Protecting Investors in Agriculture and Rural America

Farm Credit System Insurance Corporation

2012 Annual Report
The Farm Credit System Insurance Corporation 

(FCSIC or Corporation), a Government-controlled, 

independent entity, shall

•	 	 protect investors in insured Farm Credit System

obligations and taxpayers through sound 

administration of the Farm Credit Insurance 

Fund,

•	 	 exercise its authorities to minimize Insurance

Fund loss, and

•	 	 help ensure the future of a permanent system

for delivery of credit to agricultural borrowers.

Mission Statement
1

May 20, 2013

Dear Mr. President and Mr. Speaker:

In accordance with section 5.64 of the Farm Credit Act of 1971, as amended, the 

Farm Credit System Insurance Corporation is pleased to submit its annual report 

for calendar year 2012.

This report highlights our role as the independent Federal corporation established to ensure the timely payment of principal and interest to investors in 

insured Farm Credit System debt securities. The balance in the Farm Credit 

Insurance Fund at December 31, 2012, was $3.3 billion. 

We collected $84.3 million in insurance premiums from Farm Credit System 

banks for 2012, earned $46.8 million in investment income during the same 

period, and expect to incur $4 million in operating costs in 2013. 

Sincerely, 

Kenneth A. Spearman

Chairman

The President of the United States Senate

The Speaker of the United States House of Representatives
Farm Credit System Insurance Corporation

2

Message from the Chairman 3

Board Of Directors 4

2012 - Year In Review 8

Selected Financial Statistics 9

The Farm Credit System 10

Insurance Fund Management 16

Risk Management 23

Financial Assistance and Receivership 27

Independent Auditor’s Report F-3

Financial Statements F-7

Notes to the Financial Statements F-11

Management Report on Internal Control Over Financial Reporting 28

Performance Management Program 29

Glossary 32

Acronyms and Abbreviations 34

Corporate Staff 35

Contact Information 35

Contents

Board member photos courtesy of Bachrach. 
Protecting Investors in Agriculture and Rural America

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I am pleased to present FCSIC’s 2012 Annual Report. It is gratifying to note that, for the twenty-third 

consecutive year since we began issuing financial statements, our independent public auditor has issued 

unqualified opinions on those statements. Their opinion letters, which are enclosed, indicate that the 

financial statements concerning the Farm Credit Insurance Fund, of which we are stewards, are fairly and 

accurately presented. 

The Corporation’s net income for 2012 was $127.8 million, compared with $166.6 million for the previous 

year. The Insurance Fund balance as of December 31, 2012, was $3.30 billion, compared with $3.39 billion 

at year-end 2011.

Premium revenue was $84.3 million for 2012, compared with $97.3 million for 2011. Interest income for 

2012 totaled $46.8 million, compared with $72.6 million in 2011. 

In accordance with the requirements of the Federal Managers’ Financial Integrity Act of 1982, our management conducted its annual assessment of the system of internal controls. Its findings show that, in the 

reviewed areas, internal controls comply with the standards prescribed by the U.S. Government Accountability Office and provide reasonable assurance that program objectives are being met. 

In 2013, we will continue to carry out our mission and work towards achieving our strategic goals and 

objectives. In the process of identifying and addressing risks to the Insurance Fund, we are mindful of our 

public trust and will ensure that investors, Congress, the Farm Credit System, and other regulatory agencies receive timely and accurate information on issues concerning the Insurance Fund.

Sincerely,

Kenneth A. Spearman

Message from the Chairman 
Farm Credit System Insurance Corporation

4

Board of Directors

FCSIC is managed by a three-member board of directors comprising 

the same three individuals who compose the Farm Credit 

Administration (FCA) Board. However, the same member may not 

serve as chairman of both entities. FCA is the independent Federal 

agency responsible for the regulation and examination of the Farm 

Credit System, a nationwide network of financial cooperatives that 

lends to agriculture and rural America.
Protecting Investors in Agriculture and Rural America

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Kenneth A. Spearman

Kenneth A. Spearman is Chairman of the Board of Directors of 

the Farm Credit System Insurance Corporation. He also serves as 

a member of the Board of the Farm Credit Administration. 

Mr. Spearman brings to his position as Chairman of FCSIC 

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 Farm Credit 

Administration 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.
Farm Credit System Insurance Corporation

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Leland A. Strom was appointed to the Farm Credit System Insurance 

Corporation Board of Directors and to the Farm Credit Administration Board by George W. Bush on December 12, 2006. He served 

as Chairman of the FCSIC Board until he was appointed Chairman 

and CEO of FCA on May 22, 2008. He served in this position until 

November 26, 2012, when Jill Long Thompson was appointed Chair 

and CEO of FCA by President Barack Obama, effective November 

27, 2012. He remains a member of FCSIC and FCA boards until the 

President designates a successor. 

For more than 30 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 sit on the Restructuring Task Force of the 

Sixth Farm Credit District. 

From 2000 to 2006, he was on the Federal Reserve Bank of Chicago Advisory Council on Agriculture, Labor, and Small Business. Part of this time 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 on which Mr. Strom has served 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 also attended the 

Harvard Kennedy School Executive Education program. 

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 third-generation family farm in Illinois that produces corn and soybeans. He and his wife, Twyla, 

have three children and two grandchildren.

Leland A. Strom
Protecting Investors in Agriculture and Rural America

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Jill Long Thompson is Chair of the Board and CEO of the Farm 

Credit Administration (FCA) and a member of the Board of Directors of the Farm Credit System Insurance Corporation. Dr. Long 

Thompson was appointed to the FCA Board by President Barack 

Obama in March 2010 and was designated Board Chair and CEO 

on November 27, 2012. Her term expires in May 2014. 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. While in 

Congress, 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 a staff of 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 to be 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 lives with her husband, 

Don Thompson, on a farm near Argos, Indiana. 

Jill Long Thompson
Farm Credit System Insurance Corporation

8

2012 – Year in Review

Allocated Insurance Reserves Accounts (AIRAs)

At year-end 2011, $221.9 million, the calculated excess amount in the Farm Credit Insurance Fund, was 

transferred to the AIRAs. In April 2012, after completion of FCSIC’s year-end audit, our Board of Directors authorized payment of $221.9 million to the accountholders. Payments were made in May 2012. (See 

Note 4 to the Financial Statements for additional AIRAs information.)

Insurance Fund Finishes 2012 at 1.93 Percent, Slightly Below the Statutory 2 Percent 

Secure Base Amount 

At December 31, 2012, the Farm Credit Insurance Fund was $3.30 billion (1.93 percent of adjusted 

insured debt outstanding), which was $119 million below the secure base amount. (See “Insurance Fund 

Management” on page 16 for additional details.) Consequently, no funds were available to transfer to the 

AIRAs. (See Note 4 to the Financial Statements for additional details.)

FCSIC’s Legislative Initiative 

As part of the FCSIC 2010–2015 Strategic Plan, we continue to pursue a legislative initiative to strengthen 

our resolution authorities, including our receivership and conservatorship powers. These changes would 

improve our ability to protect investors. Also, ensuring that we have express statutory authority comparable to other Federal receivers and conservators would reduce the costs of resolving a troubled Farm Credit 

System institution.

After consulting with the FCSIC Board and meeting with a workgroup of senior System officials, FCSIC 

staff delivered a draft of legislative language to our congressional oversight committees for their consideration. In May 2012, our Board of Directors wrote to the House Agriculture Subcommittee on Department 

Operations, Oversight, and Credit to request these important changes be enacted as part of the next Farm 

Bill. 

Strategic Planning Policy

In April 2012, our Board approved the revised Policy Statement on Strategic Planning originally adopted 

in 1994. The revision incorporates updates from the Office of Management and Budget Circular No. A-11. 

The updated Circular A-11 includes a new goal-based structure, a requirement for online submission of 

agency strategic plans, and more frequent reporting on agency performance. In addition, we reviewed the 

strategic planning policies and processes used by similar agencies and implemented best practices.

Our strategic plan defines our mission, long-term goals, and the approaches we will use to execute the 

plan and carry out our mission. It also describes how we will manage any challenges and risks. The strategic plan is our commitment to perform, and our strategic planning process is intended to promote sound 

corporate decision-making in the use of the Corporation’s resources.

Financial Assistance Policy

On April 11, 2013, the FCSIC Board of Directors approved the “Policy Statement Concerning Assistance.” 

The statement replaces the “Policy Statement Concerning Stand-Alone Assistance.” The new policy statement provides greater clarity as to when FCSIC might use its statutory authority to provide assistance to a 
Protecting Investors in Agriculture and Rural America

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Farm Credit System Insurance Corporation

(Dollars in Millions)

2012 2011 2010 

BALANCE SHEET:

Total Assets $ 3,298.2 $ 3,392.3 $ 3,225.7 

Total Liabilities 0.3 0.4 0.3 

Insurance Fund Balance

Allocated Insurance Reserves Accounts 0 221.9 0 

 

Unallocated Insurance Fund Balance 3,297.9 3,170.1 3,225.3 

OPERATIONS: 

Revenues 131.1 169.9 146.1 

 

Operating Expenses 3.3 3.3 3.1 

 

Insurance Expense 0 0 0

Net Income 127.8 166.6 143.0 

 

Selected Financial Statistics 

System institution and provides more discussion of how the statutory least-cost test might be performed. 

The new policy statement also includes enhanced criteria of what might be included in assistance proposals. These criteria are based on the experience of various Government entities during the recent financial crisis. The policy also includes a new section discussing assistance agreements between FCSIC and a 

System institution receiving assistance. A draft of the new policy statement was published for comment on 

June 21, 2012.

Operating Efficiency and Cost Containment 

The Corporation’s operating costs as a percentage of its total assets represented 10 basis points for 2012. 

In September 2012, our Board of Directors approved budgets for 2013 and 2014. The 2013 budget is $4.0 

million, which is unchanged from 2011 and 2012. The 2014 budget projects an increase of 1.6 percent 

over the 2013 budget because of expected increases in personnel costs.
Farm Credit System Insurance Corporation

10

The Farm Credit System

Combined Farm Credit System Statistics

(Dollars in Billions)

2012 2011 2010 

Insured Debt Outstanding1 $ 197.5 $ 184.2 $ 188.3 

Production Agriculture:

 Real Estate Mortgage Loans 88.3 80.7 78.0 

Production and Intermediate-term Loans 43.9 41.3 40.6 

Agribusiness Loans2 27.1 24.7 29.6 

Communication Loans 4.2 3.8 3.6 

Energy, Water and Waste Disposal Loans 14.5 11.8 11.5 

Rural Residential Real Estate Loans 6.2 5.8 5.5 

International Loans 4.7 3.8 4.0 

Lease Receivables 2.4 2.1 2.0 

Loans to Other Financial Institutions 0.7 0.6 0.5 

Cash and Investments 46.9 47.3 46.3 

Net Income 4.1 3.9 3.5 

Nonperforming Loans as a Percentage of Total Loans 1.4% 1.7% 1.9% 

 

1. Insured debt outstanding is based on System institution Call Report information and reflects the book value of insured debt outstanding, excluding 

fair value adjustments, plus accrued interest as of December 31, 2012.

2. As of December 31, 2012, agribusiness loans consisted of loans to cooperatives of $12.8 billion, processing and marketing loans of $11.5 billion, and 

farm-related business loans of $2.8 billion. 

Structure and Funding 

The Farm Credit System (System or FCS) is a federally chartered network of cooperative lending institutions owned by the agricultural and rural customers it serves, including farmers, ranchers, producers or 

harvesters of aquatic products, agricultural cooperatives, and farm-related businesses. As of December 31, 

2012, the System had four banks and 82 associations. Each of the associations has its own chartered territory and is affiliated with one of the four banks. 

Each association receives wholesale funding from its affiliated bank and lends directly to its owner-borrowers, providing a consistent and reliable source of agricultural and rural credit throughout the United 

States and the Commonwealth of Puerto Rico. CoBank also has nationwide authority to make retail loans 

to cooperatives and other eligible entities. 

The banks obtain funds for their operations primarily through the sale of Federal Farm Credit Banks Consolidated Systemwide debt securities. The banks own and utilize the Federal Farm Credit Banks Funding 

Corporation to issue Systemwide debt securities in the capital markets. As the fiscal agent for the banks, 

the Funding Corporation partners with a select group of dealers to market and distribute the securities to 

investors throughout the world to finance the System’s operations. 
Protecting Investors in Agriculture and Rural America

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Figure 1

Insured Debt Outstanding

Growth Averaged 5.1 Percent Over the Past 5 Years

(Dollars in Billions)

Investor Protection 

Investors provide the funds the System lends to agriculture and rural America. FCSIC’s primary purpose, 

as defined by the Farm Credit Act, is to ensure the timely payment of principal and interest on Systemwide debt securities to these investors. 

Regulatory Oversight 

The Farm Credit Administration is the safety and soundness regulator responsible for the examination, 

supervision, and regulation of each FCS institution. FCA is an independent agency in the executive branch 

of the U.S. Government and derives its broad authorities from the Farm Credit Act. These authorities 

include examination and enforcement authorities similar to those of commercial bank regulators. The U.S. 

Senate Committee on Agriculture, Nutrition, and Forestry and the U.S. House of Representatives Committee on Agriculture oversee FCSIC, FCA, and the FCS.

Insured and Other Obligations 

FCSIC insures Systemwide and consolidated bonds, notes, and other obligations issued by System banks 

through the Federal Farm Credit Banks Funding Corporation under section 4.2 (c) or (d) of the Farm 

Credit Act. Figure 1 shows that insured debt outstanding increased by 7.2 percent in 2012 to $197.5 billion. This is in contrast to a 2.2 percent decrease in insured debt outstanding in 2011. 

FCSIC must also ensure the retirement of eligible borrower stock at par value, as required by section 4.9A 

of the Farm Credit Act. This stock, also known as protected borrower stock, was outstanding prior to 

October 6, 1988. At year-end 2012, protected borrower stock outstanding at System institutions totaled $2 

million, down from $5 million at year-end 2011.

Note: Insured debt outstanding is based on System institution Call Report information and reflects the book value of insured debt outstanding, 

excluding fair value adjustments, plus accrued interest as of December 31, 2012.
Farm Credit System Insurance Corporation

12

Farm Credit System Capital 

The primary source of funds to repay insured Systemwide debt securities is the System’s borrowers. Each 

borrower must have a minimum net worth and, in most cases, collateral posted in connection with his or 

her loan. The borrower makes payments on the loan to the lending bank or association. 

The lending association in turn makes payments on its loan to the lending bank. Both the banks, which 

ultimately repay Systemwide debt securities, and the associations exceed their minimum regulatory capital 

requirements as protection and support for the repayment of the outstanding insured debt.

If a bank were unable to repay its portion of an insured Systemwide debt obligation, the Corporation 

would use the Insurance Fund to make that payment. Since the repayment of Systemwide debt securities is 

the joint and several obligation of the banks, in the event the assets of the Insurance Fund were exhausted, 

the provisions of joint and several liability of all banks would be triggered, which means the financial 

resources of the other banks would be used to repay the defaulting bank’s portion of the debt issuance. 

As figure 2 shows, the amount of FCS bank capital and the balance in the Insurance Fund together 

increased 41 percent, from $12.4 billion at year-end 2008 to $17.5 billion at year-end 2012. Bank capital 

plus the amount in the Insurance Fund as a percentage of insured debt outstanding decreased from 9.1 

percent in 2011 to 8.9 percent in 2012 (see figure 3). Over the past several years, the System banks have 

reported strong earnings primarily from their ability to re-price debt at favorable rates in the low-interest 

rate environment. Between 2009 and 2011, the banks retained a significant portion of their earnings to 

boost capital levels. In 2012, the System’s loan growth outpaced its capital growth, causing a slight decline 

in bank capital as a percentage of insured debt. 

Overall, the financial performance and condition of the System on a consolidated basis remains strong, 

though some individual institutions continue to experience stress from credit deterioration in certain agricultural sectors and from continued stress in the general economy. (See trends in the Financial Institution 

Rating System in the “Risk Management” section beginning on page 23.) 

System associations have boosted capital levels through the net income they have earned and retained. 

Association capital helps reduce the credit exposure of the association’s direct loan with its affiliated bank. 

As figure 4 shows, from 2008 to 2012, combined association capital increased $7.4 billion or 38.7 percent, 

with an annual average increase of approximately 8.6 percent. Since 2008, the associations have collectively 

achieved solid earnings and preserved capital, causing association capital as a percentage of total assets to 

steadily increase to 17.8 percent in 2011 and 2012 (see figure 5). 
Protecting Investors in Agriculture and Rural America

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Figure 2

Bank Capital Plus Insurance Fund

(Dollars in Billions)

Figure 3 

Bank Capital Plus Insurance Fund as Percentage of Insured Debt
Farm Credit System Insurance Corporation

14

Figure 4 

Combined Association Capital

(Dollars in Billions)

Figure 5 

Combined Association Capital as a Percentage of Total Assets
Protecting Investors in Agriculture and Rural America

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Additional Protections 

Farm Credit System banks have additional risk management tools to protect investors. One such tool is 

the Contractual Interbank Performance Agreement (CIPA). All System banks have entered into this agreement, which measures the financial condition and performance of each bank by using ratios that consider 

bank capital, asset quality, earnings, interest rate risk, and liquidity. The CIPA financially penalizes banks 

that do not meet performance standards.

The System and the Federal Farm Credit Banks Funding Corporation have also entered into the Market 

Access Agreement, which establishes conditions for each bank’s continued participation in the debt market. 

If a bank fails to meet agreed-upon performance measures, including capital and collateral ratios, the bank 

may be restricted from issuing debt. The criteria used under the Market Access Agreement are the CIPA 

scores and the net collateral and permanent capital ratios.

The System entered into a common minimum liquidity standard in 2010 to improve the quality and quantity of bank liquidity reserves. This standard is designed to maintain and ensure adequate liquidity to meet 

the business and financial needs of each bank and the System in the event access to the debt market is 

temporarily impeded. 

In April 2013, the Farm Credit Administration issued a final liquidity rule that strengthens the banks’ 

liquidity reserve requirement, promotes liquidity risk management best practices, and better prepares the 

banks to withstand a liquidity crisis. For additional information on bank liquidity, see the discussion in 

the “Risk Management” section of this report.
Farm Credit System Insurance Corporation

16

Insurance Fund Management

The Insurance Fund and the Secure Base Amount 

The Farm Credit Insurance Fund represents FCSIC’s equity, the difference between total assets and total 

liabilities, including insurance obligations. The Insurance Fund is composed of an unallocated Insurance 

Fund (the assets in the Insurance Fund for which no specific use has been identified or designated) and 

an allocated Insurance Fund (assets transferred to the AIRAs). Premiums are due until the unallocated 

portion of the Insurance Fund reaches the secure base amount. 

The secure base amount established by the Farm Credit Act of 1971, as amended, is 2 percent of the 

aggregate outstanding insured obligations (adjusted to exclude 90 percent of Federal Government-guaranteed loans and investments and 80 percent of State Government-guaranteed loans and investments), or 

another percentage that FCSIC determines to be actuarially sound to maintain in the Insurance Fund, taking into account the risk of insuring outstanding insured obligations.

In 2012, both the total Insurance Fund and total assets declined by 2.8 percent to $3.30 billion as a 

result of AIRA payments of $221.9 million. Insured debt outstanding grew $13.4 billion in 2012 (7.2 

percent). The Insurance Fund finished 2012 at 1.93 percent, which was $119.1 million below the secure 

base amount (see figure 6). Consequently, no excess funds were available for allocation to the AIRAs at 

year-end. 

At year-end 2011, $221.9 million, the calculated excess amount in the Insurance Fund, was transferred to 

the AIRAs. In April 2012, after completion of our year-end audit, the Board of Directors authorized the 

payment of the $221.9 million to the account holders. Payments were made in May 2012. (See Note 4 to 

the Financial Statements for additional details.)

Over the past five years, the total Insurance Fund and total assets each grew at an annual rate of 5.1 percent. We did not accrue a provision for insurance obligations in 2012. 
Protecting Investors in Agriculture and Rural America

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Figure 6

Insurance Fund Relative to 2 Percent Secure Base Amount

Note: In April 2012, the Board of Directors authorized payment of $221.9 million, which had been allocated to the AIRAs at year-end 2011.
Farm Credit System Insurance Corporation

18

Premium Rates January to December 2012 Premiums 

(in basis points)

Adjusted insured debt 5

Nonaccrual loans 10

Other-than-temporarily impaired investments 10

Premiums 

FCSIC’s Board of Directors reviews premium assessment rates as often as necessary but at least semiannually. The Board review focuses on five factors: 

•	 The level of the Insurance Fund relative to the secure base amount

•	 Projected losses to the Insurance Fund

•	 The condition of the System

•	 The health of the agricultural economy

•	 Risks in the financial environment

The Farm Credit Act allows us to collect from 0 to 20 basis points on adjusted insured debt outstanding. 

A risk surcharge of up to 10 basis points on nonaccrual loans and on other-than-temporarily impaired 

investments is also authorized. In addition, the Act reduces the total insured debt on which premiums are 

assessed. It bases premiums on outstanding insured debt obligations adjusted downward by 90 percent of 

Federal Government-guaranteed loans and investments and 80 percent of State Government-guaranteed 

loans and investments.

The most important factor in determining premium rates for 2012 was the level of the Insurance Fund 

relative to the secure base amount. Based on System growth projections ranging from 3 to 5 percent, our 

Board set the assessment rate on adjusted insured debt at 5 basis points in January 2012. Through May 

2012, insured debt grew by 2.2 percent, and System institutions indicated that growth for the year would 

likely be lower than estimated in January, but still within the 3 to 5 percent range. As a result, the Board, 

at its scheduled mid-year premium review in June, maintained the premium assessment on adjusted 

insured debt at 5 basis points for 2012. (Note: 1 basis point (bp) = 1/100 of 1 percent.) 

Because the Insurance Fund finished 2012 $119 million below the secure base amount, our Board set the 

assessment rate on adjusted insured debt at 10 basis points for 2013. We project that premium assessments 

for 2013 will total approximately $184 million.
Protecting Investors in Agriculture and Rural America

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Figure 7

Corporation Revenues

(Dollars in Millions)

Revenues and Expenses 

FCSIC operates with no appropriated funds. We collect insurance premiums from each Farm Credit System bank that issues insured obligations. These premiums and the income from our investment portfolio 

provide the funds necessary to fulfill our mission. 

Our revenues in 2012 decreased 22.8 percent to $131.1 million from $169.9 million in 2011 (see figure 7). 

The decrease in revenues resulted from two factors: lower premiums and the continued historically low 

interest rates. Interest income decreased 36 percent in 2012 to $46.8 million from $72.6 million in 2011. 
Farm Credit System Insurance Corporation

20

Figure 8 

Corporation Expenses

(Dollars in Millions)

To avoid duplication of effort and to minimize costs, since 1993 we have operated with a small core staff 

and used private- and public-sector contractors to leverage our efforts. The Corporation’s Board of Directors and management have adopted this model as a cost-effective and efficient way to use available expertise, services and resources to accomplish FCSIC’s mission.

Our operating costs as a percentage of total assets represented 10 basis points for 2012. Fixed costs for 

staff, travel, rent, and miscellaneous expenses were $2.5 million of the $3.3 million total for the year (see 

figure 8). The remaining expenses of $0.8 million were for contract services.

On December 22, 2010, President Obama signed legislation prohibiting statutory annual pay adjustments 

for most Federal civilian employees and freezing base pay for senior executives for two years. President 

Obama also issued a memorandum stating that agencies should forgo similar increases to pay schedules 

and rates that are set by administrative discretion. We complied with the President’s memorandum. Pay 

adjustments not covered by the freeze include promotion increases and individually based merit increases 

for nonexecutive employees. In March 2013, President Obama signed legislation extending the pay freeze 

through 2013. 
Protecting Investors in Agriculture and Rural America

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Investments 

FCSIC investments decreased during the year from $3.3 billion at December 31, 2011, to $3.2 billion at 

year-end 2012 (see figure 9). 

Our investment objective is to maximize returns consistent with liquidity needs and to minimize exposure 

to loss of principal. Funds are invested in U.S. Treasury securities in accordance with the Farm Credit Act 

and our investment policy. 

The average portfolio yield was 1.44 percent, down from 2.25 percent the prior year. The return on the 

Insurance Fund continued to outperform the benchmark index we use to measure performance. This 

index is composed of Treasuries and a private sector mutual fund with holdings that are similar in type 

and maturity to holdings in our portfolio. The average return of the benchmark group was 0.55 percent 

for 2012. 

In accordance with our investment policy, the portfolio is composed of a liquidity pool and an investment pool. The liquidity pool consists of short-term Treasury securities maturing in less than two years. 

The investment pool is composed of Treasury securities with maturities that vary from 2 to 10 years. Our 

investment policy requires that the liquidity pool must account for at least 20 percent of the portfolio 

and that no more than 25 percent of the investment pool may be invested in securities with maturities 

between 5 and 10 years. The weighted average portfolio maturity at year-end was 2.6 years. The composition of the investment portfolio at December 31, 2012, is shown in figure 10. 

In June 2008, we began purchasing Treasury Inflation Protected Securities (TIPS). TIPS have a stated rate 

of interest, payable semiannually, which is applied to the inflation-adjusted principal. TIPS provide a hedge 

against inflation, in terms of both yield and market value, which we believe is particularly important 

during the current historically low interest rate environment. TIPS have experienced monthly inflation or 

deflation adjustments, but the U.S. has not had an annual deflationary environment since 1954, nearly 60 

years ago. Because of the volatility of the monthly returns on TIPS, the FCSIC Investment Committee limits TIPS to no more than 20 percent of the portfolio. At year-end 2012, our TIPS investments totaled $631 

million or 19.7 percent of the investment portfolio. On average, over the past five years, TIPS have earned 

39 basis points more per year than our traditional Treasury instruments, a gain of $10.2 million over the 

five-year period; at year-end 2012 the market value of TIPS was $6.1 million above book value. 
Farm Credit System Insurance Corporation

22

Figure 10

Investment Portfolio by Maturity at December 31, 2012

(Dollars in Millions)

Figure 9

Corporation Investments

(Dollars in Billions)
Protecting Investors in Agriculture and Rural America

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Risk Management

FCSIC monitors and manages insurance risk to minimize the Farm Credit Insurance Fund’s exposure 

to potential losses. Our staff analyzes and evaluates the financial performance and condition of System 

institutions, maintains continual dialogue with Farm Credit Administration examiners, and reviews reports 

of examination. When necessary, we request special examinations at System institutions of concern. On a 

quarterly basis, we screen all System institutions against key performance criteria to identify those institutions that may pose increasing insurance risk.

We also assess risk to the Insurance Fund by

	 •	 reviewing corporate actions (such as mergers, restructurings, and other corporate changes)

approved by FCA for System institutions; 

	 •	 monitoring legislative, judicial, regulatory, and economic trends that could adversely affect the

agricultural or financial services industries; 

	 •	 using analytical models; and

	 •	 participating as a nonvoting member on FCA’s Regulatory Enforcement Committee.

During 2012, risk management staff monitored and evaluated trends and other information affecting agriculture and System institutions, including

	 •	 conditions in the global and domestic economy, capital markets, and the agricultural and financial

sectors; 

	 •	 trade policy and Government programs that support U.S. agriculture;

	 •	 the effects of commodity price volatility on agricultural operations and farmland values in the

Midwest; 

	 •	 the prolonged effects of the housing crisis on agricultural real estate values in certain regions of

the country; 

	 •	 stress in several farm sectors affecting the quality of System institutions’ loan portfolios, including

the dairy, swine, poultry, forestry, nursery, and biofuels industries; 

	 •	 negative trends at specific System institutions with declining Financial Institution Rating System

ratings; and 

	 •	 the performance and condition of the four System banks.

The Risk Environment in 2012 

The effects of the most recent recession were still evident in 2012. Since mid-2009, the U.S. economy 

has been on a path of unusually weak recovery, with growth at a moderate but uneven pace. Economic 

output as measured by real gross domestic product increased by 1.8 percent in 2011 and 2.2 percent in 

2012. Employment gains have been modest. While the unemployment rate has fallen from its peak of 10.1 

percent in October of 2009, it remained high at 7.8 percent at year-end 2012 and well above pre-recession 

levels. The housing market showed signs of sustained recovery, but credit availability remained tight for 

many households and businesses in 2012. 

The U.S. banking sector continued to strengthen as asset quality improved. For 2012 institutions insured 

by the Federal Deposit Insurance Corporation reported the highest level of annual industry profits since 

2006, primarily from higher noninterest income and lower provisions for loan losses. Nonetheless, net 

interest margins continued to compress in the low interest rate environment. The number of problem 

institutions (that is, those with CAMELS ratings of 4 and 5) declined from 813 in 2011 to 651 in 2012. 

Fifty-one commercial banks failed in 2012.
Farm Credit System Insurance Corporation

24

The Federal Open Market Committee continued its policy of maintaining the target range for the Fed 

funds rate of 0 to 0.25 percent. In September 2012, the committee initiated its third round of quantitative 

easing to put downward pressure on longer-term interest rates, support mortgage markets, and help make 

broader financial conditions more accommodative. 

In December 2012, the Federal Open Market Committee announced that it would maintain its target 

range for the Fed funds rate as long as the unemployment rate remains above 6.5 percent and the outlook 

for inflation is no more than 2.5 percent. The timing and magnitude of a change in the direction of interest rates may significantly affect the profitability of agricultural producers who use debt financing in their 

operations, as well as the market value of the System’s liquidity portfolio.

The agricultural sector remained strong in 2012 despite slow growth in the domestic economy and the 

most severe drought in decades. In February 2013, the U.S. Department of Agriculture estimated that 

national net farm income in 2012 was $112.8 billion, down 4.3 percent from 2011, and it estimated that 

net cash income was $135.6 billion, up 0.7 percent from 2011. 

Crop production shortfalls from the drought kept crop prices elevated. Crop producers generally fared well 

because most had Federal crop insurance to mitigate much of the impact of the drought on their operations and their ability to repay loans. Livestock and dairy prices were also elevated, but profit margins 

were squeezed by high input costs. 

USDA projects record-high net farm income of $128 billion for 2013 but also expects the lingering effects 

of the drought to spill over into 2013. 

The System continued to report strong earnings. As of December 31, 2012, it reported $4.1 billion in net 

income. The increase can be attributed to favorable agricultural conditions and low interest rates, which 

allowed the banks to re-price debt at favorable rates. Total loans and total assets equaled $191.9 billion 

and $246.7 billion, respectively. 

The credit quality of the System’s loan portfolio continued to improve in 2012. System loans classified 

under FCA’s Uniform Loan Classification System as “acceptable” or “other assets especially mentioned” 

increased. As a percentage of total loans, these loans increased to 96.8 percent in 2012 from 96.2 percent 

in 2011. Nonperforming loans as a percentage of total loans declined to 1.4 percent in 2012 from 1.7 percent in 2011. The primary source of credit quality deterioration remained in cattle, dairy, poultry, biofuels, 

and housing-related sectors.

Figure 11 shows a summary of composite year-end FIRS ratings for the System banks and associations. 

The improvement reflects the strong agricultural sector and improving financial conditions and performance at numerous institutions. Institutions with performance-related issues continued to receive higher 

examination scrutiny and supervisory attention from FCA.
Protecting Investors in Agriculture and Rural America

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Figure 11

FCS Institution Financial Institution Rating System 

Composite Year-end Ratings

As of December 31, 2012

Source: The Farm Credit Administration.

Note: Figure 11 reflects ratings for only the System’s banks and direct-lending associations; it does not include ratings for the System’s service corporations, the Federal Agricultural Mortgage Corporation, or the Federal Farm Credit Banks Funding Corporation.
Farm Credit System Insurance Corporation

26

Despite Standard and Poor’s downgrade of System debt in 2011 (in relation to the downgrade of U.S. sovereign debt), investor demand for System insured obligations remained favorable across the maturity spectrum in 2012. The System continued to benefit from the low interest rate environment, which has enabled 

the banks to call and issue new debt at lower interest rates. This, in turn, has lowered the cost of funds for 

the System and improved net interest margins and spreads.

The banks also maintained the quality of their respective liquidity portfolios by purchasing and holding 

enough high-quality liquid investments, including cash, cash equivalents, and Treasury securities with 

maturities of less than three years, to cover 15 days of maturing debt. The banks also agreed that the next 

30 days of liquidity would come from additional investments that consist of U.S. Government-guaranteed 

instruments and top-rated commercial paper and Fed funds that mature in 45 days or less. These more 

highly liquid securities equaled 16 percent of the System’s eligible investment portfolio at December 31, 

2012. 

The Federal Government’s fiscal situation became a significant uncertainty during the year. Federal farm 

programs, which provide benefits to certain agricultural producers, are at risk of being cut or modified. 

Another aspect of the Federal budget deficit is taxation. Federal Government revenues have been sharply 

lower over the past several years and were seen as a major issue in the 2012 elections. The Government 

tightened Federal tax policy for the bioenergy sector at the end of 2011, allowing the ethanol tax credit 

program to expire. 

Long-term resolutions to the Federal Government’s current fiscal situation remain uncertain. The American Taxpayer Relief Act of 2012 reauthorized most of the 2008 Farm Bill through September 30, 2013. 

However, across-the-board reductions in the Federal budget occurred under an automatic sequestration 

process in early 2013. While many Farm Bill programs are exempt, budget cuts to the USDA could disrupt 

some programs and related agricultural markets.

In view of these budget cuts and other measures lawmakers may take to reduce the Federal deficit, farm 

policy could be redesigned, and significant reductions could be made to farm programs in the new Farm 

Bill. Several proposals for deficit reduction have specifically targeted agricultural programs with mandatory 

funding, but questions remain about how much and when the Farm Bill baseline may be reduced.
Protecting Investors in Agriculture and Rural America

27

Financial Assistance and Receivership

FCSIC is authorized to provide assistance to System institutions to prevent default, restore normal operations, or facilitate a merger or consolidation. At present, no assistance agreements are outstanding. If a 

System institution were to need financial assistance, we would first have to ensure that the proposed assistance is the least costly means for resolving the institution’s problems. By law, we may not provide financial assistance if the cost of liquidation is lower.

We have updated FCSIC’s policy statement concerning assistance. At the June 2012 meeting, the FCSIC 

Board of Directors approved the publication of the draft policy statement for public comment. The comment period ended in October 2012, and a final policy statement was approved in April 2013.

When appointed by FCA, FCSIC has the statutory responsibility to serve as receiver or conservator for 

System institutions. Upon appointment as receiver, we will take possession of a Farm Credit institution 

to settle the business operations of the institution, collect the debts owed to the institution, liquidate its 

property and assets, pay its creditors, and distribute any remaining proceeds to stockholders. There are no 

active receiverships or conservatorships currently in the System.

To maintain the capability to act as receiver or conservator while continuing to operate with a small core 

staff, we use contractors on an as-needed basis. These contractors provide knowledgeable and readily available staff resources while allowing us to contain costs during periods of limited or no activity. 

FCSIC staff also maintains contact with the resolution staff of the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration to stay informed about best practices and to 

exchange information concerning receivership management. 

As discussed earlier, we are pursuing a legislative initiative to modernize our resolution authorities. Since 

1987, there have been no substantive amendments of the Farm Credit Act relating to FCSIC’s resolution 

authorities. During 2011 and continuing into 2012, we developed proposed legislative language to enhance 

FCSIC’s receivership and conservatorship authorities contained in the Farm Credit Act. The proposal is 

modeled after FDIC’s current resolution powers, but tailored for the Farm Credit System. 

Clarifying and enhancing these powers, which have not been substantially updated since FCSIC’s creation 

in 1988, will make any receivership or conservatorship that might occur less costly and more efficient. 

We have developed a detailed legislative proposal clarifying the receivership claims process, the authority to repudiate contracts, and the treatment of certain “qualified financial contracts.” The proposal would 

also limit judicial power to attach receivership property, to review claims, or to restrain a conservator’s or 

receiver’s powers; it would also authorize organization of “bridge” banks—temporary institutions useful in 

resolution of troubled financial institutions. 

During the year, we hired a consulting firm to assist in planning for the potential resolution of any FCS 

institutions that may become troubled and to help enhance resolution processes and authorities.

We have a number of Board-approved policy statements that provide guidance related to resolution activities, including appraisals of real estate securing nonperforming assets, insurance of assets that come under 

FCSIC control, and environmental hazards assessments of real estate securing nonperforming assets. 
F-1
F-2

F-3

F-5

F-7

F-8

F-9

F-10

F-11
F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-10
F-11
F-12
F-13
F-14
F-15
F-16
Farm Credit System Insurance Corporation

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April 11, 2013

FCSIC’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Corporation.

FCSIC is an independent U.S. Government-controlled corporation. Our primary purpose is to ensure the 

timely payment of principal and interest on insured debt obligations issued on behalf of System banks. 

The System is a nationwide Government-sponsored enterprise of privately owned banks and affiliated associations that serve borrowers and related entities in the agricultural sector. By protecting investors, we help 

maintain a dependable source of funds for the farmers, ranchers, and other borrowers of the System.

FCSIC actively monitors and manages insurance risk in order to minimize the Farm Credit Insurance 

Fund’s exposure to potential losses. We also must be prepared to serve as conservator or receiver of any 

System bank or association when appointed by the Board of the Farm Credit Administration.

Our management has completed an assessment of the effectiveness of the internal controls and financial 

management systems in effect during 2012 in accordance with guidelines provided by the Office of Management and Budget (OMB) in consultation with the Comptroller General (OMB Circular A-123, “Management’s Responsibility for Internal Control”). The objective of these controls and systems is to provide 

reasonable assurance that

	 •	 obligations and costs comply with applicable laws;

	 •	 all assets are safeguarded against waste, fraud, unauthorized use, and mismanagement;

	 •	 revenues and expenditures applicable to our operations are recorded and accounted for properly;

and

	 •	 financial and statistical reports will be reliable, complete, and timely, and accountability of the

assets will be maintained.

Based on the established guidelines and the assessment performed, we concluded that as of December 31, 

2012, the internal control over financial reporting was effective. 

In addition, as stated in the accompanying report, the Corporation’s independent auditor, Clifton Larson 

Allen LLP, did not identify any material weaknesses in the effectiveness of FCSIC’s internal control over 

financial reporting as of December 31, 2012.

 

 

Dorothy L. Nichols C. Richard Pfitzinger Alan J. Glenn

Chief Operating Officer Chief Financial Officer Director of Risk Management

Management Report on Internal Control Over 

Financial Reporting
Performance Management Program 

FCSIC has a mandate to ensure the timely payment of principal and interest on insured Farm Credit System debt securities, and to serve as receiver or conservator of any institution placed into conservatorship 

or receivership by the Farm Credit Administration Board. As a result, we have three fundamental program 

goals:

1. Building and managing the Insurance Fund to protect investors

2. Detecting, evaluating, and managing insurance risk

3. Maintaining the capability to act as receiver or conservator as the need arises

Performance Measures 

1. Building and managing the Insurance Fund to protect investors 

To maintain the solvency of the Insurance Fund, we must adjust insurance premium assessments when 

appropriate and manage assets to optimize investment returns, while maintaining appropriate liquidity to 

carry out our mission. Congress established a statutory requirement for the Insurance Fund to be maintained at a secure base amount equal to 2 percent of adjusted insured obligations or such other percentage 

as FCSIC in its sole discretion determines to be actuarially sound. 

FCSIC assesses the effectiveness of its performance in achieving this goal through the following:

	 •	 Reviewing semiannually the need for adjustments to insurance premium assessments

	 •	 Measuring investment performance by comparing the portfolio’s average yield with peer investment funds that have similar investment parameters for quality and maturity 

	 •	 Monitoring the level of the Insurance Fund every month as compared with the secure base

amount target level and reporting results to the Board of Directors 

The ability of FCSIC to maintain the Insurance Fund at the secure base amount may be affected by events 

beyond the control of the Corporation, such as insurance losses. 

2. Detecting, evaluating, and managing insurance risk 

We measure progress towards this program goal by the extent to which emerging problems are promptly 

detected and insurance losses are minimized. We use financial indicators to monitor conditions and 

trends, and we analyze and report data before losses become likely. In periods of probable or actual insurance claims, the ratio of estimated losses to actual losses is an indicator of our ability to assess prospective 

loss exposure. As guidance, management uses criteria specified in FCSIC’s allowance for loss procedure 

and the Financial Accounting Standards Board’s Accounting Standards Topic 450, Contingencies. Timely 

evaluation of the Insurance Fund’s risk exposure is critical to preserving the Insurance Fund’s solvency. 

FCSIC uses Farm Credit Administration reports of examination to evaluate risks to the Insurance Fund. 

From time-to-time we independently examine and require information from System institutions. 

Protecting Investors in Agriculture and Rural America

29
3. Maintaining the capability to act as receiver or conservator as the need arises 

FCSIC is required to serve as receiver or conservator of System banks and associations when appointed 

by the Farm Credit Administration. This program goal requires us to maintain readiness through periodic 

staff training and evaluation of contractors’ capabilities. We must ensure that we have the resources we 

need to manage receiverships or conservatorships in case the need arises. 

We use the following measures to determine the effectiveness of our receivership operations: 

	 •	 Whether all claims received initial processing within a period specified according to the size and

complexity of the individual case 

	 •	 Operating costs as a percentage of total assets

	 •	 Actual asset recovery returns as a percentage of net realizable asset values

Farm Credit System Insurance Corporation

30

Figure 12

2012 Budget and Expenditure by Program

(Dollars in Millions)
Investors in insured 

debt are protected 

from loss without 

recourse to a joint and 

several liability call

See pages 

16-18 for 

2012 results.

See pages 

23-26 for 

2012 results.

See pages 

8-9 and 

23-26 for 

2012 results.

See page 

27 for 2012 

results.

See page 

27 for 2012 

results.

See the 

FCSIC 

website for 

additional 

information.

The Farm Credit Insurance 

Fund remains strong and 

adequately financed.

FCSIC promptly identifies 

and responds to potential 

risks to the Insurance Fund.

FCSIC resolves failure of 

FCS institutions in the 

manner least-costly to the 

Insurance Fund.

The public, insured investors, and FCS institutions 

have access to accurate and 

easily understood information about our insurance 

program.

Maintain the Insurance 

Fund at the statutory 

2 percent secure base 

amount.

Identify and address 

risks to the Insurance 

Fund.

Disseminate data and 

analyses on issues to the 

FCSIC Board, the public, 

and other stakeholders.

Effectively administer 

temporary financial 

assistance programs 

subject to the statutory 

least-cost requirements.

Market failing institutions to qualified and 

interested potential 

bidders.

Provide information 

about the benefits of 

the insurance program 

through our website, 

annual report, and other 

outlets.

Strategic Goal Strategic Objectives High Priority Performance Goals

Protecting Investors in Agriculture and Rural America

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Farm Credit System Insurance Corporation

32

C

CAMELS—A system that supervisory authorities use to rate banking institutions. The system considers six 

factors, each of which supplies a letter in the acronym: capital adequacy, asset quality, management quality, 

earnings, liquidity, and sensitivity to market risk.

F 

Farm Credit Act—The Farm Credit Act of 1971, as amended, (12 U.S.C. §2001 et seq.) is the statute 

under which the FCS, FCSIC, and FCA operate.

Farm Credit Administration—FCA was established in 1933 to regulate the Farm Credit System. It is 

governed by a three-member presidentially appointed board. To ensure the safety and soundness of the 

System, the Agency examines and supervises System institutions and develops regulations to govern them.

Federal Farm Credit Banks Funding Corporation—Based in Jersey City, New Jersey, the Funding Corporation manages the sale of Systemwide debt securities to finance the loans made by FCS institutions. It 

uses a network of bond dealers to market the System’s securities.

Federal Open Market Committee—The branch of the Federal Reserve Board that determines the direction of monetary policy. The committee is composed of the Board of Governors, which has seven members, and five Federal Reserve Bank presidents. The president of the Federal Reserve Bank of New York 

serves continuously, while the presidents of the other Reserve Banks rotate their service of one-year terms.

Financial Institution Rating System (FIRS)—The FIRS is similar to the Uniform Financial Institutions 

Rating System used by other Federal banking regulators except that the FIRS reflects 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. 

Glossary
Protecting Investors in Agriculture and Rural America

33

Rating 3—Institutions in this category exhibit a combination of financial, management, operational, or 

compliance weaknesses ranging from moderately severe to unsatisfactory. When weaknesses relate to asset 

quality or financial condition, such institutions may be vulnerable to the onset of adverse business conditions and could easily deteriorate if concerted action is not effective in correcting the areas of weakness. 

Institutions that are in significant noncompliance with laws and regulations may also be accorded this 

rating. Risk management practices are less than satisfactory for the size, complexity, and risk profile of 

each institution in this group. Institutions in this category generally give cause for regulatory concern and 

require more than normal supervision to address deficiencies. Overall strength and financial capacity, however, still make failure only a remote possibility if corrective actions are implemented. 

Rating 4—Institutions in this group have an immoderate number of serious financial or operating weaknesses. Serious problems or unsafe and unsound conditions exist that are not being satisfactorily addressed 

or resolved. Unless effective actions are taken to correct these conditions, they are likely to develop into 

a situation that will impair future viability or constitute a threat to the interests of investors, borrowers, and stockholders. Risk management practices are generally unacceptable for the size, complexity, and 

risk profile of each institution in this group. A potential for failure is present but is not yet imminent or 

pronounced. Institutions in this category require close regulatory attention, financial surveillance, and a 

definitive plan for corrective action.

Rating 5—This category is reserved for institutions with an extremely high, immediate, or near-term probability of failure. The number and severity of weaknesses or unsafe and unsound conditions are so critical 

as to require urgent external financial assistance. Risk management practices are inadequate for the size, 

complexity, and risk profile of each institution in this group. In the absence of decisive corrective measures, these institutions will likely require liquidation or some form of emergency assistance, merger, or 

acquisition. 

G 

Government-sponsored enterprise (GSE)—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, as the FCS did; in other cases, the assistance is ongoing. The 

FCS is the oldest financial GSE.
Farm Credit System Insurance Corporation

34

AIRAs Allocated Insurance Reserves Accounts 

CAMELS C-Capital adequacy; A-Asset quality; M-Management quality; 

E-Earnings; L-Liquidity; and S-Sensitivity to Market Risk

CIPA Contractual Interbank Performance Agreement 

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

FCA Farm Credit Administration 

FCS Farm Credit System 

FCSIC Farm Credit System Insurance Corporation 

FDIC Federal Deposit Insurance Corporation 

FIRS Financial Institution Rating System 

Funding Corporation Federal Farm Credit Banks Funding Corporation 

Systemwide debt securities Federal Farm Credit Banks Consolidated Systemwide debt 

securities

TIPS Treasury Inflation-Protected Securities

USDA U.S. Department of Agriculture

Acronyms and Abbreviations
Protecting Investors in Agriculture and Rural America

35

Corporate Staff

Dorothy L. Nichols Chief Operating Officer 

Alan J. Glenn Director of Risk Management 

C. Richard Pfitzinger Chief Financial Officer 

James M. Morris General Counsel 

William R. Fayer Senior Resolution Specialist 

Wade Wynn Senior Risk Analyst 

Pam Ngorskul Accountant 

Jeremy L. Del Moral Financial Analyst 

Barbara Loggins Senior Administrative Specialist

Molly Sproles Administrative Management Assistant

Contact Information 

To obtain Farm Credit System quarterly and annual information statements, contact the Federal Farm 

Credit Banks Funding Corporation at the following address: 

Federal Farm Credit Banks Funding Corporation 

10 Exchange Place 

Suite 1401 

Jersey City, NJ 07302 

(201) 200-8000 

These documents are also available on the Funding Corporation’s website at www.farmcreditfunding.com.

To obtain copies of the Farm Credit Administration’s Annual Report on the Farm Credit System and the 

FCA Annual Performance and Accountability Report, contact FCA at the following address: 

Office of Congressional and Public Affairs 

Farm Credit Administration 

1501 Farm Credit Drive 

McLean, VA 22102 

(703) 883-4056 

These documents are also available on the FCA website at www.fca.gov.
Farm Credit System Insurance Corporation

36

FCSIC — Insured Banks (as of January 1, 2013)

To obtain copies of quarterly and annual reports of a Farm Credit System bank and its affiliated associations, please contact the bank directly. The mailing addresses, website addresses, and telephone numbers of 

all four System banks are provided below.

AgFirst Farm Credit Bank P.O. Box 1499

 Columbia, SC 29202-1499

(803) 799-5000

www.agfirst.com

AgriBank, FCB 30 E. 7th Street, Suite 1600

 St. Paul, MN 55101-4914

(651) 282-8800

www.agribank.com

CoBank P.O. Box 5110

 Denver, CO 80217-5110

(303) 740-4000

www.cobank.com

Farm Credit Bank of Texas P.O. Box 202590

 Austin, TX 78720-2590

(512) 465-0400

www.farmcreditbank.com

Note: Information contained on these websites is not incorporated by reference into this annual information statement and you should not consider information contained on these websites to be part of this 

annual information statement.
Farm Credit System Insurance Corporation

1501 Farm Credit Drive

McLean, VA 22102

703-883-4380 Voice

703-790-9088 Fax

www.fcsic.gov