Remarks by

Dallas P. Tonsager

Board Chairman and CEO 

Farm Credit Administration

Farm Credit Council Annual Meeting 

San Antonio, Texas

January 30, 2018

Introduction

Good morning and thank you for the opportunity to be here. 

I’d like to thank Tony Wilkie and the Farm Credit Council staff for their work to ensure the Farm 

Credit System has a strong advocate for its interests in Washington. 

The Council has been a leader of the Rebuild Rural Infrastructure Coalition. This coalition of more 

than 200 organizations is making sure that the voice for rural America’s infrastructure needs is 

heard. So I especially want to thank you for your leadership on this important topic. 

I’d like to take a moment to recognize the FCA and FCSIC staff who are with us today. They are 

committed to the mission of the Farm Credit System and some of the HARDEST-working people in 

all of government. 

I would also like to recognize my FCA board colleagues, Jeff Hall and Glen Smith. 

Jeff is the current chairman of the Farm Credit System Insurance Corporation. In case you missed 

it earlier this month, FCSIC announced it will lower the premium rate on adjusted insured debt in 

2018. With the new rate of NINE basis points for 2018, I’m sure Jeff is the most popular person in 

the room! 

In all seriousness, it’s a great privilege to work with Jeff. His experience, candor, and steady 

approach are valuable assets for the board. Thank you for your partnership and for being a strong 

champion for rural America. 

Glen was recently sworn in to serve on the board. We’re lucky to have him. His many years of 

experience in farm management and land appraisal will serve us well during his tenure on the 

FCA board. If you haven’t already, I hope you will have the chance to meet Glen here in San 

Antonio. 

Year in review

Last year, I was sworn in as the Chairman and CEO of the Farm Credit Administration. At that 

time, I outlined five areas I planned to focus on during my tenure: 

Strengthening confidence

Finding the best possible outcomes for all borrowers

Delivering all services to all borrowers

Building partnerships 

And strategic thinking about System structure

As a farmer, former System borrower, former Undersecretary at USDA, and now member of the 

FCA board, I believe these areas are central to the success of the System. That’s why I spent 
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most of last year traveling to meetings to talk about these areas with many of you. I’ve

appreciated your willingness to engage with me on these topics. 

When I addressed this session last year, I talked about the 1980s and the similarities – and 

differences – between now and then. It’s clear to me that the System learned a great deal from 

the 1980s. As a result, the System remains safe and sound and is in a strong position to manage 

the economic conditions facing U.S. agriculture. 

Institutions have strengthened their balance sheets by retaining capital, and the FCS banks are

maintaining high quality investments for liquidity. As of September 30, 2017, liquidity at the 

banks covered almost 6 months of maturing debt. 

Institutions have adjusted underwriting standards to keep new debt at sustainable levels. This will 

keep loans from becoming vulnerable if income and asset values decline. 

As of September 30, 2017, the System had $55 billion in total capital and the System’s total 

capital-to-assets was a little more than 17 percent. Nonperforming assets remained less than one 

percent of gross loans. And the System reported net income of $3.7 billion. 

That’s not to say there aren’t challenges. Large global supplies of grains and soybeans are 

keeping prices low. Stress in the grain sector has added to the general weakness in farmland 

values in parts of the country. This has caused some of your members to struggle despite slight 

improvements in farm income last year. 

That’s why I’m focused on encouraging the System to find the best possible outcome for all 

borrowers within the bounds of safety and soundness. I know this is important to you, as well. 

Over the past year, I’ve learned a lot about the System’s efforts to support producers in stressed 

sectors of the farm economy. Both large and small associations are using innovative ways to 

support their members. 

For example, at a meeting in Colorado last year, I learned that some associations are giving some 

of their borrowers the option to defer the principal portion of their 2018 payments. This gives

these producers the chance to re-amortize the outstanding balance over the remaining life of the 

loan. It also gives them additional working capital, which in turn gives them flexibility and time to 

make needed adjustments to their operations. 

Other associations are developing memorandums of understanding with borrowers in stressed 

sectors. These agreements provide associations and their borrowers a clear understanding of each 

party’s expectations for continued financing. 

This is exactly the type of service that will build confidence in your cooperative and ensure the 

best possible outcome for your members. Plus, Congress is clearly interested in learning about 

the services you’re providing. 

Last year, FCA testified at two congressional hearings. In both hearings, members of Congress 

wanted to know what the System was doing to help farmers and ranchers facing financial 

difficulty. So you can strengthen congressional confidence in the Farm Credit System by seeking 

the best possible outcome for each borrower.
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Congress also wanted to learn about your services to support the young, beginning and small 

farmers. With the average age of a farmer now over 58, Members of Congress continue to 

express their interest in supporting the next generation of producers. 

Today, the System’s outstanding loans to young farmers are about one out of every six System 

loans; to beginning farmers are about one out of every four; and to small farmers are about one 

out of every two. This is something you should be proud of. 

But remember, the potential future members of your cooperative need confidence that the 

System will do its best to meet their credit needs, without regard to their race, gender, or type of 

operation. 

So continue to focus on your YBS mission. Make sure that your marketing strategies are reaching 

young, beginning and small producers who may not be aware of the services that the System can 

provide. 

I’m also encouraging the System to provide a full suite of services in your service territories. In 

California and Illinois last year, I was excited to learn about associations partnering to provide 

rural home loans. As some associations scaled back or discontinued their home lending programs,

they partnered with other institutions to provide these services in their territory. 

These partnerships are EXACTLY what I mean when I say, “ALL services for ALL borrowers.” 

And speaking of partnerships, it’s been great to see the work the System is doing to improve the 

vitality of our rural communities. Your partnerships with one another, with private investors, with 

Farmer Mac, and with commercial banks are strengthening rural communities. 

We’ve all seen the daunting statistics regarding the state of our rural infrastructure. Farms, 

agribusinesses, and others in rural communities need quality infrastructure to be competitive in 

the future.

For decades, the System has used its statutory authority to finance rural development projects –

especially energy and water projects. In doing so, it has improved countless rural communities. 

I applaud this work and encourage all associations to use your statutory authority to improve the 

vitality of rural communities. One way to do this is through Rural Business Investment Companies

(RBIC). These companies can inject investment capital to reenergize the rural economy, helping

small businesses grow and strengthening local communities.

RBICs require only a modest amount capital, but can do an enormous amount of good — not only 

for rural America but for agriculture, too. 

Speaking of capital, the System provided over $1BILLION in patronage payments in 2016. Think 

about that for a minute. 

That amounts to a billion-dollar stimulus to agriculture and rural America – courtesy of the 

System’s cooperative structure. Think about that for a minute. That’s truly a remarkable

contribution to the rural economy. 
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Structure and capital

I’ve spent a good deal of time this morning talking about issues important to me. But I also know 

the importance of listening. Let me spend a few minutes now on a couple topics that I know are 

important to many of you. 

System Structure. Some folks think I kicked a hornet’s nest last year by suggesting we have a

year of dialogue around the topic. This is not a new issue, but it is an important one. 

The System has been in a constant state of renewal since its inception in 1916. As it continues to 

evolve, we must evaluate how any proposed change could impact the integrity and cooperative 

structure of the System. 

We must look at the operational, managerial, and reputational risks that might result from the 

change. And we must consider how the change might affect the relationship between the funding 

bank and its associations. 

Bottom-line, your members and stakeholders must have confidence that structural changes are in 

the best long-term interest of the System and those it is serves. 

Now let’s talk about capital. Empirical data show that the System has thrived over many years. It 

has continued to grow and has posted favorable returns on assets. 

The new capital rules went into effect at the beginning of 2017. They were the product of many 

years of work by FCA staff, with significant input by System representatives. The goal was to 

adopt capital rules appropriate to the System, yet comparable to those established for 

commercial banks. 

Over the past year, there has been a lot of discussion within the System about the new capital 

rules, capital efficiency and the location of capital. We’ve also heard concern that the new criteria 

used to assign a capital rating under the Financial Institutions Rating System or FIRS may 

constrain growth in the future.

To implement the capital rules, our Office of Examination developed criteria to assess capital 

adequacy under the new rules. This included certain numeric benchmarks that our examiners 

could use when evaluating what capital rating an institution should be assigned. 

Now that the new capital regime has been in place for a year, FCA staff is reviewing whether any 

changes are warranted in how we examine and evaluate capital adequacy at System institutions. 

As you know, capital is only one of SIX components we use to evaluate the safety and soundness 

of System institutions under FIRS. Today, we want to make this clear: achieving a FIRS 1 capital 

rating is not -- in itself – the only measure of strength for a System institution. 

What IS of vital importance is ensuring that FCS institutions are well managed and are meeting 

their mission to provide competitive credit to agriculture and rural America. High levels of capital 

alone cannot guarantee this. 

Over the past year some System institutions have expressed the need to maintain a FIRS 1

capital rating regardless of what else is going on. The FIRS 1 benchmark has become a sort of 

self-imposed minimum for some institutions. 
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Keep in mind that various FIRS benchmark ratios are intended to measure different aspects of 

capital. Some ratios measure total capitalization, while some measure quality and composition of 

capital. When evaluating capital adequacy and setting FIRS ratings, our examiners look at both 

qualitative and quantitative elements. 

How much capital any institution really “needs” requires careful evaluation of current and 

emerging business risks by board members and management. This process is often more a 

matter of reasoned judgment than scientific precision. It also means not relying too much on only 

one model or one measure.

Also, how much capital an institution needs -- or its board believes it needs -- can vary based on 

local situations. Many System associations currently operate at capital levels well over the FIRS 1 

benchmark. 

We want you to know that if you are following prudent risk management practices you can safely 

operate with a FIRS 2 capital component rating. A FIRS 2 rating indicates that you have adequate 

capital. 

The Farm Credit System is a government-sponsored enterprise and represents a public policy 

success by fulfilling its statutory mission. We recognize that determining how much capital is 

needed is a complex question, so we’re open to a healthy discussion with and among System 

representatives on the issue. 

Cooperative principles

Now I would like to speak directly to those of you who serve on a bank or association board of 

directors. Early in my career, I had the chance to serve on the board of directors of the local grain 

elevator in Oldham, South Dakota. It was a big responsibility for a young farmer – especially 

since I was selected to fill the seat my father had held before me. 

It was fun to be a part of this board. Every year, I had the chance to go to the Grain Terminal 

Association’s annual meeting in Minneapolis. But for me, the big event was our local annual 

meeting. The local TV guy provided the entertainment by playing the guitar and telling some 

colorful stories. We handed out the checks and served supper. 

Leonard, the local feed representative, would bring a big grill that he pulled behind his truck. He’d 

dump several bags of charcoal in the grill to make a couple hundred hamburgers for the crowd. 

One year he was anxious to get home and he didn’t close the grill tightly or wait for the coals to 

die. 

About five miles down the road, the grill was glowing red from the rushing air, and red-hot ash 

was flying out and landing in the August-dry ditches. Needless to say, our annual meeting was cut 

short. Some of the board members and attendees had to fulfill other responsibilities as volunteer 

firefighters. 

All this is to say, as a board member you have an enormous responsibility. That means putting 

out fires quickly and preventing them whenever possible. It means having healthy checks and 

balances with management. It means adhering to the cooperative principles that have been the 

foundation of the System’s success. I was reminded of the importance of these principles 

throughout my travels this past year.

Healthy cooperatives work to innovate and grow. They provide their members the education and 

training they need for democratic participation in the cooperative. Education and training are 
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especially critical for boards of directors so that they can help set effective policy and make good

decisions on behalf of the cooperative and its members.

A principle that may often get overlooked is cooperation among cooperatives. This may be the 

most important principle for the Farm Credit System. Each institution has the autonomy and 

independence to grow and create opportunities to serve its own members. But board members 

must remember that many stakeholders, including investors and members of Congress view the

System on a consolidated basis. Put another way, they view the System as ONE. 

So the actions of one institution can and will affect the reputation of the System as a whole. This 

means that each of you must think about how your actions affect the confidence of the public, 

Congress, and investors.

It’s no secret that some people don’t see the continued need for the System. The best way to 

combat that idea is to maintain public and congressional confidence in the Farm Credit System by 

fulfilling your mission to serve agriculture and rural America in good times and bad. 

Being a member of the board is a tremendous responsibility. Every time you step into the 

boardroom, keep in mind the cooperative principles on which the System is based, as well as the

future of the Farm Credit System as a government sponsored enterprise! 

Conclusion

I will close by saying that many if not most of you in the audience today are farmers or ranchers. 

You know what most nonfarmers don’t: That farming is stressful. 

You know the toll it can take on your body and mind. You know what it feels like to lie awake at 

night wondering when it’s ever going to rain and then — a couple weeks later — when it’s ever 

going to stop. 

You know how it feels to work 16-hour days to get a crop planted or harvested. You know how it 

feels when the prices are so low you can barely cover your costs.

What makes the System unique is that The LEADERS of the cooperative are also the CUSTOMERS 

of the cooperative. Your borrowers trust you because they know that YOU know what it’s like to 

be in their shoes. You’ve borrowed money to buy tractors and combines, and you’ve borrowed 

money to expand your operations. No other lender can understand the needs of farmers and 

ranchers the way you can. That’s the beauty AND the strength of the cooperative model. 

So hold fast to those cooperative principles. ESPECIALLY the one about cooperation among 

cooperatives. No problem is too big if you work together.

Find ways within your authority to help support rural communities and the modernization rural 

infrastructure. And ALWAYS keep your mission to farmers, ranchers, and rural America as your 

top priority. 

In the end, THAT is what matters. THAT is what will win you the confidence of all your 

stakeholders. THAT is what will ensure your success for the next 100 years.

Thank you.