awn wnuat JOQJT ® er ort

626 (d)(3)), and $668
million of eligible bor-
rower stock.

If the Corporation
does not have suffi-
cient funds to insure
payment on obliga-
tions in item (1), FCS
banks will be required
to make payments un-
der joint and several
liability.

The US. Treasury
must generally pro-
vide funds to pay FAC
bonds in the event of
FCS institution de-
faults referred to in
item (2). (Also see
Note 5.) To the extent
that the U.S. Treasury
is unable to recover
certain amounts from
defaulting FCS institu-
tions, it can recover
those amounts from
the Corporation.

Additionally, begin-
ning on January 1,
1993, the Corporation,
in its sole discretion, is
authorized to expend
amounts to provide fi-
nancial assistance to
certain insured institu-
tions. Prior to Janu-
ary 1, 1993, the
Corporation may not
make payments for
any purpose except to
pay for operating
expenses of the
Corporation.

Note 2—Summary Of
Significant
Accounting Policies
Accounting Principles
and Reporting Prac-
tices—The accounting
and reporting policies
of the Corporation
conform to generally
accepted accounting
principles and, as
such, the financial
statements have been
prepared using the ac-
crual basis of
accounting.

Cash and Cash Equiva-
lents—Cash and cash
equivalents include in-
vestments in U.S.
Treasury obligations
with original
maturities of 90 days
or less.

1g


an wnuat JOQJT ®t er ort

The decline in interest
rates caused the in-
vestment portfolio's
market value to appre-
ciate as prices rose on
the portfolio's longer
term securities with
above-market yields.
Prices of Treasury se-
curities move in-
versely to interest
rates on the securities.
At December 31, 1991,
the portfolio's market
value exceeded book
value by $21.7 million.
The weighted average
portfolio maturity at
yearend was 2.5 years.

For 1991, the average
portfolio yield was
7.86 percent compared
with 10.29 percent for
1990.

Looking Forward
Management and staff
are moving quickly to

ensure that the Corpo-
ration is ready to fulfill
its statutory mandate.
In the coming year,
emphasis will be
placed on the follow-
ing areas.

* Identifying issues
and developing strate-
gies.

* Continuing develop-
ment of a risk assess-
ment program. This
will involve defining
the information
needed to allow quan-
tification of potential
costs to the Insurance
Fund and analysis of

the impact of transac-
tions proposed by
other institutions of
the Farm Credit Sys-
tem on the Fund.

* Developing proce-
dures to ensure appro-
priate controls and
efficient operations.
This will include pro-
cedures for the fidu-
ciary role the
Corporation will play
if it is called upon to
act as receiver or
conservator.

* Preparing to assume
responsibility for man-
aging financial assis-
tance agreements
when the Farm Credit
System Assistance
Board sunsets at the
end of 1992.

13


Awnnuat JOQJT © er ort

exceeds the secure
base amount, the Cor-
poration is required to
reduce the premium to
a percentage necessary
to maintain the level of
the Insurance Fund at
the secure base
amount. At December
31, 1991, the Farm
Credit Insurance Fund
was 0.7 percent of in-
sured obligations out-
standing.

Effective January 6,
1989, each FCS bank
Participating in in-
sured obligations is-
sued under subsection
(c) or (d) of section 4.2

of the Act became an
insured FCS bank and
was required to pay
premiums to the Cor-
poration. The Corpo-
ration recorded $77.5
million and $72.0 mil-
lion in revenues in
1991 and 1990, respec-
tively, for premiums
earned from insured
FCS banks.

Premiums receivable
at December 31, 1990,
were based on certain
loan information con-
tained in FCS institu-
tions’ Call Reports
submitted to the FCA.
The 1990 premiums,
along with those for
1989, were collected
on March 29, 1991.
Based on the resolu-
tion of certain issues
related to interpreta-
tion of requirements

for the treatment of
certain classifications
of loans in the pre-
mium base, it has been
determined that the
FCS banks overpaid
1989 and 1990 premi-
ums by a total of $1.4
million. This amount
has been classified as
"Refund Payable to
System Banks" in the
accompanying state-
ments of financial con-
dition as of December
31, 1991.

The 1991 premium re-
ceivable accrual was
based ona certified
statement received
from each FCS bank.

23




A N N U A L 1991 KR E P Oo R ir

Investments in U.S.
Treasury Obligations—
An investment portfo-
lio is maintained as
required by section
5.62 of the Act. The
Act requires that
funds of the Corpora-
tion, not otherwise
employed, shall be in-
vested in obligations
of the United States or
in obligations guaran-
teed as to principal
and interest by the
United States. Invest-
ments are stated at
cost, adjusted for am-
ortization of premi-
ums and accretion of
discounts. Premiums

20

and discounts are am-
ortized or accreted us-
ing the straight-line
method, which ap-
proximates the interest
method, over the
terms of the respective
issues.

Liability for Estimated
Insurance Obligations—
The liability for esti-
mated insurance
obligations is the
present value of esti-
mated probable insur-
ance payments to be
made in the future
based on the
Corporation's analysis
of economic condi-
tions of insured FCS
banks. (Also see Note
5.)

The insured FCS
banks’ primary lend-
ing markets are bor-
rowers engaged in

farming, ranching, and
production and har-
vesting of aquatic
products and their co-
operatives. Economic
weaknesses in these
market segments and
the effect of general
market conditions on
the insured FCS banks’
borrowers could result
in difficulties for cer-
tain borrowers to ‘meet
their obligations. Asa
result, insured FCS
banks may experience
increased levels of
nonaccrual loans and
other nonperforming
assets which may ad-
versely affect their fi-



A N N U A L 1991 R E P Oo RK

Assistance given by
the FAC to the FLBJR
totaled $388 million.

Asa result of the April
27, 1990 agreement, it
is probable that the
Corporation will have
to retire at least a por-
tion of the FAC debt.
It is not clear, how-
ever, to what extent
the Corporation can
rely on the availability
of the Trust Fund. The
availability of the
Trust Fund depends
on the ability of other
Farm Credit banks to
redeem preferred
stock purchased by the
FAC with proceeds
from FAC bonds.

As of December 31,
1991, and 1990, there
was $420 million of
FAC bonds and re-
lated preferred stock

26

outstanding related to
four other FCS banks.
These bonds, also 15-
year bonds, will ma-
ture in 2003 and 2004,
prior to the 15-year
bonds issued in rela-
tion to the FLBJR. As
a result, if these FCS
banks cannot redeem
the stock so that the
bonds can be retired,
the FAC Trust Fund
may be exhausted
prior to the maturity
of the FAC bonds that
were issued in relation
to the FLBJR. At the
present time, the Cor-
poration is not aware
of any information

that would indicate
these FCS banks will
not be able to redeem
such stock. However,
because the availabil-
ity of the Trust Fund is
uncertain, the Corpo-
ration estimated the
present value of its li-
ability for payment of
the entire $388 million
of 15-year maturing
debt to be approxi-
mately $155.5 million
and $140.0 million at
December 31, 1991 and
1990, respectively.
This liability is re-
flected in the accom-
panying statements of
financial condition.
The $15.5 million pro-
vision for estimated
insurance obligations
for the year ended De-
cember 31, 1991, repre-


>

Note 4—Premiums
By statute, the annual
premium due from
each insured FCS bank
for the calendar year is
equal to the sum of (1)
the annual average
principal outstanding
for the year on loans
made by the bank that
are on accrual status,
other than Govern-
ment-guaranteed por-
tions of these loans,
multiplied by 0.0015;
(2) the annual average
principal outstanding
for the year on loans
made by the bank that
are on nonaccrual sta-
tus multiplied by

22

0.0025; (3) the annual
average principal out-
standing on the guar-
anteed portions of
Federal Government-
guaranteed loans of
the bank that are on
accrual status, multi-
plied by 0.00015; and
(4) the annual average
principal outstanding
on the guaranteed por-
tions of State govern-
ment-guaranteed
loans of the bank that
are on accrual status,
multiplied by 0.0003.

Each insured FCS
bank will continue to
make these annual
premium payments
until the aggregate
amount in the Insur-
ance Fund exceeds the
"secure base amount."
The secure base
amount is equivalent

nwnuat J9OQJT ®& P oR tT

to 2 percent of the ag-
gregate outstanding
insured obligations of
all insured FCS banks
(adjusted downward
by a percentage of the
guaranteed portions of
State and Federal Gov-
ernment-guaranteed
loans on accrual sta-
tus) or other such per-
centage or amount
determined by the
Corporation's Board,
in its sole discretion, to
be actuarially sound.
When the amount of
the Insurance Fund


AnNwnuat J9QJT ®t er ort

Statements Of Cash Flows For The Years Ended December 31,

1991, And 1990
(In Thousands)

1991 1990

Cash Flows from Operating Activities:
Net Income (Loss) $92,438 $ (42,538)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by Operating Activities:

Decrease (Increase) in Premiums Receivable 62,743 (72,000)
(Increase) in Accrued Interest Receivable (14,702) =
(Increase) in Accounts Receivable (16) —
Net Amortization and Accretion 2,239 (2,820)
(Decrease) Increase in Accounts Payable and
Accrued Expenses (63) 40
Increase in Refund Payable to System Banks 1403 —
Increase in Liability for Estimated Insurance
Obligations 15,555 140,000
Net Cash Provided by Operating Activities 159,597 22,682

Cash Flows from Investing Activities:
Purchases of U.S. Treasury Obligations (457,849) —~
Proceeds from Maturity of U.S. Treasury Obligations 252,317 _

Net Cash Used in Investing Activities (205,532) ianal
Net (Decrease) Increase in Cash and Cash Equivalents (45,935) 22,682
Cash and Cash Equivalents, Beginning of Year 47,504 24,822
Cash and Cash Equivalents, End of Year $ 1,569 $ 47,504

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

17


a nNwuat JOQJT © Port

operating plans for
1991 and 1992. Fol-
lowing adoption of the
plans by the Board of
Directors, operating
budgets for 1992 and
1993 were developed
and approved. The op-
erating budget for cal-
endar year 1992 is
$1.73 million.

A primary goal of the
Corporation is to pro-
mote the safe and
sound operation of a
permanent system of
borrower-owned co-
operatives supplying
credit to American ag-
riculture. The Corpo-

ration is responsible
for maintaining the
soundness of the In-
surance Fund, protect-
ing the holders of
insured securities, and
ensuring the retire-
ment of eligible bor-
rower stock at its par
value.

The Insurance Fund is
maintained and man-
aged to ensure the
ability to make timely
payment of principal
and interest on in-
sured obligations. Un-
til January 1, 1993,
however, the Fund
may be used only to
pay the Corporation's
operating expenses.
Premiums are col-
lected annually from
the banks of the FCS.

Funds received are in-
vested as prescribed
by a Board-approved
corporate investment
policy. Corporation
funds may be used
only as prescribed in
the statute. Sufficient
liquidity must be
maintained to fulfill
the Corporation's
statutory obligations,
as well as to pay its
operating expenses.

The Corporation has
an ongoing responsi-
bility to assess risk to
the Insurance Fund.


annwnuat J99QJT © ef P oR gt

The Steele family farm
operation is engaged
in the production of
pork and grain on
1,000 acres in
Princeton, Illinois. Mr.
Steele attended the
University of Illinois

College of Agriculture.

During World War II,
serving as a captain in
the U.S. Army, he was
awarded the Silver

Star and Purple Heart.

Gary C. Byrne,

a Member of the
Corporation's Board, is
a former Administra-
tor of the Rural
Electrification Admin-
istration (REA) of the
U.S. Department of
Agriculture and also
served as Governor of
the Rural Telephone
Bank. As Administra-
tor of the REA, he
managed an agency
that has approved
more than $62 billion
in loans to 2,116 rural
electric and telephone
utilities in 47 States
and several U.S. terri-
tories and possessions.
A native of California,
Mr. Byrne served as
Chairman of the Bank
of Alex Brown in Sac-
ramento and also
served as President
and Chief Executive
Officer of the Alex
Brown Financial
Group, a multibank

holding company. He
holds a bachelor's de-
gree in political sci-
ence from the
University of the
Redlands, Redlands,
California, and a doc-
torate in political sci-
ence from the
University of North
Carolina.



ANNu At JOQT Ft er ort

Board of Directors

Billy Ross Brown,
Chairman of the Cor-
poration, served as a
director of Production
Credit Associations in
the Fifth Farm Credit
District for 20 years, 9
of them as Chairman
of the Board of Direc-
tors of the Oxford
(Mississippi) Produc-
tion Credit Associa-
tion. Heisa
prominent farmer,
cattleman, and conser-
vationist, has been
active in a number of
State and national
agricultural and con-
servation organiza-
tions, and has been
honored by the Missis-
sippi Association of
Conservation Districts
and the U.S. Forest

Service. In 1985, he
was inducted into the
Hall of Fame by the
Mississippi Agricul-
ture and Forestry Mu-
seum. Mr. Brown
received a bachelor's
degree in business
administration from
the University of
Mississippi.

Harold B. Steele,
Chief Executive Offi-
cer and Member of the
Corporation's Board, is
also Chairman and
Chief Executive Offi-
cer of the Farm Credit
Administration. From
1970 to 1983 he served
as President and Chief
Executive Officer of
the 315,000-member
Illinois Farm Bureau
Federation, and from
1971 to 1973 he also
served on the board of
the American Farm
Bureau Federation.
Mr. Steele was also a
director of the Mid-
west Financial Group,
a 19-bank holding
company.


A N N U A L 1991 RE P O R T

Farm Credit System Insurance Corporation—
Notes to the Financial Statements as of
December 31, 1991, and December 31, 1990

Note 1—Insurance
Fund: Statutory
Framework

The Agricultural
Credit Act of 1987
(1987 Act) established
the Farm Credit Sys-
tem Insurance Corpo-
ration (Corporation)
for the purpose of in-
suring the timely pay-
ment of principal and
interest on notes,
bonds, debentures,
and other obligations
issued under subsec-
tion (c) or (d) of sec-
tion 4.2 (insured
obligations) of the
Farm Credit Act of
1971, as amended
(Act). Effective Janu-
ary 6, 1989, each bank
in the Farm Credit

18

System (FCS) partici-
pating in insured obli-
gations became an
insured FCS bank.

The Corporation is
managed by a board of
directors consisting of
the same members
making up the Farm
Credit Administration
(FCA) Board except
that the Chairman of
the FCA Board may
not serve as the Chair-
man of the
Corporation's Board of
Directors.

Beginning on January
1, 1993, the Corpora-
tion has the responsi-
bility to expend
amounts to the extent
necessary to:

1. Insure the timely
payment of interest
and principal on in-
sured obligations in
the event of default by
an insured FCS bank;

2. Satisfy FCS institu-
tion defaults on obli-
gations related to the
issuance of bonds by
the Farm Credit Sys-
tem Financial Assis-
tance Corporation
(FAC) under section
6.26(d)(3) of the Act;
and

3. Ensure the retire-
ment of eligible bor-
rower stock at par
value.

At December 31, 1991,
there were balances
outstanding of $53.4
billion of insured obli-
gations, $808 million
of financial assistance
obligations (section


anwnuat JOQJT ®t rer ort

Overview

The Farm Credit Sys-
tem Insurance Corpo-
ration (Corporation) is
an independent U.S.
Government corpora-
tion. It is managed by
a board of directors,
comprised of the
Members of the Farm
Credit Administration
(FCA) Board of Direc-
tors. The Chairman of
the Corporation's
Board, however, must
not be the same as the
Chairman of the FCA
Board.

The Corporation's mis-
sion is to ensure the
timely payment of
principal and interest
on insured notes,
bonds, debentures,
and other obligations
issued on behalf of

Farm Credit System
(FCS) Banks. This
mission is accom-
plished through the
sound management of
the Insurance Fund
and by the appropriate
exercise of the
Corporation's author-
ity to minimize the
Fund's exposure to
risk.

The Corporation main-
tains a high degree of
cooperation with the
FCA to minimize its
operating costs. The

Corporation's philoso-
phy is to operate with
a core group of em-
ployees and to con-
tract, as necessary, for
services to carry out its
mission.

Corporate Activities
During 1991, the Cor-
poration continued
progressing toward
the objective of assum-
ing its full statutory
authorities on January
1, 1993. An invest-
ment policy was de-
veloped and approved
by the Board to guide
investment of the pre-
miums collected by
the Corporation. The
Corporation also de-
veloped strategic and


A N N U AOL 1991 RE P O R T

Note 5—Financial
Assistance to FCS
Banks

The Act required that
the FCA charter the
Farm Credit System
Assistance Board (As-
sistance Board) and
the FAC (see Note 1)
for the purpose of car-
tying out a program to
provide assistance to
institutions of the FCS
that are experiencing
financial difficulty. In
order to raise funds to
provide this assis-
tance, the FAC has the
authority to issue debt
obligations with a ma-
turity of 15 years.
Subject to Assistance
Board approval, these
funds are used by the

24

FAC to purchase pre-
ferred stock issued by
an institution experi-
encing financial diffi-
culty. When this
15-year debt matures,
the institution can re-
deem, upon FCA ap-
proval, the preferred
stock so as to allow the
FAC to pay the princi-
pal of the maturing
obligation. While an
institution that issues
preferred stock to the
FAC is primarily re-

sponsible for the re-
tirement of the FAC
bonds (through re-
demption of the pre-
ferred stock purchased
with the proceeds of
the FAC bonds), the
institution may be pro-
hibited from redeem-
ing or may elect not to
redeem the preferred
stock pursuant to sec-
tion 6.26 of the Act. If
this occurs, then the
FAC must use funds
maintained in its Trust
Fund, to the extent
available, to retire the
debt. The FAC Trust
Fund totaled approxi-
mately $72 million and
$69 million at Decem-
ber 31, 1991 and 1990,
respectively. If the



iS

Farm Credit System Insurance Corporation

1991 Annual Report



A N N U A L 1991 R E P Oo R T

regulations governing
the assessment and
collection of premiums
from insured Farm
Credit System banks.
In March, the banks
paid premiums of
$66.5 million for 1989
and $73.4 million

for 1990.

The premiums are cal-
culated using the fol-
lowing statutory
formula:

The annual average
principal outstanding
for such year on loans
made by the bank that
are on accrual status,
excluding the guaran-
teed portions of Gov-

ernment-guaranteed
loans [provided for in
12 U.S.C. 2277a-4
subparagraph (c)]
multiplied by 0.0015.

* The annual average
principal outstanding
for such year on loans
made by the bank that
are on nonaccrual sta-
tus multiplied by
0.0025.

¢ The annual average
principal outstanding
for such year on the
guaranteed portion of
Federal Government-
guaranteed loans
made by the bank that
are on accrual status
multiplied by 0.00015.

¢ The annual average
principal outstanding
for such year on the
guaranteed portion of
State government-

guaranteed loans
made by the bank that
are on accrual status
multiplied by 0.0003.

The Corporation had
accrued $74.2 million
on December 31, 1991,
representing the esti-
mated premiums that
were earned but not
yet collected for calen-
dar year 1991. The
Corporation collected
these premiums from
each insured bank on
January 31, 1992.
Investment of

Insurance Fund
Assets

Total assets of the
Farm Credit System
Insurance Corporation
at December 31, 1991,

11



A N N U A L 1991 RE r © R T

The early detection of
risk will help mini-
mize Fund exposure to
potential losses. Cor-
poration staff are de-
veloping specific
examination proce-
dures to be utilized in
evaluating the condi-
tion of troubled FCS
institutions. These
procedures will pro-
vide the information
needed to indepen-
dently quantify risk to
the Insurance Fund. If
the Corporation deter-
mines a special exami-
nation of an institution
is required, it will de-
fine the requirements
and may look to the
FCA to fulfill them.

Corporation staff will
rely on and coordinate
with the FCA in other
ways to assess risk ex-

10

posure. This reliance
will take the form of
utilizing the FCA's
monitoring systems
and examination re-
ports. The Corpora-
tion is also developing
a program for assess-
ing the impact to the
Insurance Fund of
transactions proposed
by other institutions of
the Farm Credit Sys-
tem. Such transactions
might include merg-
ers, restructuring and
financial assistance be-
tween institutions.

The Farm Credit Sys-
tem Assistance Board
will terminate on De-
cember 31, 1992. At
that time, the responsi-
bility for monitoring
assisted banks will be
transferred to the Cor-
poration.

Before January 6, 1993,
if appointed by the
FCA, the Corporation
may act as conservator
or receiver for FCS in-
stitutions. Beginning
on that date, however,
if a conservator or re-
ceiver is required, the
FCA must appoint the
Corporation.
Collection of
Premiums

During the first quar-
ter of 1991, the Corpo-
ration adopted final



A N N U AL 1991 R EP O R T

A Message from the Chairman

In its 1990 annual re-
port, the Farm Credit
System Insurance Cor-
poration outlined its
preliminary develop-
ment plan and imple-
mentation strategy to
become fully opera-
tional by January 1,
1993.

Iam pleased to report
that significant progress
toward that goal was
made during 1991.
Some of the highlights
for the year include:

1. Growth of $92 mil-
lion in the Insurance
Fund;

2. Adoption of a corpo-
rate strategic plan;

3. Adoption of an in-
vestment policy for the
Corporation;

4. Adoption of pre-
mium regulations;

5. Conduct of a pre-
mium audit to ensure
appropriate collection

and to achieve uniform
interpretation of regula-
tions;

6. Adoption of an orga-
nizational structure that
will minimize operating
costs; and

7. Initiation of negotia-
tions with the Farm
Credit System Assis-
tance Board to prepare
for the transition of as-
sistance agreements.

The Corporation will
continue to work
closely with the Farm
Credit Administration
(FCA) and make use of
its resources to avoid
duplication of effort.
Outside contractors
will also be used as
necessary.

Weare pleased that
with the appointment
of Gary C. Byrne to the
Corporation's Board on
December 2, 1991, the
Board now has a full
membership comple-
ment.

Mr. Byrne's background
and experience in the
banking industry and in
government will be a
definite asset to the
Board.

Finally, on December
16, 1991, the Corpora-
tion selected Mary A.
Creedon as Chief Oper-
ating Officer of the Cor-
poration. She comes to
us from the Resolution
Trust Corporation and
has had an outstanding
Government career
with more than 20 years
of experience.

LIA,

Billy Ross Brown
Chairman


awn nuat JOQJT ®t ror r

nancial condition and
profitability. There-
fore, adverse changes
in the financial condi-
tion and profitability
of insured FCS banks
could occur in the fu-
ture which would
have a material effect
on the liability for esti-
mated insurance
obligations.

Premiums—Annual
premiums are re-
corded as revenue
during the period on
which the premiums
are based.

Administrative Operat-
ing Expenses—The
Corporation incurs op-
erating expenses as it
develops the systems,
policies, and proce-
dures to assume its
full statutory authori-
ties. To minimize op-
erating expenses, some

services and functions
are provided by the
FCA under a reim-
bursement agreement.

Note 3—Investments
At December 31, 1991,
investment in U.S.
Treasury obligations
consisted of the fol-
lowing:

At December 31, 1990,
the Corporation's in-
vestment portfolio
consisted of one U.S.
Treasury Note which
matured on May 15,
1991. The yield on this
note was 8.125 percent
and its market value
was $251.7 million.

Book = Market = Face Maturity
Value ___Value Rate Date
Treasury Notes $ 81,149 $ 82,300 —10.375% 7/15/92
83,547 86545 7.25% = 7/15/93
1614 1,635 8.00% 7/31/92
91,622 96,272 8.00% 7/15/94
93,438 99,337 8.875% == 7/15/95
85210 91375 7.875% 7/15/96
338 342 8.00% 7/31/92
425 457 7.875% 7/15/96
3,631 3,680 8.00% © 7/31/92
3,615 3,742 7.25% 7/15/93
3,652 3,851 8.00% = 7/15/94
5,990 6450 7.875% 7/15/96
Treasury Bill 317 355 4/23/92
$454,548 $476,341

21


aAwnnuat JOQJT «tr ort

sents the increase in
estimated insurance
obligations due to the
decrease in the dis-
count period.

The Corporation ac-
tively monitors the
creditworthiness and
financial position of
the insured FCS banks.
Other than obligations
that have occurred as a
result of closing out
the FLBJR as described
above, management is
not aware of any
events or circum-
stances which would
require a liability for
estimated insurance
obligations to be
recorded.

Note 6—Operating
Lease

On September 1, 1991,
the Corporation en-
tered into an agree-
ment with the Farm
Credit System Build-
ing Association to
lease office space for a
term of 3 years. The

lease requires pay-
ment of an annual
base rent plus the
Corporation's propor-
tionate share of oper-
ating expenses. The
base rent will also in-
crease based on a per-
centage of change in
the CPI index on an
annual basis. The Cor-
poration recorded
$22,000 in operating
expenses related to the
lease in 1991. Mini-
mum future payments
under the terms of the
lease are $66,000 for
1992, $66,000 for 1993,
$44,000 for 1994, and
$0 thereafter.

27


Annu aAt [TOOT R&P oR Tt

Contents 5 Board of Directors
7A Message from the Chairman
8 Overview
8 Corporate Activities
10 Collection of Premiums
11 Investment of Insurance Fund Assets
13 Looking Forward
14 Report of the Independent Public Accountants
15. Financial Statements
18 Notes to Financial Statements

28 References



A N N U A L 1991 R E P O R T

Report of Independent Public Accountants

ARTHUR
“ANDERSEN

‘Agmiux ANDerseN&.Ga SC

To the Board of Directors of the
Farm Credit System Insurance Corporation:

We have audited the accompanying statements of financial condition of the Farm
Credit System Insurance Corporation (Corporation) as of December 31, 1991 and
1990, the related statements of income and expenses and changes in the Insurance
Fund, and cash flows for the years then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We have also issued on
this date separate reports which describe the scope of our work and findings related
to the Corporation's internal control structure and its compliance with laws and
regulations.

Weconducted our audits in accordance with generally accepted auditing standards,
and standards for financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States, Those standards require that
we plan and perform an audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining,
ona test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Farm Credit System Insurance
Corporation as of December 31, 1991 and 1990, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.

Thur Cede $ a

Washington, D.C.
February 11, 1992

14


an wuat JOQJT &®& Port

Statements Of Income And Expenses And Changes In Insurance
Fund For The Years Ended December 31, 1991, And 1990

(In Thousands)

1991 1990
Income
Premiums (Note 4) $ 77,463 $ 72,000
Interest Income 31,483 25,705
Total Income 108,946 97,705
Expenses
Administrative Operating Expenses 953 243
Provision for Estimated Insurance Obligations 15,555, 140,000
(Note 5)
Net Income (Loss) 92,438 (42,538)
Farm Credit Insurance Fund, Beginning of Year 298,184 340,722
Farm Credit Insurance Fund, End of Year $390,622 $298,184
The accompanying notes are an integral part of these financial statements.

16


awnwnuat JOQJT 8 ef P oR t

Mission Statement

As an independent entity, the Farm Credit System Insurance Corpora-
tion (Corporation) shall:

© Protect investors in insured Farm Credit System obligations and tax-
payers through sound administration of the Farm Credit Insurance
Fund (Insurance Fund);

© Exercise its authorities to minimize risk exposure to the Insurance
Fund; and

* Promote safe and sound operations of a permanent system for delivery
of credit to agricultural borrowers.


AN Nu at JOQOT ®t Port

FAC Trust Fund is not
sufficient to retire the
debt, then the Corpo-
ration must purchase
the preferred stock
from the FAC to pro-
vide funds to retire
such debt. Addition-
ally, if the Corporation
does not have suffi-
cient funds, the U.S.
Treasury must retire
the debt. The Corpo-
ration is required to
repay the U.S. Trea-
sury as funds become
available from the
payment of premiums.

On May 20, 1988, the
FCA, at the request of
the Assistance Board,
placed the Federal
Land Bank of Jackson
and the Federal Land
Bank Association of
Jackson into receiver-
ship and appointed a
receiver to liquidate
their assets. As of
April 27, 1990, the
FCA, the receiver of
the FLB of Jackson, the
FAC, the banks of the
Farm Credit System,
the Assistance Board,
and the Corporation
entered into an agree-
ment for the sale of
substantially all of the
remaining assets of the
Federal Land Bank of
Jackson in Receiver-
ship (FLBJR). In June
1990, the above parties

consummated the
transactions specified
by the agreement. The
agreement called for
the FAC to issue 15-
year U.S. Treasury-
guaranteed debt to
purchase preferred
stock in the FLBJR.
Upon the maturity in
2005 of the FAC debt
used to purchase pre-
ferred stock in the
FLBJR, the Corpora-
tion will provide
funds to repay the
principal of these debt
obligations, to the ex-
tent that the FAC
Trust Fund is not suffi-
cient for such purpose.

25


Farm Credit System Insurance Corporation

1991 Annual Report


A N N U A

References

For additional infor-
mation about the Farm
Credit System, its fi-
nancial condition and
performance, and
activities of the Farm
Credit Administration,
the following publica-
tions are recommended.

Farm Credit System
Annual Reports to In-
vestors and Quarterly
and Annual Informa-
tion Statements for the
current fiscal year and
the two preceding fis-
cal years. These are
available without
charge from:

Federal Farm Credit Banks
Funding Corporation

10 Exchange Place

Suite 1401

Jersey City, NJ 07302
(201) 200-8000

28

© J99T © fe okt

Annual Reports of the

Farm Credit Adminis-

tration for the past five
fiscal years. These are

available without

charge from:

Office of Congressional and
Public Affairs

Farm Credit Administration
1501 Farm Credit Drive
McLean, VA 22102-5090
(703) 883-4056

Reports for previous
years are subject to
availability, but copies
are available for
inspection.



awnwuat JOQJT ®t ror te

were $547.6 million—
an increase of 25 per-
cent from December
31, 1990. Total assets
included cash and in-
vestments of $456.1
million and accrued
interest and premiums
receivable of $91.5 mil-
lion. The Corporation's
equity (assets less li-
abilities) represents
the Farm Credit Sys-
tem Insurance Fund,
which was $390.6 mil-
lion at December 31,
1991. All funds not
needed for Corpora-
tion operations are in-
vested in U.S.

12

Treasury securities in
accordance with 12
U.S.C. 2277a-11 and
the Corporation's in-
vestment policy. The
Corporation's invest-
ment policy guides
structuring of the port-
folio maturities in the
following manner:

Maturity Range _% of Portfolio

1 Day to 1 Year 20
1 to2 Years 20
2t03 Years 20
3to4 Years 20
4.105 Years 20
Treasury Yield Curve

0.9

At December 31, 1991,
the actual portfolio
maturities were:

Maturity
Schedule Millions

1DaytolYear $88 — 19.3
1 to2 Years $87 191
2to3 Years $95 208
3to4 Years $94 206
4to 5 Years $92 202
Total $456 100.0

During 1991, interest
rates on U.S. Treasury
securities fell signifi-
cantly, as illustrated in
the following graph.

0.8
0.7
0.6
0.5

0.4

Months



A N N U A L 1991 R E P O R T

Financial Statements

Statements Of Financial Condition As Of December 31, 1991,
And 1990

(In Thousands)

1991 1990
Assets
Cash and Cash Equivalents $ 1,569 $ 47,504
Investments in U.S. Treasury Obligations,

Net (Note 3) 454,548, 251,255,
Accounts Receivable 16 =
Accrued Interest Receivable 17,285 2,583
Premiums Receivable (Note 4) 74,257 137,000

Total Assets $547,675 $438,342
Liabilities and Insurance Fund
Accounts Payable and Accrued Expenses $95 $ 158
Refund Payable to System Banks (Note 4) 1,403 =
Liability for Estimated Insurance Obligations

(Note 5) 155,555 140,000

Farm Credit Insurance Fund 390,622 298,184
Total Liabilities and Insurance Fund $547,675 $438,342

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

15