Protecting Investors in Agriculture and Rural America

FARM CREDIT SYSTEM INSURANCE CORPORATION

2015 Annual Report
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

May 23, 2016

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 

2015.

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 as of December 31, 2015, was 

$4.04 billion.

We collected $260.6 million in insurance premiums from Farm Credit System banks for 

2015, earned $31.3 million in investment income in 2015, and expect to incur $4.1 million 

in operating costs in 2016.

We at FCSIC are proud of the role we play in supporting the safety and soundness of the 

Farm Credit System, and we are committed to fulfilling our mission faithfully.

Sincerely,

Dallas P. Tonsager

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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Contents

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

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

Dallas P. Tonsager..................................................................................................................5

Kenneth A. Spearman...........................................................................................................6

Jeffery S. Hall ........................................................................................................................7

2015 – Year in Review..........................................................................................................8

The Farm Credit System.................................................................................................... 11

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

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

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

Financial Assistance and Receivership............................................................................ 29

Independent Auditors’ Report.......................................................................................... F1

Financial Statements........................................................................................................... F5

Notes to Financial Statements.......................................................................................... F8

Management Report on Internal Control Over Financial Reporting....................... 30

Performance Management Program .............................................................................. 31

Glossary ................................................................................................................................ 34

Acronyms and Abbreviations ........................................................................................... 36

Corporate Staff .................................................................................................................... 37

Contact Information ......................................................................................................... 37

Banks Insured by FCSIC................................................................................................... 38
Protecting Investors in Agriculture and Rural America

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Message from the Chairman 

I am pleased to present FCSIC’s 2015 Annual Report. It is gratifying to note that, for the 26th consecutive year since we began issuing financial statements, our independent public auditor has issued unmodified or unqualified opinions on those statements. The 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.

FCSIC’s net income for 2015 was $288.5 million, compared with $254.1 million for the previous year. The 

Insurance Fund balance as of December 31, 2015, was $4.04 billion, compared with $3.75 billion at yearend 2014.

Premium revenue was $260.6 million for 2015, compared with $223.1 million for 2014. It increased 

because the premium assessment rate went up from 12 basis points in 2014 to 13 basis points in 2015 and 

the insured obligation balance was higher. Interest income for 2015 totaled $31.3 million, compared with 

$34.1 million in 2014.

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 2016, we will continue to carry out our mission and work toward 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,

Dallas P. Tonsager
4

Board of Directors

The Farm Credit System Insurance Corporation 

(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 (System), a nationwide network of financial cooperatives that lend to agriculture and rural 

America.

After being appointed to the FCA Board by President Barack Obama on March 17, 2015, Dallas 

P. Tonsager was elected Chairman of the FCSIC 

Board of Directors on March 19. 

As Chairman of the FCSIC Board of Directors, 

Mr. Tonsager succeeds Kenneth A. Spearman, who 

served as Chairman from November 4, 2009, until 

March 13, 2015, when he was designated FCA 

Board Chairman and CEO. Mr. Spearman remains 

a member of the FCSIC Board of Directors. 

Jeffery S. Hall is also a member of the FCSIC 

Board of Directors. He was appointed to the FCA 

Board by President Barack Obama on March 17, 

2015.

Board member photos courtesy of Bachrach.
5

Protecting Investors in Agriculture and Rural America

Dallas P. Tonsager

Dallas P. Tonsager is Chairman of the Board of Directors of 

FCSIC. He was elected to this position on March 19, 2015. He 

also serves as a member of the FCA Board.

Mr. Tonsager brings to his position as Chairman of FCSIC extensive experience as an agriculture leader and producer, and a commitment to promoting and implementing innovative development 

strategies to benefit rural residents and their communities.

Mr. Tonsager served as Under Secretary for Rural Development at 

the U.S. Department of Agriculture (USDA) from 2009 to 2013. 

In this position, he expanded broadband communication in rural 

America and implemented other key elements of the Recovery 

Act for rural America. He dramatically expanded USDA’s water 

and wastewater programs, expanded funding for first- and secondgeneration biofuels, and funded hospitals and other public facilities 

in rural America. 

In addition, Mr. Tonsager worked with the Farm Credit System 

and others to set up new venture capital investment funds. From 2010 to 2013, he was a member of the 

Commodity Credit Corporation Board of Directors.

From 2004 to 2009, Mr. Tonsager served as a member of the FCA Board as well as a member of the 

FCSIC Board of Directors. 

From 2002 to 2004, he was the executive director of the South Dakota Value-Added Agriculture Development Center. In this position, he coordinated initiatives to better serve producers interested in developing 

value-added agricultural projects. Services provided by the center include project facilitation, feasibility 

studies, business planning, market assessment, technical assistance, and education.

In 1993, he was selected by President William J. Clinton to serve as USDA’s state director for rural development in South Dakota. Mr. Tonsager oversaw a diversified portfolio of housing, business, and infrastructure loans in South Dakota. His term ended in February 2001. 

A longtime member of the South Dakota Farmers Union, Mr. Tonsager served two terms as president 

of the organization, from 1988 to 1993. During that same period, he was a board member of Green 

Thumb Inc., a nationwide job training program for senior citizens. In addition, he served on the Board 

of National Farmers Union Insurance from 1989 to 1993, and he was a member of the Advisory Board of 

the Commodity Futures Trading Commission from 1990 to 1993. 

Mr. Tonsager grew up on a dairy farm near Oldham, South Dakota. For many years, he and his older 

brother owned Plainview Farm in Oldham, a family farm on which they raised corn, soybeans, wheat, and 

hay. Mr. Tonsager is a graduate of South Dakota State University, where he earned a Bachelor of Science 

in agriculture in 1976. 
Farm Credit System Insurance Corporation

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Kenneth A. Spearman

Kenneth A. Spearman has served on the FCSIC Board of Directors and on the FCA Board since his appointment by President 

Barack Obama on October 13, 2009. He served as Chairman of 

the FCSIC Board of Directors until he was appointed Chairman 

and CEO of FCA on March 13, 2015. 

Mr. Spearman brings to his position on the FCSIC Board many 

years of experience in finance, agriculture, and agricultural cooperatives, including 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 FCA Board, Mr. Spearman served as an 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 in Florida. 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 MBA from Governors State University in University Park, Illinois, and his Bachelor of 

Science 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.
Protecting Investors in Agriculture and Rural America

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Jeffery S. Hall 

Jeffery S. Hall has served on the FCSIC Board of Directors and on 

the FCA Board since his appointment by President Barack Obama 

on March 17, 2015. Mr. Hall is serving a term that expires on 

October 13, 2018.

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

Capstone Group, an association management and consulting firm 

that he cofounded in 2009. From 2001 to 2009, he was the State 

Executive Director for USDA’s Farm Service Agency in Kentucky. 

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

program delivery and compliance. 

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

University of Kentucky, College of Agriculture, advising the dean 

on state and federal legislative activities and managing a statewide 

economic development initiative called Ag-Project 2000.

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

Senator Mitch McConnell from 1988 to 1994. During that time, he 

was the Legislative Assistant for Agriculture, accountable for internal and external issue management. 

Before joining Senator McConnell’s staff, Mr. Hall served on the staff of the Kentucky Farm Bureau Federation. Over his 30-year career in agriculture, he has held leadership positions in the following nonprofits: 

the Kentucky Agricultural Council, the Agribusiness Industry Network, the Louisville Agricultural Club, 

the Kentucky Agricultural Water Quality Authority, and the Governor’s Commission on Family Farms.

Mr. Hall was raised on a family farm in southern Indiana, which has been in his family for nearly 200 

years. He is currently a partner in the farm with his mother and sister. Mr. Hall received a Bachelor of 

Science from Purdue University.
Farm Credit System Insurance Corporation

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2015 – Year in Review

Insurance Fund 

As of December 31, 2015, the Farm Credit Insurance Fund was at $4.04 billion (1.87 percent of adjusted 

insured debt outstanding), which was $290 million below the secure base amount. (See table 1 on page 10 

and “Insurance Fund Management” on page 17.) Consequently, no funds were available to transfer to the 

Allocated Insurance Reserves Accounts. (See “Notes to the Financial Statements” on page F13.) 

FCSIC’s Operations

FCSIC’s first year of full operations was 1993. That year, the Insurance Fund grew to $642 million, insuring $53.70 billion in System debt. We had a nine-member core staff and contracted with the Farm Credit 

Administration (FCA) for examination and administrative support. Other specialized services were available through contractual arrangements on an as-needed basis. 

Twenty-two years later, the Insurance Fund is more than five times larger, insuring $243.82 billion of 

System debt. Yet we continue to operate effectively with a small staff of 11. We continue to leverage our 

resources by purchasing support services from FCA and other public and private sector contractors, which 

helps us administer our programs cost-effectively. 

Our operating costs as a percentage of our total assets were 8 basis points (0.08 percent) for 2015, equal 

to 2014. In September 2015, the FCSIC Board of Directors approved budgets for 2016 and 2017. The 2016 

budget is $4.1 million, which is an increase of 2.3 percent from the 2015 budget.

Policy Statement Concerning Investments

In January, the FCSIC Board reissued its Policy Statement Concerning Investments. This Policy Statement defines the uses of FCSIC funds, states the primary objectives in managing the Insurance Fund, and 

provides a basis for evaluating the Insurance Fund’s performance. Under the policy, FCSIC funds must be 

invested in obligations of the United States or obligations guaranteed as to principal and interest by the 

United States in accordance with section 5.62 of the Farm Credit Act of 1971, as amended.

Our primary objective is to assure adequate liquidity to meet our statutory obligation to ensure timely 

payment of principal and interest on Systemwide debt securities. Our secondary objective is to optimize 

the rate of return, consistent with our liquidity needs and a minimum exposure to loss of principal. We 

do not trade for capital gains purposes, and all investments are held to maturity.

To benchmark performance, we compare the rate of return achieved to similarly invested funds. Investment results are reported quarterly to our Board of Directors, and the benchmark comparison is reported 

annually to our Board of Directors and the public. For more information, see Investments at page 23. 
Protecting Investors in Agriculture and Rural America

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Strategic Plan

In the summer of 2015, FCSIC held a strategic planning conference that provided opportunities for the 

FCSIC Board and staff to obtain stakeholder input from market experts, economists, rural development 

experts, System representatives, and FCA staff. With the insights gathered during the conference, FCSIC 

developed a new strategic plan using the revised Office of Management and Budget format.

The plan focuses on long-term objectives, actions we will take to realize our goals, and how we will deal 

with the challenges and risks that may create obstacles to achieving our goals. The plan received favorable 

public comment and was approved by the Board of Directors in December of 2015. 

As part of the 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 should reduce the cost of resolving a troubled Farm Credit institution. 

The 2016–2021 Strategic Plan is available on our website at www.fcsic.gov.

Financial Assistance for Liquidity Purposes

FCSIC has statutory authority to provide various forms of financial assistance to System banks. This 

assistance may include lending money to System banks in a liquidity crisis where external market events 

threaten the System banks’ ability to obtain needed funding. Any assistance must be approved by FCSIC’s 

Board of Directors. 

To further enhance our ability to help System banks in a liquidity crisis, we entered into a $10 billion line 

of credit agreement with the Federal Financing Bank, a government corporation within the U.S. Department of Treasury that provides funds to eligible federal agencies. We can access the credit line when exigent market circumstances (a general disruption in financial markets) make it extremely doubtful that the 

System banks will be able to pay maturing debt obligations that we insure. This liquidity backstop allows 

us to provide more assistance to System banks than would otherwise be available using only the Insurance 

Fund. 

We incurred no cost for establishing the line of credit with the Federal Financing Bank. The agreement is 

renewable annually and will terminate on September 30, 2016, unless renewed. All funds that we borrow from the Federal Financing Bank and then advance to System banks must be fully collateralized and 

repaid with interest by the System banks receiving assistance. Therefore, if accessed, this liquidity backstop 

should operate without risk or cost to U.S. taxpayers. 

During 2015, we worked with representatives of System banks, the Federal Farm Credit Banks Funding Corporation (Funding Corporation), and FCA to develop and test procedures for providing assistance during a liquidity crisis. We also communicated regularly with the Federal Financing Bank to keep 

the bank apprised of the System’s financial status. By establishing procedures, maintaining contact with 

affected parties, and testing readiness, we are able to react quickly in the event of a liquidity crisis.
Farm Credit System Insurance Corporation

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Table 1

Selected Financial Statistics for the Farm Credit System Insurance Corporation

(Dollars in Millions)

2015 2014 2013

BALANCE SHEET:

Total assets $4,038.8 $3,750.1 $3,496.0 

Total liabilities 0.5 0.3 0.3 

 

Insurance Fund balance

Allocated Insurance Reserves Accounts 0 0 0 

 

Unallocated Insurance Fund balance 4,038.3 3,749.8 3,495.7 

 

OPERATIONS: 

Revenues 291.9 257.2 200.9 

 

Operating expenses 3.4 3.1 3.2 

 

Insurance expense 0 0 0 

 

Net income 288.5 254.1 197.7 

 
Protecting Investors in Agriculture and Rural America

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The Farm Credit System

Table 2

Combined Farm Credit System Statistics

(Dollars in Billions)

 2015 2014 2013 

Insured Debt Outstanding1 $243.8 $225.7 $207.5 

 

Production agriculture: 

 Real estate mortgage loans 107.8 100.8 95.2 

 Production and intermediate-term loans 49.2 46.3 44.3 

 Agribusiness loans2 36.6 32.9 27.1 

 Communication loans 6.2 5.0 4.2 

 Energy, water, and waste disposal loans 19.6 16.5 15.6 

 Rural residential real estate loans 7.1 6.8 6.5 

 Agricultural export loans 5.1 4.8 4.7 

 Lease receivables 3.4 3.0 2.7 

 Loans to other financial institutions 0.9 0.9 0.7 

 Cash and investments 59.4 57.8 51.9 

 Net income 4.7 4.7 4.6 

 Nonperforming loans as a percentage of total loans 0.7% 0.8% 1.0%

 

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, 2015, 2014, and 2013. (Book value excludes fair-value adjustments.)

2. As of December 31, 2015, agribusiness loans consisted of loans to cooperatives of $13.11 billion, processing and marketing loans of $19.95 billion, and 

farm-related business loans of $3.53 billion.

Some 2014 and 2013 statistics have been revised by the Farm Credit System in their 2015 Annual Information Statement. 

Structure and Funding

The Farm Credit System 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, 2016, the System had 4 

banks and 74 associations. Each of the associations has its own chartered territory and is affiliated with 

one of the four banks. See table 2 for the combined financial statistics for the banks and the associations.

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. One of the System banks (CoBank, ACB) 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.
Farm Credit System Insurance Corporation

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Figure 1

Insured Debt Outstanding:

Growth Averaged 5.4 Percent Over the Past 5 Years

(Dollars in Billions)

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

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

Investor Protection

Investors provide the funds the System lends to agriculture and rural America. FCSIC’s primary purpose, as defined by the Farm Credit Act, is to ensure the timely payment of principal and interest on 

Systemwide debt securities to these investors.

Regulatory Oversight

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

supervision, and regulation of each System 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 System.

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 8.0 percent in 2015 to 

$243.8 billion, compared with an increase of 8.8 percent in 2014.

We must also ensure the retirement of eligible borrower stock, also known as protected borrower 

stock, at par value, as required by section 4.9A of the Farm Credit Act. At year-end 2015, protected 

borrower stock outstanding at System institutions totaled $1 million, unchanged from year-end 2014.
Protecting Investors in Agriculture and Rural America

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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 System bank capital and the balance in the Insurance Fund together 

increased 23 percent, from $16.7 billion at year-end 2011 to $20.6 billion at year-end 2015. Bank capital plus the amount in the Insurance Fund as a percentage of insured debt outstanding decreased from 

9.1 percent in 2011 to 8.5 percent in 2015 (see figure 3). In 2015 and 2014, the growth in insured debt 

outstanding exceeded capital growth, causing a slight decline in bank capital plus Insurance Fund as a 

percentage of insured debt. Without the Insurance Fund, bank capital as a percentage of insured debt was 

6.8 percent and 7.0 percent at year-ends 2015 and 2014, respectively.

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

although some individual institutions continue to experience stress from credit deterioration in certain 

agricultural sectors. (See trends in the Financial Institution Rating System (FIRS) in the “Risk Management” section beginning on page 25.)

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

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

As figure 4 shows, from 2011 to 2015, combined association capital increased $9.2 billion—an annual 

average increase of approximately 9.4 percent. Since 2011, the associations have collectively achieved solid 

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

18.7 percent in 2015 from 17.8 percent in 2011 (see figure 5).
Farm Credit System Insurance Corporation

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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
Protecting Investors in Agriculture and Rural America

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Figure 4

Combined Association Capital

(Dollars in Billions)

Figure 5

Combined Association Capital as a Percentage of Total Assets
Farm Credit System Insurance Corporation

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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 adopted a common minimum liquidity standard 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 as a whole in the event access to the debt market is 

temporarily impeded.

Also, the Farm Credit Administration’s liquidity regulation requires the banks to strengthen liquidity risk 

management and maintain a three-tiered liquidity reserve to better withstand a liquidity crisis.
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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 Allocated Insurance 

Reserves Accounts (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 debt obligations.

In 2015, both the total Insurance Fund and total assets increased by 7.7 percent to $4.04 billion. Insured 

debt outstanding grew $18.1 billion in 2015 (8.0 percent). The Insurance Fund finished 2015 at 1.87 percent, which was $290 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 4.67 percent. We did not 

accrue a provision for insurance obligations in 2015 (see figure 7). 
Farm Credit System Insurance Corporation

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Figure 6

Insurance Fund Relative to 2 Percent Secure Base Amount

Figure 7

Insurance Fund Balances and Growth Rates

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

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Premiums

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

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

	 •	 Projected losses to the Insurance Fund

	 •	 The condition of the System

	 •	 The health of the agricultural economy

	 •	 Risks in the financial environment

Premium assessments are 20 basis points on adjusted insured debt outstanding unless reduced by the 

Board of Directors. There is a risk surcharge of up to 10 basis points on nonaccrual loans and on otherthan-temporarily impaired investments. In addition, the Farm Credit 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 2015 were the level of the Insurance Fund 

and the prospects for growth during the year. The Insurance Fund began 2015 at $207 million below the 

2 percent secure base level. Based on System growth projections that ranged from 2.0 to 5.0 percent, with 

a 4.2 percent weighted average, the FCSIC Board set the assessment rate on adjusted insured debt at 13 

basis points for 2015.

Through May 2015, insured debt outstanding decreased by $2.0 billion or 0.9 percent. Also in May, we 

surveyed the four System banks to update prospects for growth in their use of insured debt obligations 

during the remainder of 2015. Growth estimates ranged from 1.2 to 6.5 percent with a weighted average 

growth rate of 4.0 percent. 

Based on interim financials from May 31, 2015, the Insurance Fund was estimated to be at 1.96 percent of 

adjusted insured obligations or $72 million below the secure base amount, an improvement of $135 million from the beginning of the year. As a result, the Board, at its June meeting, maintained the premium 

assessment rate on adjusted insured debt at 13 basis points for the remainder of 2015. 

During the second half of 2015, Systemwide use of insured debt obligations increased more than projected 

(see table 3). In December alone, Systemwide insured debt obligations grew $5.7 billion. Consequently, the 

Insurance Fund finished 2015 below the 2 percent secure base level, at 1.87 percent of adjusted insured 

obligations or $290 million below the target level.

Because the Insurance Fund finished 2015 at $290 million below the 2 percent secure base amount and 

the System reported prospects for continued growth in the use of insured debt, our Board of Directors 

increased the assessment rate on adjusted insured debt to 16 basis points for the first six months of 2016 

and 18 basis points for the last six months of 2016. The Board also continued the 10 basis point risk surcharge on nonaccrual loans and other-than-temporarily impaired investments.
Farm Credit System Insurance Corporation

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Table 3

Calculation of Secure Base Amount

Results as of December 31, 2015

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

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Figure 8

FCSIC Revenues

(Dollars in Millions)

Revenues and Expenses

FCSIC operates with no appropriated funds. We collect insurance premiums from each Farm Credit System bank. These premiums and the income from our investment portfolio provide the funds necessary to 

fulfill our mission.

Our revenues increased by 13 percent to $291.9 million in 2015 from $257.2 million in 2014 (see figure 

8). Revenues increased primarily because of higher insurance premiums in 2015. Interest income decreased 

8 percent in 2015 to $31.3 million from $34.1 million in 2014. 
Farm Credit System Insurance Corporation

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Figure 9

FCSIC Operating Expenses

(Dollars in Millions)

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

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 8 basis points for 2015. Fixed costs for 

staff, travel, rent, and miscellaneous expenses were $2.7 million of the $3.4 million total for the year (see 

figure 9). The remaining expenses of $0.7 million were for contract services.
Protecting Investors in Agriculture and Rural America

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Investments 

FCSIC investments increased during the year from $3.4 billion as of December 31, 2014, to $3.6 billion 

as of year-end 2015 (see figure 10). An investment security of $148.7 million matured on December 31, 

2015, 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 0.84 percent, down from 0.98 percent the prior year. We added benchmarks in 2014 to enhance our ability to assess portfolio performance. Three weighted-average Treasury 

yield benchmarks serve as primary benchmarks, and two Treasury index fund benchmarks serve as 

secondary benchmarks. These index funds are considered secondary benchmarks because a portion of 

their return is generated through trading. The FCSIC Policy Statement Concerning Investments prohibits 

trading for capital gains purposes. In 2015, the average return for the primary benchmarks ranged from 

0.66 percent to 0.69 percent. The average return for the secondary benchmarks ranged from 0.58 percent 

to 0.77 percent for 2015.

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

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 be at least 20 percent of the portfolio. Until January 2015, no more than 25 percent of the investment pool was allowed to be invested in securities with 

maturities between 5 and 10 years. To improve the transparency of the policy limit on securities with 

maturities in the 5- to 10-year range, the Board of Directors modified FCSIC’s Policy Statement Concerning Investments in January 2015. Now, securities that mature in the 5- to 10-year range must not 

exceed 20 percent of the portfolio. 

The weighted average maturity of the portfolio at year-end was 2.15 years. The composition of the investment portfolio as of December 31, 2015, is shown in figure 11.

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

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

hedge against inflation, in terms of both yield and market value. TIPS have experienced monthly inflation or deflation adjustments, but the United States has not had an annual deflationary environment 

since 1954, more than 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 2015, our 

TIPS investments totaled $249 million or 6.6 percent of the investment portfolio. 
Farm Credit System Insurance Corporation

24

Figure 10

FCSIC Investments

(Dollars in Billions)

Note: Total investments reflected on the chart do not include the $0.1 billion in “cash and cash equivalents” from the balance sheet.

Figure 11

Investment Portfolio by Maturity as of December 31, 2015

(Dollars in Millions)

Note: Total investments reflected on the chart include the $0.1 billion in “cash and cash equivalents” from the balance sheet.
Protecting Investors in Agriculture and Rural America

25

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 Farm Credit 

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

reports of examination and other System information. When necessary, we request special examinations at 

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

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

	 •	 Using analytical models to evaluate insurance risk

	 •	 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

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

During 2015, risk management staff monitored and evaluated the following factors:

	 •	 The performance and condition of the four System banks and 75 associations

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

ratings

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

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

sectors

	 •	 The effects of drought and crop and livestock diseases on agricultural producers in certain regions

of the country

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

The Risk Environment in 2015

The U.S. economy continued to expand at a moderate pace. Economic output as measured by real gross 

domestic product (GDP) increased by 2.4 percent in 2015, the same level of growth as 2014. Personal 

consumption expenditures, gross private domestic investment, and government spending added 2.1 percent, 0.8 percent, and 0.1 percent, respectively, to real GDP growth, while net exports subtracted 0.6 from 

real GDP growth.

The U.S. unemployment rate was 5.0 percent at year-end 2015, the lowest level since April 2008. Consumer spending increased as a result of the stronger job market, solid income gains, improved household 

balance sheets, and an improving housing market.

Business fixed investment was soft because concerns about profitability and prospects for economic growth 

limited demand for capital goods. Growth declined because the strong dollar boosted imports and weakened exports. Inflation remained at historically low levels primarily because of lower energy prices. The 

Consumer Price Index for All Urban Consumers (before seasonal adjustments) increased just 0.7 percent 

in 2015. 
Farm Credit System Insurance Corporation

26

The Federal Open Market Committee raised the target range for the federal funds rate to between 0.25 

percent and 0.50 percent in December 2015 and is expected to increase the rate at a gradual pace in 

coming years. The committee projects economic activity to expand at a moderate pace, with labor market 

indicators continuing to strengthen and inflation to rise to 2 percent over the next two to three years as 

the transitory effects of declines in energy import prices dissipate. The Federal Open Market Committee’s 

latest median projection for real GDP in 2016 is 2.2 percent.

The unemployment rate is projected to drop to 4.7 percent by year-end 2016. Inflationary pressures are 

expected to remain benign in 2016 in view of slowing global growth. A more robust labor market and 

continued low energy costs and interest rates should have a positive impact on agricultural producers and 

rural economies in 2016. 

The agricultural industry remained sound in 2015 although commodity prices and agricultural exports 

have declined from the highs of 2011 to 2014. The U.S. Department of Agriculture (USDA) estimates net 

cash and net farm income for 2015 to equal $93.2 billion and $56.4 billion, respectively, a decline of 27.3 

percent and 37.7 percent, respectively, from 2014. Large global supplies for most crop and livestock products put downward pressure on commodity prices, and slower economic growth in key importing countries combined with the stronger dollar reduced U.S. agricultural exports in 2015.

Cropland values softened in certain regions of the country, and certain sectors within agriculture experienced some stress. The agricultural industry’s debt-to-asset and debt-to-equity ratios are forecast to rise in 

2016, suggesting that financial stress is building, but each indicator remains low relative to historical levels. 

USDA’s first forecast for 2016 indicates continued financial pressure in the agricultural sector, but prices 

for most crops are expected to stabilize and production costs are expected to decline. Net cash and net 

farm income for 2016 are forecast at $90.9 billion and $54.8 billion, respectively, down 2.5 percent and 3.0 

percent, respectively from 2015. 

The System reported solid financial results for 2015. Net income was $4.688 billion, down 0.8 percent 

from the $4.724 billion earned in 2014. The net interest margin was 2.55 percent for 2015 compared with 

2.64 percent for 2014. The decline in net interest margin resulted from a decrease in net interest spread 

of 10 basis points to 2.40 percent for 2015. Several factors contributed to the decline in the net interest 

spread, including lower lending spreads due to competitive pressures, a change of the product mix into 

lower spread lines of business, and an increase in debt costs. 

The System continued to have reliable access to the debt capital markets. Discount note issuances equaled 

$189.6 billion in 2015, compared with $250.0 billion in 2014. The average discount note rate was 0.21 

percent in 2015, compared with 0.12 percent in 2014. Term debt issuances equaled $109 billion in 2015, 

compared with $80.0 billion in 2014. The average rate for term debt equaled 1.08 percent in 2015, compared with 1.03 percent in 2014. The System banks collectively called $34.4 billion in term debt in 2015, 

compared with $19.0 billion in 2014. 
Protecting Investors in Agriculture and Rural America

27

The Farm Credit Administration authorizes each System bank to hold eligible investments in an amount 

not to exceed 35 percent of its total outstanding loans for the purposes of maintaining a liquidity reserve, 

managing short-term surplus funds, and managing interest rate risk. The liquidity reserve must consist 

of marketable investments that are sufficient to fund 90 days of on-balance-sheet maturing obligations at 

all times. The System reported a combined $56.6 billion in cash and available-for-sale investments with a 

liquidity position of 181 days at year-end 2015 compared to 173 days at year-end 2014. The System banks 

are further required to maintain a three-tiered liquidity reserve, consisting of Level 1 instruments to cover 

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

Level 3 instruments to cover days 31 to 90. All four System banks exceeded these requirements throughout 2015. 

The System banks have established contingency funding plans to handle events that could impede access 

to the agency debt market. The System banks also regularly perform liquidity stress testing to determine 

the ability to withstand severe market events while continuing to fulfill their mission. The Federal Farm 

Credit Banks Funding Corporation has been developing a Systemwide stress testing process that, when 

completed, should provide a fuller understanding of the interconnections, concentrations, and exposures 

that may exist within the System. 

FCSIC continues to enhance its model for assessing Insurance Fund solvency. The enhanced model will 

allow us to simulate the risks that various bank investment assets may pose to the solvency of the Insurance Fund. We expect this enhancement will improve our ability to forecast the Insurance Fund’s ability to 

withstand future insurance losses if they occur. 

Figure 12 shows a summary of composite year-end FIRS (Financial Institution Rating System) ratings for 

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 12

FIRS (Financial Institution Rating System) Ratings for Banks 

and Associations of the Farm Credit System:

Composite Year-End Ratings

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

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 than providing assistance.

We have drafted procedures for use in providing liquidity assistance to System banks. These procedures 

implement the FCSIC Board’s Policy Statement Concerning Assistance adopted in April 2013. We have 

also revised our model assistance agreement and drafted necessary forms related to valuation of collateral 

and liquidity reserves. We have coordinated with the System and FCA in working out process issues associated with the provision of assistance.

 

During 2016, we will work with the System, the Funding Corporation, and FCA to test the described 

procedures by conducting “tabletop” exercises to identify potential weaknesses and improve our processes. 

Results of these tests will be shared with the System, FCA, and the Board of Directors. 

When appointed by FCA, we have the statutory responsibility to serve as receiver or conservator for System banks and associations. Upon appointment as receiver, we will take possession of a System institution 

to settle its business operations, collect the debts owed to it, liquidate its property and assets, pay its creditors, and distribute any remaining proceeds to stockholders. There are no active receiverships or conservatorships in the System.

To maintain our readiness 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 others to stay informed about best practices and 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 to 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 

our control, and environmental hazards assessments of real estate securing nonperforming assets. Policy 

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

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Farm Credit System Insurance Corporation

30

Management Report on Internal Control Over 

Financial Reporting

 

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

Chief Operating Officer Chief Financial Officer Director of Risk Management

March 14, 2016

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 2015 in accordance with guidelines provided by the Office of 

Management and Budget (OMB) in consultation with the Comptroller General (OMB Circular A-123, 

“Management’s Responsibility for Internal Control”). The objective of these controls and systems is to 

provide reasonable assurance that:

	 •	 obligations and costs comply with applicable laws;

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

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

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

assets will be maintained.

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

31, 2015, 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, 2015.
Performance Management Program 

Protecting Investors in Agriculture and Rural America

31

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:

	 •	 Build and manage the Insurance Fund to protect investors

	 •	 Detect, evaluate, and manage insurance risk

	 •	 Maintain the capability to act as receiver or conservator as the need arises

Performance Measures

1. Build and manage 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. At the same time, we must maintain appropriate liquidity to carry out our mission. Congress established a statutory requirement that the Insurance 

Fund be maintained at a secure base amount equal to 2 percent of adjusted insured obligations or such 

other percentage as we in our sole discretion determine 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. Detect, evaluate, and manage insurance risk

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

effectively we minimize insurance losses. We use financial indicators to monitor conditions and trends, 

and we analyze and report data before losses become likely. In periods 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 our procedure for allowance for losses and in 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. When necessary, we independently examine and require information from System institutions.
Farm Credit System Insurance Corporation

32

Figure 13

2015 Budget and Expenditure by Program

(Dollars in Millions)

3. Maintain 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 

FCA. 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 by the size and complexity

of the individual case

	 •	 The ratio of operating costs to total assets

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

debt are protected 

from loss without need 

for a joint and several 

liability call. 

See pages

17-20 for

2015 results.

See pages

25-29 for

2015 results.

See pages

8-9 and

25-29 for

2015 results.

See page

29 for 2015 

results.

See page

29 for 2015 

results.

See the 

FCSIC 

website.

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 

System institutions in the 

manner least costly to the 

Insurance Fund.

The public, insured investors, and System 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 or another percentage that we determine 

to be actuarially sound. 

Identify and address risks 

to the Insurance Fund.

Disseminate data and analyses on risk issues to the 

FCSIC Board, the public, 

and other stakeholders.

Effectively administer 

temporary financial assistance programs subject 

to the statutory least-cost 

requirements.

Market assets of a failed 

institution in accordance 

with Board approved 

policy.

Using the FCSIC website, 

Annual Report, and other 

opportunities, provide 

educational information 

to insured institutions 

and their investors to 

help them understand the 

importance and benefits of 

the insurance program.

Strategic Strategic High-Priority For More

Goal Objectives Performance Goals Information

Protecting Investors in Agriculture and Rural America

33
Farm Credit System Insurance Corporation

34

Glossary

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

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

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

a three-member presidentially appointed board. To ensure the safety and soundness of the System, 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 System institutions. It 

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

Federal Open Market Committee—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 System institutions. The FIRS provides a general framework for assimilating and evaluating all 

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

institution. The ratings are described below.

	 	 Rating 1—Institutions in this group are basically sound in every respect; any negative findings or

comments are of a minor nature and are anticipated to be resolved in the normal course of business. Such institutions are well managed, resistant to external economic and financial disturbances, 

and more capable of withstanding the uncertainties of business conditions than institutions with 

lower ratings. Each institution in this category exhibits the best performance and risk management 

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

concern.

 Rating 2—Institutions in this group are fundamentally sound but may reflect modest weaknesses 

correctable in the normal course of business. Because the nature and severity of deficiencies are 

not material, such institutions are stable and able to withstand business fluctuations. Overall risk 

management practices are satisfactory for the size, complexity, and risk profile of each institution 

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

business and operations continue in a satisfactory manner.

 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. 
Protecting Investors in Agriculture and Rural America

35

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

rating. Risk management practices are less than satisfactory for the size, complexity, and risk profile of each institution in this group. Institutions in this category generally give cause for regulatory concern and require more than normal supervision to address deficiencies. Overall strength 

and financial capacity, however, still make failure only a remote possibility if corrective actions are 

taken.

 Rating 4—Institutions in this group have an immoderate number of serious financial or operating 

weaknesses. Serious problems or unsafe and unsound conditions exist that are not being satisfactorily addressed or resolved. Unless effective actions are taken to correct these conditions, they 

are likely to impair future viability or constitute a threat to the interests of investors, borrowers, 

and stockholders. Risk management practices are generally unacceptable for the size, complexity, 

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

imminent or pronounced. Institutions in this category require close regulatory attention, financial 

surveillance, and a definitive plan for corrective action.

 Rating 5—This category is reserved for institutions with an extremely high, immediate, or nearterm probability of failure. The number and severity of weaknesses or unsafe and unsound conditions are so critical as to require urgent external financial assistance. Risk management practices 

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

absence of decisive corrective measures, these institutions will likely require liquidation or some 

form of emergency assistance, merger, or acquisition.

Government-Sponsored Enterprise (GSE)—A GSE is typically a federally chartered corporation created 

by Congress that is privately owned, designed to provide a source of credit nationwide, and limited to 

servicing one economic sector. Each GSE has a public or social purpose. GSEs are usually created because 

the private markets did not satisfy a purpose that Congress deems worthy either to fill a credit gap or to 

enhance competitive behavior in the loan market. Each is given certain features or benefits (called GSE 

attributes) to allow it to overcome the barriers that prevented purely private markets from developing. The 

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

36

Acronyms and Abbreviations

AIRAs Allocated Insurance Reserves Accounts

CIPA Contractual Interbank Performance Agreement

Farm Credit Act Farm Credit Act of 1971, as amended

FCA Farm Credit Administration

FCSIC Farm Credit System Insurance Corporation

FIRS Financial Institution Rating System

Funding Corporation Federal Farm Credit Banks Funding Corporation

GSE Government-sponsored enterprise

System Farm Credit System

TIPS Treasury Inflation Protected Securities

USDA U.S. Department of Agriculture 
Protecting Investors in Agriculture and Rural America

37

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

Mark Bowen Accountant

Matthew Morgan Financial Analyst

Barbara Loggins Senior Administrative Specialist

Molly Sproles Administrative Management Assistant

Contact Information 

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

Credit Banks Funding Corporation at the following address:

Federal Farm Credit Banks Funding Corporation

101 Hudson Street

Suite 3505

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

38

Banks Insured by FCSIC as of January 1, 2016

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

Voice: 703-883-4380

Fax: 703-790-9088

www.fcsic.gov