Protecting Investors 

in Agriculture 

and Rural America 

2019 

Annual 

Report 
Mission Statement 

The Farm Credit System Insurance 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. 
Protecting Investors in Agriculture and Rural America |

July 13, 2020 

Dear Mr. President and Madam 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 2019. This report highlights 

our role as the independent federal government-controlled 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 as of December 31, 2019, was $5.2 billion. In 2019, we 

earned $222.7 million in insurance premiums from Farm Credit System banks and $94.4 million in 

investment income. In 2020, we expect to incur $4.4 million in operating costs. 

FCSIC is proud of the role we play in supporting the safety and soundness of the Farm Credit System, and 

we are committed to faithfully fulfilling our mission. 

Sincerely, 

Jeffery S. Hall 

Chairman 

The President of the United States Senate 

The Speaker of the United States House of Representatives 

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| Farm Credit System Insurance Corporation

Contents 

Message from the Chairman............................................................... 3

Board of Directors...................................................................... 4

Jeffery S. Hall ......................................................................... 5

Glen R. Smith ......................................................................... 6

2019 — Year in Review................................................................... 7

The Farm Credit System................................................................. 10

Insurance Fund Management ............................................................. 17

Investments.......................................................................... 23

Risk Management ..................................................................... 25

Financial Assistance and Resolutions ....................................................... 30

Independent Auditor’s Report ............................................................ 31

Financial Statements ................................................................... 36

Notes to the Financial Statements .......................................................... 39

Management Assurances ................................................................ 46

Compliance with the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 ........... 47

Performance Management Program ........................................................ 48

Glossary ............................................................................ 51

Acronyms and Abbreviations ............................................................. 53

Corporate Staff ....................................................................... 54

Contact Information ................................................................... 54

Banks Insured by FCSIC ................................................................ 55

Additional Information ................................................................. 56

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Protecting Investors in Agriculture and Rural America |

Message from the Chairman 

I am pleased to present the 2019 Annual Report of the Farm Credit System Insurance Corporation. It 

is gratifying to note that, for the 30th consecutive year since we began issuing financial statements, our 

independent public auditor has issued unmodified or unqualified opinions on those statements. In 2017, 

we expanded our audit coverage to include an audit of our internal control over financial reporting. 

The enclosed opinion letters indicate that the financial statements of the Farm Credit Insurance Fund, 

of which we are stewards, are fairly and accurately presented and FCSIC maintained effective internal 

control over financial reporting. 

FCSIC’s net income for 2019 was $313.2 million, compared with $282.0 million for the previous year. The 

Insurance Fund balance as of December 31, 2019, was $5.2 billion, compared with $4.95 billion at yearend 2018 (see Table 1). 

At the end of 2018, our Insurance Fund exceeded the statutory secure base amount, and we transferred 

$66.1 million to the allocated insurance reserves accounts (AIRAs). In accordance with the Farm Credit 

Act of 1971, as amended (Farm Credit Act), the FCSIC board voted to disburse the AIRAs to the System 

banks in March 2019. 

Revenue from insurance premiums paid by Farm Credit System banks was $222.7 million for 2019, 

compared with $212.5 million for 2018. Interest income for 2019 totaled $94.4 million, compared with 

$73.1 million in 2018. 

At the end of 2019, our Insurance Fund again exceeded the statutory secure base amount, and we 

transferred $62.7 million to the AIRAs. The FCSIC board voted to disburse the AIRAs to the System 

banks in March 2020. 

In accordance with the requirements of the Federal Managers’ Financial Integrity Act of 1982, management 

conducts an annual assessment of FCSIC’s internal controls. The 2019 assessment found 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. 

We will continue to carry out our mission and work in 2020 to achieve our strategic goals and objectives. 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, 

Jeffery S. Hall 

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| Farm Credit System Insurance Corporation

Board of Directors 

The Farm Credit System Insurance Corporation is managed by a three-member board of directors comprising the same 

three individuals who make up 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 (System), a nationwide network of financial cooperatives that lend to agriculture and rural America. 

Currently, the two members of the board of directors are Chairman Jeffery S. Hall and Glen R. Smith. One position remains 

vacant. As previously reported, sadly in May 2019, Board Member Dallas P. Tonsager passed away. He served two terms on 

both the FCSIC board of directors and the FCA board — first, from 2004 to 2009 and again from 2015 to 2019. He served as 

chairman of the FCSIC board from 2015 to 2016 and as chairman and CEO of the FCA board from 2016 to 2019. 

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Protecting Investors in Agriculture and Rural America |

Jeffery S. Hall 

Jeffery S. Hall is chairman of the board of directors of FCSIC. He was elected to 

this position on November 29, 2016. Mr. Hall has served on the FCSIC board 

and on the FCA board since his appointment by President Barack Obama on 

March 17, 2015. He is serving a term that expired on October 13, 2018. 

Before coming to FCSIC and FCA, Mr. Hall was president of The Capstone 

Group, an association management and consulting firm that he cofounded 

in 2009. From 2001 to 2009, he was the state executive director for the U.S. 

Department of Agriculture’s (USDA’s) Farm Service Agency in Kentucky. 

In that role, he was responsible for farm program and farm loan program 

delivery and compliance. 

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

of Kentucky, College of Agriculture, advising the dean on state and federal 

legislative activities and managing a statewide economic development 

initiative called Ag-Project 2000. 

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

McConnell from 1988 to 1994. During that time, he was the legislative assistant 

for agriculture, accountable for internal and external issue management. 

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

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

he has held leadership positions in the following nonprofits: the Kentucky 

Agricultural Council, the Agribusiness Industry Network, the Louisville 

Agricultural Club, the Kentucky Agricultural Water Quality Authority, and 

the Governor’s Commission on Family Farms. 

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

his family for more than 200 years. He is currently a partner in the farm with 

his mother and sister. Mr. Hall received a Bachelor of Science degree from 

Purdue University. 

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| Farm Credit System Insurance Corporation

Glen R. Smith 

Glen R. Smith was appointed to the Farm Credit System Insurance 

Corporation board of directors and Farm Credit Administration board by 

President Donald Trump on December 8, 2017. Mr. Smith will serve a term 

that expires May 21, 2022. 

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

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

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

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

and accepted a position with Doane Agricultural Services as state manager 

of the company’s farm real estate division. 

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

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

farm, Smith Generation Farms Inc., has grown to encompass about 2,000 

acres devoted to corn, soybeans, hay, and a small beef cow herd. 

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

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

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

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

acquisition, improvement, and exchange of Iowa farmland. Mr. Smith has 

served on numerous community, church, and professional boards. He was 

elected to the Atlantic Community School Board of Education on which he 

served for nine years. 

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

American Society of Farm Managers and Rural Appraisers. In 2000, he 

served as president of the Iowa chapter of that organization. He is a lifelong 

member of the Farm Bureau, Iowa Corn Growers Association, Iowa Soybean 

Association, and Iowa Cattlemen’s Association. 

The Smiths have four grown children and four grandchildren. Two of their 

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

managerial responsibilities for both the family farm and business. 

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Protecting Investors in Agriculture and Rural America |

2019 — Year in Review 

Modernized Resolution Authorities 

In December 2018, Congress enacted the Agriculture Improvement Act of 2018 (2018 Farm Bill), which added a new section 

5.61C to the Farm Credit Act of 1971. The amendment clarified and updated FCSIC’s statutory authorities to act as receiver 

or conservator for a System institution, making the authorities comparable to those of other federal financial regulators, and 

provided new authority for FCSIC to create, and FCA to charter, a System bridge bank. 

In light of these new authorities, FCSIC reviewed its regulations and policies and is working to implement its new statutory 

authorities. This process includes a review of the resolution regulations of comparable financial regulators and exchange of 

information with those regulators’ resolution staffs on best practices in resolution management. We continue to work with other 

regulators to develop and institute resolution training and to improve readiness in the event of a System institution failure. 

Strategic Plan Adopted 

The board approved FCSIC’s Strategic Plan 2020 – 2025 on December 12, 2019. The Strategic Plan outlines how we will continue 

to adapt over the next five years. We carry out our mission through three major program areas: 

• Insurance Fund management 

• Risk management 

• Receivership and conservatorship management 

Over the course of this plan, we will continue to foster an environment that maintains the soundness of the Insurance Fund 

by improving processes, tools, and technology to increase the efficiency and effectiveness of our operations. 

Our mission is to protect investors in insured Farm Credit System obligations and taxpayers through sound administration 

of the Farm Credit Insurance Fund. The U.S. financial sector is subject to continuing advancements and emerging risks, 

which necessitate changes in the way we conduct our business so that we continue to effectively fulfill our mission. The 

strategic challenges that may affect our programs can be grouped into four broad risk areas: 

• Agricultural and financial market factors 

• Government policy factors 

• System factors 

• Internal factors 

We recognize that we must effectively manage our resources to achieve our strategic and performance goals. This includes 

effective communication and coordination with our stakeholders. To obtain broad input while updating our plan, we 

conducted a Strategic Planning Symposium in March 2019. The symposium included a panel discussion with rating agency 

experts who evaluate the creditworthiness of the System and other financial institutions. Then, in April 2019, we hosted 

a Strategic Planning Conference that included System executives; experts in agricultural economics, cybersecurity and 

technology; the government-sponsored enterprise (GSE) debt market; Federal Home Loan Banks; and representatives from 

FCA. We also invited public comment on our draft Strategic Plan. 

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| Farm Credit System Insurance Corporation

30 Years of Clean Audit Opinions 

For 30 consecutive years, FCSIC’s public auditors have issued unmodifed or unqualified (clean) audit opinions for our 

financial statements. We take pride in our accomplishments and continue to consistently demonstrate discipline and 

accountability as stewards of the Insurance Fund. We remain proactive in the execution of sound financial management and 

in providing reliable and timely financial data to enhance decision-making. 

In 2017, we voluntarily began to implement a more comprehensive review of our internal control over financial reporting 

based on the criteria established in the Internal Control Framework (2013) promulgated by the Committee of Sponsoring 

Organizations of the Treadway Commission. We chose to adopt these criteria to improve financial reporting and achieve 

greater transparency. Since implementation of the enhanced review of internal controls, our auditors have opined that we 

have succeeded in maintaining, in all material respects, effective internal control over financial reporting based on the 

criteria in the framework. 

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Protecting Investors in Agriculture and Rural America |

Table 1 

Selected Financial Statistics for the Farm 

Credit System Insurance Corporation 

(Dollars in Millions) 

BALANCE SHEET 2019 2018 2017 

Total assets 

Total liabilities 

Insurance Fund balance 

Allocated insurance 

reserves accounts 

Unallocated Insurance 

Fund balance 

OPERATIONS 

Revenues 

Operating expenses 

Net income 

$5,201.5 $4,954.2 $4,848.4 

0.5 0.4 0.7 

62.7 66.1 175.8 

5,138.3 4,887.8 4,671.9 

317.1 285.7 398.5 

3.9 3.7 3.7 

$313.2 $282.0 $394.8 

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| Farm Credit System Insurance Corporation

The Farm Credit System 

Structure and Funding 

The Farm Credit System is a network of federally chartered, cooperative lending institutions owned by the agricultural and rural 

customers it serves, including farmers, ranchers, producers and harvesters of aquatic products, agricultural cooperatives, and farmrelated businesses. As of December 31, 2019, the System had 4 banks and 68 associations. Each association has its own chartered 

territory and is affiliated with one of the four banks. See Table 2 for the combined financial statistics for the banks and associations. 

Associations receive funding from their affiliated bank and lend directly to their owner-borrowers, providing a consistent and 

reliable source of agricultural and rural credit throughout the United States, including the Commonwealth of Puerto Rico. One of 

the System banks (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 consolidated Systemwide debt securities. The banks 

own and use the Federal Farm Credit Banks Funding Corporation (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. 

Systemwide debt securities are the general unsecured joint and several obligations of the banks. Systemwide debt securities are 

not obligations of and are not guaranteed by the U.S. government. In addition, Systemwide debt securities are not the direct 

obligations of the System associations and, as a result, the capital of the associations may not be available to support principal 

and interest payments on Systemwide debt securities. 

Investor Protection 

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

the Farm Credit Act, is to insure the timely payment of principal and interest on Systemwide debt securities purchased by 

these investors. 

Regulatory Oversight 

FCA is responsible for the examination, supervision, and regulation of each System institution. It is an independent agency in 

the executive branch of the U.S. government and derives its 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 System. 

Insured Obligations 

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

Corporation under section 4.2(c) or (d) of the Farm Credit Act. Figure 1 shows that insured debt outstanding increased by 

4.2% in 2019 to $294.4 billion, compared with an increase of 6.2% in 2018. 

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Protecting Investors in Agriculture and Rural America |

Table 2 

Combined Farm Credit System Statistics 

(Dollars in Billions) 

2019 2018 2017 

Insured debt outstanding1 

Real estate mortgage loans 

Production and intermediate-term loans 

Agribusiness loans: 

Processing and marketing 

Loans to cooperatives 

Farm-related business 

Rural infrastructure loans: 

Power 

Communication 

Water/Waste water 

Rural residential real estate loans 

Agricultural export finance loans 

Lease receivables 

Loans to other financing institutions 

Cash and investments 

Net income 

Nonperforming loans as a percentage 

of total loans 

$294.4 $282.5 $266.0 

132.2 126.3 120.6 

56.1 53.4 51.7 

28.2 24.8 21.6 

17.8 17.6 17.3 

4.1 3.7 3.3 

19.4 20.1 19.7 

7.9 6.8 6.3 

2.4 2.3 2.0 

7.4 7.3 7.3 

6.7 6.6 5.6 

3.9 3.6 3.7 

0.9 0.8 0.8 

68.3 67.9 61.8 

5.4 5.3 5.2 

0.8% 0.8% 0.8% 

Source: Federal Farm Credit Banks Funding Corporation 

Note: In its 2019 Annual Information Statement, the Federal Farm Credit Banks Funding Corporation revised its numbers for real estate mortgage loans for 2018 

and 2017. For 2018, it originally reported $124.9 billion; for 2017, it reported, $119.5 billion. 

1. Insured debt outstanding is based on System institution call report information and reflects the book value of insured debt outstanding plus accrued interest 

as of December 31, 2019, 2018, and 2017. (Book value excludes fair-value adjustments.) 

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| Farm Credit System Insurance Corporation

Figure 1 

Insured Debt Outstanding: 

Growth Averaged 5.5% Over the Past Five Years 

(Dollars in Billions) 

Note: Insured debt outstanding, which is based on the call report information provided by System institutions, reflects the book value of 

insured debt outstanding, plus accrued interest. (Book value excludes fair-value adjustments.) 

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Protecting Investors in Agriculture and Rural America |

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 to secure the 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, and the banks 

ultimately repay Systemwide debt securities. 

All the banks and associations currently 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, FCSIC would use the Insurance Fund to make the payment on its behalf. If the assets in the Insurance Fund were 

exhausted, the Farm Credit Act’s provisions for joint and several liability would be triggered, requiring the other System 

banks to repay the defaulting bank’s portion of the debt. 

As Figure 2 shows, the amount of System bank capital plus the balance in the Insurance Fund increased more than 25% from 

$20.6 billion at year-end 2015 to $25.9 billion at year-end 2019. Bank capital plus the amount in the Insurance Fund as a 

percentage of insured debt outstanding increased from 8.5% in 2015 to 8.8% in 2019 (see Figure 3). Without the Insurance 

Fund, bank capital as a percentage of insured debt was 6.8% and 7.0% at year-ends 2018 and 2019, respectively. 

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

institutions continue to experience stress from credit deterioration in certain agricultural sectors. (See trends in the Financial 

Institution Rating System [FIRS] in the “Risk Management” section beginning on page 25.) 

A bank’s credit exposure to borrowing associations is partially mitigated by the associations’ capital levels. Increases in 

System associations’ capital levels, the result of higher retention levels of association net incomes, further reduces credit risk. 

As Figure 4 shows, from 2015 to 2019, combined association capital increased $9.1 billion — an annual average increase of 

approximately 6.3%. Since 2015, the associations have collectively achieved solid earnings and preserved capital, causing 

association capital as a percentage of total association assets to increase to 19.3% in 2019 from 18.7% in 2015 (see Figure 5). 

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| Farm Credit System Insurance Corporation

Figure 2 

Bank Capital Plus Insurance Fund 

(Dollars in Billions) 

Figure 3 

Bank Capital Plus Insurance Fund as Percentage of Insured Debt 

9.5% 

 

 

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Protecting Investors in Agriculture and Rural America |

Figure 4 

Combined Association Capital 

(Dollars in Billions) 

Figure 5 

Combined Association Capital as Percentage of Total Association Assets 

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| Farm Credit System Insurance Corporation

Risk Management Tools 

Farm Credit System banks use risk management tools to 

protect investors. One 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 

contains triggers that financially penalize banks that do 

not meet performance standards. 

The System banks and the Funding Corporation have also 

entered into the Market Access Agreement. The Market 

Access Agreement establishes conditions for each bank’s 

continued participation in the debt market. If a bank fails 

to meet agreed-upon performance measures, it may be 

restricted from issuing debt. The performance criteria used 

under the Market Access Agreement are the CIPA scores 

and the bank’s tier 1 leverage and total capital ratios. 

The Farm Credit Administration’s liquidity regulation 

requires the banks to effectively manage liquidity risk and maintain a three-tiered liquidity reserve to better withstand a 

liquidity crisis. Each System bank is authorized to hold eligible investments in an amount not to exceed 35% of its total 

outstanding loans for the purposes of maintaining a liquidity reserve, managing short-term surplus funds, and managing 

interest rate risk. 

The liquidity reserve must always consist of readily marketable instruments that are sufficient to fund at least 90 days of the 

principal portion of on-balance-sheet maturing obligations. The liquidity reserve must consist of level 1 instruments to cover 

the principal portion of each bank’s on-balance-sheet maturing obligations for the first 15 days; level 1 and 2 instruments 

sufficient to cover days 16 to 30; and level 1, 2, and 3 instruments to cover days 31 to 90. Level 1 instruments include cash, 

overnight money market investments, obligations of U.S. government agencies with a final remaining maturity of 3 years or 

less, non-System government-sponsored enterprise (GSE) senior debt securities that mature within 60 days and diversified 

investment funds comprised exclusively of level 1 instruments. Level 2 instruments include obligations of U.S. government 

agencies with a final remaining maturity of more than 3 years, mortgage-backed securities that are fully guaranteed by a 

U.S. government agency as to the timely repayment of principal and interest, and diversified investment funds comprised 

exclusively of level 1 and 2 instruments. Level 3 instruments include non-System GSE senior debt securities with maturities 

exceeding 60 days, mortgage-backed securities that are fully guaranteed by a GSE as to the timely repayment of principal and 

interest, money market instruments maturing within 90 days, and diversified investment funds comprised exclusively of level 

1, 2, and 3 instruments. All four System banks exceeded these requirements in 2019. 

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Protecting Investors in Agriculture and Rural America |

Insurance Fund Management 

The Insurance Fund and the Secure Base Amount 

The Farm Credit Insurance Fund is FCSIC’s equity; it is the difference between total assets and total liabilities, including 

insurance obligations. The Insurance Fund is composed of an unallocated insurance fund (the portion of the Insurance Fund 

for which no specific use has been designated) and an allocated insurance fund (the portion of the Insurance Fund that has 

been transferred to the allocated insurance reserves accounts [AIRAs]). 

The Farm Credit Act established the secure base amount as 2% of the aggregate outstanding insured obligations (adjusted to 

exclude 90% of federal government–guaranteed loans and investments and 80% of state government–guaranteed loans and 

investments). Table 3 shows how the secure base amount is calculated. The Farm Credit Act also gives FCSIC the discretion 

to choose another percentage that we determine to be actuarially sound to maintain the Insurance Fund, considering the risk 

of insuring outstanding debt obligations. 

FCSIC’s premiums are set with the goal of reaching and maintaining the 2% secure base amount. However, if growth of 

insured debt is greater than forecast when premium rates are established (or the Fund is used for some authorized purpose), 

the Insurance Fund will end the year below the secure base amount, and FCSIC will need to collect additional premiums in 

the following year to make up the shortfall. If growth of insured debt is less than forecasted when premium rates are set, then 

the Insurance Fund may end the year above the secure base amount. 

If the Insurance Fund exceeds the secure base amount at the end of any calendar year, FCSIC allocates the excess amounts, 

minus operating expenses and insurance obligations, to the AIRAs established by Congress for the benefit of the System 

banks and holders of Financial Assistance Corporation (FAC) stock. 

Once FCSIC determines that the allocation is appropriate and that the AIRA funds are not otherwise needed, FCSIC may 

pay the amounts in the AIRAs to the account-holders in accordance with the formula specified in the Farm Credit Act. FAC 

stockholders receive 10% of any distribution until they have received $55.8 million under the terms of the Farm Credit Act. 

In 2010, FCSIC returned a total of $205.3 million to System institutions, with $20.5 million paid to FAC stockholders. In 

2012, FCSIC returned a total of $221.9 million, with $22.2 million paid to FAC stockholders. In 2018, FCSIC returned a total 

of $175.8 million, with $13.1 million paid to FAC stockholders, completing the payoff of outstanding FAC shares. 

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| Farm Credit System Insurance Corporation

- - -

Table 3 

Calculation of Secure Base Amount 

(Dollars in Millions) 

12/31/2019 5/31/2019 12/31/2018 

Total principal and interest of debt outstanding $294,378 $283,199 $282,543 

Less: 

90% federal government–guaranteed loans 

80% state government–guaranteed loans 

90% federal government–guaranteed 

investments 

80% state government–guaranteed 

investments 

Total deduction 

Adjusted insured debt 

Secure base amount (2.00%) 

Unallocated and allocated Insurance 

Fund balance 

Unallocated and allocated Insurance Fund 

as a percentage of adjusted insured debt 

(7,206) (6,892) (5,708) 

(17) (19) (20) 

(30,462) (31,340) (32,641) 

(37,685) (38,251) (38,369) 

256,693 244,948 244,174 

5,134 4,899 4,883 

5,201 5,019 4,954 

2.03% 2.05% 2.03% 

Both total Insurance Fund and total assets increased by 5.0% to $5.20 billion in 2019 (see Figure 6). Insured debt outstanding 

grew $11.8 billion in 2019 (4.2%). The Insurance Fund finished 2019 at 2.03%, $67.2 million above the secure base amount 

(see Figure 7). Consequently, after deducting for 2020 operating expenses, $62.7 million was transferred to the AIRAs. 

The Insurance Fund finished 2018 at 2.03%, $70.4 million above the secure base amount. Consequently, $66.1 million was 

transferred to the AIRAs. 

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Protecting Investors in Agriculture and Rural America |

Figure 6 

Insurance Fund Balances 

(Dollars in Billions) 

Figure 7 

Insurance Fund Relative to 2% Secure Base Amount 

 

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| Farm Credit System Insurance Corporation

Premiums 

The FCSIC board reviews premium assessment rates as often as necessary but at least semiannually. The 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 requires premium assessments to be 20 basis points on adjusted insured debt outstanding unless they are 

reduced by the board of directors. There is a risk surcharge of up to 10 basis points on nonaccrual loans and on other-thantemporarily impaired investments. In addition, the Farm Credit Act reduces the total insured debt on which premiums are 

assessed and requires premiums to be based on outstanding insured debt obligations adjusted downward by 90% of federal 

government–guaranteed loans and investments and by 80% of state government–guaranteed loans and investments. 

The FCSIC board set the assessment rate on adjusted insured debt at 9 basis points for 2019. The most important factors in 

determining premium rates were the Insurance Fund balance and prospects for Systemwide debt growth during the year. The 

unallocated Insurance Fund began 2019 at 2.00% of the secure base amount. 

During 2019, insured debt outstanding increased by 4.2%. The Insurance Fund finished 2019 above the 2% secure base level, 

at 2.03% of adjusted insured obligations or $67.2 million above the target level. 

The board of directors decreased the assessment rate on adjusted insured debt to 8 basis points for 2020. The board also 

continued the risk surcharge of 10 basis points on nonaccrual loans and other-than-temporarily impaired investments. 

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Protecting Investors in Agriculture and Rural America |

Revenues and Expenses 

FCSIC operates with no annually appropriated funds. We collect insurance premiums from each Farm Credit System bank. 

These premiums and the income from our investment portfolio provide the funds necessary to fulfill our mission. 

Our revenues increased by 11.0% to $317.1 million in 2019 from $285.7 million in 2018 (see Figure 8). Interest income 

increased 29.1% in 2019 to $94.4 million from $73.1 million in 2018. 

To avoid duplication of effort and to minimize costs, we operate with a small core staff and use private- and public-sector 

contractors to leverage our efforts. The board of directors and management adopted this model as a cost-effective and 

efficient way to use available expertise, services, and resources to accomplish our mission. 

Our operating costs as a percentage of total assets represented 7 basis points for 2019, unchanged from 2018. Costs for staff 

salaries, travel, rent, and miscellaneous expenses were $3.1 million of the $3.9 million total for the year (see Figure 9). The 

remaining expenses of $0.8 million were for contract services. 

Figure 8 

FCSIC Revenues 

(Dollars in Millions) 

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| Farm Credit System Insurance Corporation

Figure 9 

FCSIC Operating Expenses 

(Dollars in Millions) 

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Protecting Investors in Agriculture and Rural America |

Investments 

FCSIC’s investments increased from $4.4 billion as of year-end 2018 to $4.9 billion as of year-end 2019 (see Figure 10). 

The increase occurred primarily because of higher investment portfolio yields in 2019 and because we had an investment 

of $200.7 million that matured on December 31, 2018, and the funds were placed in the overnight investment account 

and reclassified as “cash and cash equivalents.” In early 2019, the $200.7 million was invested in accordance with FCSIC 

board policy. 

Our primary investment objective is to ensure adequate liquidity of the Insurance Fund to meet our mission. Our secondary 

objective is to optimize the rate of return on our investment portfolio. Funds are invested in U.S. Treasury securities in 

accordance with the Farm Credit Act and our investment policy. 

We use benchmarks to enhance our ability to assess portfolio performance. Three weighted-average Treasury yield 

benchmarks serve as primary benchmarks. Two Treasury index funds serve as secondary benchmarks. These index funds 

are considered secondary benchmarks because a portion of their returns is generated through trading. The FCSIC Policy 

Statement Concerning Investments prohibits trading for capital gains purposes. 

In 2019, the average FCSIC investment portfolio yield was 1.94%, up from 1.56% in 2018. The average yield for the primary 

benchmarks ranged from 1.89% to 2.05%. Most primary benchmarks exceeded the average fund yield because some of the 

securities in the portfolio were purchased in prior years when rates were much lower. The average yield for the secondary 

benchmarks ranged from 3.38% to 3.71% for 2019. The secondary benchmark portfolios trade for gain; FCSIC is a hold-tomaturity investor precluded from trading for gain. 

In accordance with our 2019 investment policy, our portfolio is composed of a liquidity pool and an investment 

pool. The liquidity pool consists of short-term Treasury securities maturing in 2 years or less. The investment pool 

is composed of Treasury securities with maturities that vary from 2 to 10 years. Our investment policy requires the 

liquidity pool to be at least 20% of the portfolio. The policy also states that securities maturing in 5 to 10 years must not 

exceed 20% of the portfolio. 

The weighted-average maturity of the portfolio at year-end was 1.63 years. The composition of the investment portfolio as 

of December 31, 2019, is shown in Figure 11. 

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. TIPS have experienced monthly inflation or deflation adjustments, but the United States has not had 

an annual deflationary environment since 1954, more than 65 years ago. Because of the volatility of the monthly returns on 

TIPS and the risk of loss resulting from deflation, the FCSIC Investment Committee limits TIPS to no more than 20% of the 

portfolio. At year-end 2019, our TIPS investments totaled $85.3 million or 1.7% of the investment portfolio. 

23 
| Farm Credit System Insurance Corporation

Figure 10 

FCSIC Investments 

(Dollars in Billions) 

Note: Total investments reflected on this chart do not include overnight investments classified as "cash and cash equivalents" from the balance sheet. 

Figure 11 

Investment Portfolio by Maturity as of December 31, 2019 

(Dollars in Millions) 

Note: Total investments reflected in this chart include overnight investments classified as “cash and cash equivalents” from the balance sheet. 

24 
Protecting Investors in Agriculture and Rural America |

Risk Management 

FCSIC’s Risk Profile 

FCSIC’s primary purpose is to insure the timely payment of principal and interest on Systemwide debt securities. The System 

banks, through the jointly owned Federal Farm Credit Banks Funding Corporation, issue Systemwide debt securities, insured 

by FCSIC, to fulfill their mission. Anything impairing the System banks’ ability to repay their insured debt constitutes an 

insurance risk. To carry out our mission, FCSIC monitors conditions in the farm, rural, domestic, and global economies that 

affect the System’s ability to repay insured debt obligations. 

FCSIC’s Insurance Fund is exposed to a variety of risks, some inherent in insuring financial institutions and others specific to 

the System. Examples of specific events that could increase risk to the Insurance Fund include the following: 

• Material reduction in System bank capital 

• Material adverse change in the System banks’ ability to access debt markets 

• Catastrophic operational failure at a System institution related to a control deficiency or cybersecurity breach 

• Inadequate governance at a System institution such as a failed business strategy or mismanagement of the organization 

• Significant, rapid, or unexpected credit deterioration resulting from adversity in the agricultural sector 

Major categories of risk monitored by FCSIC include the following: 

Credit risk — the risk of default on a debt that may arise from a borrower failing to make required payments. Credit risk 

includes consideration of loan concentrations and other broad elements of System institution portfolios. FCSIC primarily 

focuses on credit risk issues affecting the underlying agricultural borrowers’ ability to repay their debts to individual System 

institutions. These risks include the following: 

• Changes in farmland values 

• Price volatility for agricultural commodities 

• Changes in government support programs for agricultural producers 

• Changes in supply and demand for U.S. agricultural products 

• Changes in international trade and the value of the U.S. dollar 

• Changes in production costs 

• Changes in the domestic economy that affect incomes from off-farm jobs 

• Weather and environmental conditions 

• Environmental and regulatory compliance costs 

• Availability of agricultural workers 

Liquidity risk — the risk that an institution may be unable to meet short-term financial demands without unacceptable losses. 

The System relies on its ability to regularly issue new debt obligations, in part to pay maturing obligations. The System banks 

also hold liquidity investments that are available if needed. A significant disruption in the System banks’ ability to issue new 

debt obligations or sell liquidity investments would impair their ability to repay insured obligations. As further discussed on 

page 30, FCSIC has procedures in place to provide liquidity assistance to System banks if external market circumstances make 

it likely that the banks will be unable to pay maturing insured obligations. 

25 
| Farm Credit System Insurance Corporation

Interest rate risk — the risk that changes in interest rates may reduce the value of assets with a consequent negative impact on 

operating results and financial condition. 

Operational risk — the prospect of losses resulting from inadequate or failed procedures, controls, systems, or policies, 

including employee errors, systems failures, or fraud or other unauthorized activity. Operational risk also includes inadequate 

defenses against cyberthreats. 

Strategic risk — the risk that a failed business strategy, decision, or series of decisions leads to losses. 

Structural risk — the risk related to the design of the Farm Credit System. For example, as a lender to a single industry 

(agriculture), the System has a built-in concentration risk. Also, any changes to the System’s fundamental organization, such as 

an alteration in the supervisory relationship between System banks and associations, may create risk to the Insurance Fund. 

Reputational risk — the risk resulting from events that affect the reputation of the System or the agriculture industry. Such 

events may affect the System’s funding costs depending on market reaction. 

Political risk — the risk of loss of support from federal and state governments. This includes any change in government 

support for government-sponsored enterprises. 

The Risk Environment in 2019 

The U.S. economy grew at a moderate pace during 2019. Real gross domestic product (GDP) increased at an annual rate of 

2.3%, after growing 2.9% in 2018. Consumer spending rose 2.6% for 2019, compared with a 3.0% increase in 2018. The strong 

labor market contributed to the increase. The housing sector was a headwind for growth in 2019, as residential investment 

contracted 1.5%. Business investment grew 1.8% for 2019, compared with 5.1% in 2018. Businesses were noticeably more 

cautious in 2019 in view of the trade dispute between the United States and China. Exports were flat for 2019, while imports 

rose 1.0%, expanding the trade deficit. 

The Federal Open Market Committee (FOMC) lowered rates three times in 2019 as uncertainty over future economic 

performance emerged. The federal funds rate was in the range of 1.50% to 1.75% as of year-end 2019. The unemployment 

rate was at 3.5% (a 50-year low) at the end of 2019. Low unemployment provided a meaningful counterweight to slower 

global growth and trade tensions. The FOMC’s preferred measure of inflation, the core personal consumption expenditures 

price index, rose only 1.6% in 2019, well below the inflation target of 2.0%. Muted inflation and slower global economic 

growth largely contributed to the lower interest rate environment. 

Agriculture continued to experience challenges in 2019. The expanding U.S. economy supported farm household income, but 

low commodity prices continued to weigh on farm income. 

Farmland values remained stable in 2019 as interest rates declined. Stable real estate values allowed borrowers to restructure 

debt and address cash flow and liquidity needs. 

The System reported net income of $5.5 billion for 2019, up 2.1% from $5.3 billion in 2018. The net interest margin was 

2.42% for 2019 compared with 2.46% for 2018. The net interest rate spread was 2.04% for 2019 compared with 2.12% in 

2018. The decrease in net interest rate spread is largely attributable to an increase in debt costs and lower lending spreads 

due to competitive pressures. 

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Protecting Investors in Agriculture and Rural America |

The System’s loan volume increased $13.6 billion or 5.0% to $287.0 billion at year-end 2019 compared with $273.4 billion at 

the end of 2018. The growth was primarily due to increased real estate mortgages, agribusiness loans, and production and 

intermediate-term loans. 

System credit quality remained generally stable in 2019. Nonaccrual loans increased $27 million, or 1.4%, to $1.9 billion at 

December 31, 2019. The increase was primarily due to credit quality deterioration affecting a limited number of loans in the 

dairy, cattle, and nut industries. The ratio of nonaccrual loans to total loans outstanding was 0.67% at December 31, 2019, 

compared with 0.69% at December 31, 2018 (see Figure 12). 

Figure 12 

Nonaccrual Loans as a Percentage of Total Loans Outstanding 

 

Source: Federal Farm Credit Banks Funding Corporation 

The allowance for loan losses was $1.8 billion at December 31, 2019, an increase of $93 million, or 5.4%, above the $1.7 

billion at December 31, 2018. The allowance for loan losses represents the aggregate of each System entity’s individual 

evaluation of its allowance for loan losses requirements. Managements’ evaluations consider factors that include loan loss 

experience, portfolio quality, and loan portfolio composition, collateral value, current agricultural production, and economic 

conditions. Although aggregated for the System’s combined financial statements, the allowance of each entity is specific to 

that institution and is not available to absorb losses at other System entities. 

The System continued to have reliable access to the debt markets to support its mission. Investor demand for Systemwide 

insured debt securities remained favorable across all products. The System is a government-sponsored enterprise 

that continues to benefit from broad access to domestic and global capital markets, providing a dependable source of 

competitively priced debt. 

27 
| Farm Credit System Insurance Corporation

FCA’s capital rule for banks and associations, effective January 1, 2017, is comparable to the Basel III standardized approach 

adopted by the federal banking regulatory agencies. FCA’s regulatory minimums include a 4.5% common equity tier 1 riskbased capital ratio, a 6.0% tier 1 risk-based capital ratio, an 8.0% total risk-based capital ratio, and a 4.0% tier 1 leverage ratio, 

of which at least 1.5% must be composed of unallocated retained earnings (URE) and URE equivalents. The risk-based capital 

ratios also include a 2.5% common equity tier 1 capital conservation buffer. The tier 1 leverage ratio includes a 1.0% leverage 

buffer. As of December 31, 2019, all System institutions exceeded the regulatory minimum and buffer requirements. 

FCA authorizes each System bank to hold eligible investments in an amount not to exceed 35% of its total outstanding loans 

for the purposes of maintaining a liquidity reserve, managing short-term funds, and managing interest rate risk. The liquidity 

reserve must consist of marketable investments that are sufficient to fund 90 days of on-balance-sheet maturing obligations. 

The System reported a combined $66.0 billion in cash and available-for-sale investments with a liquidity position of 177 days 

at year-end 2019 compared with 182 days at year-end 2018. 

The System banks are further required to maintain a three-tiered liquidity reserve, consisting of level 1 instruments to cover 

each bank’s maturing obligations for the first 15 days, level 1 and 2 instruments sufficient to cover days 16 to 30, and level 1, 2, 

and 3 instruments to cover days 31 to 90. All four System banks exceeded these requirements in 2019. 

The System banks have established contingency funding plans to provide for events that could impede access to the debt 

markets. The System banks also regularly perform credit and liquidity stress testing to determine their ability to withstand 

severe market events while continuing to fulfill their mission. 

Figure 13 shows a summary of composite year-end FIRS ratings for System banks and associations. Institutions with 

performance-related issues continued to receive greater examination scrutiny and supervisory attention from FCA. 

28 
Protecting Investors in Agriculture and Rural America |

Figure 13 

FIRS Composite Year-End Ratings for Banks and 

Associations of the Farm Credit System 

Source: FCA 

29 
| Farm Credit System Insurance Corporation

Financial Assistance and Resolutions 

FCSIC has statutory authority to provide “stand-alone assistance” to a System bank or association for any of the following reasons: 

• To prevent the placing of the institution in receivership 

• To restore the institution to “normal operations” 

• To reduce the risk to FCSIC posed by the institution when “severe financial conditions” threaten the stability 

of the banks 

FCSIC may also provide assistance to facilitate mergers or consolidations. 

At present, no assistance agreements are outstanding. If a System institution needs financial assistance, FCSIC must ensure 

that the proposed assistance is the least costly means for resolving the institution’s problems; by law, FCSIC cannot provide 

financial assistance if the cost of liquidation is lower than the cost of providing assistance. 

FCSIC has procedures in place in the event System banks require liquidity assistance because severe financial conditions 

threaten the banks’ ability to repay maturing insured debt. The procedures implement FCSIC’s Policy Statement Concerning 

Assistance. Along with the procedures, we developed a model assistance agreement, drafted necessary forms related to 

valuation of collateral and liquidity reserves, and entered into a collateral pledge agreement with each bank and a collateral 

custodian. We review the procedures annually to evaluate if changes are needed. 

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

associations. As conservator, we will operate the institution as a going concern. Upon appointment as receiver, we will 

take possession of a System institution to settle its business operations, collect the debts owed to it, liquidate its property 

and assets, pay its creditors, and distribute any remaining proceeds to stockholders. The Agriculture Improvement Act of 

2018 (2018 Farm Bill) clarified and updated FCSIC’s statutory authorities to act as receiver or conservator for a System 

institution. Congress stated its intent in the 2018 Farm Bill Conference Report that FCSIC’s authorities be “functionally 

equivalent to the parallel authorities of the Federal Deposit Insurance Corporation.” The 2018 Farm Bill also provided new 

authority for FCSIC to create, and FCA to charter, a System bridge bank, which is an important tool for resolving a failed 

bank. There are no active receiverships or conservatorships in the System. 

We use contractors on an as-needed basis so that we can continue to operate with a small core staff while also maintaining 

our readiness to act as receiver or conservator. These contractors provide knowledgeable and readily available staff resources 

while allowing us to contain costs during periods of limited or no activity. 

Our staff also maintains contact with the resolution staff of the Federal Deposit Insurance Corporation and the National Credit 

Union Administration to stay informed about best practices and exchange information concerning receivership management. 

We have several board-approved policy statements that provide guidance related to resolution activities, including appraisal 

of real estate securing nonperforming assets, insurance of assets that come under our control, and environmental hazards 

assessments of real estate securing nonperforming assets. The FCSIC board must review and approve policy statements 

every five years. 

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Independent Auditor’s Report

Protecting Investors in Agriculture and Rural America | 31 

Farm Credit System Insurance 

Corporation 

Audited Financial Statements 

For the Years Ended December 31, 2019 and 2018 

The report accompanying these financial statements was issued by 

BDO USA, LLP, a Delaware limited liability partnership and the U.S. member 

of BDO International Limited, a UK company limited by guarantee. 
| Farm Credit System Insurance Corporation

Independent Auditor’s Report

 

 

 

Farm Credit System Insurance Corporation 

Contents 

Independent Auditor’s Report F1 - F3 

Financial Statements 

Statements of Financial Condition F4 

Statements of Income and Expenses and Changes in Insurance Fund F5 

Statements of Cash Flows F6 

Notes to the Financial Statements F7 - F12 

Management’s Report on Internal Control Over Financial Reporting F13 

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Independent Auditor’s Report 

Board of Directors 

Farm Credit System Insurance Corporation 

McLean, Virginia 

Report on the Financial Statements and Internal Control 

We have audited the accompanying financial statements of the Farm Credit System Insurance 

Corporation (FCSIC), which comprise the statements of financial condition as of December 31, 

2019 and 2018, and the related statements of income and expenses and changes in Insurance Fund 

and cash flows for the years then ended, and the related notes to the financial statements. We 

also have audited FCSIC’s internal control over financial reporting as of December 31, 2019, based 

on the criteria established in Internal Control-Integrated Framework (2013) issued by the 

Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). 

Management’s Responsibility for the Financial Statements and Internal Control Over 

Financial Reporting 

Management is responsible for the preparation and fair presentation of these financial statements 

in accordance with accounting principles generally accepted in the United States of America; this 

includes the design, implementation and maintenance of effective internal control over financial 

reporting relevant to the preparation and fair presentation of financial statements that are free 

from material misstatement, whether due to fraud or error. Management is also responsible for 

its assessment about the effectiveness of internal control over financial reporting, which is 

included in the accompanying Management’s Report on Internal Control Over Financial Reporting. 

Auditor’s Responsibility 

Our responsibility is to express an opinion on these financial statements and an opinion on the 

entity’s internal control over financial reporting based on our audits. We conducted our audit in 

accordance with auditing standards generally accepted in the United States of America; the 

standards applicable to financial audits contained in Government Auditing Standards issued by 

the Comptroller General of the United States; and Office of Management and Budget (OMB) 

Bulletin No. 19-03, Audit Requirements for Federal Financial Statements. Those standards require 

that we plan and perform the audit to obtain reasonable assurance about whether the financial 

statements are free from material misstatement and whether effective internal control over 

financial reporting was maintained in all material respects. 

An audit of financial statements involves performing procedures to obtain audit evidence about 

the amounts and disclosures in the financial statements. The procedures selected depend on the 

auditor’s judgment, including the assessment of the risks of material misstatement of the 

financial statements, whether due to fraud or error. In making those risk assessments, the auditor 

considers internal control relevant to the entity’s preparation and fair presentation of the 

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part 

of the international BDO network of independent member firms. 

BDO is the brand name for the BDO network and for each of the BDO Member Firms. 

F1 

33 
| Farm Credit System Insurance Corporation

Independent Auditor’s Report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

financial statements in order to design audit procedures that are appropriate in the 

circumstances. An audit of financial statements also includes evaluating the appropriateness of 

accounting policies used and the reasonableness of significant accounting estimates made by 

management, as well as evaluating the overall presentation of the financial statements. 

An audit of internal control over financial reporting involves performing procedures to obtain 

evidence about whether a material weakness exists. The procedures selected depend on the 

auditor’s judgment, including the assessment of the risk that a material weakness exists. An audit 

of internal control over financial reporting also involves obtaining an understanding of internal 

control over financial reporting and testing and evaluating the design and operating effectiveness 

of internal control over financial reporting based on the assessed risk. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a 

basis for our audit opinion. 

Definition and Inherent Limitations of Internal Control over Financial Reporting 

An entity’s internal control over financial reporting is a process effected by those charged with 

governance, management, and other personnel, designed to provide reasonable assurance 

regarding the preparation of reliable financial statements in accordance with generally accepted 

accounting principles in the United States of America. An entity’s internal control over financial 

reporting includes those policies and procedures that (1) pertain to the maintenance of records 

that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the 

assets of the entity; (2) provide reasonable assurance that transactions are recorded as necessary 

to permit preparation of financial statements in accordance with generally accepted accounting 

principles in the United States of America, and that receipts and expenditures of the entity are 

being made only in accordance with authorizations of management and those charged with 

governance; and (3) provide reasonable assurance regarding prevention, or timely detection and 

correction of unauthorized acquisition, use, or disposition of the entity’s assets that could have 

a material effect on the financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent, or 

detect and correct, misstatements. Also, projections of any assessment of effectiveness to future 

periods are subject to the risk that controls may become inadequate because of changes in 

conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

Opinion 

In our opinion, the financial statements referred to above present fairly, in all material respects, 

the financial condition of the Farm Credit System Insurance Corporation as of December 31, 2019 

and 2018, and the results of its operations and its cash flows for the years then ended in 

accordance with accounting principles generally accepted in the United States of America. Also, 

in our opinion, the Farm Credit System Insurance Corporation maintained, in all material respects, 

effective internal control over financial reporting as of December 31, 2019 based on the COSO 

criteria. 

F2 

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Compliance and Other Matters 

As part of obtaining reasonable assurance about whether the Farm Credit System Insurance 

Corporation's financial statements are free from material misstatement, we also performed tests 

of its compliance with certain provisions of laws, regulations, contracts and grant agreements, 

noncompliance with which could have a direct and material effect on the determination of 

financial statement amounts. However, providing an opinion on compliance with those provisions 

was not an objective of our audit, and accordingly, we do not express such an opinion. The results 

of our tests disclosed no instances of noncompliance or other matters that are required to be 

reported under U.S. Government Auditing Standards and OMB Bulletin No. 19-03. 

Potomac, Maryland 

February 6, 2020 

F3 

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| Farm Credit System Insurance Corporation

Independent Auditor’s Report

 

 

 

 

 

 

 

 

Farm Credit System Insurance Corporation 

Statements of Financial Condition 

(Dollars in thousands)

December 31, 2019 2018 

Assets

 Cash and cash equivalents 

Investments in U.S. Treasury obligations 

Premiums receivable 

Accrued interest receivable 

Property and equipment, net 

$ 103,408 

4,853,235 

222,676 

22,178 

44 

$ 287,767 

4,436,617 

212,524 

17,259 

60 

Total assets $ 5,201,541 $ 4,954,227 

Liabilities and Insurance Fund 

Liabilities 

Accounts payable and accrued expenses $ 530 $ 367 

Total liabilities 530 

Insurance Fund 

Allocated Insurance Reserves Accounts (AIRAs) 62,714 66,061 

Unallocated Insurance Fund 5,138,297 4,887,799 

Total Insurance Fund 5,201,011 4,953,860 

Total liabilities and Insurance Fund $ 5,201,541 $ 4,954,227 

See accompanying notes to the financial statements.

F4 

367 

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Farm Credit System Insurance Corporation 

Statements of Income and Expenses and Changes in Insurance Fund 

(Dollars in thousands)

Year ended December 31, 2019 2018 

Income

 Premiums $ 222,676 $ 212,524 

Interest income 94,435 73,141 

Total income 317,111 285,665 

Expenses 

Administrative operating expenses 3,899 3,691 

Total expenses 3,899 3,691 

Net income 313,212 281,974 

Insurance Fund - beginning of year 4,953,860 4,847,718 

Payments to AIRAs accountholders (66,061) (175,832) 

Insurance Fund - end of year $ 5,201,011 $ 4,953,860 

See accompanying notes to the financial statements.

F5 

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| Farm Credit System Insurance Corporation

Independent Auditor’s Report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm Credit System Insurance Corporation

 Statements of Cash Flows 

(Dollars in thousands)

Year ended December 31, 2019 2018 

Cash flows from operating activities 

Net income $ 313,212 $ 281,974 

Adjustments to reconcile net income to net cash 

provided by operating activities: 

Depreciation 16 18 

Net amortization and accretion of investments (7,682) 3,627 

(Increase) decrease in premiums receivable (10,152) 128,041 

(Increase) decrease in accrued interest receivable (4,919) 4,635 

Decrease in other receivables - 30,012 

Increase (decrease) in accounts payable and accrued 

expenses 163 (312) 

Net cash provided by operating activities 290,638 447,995 

Cash flows from investing activities 

Payments for purchase of U.S. Treasury obligations (3,206,617) (1,436,080) 

Proceeds from maturity of U.S. Treasury obligations 2,797,681 1,450,071 

Net cash (used in) provided by investing activities (408,936) 13,991 

Cash flows from financing activity 

Payment to AIRAs accountholders (66,061) (175,832) 

Net cash used in financing activity (66,061) (175,832) 

Net change in cash and cash equivalents (184,359) 286,154 

Cash and cash equivalents, beginning of year 287,767 1,613 

Cash and cash equivalents, end of year $ 103,408 $ 287,767 

See accompanying notes to the financial statements.

F6 

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Farm Credit System Insurance Corporation 

Notes to the Financial Statements 

Note 1: Organization and Summary of Significant Accounting Policies 

Farm Credit Insurance Fund (Insurance Fund): Statutory Framework 

The Agricultural Credit Act of 1987 established the Farm Credit System Insurance Corporation (the 

Corporation or FCSIC) for the purpose of ensuring the timely payment of principal and interest on 

notes, bonds, debentures, and other obligations issued under subsection (c) or (d) of section 4.2 of 

the Farm Credit Act of 1971, as amended (the Farm Credit Act). Each bank in the Farm Credit System 

(System) participating in insured obligations is an insured System bank. At December 31, 2019 and 

2018, there were four insured System banks. Also, at December 31, 2019 there were 68 direct 

lender associations, compared to 69 at December 31, 2018. 

The Corporation is managed by a board of directors consisting of the same individuals as the Farm 

Credit Administration (FCA) board except that the chairman of the FCA board may not serve as the 

chairman of the Corporation's board of directors. 

The Corporation must spend amounts in the Insurance Fund necessary to: 

1. Insure the timely payment of interest and principal on insured obligations; and 

2. Ensure the retirement of eligible borrower stock at par value under section 4.9A of the 

Farm Credit Act. 

The Corporation, in its sole discretion, is authorized to expend amounts to provide financial 

assistance to System banks and direct lender associations. The Corporation may also act as receiver 

or conservator of a System bank or association. 

As of December 31, 2019, there were $294 billion of insured obligations compared to $283 billion as 

of December 31, 2018, and less than $1 million of eligible borrower stock outstanding as of 

December 31, 2019 and 2018. 

If the Corporation does not have sufficient funds to ensure payment on insured obligations, System 

banks will be required to make payments under joint and several liability, as required by section 

4.4 (a)(2) of the Farm Credit Act. The insurance provided by the Insurance Fund is limited to the 

resources in the Insurance Fund. System obligations are not guaranteed by the U.S. government. 

Under section 5.63 of the Farm Credit Act, the Corporation is exempt from all Federal, state, and 

local taxes with the exception of real property taxes. 

Note 2: Basis of Accounting 

The accounting and reporting policies of the Corporation conform to accounting principles generally 

accepted in the United States of America (GAAP) and, as such, the financial statements have been 

prepared using the accrual basis of accounting. 

F7 

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| Farm Credit System Insurance Corporation

Independent Auditor’s Report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm Credit System Insurance Corporation 

Notes to the Financial Statements 

Cash and Cash Equivalents 

Cash and cash equivalents include investments in U.S. Treasury obligations with original maturities 

of 90 days or less. At December 31, 2019, the Corporation held $103.2 million in overnight Treasury 

certificates maturing on January 2, 2020, with an interest rate of 1.51 percent, and $200 thousand 

in cash. At December 31, 2018, the Corporation held $287.6 million in overnight Treasury 

certificates maturing on January 2, 2019, with an interest rate of 2.39 percent, and $200 thousand 

in cash. 

Investments in U.S. Treasury Obligations 

Section 5.62 of the Farm Credit Act requires that funds of the Corporation, not otherwise employed, 

shall be invested in obligations of the United States or in obligations guaranteed as to principal and 

interest by the United States. The Corporation has classified its investments as held-to-maturity in 

accordance with Financial Accounting Standards Board Accounting Standards Codification 320, 

Investments - Debt and Equity Securities and carries them at amortized cost. Amortization of 

premium and accretion of discount on investments has been computed under the interest method 

since 2002. Fair value of investments is estimated based on quoted market prices for those or similar 

instruments. 

Premium Receivable – Concentration of Credit Risk 

The Farm Credit Act requires that the System banks pay premiums to FCSIC. The premium receivable 

balance consists of amounts due from the four System banks and as such is exposed to risks due to 

concentration. Historically, FCSIC has not experienced any losses related to the premium receivable 

balance. FCSIC performs a quarterly analysis related to estimating an allowance for premium 

receivable which continues to indicate that no allowance is warranted. 

Liability for Estimated Insurance Obligations 

The liability for estimated insurance obligations is the present value of estimated probable insurance 

payments to be made in the future based on the Corporation's analysis of economic conditions of 

insured System banks. 

The insured System banks' primary lending markets are borrowers engaged in farming, ranching, and 

producing or harvesting of aquatic products, and their cooperatives. Financial weaknesses in these 

market segments and the effect of general market conditions on the System's borrowers could 

adversely affect the banks' financial condition and profitability. Insured System banks also face risks 

from changing interest rate environments and the need to maintain ongoing access to financial 

markets. Adverse changes in the financial condition and profitability of insured System banks 

resulting from increased levels of credit, financial, or other risks could occur in the future which 

would require a liability for estimated insurance obligations to be recorded. 

The Corporation actively monitors the creditworthiness and financial condition of the insured 

System banks. Management is not aware of any events or circumstances at this time which would 

require a liability for estimated insurance obligations to be recorded at December 31, 2019. 

F8 

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Farm Credit System Insurance Corporation 

Notes to the Financial Statements 

F9 

Premiums 

Annual premiums are recorded as revenue during the 12-month calendar year period on which the 

premiums are based. All premiums are required to be paid to FCSIC on or before January 31st of the 

year subsequent to the year in which they are earned. 

Use of Estimates 

The preparation of financial statements, in conformity with GAAP, requires management to make 

estimates and assumptions that affect the reported amount of assets and liabilities and disclosure 

of contingent assets and liabilities at the date of the financial statements and the reported amount 

of revenues and expenses during the reporting period. Actual results could differ from those 

estimates. 

Note 3: Investments in U.S. Treasury Obligations 

In addition to the amounts referenced in Note 2, Cash and Cash Equivalents, at December 31, 2019 

and 2018, investments in U.S. Treasury obligations, which are carried at amortized cost, consisted 

of the following: 

Amortized 

Gross 

Unrealized 

Gross 

Unrealized Estimated Fair 

(Dollars in thousands) Cost Gains Losses Value 

December 31, 2019 

U.S. Treasury obligations $ 4,853,235 $ 15,375 $ (2,880) $ 4,865,730 

December 31, 2018 

U.S. Treasury obligations $ 4,436,617 $ 311 $ (40,782) $ 4,396,146 

The amortized cost and estimated fair value of U.S. Treasury obligations at December 31, 2019, by 

contractual maturity, are shown below: 

(Dollars in thousands) 

Amortized 

Cost 

Estimated Fair 

Value 

Due in one year or less $ 2,196,899 $ 2,198,598 

Due after one year through five years 2,656,336 2,667,132 

$ 4,853,235 $ 4,865,730 

The Corporation follows GAAP for measuring, reporting, and disclosing fair value. These standards 

apply to all assets and liabilities that are measured, reported, and/or disclosed on a fair value basis. 

The fair value of FCSIC's investments in U.S. Treasury obligations are estimated based on quoted 

market prices for those instruments. 

41 
| Farm Credit System Insurance Corporation

Independent Auditor’s Report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm Credit System Insurance Corporation 

Notes to the Financial Statements 

Note 4: Premiums, the Secure Base Amount and Excess Insurance Fund Balances 

Each System bank which issues insured obligations under subsection (c) or (d) of section 4.2 of the 

Farm Credit Act is an insured System bank and is required to pay premiums to the Corporation. 

The Farm Credit Act requires FCSIC to assess premiums based on each bank's pro rata share of 

insured debt (rather than on individual loans). FCSIC may collect from 0 to 20 basis points annually 

on adjusted insured debt outstanding. The Farm Credit Act also authorizes a risk surcharge of up to 

10 basis points on non-accrual loans and on other-than-temporarily impaired investments. The Farm 

Credit Act reduces the total insured debt on which premiums are assessed by 90 percent of Federal 

government-guaranteed loans and investments and 80 percent of state government-guaranteed 

loans and investments and deducts similar percentages of such guaranteed loans and investments 

when calculating the secure base amount (SBA). 

The Farm Credit Act sets a secure base amount (SBA) for the Insurance Fund to achieve. The 

statutory SBA is equivalent to 2.0 percent of the aggregate outstanding insured obligations of all 

insured System banks (adjusted downward by a percentage of the guaranteed portions of principal 

outstanding on certain government-guaranteed loans and investments) or such other percentage as 

determined by the Corporation in its sole discretion to be actuarially sound to maintain in the 

Insurance Fund taking into account the risk of insuring outstanding insured obligations. When the 

assets in the Insurance Fund for which no specific use has been designated exceed the SBA, the 

Corporation is required to reduce the premiums, but it still must ensure that reduced premiums are 

sufficient to maintain at the SBA the assets in the Insurance Fund for which no specific use has been 

designated (the unallocated Insurance Fund). 

Insurance premium rates are reviewed semiannually. For 2019, the board of directors set premium 

rates at its January 17, 2019 meeting at 9 basis points on average adjusted insured debt and 

continued the assessment of the 10 basis point surcharge on the average principal balance 

outstanding for nonaccrual loans and other-than-temporarily impaired investments. The board of 

directors again reviewed premiums at its June 13, 2019 meeting and voted to maintain the premium 

accrual rate on average adjusted insured debt at 9 basis points and continued the assessment of the 

10 basis point surcharge on the average principal balance outstanding for nonaccrual loans and 

other-than-temporarily impaired investments for the remainder of 2019. In 2019, outstanding 

insured obligations increased by $11.8 billion (4.2 percent). At December 31, 2019, the total 

Insurance Fund was 2.03 percent of adjusted insured obligations. 

For 2018, the board of directors set premium rates at its January 18, 2018 meeting at 9 basis points 

on average adjusted insured debt and continued the assessment of the 10 basis point surcharge on 

the average principal balance outstanding for nonaccrual loans and other-than-temporarily impaired 

investments. The board of directors again reviewed premiums at its June 14, 2018 meeting and 

voted to maintain the premium accrual rate on average adjusted insured debt at 9 basis points and 

continued the assessment of the 10 basis point surcharge on the average principal balance 

outstanding for nonaccrual loans and other-than-temporarily impaired investments for the 

remainder of 2018. In 2018, outstanding insured obligations increased by $16.5 billion (6.2 percent). 

At December 31, 2018, the total Insurance Fund was 2.03 percent of adjusted insured obligations. 

A 1996 amendment to the Farm Credit Act requires the Corporation to establish Allocated Insurance 

Reserves Accounts (AIRAs) for each System bank and an account for the stockholders of the Financial 

F10 

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Protecting Investors in Agriculture and Rural America |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm Credit System Insurance Corporation 

Notes to the Financial Statements 

Assistance Corporation (FAC). If, at the end of any calendar year, the aggregate of the amounts in 

the Insurance Fund exceed the SBA, the Corporation is required to allocate to the AIRAs any excess 

balances less the amount that the Corporation, in its sole discretion, determines to be the sum of 

the estimated operating expenses and estimated insurance obligations of the Corporation for the 

immediately succeeding calendar year. 

As the total Insurance Fund exceeded the 2 percent SBA at December 31, 2019, and December 31, 

2018, there was an allocation of $62.7 and $66.1 million, respectively, to the Farm Credit System 

banks AIRAs. FCSIC completed its statutory obligation to pay all outstanding FCA shareholders in 

March 2018 when a final payment of $13.1 million was made to those stockholders. As a result, the 

FAC stockholders’ AIRA accounts have been closed. 

The AIRAs' balances are recorded as part of the Insurance Fund until approved for payment by the 

Corporation's board of directors. AIRAs’ balances may be used to absorb any insurance losses and 

claims. Furthermore, the board of directors have discretion to limit or restrict the AIRAs’ payments. 

In accordance with the Corporation's policy, any AIRAs' balances do not count in measuring the 

Insurance Fund's compliance with the SBA. 

Note 5: Operating Lease 

The Corporation is committed under a ten-year lease with the FCS Building Association for office 

space expiring on November 30, 2025. The Corporation recorded lease expense (including operating 

cost assessments) of $147 thousand and $144 thousand for 2019 and 2018, respectively. The 

following is a schedule by year of the future minimum lease payments required under this lease as 

of December 31, 2019: 

Years ending December 31, 

(Dollars in thousands) 

2020 $ 149 

2021 151 

2022 155 

2023 158 

2024 161 

Thereafter 150 

$ 924 

Note 6: Line of Credit 

On September 24, 2013, the Corporation entered into an agreement with the Federal Financing Bank 

(the FFB), a United States government corporation subject to the supervision and direction of the 

U.S. Treasury. Pursuant to this agreement, the FFB may advance funds to the Corporation when 

exigent market circumstances make it extremely doubtful that insured System banks will be able to 

pay maturing debt obligations. The Corporation will in turn use the funds advanced by the FFB to 

provide assistance to the System banks until market conditions improve. The agreement provides 

for a short-term revolving credit facility of up to $10 billion, renewable annually and terminating 

on September 30, 2020, unless otherwise further extended. 

F11 

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| Farm Credit System Insurance Corporation

Independent Auditor’s Report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm Credit System Insurance Corporation 

Notes to the Financial Statements 

Under the agreement, each provision of funds by the FFB is subject to certain terms and conditions. 

The interest rate for each advance will be established by the FFB at the time the respective advance 

is made. Each advance cannot have a maturity date longer than twelve months and the maturity 

date cannot be later than the final termination date of the agreement. 

The Corporation paid no commitment fee to secure this line of credit. There were no amounts drawn 

on this line of credit during 2019 and 2018. 

Note 7: Retirement Plan 

All permanent Corporation employees are covered by the Civil Service Retirement System (CSRS) or 

the Federal Employees Retirement System (FERS). The Corporation had no employees who were 

covered by CSRS in 2019. The Corporation’s contribution to the CSRS plan during 2018 was 7 percent 

of base pay. For those employees covered by FERS, the Corporation's contribution was 13.7 percent 

of base pay for the first nine months of 2019 and 16.0 percent for the last three months of 2019. 

The Corporation’s contribution to the FERS plan during 2018 was 13.7 percent of base pay. In 

addition, for FERS-covered employees, the Corporation automatically contributes 1 percent of base 

pay to the employee's Thrift Savings Plan account, matches the first 3 percent contributed by the 

employee, and matches one-half of the next 2 percent contributed by the employee. In 2015, the 

Corporation began a 401K plan for both CSRS and FERS employees. The Corporation automatically 

contributes 1 percent of base pay to the employee's 401K account and matches the first 2 percent 

contributed by the employee. Retirement plan expenses amounted to $434 thousand in 2019 and 

$393 thousand in 2018. 

Note 8: Related Parties 

The Corporation purchases services from FCA under an Interagency Agreement, including 

examination and administrative support services. The intention of the parties as stated in the 

agreement is that specified rates and fees will reimburse the party providing services for all 

reasonable costs associated with provision of the services. The Corporation purchased services for 

2019 which totaled $366 thousand, compared with $339 thousand for 2018. 

The Corporation may also provide services to the FCA under an Interagency Agreement; however, 

the Corporation provided no services and recognized no revenue for 2019 and 2018. At December 

31, 2019 and 2018, the Corporation did not have any receivables from the FCA. 

Note 9: Subsequent Events 

FCSIC evaluated subsequent events from the date of the statement of financial condition through 

February 6, 2020, the date at which FCSIC’s financial statements were issued. No material 

subsequent events were identified for either recognition or disclosure. 

F12 

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Protecting Investors in Agriculture and Rural America 

|

F13

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| Farm Credit System Insurance Corporation

Management Assurances 

March 1, 2020 

The management of the Farm Credit System Insurance Corporation is responsible for managing risk and maintaining effective 

internal control to meet the objectives of the Federal Managers’ Financial Integrity Act (FMFIA). 

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 cooperative lending institutions owned by the agricultural 

and rural customers it serves. 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 to minimize the Farm Credit Insurance Fund’s exposure to potential losses. 

When appointed by the Farm Credit Administration, we also serve as receiver or conservator of any System bank or association. 

Our management has completed an assessment of the effectiveness of FCSIC’s enterprise risk management and internal 

control systems in effect during 2019 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 Enterprise Risk 

Management and 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 are reliable, complete, and timely. 

On the basis of established guidelines and the assessment performed, we concluded that as of December 31, 2019, the internal 

control over financial reporting was effective and meets the objectives of FMFIA. 

In addition, as stated in the accompanying report, FCSIC’s independent auditor, BDO USA, LLP (BDO), indicated that 

the financial statements of the Farm Credit Insurance Fund as of December 31, 2019, of which we are stewards, are fairly 

presented in all material respects. BDO also conducted testing on the effectiveness of FCSIC’s internal control over financial 

reporting and issued an opinion that it was effective in all material aspects. 

C. Richard Pfitzinger Andrew J. Grimaldi Lynn M. Powalski Howard I. Rubin 

Chief Operating Officer Chief Financial Officer General Counsel Chief Risk Officer 

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Protecting Investors in Agriculture and Rural America |

Compliance with the Federal Civil Penalties Inflation 

Adjustment Act Improvements Act of 2015 

FCSIC has authority under section 5.65(c) of the Farm Credit Act (12 U.S.C. § 2277a-14) to impose civil money penalties 

against a Farm Credit System bank that willfully fails or refuses to file any certified statement or pay any required premium. 

In addition, section 5.65(d) of the Farm Credit Act provides that, except with the prior written consent of FCA, it shall be 

unlawful for any person convicted of any criminal offense involving dishonesty or a breach of trust to serve as a director, officer, 

or employee of any System institution and authorizes FCSIC to recover penalties for a willful violation of this prohibition. 

Sections 5.65(c) and (d) provide for a penalty of not more than $100 for each day during which the violation continues. 

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the 2015 Act) amended the Federal Civil 

Penalties Inflation Adjustment Act of 1990 (28 U.S.C. § 2461 note) to provide for regular evaluation of civil penalties and 

required every applicable federal agency to adopt, through an interim final rule, a one-time “catch up” adjustment to be 

effective no later than August 1, 2016, and annual adjustments thereafter. 

FCSIC published, on February 7, 2019, a final rule making the annual adjustment required by the 2015 Act that increased our 

civil money penalties to not more than $210 for each day during which a violation continues (84 Fed. Reg. 2437). On January 

15, 2020, we published a final rule making the required annual adjustment that increased our civil money penalties to not 

more than $214 for each day during which a violation continues (85 Fed. Reg. 2284). 

47 
| Farm Credit System Insurance Corporation

Performance Management Program 

FCSIC’s mandate is to ensure the timely payment of principal and interest on insured Farm Credit System debt securities and 

to serve as receiver or conservator when appointed by the Farm Credit Administration board. To fulfill our mandate, we have 

three fundamental program goals: 

• Manage the Insurance Fund to protect investors 

• Monitor, evaluate, and report insurance risk 

• Maintain the capability to manage assistance requests, receiverships, and conservatorships 

We have implemented performance measures to help us evaluate the effectiveness of these goals. It is important to note 

that some of these measures use management estimates that may be affected by the performance and condition of System 

institutions. Also, unforeseen events may have a material effect on performance measures over time. 

Performance Measures 

1. Manage the Farm Credit Insurance Fund to maintain the secure base amount to provide protection for investors 

and taxpayers against identified risks 

We adjust insurance premium assessments when appropriate and manage assets to optimize investment returns to build and 

maintain the Insurance Fund at the statutory 2% secure base amount. At the same time, we must maintain appropriate liquidity to 

carry out our mission. 

We assess the effectiveness of our 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 

• Comparing the level of the Insurance Fund every month with the secure base amount and reporting the results to the 

board of directors 

Our ability to maintain the Insurance Fund at the secure base amount may be affected by events beyond our control, such 

as insurance losses. 

2. Monitor, evaluate, and report risks that could generate losses to the Insurance Fund 

We measure progress toward this program goal by how promptly we detect emerging problems and how effectively we 

minimize insurance losses. We use financial indicators to monitor conditions and trends, and we analyze and report data 

before losses become likely. In periods when there are insurance claims or the probability of claims, the ratio of estimated 

losses to actual losses helps measure our ability to assess prospective loss exposure. 

As guidance, our management uses criteria specified in our policy statement on allowance for Insurance Fund loss and in the 

Financial Accounting Standards Board’s Accounting Standards Topic 450, Contingencies. Timely evaluation of the Insurance 

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Protecting Investors in Agriculture and Rural America |

Fund’s risk exposure is critical to preserving the Insurance Fund’s solvency. We use FCA reports of examination to evaluate 

risks to the Insurance Fund. When necessary, we independently examine and require information from System institutions. 

3. Maintain the capability to manage assistance requests, receiverships, and conservatorships 

FCSIC has statutory authority to provide financial assistance to System institutions, including loans. Any assistance agreement is 

subject to the board’s approval. We have a policy statement on assistance, and we have adopted procedures for providing assistance 

in a liquidity crisis. We measure effectiveness by periodically testing our procedures and updating our policy statement so that we 

remain ready to provide financial assistance in a timely and cost-effective manner. 

We are required to serve as receiver or conservator of System banks and associations when appointed by FCA. This program goal 

requires us to maintain readiness through periodic staff training and evaluation of support 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: 

• Timeliness of initial processing of all claims (Processing should occur within a period of time warranted by the size 

and complexity of each case.) 

• The ratio of operating costs to total assets 

• The ratio of actual asset recovery returns to net realizable asset values 

Figure 14 illustrates each program’s 2019 budget and expenditures, including program support. 

Figure 14 

2019 Budget and Expenditure by Program 

(Dollars in Millions) 

49 
| Farm Credit System Insurance Corporation

The Government Performance and Results Act of 1993, as amended, requires all federal government organizations to report 

on the results of program performance. Performance results are included in regular reports to the board of directors and in 

our annual report. Information for each of the three major program areas is presented in Table 4. 

Table 4 

Strategic Goals and Objectives by Program Area 

FCSIC’s 

Mission Program Areas Strategic Goals Strategic Objectives For More Information 

Protect investors 

in insured Farm 

Credit System 

obligations 

and taxpayers 

through sound 

administration 

of the Farm 

Credit Insurance 

Fund (Insurance 

Fund). 

Exercise its 

authorities 

to minimize 

Insurance Fund 

loss. 

Insurance Fund 

management 

Manage the Farm 

Credit Insurance 

Fund to maintain 

the secure 

base amount 

to provide 

protection for 

investors and 

taxpayers against 

identified risks. 

1. Manage the Insurance Fund to ensure adequate 

liquidity while optimizing investment returns 

and ensuring premium collections and refunds 

reflect anticipated changes in adjusted insured 

debt levels and potential insurance claims. 

2. Use actuarial tools to evaluate the adequacy of 

investor protections and risk exposures to the 

Insurance Fund. 

3. Ensure that System banks have adequate 

temporary liquidity in situations where external 

market factors make normal debt market access 

extremely doubtful. 

4. Communicate accurate and easily understood 

information about the insurance program to the 

public, insured investors, and System institutions. 

See pages 

17-22 for 

2019 results 

Risk 

management 

Monitor, evaluate 

and report 

risks that could 

generate losses 

to the Insurance 

Fund. 

1. Use analytical models and other risk 

management tools and processes to identify and 

respond to potential risks to the Insurance Fund. 

Conduct trend analysis on the System’s growth, 

funding needs, condition and performance. 

Regularly report to the board of directors on 

identified risk exposures. 

See pages 

25-29 for 

2019 results 

Help ensure 

the future of 

a permanent 

system for 

delivery of credit 

2. Monitor conditions in the agricultural and 

financial sectors that may affect insurance risk 

and integrate the results into the process for 

setting annual insurance premium rates. 

to agricultural 

borrowers. Receivership 

and 

conservatorship 

readiness 

Maintain the 

capability 

to manage 

assistance 

requests, 

receiverships and 

conservatorships. 

1. Subject to the provisions of the Farm Credit Act, 

including the least-cost test, provide assistance 

when appropriate to a troubled System bank or 

association. 

2. Ensure receiverships and conservatorships are 

managed to fulfill the purposes of the Farm 

Credit Act, protect creditors, and are terminated 

in an orderly and timely manner. 

See pages 

30 for 2019 

results 

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Protecting Investors in Agriculture and Rural America |

Glossary 

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

Credit System, FCSIC, and the Farm Credit Administration operate. 

Farm Credit Administration — FCA was established in 1933 to regulate the System. It is governed by a three-member 

presidentially appointed board. To ensure the safety and soundness of the System, FCA 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 System institutions. It uses a network of bond dealers to 

market the System’s securities. 

Federal Open Market Committee — This committee of the Federal Reserve Board 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 System 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. Because 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. 

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| Farm Credit System Insurance Corporation

 

 

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, these institutions may be vulnerable to the onset of adverse business conditions and could 

easily deteriorate if weaknesses are not corrected. Institutions that are in significant noncompliance with laws 

and regulations may also be given 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 taken. 

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 

impair future viability or constitute a threat to the interests of investors, borrowers, and stockholders. Risk 

management practices are generally unacceptable for the size, complexity, and risk profile of each institution in 

this group. A potential for failure is present but is not yet imminent or pronounced. Institutions in this category 

require close regulatory attention, financial surveillance, and a definitive plan for corrective action. 

Rating 5 — This category is reserved for institutions with an extremely high, immediate, or near-term 

probability of failure. The number and severity of weaknesses or unsafe and unsound conditions are so critical 

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

complexity, and risk profile of each institution in this group. In the absence of decisive corrective measures, 

these institutions will likely require liquidation or some form of emergency assistance, merger, or acquisition. 

Government-sponsored enterprise (GSE) — A GSE is typically a federally chartered corporation created by Congress that is 

privately owned, designed to provide a source of credit nationwide, and limited to servicing one economic sector. Each GSE 

has a public or social purpose. GSEs are usually created because the private markets did not satisfy a purpose that Congress 

deems worthy either to fill a credit gap or to enhance competitive behavior in the loan market. Each is given certain features 

or benefits (called GSE attributes) to allow it to overcome the barriers that prevented purely private markets from developing. 

The System is the oldest financial GSE. 

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Protecting Investors in Agriculture and Rural America |

Acronyms and Abbreviations 

AIRAs allocated insurance reserves accounts 

CIPA Contractual Interbank Performance Agreement 

FAC Financial Assistance Corporation 

Farm Credit Act Farm Credit Act of 1971, as amended 

FCA Farm Credit Administration 

FCSIC Farm Credit System Insurance Corporation 

FIRS Financial Institution Rating System 

FMFIA Federal Managers Financial Integrity Act 

FOMC Federal Open Market Committee 

Funding Corporation Federal Farm Credit Banks Funding Corporation 

GAAP generally accepted accounting principles 

GDP gross domestic product 

GSE government-sponsored enterprise 

OMB Office of Management and Budget 

System Farm Credit System 

TIPS Treasury inflation protected securities 

URE unallocated retained earnings 

53 
| Farm Credit System Insurance Corporation

Corporate Staff 

C. Richard Pfitzinger Chief Operating Officer 

Howard I. Rubin Chief Risk Officer 

Andrew J. Grimaldi Chief Financial Officer 

Lynn M. Powalski General Counsel 

Wade Wynn Chief Investment Officer and Senior Risk Analyst 

Gregory Smith Asset Assurance Manager 

Tanya Renica Accountant 

Mark Bowen Accountant 

Matthew Morgan Financial Analyst 

Barbara Loggins Senior Administrative Specialist 

Molly Sproles Administrative Management Assistant 

Contact 

Information 

Farm Credit System Insurance Corporation 

1501 Farm Credit Drive 

McLean, VA 22102 

Voice: (703) 883-4380 

Fax: (703) 790-9088 

www.fcsic.gov

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Protecting Investors in Agriculture and Rural America |

Banks Insured by FCSIC 

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 

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 report, and you should not consider 

information contained on these websites to be part of this annual report. 

55 
| Farm Credit System Insurance Corporation

Additional 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 

101 Hudson Street 

Suite 3505 

Jersey City, NJ 07302 

(201) 200-8131 

info@farmcreditfunding.com

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 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. 

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Protecting Investors in Agriculture and Rural America | 57 

Farm Credit System Insurance Corporation 

1501 Farm Credit Drive 

McLean, VA 22102 

Voice: 703-883-4380 

Fax: 703-790-9088 

www.fcsic.gov