Remarks by

The Honorable Dallas P. Tonsager

Board Chairman and CEO

Farm Credit Administration

AgFirst Farm Credit Bank Annual Meeting

Asheville, North Carolina

July 10, 2017

Good morning! Thank you for your kind welcome. For his leadership of the AgFirst district, 

I’d like to recognize President and CEO Tim Amerson, who is also chairman of the Funding 

Corporation. Tim is leading an important initiative on internal controls over financial 

reporting, and I appreciate his work in this area. I was sorry to hear that Board Chairman 

John Langford is on medical leave and can’t be with us today. I will keep him in my 

thoughts and prayers. I would also like to recognize Board Vice Chairman Curtis Hancock for 

his leadership. Both John and Curtis have served the AgFirst board with distinction for 

several years.

When Ken Spearman passed away earlier this year, I lost an esteemed colleague and friend.

Having served as a director on your board, Ken had a special relationship with AgFirst. His

service to the System and the Farm Credit Administration was outstanding, and we will 

continue to benefit over the years from the leadership he provided.

One of the areas on which Ken focused during his time as FCA chairman was internal 

controls. I would like to continue this focus because I believe that having strong internal 

controls is central to building public confidence in the Farm Credit System. A key focus in 

my speech to the Farm Credit Council earlier this year was the importance of confidence. 

The System needs the confidence of all its stakeholders, from the farmers and ranchers it 

was created to serve, to its investors, to the members of Congress who oversee the System 

and FCA. 

As board members and managers of the bank and associations in your district, you hold the 

key to public confidence in your institutions. It is up to you to provide the oversight 

necessary to prevent fraud and abuse and to make sure your institutions serve their mission

and stay safe and sound. 

As part of providing a robust set of internal controls, you must be sure to provide for a 

separation of duties within your institutions so that multiple individuals are involved in any 

given loan transaction. For example, a loan officer should never have the authority to 

override controls designed to provide checks and balances in the loan-making process. I 

also urge you to carefully consider any incentives you provide your loan officers that might

indirectly motivate them to take undue risks or commit fraud.

As the regulator of the Farm Credit System, we will do our part to oversee your institutions. 

For example, we are considering reproposing our standards of conduct regulation to require 

each System institution to establish its own benchmarks, policies, and procedures for its 
2

standards of conduct program. We believe that this would place principles of loyalty,

fairness, and ethics at the core of each institution’s business practices.

In my speech to the Farm Credit Council earlier this year, I laid out five points that I 

thought were critical to the success of the Farm Credit System. Confidence was the first 

one. The other four points help to strengthen confidence. The first is to seek the “best 

possible outcome” for every borrower. System borrowers have experienced increased stress 

from lower commodity prices and, in many areas, lower farmland prices. These stresses 

have caused some borrowers, especially those who fall into the categories of young, 

beginning, and small, to have difficulty making their loan payments. By proactively 

identifying these borrowers and working with them to find the best ways out of their 

financial difficulties, you are helping them achieve their best possible outcomes. Working 

with borrowers in this regard will build the confidence of your stakeholders in the System’s 

safety and soundness and its dedication to its mission. 

By encouraging you to work with borrowers in difficulty, I am not, however, suggesting you 

throw caution to the wind. To be able to serve future generations of borrowers, you must 

pay close attention to your safety and soundness, and we, as the regulator, must maintain 

the integrity of our examination function and call the FIRS ratings as we see them.

My third point involves partnerships. Through partnerships you can build the confidence of 

your stakeholders by making valuable investments in rural communities, where most of 

your borrowers live. And by the way, the agency has established a fast-track approval 

process for those investment applications that meet the conditions we’ve set forth. 

The fourth point is to provide all System services to all System borrowers. In any given area 

of lending, the System has institutional experts. If your institution doesn’t offer a particular 

product or service, look for a System partner so that the people in your territories can get 

what they need. Although each institution is owned and controlled by its shareholders, all 

institutions are part of the same network established by Congress to serve agriculture. 

That’s why I believe it makes sense for all System borrowers to have the same access to all

System services.

And my fifth point is about System structure. Rather than allowing the System to evolve in 

a haphazard way, System institutions need to give careful thought to all changes in 

structure. And by System institutions, I truly mean all System institutions — not just those 

contemplating mergers. Again, because the System is a network of institutions, the actions 

of a few impact all others. 

I have also called for a year of dialogue between FCA and the System on structure. I would 

like to expand on that idea now by urging System institutions to continue discussing among 

yourselves the impact of mergers and other structural changes. The goal of most mergers is 

to achieve economies of scale, which can offer many benefits, such as making credit more 

affordable to borrowers. In some ways, however, mergers can impair the ability of 

institutions to serve their borrowers. By discussing these issues among yourselves, you may 

be able to find an optimal balance between efficiency and mission fulfillment.
3

And speaking of mission, the System has a particular mission to serve young, beginning, 

and small (or YBS) farmers. Congress amended the Farm Credit Act in 1980 to emphasize 

service to YBS farmers. They recognized that these farmers are not only critical to the 

future of agriculture but are also more vulnerable to downturns in the farm economy. In 

other words, they need a little extra help.

I’d like to see a show of hands. How many of us here have ever been a young or beginning 

farmer? I think all of us, right? And we can probably all remember a time when we could 

have used a little help — if not in the form of credit, then at least in the form of good, sound

advice.

Back in 1976, when I was a 22-year-old dairy farmer, my brother and I decided to build a 

new free-stall barn and milking parlor. We had a contractor do some of the work, but we 

also did a lot of it ourselves. When the project was almost finished, we had hundreds of 

pieces of scrap metal and wood spread out all over the construction site. 

Thinking it was time for a good clean-up, I had a guy with a backhoe dig me a hole straight 

down about 20 feet or so and about 8 feet across. Unfortunately, I underestimated the size 

of the hole. By the end of the day, the hole was full, but I still had a lot of scrap to get rid 

of. 

What was I going to do? Of course, I could have the guy come back and widen the hole, but 

that would have taken another day or so. And I was 22 — patience was not one of my 

virtues. As I studied the contents of the hole, the answer dawned on me. Since most of the 

scrap was wood, I would just burn it! Then there would be plenty of room for the rest of the 

scrap.

So I splashed about five gallons of gasoline in the hole, stepped back a few feet, lit a match, 

and tossed it in.

The explosion was so big that it knocked the breath out of me and hurled me backwards 

about 10 feet. I scrambled to my feet as the contents of the hole rained down around me. 

I learned a lot of life lessons that day. Not the least of which was, the quickest solution is 

not always the best one.

As this story illustrates, young and beginning farmers tend to need a little guidance. At least 

I did. That’s why training is an important part of the service that institutions can provide 

YBS producers. YBS seminars help producers develop smart business plans, find cost 

savings, and consider operational changes that can help them weather downturns.

Unfortunately, I don’t think these seminars cover how to avoid blowing yourself up when 

getting rid of construction waste. That’s a lesson you learn from the School of Hard Knocks.

I would like to take this time now to commend the AgFirst district for doing a really good job 

of serving YBS producers. I understand that most of your associations have extensive 

outreach programs for YBS borrowers and that you actively support youth programs such as 

FFA and 4-H. 
4

In 2016, both the number of loans and the dollar volume of new and outstanding loans in 

the AgFirst district increased in each YBS category. Also in 2016, 162 borrowers and 

prospective borrowers across your district participated in the Ag Biz Planner program 

designed to prepare young, beginning, small, and minority farmers for success. I 

understand that some of your institutions even provide financial incentives to YBS borrowers 

who complete your training programs. These efforts are important. They help ensure the 

success not only of the producers to whom they are targeted but also the long-term success 

of our nation’s ag industry. 

And now I’d like to turn to FCA’s regulatory agenda, which you’ve asked me to address. As 

a regulator, it’s our job to provide regulations that help you meet your mission, preserve 

your safety and soundness, and comply fully with all laws. But we also want to make sure 

that we never go beyond these three goals. 

In the spirit of President Trump’s initiative to ease regulatory burden, we have issued our 

regulatory burden notice one year earlier than we are required to do under the Farm Credit 

Act. In fact, we’re currently accepting comments on this notice on our website, so I invite 

you to share any recommendations you have for the removal or revision of outdated, 

unnecessary, or burdensome regulations. The comment period for this notice closes on 

August 16.

Our goal is always to issue regulations that strengthen the System’s ability to meet its 

congressional mission. For example, I believe the proposed rule we are developing on 

standards of conduct will help protect the System against wrongdoing or the appearance of 

wrongdoing. This is important to the mission because it will strengthen confidence in the 

System so that more farmers will turn to System institutions for their credit needs and more 

investors will turn to the System for sound investments.

We are also seeking to finalize the investment eligibility rule, which would allow associations 

to make government-guaranteed investments for specific risk management purposes within 

certain portfolio limits. 

We are reviewing our collateral evaluation regulations to determine where updates are 

needed, and we are reviewing the ways System institutions use stress testing in their 

business planning and risk management. 

Of course, we also provide guidance to the System through means other than regulations. 

Recently we issued guidance on identifying and reporting suspected criminal activities; we 

plan to issue further guidance on this topic in the future.

I would like to thank the AgFirst district for your willingness to accept our guidance, listen to 

our concerns, and take the corrective actions called for in reports of examination. We are 

also grateful to the AgFirst associations for reaching out to us when you’ve had issues 

involving standards of conduct and information technology. And I would like to commend

you for being proactive in developing loan servicing strategies for borrowers who are 

experiencing financial difficulties due to low commodity prices.
5

Since there’s no relief in sight from low commodity prices, I’d like to encourage you to 

continue being proactive in this way. You’ll need to be especially attentive regarding 

borrower rights, which all institutions are required by law to provide. By carefully adhering 

to the regulatory processes for identifying and handling distressed customers, you can 

protect your institution from both legal and reputation risks. And what’s more, you can help 

these borrowers achieve their best possible outcomes. 

Since our examiners have identified some instances of noncompliance with borrower rights, 

I would encourage you to consider providing refresher training in this area, including the 

role of credit review committees in providing these rights.

I’ll close with just a few parting thoughts. The AgFirst district has experienced some 

significant challenges over the past year or so. As if an extended period of low commodity 

prices were not enough, your district faced some major weather-related challenges. 

After parts of South Carolina experienced severe drought in the spring of 2015, catastrophic 

flooding occurred in the fall. Then, in late 2016, Hurricane Matthew brought trouble to 

producers in both North and South Carolina. Later, in March 2017, a freeze hit some 

Georgia producers hard. As a result, even some associations with diverse portfolios are 

starting to see declines in credit quality.

So far this year, rainfall has been sufficient, and conditions for many of the major crops in 

your district — corn, soybeans, winter wheat, cotton, peanuts, and hay — look favorable. 

Crop price expectations for 2017 are similar to those of last year although peanut prices are 

expected to be somewhat higher and cotton prices somewhat lower. The livestock sector, 

including broiler, dairy, and hog enterprises, have a modest profit outlook for the rest of this 

year.

So, in general, your district is doing well. Your financial condition is strong. Your service to 

YBS producers is growing. And the term limits you’ve established for your bank’s board of 

directors serves you well by providing for new perspectives and leadership opportunities. 

By further strengthening your internal controls, by paying close attention to borrower rights 

provisions, and by closely monitoring credit quality, your district can continue to improve in 

condition and performance, even in the face of today’s challenging farm economy. And your 

district’s dedication to cooperative principles will help ensure that you continue to meet the 

mission for which the System was created more than a century ago.

Again, thank you for the opportunity to join you today.