Protecting Investors in Agriculture and Rural America

Farm Credit System Insurance Corporation

2011 Annual Report
The Farm Credit System Insurance Corporation 

(FCSIC or Corporation), a Government-controlled, 

independent entity, shall

•	 	 protect investors in insured Farm Credit System

obligations and taxpayers through sound 

administration of the Farm Credit Insurance 

Fund,

•	 	 exercise its authorities to minimize Insurance

Fund loss, and

•	 	 help ensure the future of a permanent system

for delivery of credit to agricultural borrowers.

Mission Statement
1

June 15, 2012

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 2011.

This report highlights the Corporation’s role as the independent Federal corporation established to ensure the timely payment of principal and interest to investors in insured Farm Credit System debt securities.

The balance in the Farm Credit Insurance Fund at December 31, 2011, was 

$3.39 billion. The Corporation collected $97.3 million in insurance premiums 

from Farm Credit System banks for 2011, earned $72.6 million in investment 

income during the same period, and expects to incur $4 million in operating 

costs in 2012. 

Sincerely, 

Kenneth A. Spearman

Chairman

The President of the United States Senate

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

2

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

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

2011 – Year in Review......................................................................................................8

Selected Financial Statistics..............................................................................................9

The Farm Credit System................................................................................................ 10

Insurance Fund Management....................................................................................... 16

Risk Management. .......................................................................................................... 23

Financial Assistance and Receivership........................................................................ 26

Independent Auditor’s Report.....................................................................................F-1

Financial Statements......................................................................................................F-6

Notes to the Financial Statements..............................................................................F-9

Income and Expenses by Year...................................................................................F-16

Management Report on Internal Control Over Financial Reporting................... 27

Performance Management Program............................................................................ 28

Glossary ............................................................................................................................ 31

Acronyms and Abbreviations ....................................................................................... 34

Corporate Staff ................................................................................................................ 35

Contact Information....................................................................................................... 36

Contents

Cover photo by Linda M. Toki. Unless otherwise noted, all other photos are stock 

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

3

I am pleased to present the FCSIC’s 2011 Annual Report. It is gratifying to note that, for the twentysecond consecutive year since the Corporation began issuing financial statements, our independent public 

auditor has issued unqualified opinions on those statements. Their opinion letters, which are enclosed, 

indicate that the financial statements concerning the Insurance Fund, of which we are stewards, are fairly 

and accurately presented. 

This year’s report also highlights the Corporation’s success in building and maintaining a strong and 

healthy Insurance Fund, while promptly returning excess funds to the Allocated Insurance Reserves 

Accounts. 

The Corporation’s net income for 2011 was $166.6 million compared with $143.0 million for the previous 

year. The Insurance Fund balance at December 31, 2011, was $3.39 billion compared with $3.23 billion at 

year-end 2010.

Premium revenue was $97.3 million for 2011 compared with $79.6 million for 2010. Interest income for 

2011 totaled $72.6 million, an increase of $6.2 million from 2010. 

In accordance with the requirements of the Federal Managers’ Financial Integrity Act of 1982, the FCSIC’s 

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 2012 we will continue to carry out our mission and work towards achieving our strategic goals and 

objectives. In the process of identifying and addressing risks to the Insurance Fund, 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 Fund.

Sincerely,

Kenneth A. Spearman

Message from the Chairman 
Farm Credit System Insurance Corporation

4

Board of Directors

The 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 (FCS or System), a nationwide network of financial 

cooperatives that lends to agriculture and rural America.
Protecting Investors in Agriculture and Rural America

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Kenneth A. Spearman

Kenneth A. Spearman is Chairman of the Board 

of Directors of the Farm Credit System Insurance 

Corporation. He also serves as a member of the 

Board of the Farm Credit Administration.

Mr. Spearman brings to his position as Chairman of the FCSIC many years of experience in 

finance, agriculture, and agricultural cooperatives. 

He spent 28 years in the citrus industry. 

From 1980 to 1991, he was controller of Citrus 

Central, a $100 million cooperative in Orlando, 

Florida, where he was responsible for financial 

management and reporting and the supervision 

of staff accountants.

He later served as director of internal audit for 

Florida’s Natural Growers, where he designed and 

implemented the annual plan for reviewing and 

appraising the soundness, adequacy, and application of accounting, financial, and other operating 

internal controls.

From January 2006 until his appointment to the 

FCSIC Board of Directors, Mr. Spearman served 

as an independently appointed outside director on the AgFirst Farm Credit Bank board in 

Columbia, South Carolina. During his tenure, 

he served on the board compensation committee 

and the board governance committee. 

Before entering agriculture, Mr. Spearman served 

in the U.S. Army in Vietnam. Later, he was 

involved with development of a public accounting firm in Chicago, Illinois, and worked as an 

accountant for a major public accounting firm. 

He served as chairman of the board of trustees 

for the Lake Wales Medical Center. He is a 

member of the Institute of Internal Auditors, as 

well as the National Society of Accountants for 

Cooperatives, where he served at one time as 

president. 

He obtained his master’s degree in business 

administration from Governors State University in University Park, Illinois, and his B.S. in 

accounting from Indiana University.

Mr. Spearman and his wife Maria of Winter 

Haven, Florida, have three children—twin daughters, Michelle Springs and Rochelle Puccia, and a 

son, Dr. Kenneth Spearman. 
Farm Credit System Insurance Corporation

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Other boards on which Mr. Strom has served 

include Northern F.S., Inc., a farm service and 

supply cooperative serving farmers in Northern 

Illinois; AgriBank, FCB; and the Farm Credit 

Council, the national trade organization representing the Farm Credit System in Government 

affairs.

Mr. Strom has served in several capacities with 

the Illinois Farm Bureau. He also served on his 

county Farm Bureau board. He was a member 

of the State Young Farmer Committee from 1981 

to 1985. For his overall involvement in agriculture, he received an Outstanding Young Farmer 

Award. 

In his community of Kane County, Illinois, 

which lies at the edge of suburban Chicago, Mr. 

Strom helped develop a farmland preservation 

program. The original Strom Family Farm was 

the first to be dedicated to permanent agricultural use under the program.

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

University for his commitment to sustaining 

agricultural systems and food security. He studied agriculture business at Kishwaukee College 

and business administration at Northern Illinois 

University.

His community involvement includes having 

served as vice president of his local K–12 school 

district, chairman of his church council, 4-H 

parent leader, and coach of boys’ and girls’ sports 

teams. Mr. Strom owns a third-generation family 

farm in Illinois that produces corn and soybeans. 

He and his wife, Twyla, have three children and 

one grandchild.

Leland A. Strom was appointed to the Farm 

Credit System Insurance Corporation Board of 

Directors and to the Farm Credit Administration 

Board by President George W. Bush on December 12, 2006, for a term that expires on October 

13, 2012. He served as Chairman of the FCSIC 

Board until he was appointed Chairman and 

CEO of the Farm Credit Administration on May 

22, 2008.

For more than 30 years he has been active in the 

agriculture industry. He served for more than 25 

years on the board of 1st Farm Credit Services, 

an FCS institution in Illinois, holding various

positions, including chairman. During the 

agriculture crisis of the 1980s, he was selected to 

sit on the Restructuring Task Force of the Sixth 

Farm Credit District.

From 2000 to 2006, he was on the Federal 

Reserve Bank of Chicago Advisory Council on 

Agriculture, Labor, and Small Business. Part of 

this time he also served on the Country Mutual 

Fund Trust Board, an investment fund of the 

Illinois Farm Bureau and its Country Financial 

organization.

Leland A. Strom
Protecting Investors in Agriculture and Rural America

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Jill Long Thompson was appointed to the FCSIC 

Board of Directors and the FCA Board by President Barack Obama in March 2010. Her term 

continues to May 2014.

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

U.S. House of Representatives, serving on the 

Committee on Agriculture, the Committee on 

Veterans’ Affairs and the Select Committee on 

Hunger. She also served as Chair of the Rural 

Caucus. While in Congress, she introduced one 

of the nation’s first pieces of legislation banning 

members of Congress from accepting gifts; this 

legislation also expanded disclosure requirements 

for lobbying activities. 

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

annual budget of $10 billion and a staff of 7,000 

employees. In this position, she managed programs that provide services to the underserved 

areas of rural America.

In addition, Ms. Long Thompson served as chief 

executive officer and senior fellow at the National 

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

The first and only woman nominated by a major 

party to run for Governor of Indiana, Ms. Long 

Thompson is also the first and only Hoosier 

woman to be nominated by a major party to run 

for the U.S. Senate. 

Ms. Long Thompson also has many years of 

experience as an educator, having taught at 

Indiana University, Valparaiso University, and 

Manchester College. She is also a former fellow 

at the Institute of Politics at Harvard University’s 

John F. Kennedy School of Government. She 

holds an M.B.A. and Ph.D. in Business from the 

Kelley School of Business at Indiana University 

and a B.S. in Business Administration from Valparaiso University. 

Ms. Long Thompson grew up on a family farm 

outside of Larwill, Indiana; today she lives with 

her husband, Don Thompson, on a farm near 

Argos, Indiana.

Jill Long Thompson
Farm Credit System Insurance Corporation

8

2011 – Year in Review

Insurance Fund Finishes 2011 at 2.14 

Percent – Above the Statutory 

2 Percent Secure Base Amount 

At December 31, 2011, the Farm Credit Insurance Fund (Insurance Fund or Fund) was $3.39 

billion (2.14 percent of adjusted insured debt 

outstanding), which was $225.9 million above the 

secure base amount (SBA). After applying the 

required statutory adjustments, $221.9 million 

was transferred to the six Allocated Insurance 

Reserves Accounts (AIRAs) as mandated by the 

Farm Credit Act. (See the Insurance Fund Management section for additional details.)

Corporation’s Legislative Initiative 

As part of the FCSIC 2010–2015 Strategic Plan, 

the Corporation is pursuing a legislative initiative 

to enhance its resolution authorities, including 

its receivership and conservatorship powers. A 

principal goal of this initiative is to ensure that 

FCSIC will have authorities commensurate with 

those of other Federal receivers and conservators 

if it is appointed to act as a Federal receiver or 

conservator for a System institution. Because the 

overall condition of the System, as determined 

by FCA, its safety and soundness regulator, is 

sound, it appears unlikely that FCSIC will act as 

receiver or conservator at the present time. 

Clarifying and enhancing these powers, which 

have not been substantially updated since 

FCSIC’s creation in 1988, will make any receivership or conservatorship that might occur less 

costly and more efficient. The Corporation has 

developed a detailed legislative proposal clarifying the receivership claims process, the authority 

to repudiate contracts, and the treatment of certain “qualified financial contracts.” The proposal 

would also limit judicial power to attach receivership property, to review claims, or to restrain 

a conservator’s or receiver’s powers; and would 

authorize organization of “bridge” institutions—

temporary institutions useful in resolution of 

troubled financial institutions. 

Corporate Governance 

During the past year FCSIC’s Board of Directors 

reviewed the structure and operation of its audit 

oversight program, including policy guidance and 

audit committee function. 

In December 2011, the Board approved the 

revised Policy on Internal Controls and Audit 

Coverage (Audit Policy) and the Audit Committee Charter, which replaced the Audit Policy and 

Audit Committee Charter that had been in place 

since December 14, 2006. The revision incorporates best practices and a number of clarifications that recognize additional audit activities 

conducted over FCSIC financial operations and 

additional duties of the Audit Committee. As 

part of this process, staff reviewed audit policies 

and charters of several public and private sector 

firms as well as a model policy provided by the 

Corporation’s auditor, Clifton Larson Allen.

Operating Efficiency and Cost Containment 

The Corporation operates with no appropriated funds. It collects insurance premiums from 

each System bank that issues insured obligations. 

These premiums and the income from the Corporation’s investment portfolio provide the funds 

necessary to fulfill its mission. 

To avoid duplication of effort and to minimize 

costs, since 1993, the Corporation’s business 

model has been to operate with a small core staff 

and use the assistance of private and public sector contractors to leverage its efforts. The Corporation’s 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 its mission.

The Corporation’s operating costs as a percentage 

of its total assets represented 10 basis points for 

2011. In September 2011, the Board of Directors 

approved budgets for 2012 and 2013. The 2012 

budget is slightly below the 2011 budget, primar-
Protecting Investors in Agriculture and Rural America

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Farm Credit System Insurance Corporation

(Dollars in Millions)

2011 2010 2009 

BALANCE SHEET:

Total Assets $ 3,392.3 $ 3,225.7 $ 3,288.6

Total Liabilities 0.4 0.3 0.9

Insurance Fund Balance

Allocated Insurance Reserves Accounts 221.9 -0- 205.3

 

Unallocated Insurance Fund Balance 3,170.1 3,225.3 3,082.4

OPERATIONS: 

Revenues 169.9 146.1 376.1 

Operating Expenses 3.3 3.1 3.0 

Insurance Expense -0- -0- -0-

Net Income 166.6 143.0 373.1 

 

Selected Financial Statistics 

ily due to decreases in equipment and investment software rental expenses. The 2013 budget 

projects an increase of 0.8 percent over the 2012 

budget, due to expected equipment replacement 

costs.

On December 22, 2010, President Obama signed 

legislation to prohibit statutory pay adjustments 

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

President Obama also issued a memorandum on 

December 22, 2010, which stated that agencies 

should forgo similar increases to pay schedules 

and rates that are set by administrative discretion. Corporation pay adjustments not covered 

by the freeze include promotion increases and 

individually based merit increases for non-executive employees.
Farm Credit System Insurance Corporation

10

Structure and Funding 

The System is owned by the rural customers it 

serves, including farmers, ranchers, producers 

or harvesters of aquatic products, agricultural 

cooperatives, and farm-related businesses. As 

of December 31, 2011, the Farm Credit System 

(System or FCS) had five banks and 84 associations. (Due to two recent mergers, the System 

has four banks and 83 associations as of January 1, 2012.) Each of the associations has its 

own chartered territory and is affiliated with 

one of the banks. Each association receives 

wholesale funding from its affiliated bank and 

lends directly to its owner-borrowers, providing a consistent source of agricultural and rural 

credit throughout the United States and the 

Commonwealth of Puerto Rico. CoBank also 

has nationwide authority to make retail loans 

to cooperatives and other eligible entities. The 

The Farm Credit System

Combined Farm Credit System Statistics

(Dollars in Billions)

2011 2010 2009 

Insured Debt Outstanding1 $ 184.2 $ 188.3 $ 177.1

Production Agriculture:

 Real Estate Mortgage Loans 80.7 78.0 75.4 

Production and Intermediate-term Loans 41.3 40.6 39.6 

Agribusiness Loans2 24.7 29.6 23.6 

Communication Loans 3.8 3.6 3.9 

Energy, Water and Waste Disposal Loans 11.8 11.5 10.7 

Rural Residential Real Estate Loans 5.8 5.5 5.0 

International Loans 3.8 4.0 4.0 

Lease Receivables 2.1 2.0 2.2 

Loans to Other Financial Institutions 0.6 0.5 0.6 

Cash and Investments 47.3 46.3 42.2 

Net Income 3.9 3.5 2.9 

Nonperforming Loans as a Percentage of Total Loans 1.7% 1.9% 2.1% 

 

1. Insured debt-outstanding is based on System institution Call Report information and reflects the book value of insured debt outstanding, 

excluding fair value adjustments plus accrued interest as of December 31, 2011, including prior year adjustments. 

2. At December 31, 2011, agribusiness loans consisted of loans to cooperatives of $11.9 billion, processing and marketing loans of $10.3 billion, 

and farm-related business loans of $2.5 billion.

banks primarily receive their funding through 

the issuance of Federal Farm Credit Banks Consolidated Systemwide debt securities (Systemwide 

debt securities). These securities are issued by 

the Federal Farm Credit Banks Funding Corporation (Funding Corporation). The Funding 

Corporation distributes these securities in the 

capital markets via a selling group of selected 

investment and dealer banks to raise the funds 

needed by the System. 

Investor Protection 

Investors provide the funds the System lends to 

agriculture and rural America. The Corporation’s 

primary purpose, as defined by the Farm Credit 

Act, is to ensure the timely payment of principal 

and interest on insured debt securities to these 

investors. 
Protecting Investors in Agriculture and Rural America

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Note: Insured debt outstanding is based on System institution Call Report information and reflects the book value of insured debt outstanding, 

excluding fair value adjustments plus accrued interest as of December 31, 2011, including prior year adjustments.

Figure 1

Insured Debt Outstanding 2007 to 2011

(Dollars in Billions)

Regulatory Oversight 

FCA is the safety and soundness regulator 

responsible for the examination, supervision, and 

regulation of each FCS institution. It is an independent agency in the executive branch of the 

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

include examination and enforcement authorities 

similar to those of commercial bank regulators. The U.S. Senate Committee on Agriculture, 

Nutrition, and Forestry and the U.S. House of 

Representatives Committee on Agriculture oversee FCSIC, FCA, and the FCS.

Insured and Other Obligations

The Corporation insures Systemwide and consolidated bonds, notes, and other obligations issued 

by the System banks through the Funding Corporation under section 4.2 (c) or (d) of the Farm 

Credit Act. As figure 1 shows, insured debt 

outstanding declined by 2.2 percent in 2011 to 

$184.2 billion. This is in contrast to an increase 

in insured debt outstanding of 6.3 percent in 

2010. The Corporation must also ensure the 

retirement of eligible borrower stock at par value, 

as required by section 4.9A of the Farm Credit 

Act. This stock, also known as protected borrower stock, was outstanding prior to October 6, 

1988. At year-end 2011, protected borrower stock 

outstanding at System institutions totaled $5 million, down from $7 million at year-end 2010.
Farm Credit System Insurance Corporation

12

Farm Credit System Capital 

The primary source of funds to repay insured 

Systemwide debt securities is the System’s borrowers. Each borrower is required to 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. A lending association in turn makes payments to its affiliated 

bank. Both the banks, which ultimately repay 

insured Systemwide debt securities, and the 

associations, exceed minimum regulatory capital 

requirements as protection and support for the 

repayment of the outstanding debt. If a bank 

were unable to repay its portion of an insured 

Systemwide debt obligation, the Insurance Fund 

would make that payment. In the event the 

assets of the Insurance Fund were exhausted, 

the provisions of joint and several liability of 

all banks would be triggered, which means the 

financial resources of the other banks would be 

used to repay the defaulting bank’s portion of the 

debt issuance. 

As figure 2 shows, the amount of FCS bank 

capital and the balance in the Insurance Fund 

together increased 43 percent from $11.7 billion at year-end 2007 to $16.7 billion at yearend 2011. Bank capital plus the amount in the 

Insurance Fund as a percentage of insured debt 

outstanding increased from 8.3 percent in 2010 

to 9.1 percent in 2011 (see figure 3). The rate 

of growth in insured debt outstanding outpaced 

growth in bank capital and the Insurance Fund 

in 2007 and 2008 but declined between 2009 and 

2011 as System institutions reduced overall levels 

of loan growth. The System’s increased profitability in 2007 and 2008 resulted primarily from 

loan growth, while profitability between 2009 

and 2011 resulted from the net interest spread 

produced by favorable loan and debt pricing. 

The financial performance and condition of the 

System on a consolidated basis remains strong, 

though some individual institutions have experienced significant stress from credit deterioration 

in certain agricultural sectors as well as from 

continued stress in the general economy. (See 

trends in Financial Institution Rating System ratings in the Risk Management section.) 

System associations have been building capital 

through the net income they have earned and 

retained. Association capital helps reduce the 

credit exposure of the association’s affiliated 

bank. As figure 4 shows, from 2007 to 2011, 

combined association capital increased $6.7 

billion or 37.9 percent, with an annual average 

increase of approximately 8.3 percent. In 2008, 

growth in association assets outpaced growth 

in capital, causing a slight decline in association capital as a percentage of total assets, from 

15.6 percent in 2007 to 15.5 percent in 2008 (see 

figure 5). However, since 2008, associations have 

collectively preserved capital, causing association 

capital as a percentage of total assets to steadily 

increase to 17.8 percent in 2011.
Protecting Investors in Agriculture and Rural America

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Figure 2

Bank Capital Plus Insurance Fund

(Dollars in Billions)

Figure 3 

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

14

Figure 4 

Combined Association Capital

(Dollars in Billions)

Figure 5 

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

15

Additional Protections

The System has 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 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 Funding Corporation 

have also entered into the Market Access Agreement (MAA), 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 MAA 

are the CIPA scores and two capital ratios. 

The System also has a common minimum liquidity standard. At December 31, 2011, the System 

standard required each bank to have enough 

liquidity to operate for at least 90 continuous 

days without access to the capital markets. For 

additional information, please see the discussion 

in the Risk Management section.
Farm Credit System Insurance Corporation

16

Insurance Fund Management

The Insurance Fund and the Secure Base 

Amount 

In 2011, both the total Insurance Fund and 

total assets grew by 5.2 percent to $3.39 billion. 

Insured debt outstanding contracted in 2011 by 

$4.13 billion (-2.2 percent). This reduced the 

five-year average annual growth in insured debt 

outstanding to 6.6 percent. 

The Insurance Fund finished 2011 at 2.14 percent, which is $225.9 million above the SBA 

(see figure 6). The Farm Credit Act requires 

the deduction of the Corporation’s operating 

expenses ($4.0 million) and expected insurance 

obligations ($0) for the coming year from the 

amount above the SBA, with the net difference, 

$221.9 million in 2011, available for allocation to 

the AIRAs. 

Over the past five years, the total Insurance Fund 

and total assets each grew at an annual rate of 

8.1 percent. The Corporation did not accrue a 

provision for insurance obligations in 2011. 

The Insurance Fund represents the Corporation’s 

equity, the difference between total assets and 

total liabilities, including insurance obligations. 

The Insurance Fund is composed of an unallocated Insurance Fund (the assets in the Insurance 

Fund for which no specific use has been identified or designated) and an allocated Insurance 

Fund. Premiums are due until the unallocated 

portion of the Insurance Fund reaches the SBA. 

The SBA established by the Farm Credit Act is 

2 percent of the aggregate outstanding insured 

obligations (adjusted to exclude a part of certain 

Government-guaranteed loans in accrual status and non-impaired Government-guaranteed 

investments), or another percentage that the 

Corporation determines to be actuarially sound 

to maintain in the Insurance Fund, taking into 

account the risk of insuring outstanding insured 

obligations. 
Protecting Investors in Agriculture and Rural America

17

Figure 6

Insurance Fund Relative to 2 Percent Secure Base Amount

Note: A change in the SBA calculation methodology was included in the Food, Conservation, and Energy Act of 2008 (FCE Act). The 

new methodology, which was implemented on July 1, 2008, allows the deduction of a portion of Federal and State-guaranteed investments from the SBA in a manner similar to that used for Federal and State-guaranteed loans. In January 2010, the Board of Directors 

authorized payment of $39.9 million from the AIRAs to the accountholders. This amount had been transferred into the AIRAs at 

year-end 2003. In March 2010, the Board authorized the payment of the $165.4 million transferred into the AIRAs at year-end 2009 

to the accountholders.
Farm Credit System Insurance Corporation

18

Premiums 

The Corporation’s Board of Directors reviews 

premium assessment rates as often as necessary 

but at least semiannually. Their review focuses 

on five factors: 

•	 The level of the Insurance Fund relative to

the secure base amount 

•	 Projected losses to the Insurance Fund

•	 The condition of the System

•	 The health of the agricultural economy

•	 Risks in the financial environment

The most important factor in determining premium rates for 2011 was the level of the Insurance Fund relative to the SBA. Based on System 

growth projections ranging from 3 to 7 percent, 

the Corporation’s Board set the assessment rate 

on adjusted insured debt at 6 basis points in 

January 2011. Through May 2011, insured debt 

grew by 0.6 percent and System institutions indicated that growth for the year would likely be 

lower than estimated in January, but still within 

the 3 to 5 percent range. As a result, the Board, 

at their scheduled mid-year premium review in 

June, maintained the premium assessment on 

adjusted insured debt at 6 basis points for 2011. 

(Note: 1 basis point (bp) = 1/100 of 1 percent.) 

Enactment of the Food, Conservation and 

Energy Act of 2008 (FCE Act) amended the 

premium provisions of the Farm Credit Act 

to, among other things, base premiums on the 

adjusted outstanding insured debt obligations 

instead of on loans, and to permit the Corporation to collect an increased range of premiums 

on insured debt. 

The FCE Act allows FCSIC to collect from 0 to 

20 basis points on adjusted insured debt outstanding and clarifies that premiums may be 

collected more frequently than annually, if necessary. A risk surcharge of up to 10 basis points 

on nonaccrual loans and on other-than-temporarily impaired investments was also authorized. In addition, the FCE 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. 

The premium rates assessed from January 1, 

2011, to December 31, 2011, were 6 basis points 

on adjusted insured debt and 10 basis points on 

the average nonaccrual loans and the average 

amount outstanding of other-than-temporarily 

impaired investments.

Premium Rates January to December 2011 Premiums 

(in basis points)

Adjusted insured debt 6

Nonaccrual loans 10

Other-than-temporarily impaired investments 10
Protecting Investors in Agriculture and Rural America

19

Revenues and Expenses

Corporation revenues in 2011 increased 16.3 

percent to $170 million from $146 million in 

2010 (see figure 7). The increase in revenues 

resulted from higher premiums. Because of an 

increased amount of U.S. Treasury securities held 

in the Corporation’s investment portfolio and a 

slightly higher yield, interest income increased 

9.3 percent in 2011 to $72.6 million from $66.4 

million in 2010. 

Figure 7

Corporation Revenues

(Dollars in Millions)

The Corporation’s operating costs as a percentage of its total assets represented 10 basis points 

for 2011. Fixed costs for staff, travel, rent, and 

miscellaneous expenses were $2.5 million of the 

$3.3 million total for the year (see figure 8). The 

remaining expenses of $0.8 million were for contract services.
Farm Credit System Insurance Corporation

20

Figure 8 

Corporation Expenses

(Dollars in Millions)

Investments

Investments increased during the year from $3.1 

billion at December 31, 2010, to $3.3 billion at 

year-end 2011 (see figure 9). 

The Corporation’s investment objective is to 

maximize returns consistent with liquidity needs 

and to minimize exposure to loss of principal. 

Funds are invested in U.S. Treasury securities in 

accordance with the Farm Credit Act and the 

Corporation’s investment policy. 

The average portfolio yield was 2.25 percent, up 

from 2.14 percent the prior year. The return on 

the Insurance Fund continued to outperform the 

benchmark index the Corporation uses to measure performance. This index is composed of 

Treasuries and a private sector mutual fund with 

holdings of similar type and maturities to the 

Corporation’s portfolio. The average return of 

the benchmark group was 0.9 percent for 2011. 

In accordance with the Corporation’s investment 

policy, the portfolio is composed of a liquidity 

pool and an investment pool. The liquidity pool 

consists of short-term Treasury securities maturing in less than two years. The investment pool 

is composed of Treasury securities with maturities that vary from 2 to 10 years. The FCSIC’s 

investment policy requires at least 20 percent 

of the portfolio to be maintained in the liquidity pool, and allows a maximum of 25 percent 

of the investment pool to be invested in securities with maturities between 5 and 10 years. The 

weighted average portfolio maturity at year-end 

was 1.6 years. The composition of the investment portfolio at December 31, 2011 is illustrated in figure 10. 

In June 2008, the Corporation began purchasing 

Treasury Inflation-Protected Securities (TIPS). 

Evaluation Associates, which had completed a 

study of FCSIC’s investment program, recommended that FCSIC consider purchasing TIPS to 

help improve the diversity of investments and to 

hedge against future inflation. At year-end 2011, 

FCSIC’s TIPS investments totaled $506 million or 

just over 15.5 percent of the investment portfolio.
Protecting Investors in Agriculture and Rural America

21

Figure 9

Corporation Investments

(Dollars in Billions)
Farm Credit System Insurance Corporation

22

Figure 10

Investment Portfolio by Maturity at December 31, 2011

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

23

The Corporation actively monitors and manages 

insurance risk to minimize the Fund’s exposure 

to potential losses. Staff analyzes and evaluates the financial performance and condition of 

System institutions, maintains continual dialogue 

with FCA examiners, and reviews reports of 

examination. When necessary, the Corporation 

requests special examinations at System institutions of concern. On a quarterly basis, the Corporation screens all System institutions against 

key performance criteria to identify those that 

may pose increasing insurance risk. 

The Corporation also assesses risk to the Insurance Fund by 

•	 reviewing corporate actions (merger, restructuring, and other regulatory requirements) 

approved by FCA for System institutions; 

•	 monitoring legislative, judicial, regulatory,

and economic trends that could adversely 

affect the agricultural or financial services 

industries; 

•	 using analytical models; and

•	 participating as a nonvoting member on

FCA’s Regulatory Enforcement Committee. 

During 2011, risk management staff monitored 

and evaluated trends affecting agriculture and 

System institutions, including 

•	 conditions in the nation’s general economy,

capital markets, and the agricultural and 

financial sectors; 

•	 potential budget cuts to Government programs that support U.S. agriculture; 

•	 the effects of commodity price volatility

on agricultural operations and the sharp 

increases in farmland values in the midwestern U.S.; 

•	 the effects of the housing crisis on agricultural real estate values in certain regions of 

the country; 

•	 stress in several farm sectors affecting the

quality of System institutions’ loan portfolios, 

Risk Management

including the dairy, swine, poultry, forestry, 

nursery, and biofuels industries; 

•	 negative trends at specific System institutions

with declining Financial Institution Rating 

System (FIRS) ratings; and 

•	 the consolidation of System institutions,

including the merger of CoBank and U.S. 

AgBank, which reduced the number of System banks to four. 

The Risk Environment in 2011 

The effects of the 2007–2009 recession were still 

evident in 2011. Since mid-2009, the U.S. economy has been on a path of recovery, though the 

pace of growth has been slow and uneven. Economic output as measured by real gross domestic product increased by 3.0 percent in 2010, 

but growth decelerated to 1.7 percent in 2011. 

Employment conditions remained weak. While 

the unemployment rate has fallen from its peak 

of 10.1 percent in October of 2009, it remained 

high at 8.5 percent at year-end 2011. Weak 

consumer spending, falling housing prices, and 

reduced credit flow also continued to dampen 

economic recovery in 2011. 

The U.S. banking sector improved despite the 

continued sluggish housing market and related 

high levels of delinquencies and foreclosures. 

FDIC-insured institutions reported the highest 

level of industry profits since 2007, primarily 

from lower expenses for loan-loss provisions. 

More than 96 percent of all FDIC-insured 

institutions, representing more than 99 percent 

of total industry assets were classified as wellcapitalized institutions at year-end 2011. Nonetheless, 92 FDIC-insured institutions failed, and 

the list of problem banks (that is, those with 

CAMELS ratings of 4 and 5) remained high at 

813 at year-end. 

Interest rates have been maintained at very low 

levels since 2008 when the economy weakened. 

During 2011, the Federal Reserve announced 
Farm Credit System Insurance Corporation

24

that it expected to maintain this low interest rate 

environment during 2012 and 2013. The timing 

and magnitude of a change in the direction of 

interest rates may significantly affect the profitability of agricultural producers who use debt 

financing in their operations.

The agricultural sector remained strong in 2011 

despite slow growth in the domestic economy. 

In February 2012, USDA forecast a record 

national net farm and cash income of $98.1 billion and $108.7 billion, respectively, for 2011, 

up 24 percent and 18 percent, respectively, from 

2010. Record revenues from strong crop markets 

(especially corn, wheat, cotton, and soybeans), 

combined with sharp gains in livestock revenues, 

offset a smaller increase in input costs. Higher 

commodity prices were driven primarily by 

tighter stocks and a robust export market. The 

poultry, dairy, timber, nursery and biofuel sectors 

continued to experience some stress in 2011. 

In August 2011, as a consequence of the Federal 

budget deficit trends, Standard and Poor’s (S&P) 

downgraded the U.S. Government from a “AAA” 

rating to a “AA” rating. At the same time, the 

S&P also similarly downgraded the debt of select 

Government-related entities including the Farm 

Credit System banks.

Despite Standard and Poor’s downgrade of System debt, investor demand for System insured 

obligations remained favorable across the maturity spectrum. In the very low interest rate 

environment that prevailed, System banks continued to call and refinance a significant amount 

of their debt obligations. This contributed to 

another strong year of Systemwide earnings as 

interest spreads and margins widened throughout 

the year. 

Credit quality improved in 2011. System loans 

classified under FCA’s Uniform Loan Classification System as Acceptable or Other Assets Especially Mentioned as a percentage of total loans 

increased to 96.2 percent in 2011 from 95.4 

percent in 2010. The improvement in institution 

FIRS ratings (see figure 11) reflects the better 

asset quality and its effect on institutions’ earnings and capital levels. The primary source of 

credit quality weakness remained in the livestock, 

biofuel, and housing-related sectors. Institutions 

with performance-related issues continued to 

receive higher examination scrutiny and supervisory attention from FCA.

During 2011, System banks continued to 

strengthen the quality of their respective liquidity portfolios by purchasing and holding enough 

high-quality liquid assets, including cash, cash 

equivalents, and Treasury securities with maturities of less than 3 years, to cover 15 days of 

maturing debt. The banks also agreed that 

the next 30 days of liquidity would come from 

investments in excess of those that qualify for 

the 15-day bucket. These investments consist of 

U.S. Government-guaranteed instruments and 

top-rated commercial paper and Fed funds that 

mature in 45 days or less. 

The Federal Government’s fiscal situation became 

a significant uncertainty during the year. Federal farm programs which have provided large 

benefits to certain agricultural producers in 

recent years are at risk of curtailment or modification that may change the level and direction of Government support to the agricultural 

sector. Another aspect of the Federal budget 

deficit is taxation. Federal Government revenues 

have been sharply lower over the past several 

years and are seen as a major issue in the 2012 

elections. Federal tax policy for the bioenergy 

sector was tightened at the end of 2011 when the 

ethanol tax credit program was allowed to expire. 

How the budget may be reformed through 

spending or tax changes remains to be seen, and 

may not be resolved until after the 2012 election 

cycle. 
Protecting Investors in Agriculture and Rural America

25

Figure 11

FCS Institution FIRS Ratings

As of December 31, 2011

Source: FCA

Note: Figure 11 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, the two institutions that merged effective January 1, 2012, or the Federal 

Farm Credit Banks Funding Corporation.
Farm Credit System Insurance Corporation

26

Financial Assistance and Receivership

The Corporation is authorized to provide assistance to System institutions to prevent default, 

restore normal operations, or facilitate a merger 

or consolidation. At present, no assistance agreements are outstanding. If a System institution 

were to need financial assistance, FCSIC must 

first ensure that the proposed assistance is the 

least costly method for resolving the institution’s 

problems. By law, FCSIC may not provide financial assistance if the cost of liquidation is lower. 

When appointed by FCA, the Corporation has 

the statutory responsibility to serve as receiver 

or conservator for System institutions. Upon 

appointment as receiver, FCSIC will take possession of a Farm Credit institution to settle the 

business operations of the institution, collect the 

debts owed to the institution, liquidate its property and assets, pay its creditors, and distribute 

any remaining proceeds to stockholders. There 

are no active receiverships or conservatorships 

currently in the System.

To maintain the capability to act as receiver or 

conservator while continuing to operate with a 

small core staff, the Corporation uses contractors on an as-needed basis. These contractors 

provide knowledgeable and readily available 

staff resources while allowing the Corporation 

to contain costs during periods of limited or no 

activity. 

Corporation staff also maintains contact with 

the resolution staff of the Federal Deposit Insurance Corporation and the National Credit Union 

Administration to stay informed about best 

practices and to exchange information concerning receivership management. 

As discussed earlier, FCSIC is pursuing a legislative initiative to modernize its resolution authorities. Since 1987, there have been no substantive 

amendments of the Farm Credit Act relating to 

FCSIC’s resolution authorities. During 2011, 

the Corporation developed proposed language 

to enhance its receivership and conservatorship 

authorities contained in the Farm Credit Act. 

The proposal is modeled after FDIC’s current 

resolution powers, but tailored for the Farm 

Credit System. 

During the year, FCSIC engaged several consulting firms to assist in planning for the potential 

resolution of any FCS institutions that may 

become troubled and to help enhance resolution 

processes and authorities. Contractor services 

used to enhance resolution readiness included 

the following: 

•	 Assistance in developing a communication

strategy and plan to support a FCSIC resolution, receivership, or conservatorship. This 

includes the identification of significant 

stakeholders, including investors in Farm 

Credit System insured debt obligations and 

System borrowers. This communication plan 

was completed and presented to FCSIC’s 

Board of Directors at its January 2012 

meeting.

•	 Testing of preresolution examination

procedures. 

FCSIC has 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 the Corporation’s 

control, and environmental hazards assessments 

of real estate securing nonperforming assets. In 

addition, the Corporation is in the process of 

updating its policy statement concerning financial assistance.
Independent Auditor’s Report

CliftonLarsonAllen LLP

F-1
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-10
F-11
F-12
F-13
F-14
F-15
F-16
Protecting Investors in Agriculture and Rural America

27

April 24, 2012

The Corporation’s management is responsible for establishing and maintaining adequate internal control 

over financial reporting for the FCSIC.

FCSIC is an independent U.S. Government-controlled corporation. The Corporation’s 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, FCSIC helps to 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 Insurance Fund’s exposure 

to potential losses. The Corporation 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 (FCA).

The Corporation’s management has completed an assessment of the effectiveness of the internal controls 

and financial management systems in effect during 2011 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 the Corporation’s operations are recorded and accounted for

properly; and

•	 reliable, complete, and timely financial and statistical reports may be prepared and accountability of

the assets may be maintained.

Based on the assessment performed, the Corporation concluded that as of December 31, 2011, the internal 

control over financial reporting was effective based on the established guidelines.

In addition to management’s review of internal control systems and vulnerabilities, the Corporation’s 

independent auditor, Clifton Larson Allen LLP, as stated in their accompanying report did not identify any 

material weaknesses in the effectiveness of FCSIC’s internal control over financial reporting as of 

December 31, 2011.

 

 

Dorothy L. Nichols C. Richard Pfitzinger Alan J. Glenn

Chief Operating Officer Chief Financial Officer Director of Risk Management

MANAGEMENT REPORT ON INTERNAL 

CONTROL OVER FINANCIAL REPORTING
Farm Credit System Insurance Corporation

28

The Corporation 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 FCA Board. As a result, the Corporation 

has three fundamental program goals:

1. Building and managing the Insurance Fund 

to protect investors

2. Detecting, evaluating, and managing insurance risk

3. Maintaining the capability to act as receiver 

or conservator as the need arises

Performance Measures 

1. Building and managing the Insurance Fund 

to protect investors 

To maintain the solvency of the Insurance Fund, 

the Corporation must adjust insurance premium 

assessments when appropriate and manage assets 

to optimize investment returns, while maintaining appropriate liquidity to carry out its mission. 

Congress established a statutory requirement for 

the Insurance Fund to be maintained at a secure 

base amount equal to 2 percent of adjusted 

insured obligations or such other percentage as 

the Corporation in its sole discretion determines 

to be actuarially sound. 

The Corporation assesses the effectiveness of its 

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, which have similar investment parameters for quality and maturity 

•	 Monitoring of the level of the Insurance

Fund every month as compared with the 

secure base amount target level; reporting 

results to the Board of Directors 

The ability of FCSIC to maintain the Insurance 

Fund at the secure base amount may be affected 

by events beyond the control of the Corporation, 

such as insurance losses. 

2. Detecting, evaluating, and managing insurance risk 

Progress towards this program goal is measured 

by the extent to which emerging problems are 

promptly detected and insurance losses are 

minimized. Financial indicators are effectively 

used to monitor conditions and trends, and data 

are analyzed and reported before losses become 

likely. 

In periods of probable or actual insurance claims, 

the ratio of estimated losses to actual losses is 

an indicator of the Corporation’s ability to assess 

prospective loss exposure. As guidance, management uses criteria specified in FCSIC’s allowance 

for loss procedure and the Financial Accounting 

Standards Board’s Accounting Standards Topic 

450, Contingencies. Timely evaluation of the 

Fund’s risk exposure is critical to preserving the 

Fund’s solvency. The Corporation uses Farm 

Credit Administration reports of examination to 

evaluate risks to the Insurance Fund. The Corporation may independently examine and require 

information from System institutions. 

3. Maintaining the capability to act as receiver 

or conservator as the need arises 

The Corporation is required to serve as receiver 

or conservator of System banks and associations 

when appointed by the Farm Credit Administration. This program goal requires that corporate 

readiness be maintained, through periodic staff 

training and evaluation of contractors’ capabilities, to ensure that qualified resources can be 

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

FCSIC uses the following measures to determine 

the effectiveness of its receivership operations: 

•	 Whether all claims received initial processing

within a period specified according to the 

size and complexity of the individual case 

•	 Operating costs as a percentage of total

assets 

•	 Actual asset recovery returns as a percentage

of net realizable asset values

Performance Management Program 
Protecting Investors in Agriculture and Rural America

29

See pages 

16-22 for 

2011 results.

See pages 

23-25 for 

2011 results.

See pages 

8-9 and 

23-25 for 

2011 results.

See page 

26 for 2011 

results.

See page 

26 for 2011 

results.

See FCSIC’s 

website 

for additional 

information.

Investors in insured 

debt are protected 

from loss without 

recourse to a joint and 

several liability call

The Farm Credit Insurance 

Fund remains strong and 

adequately financed.

FCSIC promptly identifies 

and responds to potential 

risks to the Insurance Fund.

The FCSIC resolves failure 

of FCS institutions in the 

manner least-costly to the 

Insurance Fund.

The public, insured investors and FCS institutions 

have access to accurate and 

easily understood information about the FCSIC insurance program.

Maintain the Insurance 

Fund at the statutory 

2 percent secure base 

amount.

Identify and address 

risks to the Insurance 

Fund.

Disseminate data and 

analyses on issues to the 

FCSIC Board, the public, 

and other stakeholders.

Effectively administer 

temporary financial 

assistance programs 

subject to the statutory 

least-cost requirements.

Market failing institutions to qualified and 

interested potential 

bidders

Using the FCSIC website, annual report, and 

other opportunities, 

provide information to 

insured institutions and 

their investors to help 

them understand the 

benefits of the insurance 

program.

Strategic Goal Strategic Objectives High Priority Performance Goals
Farm Credit System Insurance Corporation

30

Figure 12

2011 Budget and Expenditure by Program

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

31

A 

Adversely Classified Loans—These loans consist 

of the following types: 

Substandard 

 These assets are inadequately protected by 

the repayment capacity, equity, or collateral 

pledged. Assets so classified must have a 

well-defined weakness or weaknesses that 

could hinder normal collection of the debt. 

They are characterized by the distinct possibility that the lender will sustain some loss 

if the deficiencies are not corrected. Loss 

potential, while existing in the aggregate 

amount of substandard assets, does not have 

to exist in individual assets. 

Doubtful 

 Assets classified as doubtful have all the 

weaknesses inherent in those classified as 

substandard with the added characteristic 

that weaknesses make collection or liquidation in full, on the basis of currently existing 

facts, conditions, and values, highly questionable and improbable. The possibility of loss 

is extremely high. Because of certain important pending factors that may work to the 

advantage or disadvantage of the assets, classification as substandard or loss is deferred 

until a more exact status can be determined. 

Pending factors might include a proposed 

merger, acquisition, liquidation, capital injection, perfection of liens on additional collateral, or plans for refinancing. 

Loss 

Assets classified as loss are considered uncollectible and of such little value that their 

continuance as bookable assets is not warranted. This classification does not mean the 

asset has absolutely no recovery or salvage 

value, but rather that deferring to write off 

this basically worthless asset is not practical 

even though the asset may eventually yield 

some value. 

Agricultural Credit Association (ACA)—An 

ACA results from the merger of a Federal Land 

Bank Association or an FLCA and a PCA and 

has the combined authority of the two institutions. An ACA borrows funds from an FCB or 

ACB to provide short-, intermediate-, and longterm credit to farmers, ranchers, and producers 

and harvesters of aquatic products. It also makes 

loans to these borrowers for certain processing 

and marketing activities, to rural residents for 

housing, and to certain farm-related businesses. 

Agricultural Credit Bank (ACB)—An ACB 

results from the merger of a Farm Credit Bank 

and a Bank for Cooperatives and has the combined authorities of those two institutions. An 

ACB is also authorized to finance U.S. agricultural exports and provide international banking 

services for farmer-owned cooperatives. CoBank 

is the only ACB in the FCS. 

B

Bank for Cooperatives—A Bank for Cooperatives (BC) provided lending and other financial 

services to farmer-owned cooperatives, rural 

utilities (electric and telephone), and rural sewer 

and water systems. It was also authorized to 

finance U.S. agricultural exports and provide 

international banking services for farmer-owned 

cooperatives. The last remaining BC in the FCS, 

the St. Paul Bank for Cooperatives, merged with 

CoBank on July 1, 1999. 

F 

Farm Credit Act—The Farm Credit Act of 1971, 

as amended, (12 U.S.C. §2001 et seq.) is the statute under which the FCS operates.

Farm Credit Bank—The Farm Credit Banks 

(FCBs) provide services and funds to local associations that, in turn, lend those funds to farmers, ranchers, producers and harvesters of aquatic 

products, rural residents for housing, and some 

agriculture-related businesses. On July 6, 1988, 

the Federal Land Bank and the Federal IntermeGlossary*

*Not all terms in this glossary, or the list of acronyms, may be used in this report.
Farm Credit System Insurance Corporation

32

diate Credit Bank in 11 of the 12 then-existing 

Farm Credit districts merged to become FCBs. 

The mergers were required by the Agricultural 

Credit Act of 1987. Currently there are three 

FCBs: AgFirst Farm Credit Bank; AgriBank, 

FCB; and the Farm Credit Bank of Texas. 

Farm Credit Administration (FCA)—FCA was 

established in 1933 to regulate the Farm Credit 

System. It is governed by a three-member 

presidentially appointed board. To ensure the 

safety and soundness of the System, the Agency 

examines and supervises System institutions and 

develops regulations to govern them. 

Federal Farm Credit Banks Funding Corporation—Based in Jersey City, New Jersey, the 

Funding Corporation manages the sale of Systemwide debt securities to finance the loans 

made by FCS institutions. It uses a network of 

bond dealers to market the System’s securities.

Federal Land Bank Association (FLBA)—These 

associations were lending agents for FCBs. Federal Land Bank Associations made and serviced 

long-term mortgage loans to farmers, ranchers, 

and rural residents for housing. The associations did not own loan assets but made loans 

only on behalf of the FCB with which they were 

affiliated. As of October 1, 2000, there were no 

remaining Federal Land Bank Associations serving as lending agents for FCBs.

Federal Land Credit Association (FLCA)—An 

FLCA is a Federal Land Bank Association that 

owns its loan assets. An FLCA borrows funds 

from an FCB to make and service long-term 

loans to farmers, ranchers, and producers and 

harvesters of aquatic products. It also makes and 

services housing loans for rural residents.

Financial Institution Rating System (FIRS)—

The FIRS is similar to the Uniform Financial 

Institutions Rating System used by other Federal 

banking regulators. However, unlike the Uniform Financial Institutions Rating System, the 

FIRS was designed to reflect the nondepository 

nature of FCS institutions. The FIRS provides a 

general framework for assimilating and evaluating all significant financial, asset quality, and 

management factors to assign a composite rating to each System institution. The ratings are 

described below. 

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

findings or comments are of a minor nature 

and are anticipated to be resolved in the normal course of business. Such institutions are 

well managed, resistant to external economic 

and financial disturbances, and more capable 

of withstanding the uncertainties of business conditions than institutions with lower 

ratings. Each institution in this category 

exhibits the best performance and risk management practices for its size, complexity, and 

risk profile. These institutions give no cause 

for regulatory concern. 

Rating 2—Institutions in this group are 

fundamentally sound but may reflect modest 

weaknesses correctable in the normal course 

of business. Since the nature and severity 

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

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

this group. While areas of weakness could 

develop into conditions of greater concern, 

regulatory response is limited to the extent 

that minor adjustments are resolved in the 

normal course of business and operations 

continue in a satisfactory manner. 

Rating 3—Institutions in this category exhibit 

a combination of financial, management, 

operational, or compliance weaknesses ranging from moderately severe to unsatisfactory. 

When weaknesses relate to asset quality or 

financial condition, such institutions may 

be vulnerable to the onset of adverse busi-
Protecting Investors in Agriculture and Rural America

33

ness conditions and could easily deteriorate 

if concerted action is not effective in correcting the areas of weakness. Institutions 

that are in significant noncompliance with 

laws and regulations may also be accorded 

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 

implemented. 

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 develop 

into a situation that will impair future viability or constitute a threat to the interests of 

investors, borrowers, and stockholders. Risk 

management practices are generally unacceptable for the size, complexity, and risk 

profile of each institution in this group. A 

potential for failure is present but is not yet 

imminent or pronounced. Institutions in 

this category require close regulatory attention, financial surveillance, and a definitive 

plan for corrective action.

Rating 5—This category is reserved for 

institutions with an extremely high, immediate, or near-term probability of failure. The 

number and severity of weaknesses or unsafe 

and unsound conditions are so critical as to 

require urgent external financial assistance. 

Risk management practices are inadequate 

for the size, complexity, and risk profile of 

each institution in this group. In the absence 

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

form of emergency assistance, merger, or 

acquisition. 

Food, Conservation, and Energy Act—This law, 

enacted in 2008, amended the Farm Credit Act 

to reform the Insurance Corporation’s insurance 

premium authority to generally assess premiums 

on insured FCS banks’ adjusted outstanding 

insured debt (rather than on loans). 

G 

Government-Sponsored Enterprise (GSE)—A 

GSE is typically a federally chartered corporation that is privately owned, designed to provide 

a source of credit nationwide, and limited to 

servicing one economic sector. Each GSE has a 

public or social purpose. GSEs are usually created because the private markets did not satisfy 

a purpose that Congress deems worthy either 

to fill a credit gap or to enhance competitive 

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

allow it to overcome the barriers that prevented 

purely private markets from developing. In some 

cases, the GSE receives public assistance only 

to get started, as the FCS did; in other cases, 

the assistance is ongoing. The FCS is the oldest 

financial GSE.

P

Production Credit Association (PCA)—PCAs 

are FCS entities that deliver only short and 

intermediate-term loans to farmers and ranchers. 

A PCA borrows money from its FCB to lend to 

farmers. PCAs also own their loan assets. As 

of January 1, 2003, all PCAs were eliminated as 

independent, stand-alone, direct-lender associations. All PCAs are now subsidiaries of ACAs.
Farm Credit System Insurance Corporation

34

ACA Agricultural Credit Association 

ACB Agricultural Credit Bank

AIRA Allocated Insurance Reserves Account 

ARC Administrative Resource Center 

BPD Bureau of the Public Debt 

CIPA Contractual Interbank Performance Agreement 

CRS Consolidated Reporting System 

DCAT Dynamic Capital Adequacy Testing 

FAC Farm Credit System Financial Assistance Corporation 

Farm Credit Act, the Act Farm Credit Act of 1971, as amended 

FCA Farm Credit Administration 

FCB Farm Credit Bank 

FCE Act Food, Conservation, and Energy Act of 2008 

FCS Farm Credit System 

FCSIC Farm Credit System Insurance Corporation 

FDIC Federal Deposit Insurance Corporation 

FHCS Federal Human Capital Survey 

FIRS Financial Institution Rating System 

FLBA Federal Land Bank Association

FLCA Federal Land Credit Association

FMFIA Federal Managers’ Financial Integrity Act 

Funding Corporation Federal Farm Credit Banks Funding Corporation 

GPRA Government Performance and Results Act 

GSE Government-sponsored enterprise 

MAA Market Access Agreement 

NCUA National Credit Union Administration 

PCA Production Credit Association 

SBA Secure Base Amount

TIPS Treasury Inflation-Protected Securities

Acronyms and Abbreviations
Protecting Investors in Agriculture and Rural America

35

Corporate Staff

Dorothy L. Nichols Chief Operating Officer 

Alan J. Glenn Director of Risk Management 

C. Richard Pfitzinger Chief Financial Officer 

James M. Morris General Counsel 

William R. Fayer Senior Resolution Specialist 

Wade Wynn Senior Risk Analyst 

Pam Ngorskul Accountant 

Jeremy L. Del Moral Financial Analyst 

Barbara Loggins Senior Administrative Specialist

Anna Lacey Administrative Quality Control Specialist 

Molly Sproles Administrative Management Assistant
Farm Credit System Insurance Corporation

36

Contact Information 

Copies of the Annual Performance and Accountability Reports of the Farm Credit Administration and 

FCA’s Annual Report on the Farm Credit System may be obtained from 

Office of Congressional and Public Affairs 

Farm Credit Administration 

1501 Farm Credit Drive 

McLean, VA 22102 

(703) 883-4056 

www.fca.gov

Copies of Farm Credit System Annual Reports to Investors and Quarterly and Annual Information Statements may be obtained from 

Federal Farm Credit Banks Funding Corporation 

10 Exchange Place 

Suite 1401 

Jersey City, NJ 07302 

(201) 200-8000 

www.farmcredit-ffcb.com

FCSIC-Insured Banks (as of January 1, 2012)

AgFirst Farm Credit Bank

P.O. Box 1499 

Columbia, SC 29202-1499

(803) 799-5000

www.agfirst.com

AgriBank, FCB

30 E. 7th Street, Suite 1600

St. Paul, MN 55101-4914

(651) 282-8800

www.agribank.com

CoBank

P.O. 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
Farm Credit System Insurance Corporation

1501 Farm Credit Drive

McLean, VA 22102

703-883-4380 Voice

703-790-9088 Fax

www.fcsic.gov