 

C. Pellett. Prior to this, he served as 

the Associate Director for Examination and Supervision in the Office of 

Secondary Market Oversight, which 

oversees the Federal Agricultural 

Mortgage Corporation. He began 

his career as a credit representative in the Louisville Farm Credit 

District. Mr. Hoffman first joined 

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

Associate Deputy Governor for the 

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

Farm Credit Bank as Vice President 

of Risk Assets. He later was the CEO 

of PennWest Farm Credit, ACA, 

which served western Pennsylvania. 

Before rejoining FCA in 2004, he was 

involved in agricultural finance in 

the private sector and several international projects. 

Samuel Robert Coleman is 

Director of the 

Office of Examination. Before 

accepting this 

position in October 2010, he was 

Director of the 

Agency’s Office 

of Secondary Market Oversight for 

five years. Mr. Coleman joined FCA 

in 1986 as an examiner in the Office 

of Examination. He held various 

positions in that office, providing 

technical support to FCA field offices 

and to the Policy Development 

and Planning Division. During this 

period, Mr. Coleman completed the 

commissioning program and became 

a commissioned examiner in 1990. In 

1994, he transferred to the Office of 

Policy and Analysis, where he served 

as a policy analyst specializing in 

regulation development, and then as 

a senior policy analyst. Mr. Coleman 

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

He holds the Chartered Financial 

Analyst designation, which the CFA 

Institute awarded him in 2000.

Elizabeth M. 

Dean is Acting 

Inspector General. 

Before assuming 

this position in 

2013, Ms. Dean 

was the Deputy 

Inspector General and Counsel 

to the Inspector 

General since 1989. As Deputy IG 

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

evaluations, performed legal duties, 

and comanaged the OIG. From 1986 

to 1989, Ms. Dean served as a senior 

attorney in FCA’s Office of General 

Counsel, Litigation and Enforcement 

Division. Ms. Dean served on active 

duty as a U.S. Navy Judge Advocate 

from 1982 until 1986; she retired 

from the U.S. Naval Reserves in 2000. 

Upon completing law school in 1981, 

she worked for the Attorney General 

of the State of Ohio in the Criminal 

Activities Branch.
64

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Charles R. Rawls

is the FCA General Counsel. 

Before joining FCA 

in March 2003, 

he was general 

counsel and vice 

president for legal, 

tax, and accounting at the National 

Council of Farmer Cooperatives. 

During the consideration of the 2002 

farm bill, he served as the General 

Counsel of the Senate Committee on 

Agriculture, Nutrition, and Forestry. 

From 1998 to 2001, he was General 

Counsel for the USDA, and from 

1993 to 1998 he was Chief of Staff to 

the Deputy Secretary of Agriculture. 

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

Assistant to Congressman Martin 

Lancaster. From 1985 to 1988, he 

was Associate General Counsel of 

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

Agriculture Subcommittee on Forests, 

Family Farms, and Energy from 1983 

to 1985. 

Laurie A. Rea is 

Director of the 

Office of Secondary Market Oversight (OSMO). 

She was named 

to this position in 

January 2011. Ms. 

Rea joined FCA in 

1986 after graduating from San Diego State University. 

She has held several positions with 

the agency, beginning with the Office 

of Examination where she became 

a commissioned FCA examiner in 

1989. In 1992, she joined the Office of 

Policy and Analysis (now the Office 

of Regulatory Policy), where she 

gained experience in policy and regulation development. From 2005 until 

2011, Ms. Rea has served as associate director and finance and capital 

markets team leader in the Office of 

Regulatory Policy, where she managed the approval of Systemwide 

debt securities and led the agency’s 

regulatory capital and investment 

policy development. Ms. Rea is a 

Chartered Financial Analyst from the 

CFA Institute and a Certified Risk 

Professional.

Stephen G. 

Smith is the 

Chief Financial Officer and 

Director of the 

Office of Management Services. 

Before accepting this position, he served 

as the Agency’s Inspector General. 

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

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

he was named Associate Regional 

Director for the Agency’s New York 

field office and then served as Senior 

Staff Director for the Chief Examiner 

before being named Director of the 

Technical and Operations Division. In 

1993, he assumed new responsibilities as Director of the Information 

Resources Division. He was named 

Chief Information Officer in 1996, 

directing all technology and information operations for FCA. Before 

joining the Agency, he worked at the 

North Central Jersey Farm Credit 

Associations. 
65

Michael Stokke

is Director of the 

Office of Congressional and 

Public Affairs and 

Acting Executive Assistant to 

Leland A. Strom, 

Chairman and 

CEO of FCA. 

Prior to joining FCA, Mr. Stokke 

was founder and president of Prairie 

Strategies, a consulting firm based in 

Illinois, where he advised corporations and nonprofit organizations. He 

served as Deputy Chief of Staff to 

former Speaker of the House Dennis 

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

served as Chief of Staff for the Office 

of the Speaker in the Illinois House 

of Representatives from 1995 to 

1998. He served as Chief of Staff for 

Representative Thomas W. Ewing of 

Illinois from 1991 through 1994. From 

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

Governor of Illinois. He also served 

as Assistant to the Secretary of the 

Illinois Department of Transportation 

from 1985 to 1987. 

Gary K. Van 

Meter is Director of the Office 

of Regulatory 

Policy (ORP).

He was named 

to this position 

in November 

2010 after having 

served as the Deputy Director of ORP for five years. 

Prior to this, he served in the Office 

of General Counsel (OGC) for 17 

years. In OGC, he served as a senior 

attorney and later as senior counsel 

before joining ORP. Mr. Van Meter 

holds a J.D. from West Virginia University College of Law and a master 

of law in taxation from Georgetown 

University Law Center. He is also 

a certified public accountant. From 

1972 to 1974, Mr. Van Meter was an 

enlisted member of the U.S. Marine 

Corps, and he was an officer in the 

U.S. Navy Judge Advocate General’s 

(JAG) Corps from 1981 to 1986.

Dale L. Aultman 

became Secretary to the FCA 

Board in January 

2011. He began 

working at FCA 

in 1988. For the 

first 10 years, he 

worked in the 

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

he was a policy analyst in the Office 

of Regulatory Policy. Mr. Aultman is 

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

became Virginia’s eighth electronic 

notary. In 2007, he completed FCA’s 

Supervisory Development Program. 

Mr. Aultman graduated with distinction from Southwestern Graduate 

School of Banking at the Southern 

Methodist University and holds a 

finance degree from the University of 

Oklahoma.
66

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

Thais Burlew is 

Director of Equal 

Employment 

Opportunity and 

Inclusion. Before 

joining FCA in 

September 2011, 

she served as 

Executive Manager in the Office 

of EEO and Inclusiveness at the 

U.S. Postal Service. From 2001 to 

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

Opportunity Commission, including 

attorney advisor to Chair Naomi 

Churchill-Earp and Acting Chief for 

the Intake and Compliance Branch. 

Prior to this, she served as Advocate 

for the Housing and Consumer Law 

Clinic and for the Juvenile Special 

Education Clinic. Ms. Burlew earned 

a J.D. magna cum laude from David 

A. Clarke School of Law at the 

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

and associate editor of the school’s 

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

criminal justice from Middle Tennessee State University.

Wendy R. 

Laguarda is 

the Designated 

Agency Ethics 

Official (DAEO). 

As DAEO, Ms. 

Laguarda administers the ethics 

program for FCA 

and the Farm 

Credit System Insurance Corporation. This involves providing for the 

review of financial disclosure reports, 

creating and conducting ethics training programs, counseling Agency 

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

In addition to her responsibilities 

as DAEO, Ms. Laguarda serves as 

assistant general counsel in the Office 

of General Counsel and administers 

the Agency’s Alternative Dispute 

Resolution Program. Before coming 

to FCA in 1990, Ms. Laguarda was 

an attorney advisor at the Office of 

Thrift Supervision and its predecessor Agency, the Federal Home Loan 

Bank Board. A graduate of Tufts 

University and George Washington 

University National Law Center, she 

is a member of the Maryland and 

District of Columbia Bars, as well as 

a mediator certified by the Supreme 

Court of Virginia.
67

Glossary 

A

Agricultural Credit Association—An 

ACA results from the merger of a 

Federal Land Bank Association or an 

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

an FCB or ACB to provide short-, 

intermediate-, and long-term credit 

to farmers, ranchers, and producers 

and harvesters of aquatic products. It 

also makes loans to these borrowers 

for certain processing and marketing activities, to rural residents for 

housing, and to certain farm-related 

businesses. 

Agricultural Credit Bank—An ACB 

results from the merger of a Farm 

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

ACB is also authorized to finance 

U.S. agricultural exports and provide 

international banking services for 

farmer-owned cooperatives. CoBank 

is the only ACB in the FCS. 

B 

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

rural utilities (electric and telephone), 

and rural sewer and water systems. 

It was also authorized to finance 

U.S. agricultural exports and provide 

international banking services for 

farmer-owned cooperatives. The last 

remaining BC in the FCS, the St. Paul 

Bank for Cooperatives, merged with 

CoBank on July 1, 1999. 

F 

Farm Credit Act—The Farm Credit 

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

§§ 2001–2279cc) is the statute under 

which the FCS operates. The Farm 

Credit Act recodified all previous 

acts governing the FCS. 

Farm Credit Bank—FCBs provide 

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

to farmers, ranchers, producers and 

harvesters of aquatic products, rural 

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

6, 1988, the Federal Land Bank and 

the Federal Intermediate Credit Bank 

in 11 of the 12 then-existing Farm 

Credit districts merged to become 

FCBs. The mergers were required by 

the Agricultural Credit Act of 1987. 

Farm Credit Leasing Services 

Corporation—The Leasing Corporation is a service entity owned by 

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

eligible borrowers, including agricultural producers, cooperatives, and 

rural utilities. 

Farm Credit System Insurance 

Corporation—FCSIC was established 

by the Agricultural Credit Act of 

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

of principal and interest on insured 

notes, bonds, and other obligations 

issued on behalf of FCS banks and to 

act as conservator or receiver of FCS 

institutions. The FCA Board serves ex 

officio as the Board of Directors for 

FCSIC. The chairman of the FCSIC 

board of directors must be an FCA 

Board member other than the current 

Chairman of the FCA Board. 

Federal Agricultural Mortgage 

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

a secondary market for agricultural 

real estate and rural housing mortgage loans. 

Federal Farm Credit Banks Funding 

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

debt securities to finance the loans 

made by FCS institutions. It uses a 

network of bond dealers to market 

its securities. 

Federal Intermediate Credit Bank—

The Agricultural Credits Act of 

1923 provided for the creation of 12 

FICBs to discount farmers’ shortand intermediate-term notes made 

by commercial banks, livestock loan 

companies, and thrift institutions. 

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

which could discount notes with 

FICBs. As a result, PCAs became 
68

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

the primary entities for delivery of 

short- and intermediate-term credit to 

farmers and ranchers. The FICBs and 

the Federal Land Banks in all Farm 

Credit districts merged to become 

FCBs or the ACB. Thus, no FICBs 

remain within the FCS. 

Federal Land Bank—The Federal 

Farm Loan Act of 1916 provided for 

the establishment of 12 Federal Land 

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

and later to rural home buyers. All 

Federal Land Banks and FICBs have 

merged to become FCBs or part of 

the ACB. Thus, no Federal Land 

Banks remain. 

Federal Land Bank Association—

These associations were lending 

agents for FCBs. Federal Land Bank 

Associations made and serviced 

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

housing. The associations did not 

own loan assets but made loans only 

on behalf of the FCB with which 

they were affiliated. As of October 1, 

2000, there were no remaining Federal Land Bank Associations serving 

as lending agents for FCBs. 

Federal Land Credit Association—

An FLCA is a Federal Land Bank 

Association that owns its loan assets. 

An FLCA borrows funds from an 

FCB to make and service long-term 

loans to farmers, ranchers, and 

producers and harvesters of aquatic 

products. It also makes and services 

housing loans for rural residents. 

Financial Institution Rating System—The FIRS is similar to the 

Uniform Financial Institutions Rating 

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

Uniform Financial Institutions Rating 

System, the FIRS was designed to 

reflect the nondepository nature of 

FCS institutions. The FIRS provides 

a general framework for assimilating 

and evaluating all significant financial, asset quality, and management 

factors to assign a composite rating 

to each System institution. The ratings are described below.

• Rating 1—Institutions in this 

group are basically sound in 

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

nature and are anticipated to be 

resolved in the normal course 

of business. Such institutions 

are well managed, resistant to 

external economic and financial 

disturbances, and more capable 

of withstanding the uncertainties of business conditions than 

institutions with lower ratings. 

Each institution in this category 

exhibits the best performance and 

risk management practices for its 

size, complexity, and risk profile. 

These institutions give no cause 

for regulatory concern. 

• Rating 2—Institutions in this 

group are fundamentally sound 

but may reflect modest weaknesses correctable in the normal 

course of business. Since the 

nature and severity of deficiencies are not material, such 

institutions are stable and able 

to withstand business fluctuations. Overall risk management 

practices are satisfactory for the 

size, complexity, and risk profile 

of each institution in this group. 

While areas of weakness could 

develop into conditions of greater 

concern, regulatory response is 

limited to the extent that minor 

adjustments are resolved in the 

normal course of business and 

operations continue in a satisfactory manner.

• Rating 3—Institutions in this 

category exhibit a combination 

of financial, management, operational, or compliance weaknesses 

ranging from moderately severe 

to unsatisfactory. When weaknesses relate to asset quality or 

financial condition, such institutions may be vulnerable to the 

onset of adverse business conditions and could easily deteriorate 

if concerted action is not effective in correcting the areas of 

weakness. Institutions that are in 

significant noncompliance with 

laws and regulations may also be 

accorded this rating. Risk management practices are less than 

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

institution in this group. Institutions in this category generally 

give cause for regulatory concern 

and require more than normal 

supervision to address deficiencies. Overall strength and finan-
69

cial capacity, however, still make 

failure only a remote possibility 

if corrective actions are implemented. 

• Rating 4—Institutions in this 

group have an immoderate 

number of serious financial or 

operating weaknesses. Serious 

problems or unsafe and unsound 

conditions exist that are not 

being satisfactorily addressed or 

resolved. Unless effective actions 

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

into a situation that will impair 

future viability or constitute a 

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

Risk management practices are 

generally unacceptable for the 

size, complexity, and risk profile 

of each institution in this group. 

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

pronounced. Institutions in this 

category require close regulatory 

attention, financial surveillance, 

and a definitive plan for corrective action. 

• Rating 5—This category is 

reserved for institutions with 

an extremely high, immediate or near-term probability of 

failure. The number and severity of weaknesses or unsafe and 

unsound conditions are so critical 

as to require urgent external 

financial assistance. Risk management practices are inadequate 

for the size, complexity, and risk 

profile of each institution in this 

group. In the absence of decisive 

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

assistance, merger, or acquisition. 

G

Government-sponsored enterprise—

A GSE is typically a federally chartered corporation that is privately 

owned, designed to provide a source 

of credit nationwide, and limited to 

servicing one economic sector. Each 

GSE has a public or social purpose.

GSEs are usually created because 

the private markets did not satisfy 

a purpose that Congress deems 

worthy—either to fill a credit gap or 

to enhance competitive behavior in 

the loan market. Each is given certain 

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

barriers that prevented purely private 

markets from developing. In some 

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

cases, the assistance is ongoing. The 

FCS is the oldest financial GSE. 

P 

Participation—A loan participation is 

usually a large loan in which two or 

more lenders share in providing loan 

funds to a borrower to manage credit 

risk or overcome a legal lending limit 

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

and documents the loan. Generally, 

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

aware of the other participating 

institutions. 

Production Credit Association—

PCAs are FCS entities that deliver 

only short- and intermediate-term 

loans to farmers and ranchers. A 

PCA borrows money from its FCB to 

lend to farmers. PCAs also own their 

loan assets. As of January 1, 2003, all 

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

S 

Syndication—A loan syndication 

(or “syndicated bank facility”) is a 

large loan in which a group of banks 

work together to provide funds for 

a borrower. Usually one bank takes 

the lead, acting as an agent for all 

syndicate members and serving as 

the focal point between them and the 

borrower. All syndicate members are 

known at the outset to the borrower 

and they each have a contractual 

interest in the loan. 
70

Farm Credit Administration 2013 Annual Report on the Farm Credit System 

ACA—Agricultural Credit Association

ACB—Agricultural Credit Bank

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

CEO—chief executive officer 

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

Farmer Mac—Federal Agricultural Mortgage Corporation 

FCA—Farm Credit Administration

FCB—Farm Credit Bank

FCS—Farm Credit System

FCSIC—Farm Credit System Insurance Corporation

FIRS—Financial Institution Rating System

FLCA—Federal Land Credit Association

GAAP—generally accepted accounting principles

OFIs—other financing institutions

PCA—Production Credit Association 

USDA—U.S. Department of Agriculture

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

Acronyms and Abbreviations
71

The Farm Credit Administration 2013 

Annual Report on the Farm Credit 

System is available on FCA’s website 

at www.fca.gov. For questions about 

this publication, contact FCA: 

Office of Congressional and 

Public Affairs 

Farm Credit Administration 

1501 Farm Credit Drive 

McLean, VA 22102-5090 

Telephone: 703-883-4056 

Fax: 703-790-3260 

E-mail: info-line@fca.gov 

Additional Information

With support from the system banks, 

the Federal Farm Credit Banks 

Funding Corporation prepares the 

financial press releases, the System’s 

Annual and Quarterly Information 

Statements, and the System’s combined financial statements. These 

documents are available on the Funding Corporation’s website at 

www.farmcreditfunding.com. For 

copies of these documents, contact 

the Funding Corporation:

Federal Farm Credit Banks 

Funding Corporation 

10 Exchange Place, Suite 1401

Jersey City, NJ 07302

Telephone: 201-200-8000 

The Farm Credit System Insurance 

Corporation’s annual report is available on its website at 

www.fcsic.gov. To receive copies of 

this report, contact FCSIC: 

Farm Credit System Insurance 

Corporation 

1501 Farm Credit Drive 

McLean, VA 22102 

Telephone: 703-883-4380
Copies Available From:

Office of Congressional and Public Affairs

Farm Credit Administration

1501 Farm Credit Drive

McLean, VA 22102

703-883-4056

www.fca.gov

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