Farm Credit System Insurance Corporation

2013

Annual 

Report

Protecting Investors in Agriculture and Rural America
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.

Mission Statement
1

June 16, 2014

Dear Mr. President and Mr. Speaker:

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

System Insurance Corporation is pleased to submit its annual report for calendar year 2013.

This report highlights our role as the independent Federal corporation established to ensure the 

timely payment of principal and interest to investors in insured Farm Credit System debt securities. The balance in the Farm Credit Insurance Fund at December 31, 2013, was $3.5 billion.

We collected $172.2 million in insurance premiums from Farm Credit System banks for 2013, 

earned $28.8 million in investment income in 2013, and expect to incur $4.2 million in operating 

costs in 2014.

Sincerely,

Kenneth A. Spearman

Chairman

The President of the United States Senate

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

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Message from the Chairman 3

oard of Directors 4

013 - Year in Review 8

elected Financial Statistics 11

e Farm Credit System 12

nsurance Fund Management 18

isk Management 26

inancial Assistance and Receivership 30

ndependent Auditor’s Report F1

inancial Statements F5

otes to the Financial Statements F8

anagement Report on Internal Control over Financial Reporting 32

erformance Management Program 33

lossary 36

cronyms and Abbreviations 38

orporate Staff 39

ontact Information 39

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2

S

Th

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Contents
Protecting Investors in Agriculture and Rural America

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Message from the Chairman 

I am pleased to present FCSIC’s 2013 Annual Report. It is gratifying to note that, for the 24th consecutive 

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

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

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

accurately presented.

The Corporation’s net income for 2013 was $197.7 million, compared with $127.8 million for the previous 

year. The Insurance Fund balance as of December 31, 2013, was $3.50 billion, compared with $3.30 billion 

at year-end 2012.

Premium revenue was $172.2 million for 2013, compared with $84.3 million for 2012, as a result of an 

increase in the premium assessment rate from 5 basis point in 2012 to 10 basis point in 2013. Interest 

income for 2013 totaled $28.8 million, compared with $46.8 million in 2012.

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

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

In 2014, we will continue to carry out our mission and work towards achieving 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,

Kenneth A. Spearman
Farm Credit System Insurance Corporation

4

Board of Directors

FCSIC is managed by a three-member board of directors comprising the same three individuals who 

compose the Farm Credit Administration (FCA) Board. However, the same member may not serve as 

chairman of both entities. FCA is the independent Federal agency responsible for the regulation and 

examination of the Farm Credit System, a nationwide network of financial cooperatives that lends to 

agriculture and rural America.

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

5

Kenneth A. Spearman

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

the Farm Credit System Insurance Corporation. He also serves as 

a member of the Board of the Farm Credit Administration.

Mr. Spearman brings to his position as Chairman of FCSIC

many years of experience in finance, agriculture, and agricultural 

cooperatives. He spent 28 years in the citrus industry.

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

million cooperative in Orlando, Florida, where he was responsible for financial management and reporting and the supervision 

of staff accountants.

He later served as director of internal audit for Florida’s Natural Growers, where he designed and implemented the annual 

plan for reviewing and appraising the soundness, adequacy, and 

application of accounting, financial, and other operating internal 

controls.

From January 2006 until his appointment to the Farm Credit 

Administration Board, Mr. Spearman served as an independently appointed outside director on the 

AgFirst Farm Credit Bank board in Columbia, South Carolina. During his tenure, he served on the board 

compensation committee and the board governance committee.

Before entering agriculture in central Florida, Mr. Spearman served with the U.S. Army and is a Vietnam 

veteran. He later was employed by the public accounting firm Arthur Andersen & Co. and was involved 

with the development of a public accounting firm in Chicago, Illinois. He served as chairman of the

board of trustees for the Lake Wales Medical Center. He is a member of the Institute of Internal Auditors, 

as well as the National Society of Accountants for Cooperatives, for which he served a term as national 

president.

He obtained his master’s degree in business administration from Governors State University in University Park, Illinois, and his B.S. in accounting from Indiana University. He also attended Harvard Kennedy 

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

Strategic Planning.

Mr. Spearman and his wife, Maria, of Winter Haven, Florida, have three children—twin daughters, 

Michelle Springs and Rochelle Puccia, and a son, Dr. Kenneth Spearman.
Farm Credit System Insurance Corporation

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

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

He served as Chairman of the FCSIC Board until he was appointed 

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

position until November 26, 2012, when Jill Long Thompson was 

appointed Chair and CEO of FCA by President Barack Obama, effective November 27, 2012. He may continue to serve as a member of 

the FCSIC and FCA Boards until a new member is appointed by the 

President and confirmed by the Senate.

For more than 35 years he has been active in the agriculture industry. 

He served for more than 25 years on the board of 1st Farm Credit 

Services, a Farm Credit System institution in Illinois, holding various positions, including chairman. During the agriculture crisis of the 

1980’s, he was selected to sit on the Restructuring Task Force of the 

Sixth Farm Credit District.

From 2000 to 2006, he was on the Federal Reserve Bank of Chicago Advisory Council on Agriculture, 

Labor, and Small Business. He also served on the Country Mutual Fund Trust Board, an investment fund 

of the Illinois Farm Bureau and its Country Financial organization.

Other boards on which Mr. Strom has served include Northern F.S., Inc., a farm service and supply cooperative in Northern Illinois; AgriBank, FCB; and the Farm Credit Council, the national trade organization 

representing the Farm Credit System in Government affairs.

Mr. Strom has served in several capacities with the Illinois Farm Bureau and was a member of the Illinois 

Ag Leadership Program class of 1988.

In his community of Kane County, Illinois, which lies at the edge of suburban Chicago, Mr. Strom helped 

develop a farmland preservation program. The original Strom Family Farm was the first to be dedicated to 

permanent agricultural use under the program.

In 2011, Mr. Strom received the Honorary Doctorate of Humane Letters from Northern Illinois University 

for his commitment to sustaining agricultural systems and food security. He studied agriculture business 

at Kishwaukee College and business administration at Northern Illinois University. He has attended the 

Harvard Kennedy School Executive Leadership program and the Harvard Business School Agribusiness 

Seminar. 

His community involvement includes having served as vice president of his local K–12 school district, 

chairman of his church council, 4-H parent leader, and coach of boys’ and girls’ sports teams. Mr. Strom 

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

have three children and two grandchildren.

Leland A. Strom
Protecting Investors in Agriculture and Rural America

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

Administration (FCA) and a member of the FCSIC Board of Directors. 

Dr. Long Thompson was appointed to the FCA Board by President Barack 

Obama in March 2010 and was designated Chair and CEO on November 

27, 2012. 

As head of FCA, Long Thompson also oversees the Agency’s ethics program. Her goal is to ensure that the Agency adheres to the highest ethical 

standards in carrying out its mission as the arm’s-length regulator of the 

Farm Credit System. For more information, see “Ethics and Arm’s-Length 

Role” on the FCA website at www.fca.gov.

Long Thompson is also a strong advocate for diversity and inclusion. 

In 2012, the FCA Board adopted a diversity and inclusion regulation to 

encourage System institutions to reach out to all eligible, creditworthy 

producers in their lending territories, including members of underserved 

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

Chair, the Agency has emphasized compliance with this rule. 

In addition, during her term as Board Chair, the FCA Board issued a 

policy statement on its commitment to equal employment opportunity and 

diversity. Through leadership training programs and monthly presentations on a host of diversity-related issues, she 

has stressed the importance of diversity and inclusion among FCA staff. 

Long Thompson has many years of leadership experience. From 1989 to 1995, she represented northeast Indiana as a 

Member of the U.S. House of Representatives, serving on the Committee on Agriculture, the Committee on Veterans’ 

Affairs, and the Select Committee on Hunger. She also served as Chair of the Rural Caucus. 

Long Thompson has been dedicated to integrity in Government for many years. As a member of the U.S. House 

of Representatives, she introduced one of the nation’s first pieces of legislation banning members of Congress from 

accepting gifts; this legislation also expanded disclosure requirements for lobbying activities. 

From 1995 to 2001, she served as Under Secretary for Rural Development in the U.S. Department of Agriculture, 

where she oversaw an annual budget of $10 billion and three agencies comprising 7,000 employees. In this position, 

she managed programs that provide services to the underserved areas of rural America. 

In addition, Long Thompson served as chief executive officer and senior fellow at the National Center for Food and 

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

The first and only woman nominated by a major party to run for Governor of Indiana, Long Thompson is also the 

first and only Hoosier woman to be nominated by a major party to run for the U.S. Senate. 

Long Thompson also has many years of experience as an educator, having taught at Indiana University, Valparaiso 

University, and Manchester College. She is also a former fellow at the Institute of Politics at Harvard University’s 

John F. Kennedy School of Government. She holds an M.B.A. and Ph.D. in Business from the Kelley School of Business at Indiana University and a B.S. in Business Administration from Valparaiso University. 

Long Thompson grew up on a family farm outside of Larwill, Indiana; today she resides with her husband, Don 

Thompson, on a farm near Argos, Indiana.

Although Long Thompson’s FCA Board term expired on May 21, 2014, she continues to serve as Board Chair and 

CEO until the President appoints a new Board Chair and CEO. She may continue to serve as a member of the Board 

until a new member is appointed by the President and confirmed by the Senate.

Jill Long Thompson
Farm Credit System Insurance Corporation

8

2013 – Year in Review

Insurance Fund 

At December 31, 2013, the Farm Credit Insurance Fund was at $3.50 billion (1.94 percent of adjusted 

insured debt outstanding), which was $115 million below the secure base amount. (See “Insurance Fund 

Management” on page 18 for additional details.) Consequently, no funds were available to transfer to the 

Allocated Insurance Reserves Accounts (AIRAs). (See Notes to the Financial Statements for additional 

details.)

FCSIC’s 20-Year Anniversary

The Corporation’s first year of full operations was 1993. That year, the Insurance Fund grew to $642 million, insuring $53.70 billion in System debt. The Corporation had a nine member core staff, and it relied 

on the Farm Credit Administration (FCA) for examination and administrative support. Other specialized 

services were available through contractual arrangements on an as-needed basis. Twenty years later, the 

Insurance Fund is about four times larger, insuring $207.50 billion of System debt. Yet the Corporation 

continues to operate effectively with a small staff of 11. It still leverages its resources by purchasing support services from FCA and other public and private sector contractors to ensure the cost-effective administration of its programs. 

The Corporation’s operating costs as a percentage of its total assets represented 9 basis points for 2013, an 

improvement of 1 basis point over 2012. In September 2013, our Board of Directors approved budgets for 

2014 and 2015. The 2014 budget is $4.2 million, which projects an increase of 3.5 percent over the 2013 

budget.

FCSIC’s Legislative Initiative

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

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

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

System institution.

In 2012, after consulting with the FCSIC Board and meeting with a workgroup of senior System officials, 

we delivered draft legislative language to our congressional oversight committees for their consideration. 

During 2013, we continued to provide information to our oversight committees about the benefits of, and 

need for, legislative changes. 

Financial Assistance and Liquidity

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

The new policy statement clarifies when FCSIC might use its statutory authority to assist a System institution and how the statutory least-cost test would be performed. The policy also includes a new section 

discussing assistance agreements between FCSIC and a System institution receiving assistance. 
Protecting Investors in Agriculture and Rural America

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In addition to updating the assistance policy, we entered into an agreement with the Federal Financing 

Bank (FFB) in September 2013 for a line of credit to serve as a liquidity backstop for FCSIC. The FFB is a 

Government corporation within the U.S. Department of Treasury that provides funding to eligible Federal 

agencies at rates based on the Treasury’s cost of funds. The FFB has a similar line of credit arrangement 

with other Federal insurers, including the Federal Deposit Insurance Corporation and the National Credit 

Union Administration’s Central Liquidity Fund. Our access to the FFB provides an additional source of 

funds for assistance if exigent market circumstances threaten the System banks’ ability to pay maturing 

debt obligations. 

As explained in the “Policy Statement Concerning Assistance,” FCSIC has statutory authority to provide 

various forms of assistance to a System bank, including loans. Any assistance agreement is subject to our 

Board of Directors’ approval. By obtaining the line of credit agreement with the FFB, we can provide more 

assistance to System banks than would otherwise be available using the Insurance Fund. Under the agreement with the FFB, and subject to its terms and conditions, we can borrow up to $10 billion, which we 

can then lend to a System bank or banks as assistance. 

There is no cost to us for establishing this line of credit with the FFB. The agreement terminates on 

September 30, 2014, but is renewable annually. All funds that we advance to System banks as assistance 

will be fully collateralized and repaid with interest by the bank or banks receiving assistance. Therefore, if 

accessed, this liquidity backstop should operate without risk or cost to U.S. taxpayers. 

Significant Staff Changes

Because of staff retirements, the Board of Directors approved the appointment of several new officers in 

2013.

On April 15, 2013, Rick Pfitzinger, who had been our Chief Financial Officer (CFO) for nine years, succeeded Alan Glen as the Director of Risk Management. Rick has been with the Corporation since 1992. 

Prior to becoming CFO, he served as our Asset Assurance Manager. He also served in a number of roles 

at the Federal Deposit Insurance Corporation, in the mortgage insurance industry, and at a commercial 

bank. He has a master’s degree in business and more than 30 years of banking and insurance experience. 

Also in April, the Board designated Emily W. F. Dean as the CFO. Emily is a Certified Public Accountant 

with a master’s degree in business administration. She has more than 25 years of financial management 

experience, first at a community bank, and most recently at the Office of Personnel Management where 

she was Associate CFO for Financial Services. 

In June, the Board designated Howard Rubin as General Counsel after Jim Morris retired. Prior to that, 

Howard was the Executive Assistant and Counsel to FCSIC Chairman, Kenneth A. Spearman. Howard 

also served as senior counsel and staff attorney in FCA’s Office of General Counsel for more than 10 years. 

Prior to that, he was an attorney in private practice for nine years, practicing bankruptcy and creditors’ 

rights law. 

On June 16, 2013, Tanya Renica joined us as an accountant, filling the position that Pam Ngorskul held. 

Before coming to FCSIC, Tanya served as an accountant for the Natural Resource Conservation Service 

and the U.S. Coast Guard. 
Farm Credit System Insurance Corporation

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Finally, in July, the Board of Directors designated Wade Wynn as the Chief Investment Officer. As the 

program manager of the Insurance Fund and a member of our investment committee, Wade is responsible 

for monitoring our investment objectives and assessing portfolio performance. He also serves as a senior 

risk analyst. Wade has a master’s degree in business administration. Before coming to FCSIC, Wade was a 

policy analyst at FCA.

All three staff members who retired in 2013 served the Corporation with distinction. Alan Glenn was one 

of our founding members. He was the CFO for the first 13 years, and he designed many of the financial 

reports we still use. He was an integral member of our investment committee, which actively managed the 

Insurance Fund’s investments to obtain higher rates of return. Most recently, he served as the Director of 

Risk Management, where he initiated several systemic risk reports to keep us updated on key indicators. 

He retired on April 30, 2013, after 35 years of Federal service. 

Jim Morris became General Counsel in 2006. He was instrumental in clarifying our assistance and receivership powers and securing legislation that increased our ability to adjust premiums so that the Insurance 

Fund would be fully funded. Also, he was an integral participant in our successful effort to arrange a 

liquidity backstop for FCSIC. Jim retired on May 31, 2013, after 25 years of Federal service. 

Pam Ngorskul served for more than 11 years as our accountant. Her responsibilities grew exponentially 

when we became a “significant” entity for Federal financial reporting purposes. By focusing on oversight 

and review, Pam maintained control over the increased financial and reporting obligations, allowing us to 

avoid the expense of hiring additional staff. Pam retired on June 30, 2013. 
Protecting Investors in Agriculture and Rural America

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Farm Credit System Insurance Corporation

(Dollars in Millions)

2013 2012 2011 

BALANCE SHEET:

Total Assets $ 3,496.0 $ 3,298.2 $ 3,392.3

Total Liabilities 0.3 0.3 0.4 

 

Insurance Fund Balance

Allocated Insurance Reserves Accounts 0 0 221.9 

 

Unallocated Insurance Fund Balance 3,495.7 3,297.9 3,170.1 

 

OPERATIONS: 

Revenues 200.9 131.1 169.9 

 

Operating Expenses 3.2 3.3 3.3 

 

Insurance Expense 0 0 0 

Net Income 197.7 127.8 166.6 

 

Selected Financial Statistics 
Farm Credit System Insurance Corporation

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The Farm Credit System

Combined Farm Credit System Statistics

(Dollars in Billions)

2013 2012 2011 

Insured Debt Outstanding1 $ 207.5 $ 197.5 $ 184.2 

 

Production Agriculture:

 Real Estate Mortgage Loans 94.2 88.3 80.7

Production and Intermediate-term Loans 45.4 43.9 41.3

Agribusiness Loans2 27.2 27.1 24.7

Communication Loans 4.1 4.2 3.8 

Energy, Water and Waste Disposal Loans 15.5 14.5 11.8 

Rural Residential Real Estate Loans 6.6 6.2 5.8 

Agricultural Export - Finance 4.6 4.7 3.8 

Lease Receivables 2.7 2.4 2.1 

Loans to Other Financial Institutions 0.7 0.7 0.6 

Cash and Investments 51.9 46.9 47.3 

Net Income 4.6 4.1 3.9 

Nonperforming Loans as a Percentage of Total Loans 1.0% 1.4% 1.7% 

 

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, 2013, 2012, and 2011. (Book value excludes fair-value adjustments.)

2. As of December 31, 2013, agribusiness loans consisted of loans to cooperatives of $11.56 billion, processing and marketing loans of $12.73 billion and 

farm-related business loans of $2.95 billion.

Structure and Funding 

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

harvesters of aquatic products, agricultural cooperatives, and farm-related businesses. As of January 1, 

2014, the System had four banks and 78 associations. Each of the associations has its own chartered territory and is affiliated with one of the four banks.

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

States, including the Commonwealth of Puerto Rico. CoBank also has nationwide authority to make retail 

loans to cooperatives and other eligible entities.

The banks obtain funds for their operations primarily through the sale of consolidated Systemwide debt 

securities. The banks own and use the Federal Farm Credit Banks Funding Corporation to issue Systemwide debt securities in the capital markets. As the fiscal agent for the banks, the Funding Corporation 

partners with a select group of dealers to market and distribute the securities to investors throughout the 

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

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Figure 1

Insured Debt Outstanding

Growth Averaged 3.2 Percent Over the Past 5 Years

(Dollars in Billions)

Investor Protection

Investors provide the funds the System lends to agriculture and rural America. Our primary purpose, as 

defined by the Farm Credit Act, is to ensure the timely payment of principal and interest on Systemwide 

debt securities to these investors.

Regulatory Oversight

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

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

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

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

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

Insured and Other Obligations

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

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

Credit Act. Figure 1 shows that insured debt outstanding increased by 5.1 percent in 2013 to $207.5 billion, compared with an increase of 7.2 percent in 2012.

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

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

October 6, 1988. At year-end 2013, protected borrower stock outstanding at System institutions totaled 

$1 million, down from $2 million at year-end 2012.

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.) 

 
Farm Credit System Insurance Corporation

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Farm Credit System Capital 

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

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

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

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

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

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

If a bank were unable to repay its portion of an insured Systemwide debt obligation, FCSIC would use 

the Insurance Fund to make the payment. 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 FCS bank capital and the balance in the Insurance Fund together 

increased 32 percent, from $14.1 billion at year-end 2009 to $18.6 billion at year-end 2013. Bank capital 

plus the amount in the Insurance Fund as a percentage of insured debt outstanding increased from 8.9 

percent in 2012 to 9.0 percent in 2013 (see figure 3). Between 2009 and 2011, the banks retained a significant portion of their earnings to boost capital levels. In 2012, the System’s loan growth outpaced its capital 

growth, causing a slight decline in bank capital as a percentage of insured debt. At year-end 2013 bank 

capital as a percentage of insured debt increased to 7.3 percent from 7.2 percent at year-end 2012.

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

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

Rating System in the “Risk Management” section beginning on page 26.)

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

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

As figure 4 shows, from 2009 to 2013, combined association capital increased $8.8 billion or 43.3 percent, 

with an annual average increase of approximately 9.44 percent. Since 2009, the associations have collectively achieved solid earnings and preserved capital, causing association capital as a percentage of total 

assets to steadily increase to 18.5 percent in 2013 (see figure 5).
Protecting Investors in Agriculture and Rural America

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Figure 2

Bank Capital Plus Insurance Fund

(Dollars in Billions)

Figure 3 

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

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Figure 4 

Combined Association Capital

(Dollars in Billions)

Figure 5 

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

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Additional Protections 

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

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

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

that do not meet performance standards.

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

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

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

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

the CIPA scores and the net collateral and permanent capital ratios.

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

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

temporarily impeded.

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

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

the banks to withstand a liquidity crisis. 
Farm Credit System Insurance Corporation

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Insurance Fund Management

The Insurance Fund and the Secure Base Amount

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

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

fund, the 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 AIRAs. Insurance premiums are due until the unallocated portion of the Insurance Fund reaches the secure base amount.

The secure base amount established by the Farm Credit Act is 2 percent of the aggregate outstanding 

insured obligations (adjusted to exclude 90 percent of Federal Government-guaranteed loans and investments and 80 percent of State Government-guaranteed loans and investments) or another percentage that 

we determine to be actuarially sound to maintain in the Insurance Fund, taking into account the risk of 

insuring outstanding insured obligations.

Figure 6

Insurance Fund Relative to 2 Percent Secure Base Amount
Protecting Investors in Agriculture and Rural America

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Figure 7

Insurance Fund Balances and Growth Rates at Year-end

(Dollars in Billions)

In 2013, both the total Insurance Fund and total assets increased by 6.0 percent to $3.50 billion. Insured 

debt outstanding grew $10 billion in 2013 (5.1 percent). The Insurance Fund finished 2013 at 1.94 percent, 

which was $115 million below the secure base amount (see figure 6). Consequently, no excess funds were 

available for allocation to the AIRAs at year-end.

Over the past five years, the total Insurance Fund has grown at an annual rate of 3.86 percent. We did not 

accrue a provision for insurance obligations in 2013 (see figure 7).
Farm Credit System Insurance Corporation

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Premiums 

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

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

•	 Projected losses to the Insurance Fund

•	 The condition of the System

•	 The health of the agricultural economy

•	 Risks in the financial environment

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

It also authorizes a risk surcharge of up to 10 basis points on nonaccrual loans and on other-than-temporarily impaired investments. In addition, the act reduces the total insured debt on which premiums are 

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

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

loans and investments.

The most important factors in determining premium rates for 2013 were the level of the Insurance Fund 

and the prospects for growth during the year. 

The Insurance Fund finished 2012 at 1.93 percent, $119 million below the 2 percent secure base level. 

Based on System growth projections that ranged from 2 to 7 percent, with a 5.4 percent weighted average, 

the FCSIC Board set the assessment rate on adjusted insured debt at 10 basis points for 2013. Through 

May 2013, insured debt outstanding declined by $855 million or 0.4 percent. Also in May, we surveyed 

the four System banks to update prospects for growth in their utilization of insured debt obligations during the remainder of 2013. Growth estimates ranged from 0 to 8 percent with a weighted average growth 

rate of between 4 and 5 percent, somewhat below the weighted average calculated in January. 

Based on May 31, 2013 interim financials, the Insurance Fund was estimated to be at the 2.0 percent 

secured base amount. As a result, the Board, at its June meeting, maintained the premium assessment rate 

on adjusted insured debt at 10 basis points for the remainder of 2013. However, Systemwide utilization of 

insured debt obligations increased more than projected during the second half of 2013 (see figure 8). Consequently, the Insurance Fund finished 2013 slightly below the 2 percent secure base level at 1.94 percent 

or $115 million below the target level.

Because the Insurance Fund finished 2013 $115 million below the 2 percent secure base amount and the 

System reported prospects for continued growth in insured debt, our Board of Directors set the assessment rate on adjusted insured debt at 12 basis points for 2014.
Protecting Investors in Agriculture and Rural America

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Figure 8

Secure Base Amount Calculation

Results as of December 31,2013

(Dollars in Millions)
Farm Credit System Insurance Corporation

22

Figure 9

Corporation Revenues

(Dollars in Millions)

Revenues and Expenses 

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

provide the funds necessary to fulfill our mission.

Our revenues in 2013 increased 53.2 percent to $200.9 million from $131.1 million in 2012 (see figure 

9). The increase in revenues resulted primarily from higher insurance premiums in 2013. Interest income 

decreased 39 percent in 2013 to $28.8 million from $46.8 million in 2012 primarily because of the historically low interest rates and lower inflation, which reduced the inflation compensation that our inflationprotected Treasury securities earned.
Protecting Investors in Agriculture and Rural America

23

Figure 10 

Corporation Expenses

(Dollars in Millions)

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

and used private and public sector contractors to leverage our efforts. Our Board of Directors and management have adopted this model as a cost-effective and efficient way to use available expertise, services, 

and resources to accomplish our mission.

Our operating costs as a percentage of total assets represented 9 basis points for 2013. Fixed costs for staff, 

travel, rent, and miscellaneous expenses were $2.5 million of the $3.2 million total for the year (see figure 

10). The remaining expenses of $0.7 million were for contract services.

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

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

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

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

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

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

through the rest of 2013.
Farm Credit System Insurance Corporation

24

Investments 

FCSIC investments decreased during the year from $3.2 billion at December 31, 2012, to $3.1 billion at 

year-end 2013 (see figure 11). An investment security of $0.2 billion matured on December 31, 2013, and 

its proceeds were placed into an overnight investment account classified as “Cash and Cash Equivalents” 

on our Balance Sheet.

Our investment objective is to maximize returns while meeting liquidity needs and minimizing exposure 

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

and our investment policy.

The average portfolio yield was 0.87 percent, down from 1.44 percent the prior year. The return on the 

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

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

and maturity to holdings in our portfolio. The average return of the benchmark group was 0.69 percent 

for 2013.

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

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

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

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

between 5 and 10 years. The weighted average portfolio maturity at year-end was 2.06 years. The composition of the investment portfolio at December 31, 2013, is shown in figure 12.

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, 

60 years ago. Because of the volatility of the monthly returns on TIPS, the FCSIC Investment Committee 

limits TIPS to no more than 20 percent of the portfolio. At year-end 2013, our TIPS investments totaled 

$389 million or 12.7 percent of the investment portfolio. 
Protecting Investors in Agriculture and Rural America

25

Figure 11

Corporation Investments

(Dollars in Billions)

Figure 12

Investment Portfolio by Maturity at December 31, 2013

(Dollars in Millions)
Farm Credit System Insurance Corporation

26

Risk Management

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

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

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

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

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

We also assess risk to the Insurance Fund in the following ways:

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

approved by FCA for System institutions

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

agricultural or financial services industries

	 •	 Using analytical models

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

During 2013, risk management staff monitored and evaluated the following factors:

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

sectors

	 •	 Trade policy and government programs that support U.S. agriculture

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

Midwest

	 •	 The effects of drought and diseases on agricultural producers in certain regions of the country

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

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

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

ratings

	 •	 The performance and condition of the four System banks

The Risk Environment in 2013

The effects of the most recent recession were still evident in 2013. Since mid-2009, the U.S. economy has 

been on a path of weak recovery, with growth at a moderate but uneven pace. Economic output as measured by real gross domestic product increased by 2.8 percent in 2012 and 1.9 percent in 2013. In 2013 

employment gains were modest. While the unemployment rate has fallen from its peak of 10.0 percent 

in October of 2009, it remained high at 6.7 percent at year-end 2013, well above pre-recession levels. The 

housing market showed signs of recovery, but rising mortgage rates and only modest gains in income may 

dampen future prospects.

The U.S. banking sector continued to strengthen as asset quality improved. For 2013, institutions insured 

by the Federal Deposit Insurance Corporation reported that they had set aside 44.4 percent less in loan 

loss provisions than they did in 2012. They also reported that loan charge-offs were lower for all major 

loan categories, especially residential mortgages. The number of problem institutions (that is, those with 
Protecting Investors in Agriculture and Rural America

27

ratings of 4 and 5 for factors of capital adequacy, asset quality, management quality, earnings, liquidity and 

sensitivity to market risk, the so-called CAMELS) declined from 651 in 2012 to 467 in 2013. Twenty-four 

commercial banks failed in 2013 compared with 51 in 2012.

In January 2014, the Federal Open Market Committee, in light of the improvement in the employment 

rate and the outlook for the labor market, decided to further reduce the pace of its asset purchases. This 

continued its policy of maintaining the target range for the Fed funds rate of 0 to 0.25 percent as long 

as the unemployment rate remains above 6.5 percent and the outlook for inflation is no more than 2.5 

percent. The timing and magnitude of a change in the direction of interest rates may significantly affect 

the profitability of agricultural producers who use debt financing in their operations, as well as the market 

value of the System’s liquidity portfolio. 

The agricultural sector remained strong in 2013 despite slow growth in the domestic economy and the 

lingering drought. In February 2014, the U.S. Department of Agriculture estimated that national net farm 

income in 2013 was $130.5 billion, the highest since 1973, and it estimated that net cash income was 

$130.1 billion. USDA projects net farm income of $95.8 billion for 2014. The 2014 forecast is the lowest since 2010, but USDA points out it would be $8 billion above the 10-year average. The elimination of 

direct payments under the Agricultural Act of 2014 and uncertainty regarding crop insurance programs 

and payments during calendar-year 2014 result in a projected 45 percent decline in government payments.

Crop prices are expected to decline substantially in 2014, falling back to pre-2011 levels. The average price 

of corn, for example, is expected to drop, driven down by record yields in 2014. However, USDA forecast 

that production expenses will decline $3.9 billion in 2014, which would offset the effects of lower commodity prices on farm income. This would be only the second time in the past 10 years that expenses 

have declined.

The System continued to report strong earnings. As of December 31, 2013, it reported $4.6 billion in net 

income compared with $4.1 billion in 2012. The increase can be attributed to favorable agricultural conditions and improved credit quality. Total loans and total assets equaled $201.1 billion and $260.8 billion, 

respectively.

The credit quality of the System’s loan portfolio continued to improve in 2013. System loans classified 

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

increased. As a percentage of total loans, these loans increased to 97.7 percent in 2013 from 96.8 percent 

in 2012. Nonperforming loans as a percentage of total loans declined to 1.1 percent in 2013 from 1.4 percent in 2012.

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

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

examination scrutiny and supervisory attention from FCA.
Farm Credit System Insurance Corporation

28

Figure 13

FCS Institution Financial Institution Rating System 

Composite Year-end Ratings

2008–2013

Source: FCA

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

29

The System continued to benefit from the low interest rate environment, which has enabled the banks to 

call and issue new debt at lower interest rates. However, the pace of debt refinancing slowed considerably 

from 2012 and is expected to continue to decline as interest rates change and assets prepay or reprice. The 

net interest spread declined 7 basis points in 2013 because of competitive pressures and an increase in 

average loan volume in lower spread lines of business.

The FCA’s regulations on liquidity were updated and became effective in June 2013. The regulations 

require each bank to maintain a three-tiered liquidity reserve. The first tier of the liquidity reserve must 

consist of a sufficient amount of cash and cash-like instruments to cover each bank’s financial obligations 

for 15 days. The second and third tiers of the liquidity reserve must contain liquid instruments that are 

sufficient to cover the bank’s obligations for the next 15 and subsequent 60 days, respectively. At December 31, 2013, each bank maintained the three tiers of the liquidity reserve and exceeded the regulatory 

minimum 90 days of liquidity.

The Agricultural Act of 2014 (also known as the Farm Bill) was signed into law on February 7, 2014. The 

Congressional Budget Office estimates that direct spending stemming from the programs will total $956 

billion over the 2014 to 2023 periods, of which $756 billion would be for nutrition programs. The Farm 

Bill will reduce spending on commodity programs by $14.3 billion over the 2014 to 2023 period. It will 

end fixed payments and certain other forms of price and income support to agricultural producers. It will 

also establish new programs that require producers to choose between price supports or a guarantee of 

some of their expected revenue. The provisions on crop insurance will increase costs by a projected $5.7 

billion over the 2014 to 2023 period. It is too early to know what the impact will be of the Government’s 

shift from direct payments to primarily insurance programs for agricultural producers.
Farm Credit System Insurance Corporation

30

Financial Assistance and Receivership

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

a System institution were to need financial assistance, we would first have to ensure that the proposed 

assistance is the least costly means for resolving the institution’s problems. By law, we may not provide 

financial assistance if the cost of liquidation is lower.

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

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

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

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

active receiverships or conservatorships currently in the System.

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

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

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 to exchange 

information concerning receivership management.

As discussed earlier, we are pursuing a legislative initiative to modernize and strengthen our resolution 

authorities. Since 1987, there have been no substantive amendments of the Farm Credit Act relating to 

FCSIC’s resolution authorities. 

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

FCSIC control, and environmental hazards assessments of real estate securing nonperforming assets. The 

Board-approved policy statements are required to be reviewed and approved by the Board every five years. 

In January 2013, the Board approved the Policy Statement Concerning the Sale of Assets.
FARM CREDIT SYSTEM INSURANCE 

CORPORATION

McLean, VA 

FINANCIAL STATEMENTS 

Including Independent Auditors' Report 

As of and for the Years Ended December 31, 2013 and 2012 
FARM CREDIT SYSTEM INSURANCE CORPORATION

TABLE OF CONTENTS 

Independent Auditors' Report F1 – F2 

Independent Auditors’ Report on Internal Control over Financial Reporting 

and on Compliance And Other Matters Based on an Audit of Financial 

Statements Performed in Accordance with U.S. Government Auditing 

Standards F3 – F4 

Financial Statements 

Statements of Financial Condition F5 

Statements of Income and Expenses and Changes in Insurance Fund F6 

Statements of Cash Flows F7 

Notes to Financial Statements F8 – F14 
F1

Baker Tilly Virchow Krause, LLP 

777 E Wisconsin Ave, 32nd Floor 

Milwaukee, WI 53202-5313 

tel 414 777 5500 

fax 414 777 5555 

bakertilly.com 

Independent Auditors’ Report 

To the Board of Directors 

Farm Credit System Insurance Corporation 

McLean, Virginia 

Report on the Financial Statements

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

("FCSIC"), which comprise the statement of financial condition as of December 31, 2013, and the related 

statements of income and expenses and changes in insurance fund and cash flows for the year then ended, 

and related notes to the financial statements.

Management’s Responsibility for the Financial Statements

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 ("U.S. GAAP"); this 

includes the design, implementation, and maintenance of internal control relevant to the preparation and fair 

presentation of financial statements that are free from material misstatement, whether due to fraud or error. 

Auditors’ Responsibility 

Our responsibility is to express an opinion on the financial statements based on our audit. 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 U.S. Government Auditing Standards issued by the Comptroller 

General of the United States; and Office of Management and Budget Bulletin No. 14-02, 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. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the 

financial statements. The procedures selected depend on the auditors' 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 financial statements in order to design audit procedures that are appropriate in the circumstances, but not 

for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we 

express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used 

and the reasonableness of significant estimates made by management, as well as evaluating the overall 

presentation of the financial statements. 

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

audit opinion.
F2

Opinion

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

position of the Farm Credit System Insurance Corporation as of December 31, 2013, and the results of its 

operations and its cash flows for the year then ended in accordance with accounting principles generally 

accepted in the United States of America. 

Prior Period Financial Statements 

The financial statements of FCSIC as of December 31, 2012 and for the year then ended were audited by other 

auditors whose report dated April 11, 2013 expressed an unmodified opinion on those statements. 

Other Reporting Required by U.S. Government Auditing Standards 

In accordance with U.S. Government Auditing Standards, we have also issued our report dated February 12, 

2014 on our consideration of FCSIC’s internal control over financial reporting and on our tests of its compliance 

with certain provisions of laws, regulations and contracts and other matters. The purpose of that report is to 

describe the scope of our testing of internal control over financial reporting and compliance and the results of 

that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That 

report is an integral part of an audit performed in accordance with U.S. Government Auditing Standards in 

considering FCSIC’s internal control over financial reporting and compliance. 

Milwaukee, Wisconsin 

February 12, 2014 
F3

Baker Tilly Virchow Krause, LLP 

777 E Wisconsin Ave, 32nd Floor 

Milwaukee, WI 53202-5313 

tel 414 777 5500 

fax 414 777 5555 

bakertilly.com 

Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance 

And Other Matters Based on an Audit of Financial Statements Performed in Accordance with U.S. 

Government Auditing Standards 

To the Board of Directors 

Farm Credit System Insurance Corporation 

McLean, Virginia 

We have audited, in accordance with auditing standards generally accepted in the United States of America 

and the standards applicable to financial audits contained in U.S. Government Auditing Standards issued by the 

Comptroller General of the United States, the financial statements of the Farm Credit System Insurance 

Corporation ("FCSIC"), which comprise the statement of financial condition as of December 31, 2013, and the 

related statements of income and expenses and changes in insurance fund and cash flows for the year then 

ended, and related notes to the financial statements, and have issued our report thereon dated February 12, 

2014.

Internal Control Over Financial Reporting 

In planning and performing our audit of the financial statements we considered FCSIC's internal control over 

financial reporting ("internal control") to determine the audit procedures that are appropriate in the 

circumstances for the purpose of expressing an opinion on the financial statements, but not for the purpose of 

expressing an opinion on the effectiveness of FCSIC's internal control. Accordingly, we do not express an 

opinion on the effectiveness of FCSIC's internal control. 

A deficiency in internal control exists when the design or operation of a control does not allow management or 

employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, 

misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in 

internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial 

statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a 

deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet 

important enough to merit attention by those charged with governance. 

Our consideration of internal control was for the limited purpose described in the first paragraph of this section 

and was not designed to identify all deficiencies in internal control that might be material weaknesses or 

significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal 

control that we consider to be material weaknesses. However, material weaknesses may exist that have not 

been identified. 
F4

Compliance and Other Matters 

As part of obtaining reasonable assurance about whether FCSIC's financial statements are free from material 

misstatement, we also performed tests of its compliance with certain provisions of laws, regulations, and 

contracts, 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 herein under U.S. Government 

Auditing Standards. 

Purpose of this Report 

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and 

the result of that testing, and not to provide an opinion on the effectiveness of FCSIC's internal control or on 

compliance. This report is an integral part of an audit performed in accordance with U.S. Government Auditing 

Standards in considering FCSIC's internal control and compliance. Accordingly, this report is not suitable for 

any other purpose.

Milwaukee, Wisconsin 

February 12, 2014 
FARM CREDIT SYSTEM INSURANCE CORPORATION

The accompanying notes are an integral part of these financial statements. 

F5

STATEMENTS OF FINANCIAL CONDITION 

As of December 31, 2013 and 2012 

(Dollars in thousands) 

 2013 2012 

Assets 

Cash and cash equivalents $ 249,285 $ 5,079

Investments in U.S. Treasury obligations 3,060,465 3,196,211

Premiums receivable 173,639 84,266

Accrued interest receivable 12,601 12,667

Total assets $ 3,495,990 $ 3,298,223

 

Liabilities and Insurance Fund 

 Accounts payable and accrued expenses $ 341 $ 287

Total liabilities 341 287

 

Farm Credit Insurance Fund 

Allocated Insurance Reserves Accounts - -

Unallocated Insurance Fund 3,495,649 3,297,936

Total Insurance Fund 3,495,649 3,297,936

Total liabilities and Insurance Fund $ 3,495,990 $ 3,298,223
FARM CREDIT SYSTEM INSURANCE CORPORATION

The accompanying notes are an integral part of these financial statements. 

F6

STATEMENTS OF INCOME AND EXPENSES AND CHANGES IN INSURANCE FUND 

For the Years Ended December 31, 2013 and 2012 

(Dollars in thousands) 

 2013 2012 

Income 

 Premiums $ 172,164 $ 84,298

 Interest income 28,768 46,842

Total income 200,932 131,140

 

Expenses 

 Administrative operating expenses 3,219 3,317

Total Expenses 3,219 3,317

Net Income 197,713 127,823

Farm Credit Insurance Fund — beginning of year 3,297,936 3,391,964

Payments to AIRAs Accountholders - 221,851

Farm Credit Insurance Fund — end of year $ 3,495,649 $ 3,297,936
FARM CREDIT SYSTEM INSURANCE CORPORATION

The accompanying notes are an integral part of these financial statements. 

F7

STATEMENTS OF CASH FLOWS 

For the Years Ended December 31, 2013 and 2012 

(Dollars in thousands) 

2013 2012 

Cash flows from operating activities 

Net income $ 197,713 $ 127,823

 

Adjustments to reconcile net income to net cash 

provided by operating activities: 

(Increase) decrease in premiums receivable (89,373) 14,433

Decrease in accrued interest receivable 66 13,597

Net amortization and accretion of investments 36,944 25,957

Increase (decrease) in accounts payable and accrued expenses 54 (98)

 Net cash provided by operating activities 145,404 181,712

Cash flows from investing activities 

Payments for purchase of U. S. Treasury obligations (525,559) (1,653,663)

Proceeds from maturity of U.S. Treasury obligations 624,361 1,697,780

 Net cash provided by investing activities 98,802 44,117

Cash flows from financing activities 

Payment to AIRAs Accountholders - (221,851)

 Net cash used in financing activities - (221,851)

Net change in cash and cash equivalents 244,206 3,978

Cash and cash equivalents, beginning of year 5,079 1,101

Cash and cash equivalents, end of year $ 249,285 $ 5,079
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2013 and 2012 

F8

NOTE 1 – 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), (insured obligations). Each bank in the Farm Credit 

System (System) participating in insured obligations is an insured System bank. At December 31, 2013, 

there were four insured System banks and 82 direct lender associations. 

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 the amounts necessary to: 

1. Ensure the timely payment of interest and principal on insured obligations in the event of default 

by an insured System bank; 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 

certain insured institutions. 

As of December 31, 2013, there were $207.5 billion of insured obligations and $1 million of eligible 

borrower stock outstanding. 

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. 

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 – Summary of Significant Accounting Policies 

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.

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, 2013, the Corporation held 

$249.1 million in overnight Treasury Certificates maturing on January 2, 2014, with an investment rate of 

0.01 percent, and $200,986 in cash. 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2013 and 2012 

F9

NOTE 2 – Summary of Significant Accounting Policies (cont.)

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 (formerly Statement of Financial 

Accounting Standard No. 115) 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. 

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 position 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. 

Premiums—Annual premiums are recorded as revenue during the period on which the premiums are 

based. All premiums are due on or before January 31 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.
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2013 and 2012 

F10

NOTE 3 – Investments in U.S. Treasury Obligations 

In addition to the amounts referenced in Note 2, Cash and Cash Equivalents, at December 31, 2013 and 

2012, investments in U.S. Treasury obligations which are carried at amortized cost consisted of the 

following:

Gross Gross Estimated 

Amortized Unrealized Unrealized Market 

(Dollars in thousands) Cost Gains Losses Value 

December 31, 2013 

U.S. Treasury obligations $ 3,060,465 $ 11,437 $ (13,206) $ 3,058,696 

December 31, 2012 

U.S. Treasury obligations $ 3,196,211 $ 41,496 $ (433) $ 3,237,274 

The amortized cost and estimated market value of U.S. Treasury obligations at December 31, 2013, by 

contractual maturity, are shown below. 

(Dollars in thousands) Amortized Cost Estimated Market Value 

 

Due in one year or less $ 723,389 $ 727,160 

 

Due after one year through five years 1,997,908 2,003,343 

 

Due after five years through ten years 339,168 328,193 

 

$ 3,060,465 $ 3,058,696 

The Corporation follows accounting principles generally accepted in the United States of America 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. 

As defined in the accounting standards, fair value is the price that would be received to sell an asset or 

paid to transfer a liability in an orderly transaction between market participants at the measurement date. 

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. 

Assets and liabilities measured, reported and/or disclosed at fair value will be classified and disclosed in 

one of the following three categories: 

Level 1 - Inputs to the valuation methodology are unadjusted quoted market prices for identical 

assets in active markets that the plan has the ability to access. 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2013 and 2012 

F11

NOTE 3 – Investments in U.S. Treasury Obligations (cont.)

Level 2 - Observable market based inputs or unobservable inputs that are corroborated by 

market data. Inputs to the valuation methodology include 

 quoted prices for similar assets or liabilities in active markets; 

 quoted prices for identical or similar assets or liabilities in inactive markets; 

 inputs other than quoted prices that are observable for the asset or liability; 

 inputs that are derived principally from or corroborated by observable market data by 

correlation or other means. 

Level 3 - Unobservable inputs that are unobservable and not corroborated by market data. 

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest 

level of any input that is significant to the fair value measurement. Valuation techniques used need to 

maximize the use of observable inputs and minimize the use of unobservable inputs. 

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

market prices for those instruments; accordingly these are classified as Level 1 assets. 

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 may be required to pay premiums to the Corporation. 

The Food, Conservation, and Energy Act of 2008 amended the Farm Credit Act of 1971 (12 U.S.C. § 

2001 et seq.) to generally assess premiums based on each bank's pro rata share of insured debt (rather 

than on loans), aligning premiums with what FCSIC insures. The changes were implemented beginning 

July 1, 2008. Now FCSIC may collect from 0 to 20 basis points annually on adjusted insured debt 

outstanding. The amendments also authorize a risk surcharge of up to 10 basis points on non-accrual 

loans and on other-than-temporarily impaired investments. The amendments reduce 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 deduct similar 

percentages of such guaranteed loans and investments when calculating the secure base amount (SBA). 

The amendments clarify that FCSIC may collect premiums more frequently than annually. 

In addition, the Farm Credit Act no longer specifies how the System banks pass premiums to associations 

and other financing institutions, although it will require that the banks do so in an equitable manner. This 

change allows the banks flexibility in allocating premium costs to associations. The amendments clarify 

that, in addition to FCSIC's regulatory authority under Title V of the Farm Credit Act, FCSIC has the 

authority to adopt rules and regulations concerning provisions in Title I of the Farm Credit Act related to 

banks passing along the cost of insurance premiums. Finally, the amendments change the Farm Credit 

Act provisions regarding certified statements and simplify the formula for payments from the Farm Credit 

Insurance Fund Allocated Insurance Reserves Accounts (AIRAs) to allow more immediate distribution of 

excess Insurance Fund balances to insured banks and the System Financial Assistance Corporation (the 

FAC) stockholders. 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2013 and 2012 

F12

NOTE 4 – Premiums, the Secure Base Amount and Excess Insurance Fund Balances (cont.)

The Farm Credit Act sets a base amount 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. 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 2013, the Board of Directors set premium rates 

at its January 24, 2013, meeting at 10 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, 2013 meeting. The Board of Directors voted to maintain the premium accrual rate on 

average adjusted insured debt at 10 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 2013. In 2013, outstanding insured obligations increased by 

$10 billion (5.1 percent). At December 31, 2013, both of the unallocated Insurance Fund and the total 

Insurance Fund were 1.94 percent of adjusted insured obligations. 

A 1996 amendment to the Farm Credit Act requires the Corporation to establish AIRAs for each System 

bank and an account for the stockholders of the FAC. If at the end of any calendar year the unallocated 

Insurance Fund is at the SBA, the Corporation is to segregate any excess balances into these AIRAs. In 

2011, the Corporation's Board of Directors revised the Policy Statement on the Secure Base Amount and 

Allocated Insurance Reserves Accounts which provides guidelines for implementing this statutory 

authority. If at the end of any calendar year, the aggregate of the amounts in the Insurance Fund exceeds 

the SBA, the Corporation shall allocate to the AIRAs the excess amount 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.

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 has discretion to limit or restrict the AIRAs payments. In 

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

Insurance Fund's compliance with the SBA. 

At year-end 2011, the Corporation transferred $221.85 million to AIRAs. In April 2012, after completion of 

the Corporation’s year-end audit, the Board of Directors authorized the payment of the AIRA balances to 

the account holders. Payments were made in May 2012. 

At year end 2013, the Insurance Fund was below the SBA by $115 million. Consequently no funds were 

available to transfer to the AIRAs. 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2013 and 2012 

F13

NOTE 5 – Operating Lease 

On November 30, 2009, the Corporation executed a six-year lease with the FCS Building Association for 

office space. The terms of the lease provide for an annual minimum base rent for office space for the 

remaining term of $150,899 for 2014 and $155,440 for 2015. The Corporation recorded lease expense 

(including operating cost assessments) of $148,025 and $145,157 for 2013 and 2012, respectively. 

NOTE 6 – Line of Credit 

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

FFB), a federal instrumentality 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 

threaten an insured System Bank’s ability 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 and 

terminates on September 30, 2014, unless otherwise extended.

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 2013. 

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's contribution during 2013 to the CSRS 

plan was 7 percent of base pay. For those employees covered by FERS, the Corporation's contribution 

was 11.9 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. Retirement plan expenses amounted to $256,420 in 2013 and $264,533 in 2012. 

NOTE 8 – Related Parties 

The Corporation purchases services from the FCA under an Interagency Agreement. These include 

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 had zero payables due to the FCA at 

December 31, 2013 and 2012. The Corporation purchased services for 2013 which totaled $366,920 

compared with $401,176 for 2012. 

The Corporation may also provide assistance to the FCA under the same Interagency Agreement, 

however the Corporation provided no services and recognized no revenue for 2013 and 2012. At 

December 31, 2013, and 2012, the Corporation did not have any receivables from the FCA. 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2013 and 2012 

F14

NOTE 9 – Subsequent Events 

Management evaluated subsequent events through February 12, 2014, the date the financial statements 

were available to be issued. Events or transactions occurring after the balance sheet date but prior to the 

date the financial statements were available to be issued, that provide additional evidence about 

conditions that existed at the balance sheet date, are recognized in the financial statements. Events or 

transactions that provide evidence about conditions that did not exist at the balance sheet date but arose 

before the financial statements were available to be issued are not recognized in the financial statements. 

The financial statements for the year ended December 31, 2013 have not been adjusted for any events or 

transactions occurring after the balance sheet date. 
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Farm Credit System Insurance Corporation

32

April 15, 2014

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

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

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

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

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

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

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

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

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

management systems in effect during 2013 in accordance with guidelines provided by the Office of Management and Budget (OMB) in consultation with the Comptroller General (OMB Circular A-123, “Management’s Responsibility for Internal Control”). The objective of these controls and systems is to provide 

reasonable assurance that

	 •	 obligations and costs comply with applicable laws;

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

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

and

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

assets will be maintained.

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

2013, the internal control over financial reporting was effective.

In addition, as stated in the accompanying report, the Corporation’s independent auditor, Baker Tilly Virchow Krause, LLP, did not identify any material weaknesses in the effectiveness of FCSIC’s internal control 

over financial reporting as of December 31, 2013.

 

Dorothy L. Nichols Emily W. F. Dean C. Richard Pfitzinger

Chief Operating Officer Chief Financial Officer Director of Risk Management

Management Report on Internal Control Over 

Financial Reporting
Performance Management Program 

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

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

goals:

1. Building and managing the Insurance Fund to protect investors

2. Detecting, evaluating, and managing insurance risk

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

Performance Measures

1. Building and managing the Insurance Fund to protect investors

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

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

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

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

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

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

amount target level and reporting results to the Board of Directors

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. Detecting, evaluating, and managing insurance risk

We measure progress towards 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 of probable or actual insurance 

claims, the ratio of estimated losses to actual losses is an indicator of our ability to assess prospective loss 

exposure.

As guidance, our management uses criteria specified in FCSIC’s allowance for loss procedure and the 

Financial Accounting Standards Board’s Accounting Standards Topic 450, Contingencies. Timely evaluation of the Insurance Fund’s risk exposure is critical to preserving the Insurance Fund’s solvency. We use 

FCA reports of examination to evaluate risks to the Insurance Fund. From time-to-time we independently 

examine and require information from System institutions.

Protecting Investors in Agriculture and Rural America

33
3. Maintaining the capability to act as receiver or conservator as the need arises

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

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

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

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

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

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

complexity of the individual case

	 •	 Operating costs as a percentage of total assets

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

Farm Credit System Insurance Corporation

34

2013 Budget and Expenditure by Program

(Dollars in Millions)
Investors in insured 

debt are protected 

from loss without

recourse to a joint and 

several liability call.

See pages

18-21 for

2013 results.

See pages

26-29 for

2013 results.

See pages

8-11 and

26-29 for

2013 results.

See page

30 for 2013 

results.

See page

30 for 2013 

results.

See the 

FCSIC 

website for 

additional 

information.

The Farm Credit Insurance 

Fund remains strong and 

adequately financed.

FCSIC promptly identifies 

and responds to potential 

risks to the Insurance Fund.

FCSIC resolves failure of 

FCS institutions in the 

manner least costly to the 

Insurance Fund.

The public, insured investors, and FCS institutions 

have access to accurate and 

easily understood information about our insurance 

program.

Maintain the Insurance

Fund at the statutory 

2 percent secure base 

amount.

Identify and address 

risks to the Insurance 

Fund.

Disseminate data and 

analyses on issues to the 

FCSIC Board, the public, 

and other stakeholders.

Effectively administer 

temporary financial 

assistance programs 

subject to the statutory 

least-cost requirements.

Market failing institutions to qualified and 

interested potential 

bidders.

Provide information 

about the benefits of 

the insurance program 

through our website, 

annual report, and other 

outlets.

Strategic Goal Strategic Objectives High Priority Performance Goals

Protecting Investors in Agriculture and Rural America

35
Farm Credit System Insurance Corporation

36

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

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

earnings, liquidity, and sensitivity to market risk.

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

under which the FCS, FCSIC, and FCA operate.

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

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

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

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

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

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

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

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

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

nature of FCS institutions. The FIRS provides a general framework for assimilating and evaluating all 

significant financial, asset quality, and management factors to assign a composite rating to each System 

institution. The ratings are described below.

Rating 1—Institutions in this group are basically sound in every respect; any negative findings or comments are of a minor nature and are anticipated to be resolved in the normal course of business. Such 

institutions are well managed, resistant to external economic and financial disturbances, and more 

capable of withstanding the uncertainties of business conditions than institutions with lower ratings. 

Each institution in this category exhibits the best performance and risk management practices for its 

size, complexity, and risk profile. These institutions give no cause for regulatory concern.

Rating 2—Institutions in this group are fundamentally sound but may reflect modest weaknesses correctable in the normal course of business. Since the nature and severity of deficiencies are not material, such institutions are stable and able to withstand business fluctuations. Overall risk management 

practices are satisfactory for the size, complexity, and risk profile of each institution in this group. 

While areas of weakness could develop into conditions of greater concern, regulatory response is limited to the extent that minor adjustments are resolved in the normal course of business and operations 

continue in a satisfactory manner.

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 

Glossary
Protecting Investors in Agriculture and Rural America

37

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 that is 

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

sector. Each GSE has a public or social purpose. GSEs are usually created because the private markets did 

not satisfy a purpose that Congress deems worthy either to fill a credit gap or to enhance competitive 

behavior in the loan market. Each is given certain features or benefits (called GSE attributes) to allow it 

to overcome the barriers that prevented purely private markets from developing. In some cases, the GSE 

receives public assistance only to get started, as the FCS did; in other cases, the assistance is ongoing. The 

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

38

AIRAs Allocated Insurance Reserves Accounts

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

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

CIPA Contractual Interbank Performance Agreement

Farm Credit Act Farm Credit Act of 1971, as amended

FCA Farm Credit Administration

FCS Farm Credit System

FCSIC Farm Credit System Insurance Corporation 

FDIC Federal Deposit Insurance Corporation

FFB Federal Financing Bank

FIRS Financial Institution Rating System

Funding Corporation Federal Farm Credit Banks Funding Corporation

NCUA National Credit Union Administration

Systemwide debt securities Federal Farm Credit Banks Consolidated Systemwide debt 

securities

TIPS Treasury Inflation Protected Securities

USDA U.S. Department of Agriculture

Acronyms and Abbreviations
Protecting Investors in Agriculture and Rural America

39

Corporate Staff

Dorothy L. Nichols Chief Operating Officer

C. Richard Pfitzinger Director of Risk Management

Emily W. F. Dean Chief Financial Officer

Howard I. Rubin General Counsel

William R. Fayer Senior Resolution Specialist

Wade Wynn Chief Investment Officer and Senior Risk Analyst

Tanya Renica Accountant

Barbara Loggins Senior Administrative Specialist

Molly Sproles Administrative Management Assistant

Contact Information 

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

Credit Banks Funding Corporation at the following address:

Federal Farm Credit Banks Funding Corporation

10 Exchange Place

Suite 1401

Jersey City, NJ 07302

(201) 200-8000

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

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

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

Office of Congressional and Public Affairs

Farm Credit Administration

1501 Farm Credit Drive

McLean, VA 22102

(703) 883-4056

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

40

FCSIC — Insured Banks (as of January 1, 2014)

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.
Farm Credit System Insurance Corporation

1501 Farm Credit Drive

McLean, VA 22102

703-883-4380 Voice

703-790-9088 Fax

www.fcsic.gov