The report accompanying these financial statements was issued by 

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

of BDO International Limited, a UK company limited by guarantee. 

Farm Credit System Insurance 

Corporation

Audited Financial Statements

For the Years Ended December 31, 2019 and 2018
Farm Credit System Insurance Corporation

Contents

Independent Auditor’s Report F1 - F3

Financial Statements

Statements of Financial Condition F4

Statements of Income and Expenses and Changes in Insurance Fund F5

Statements of Cash Flows F6

Notes to the Financial Statements F7 - F12

Management’s Report on Internal Control Over Financial Reporting F13
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part 

of the international BDO network of independent member firms.

 

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F1 

Independent Auditor’s Report 

Board of Directors

Farm Credit System Insurance Corporation

McLean, Virginia

Report on the Financial Statements and Internal Control 

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

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

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

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

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

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

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

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

Financial Reporting 

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

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

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

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

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

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

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

Auditor’s Responsibility

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

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

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

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

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

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

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

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

financial reporting was maintained in all material respects. 

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

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

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

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

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

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Fax: 301-354-2501 

www.bdo.com 
F2 

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

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

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

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

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

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

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

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

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

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

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

basis for our audit opinion.

Definition and Inherent Limitations of Internal Control over Financial Reporting

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

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

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

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

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

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

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

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

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

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

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

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

a material effect on the financial statements.

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

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

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

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

Opinion

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

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

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

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

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

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

criteria. 
F3 

Compliance and Other Matters

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

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

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

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

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

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

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

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

Potomac, Maryland

February 6, 2020
December 31, 2019 2018

Assets

 Cash and cash equivalents $ 103,408 $ 287,767

Investments in U.S. Treasury obligations 4,853,235 4,436,617

Premiums receivable 222,676 212,524

Accrued interest receivable 22,178 17,259

Property and equipment, net 44 60

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

Liabilities and Insurance Fund

Liabilities

Accounts payable and accrued expenses $ 530 $ 367

Total liabilities 530 367

Insurance Fund

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

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

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

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

See accompanying notes to the financial statements.

Farm Credit System Insurance Corporation

Statements of Financial Condition

(Dollars in thousands)

F4
Year ended December 31, 2019 2018

Income

 Premiums $ 222,676 $ 212,524

Interest income 94,435 73,141

Total income 317,111 285,665

Expenses

Administrative operating expenses 3,899 3,691

Total expenses 3,899 3,691

Net income 313,212 281,974

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

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

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

See accompanying notes to the financial statements.

Farm Credit System Insurance Corporation

Statements of Income and Expenses and Changes in Insurance Fund

(Dollars in thousands)

F5
Year ended December 31, 2019 2018

Cash flows from operating activities

Net income $ 313,212 $ 281,974

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation 16 18

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

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

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

Decrease in other receivables - 30,012

Increase (decrease) in accounts payable and accrued

expenses 163 (312)

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

Cash flows from investing activities

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

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

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

Cash flows from financing activity

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

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

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

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

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

See accompanying notes to the financial statements.

Farm Credit System Insurance Corporation

 Statements of Cash Flows

(Dollars in thousands)

F6
Farm Credit System Insurance Corporation

Notes to the Financial Statements

F7

Note 1: Organization and Summary of Significant Accounting Policies

Farm Credit Insurance Fund (Insurance Fund): Statutory Framework

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

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

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

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

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

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

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

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

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

chairman of the Corporation's board of directors.

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

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

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

Farm Credit Act.

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

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

or conservator of a System bank or association. 

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

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

December 31, 2019 and 2018. 

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

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

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

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

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

local taxes with the exception of real property taxes.

Note 2: Basis of Accounting 

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

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

prepared using the accrual basis of accounting.
Farm Credit System Insurance Corporation

Notes to the Financial Statements

F8

Cash and Cash Equivalents

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

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

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

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

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

in cash.

Investments in U.S. Treasury Obligations

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

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

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

accordance with Financial Accounting Standards Board Accounting Standards Codification 320, 

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

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

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

instruments.

Premium Receivable – Concentration of Credit Risk

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

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

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

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

receivable which continues to indicate that no allowance is warranted.

Liability for Estimated Insurance Obligations

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

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

insured System banks.

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

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

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

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

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

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

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

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

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

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

require a liability for estimated insurance obligations to be recorded at December 31, 2019.
Farm Credit System Insurance Corporation

Notes to the Financial Statements

F9

Premiums

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

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

year subsequent to the year in which they are earned.

Use of Estimates

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

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

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

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

estimates.

Note 3: Investments in U.S. Treasury Obligations

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

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

of the following:

Amortized

Gross 

Unrealized

Gross 

Unrealized Estimated Fair 

(Dollars in thousands) Cost Gains Losses Value

December 31, 2019

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

December 31, 2018

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

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

contractual maturity, are shown below:

(Dollars in thousands)

Amortized 

Cost

Estimated Fair 

Value

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

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

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

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

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

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

market prices for those instruments.
Farm Credit System Insurance Corporation

Notes to the Financial Statements

F10

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

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

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

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

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

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

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

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

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

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

when calculating the secure base amount (SBA). 

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

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

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

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

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

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

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

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

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

designated (the unallocated Insurance Fund).

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

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

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

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

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

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

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

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

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

Insurance Fund was 2.03 percent of adjusted insured obligations.

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

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

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

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

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

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

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

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

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

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

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

Notes to the Financial Statements

F11

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

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

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

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

immediately succeeding calendar year.

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

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

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

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

FAC stockholders’ AIRA accounts have been closed.

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

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

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

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

Insurance Fund's compliance with the SBA.

Note 5: Operating Lease

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

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

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

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

of December 31, 2019:

Years ending December 31,

(Dollars in thousands)

2020 $ 149

2021 151

2022 155

2023 158

2024 161

Thereafter 150

$ 924

Note 6: Line of Credit

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

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

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

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

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

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

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

on September 30, 2020, unless otherwise further extended.
Farm Credit System Insurance Corporation

Notes to the Financial Statements

F12

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

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

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

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

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

on this line of credit during 2019 and 2018.

Note 7: Retirement Plan

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

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

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

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

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

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

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

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

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

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

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

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

$393 thousand in 2018.

Note 8: Related Parties

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

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

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

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

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

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

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

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

Note 9: Subsequent Events

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

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

subsequent events were identified for either recognition or disclosure.