Farm Credit System Insurance Corporation

2016 Annual Report

A U.S. Government-Controlled Corporation
Protecting Investors in Agriculture and Rural America

1

The Farm Credit System Insurance Corporation, a 

government-controlled, independent entity, shall

• protect investors in insured Farm Credit System

obligations and taxpayers through sound

administration of the Farm Credit Insurance

Fund,

• exercise its authorities to minimize Insurance

Fund loss, and

• help ensure the future of a permanent system

for delivery of credit to agricultural borrowers.

Mission Statement
2

June 9, 2017

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 

2016.

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

the timely payment of principal and interest to investors in insured Farm Credit System debt 

securities. The balance in the Farm Credit Insurance Fund as of December 31, 2016, was 

$4.45 billion.

We earned $372.6 million in insurance premiums from Farm Credit System banks and $45.8 

million in investment income in 2016, and expect to incur $4.1 million in operating costs in 

2017.

FCSIC is proud of the role we play in supporting the safety and soundness of the Farm 

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

Sincerely,

Jeffery S. Hall

Chairman

The President of the United States Senate

The Speaker of the United States House of Representatives
3

Contents

Message from the Chairman .......................................................................................4

Board of Directors..........................................................................................................5

Jeffery S. Hall .................................................................................................................6

Dallas P. Tonsager...........................................................................................................7

2016 — Year in Review.................................................................................................8

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

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

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

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

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

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

Management Assurances .............................................................................................30

Compliance with the Federal Civil Penalty Inflation 

Adjustment Act Improvements Act of 2015.................................................31

Performance Management Program ........................................................................32

Glossary ..........................................................................................................................35

Acronyms and Abbreviations .....................................................................................37

Corporate Staff ..............................................................................................................38

Contact Information ...................................................................................................38

Banks Insured by FCSIC as of January 1, 2017......................................................39
Farm Credit System Insurance Corporation

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Message from the Chairman 

I am pleased to present the 2016 Annual Report of the Farm Credit System Insurance Corporation. It is 

gratifying to note that, for the 27th consecutive year since we began issuing financial statements, our independent public auditor has issued unmodified or unqualified opinions on those statements. The enclosed 

opinion letters indicate that the financial statements of the Farm Credit Insurance Fund, of which we are 

stewards, are fairly and accurately presented.

FCSIC’s net income for 2016 was $414.7 million, compared with $288.5 million for the previous year. The 

Insurance Fund balance as of December 31, 2016, was $4.45 billion, compared with $4.04 billion at yearend 2015.

Revenue from insurance premiums paid by Farm Credit System banks was $372.6 million for 2016, 

compared with $260.6 million for 2015. Premium revenue increased for two reasons. Premium assessment rates went up from 13 basis points in 2015 to an average of 17 basis points in 2016, and outstanding 

insured obligations were higher in 2016. Interest income for 2016 totaled $45.8 million, compared with 

$31.3 million in 2015.

In accordance with the requirements of the Federal Managers’ Financial Integrity Act of 1982, FCSIC management conducts an annual assessment of the corporation’s internal controls. The 2016 assessment found 

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.

We will continue to carry out our mission and work in 2017 to achieve our strategic goals and objectives. We are mindful of our public trust and will ensure that investors, Congress, the Farm Credit System, 

and other regulatory agencies receive timely and accurate information on issues concerning the Insurance 

Fund.

Sincerely,

Jeffery S. Hall
Protecting Investors in Agriculture and Rural America

5

Board of Directors

The Farm Credit System Insurance Corporation (FCSIC) is managed by a three-member board of directors 

comprising the same three individuals who make up the Farm Credit Administration (FCA) board. However, the same member may not serve as chairman of both entities. FCA is the independent federal agency 

responsible for the regulation and examination of the Farm Credit System (System), a nationwide network 

of financial cooperatives that lend to agriculture and rural America.

After being appointed to the FCA board by President Barack Obama on March 17, 2015, and serving as 

a FCSIC director, Jeffery S. Hall was elected chairman of the FCSIC board of directors on November 29, 

2016. 

As chairman of the FCSIC board of directors, Mr. Hall succeeds Dallas P. Tonsager, who served as chairman from March 13, 2015, until November 22, 2016, when the president designated him FCA board 

chairman and CEO. Mr. Tonsager remains a member of the FCSIC board of directors.

We are sad to report that in March 2017, Board Member Kenneth A. Spearman passed away. He was a 

member of the FCSIC board since 2009 and served as chairman from 2009 until 2015 when he became 

board chairman and CEO of FCA. As a result of his death, the FCSIC board now has a vacant position. 
Farm Credit System Insurance Corporation

6

Jeffery S. Hall is chairman of the board of directors of FCSIC. 

He was elected to this position on November 29, 2016. Mr. Hall 

has served on the FCSIC board and on the FCA board since his 

appointment by President Barack Obama on March 17, 2015. He is 

serving a term that expires on October 13, 2018.

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

The Capstone Group, an association management and consulting 

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

State Executive Director for the U.S. Department of Agriculture’s 

(USDA’s) Farm Service Agency in Kentucky. In that role, he was 

responsible for farm program and farm loan program delivery and 

compliance. 

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

University of Kentucky, College of Agriculture, advising the dean 

on state and federal legislative activities and managing a statewide 

economic development initiative called Ag-Project 2000.

Mr. Hall also served as a senior staff member in the office of U.S. Senator Mitch McConnell from 1988 

to 1994. During that time, he was the Legislative Assistant for Agriculture, accountable for internal and 

external issue management. 

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

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

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

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

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

Science degree from Purdue University.

Jeffery S. Hall 
Protecting Investors in Agriculture and Rural America

7

Dallas P. Tonsager

Dallas P. Tonsager has served on the FCSIC board of directors 

and on the FCA board since his appointment by President Barack 

Obama on March 13, 2015. He served as chairman of the FCSIC 

board of directors until he was appointed chairman and CEO of 

FCA on November 22, 2016.

Mr. Tonsager brings to his position on the FCSIC board extensive 

experience as an agriculture leader and producer, and a commitment to promoting and implementing innovative development 

strategies to benefit rural residents and their communities.

Mr. Tonsager served as under secretary for Rural Development at 

USDA from 2009 to 2013. In this position, he expanded broadband communication in rural America and implemented other key 

elements of the Recovery Act for rural America. He dramatically 

expanded USDA’s water and wastewater programs, expanded funding for first- and second-generation biofuels, and funded hospitals 

and other public facilities in rural America. 

In addition, Mr. Tonsager worked with the Farm Credit System and others to set up new venture capital 

investment funds. From 2010 to 2013, he was a member of the Commodity Credit Corporation board of 

directors. 

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

FCSIC board of directors. 

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

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

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

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

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

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

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

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

Commodity Futures Trading Commission from 1990 to 1993.

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

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

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

degree in agriculture in 1976.
Farm Credit System Insurance Corporation

8

2016 — Year in Review

Insurance Fund 

As of December 31, 2016, the Farm Credit Insurance Fund was at $4.45 billion (1.96 percent of adjusted 

insured debt outstanding), which was $88 million below the secure base amount. (See table 1 on page 10 

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

allocated insurance reserves accounts. (See “Notes to the Financial Statements” on page F11.)

FCSIC’s Operations

FCSIC’s first full year of operations was 1993. That year, the Insurance Fund grew to $642 million, insuring $53.70 billion in System debt. We had a nine-member core staff and contracted with FCA for examination and administrative support. Other specialized services were available through public and private 

sector contractual arrangements on an as-needed basis. 

Twenty-three years later, the Insurance Fund is about seven times larger, insuring $258.43 billion of System debt. Yet we continue to operate effectively with a small 11-person staff. We continue to carry out our 

mission in a cost-effective manner by leveraging our resources and purchasing support services from FCA 

and other public and private sector contractors. 

Our operating costs as a percentage of our total assets were 8 basis points (0.08 percent) for 2016, representing no change since 2014. In September 2016, the FCSIC board of directors approved budgets 

for 2017 and 2018. The 2017 budget is $4.08 million, which is a decrease of 0.5 percent from the 2016 

budget.

Policy Statement Concerning Allowance for Insurance Fund Losses

In January, the FCSIC board adopted a revised Policy Statement Concerning Allowance for Insurance 

Fund Losses to ensure that the corporation assesses and reports these losses in accordance with generally 

accepted accounting principles (GAAP). Because we prepare our financial statements on an accrual basis 

using GAAP, we must recognize an allowance for loss on our financial statements if a loss to the Insurance Fund is probable and can be reasonably estimated. We disclose any loss exposure that is judged to be 

possible or probable but cannot be reasonably estimated in a footnote to our financial statements.

The policy statement requires FCSIC to continue to evaluate the adequacy of the allowance for losses by 

using a procedure that meets the requirements of GAAP. This procedure must also include a detailed 

methodology with specific criteria for assessing the probability of losses to the Insurance Fund and reasonably estimating losses identified as probable.

The review process and any allowance determination must be supported with documentation. The allowance methodology must be regularly validated and updated to incorporate any changes to authoritative 

sources (such as GAAP provisions and the regulations and policies of FCSIC and FCA) that would affect 

the evaluation of the adequacy of the allowance for losses to the Insurance Fund. 
Protecting Investors in Agriculture and Rural America

9

The allowance for loss review includes an analysis of potential sources of Insurance Fund losses and 

requires us to evaluate losses from the following sources:

• System banks

• Significant or troubled associations

• Active receiverships and conservatorships

• Assisted institutions

• FCSIC assets

Strategic Plan

FCSIC adopted a new strategic plan using the revised Office of Management and Budget format. The plan 

details our long-term goals and objectives, how we intend to achieve those goals, and how we will manage 

the challenges and risks we will face as we work toward our goals. The 2016-2021 Strategic Plan is available 

on our website at www.fcsic.gov.

Financial Assistance for Liquidity Purposes

FCSIC has statutory authority to provide financial assistance to System banks and associations. This assistance may include lending money to System banks in a liquidity crisis in which external market events 

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

board of directors. 

To improve our ability to help System banks in a liquidity crisis, in September 2013, we entered into an 

agreement for a $10 billion line of credit with the Federal Financing Bank, a government corporation 

within the U.S. Department of Treasury that provides funds to eligible federal agencies. We can access the 

credit line when a disruption in financial markets makes it extremely doubtful that the System banks will 

be able to pay maturing debt obligations that we insure. This liquidity backstop allows us to provide more 

assistance to System banks than is available from the Insurance Fund only.

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

renewable annually and will terminate on September 30, 2017, unless renewed. All funds that we borrow 

from the Federal Financing Bank and then advance to System banks must be fully collateralized and repaid 

with interest by the System banks receiving assistance. This liquidity backstop should therefore operate 

without risk or cost to U.S. taxpayers. 

During 2016, we worked with representatives of System banks, the Federal Farm Credit Banks Funding 

Corporation, and FCA to implement procedures for providing assistance during a liquidity crisis. We also 

kept the Federal Financing Bank apprised of the System’s financial status. FCSIC is able to react quickly 

to a liquidity crisis because we have established procedures, maintain contact with key stakeholders, and 

regularly test our readiness.
Farm Credit System Insurance Corporation

10

Table 1

Selected Financial Statistics for the Farm Credit System Insurance 

Corporation

(Dollars in Millions)

BALANCE SHEET 2016 2015 2014

Total assets $4,453.5 $4,038.8 $3,750.1 

Total liabilities 0.6 0.5 0.3 

Insurance Fund balance

 

 Allocated Insurance Reserves Accounts 0 0 0 

 

 Unallocated Insurance Fund balance 4,452.9 4,038.3 3,749.8 

OPERATIONS

Revenues 418.4 291.9 257.2 

Operating expenses 3.7 3.4 3.1 

Insurance expense 0 0 0 

Net income 414.7 288.5 254.1 
Protecting Investors in Agriculture and Rural America

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Table 2

Combined Farm Credit System Statistics

(Dollars in Billions) 

 

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

interest as of December 31, 2016, 2015, and 2014. (Book value excludes fair-value adjustments.)

2. As of December 31, 2016, agribusiness loans consisted of loans to cooperatives of $15.30 billion, processing and marketing loans of $21.17 billion, and 

farm-related business loans of $3.16 billion.

The Farm Credit System

Structure and Funding

The Farm Credit System is a network of federally chartered, cooperative lending institutions owned by the 

agricultural and rural customers it serves, including farmers, ranchers, producers or harvesters of aquatic 

products, agricultural cooperatives, and farm-related businesses. As of January 1, 2017, the System had 4 

banks and 73 associations. Each association has its own chartered territory and is affiliated with one of 

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

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

States, including the Commonwealth of Puerto Rico. One of the System banks (CoBank) also has nationwide authority to make retail loans to cooperatives and other eligible entities.

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

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

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

world.

2016 2015 2014

Insured Debt Outstanding1 $258.4 $243.8 $225.7 

Production agriculture: 

 Real estate mortgage loans 114.5 107.8 100.8 

 Production and intermediate-term loans 50.3 49.2 46.3 

 Agribusiness loans2 39.6 36.6 32.9 

 Communication loans 6.0 6.2 5.0 

 Energy, water, and waste disposal loans 21.4 19.6 16.5 

 Rural residential real estate loans 7.2 7.1 6.8 

 Agricultural export loans 5.5 5.1 4.8 

 Lease receivables 3.5 3.4 3.0 

 Loans to other financing institutions 0.8 0.9 0.9 

 Cash and investments 62.6 59.4 57.8 

 Net income 4.8 4.7 4.7 

 Nonperforming loans as a percentage of total loans 0.8% 0.7% 0.8%
Farm Credit System Insurance Corporation

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Figure 1

Insured Debt Outstanding:

Growth Averaged 7.0 Percent Over the Past 5 Years

(Dollars in Billions)

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

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

Investor Protection

Investors provide the funds that the System lends to agriculture and rural America. FCSIC’s primary 

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

Systemwide debt securities purchased by these investors.

Regulatory Oversight

The Farm Credit Administration is the regulator of the Farm Credit System, responsible for the examination, supervision, and regulation of each System institution. FCA is an independent agency in the executive branch of the U.S. government and derives its authorities from the Farm Credit Act. These authorities 

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

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

Insured and Other Obligations

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

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

Credit Act. Figure 1 shows that insured debt outstanding increased by 6.0 percent in 2016 to $258.4 billion, compared with an increase of 8.0 percent in 2015.

Percent Growth

7.2%

5.1%

8.8%

8.0%

6.0%

0%

2%

4%

6%

8%

10%

12%

$170

$180

$190

$200

$210

$220

$230

$240

$250

$260

$270

2012 2013 2014 2015 2016
Protecting Investors in Agriculture and Rural America

13

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

value, as required by section 4.9A of the Farm Credit Act. At year-end 2016, protected borrower stock 

outstanding at System institutions totaled $1 million, unchanged since year-end 2013.

Farm Credit System Capital

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

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

or her loan. The borrower makes payments on the loan to the lending bank or association, and it is the 

banks that ultimately repay Systemwide debt securities.

The lending association in turn makes payments on its loan to the lending bank. All of the banks and 

associations currently exceed their minimum regulatory capital requirements as protection and support for 

the repayment of the outstanding insured debt.

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

Insurance Fund to make the payment on its behalf. If the assets in the Insurance Fund were exhausted, 

the Farm Credit Act’s provisions for joint and several liability would be triggered, requiring the other System banks to repay the defaulting bank’s portion of the debt.

As figure 2 shows, the amount of System bank capital plus the balance in the Insurance Fund increased 27 

percent, from $17.5 billion at year-end 2012 to $22.2 billion at year-end 2016. However, bank capital plus 

the amount in the Insurance Fund as a percentage of insured debt outstanding decreased from 8.9 percent in 2012 to 8.6 percent in 2016 (see figure 3). In 2016, the growth in capital exceeded the growth in 

insured debt outstanding, reversing the declining trend in 2015 and 2014 when the growth in insured debt 

outstanding exceeded capital growth. Without the Insurance Fund, bank capital as a percentage of insured 

debt was 6.8 percent at year-ends 2016 and 2015.

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

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

sectors. (See trends in the Financial Institution Rating System [FIRS] in the “Risk Management” section 

beginning on page 25.)

A bank’s credit exposure to borrowing associations is partially mitigated by the associations’ capital levels. Recent increases in System associations’ capital levels, the result of higher retention levels of strong 

association net incomes, has further reduced credit risk. As figure 4 shows, from 2012 to 2016, combined 

association capital increased $9.3 billion — an annual average increase of approximately 8.8 percent. Since 

2012, the associations have collectively achieved solid earnings and preserved capital, causing association 

capital as a percentage of total assets to increase to 18.9 percent in 2016 from 17.8 percent in 2012 (see 

figure 5). 
Farm Credit System Insurance Corporation

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Figure 2

Bank Capital Plus Insurance Fund

(Dollars in Billions)

Figure 3

Bank Capital Plus Insurance Fund as Percentage of Insured Debt

$14.2 $15.1 $15.8 $16.6 $17.7

$3.3 $3.5 $3.8 $4.0 $4.5

$0

$5

$10

$15

$20

$25

2012 2013 2014 2015 2016

Bank Capital Insurance Fund

8.9%

9.0%

8.7%

8.5%

8.6%

7.5%

8.0%

8.5%

9.0%

9.5%

2012 2013 2014 2015 2016
Protecting Investors in Agriculture and Rural America

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Figure 4

Combined Association Capital

(Dollars in Billions)

Figure 5

Combined Association Capital as Percentage of Total Association Assets

$26.5

$29.1

$31.4

$33.6

$35.8

$0

$5

$10

$15

$20

$25

$30

$35

$40

2012 2013 2014 2015 2016

17.8%

18.5%

18.8%

18.7%

18.9%

17.0%

17.5%

18.0%

18.5%

19.0%

2012 2013 2014 2015 2016
Farm Credit System Insurance Corporation

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Additional Protections

Farm Credit System banks use additional risk management tools to protect investors. One tool is the 

Contractual Interbank Performance Agreement (CIPA). All System banks have entered into this agreement, 

which measures the financial condition and performance of each bank by using ratios that consider bank 

capital, asset quality, earnings, interest rate risk, and liquidity. The CIPA contains triggers that financially 

penalize banks that do not meet performance standards.

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

Market Access Agreement. The Market Access Agreement establishes conditions for each bank’s continued 

participation in the debt market. If a bank fails to meet agreed-upon performance measures, the bank may 

be restricted from issuing debt. The criteria used under the Market Access Agreement are the CIPA scores 

and the bank’s tier 1 leverage and total capital ratios.

To improve the quality and quantity of bank liquidity reserves, the System adopted a minimum liquidity 

standard for its banks. This standard is designed to maintain adequate liquidity to meet the business and 

financial needs of each bank and the System as a whole in the event access to the debt market is temporarily impeded.

The Farm Credit Administration’s liquidity regulation also requires the banks to strengthen management of 

liquidity risk and maintain a three-tiered liquidity reserve to better withstand a liquidity crisis.
Protecting Investors in Agriculture and Rural America

17

Insurance Fund Management

The Insurance Fund and the Secure Base Amount

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

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

fund (the portion of the Insurance Fund for which no specific use has been designated) and an allocated 

insurance fund (the portion of the Insurance Fund that has been transferred to the allocated insurance 

reserves accounts- AIRAs). Insurance premiums are due until the unallocated portion of the Insurance 

Fund reaches the secure base amount.

The Farm Credit Act established the secure base amount as 2 percent of the aggregate outstanding insured 

obligations (adjusted to exclude 90 percent of federal government-guaranteed loans and investments and 

80 percent of state government-guaranteed loans and investments). As an alternative, the act also gives 

FCSIC the discretion to choose another percentage that we determine to be actuarially sound to maintain 

in the Insurance Fund, taking into account the risk of insuring outstanding debt obligations.

FCSIC’s premiums are set with the goal of reaching and maintaining the 2% secure base amount. However, if growth of insured debt is greater than forecast when premium rates are established (or the Fund is 

used for some authorized purpose), the Insurance Fund will end the year below the secure base amount 

and FCSIC will need to collect additional premiums in the following year to make up the shortfall. If 

growth of insured debt is less than forecast when premium rates are set, then the Insurance Fund may end 

the year above the secure base amount. 

If the Insurance Fund exceeds the secure base amount at the end of any calendar year, FCSIC allocates 

those amounts, minus operating expenses and insurance obligations, to the allocated insurance reserve 

accounts established by Congress for the benefit of the System banks and holders of Financial Assistance 

Corporation stock (FAC stockholders). Once FCSIC determines that the allocation is appropriate and that 

the AIRA funds are not otherwise needed, FCSIC may pay the amounts in the AIRAs to the account 

holders in accordance with the formula specified in the Farm Credit Act. FAC stockholders receive 10 percent of any distribution until they have received $56 million under the terms of the Act. In 2010, FCSIC 

returned a total of $205.3 million to System institutions, with $20.5 million paid to FAC stockholders. In 

2012 FCSIC returned a total of $221.9 million, with $22.2 million paid to FAC stockholders. As of 2016, 

$13 million is the amount that remains to be paid to FAC stockholders.

Both total Insurance Fund and total assets increased by 10.3 percent to $4.45 billion in 2016. Insured debt 

outstanding grew $14.6 billion in 2016 (6.0 percent). The Insurance Fund finished 2016 at 1.96 percent, 

which was $88 million below the secure base amount (see figure 6). Consequently, no excess funds were 

available for allocation to the allocated insurance reserves accounts at year-end 2016.

Total Insurance Fund growth over the past five years is 5.69 percent annually. We did not accrue a provision for insurance obligations in 2016 (see figure 7).
Farm Credit System Insurance Corporation

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Figure 6

Insurance Fund Relative to 2 Percent Secure Base Amount

Figure 7

Insurance Fund Balances and Growth Rates

(Dollars in Billions)

1.93% 1.94% 1.90% 1.87% 1.96%

0.00%

0.25%

0.50%

0.75%

1.00%

1.25%

1.50%

1.75%

2.00%

2.25%

2012 2013 2014 2015 2016

Unallocated Allocated

-2.77%

6.00%

7.27% 7.69%

10.27%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

2012 2013 2014 2015 2016

Insurance Fund Balance Insurance Fund Growth Rate

Note: There have been no allocated funds since 2011.
Protecting Investors in Agriculture and Rural America

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Premiums

The FCSIC board reviews premium assessment rates as often as necessary but at least semiannually. The 

review focuses on five factors:

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

• Projected losses to the Insurance Fund 

• The condition of the System 

• The health of the agricultural economy 

• Risks in the financial environment 

The Farm Credit Act requires premium assessments to be 20 basis points on adjusted insured debt outstanding unless they are reduced by the board of directors. There is a risk surcharge of up to 10 basis 

points on nonaccrual loans and on other-than-temporarily impaired investments. In addition, the act 

reduces the total insured debt on which premiums are assessed. The act requires that premiums be based 

on outstanding insured debt obligations adjusted downward by 90 percent of federal government-guaranteed loans and investments and by 80 percent of state government-guaranteed loans and investments.

The most important factors in determining premium rates for 2016 were the Insurance Fund balance and 

prospects for Systemwide debt growth during the year. The Insurance Fund began 2016 at $290 million 

below the 2 percent secure base level. Based on System growth projections that ranged from 2.4 percent 

to 6.7 percent, with a 4.5 percent weighted average, the FCSIC board set the assessment rate on adjusted 

insured debt at 16 basis points for the first half of 2016 and 18 basis points for the second half of 2016.

Through May 2016, insured debt outstanding increased by $8.4 billion or 3.4 percent. We conducted a 

survey of the four System banks in May 2016 to update growth projections for the use of insured debt 

obligations for the remainder of 2016. Growth estimates ranged from 5.0 percent to 6.8 percent, with a 

weighted average growth rate of 5.8 percent. 

Interim financial statements for May 31, 2016, indicated that the Insurance Fund was estimated to be at 

1.88 percent of adjusted insured obligations, or $270 million below the secure base amount. This represented an improvement of $20 million from the beginning of the year. The board, at its June meeting, 

maintained the premium assessment rate on adjusted insured debt at 18 basis points for the second half of 

2016. 

Systemwide use of insured debt obligations increased more than expected during the second half of 2016 

(see table 3). In December alone, Systemwide insured debt obligations grew $3.6 billion. Consequently, the 

Insurance Fund finished 2016 below the 2 percent secure base level, at 1.96 percent of adjusted insured 

obligations or $88 million below the target level.

Our board of directors decreased the assessment rate on adjusted insured debt to 15 basis points for 2017 

because of slower expected growth in insured debt obligations for 2017. The board also continued the risk 

surcharge of 10 basis points on nonaccrual loans and other-than-temporarily impaired investments.
Farm Credit System Insurance Corporation

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Table 3

Calculation of Secure Base Amount

Results As of December 31, 2016

(Dollars in Millions)

 Final Interim Final

Debt Outstanding 12/31/2015 5/31/2016 12/31/2016

Total Principal and Interest $243,818 $252,218 $258,432

Less:

 90 percent federal government-guaranteed loans (5,399) (5,287) (5,285)

 80 percent state government-guaranteed loans (27) (27) (21)

 90 percent federal government-guaranteed investments (21,998) (23,286) (26,088)

 80 percent state government-guaranteed investments - - -

Total deduction (27,424) (28,600) (31,394)

Adjusted insured debt 216,394 223,618 227,038

Secure base amount (2% ) 4,328 4,472 4,541

4,038 4,202 4,453

1.87% 1.88% 1.96%

Unallocated and allocated Insurance Fund as a percentage of adjusted insured 

debt

Unallocated and allocated Insurance Fund balance
Protecting Investors in Agriculture and Rural America

21

Figure 8

FCSIC Revenues

(Dollars in Millions)

Revenues and Expenses

FCSIC operates with no appropriated funds. We collect insurance premiums from each Farm Credit System 

bank. These premiums and the income from our investment portfolio provide the funds necessary to fulfill 

our mission.

Our revenues increased by 43 percent to $418.4 million in 2016 from $291.9 million in 2015 (see figure 8). 

Revenues increased primarily because of higher insurance premiums in 2016. Interest income increased 46 

percent in 2016 to $45.8 million from $31.3 million in 2015. 

$46.8 $28.8 $34.1 $31.3 $45.8

$84.3

$172.2

$223.1 $260.6

$372.6

$0

$100

$200

$300

$400

$500

2012 2013 2014 2015 2016

Interest Income Premiums
Farm Credit System Insurance Corporation

22

Figure 9

FCSIC Operating Expenses

(Dollars in Millions)

To avoid duplication of effort and to minimize costs, we operate with a small core staff and use private 

and public sector contractors to leverage our efforts. Our board of directors and management adopted this 

model as a cost-effective and efficient way to use available expertise, services, and resources to accomplish 

our mission.

Our operating costs as a percentage of total assets represented 8 basis points for 2016, unchanged since 

2014. Fixed costs for staff salaries, travel, rent, and miscellaneous expenses were $2.8 million of the $3.7 

million total for the year (see figure 9). The remaining expenses of $0.9 million were for contract services.

$3.3 $3.2 $3.1

$3.4

$3.7

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

2012 2013 2014 2015 2016
Protecting Investors in Agriculture and Rural America

23

Investments 

FCSIC investments increased during the year from $3.6 billion as of December 31, 2015, to $4.0 billion as 

of year-end 2016 (see figure 10). An investment security of $46.4 million matured on December 31, 2016, 

and its proceeds were classified as “other receivables” on our balance sheet. An overnight investment of 

$140,000 was classified as “cash and cash equivalents.”

Our primary investment objective is to ensure adequate liquidity of the Insurance Fund to meet our mission, and our secondary objective is to optimize the rate of return on our investment portfolio. Funds are 

invested in U.S. Treasury securities in accordance with the Farm Credit Act and our investment policy.

We added new benchmarks in 2014 to enhance our ability to assess portfolio performance. Three 

weighted-average Treasury yield benchmarks serve as primary benchmarks. Two Treasury index funds 

serve as secondary benchmarks. These index funds are considered secondary benchmarks because a portion of their returns is generated through trading. The FCSIC Policy Statement Concerning Investments 

prohibits trading for capital gains purposes.

In 2016, the average portfolio yield was 1.14 percent, up from 0.84 percent the prior year, while the average return for the primary benchmarks ranged from 0.75 percent to 0.86 percent. The average return for 

the secondary benchmarks ranged from 0.86 percent to 0.91 percent for 2016.

In accordance with our investment policy, our portfolio is composed of a liquidity pool and an investment 

pool. The liquidity pool consists of short-term Treasury securities maturing in 2 years or less. The investment pool is composed of Treasury securities with maturities that vary from 2 to 10 years. Our investment policy requires the liquidity pool to be at least 20 percent of the portfolio. The policy also states that 

securities maturing in 5- to 10-years must not exceed 20 percent of the portfolio. 

The weighted average maturity of the portfolio at year-end was 2.16 years. The composition of the investment portfolio as of December 31, 2016, is shown in figure 11.

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

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

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

1954, more than 60 years ago. Because of the volatility of the monthly returns on TIPS and the risk of loss 

resulting from deflation, the FCSIC Investment Committee limits TIPS to no more than 20 percent of the 

portfolio. At year-end 2016, our TIPS investments totaled $196 million or 4.9 percent of the investment 

portfolio. 
Farm Credit System Insurance Corporation

24

Figure 10

FCSIC Investments

(Dollars in Billions)

Figure 11

Investment Portfolio by Maturity as of December 31, 2016

(Dollars in Millions)

$3.2 $3.1

$3.4

$3.6

$4.0

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

2012 2013 2014 2015 2016

< 1 year

$769

19%

1-2 years

$1,168

29%

2-3 years

$1,116

28%

3-4 years

$591

15%

4-5 years

$291

7%

5-10 years

$82

2%

Liquidity Pool (Securities

maturing in 2 years or less must

make up at least 20% of the

investment portfolio.)

Investment Pool (Securities

maturing in 5 to 10 years must

not exceed 20% of the

investment portfolio.)

Note: Total investments reflected on this chart do not include overnight investments classified as “cash and cash equivalents” from the balance sheet.

Note: Total investments reflected on this chart include overnight investments classified as “cash and cash equivalents” from the balance sheet.
Protecting Investors in Agriculture and Rural America

25

Risk Management

FCSIC’s Risk Profile

To carry out our mission as insurer of Systemwide obligations, we monitor conditions in the Farm 

Credit System, the farm economy, the rural economy, and domestic and international economies. All of 

these conditions affect the demand for loans and other services offered by the System. They also affect 

the ability of borrowers to repay their obligations in a timely manner. Specifically, we monitor 

• price volatility for agricultural commodities,

• changes in farmland values,

• changes in government support programs for agriculture,

• loan concentration in the agricultural sector,

• changes in supply and demand for U.S. agricultural products,

• changes related to international trade and the value of the U.S. dollar, 

• changes in production costs,

• changes in the domestic economy that affect incomes from off-farm jobs, 

• weather conditions,

• environmental and other regulatory costs, and 

• the availability of agricultural workers.

In addition, FCSIC’s risk profile is affected by the System’s ability to access the debt markets. The System depends on reliable access to the debt markets to fulfill its mission of providing loans and related 

financial services to U.S. farmers and ranchers, farmer-owned cooperatives, rural homebuyers, agribusinesses and rural infrastructure providers. The System’s access to the debt markets and funding costs may 

be influenced by circumstances such as a downturn in agriculture, a general disruption in the U.S. and 

global financial markets, competition with other debt issuers, negative news about government-sponsored 

enterprises, or a downgrade in the System’s credit ratings.

The major types of risk to which the System has exposure include the following:

• Credit risk – risk of default on a debt that may arise from a borrower failing to make required 

payments.

• Liquidity risk – risk that an institution may be unable to meet short–term financial demands 

without unacceptable losses.

• Interest rate risk – risk that changes in interest rates may reduce the value of assets with a consequent negative impact on operating results and financial condition.

• Operational risk – prospect of loss resulting from inadequate or failed procedures, controls, 

systems, or policies, including employee errors, systems failures, or fraud or other unauthorized 

activity.

• Structural risk – risk related to the design of the Farm Credit System. For example, as a lender 

to a single industry (agriculture), the System has a built-in concentration risk.
Farm Credit System Insurance Corporation

26

• Reputational risk – risk resulting from events that affect the reputation of the System or the agriculture industry.

• Political risk – risk of loss of support from federal and state governments.

The Risk Environment in 2016

The U.S. economy continued to expand at a modest pace in 2016. Economic output as measured by 

real gross domestic product (GDP) increased by 1.6 percent in 2016, compared with 2015 when GDP 

increased by 2.6 percent.

At year-end 2016, the U.S. unemployment rate was 4.7 percent compared with 5.0 percent at the end of 

2015. Job gains in 2016 totaled 2.2 million, a decline of about half a million from the previous year. At 

the same time, the number of people in the workforce declined. Those counted outside the labor force 

increased to 95.1 million in 2016. The labor force participation rate increased slightly to 62.7 percent, 

which is still near the lowest level since the late 1970s.

The Federal Open Market Committee, a committee of the Federal Reserve Board, raised the target range 

for the federal funds rate to between 0.50 percent and 0.75 percent in December 2016. It again raised the 

target range in March 2017 to between 0.75 percent and 1 percent. 

The agricultural industry continued to experience stress in 2016, particularly in the grains sector where 

weak commodity prices continued to hurt rural economies. According to USDA estimates, 2016 net cash 

income (a measure of cash income after payment of business expenses) was $91.9 billion, down $12.8 

billion from 2015 and down $11.3 billion from its 10-year average of $103.2 billion. The decline in 2016 

net cash income was primarily due to decreases in livestock receipts of $21.7 billion and cash farm-related 

income of $3.7 billion, partially offset by an increase in crop cash receipts of $2.0 billion and a decrease in 

cash expenses of $8.3 billion.

USDA’s February 2017 forecast indicates continued financial pressure in the agricultural sector. It forecasts 2017 farmers’ net cash income to increase to $93.5 billion, up $1.6 billion from 2016 but $9.7 billion 

below the 10-year average. Farm sector debt is expected to increase 5.2 percent to $395 billion. USDA 

projects farm sector equity (assets minus debt) will decline 2.1 percent in 2017 to $2.44 trillion. If realized, 

this would be the third consecutive year of declining farm sector equity.

The value of farm real estate assets, forecast to be about $2.4 trillion in 2017, accounts for about 84 

percent of total farm sector assets. In 2016 and into 2017, USDA anticipates a 1.1 percent decline in real 

estate values. This change reflects falling farm profit margins, increased interest rates, and more restrictive 

loan terms.

The System reported net income of $4.848 billion for 2016, up 3.4 percent from $4.688 billion in 2015. 

Net interest margin was 2.49 percent compared with 2.55 percent for 2015. The decline in net interest 

margin was due to a decrease in net interest spread of 9 basis points to 2.31 percent for 2016. Several factors contributed to the decline in the net interest spread, including competitive pressures, a change of the 

product mix into lower spread lines of business, and an increase in debt costs.
Protecting Investors in Agriculture and Rural America

27

The System continued to have reliable access to the debt markets. Discount note issuances were $200 billion in 2016, compared with $189.6 billion in 2015. The average rate for discount notes was 0.51 percent 

in 2016, compared with 0.21 percent in 2015. Term debt issuances were $134 billion in 2016, compared 

with $109 billion in 2015. The average rate for term debt was 0.66 percent in 2016, compared with 1.08 

percent in 2015. The System banks collectively called $57.9 billion in term debt in 2016, compared with 

$34.4 billion in 2015.

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

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

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

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

obligations. The System reported a combined $59.6 billion in cash and available-for-sale investments with 

a liquidity position of 180 days at year-end 2016 compared with 181 days at year-end 2015. The System 

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

cover each bank’s maturing obligations for the first 15 days, level 1 and 2 instruments sufficient to cover 

days 16 to 30, and level 1, 2, and 3 instruments to cover days 31 to 90. All four System banks exceeded 

these requirements in 2016.

The System banks have established contingency funding plans to provide for events that could impede 

access to the debt markets. The System banks also regularly perform credit and liquidity stress testing to 

determine their ability to withstand severe market events while continuing to fulfill their mission. 

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

allow us to include bank investment assets as a component in the simulation of risks to the solvency of 

the Insurance Fund. In addition, we are updating the historic data used to estimate the probability and 

severity of modeled insurance obligations. We expect the updated model to improve our ability to forecast 

the Insurance Fund’s capacity to withstand insurance losses if they occur.

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

banks and associations. Institutions with performance-related issues continued to receive greater examination scrutiny and supervisory attention from FCA.
Farm Credit System Insurance Corporation

28

Figure 12

FIRS Composite Year-End Ratings for Banks and Associations 

of the Farm Credit System

Source: FCA

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

Rating 1

Number of Institutions

Rating 2 Rating 3 Rating 4

37

43 44 46 44

38

31 32 29 31

10 8 3 3 2

1

0

10

20

30

40

50

60

70

80

90

100

2012 2013 2014 2015 2016

1
Protecting Investors in Agriculture and Rural America

29

Financial Assistance and Receivership

FCSIC is authorized to provide assistance to troubled System banks and associations to prevent default, 

restore normal operations, and facilitate mergers or consolidations. In 2016, no institution received assistance. If a System institution were to need financial assistance, we would first have to ensure that the 

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

provide financial assistance if the cost of liquidation is lower than the cost of providing assistance.

In 2016, we worked with the System and FCA to develop and test procedures to be used if a System bank 

requires liquidity assistance. The procedures implement the FCSIC board’s Policy Statement Concerning 

Assistance. The procedures were approved in September 2016. We also revised our model assistance agreement and drafted forms for valuation of collateral and liquidity reserves.

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

System banks and associations. As conservator, we will operate the institution as a going concern. When 

appointed as receiver, we will take possession of a System institution to settle its business operations, 

collect the debts owed to it, liquidate its property and assets, pay its creditors, and distribute any remaining proceeds to stockholders. At the present, there are no active receiverships or conservatorships in the 

System.

We use contractors on an as-needed basis so that we can operate with a small core staff while also maintaining our readiness to act as receiver or conservator. These contractors provide knowledgeable and readily available staff resources while allowing us to contain costs during periods of limited or no activity.

Our staff also maintains contact with the resolution staff of the Federal Deposit Insurance Corporation 

and other federal receivership authorities to stay informed about best practices and exchange information 

concerning receivership management.

As part of our strategic plan, we continue to pursue a legislative initiative to modernize and strengthen 

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

ensure that we have express statutory authority comparable to that of other federal receivers and conservators. They would also improve our ability to protect investors and reduce the cost of resolving a troubled 

System institution. Since 1987, there have been no substantive amendments to the Farm Credit Act relating to FCSIC’s resolution authorities.

We have several board-approved policy statements that provide guidance related to resolution activities, 

including appraisals of real estate securing nonperforming assets, insurance of assets that come under our 

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

board must review and approve policy statements every five years.
FARM CREDIT SYSTEM INSURANCE 

CORPORATION

McLean, VA 

FINANCIAL STATEMENTS 

Including Independent Auditors' Report 

As of and for the Years Ended December 31, 2016 and 2015 
TABLE OF CONTENTS 

Independent Auditors' Report F1 – F2 

Independent Auditors’ Report on Internal Control over Financial Reporting 

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

Statements Performed in Accordance with U.S. Government Auditing 

Standards F3 – F4 

Financial Statements 

Statements of Financial Condition F5 

Statements of Income and Expenses and Changes in Insurance Fund F6 

Statements of Cash Flows F7 

Notes to Financial Statements F8 – F15 
Baker Tilly Virchow Krause, LLP 

777 E Wisconsin Ave, 32nd Floor 

Milwaukee, WI 53202-5313 

United States of America 

T: +1 414 777 5500 

F: +1 414 777 5555 

bakertilly.com 

Independent Auditors’ Report 

To the Board of Directors 

Farm Credit System Insurance Corporation 

McLean, Virginia 

Report on the Financial Statements

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

("FCSIC"), which comprise the statement of financial condition as of December 31, 2016 and 2015, and the 

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

ended, and related notes to the financial statements. 

Management’s Responsibility for the Financial Statements

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

accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"); this 

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

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

Auditors’ Responsibility 

Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our 

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

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

General of the United States; and Office of Management and Budget Bulletin No. 15-02, Audit Requirements for 

Federal Financial Statements. Those standards require that we plan and perform the audits to obtain 

reasonable assurance about whether the financial statements are free from material misstatement. 

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

financial statements. The procedures selected depend on the auditors' judgment, including the assessment of 

the risks of material misstatement of the financial statements, whether due to fraud or error. In making those 

risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation 

of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not 

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

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

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

presentation of the financial statements. 
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 

audit opinion. 

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, 2016 and 2015, and the results 

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

accepted in the United States of America. 

Other Reporting Required by U.S. Government Auditing Standards 

In accordance with U.S. Government Auditing Standards, we have also issued our report dated February 7, 

2017 on our consideration of FCSIC’s internal control over financial reporting and on our tests of its compliance 

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

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

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

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

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

Milwaukee, Wisconsin 

February 7, 2017 
F3

Baker Tilly Virchow Krause, LLP 

777 E Wisconsin Ave, 32nd Floor 

Milwaukee, WI 53202-5313 

United States of America 

T: +1 414 777 5500 

F: +1 414 777 5555 

bakertilly.com 

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

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

Government Auditing Standards 

To the Board of Directors 

Farm Credit System Insurance Corporation 

McLean, Virginia 

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

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

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

Corporation ("FCSIC"), which comprise the statement of financial condition as of December 31, 2016, and the 

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

ended, and related notes to the financial statements, and have issued our report thereon dated February 7, 

2017.

Internal Control Over Financial Reporting 

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

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

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

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

opinion on the effectiveness of FCSIC's internal control. 

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

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

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

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

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

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

important enough to merit attention by those charged with governance. 

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

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

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

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

been identified. 
F4

Compliance and Other Matters 

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

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

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

statement amounts. However, providing an opinion on compliance with those provisions was not an objective of 

our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances 

of noncompliance or other matters that are required to be reported herein under U.S. Government Auditing 

Standards.

Purpose of this Report 

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

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

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

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

any other purpose.

Milwaukee, Wisconsin 

February 7, 2017 
F5

FARM CREDIT SYSTEM INSURANCE CORPORATION 

STATEMENTS OF FINANCIAL CONDITION 

As of December 31, 2016 and 2015 

(Dollars in thousands) 

 2016 2015 

Assets 

Cash and cash equivalents $ 241 $ 148,788 

Investments in U.S. Treasury obligations 4,016,813 3,615,305 

Premiums receivable 372,721 260,634 

Accrued interest receivable 17,334 14,045 

Other receivables 46,356 -

Total Assets $ 4,453,465 $ 4,038,772 

Liabilities and Insurance Fund

 Accounts payable and accrued expenses $ 561 $ 531

Total Liabilities 561 531

Farm Credit Insurance Fund 

Allocated Insurance Reserves Accounts - -

Unallocated Insurance Fund 4,452,904 4,038,241 

Total Insurance Fund 4,452,904 4,038,241 

Total Liabilities and Insurance Fund $ 4,453,465 $ 4,038,772
F6 

FARM CREDIT SYSTEM INSURANCE CORPORATION 

STATEMENTS OF INCOME AND EXPENSES AND CHANGES IN INSURANCE FUND 

For the Years Ended December 31, 2016 and 2015 

(Dollars in thousands) 

 2016 2015 

Income 

 Premiums $ 372,626 $ 260,617 

 Interest income 45,751 31,295 

Total Income 418,377 291,912 

 

Expenses 

 Administrative operating expenses 3,714 3,420 

Total Expenses 3,714 3,420 

Net Income 414,663 288,492 

Farm Credit Insurance Fund — Beginning of Year 4,038,241 3,749,749 

Payments to AIRAs Accountholders - -

Farm Credit Insurance Fund — End of Year $ 4,452,904 $ 4,038,241 
F7 

FARM CREDIT SYSTEM INSURANCE CORPORATION 

STATEMENTS OF CASH FLOWS 

For the Years Ended December 31, 2016 and 2015 

(Dollars in thousands) 

 2016 2015 

Cash Flows from Operating Activities 

Net income $ 414,663 $ 288,492 

 

Adjustments to reconcile net income to net cash 

provided by operating activities: 

(Increase) decrease in premiums receivable (112,087) (37,376)

(Increase) decrease in accrued interest receivable (3,289) (521)

(Increase) decrease in other receivables (46,356) - 

Net amortization and accretion of investments 17,463 34,034 

(Increase) decrease in accounts payable and accrued expenses 30 183 

 Net Cash Provided by Operating Activities 270,424 284,812 

Cash Flows from Investing Activities 

Payments for purchase of U.S. Treasury obligations (1,387,970) (1,067,862)

Proceeds from maturity of U.S. Treasury obligations 968,999 796,662 

 Net Cash Provided by Investing Activities (418,971) (271,200)

Cash Flows from Financing Activities 

Payment to AIRAs Accountholders - -

 Net Cash Used in Financing Activities - - 

Net change in cash and cash equivalents (148,547) 13,612 

Cash and cash equivalents, beginning of year 148,788 135,176 

Cash and Cash Equivalents, End of Year $ 241 148,788 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2016 and 2015 

F8 

NOTE 1 – Farm Credit Insurance Fund (Insurance Fund): Statutory Framework 

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

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

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

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

System (System) participating in insured obligations is an insured System bank. At December 31, 2016, 

there were four insured System banks and 74 direct lender associations. 

The Corporation is managed by a Board of Directors consisting of the same individuals as the Farm 

Credit Administration (FCA) Board except that the Chairman of the FCA Board may not serve as the 

Chairman of the Corporation's Board of Directors. 

The Corporation must spend the amounts necessary to: 

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

by an insured System bank; and 

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

Credit Act. 

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

System banks and direct lender associations. 

As of December 31, 2016, there were $258.4 billion of insured obligations and less than $1 million of 

eligible borrower stock outstanding. 

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

will be required to make payments under joint and several liability, as required by section 4.4 (a)(2) of the 

Farm Credit Act. 

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

taxes with the exception of real property taxes. 

NOTE 2 – Summary of Significant Accounting Policies 

Basis of Accounting — The accounting and reporting policies of the Corporation conform to accounting 

principles generally accepted in the United States of America (GAAP) and, as such, the financial 

statements have been prepared using the accrual basis of accounting. 

Cash and Cash Equivalents — Cash and cash equivalents include investments in U.S. Treasury 

obligations with original maturities of 90 days or less. At December 31, 2016, the Corporation held $140 

thousand in overnight Treasury Certificates maturing on January 3, 2017, with an investment rate of 0.39 

percent, and $100,849 in cash. At December 31, 2015, the Corporation held $148.7 million in overnight 

Treasury Certificates maturing on January 4, 2016, with an investment rate of 0.08 percent, and $100,084 

in cash. 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2016 and 2015 

F9 

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

Investments in U.S. Treasury Obligations — Section 5.62 of the Farm Credit Act requires that funds of the 

Corporation, not otherwise employed, shall be invested in obligations of the United States or in 

obligations guaranteed as to principal and interest by the United States. The Corporation has classified its 

investments as held to maturity in accordance with Financial Accounting Standards Board Accounting 

Standards Codification 320, Investments - Debt and Equity Securities and carries them at amortized cost. 

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

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

similar instruments. 

Other Receivables — The Corporation reports receivables for securities when investments mature at the 

end of an accounting period and proceeds are received in the following month. 

Liability for Estimated Insurance Obligations — The liability for estimated insurance obligations is the 

present value of estimated probable insurance payments to be made in the future based on the 

Corporation's analysis of economic conditions of insured System banks. 

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

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

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

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

interest rate environments and the need to maintain ongoing access to financial markets. Adverse 

changes in the financial condition and profitability of insured System banks resulting from increased levels 

of credit, financial, or other risks could occur in the future which would require a liability for estimated 

insurance obligations to be recorded. 

The Corporation actively monitors the creditworthiness and financial position of the insured System 

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

liability for estimated insurance obligations to be recorded at December 31, 2016 or 2015. 

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

based. All premiums are due on or before January 31st of the year subsequent to the year in which they 

are earned. 

Use of Estimates — The preparation of financial statements, in conformity with GAAP, requires 

management to make estimates and assumptions that affect the reported amount of assets and liabilities 

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

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

estimates. 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2016 and 2015 

F10 

NOTE 3 – Investments in U.S. Treasury Obligations 

In addition to the amounts referenced in Note 2, Cash and Cash Equivalents, at December 31, 2016 and 

2015, investments in U.S. Treasury obligations which are carried at amortized cost consisted of the 

following:

Gross Gross Estimated 

Amortized Unrealized Unrealized Fair 

(Dollars in thousands) Cost Gains Losses Value 

December 31, 2016 

U.S. Treasury obligations $ 4,016,813 $ 6,947 $ (16,584) $ 4,007,176 

December 31, 2015 

U.S. Treasury obligations $ 3,615,305 $ 5,107 $ (12,764) $ 3,607,648 

The amortized cost and estimated fair value of U.S. Treasury obligations at December 31, 2016, by 

contractual maturity, are shown below. 

(Dollars in thousands) Amortized Cost Estimated Fair Value 

 

Due in one year or less $ 798,657 $ 799,091 

 

Due after one year through five years 3,135,964 3,127,862 

 

Due after five years through ten years 82,192 80,223 

 

$ 4,016,813 $ 4,007,176 

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

to all assets and liabilities that are measured, reported, and/or disclosed on a fair value basis. 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2016 and 2015 

F11 

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

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

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

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

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

one of the following three categories: 

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

assets in active markets that the plan has the ability to access. 

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

market data. Inputs to the valuation methodology include 

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

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

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

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

correlation or other means. 

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

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

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

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

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

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

NOTE 4 – Premiums, the Secure Base Amount and Excess Insurance Fund Balances 

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

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

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

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

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

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

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

loans and on other-than-temporarily impaired investments. The amendments reduce the total insured 

debt on which premiums are assessed by 90 percent of Federal government-guaranteed loans and 

investments and 80 percent of state government-guaranteed loans and investments, and deduct similar 

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

The amendments clarify that FCSIC may collect premiums more frequently than annually. 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2016 and 2015 

F12 

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

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

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

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

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

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

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

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

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

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

FAC) stockholders. 

The Farm Credit Act sets a base amount for the Insurance Fund to achieve. The statutory SBA is 

equivalent to 2.0 percent of the aggregate outstanding insured obligations of all insured System banks 

(adjusted downward by a percentage of the guaranteed portions of principal outstanding on certain 

government-guaranteed loans and investments) or such other percentage as determined by the 

Corporation in its sole discretion to be actuarially sound to maintain in the Insurance Fund taking into 

account the risk of insuring outstanding insured obligations. When the assets in the Insurance Fund for 

which no specific use has been designated exceed the SBA, the Corporation is required to reduce the 

premiums, but it still must ensure that reduced premiums are sufficient to maintain at the SBA the assets 

in the Insurance Fund for which no specific use has been designated (the unallocated Insurance Fund). 

Insurance premium rates are reviewed semiannually. For 2016, the Board of Directors set premium rates 

at its February 19, 2016 meeting at 16 basis points for the first 6 months, and 18 basis points for the 

second 6 months, on average adjusted insured debt and continued the assessment of the 10 basis point 

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

impaired investments. The Board of Directors again reviewed premiums at its June 9, 2016 meeting. The 

Board of Directors voted to maintain the premium accrual rate on average adjusted insured debt at 16 

basis points for the first 6 months and 18 basis points for the second 6 months and continued the 

assessment of the 10 basis point surcharge on the average principal balance outstanding for nonaccrual 

loans and other-than-temporarily impaired investments for the remainder of 2016. In 2016, outstanding 

insured obligations increased by $15 billion (6 percent). At December 31, 2016, both the unallocated 

Insurance Fund and the total Insurance Fund were 1.96 percent of adjusted insured obligations.

For 2015, the Board of Directors set premium rates at its January 22, 2015 meeting at 13 basis points on 

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

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

investments. The Board of Directors again reviewed premiums at its June 11, 2015 meeting. The Board 

of Directors voted to maintain the premium accrual rate on average adjusted insured debt at 13 basis 

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

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

2015. In 2015, outstanding insured obligations increased by $18 billion (8 percent). At December 31, 

2015, both the unallocated Insurance Fund and the total Insurance Fund were 1.87 percent of adjusted 

insured obligations. 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2016 and 2015 

F13 

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

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

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

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

at the end of any calendar year, the aggregate of the amounts in the Insurance Fund exceeds the SBA, 

the Corporation shall allocate to the AIRAs the excess amount less the amount that the Corporation, in its 

sole discretion, determines to be the sum of the estimated operating expenses and estimated insurance 

obligations of the Corporation for the immediately succeeding calendar year. 

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

Corporation's Board of Directors. AIRAs balances may be used to absorb any insurance losses and 

claims. Furthermore, the Board of Directors has discretion to limit or restrict the AIRAs payments. In 

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

Fund's compliance with the SBA. 

At year-end 2016, the Insurance Fund was below the SBA by $88 million. Consequently no funds were 

available to transfer to the AIRAs. 

NOTE 5 – Operating Lease 

On October 8, 2015, the Corporation executed a ten-year lease with the FCS Building Association for 

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

$140,159 for 2017. The Corporation recorded lease expense (including operating cost assessments) of 

$138,662 and $155,049 for 2016 and 2015, respectively. 

NOTE 6 – Line of Credit 

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

FFB), a United States government corporation subject to the supervision and direction of the U.S. 

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

market circumstances threaten an insured System Bank’s ability to pay maturing debt obligations. The 

Corporation will in turn use the funds advanced by the FFB to provide assistance to the System banks 

until market conditions improve. The agreement provides for a short-term revolving credit facility of up to 

$10 billion, is renewable annually and terminates on September 30, 2017, unless otherwise further 

extended. 

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

interest rate for each advance will be established by the FFB at the time the respective advance is made. 

Each advance cannot have a maturity date longer than twelve months and the maturity date cannot be 

later than the final termination date of the agreement. 

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

this line of credit during 2016 and 2015. 
FARM CREDIT SYSTEM INSURANCE CORPORATION

NOTES TO FINANCIAL STATEMENTS 

As of and for the Years Ended December 31, 2016 and 2015 

F14 

NOTE 7 – Retirement Plan 

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

Federal Employees Retirement System (FERS). The Corporation's contribution to the CSRS plan during 

2016 and 2015 was 7 percent of base pay. For those employees covered by FERS, the Corporation's 

contribution was 13.7 percent of base pay for 2016. For 2015, the contribution rate was 13.2 percent of 

base pay for January through September 2015, and 13.7 percent from October through December 2015. 

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

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

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

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

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

contributed by the employee. Retirement plan expenses amounted to $369,995 in 2016 and $349,772 in 

2015. 

NOTE 8 – Related Parties 

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

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

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

associated with provision of the services. The Corporation purchased services for 2016 which totaled 

$342,545, compared with $422,020 for 2015. 

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

however, the Corporation provided no services and recognized no revenue for 2016 and 2015. At 

December 31, 2016, and 2015, the Corporation did not have any receivables from the FCA. 

NOTE 9 – Subsequent Events 

Management evaluated subsequent events through February 7, 2017, the date the financial statements 

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

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

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

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

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

The financial statements for the year ended December 31, 2016 have not been adjusted for any events or 

transactions occurring after the balance sheet date. 
Management Assurances

March 14, 2017

The management of the Farm Credit System Insurance Corporation is responsible for managing risk and 

maintaining effective internal control to meet the objectives of the Federal Managers’ Financial Integrity 

Act (FMFIA).

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

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

The System is a nationwide government-sponsored enterprise of cooperative lending institutions owned 

by the agricultural and rural customers it serves. By protecting investors, we help maintain a dependable 

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

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

exposure to potential losses. When appointed by the Farm Credit Administration, we also serve as 

receiver or conservator of any System bank or association.

Our management has completed an assessment of the effectiveness of the corporation’s enterprise risk 

management and internal control systems in effect during 2016 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 Enterprise Risk Management and Internal Control). The 

objective of these controls and systems is to provide reasonable assurance that

• obligations and costs comply with applicable laws;

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

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

• financial and statistical reports are reliable, complete, and timely.

On the basis of established guidelines and the assessment performed, we concluded that as of December 

31, 2016, the internal control over financial reporting was effective and meets the objectives of FMFIA.

In addition, as stated in the accompanying report, FCSIC’s independent auditor, Baker Tilly Virchow 

Krause, LLP, did not identify any material weaknesses in the effectiveness of FCSIC’s internal control 

over financial reporting as of December 31, 2016.

 

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

Chief Operating Officer Chief Financial Officer Director of Risk Management

Farm Credit System Insurance Corporation

30
Protecting Investors in Agriculture and Rural America

31

Compliance with the Federal Civil Penalty 

Inflation Adjustment Act Improvements Act of 

2015

FCSIC has authority under section 5.65(c) of the Farm Credit Act (12 U.S.C. § 2277a-14) to impose civil 

money penalties against a Farm Credit System bank that willfully fails or refuses to file any certified statement or pay any required premium.

In addition, section 5.65(d) of the Farm Credit Act provides that, except with the prior written consent 

of the Farm Credit Administration, it shall be unlawful for any person convicted of any criminal offense 

involving dishonesty or a breach of trust to serve as a director, officer, or employee of any System institution and authorizes FCSIC to recover penalties for a willful violation of this prohibition. Sections 5.65(c) 

and (d) provide for a penalty of not more than $100 for each day during which the violation continues. 

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the 2015 Act) amended 

the Federal Civil Penalties Inflation Adjustment Act of 1990 to provide for regular evaluation of civil 

penalties and required every applicable federal agency to adopt, through an interim final rule, a one-time 

“catch up adjustment” to be effective no later than August 1, 2016 and annual adjustments thereafter.

On May 17, 2016, FCSIC published an interim final rule in the Federal Register increasing our penalties 

-- to not more than $198 for each day during which a violation continues -- in accordance with the “catch 

up adjustment” required by the 2015 Act. FCSIC published a subsequent final rule on January 30, 2017 

--making the annual adjustment required by the 2015 Act -- that increased our civil penalties to not more 

than $201 for each day during which a violation continues. 
Performance Management Program 

FCSIC’s mandate is to ensure the timely payment of principal and interest on insured Farm Credit System 

debt securities and to serve as receiver or conservator when appointed by the Farm Credit Administration 

board. To fulfill our mandate, we have three fundamental program goals:

• Build and manage the Insurance Fund to protect investors

• Monitor, evaluate, and report insurance risk

• Maintain the capability to manage assistance requests, receiverships and conservatorships

Performance Measures

1. Build and manage the Insurance Fund to protect investors

We adjust insurance premium assessments when appropriate and manage assets to optimize investment 

returns to build and maintain the Insurance Fund at the statutory 2 percent secure base amount. At the 

same time, we must maintain appropriate liquidity to carry out our mission. 

We assess the effectiveness of our performance in achieving this goal through the following:

• Reviewing semiannually the need for adjustments to insurance premium assessments

• Measuring investment performance by comparing the portfolio’s average yield with peer investment 

funds that have similar investment parameters for quality and maturity

• Comparing the level of the Insurance Fund every month with the secure base amount and reporting the results to the board of directors

Our ability to maintain the Insurance Fund at the secure base amount may be affected by events beyond 

our control, such as insurance losses.

2. Monitor, evaluate, and report insurance risk

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

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

we analyze and report data before losses become likely. In periods when there are insurance claims or the 

probability of claims, the ratio of estimated losses to actual losses helps measure our ability to assess prospective loss exposure.

As guidance, our management uses criteria specified in our policy for allowance for losses and in the 

Financial Accounting Standards Board’s Accounting Standards Topic 450, Contingencies. Timely evaluation 

of the Insurance Fund’s risk exposure is critical to preserving the Insurance Fund’s solvency. We use FCA 

reports of examination to evaluate risks to the Insurance Fund. When necessary, we independently examine 

and require information from System institutions.

3. Maintain the capability to manage assistance requests, receiverships and conservatorships

FCSIC has statutory authority to provide financial assistance to System institutions, including loans. Any 

assistance agreement is subject to our board of directors’ approval. We have a policy statement on assisFarm Credit System Insurance Corporation

32
tance and we have adopted procedures for providing assistance in a liquidity crisis. We measure effectiveness by periodically testing our procedures and updating our policy statement so we remain ready to 

provide financial assistance in a timely and cost-effective manner. 

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

FCA. This program goal requires us to maintain readiness through periodic staff training and evaluation 

of contractors’ capabilities. We must ensure that we have the resources we need to manage receiverships or 

conservatorships in case the need arises.

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

• Timeliness of initial processing of all claims (Processing should occur within a period of time warranted by the size and complexity of each case.) 

• The ratio of operating costs to total assets

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

FCSIC has three major program areas with corresponding strategic goals and objectives. We have implemented performance measures to help us evaluate the effectiveness of these goals and objectives. It is 

important to note that some of these measures use management estimates that may be affected by the performance and condition of System institutions. Also, unforeseen events may have a material effect on performance measures over time. Figure 13 illustrates each program’s 2016 budget and expenditures including 

program support.

The Government Performance and Results Act of 1993 requires all federal government organizations to 

report on the results of program performance. Performance results are included in regular reports to the 

board of directors and our Annual Report. Information for each of the three major program areas is presented in table 4.

Protecting Investors in Agriculture and Rural America

33

Figure 13

2016 Budget and Expenditure by Program

(Dollars in Millions)

$2.14

$1.32

$0.45

$0.19

$2.06

$1.44

$0.05 $0.16

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

Risk Management Insurance Fund

Management

Resolution Readiness Program Support

Budget Expenses
Table 4

Strategic Goals and Objectives by Program Area

Farm Credit System Insurance Corporation

34

FCSIC’s Mission Program Areas Strategic Goals Strategic Objectives For More 

Information

Protect investors in 

insured Farm Credit 

System obligations 

and taxpayers through 

sound administration of the Farm 

Credit Insurance Fund 

(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.

Insurance Fund 

Management

Manage the Farm 

Credit Insurance 

Fund to maintain 

the SBA in order 

to provide protection for investors 

and taxpayers 

against identified 

risks.

1. Manage the Insurance Fund to 

ensure adequate liquidity while optimizing investment returns and ensuring premium collections and refunds 

reflect anticipated changes in adjusted 

insured debt levels and potential 

insurance claims. 

2. Use actuarial tools to evaluate the 

adequacy of investor protections and 

risk exposures to the Insurance Fund. 

3. Ensure that System banks have 

adequate temporary liquidity in situations where external market factors 

make normal debt market access 

extremely doubtful. 

4. Communicate accurate and easily understood information about 

the insurance program to the public, insured investors, and System 

institutions. 

See pages 

17- 22 

for 2016 

Results

Risk 

Management

Monitor, evaluate 

and report risks 

that could generate losses to the 

Insurance Fund.

1. Use analytical models and other 

risk management tools and processes 

to identify and respond to potential 

risks to the Insurance Fund. Conduct trend analysis on the System’s 

growth, funding needs, condition and 

performance. Regularly report to the 

board of directors on identified risk 

exposures. 

2. Monitor conditions in the agricultural and financial sectors that may 

affect insurance risk and integrate the 

results into the process for setting 

annual insurance premium rates. 

See pages 

25- 28 

for 2016 

Results

Receivership and 

Conservatorship 

Management

Maintain the 

capability to 

manage assistance requests, 

receiverships and 

conservatorships.

1. Subject to the provisions of the 

Farm Credit Act, including the leastcost test, provide assistance when 

appropriate to a troubled System bank 

or association. 

2. Ensure receiverships and conservatorships are managed to fulfill the 

purposes of the Farm Credit Act, protect creditors, and are terminated in 

an orderly and timely manner. 

See page 

29 for 2016 

Results
Protecting Investors in Agriculture and Rural America

35

Glossary 

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

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

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

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

examines and supervises System institutions and develops regulations to govern them.

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

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

Federal Open Market Committee—This committee of the Federal Reserve Board determines the direction 

of monetary policy. The committee is composed of the board of governors, which has seven members, 

and five Federal Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves 

continuously, while the presidents of the other reserve banks rotate their service of one-year terms.

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

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

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

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

institution. The ratings are described below.

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

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

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

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

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

concern.

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

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

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

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

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

business and operations continue in a satisfactory manner.

Rating 3—Institutions in this category exhibit a combination of financial, management, operational, or compliance weaknesses ranging from moderately severe to unsatisfactory. When weaknesses relate to asset quality or financial condition, these institutions may be vulnerable to the 

onset of adverse business conditions and could easily deteriorate if weaknesses are not corrected. 

Institutions that are in significant noncompliance with laws and regulations may also be given this 
Farm Credit System Insurance Corporation

36

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

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

taken.

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

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

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

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

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

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

surveillance, and a definitive plan for corrective action.

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

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

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

form of emergency assistance, merger, or acquisition.

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

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

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

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

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

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

System is the oldest financial GSE.
Protecting Investors in Agriculture and Rural America

37

Acronyms and Abbreviations

AIRAs Allocated Insurance Reserves Accounts

CIPA Contractual Interbank Performance Agreement

Farm Credit Act Farm Credit Act of 1971, as amended

FCA Farm Credit Administration

FCSIC Farm Credit System Insurance Corporation

FIRS Financial Institution Rating System

Funding Corporation Federal Farm Credit Banks Funding Corporation

GAAP generally accepted accounting principles

GSE Government-sponsored enterprise

OMB Office of Management and Budget

System Farm Credit System

TIPS Treasury Inflation Protected Securities

USDA United States Department of Agriculture
Farm Credit System Insurance Corporation

38

Corporate Staff

Dorothy L. Nichols Chief Operating Officer

C. Richard Pfitzinger Director of Risk Management

Emily W. F. Dean Chief Financial Officer

Howard I. Rubin General Counsel

Wade Wynn Chief Investment Officer and Senior Risk Analyst

Gregory Smith Senior Resolution Specialist

Tanya Renica Accountant

Mark Bowen Accountant

Matthew Morgan Financial Analyst

Barbara Loggins Senior Administrative Specialist

Molly Sproles Administrative Management Assistant

Contact Information 

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

Credit Banks Funding Corporation at the following address:

Federal Farm Credit Banks Funding Corporation

101 Hudson Street

Suite 3505

Jersey City, NJ 07302

(201) 200-8000

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

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

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

Office of Congressional and Public Affairs

Farm Credit Administration

1501 Farm Credit Drive

McLean, VA 22102

(703) 883-4056

These documents are also available on the FCA website at www.fca.gov.
Protecting Investors in Agriculture and Rural America

39

Banks Insured by FCSIC as of January 1, 2017

To obtain copies of quarterly and annual reports of 

a Farm Credit System bank and its affiliated associations, please contact the bank directly. The mailing 

addresses, website addresses, and telephone numbers 

of all four System banks are provided below.

AgFirst Farm Credit Bank

P.O. Box 1499

Columbia, SC 29202-1499

(803) 799-5000

www.agfirst.com

AgriBank

30 E. 7th Street, Suite 1600

St. Paul, MN 55101-4914

(651) 282-8800

www.agribank.com

CoBank

P.O. Box 5110

Denver, CO 80217-5110

(303) 740-4000

www.cobank.com

Farm Credit Bank of Texas

P.O. Box 202590

Austin, TX 78720-2590

(512) 465-0400

www.farmcreditbank.com

Note: Information contained on these websites is not 

incorporated by reference into this annual report, 

and you should not consider information contained 

on these websites to be part of this annual report.
Farm Credit System Insurance Corporation

40

Farm Credit System Insurance Corporation

1501 Farm Credit Drive

McLean, VA 22102

Voice: 703-883-4380

Fax: 703-790-9088

www.fcsic.gov