PATRONAGE
For over 100 years, Farm Credit has been passionately serving Rural America and Agriculture. We are proud to partner with the hard-working people who dedicate themselves to bettering America.
In the last 10 years, our cooperative has returned over $33,450,000 of profits to our eligible member-owners in patronage. Our mission is to be a growing and successful cooperative that empowers employees to be a financial partner to our members while promoting the success of agriculture and our communities.
PORTFOLIO BREAKDOWN Our association loan summary as of June 30, 2019.
KEY NUMBERS $1,090,146
$7,480
At 6/30/19 IN THOUSANDS
NET INCOME At 6/30/19 IN THOUSANDS
$261,345
$4,500
TOTAL ASSETS
PATRONAGE DISTRIBUTED IN 2019 IN THOUSANDS
TOTAL SHAREHOLDER’S EQUITY
At 6/30/19 IN THOUSANDS
2
NOTICE TO STOCKHOLDERS The shareholders’ investment in Farm Credit of Southern Colorado, ACA is materially affected by the financial condition and results of operations of CoBank, ACB (CoBank). The 2018 CoBank Annual Report to Shareholders, and the CoBank quarterly shareholders’ reports are available free of charge by accessing CoBank’s website, www.cobank.com, or may be obtained at no charge by contacting us at:
Farm Credit of Southern Colorado, ACA 5110 Edison Avenue, PO Box 75640 Colorado Springs, Colorado 80970-5640 Phone Number: 800-815-8559
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) The following discussion summarizes the financial position and results of operations of Farm Credit of Southern Colorado, ACA for the six months ended June 30, 2019, with comparisons to prior periods. You should read these comments along with the accompanying financial statements and footnotes and the 2018 Annual Report to Shareholders. The accompanying financial statements were prepared under the oversight of our Audit Committee. In Rural America, the theme during the second quarter was extreme weather conditions and its impact to the Ag Industry. The weather issues in the Midwest increased concerns of producers being able to plant corn, soybeans and spring wheat with the continued flooding and colder than normal temperatures. Most spring planting was late and produced speculation of planted acres being significantly reduced. However, the United States Department of Agriculture (USDA) announced that estimated planted acres for corn reached 91.7 million acres. This was up 3% from last year and soybean acreage was even with last year’s planting. This was a big shock that the Midwest was able to meet planting expectations and contribute to the increased planted acres. However, the USDA also stated they would revisit the Midwest planted corn acres in August. Several experts admitted the widespread difficulties in forecasting production due to weather is unprecedented. The top four commodities produced in our territory are cattle, corn, wheat and potatoes. Below is a discussion of these commodities in our territory for the second quarter 2019. The livestock producers in our territory have seen an increase in the health of pasture grass and a recharge of subsoil moisture from the above normal moisture this spring. The re-establishment of grass pastures will allow cattle feeders and ranchers in the territory to rely less on grains and more on grass and hay to establish grain for their herds. This should result in positive economic results for these producers. In Colorado, planted acres for corn remained unchanged from last year at 1.4 million acres. Dryland and irrigated corn is mostly located in the eastern and southeastern portions of our territory. Corn was planted timely and the area benefited from improved subsoil moisture and spring rains. Corn prices have seen improvement since the first of the year with the local prices improving by $.50 - $1.00 per bushel. Updated USDA information during the third quarter may still impact the corn market supply and price. However, our borrowers appear to be positioned well for a successful corn harvest under the current conditions. Wheat prices have held steady since the first of the year with no significant fluctuations. The wheat crop yields are expected to be above normal throughout the United States. Within our territory, producers are reporting above normal yields and good price support. During the first quarter, producers had contracting opportunities at $1.00 per bushel over current prices at the elevator today. Most of them price protected at least 50% of their anticipated wheat crop. Typically, wheat prices improve as corn prices improve. Many protein feeders can use wheat as a feed substitute in lieu of feeding corn. Potatoes are grown in the San Luis Valley, which is in the southwest region of our territory. The potato cash price of $9.00 has held steady or above breakeven prices for 2019 and is expected to hold the remainder of the year. Last year was excellent for growing conditions and most producers had outstanding yields. So far, 2019 growing conditions have not been as ideal. The Valley has not had as many hot days in the early growing season and less than normal sunlight due to cloudy, colder conditions. Typical crop yields are expected; just not to the success of last year. While the Midwest has much uncertainty, for producers in our territory there is anticipation of a positive year of production due to exceptional moisture conditions. For the first time in 19 years, there is no drought in Colorado. Additionally, there are no “abnormally dry” areas as of May, when just a year ago 65% of the state was experiencing drought. The spring hailstorms had minimal impact to the growing wheat crop, corn was planted on time and alternative forage crops were planted on a normal schedule. Wheat harvest has been delayed by a couple of weeks but all indications are that we will see an above normal crop. Our borrowers should see some relief from prior years of losses and reach break even or profitability levels in 2019. Overall, producers in our territory are very optimistic for a profitable year in all commodity concentrations. LOAN PORTFOLIO Loans outstanding at June 30, 2019, totaled $1.02 billion, a decrease of $5.2 million, or 0.51%, from loans of $1.03 billion at December 31, 2018. The decrease was primarily due to annual pay downs and payoffs outpacing new loan activity in both our core and capital markets loan portfolios.
RESULTS OF OPERATIONS Net income for the six months ended June 30, 2019, was $7.5 million, a decrease of $473 thousand, or 5.95%, from the same period ended one year ago. The decrease is primarily the result of a higher provision for credit losses and lower noninterest income in 2019 as compared to the first half of 2018, partially offset by higher net interest income. Net interest income for the six months ended June 30, 2019, was $14.8 million, an increase of $1.1 million or 8.39%, compared with the six months ended June 30, 2018. Net interest income increased as a result of an increase in our average accrual loan volume coupled with an increase in return on our loanable funds, partially offset by a decrease in the spread between our average borrower rate and our average cost of funds. The provision for credit losses for the six months ended June 30, 2019, was $1.03 million, an increase of $819 thousand, or 393.75%, from the provision for credit losses for the same period ended one year ago. The provision for credit losses increased due to loan downgrades during the first half of 2019, resulting in specific reserves required on four loan complexes. Noninterest income decreased $773 thousand during the first six months of 2019 compared with the first six months in 2018 primarily due to a decrease in refund of $431 thousand from Farm Credit System Insurance Corporation (FCSIC). The refunds are our portion of excess funds above the secure base amount in the FCSIC Allocated Insurance Reserve Accounts. Refer to the 2018 Annual Report to Shareholders for additional information. There was also a decrease in Other Income of $337 thousand; of this decrease, $325 thousand is attributed to a gain from monetization of warrants that were received in 2018, but not in 2019. There was also a $138 thousand decrease in patronage distribution from CoBank. These decreases were partially offset by an increase in mineral income. We received mineral income of $447 thousand during the first six months of 2019, which is distributed to us quarterly by CoBank. During the first six months of 2019, noninterest expense increased $24 thousand to $8.9 million, primarily due to increased purchased services costs from AgVantis, along with increased supervisory and exam costs, partially offset by a decrease in our salaries and employee benefits and occupancy and equipment costs. CAPITAL RESOURCES Our shareholders’ equity at June 30, 2019, was $261.3 million, an increase from $253.3 million at December 31, 2018. This increase is due to net income, net stock issuances and amortization of pension costs included in the net periodic benefit cost. The undersigned certify they have reviewed this report, this report has been prepared in accordance with all applicable statutory or regulatory requirements and the information contained herein is true, accurate, and complete to the best of his or her knowledge and belief.
__//signed// ________________________ Mark Peterson Chairman of the Board August 5, 2019
__//signed// ______ __________________ Shawna R. Neppl CFO August 5, 2019
___//signed//_______________________ Jeremy M. Anderson CEO August 5, 2019
Farm Credit Southern Colorado, ACA
Consolidated Statement of Condition (Dollars in Thousands)
ASSETS Loans Less allowance for loan losses Net loans Cash Accrued interest receivable Investment in CoBank, ACB Investment in AgDirect Premises and equipment, net Prepaid benefit expense Other assets Total assets LIABILITIES Note payable to CoBank, ACB Advance conditional payments Accrued interest payable Patronage distributions payable Accrued benefits liability Reserve for unfunded commitments Other liabilities
June 30 2019
December 31 2018
UNAUDITED
AUDITED
$
1,022,932 3,899 1,019,033 2,502 15,903 32,435 376 12,213 2,697 4,987
$
1,028,163 2,863 1,025,300 9,015 16,531 32,435 137 11,939 2,409 5,031
$
1,090,146
$
1,102,797
$
812,946 11,250 1,804 451 414 1,936
$
828,090 10,647 1,884 4,500 735 411 3,193
Total liabilities
828,801
849,460
3,246 1,462 257,070 (433)
2,826 1,454 249,624 (567)
Commitments and Contingencies SHAREHOLDERS' EQUITY Preferred stock Capital stock Unallocated retained earnings Accumulated other comprehensive (loss)/income Total shareholders' equity
261,345
Total liabilities and shareholders' equity
$
1,090,146
253,337 $
1,102,797
The accompanying notes are an integral part of these consolidated financial statements.
1
Farm Credit Southern Colorado, ACA
Consolidated Statement of Comprehensive Income (Dollars in Thousands)
UNAUDITED
For the three months ended June 30 2019 2018
INTEREST INCOME Loans
$ 13,682
$ 12,218
$ 27,157
$ 23,768
13,682
12,218
27,157
23,768
6,169 48
5,317 16
12,281 94
10,103 27
Total interest expense Net interest income Provision for credit losses Net interest income after provision for credit losses
6,217 7,465 605 6,860
5,333 6,885 391 6,494
12,375 14,782 1,027 13,755
10,130 13,638 208 13,430
NONINTEREST INCOME Financially related services income Loan fees Patronage distribution from Farm Credit institutions Farm Credit Insurance Fund distribution Mineral income Other noninterest income
23 109 816 179 4
39 102 894 140 343
47 200 1,638 247 447 66
77 203 1,776 678 281 403
1,131
1,518
2,645
3,418
2,498 327 536 171 112 827
2,617 310 482 (14) 169 79 793
5,033 689 1,072 346 225 1,551
5,100 753 953 (17) 336 174 1,593
4,471 3,520 1
4,436 3,576 -
8,916 7,484 4
8,892 7,956 3
3,519
3,576
7,480
7,953
Total interest income INTEREST EXPENSE Note payable to CoBank, ACB Other
Total noninterest income NONINTEREST EXPENSE Salaries and employee benefits Occupancy and equipment Purchased services from AgVantis, Inc. Gains on other property owned, net Farm Credit Insurance Fund premium Supervisory and examination costs Other noninterest expense Total noninterest expense Income before income taxes Provision for income taxes Net income COMPREHENSIVE INCOME Amortization of retirement costs
67
Total comprehensive income
$
3,586
For the six months ended June 30 2019 2018
66 $
3,642
134 $
7,614
132 $
The accompanying notes are an integral part of these consolidated financial statements.
1
8,085
Farm Credit Southern Colorado, ACA
Consolidated Statement of Changes in Shareholders' Equity (Dollars in Thousands)
Preferred Stock
Capital Stock
Balance at December 31, 2017 Comprehensive income Stock issued Stock retired Preferred stock dividends Balance at June 30, 2018
$ 2,619
$ 1,410
300 (120) 10 $ 2,809
$ 1,446
Balance at December 31, 2018 Comprehensive income Stock issued Stock retired Preferred stock dividends Balance at June 30, 2019
$ 2,826
$ 1,454
UNAUDITED
1,170 (778) 28 $ 3,246
Unallocated Retained Earnings $ 238,141 7,953
Accumulated Other Total Comprehensive Shareholders' Income/(Loss) Equity $
(841) 132
$
(709)
$
(567) 134
$
(433)
98 (62) (15) $ 246,079
$ 249,624 7,480
70 (62) $ 1,462
(34) $ 257,070
$ 241,329 8,085 398 (182) (5) $ 249,625
$ 253,337 7,614 1,240 (840) (6) $ 261,345
The accompanying notes are an integral part of these consolidated financial statements.
1
NOTES TO FINANCIAL STATEMENTS (Dollars in Thousands, Except as Noted) (Unaudited) NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES A description of the organization and operations of Farm Credit of Southern Colorado, ACA (the Association), the significant accounting policies followed, and the financial condition and results of operations as of and for the year ended December 31, 2018, are contained in the 2018 Annual Report to Shareholders. These unaudited second quarter 2019 financial statements should be read in conjunction with the 2018 Annual Report to Shareholders. The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial information. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements and should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2018, as contained in the 2018 Annual Report to Shareholders. In the opinion of management, the unaudited financial information is complete and reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of results for the interim periods. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2019. Descriptions of the significant accounting policies are included in the 2018 Annual Report to Shareholders. In the opinion of management, these policies and the presentation of the interim financial condition and results of operations conform with GAAP and prevailing practices within the banking industry. In August 2018, the Financial Accounting Standards Board (FASB) issued guidance entitled “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Cost.” The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by this guidance. This guidance becomes effective for interim and annual periods beginning after December 15, 2019. The guidance also requires an entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. It further specifies where to present expense and payments in the financial statements. Early adoption is permitted. The guidance is to be applied on a retrospective or prospective basis to all implementation costs incurred after the date of adoption. The Association is evaluating the impact of adoption on the Association’s financial condition and its results of operations. In August 2018, the FASB issued guidance entitled “Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans.” The guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This guidance becomes effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The guidance is to be applied on a retrospective basis for all periods. The adoption of this guidance will not impact the Association’s financial condition or its results of operations, but will impact the employee benefit plan disclosures. In August 2018, the FASB issued guidance entitled “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.” The guidance modifies the requirements on fair value measurements by removing, modifying or adding to the disclosures. This guidance becomes effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted and an entity is permitted to early adopt any removal or modified disclosures and delay adoption of the additional disclosures until their effective date. The adoption of this guidance will not impact the Association’s financial condition or its results of operations, but will impact the fair value measurements disclosures. The Association early adopted the removal and modified disclosures during the fourth quarter of 2018. In June 2016, the FASB issued guidance entitled “Measurement of Credit Losses on Financial Instruments.” The guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Credit losses relating to available-for-sale securities would also be recorded through an allowance for credit losses. For public business entities that are not U.S. Securities and Exchange Commission filers this guidance becomes effective for interim and annual periods beginning after December 15, 2020, with early application permitted. The Association is evaluating the impact of adoption on its financial condition and results of operations.
In February 2016, the FASB issued guidance entitled “Leases.” The guidance requires the recognition by lessees of lease assets and lease liabilities on the balance sheet for the rights and obligations created by those leases. Leases with lease terms of more than 12 months are impacted by this guidance. In July 2018, the FASB issued an update entitled “Leases – Targeted Improvements,” which provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. An entity that elects this additional transition method must provide the required disclosures of the now current standard for all prior periods presented. The guidance and related amendments in this update became effective for interim and annual periods beginning after December 15, 2018, with early application permitted. The adoption of this guidance resulted in an immaterial impact on the Association’s financial condition and results of operations. NOTE 2 - LOANS AND ALLOWANCE FOR LOAN LOSSES A summary of loans follows. June 30, 2019 Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Rural residential real estate Mission-related Agricultural export finance Total loans
$
593,826 180,094 160,757 78,627 43 1,071 8,514
$
1,022,932
December 31, 2018 $
609,071 178,320 151,480 79,620 44 1,116 8,512
$ 1,028,163
The Association purchases and sells participation interests with other parties in order to diversify risk, manage loan volume and comply with Farm Credit Administration regulations. The following table presents information regarding the balances of participations purchased and sold at June 30, 2019:
Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Total
Other Farm Credit Institutions Purchased Sold $ 33,090 $ 38,046 22,081 – 151,847 – 78,627 – 8,514 – $ 294,159 $ 38,046
Non-Farm Credit Institutions Purchased Sold $ 1,817 $ – – – – – – – – – $ 1,817 $ –
Total Purchased Sold $ 34,907 $ 38,046 22,081 – 151,847 – 78,627 – 8,514 – $ 295,976 $ 38,046
One credit quality indicator utilized by the Association is the Farm Credit Administration Uniform Loan Classification System that categorizes loans into five categories. The categories are defined as follows:
Acceptable – assets are expected to be fully collectible and represent the highest quality. Other assets especially mentioned (OAEM) – assets are currently collectible but exhibit some potential weakness. Substandard – assets exhibit some serious weakness in repayment capacity, equity and/or collateral pledged on the loan. Doubtful – assets exhibit similar weaknesses to substandard assets; however, doubtful assets have additional weaknesses in existing factors, conditions and values that make collection in full highly questionable. Loss – assets are considered uncollectible.
The following table shows loans and related accrued interest classified under the Farm Credit Administration Uniform Loan Classification System as a percentage of total loans and related accrued interest receivable by loan type as of: June 30, 2019 Real estate mortgage Acceptable OAEM Substandard Doubtful Total Production and intermediate-term Acceptable OAEM Substandard Doubtful Total Agribusiness Acceptable OAEM Substandard Total Rural infrastructure Acceptable OAEM Substandard Total Rural residential real estate Acceptable Total Mission-related Substandard Total Agricultural export finance Acceptable Total Total Loans Acceptable OAEM Substandard Doubtful Total
December 31, 2018
87.12% 7.33% 5.44% 0.11% 100.00%
90.50% 4.17% 5.33% – 100.00%
88.55% 5.61% 5.78% 0.06% 100.00%
87.83% 5.25% 6.88% 0.04% 100.00%
96.79% 2.71% 0.50% 100.00%
97.08% 1.54% 1.38% 100.00%
95.87% 0.71% 3.42% 100.00%
99.28% 0.72% – 100.00%
100.00% 100.00%
100.00% 100.00%
100.00% 100.00%
100.00% 100.00%
100.00% 100.00%
100.00% 100.00%
89.56% 5.74% 4.63% 0.07% 100.00%
91.64% 3.67% 4.68% 0.01% 100.00%
High risk assets consist of impaired loans and other property owned. These nonperforming assets (including related accrued interest) and related credit quality are as follows: June 30, 2019 Nonaccrual loans Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total nonaccrual loans Accruing restructured loans Real estate mortgage Production and intermediate-term Total accruing restructured loans Accruing loans 90 days past due Production and intermediate-term Total accruing loans 90 days past due Total impaired loans and high risk assets
December 31, 2018
$
9,222 916 211 1,071
$
10,049 129 337 –
$
11,420
$
10,515
$
499 909
$
495 789
$
1,408
$
1,284
$
204
$
75
$
204
$
75
$
13,032
$
11,874
The Association had no other property owned for the periods presented. Additional impaired loan information is as follows: June 30, 2019 Unpaid Recorded Principal Related Investment Balance Allowance Impaired loans with a related allowance for credit losses: Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total Impaired loans with no related allowance for credit losses: Real estate mortgage Production and intermediate-term Agribusiness Total Total impaired loans: Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total
$
649 674 176 1,071 $ 2,570
$
$ 9,072 1,355 35 $ 10,462
$ 10,406 1,844 37 $ 12,287
$ 9,721 2,029 211 1,071 $ 13,032
$ 11,029 2,494 232 1,093 $ 14,848
$
623 650 195 1,093 2,561
$
$
$
$
6 327 192 550 1,075
6 327 192 550 1,075
December 31, 2018 Unpaid Recorded Principal Related Investment Balance Allowance
$
$
651 80 337 – 1,068
$
$
626 92 343 – 1,061
$
9,893 913 – $ 10,806
$ 11,200 1,387 – $ 12,587
$ 10,544 993 337 – $ 11,874
$ 11,826 1,479 343 – $ 13,648
$
$
$
$
5 31 106 – 142
5 31 106 –– 142
Note: The recorded investment in the loan receivable is the face amount increased or decreased by applicable accrued interest and unamortized premium, discount, finance charges, or acquisition costs and may also reflect a previous direct write-down of the loan receivable.
For the Three Months Ended June 30, 2019 Average Interest Income Impaired Loans Recognized Impaired loans with a related allowance for credit losses: Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total Impaired loans with no related allowance for credit losses: Real estate mortgage Production and intermediate-term Agribusiness Total Total impaired loans: Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total
$
651 685 299 1,094
$
– 4 – –
$
– – – –
$
– – – –
$
2,729
$
4
$
–
$
–
$
9,709 669 3
$
234 15 –
$
15,061 1,858 –
$
22 16 –
$
10,381
$
249
$
16,919
$
38
$
10,360 1,354 302 1,094
$
234 19 – –
$
15,061 1,858 – –
$
22 16 – –
$
13,110
$
253
$
16,919
$
38
For the Six Months Ended June 30, 2019 Average Interest Income Impaired Loans Recognized Impaired loans with a related allowance for credit losses: Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total Impaired loans with no related allowance for credit losses: Real estate mortgage Production and intermediate-term Agribusiness Total Total impaired loans: Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total
For the Three Months Ended June 30, 2018 Average Interest Income Impaired Loans Recognized
For the Six Months Ended June 30, 2018 Average Interest Income Impaired Loans Recognized
$
654 254 333 574
$
– 4 – –
$
278 – – –
$
– – – –
$
1,815
$
4
$
278
$
–
$
10,460 837 2
$
249 26 –
$
13,988 1,889 –
$
33 56 –
$
11,299
$
275
$
15,877
$
89
$
11,114 1,091 335 574
$
249 30 – –
$
14,266 1,889 – –
$
33 56 – –
$
13,114
$
279
$
16,155
$
89
The following tables provide an age analysis of past due loans (including accrued interest).
June 30, 2019 Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Rural residential real estate Mission-related Agricultural export finance Total
December 31, 2018 Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Rural residential real estate Mission-related Agricultural export finance Total
30-89 Days Past Due $ 1,007 521 – – – – –
90 Days or More Past Due $ 262 1,120 – – – – –
Total Past Due $ 1,269 1,641 – – – – –
Not Past Due or less than 30 Days Past Due $ 603,627 182,186 161,542 78,915 44 1,071 8,540
$ 1,528
$ 1,382
$ 2,910
$1,035,925
Total Past Due $ 260 2,633 – – – – –
Not Past Due or less than 30 Days Past Due $ 620,316 179,802 152,073 79,908 45 1,118 8,539
Recorded Investment in Loans Outstanding $ 620,576 182,435 152,073 79,908 45 1,118 8,539
$ 2,893
$ 1,041,801
$ 1,044,694
30-89 Days Past Due $ – 2,520 – – – – – $ 2,520
90 Days or More Past Due $ 260 113 – – – – – $
373
Recorded Investment in Loans Outstanding $ 604,896 183,827 161,542 78,915 44 1,071 8,540 $1,038,835
Recorded Investment Accruing Loans 90 Days or More Past Due $ – 204 – – – – – $
204
Recorded Investment Accruing Loans 90 Days or More Past Due $ – 75 – – – – – $
75
A summary of changes in the allowance for loan losses is as follows:
Balance at March 31, 2019 Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Mission-related Agricultural export finance Total
$
Charge-offs
Recoveries
Provision for Loan Losses/ (Loan Loss Reversals)
Balance at June 30, 2019
742 718 992 464 380 7
$
– 2 – – – –
$
– – 9 – – –
$
94 310 28 (13) 170 –
$
836 1,026 1,029 451 550 7
$ 3,303
$
2
$
9
$
589
$ 3,899
Provision for Loan Losses/ (Loan Loss Reversals)
Balance at December 31, 2018 Charge-offs Recoveries Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Mission-related Agricultural export finance Total
$
710 668 932 330 216 7
$
– 2 – – – –
$
– – 14 – – –
$
$ 2,863
$
2
$
14
$ 1,024
Balance at March 31, 2018 Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Mission-related Agricultural export finance Total
$
Total
126 360 83 121 334 –
$
$ 3,899
Provision for Loan Losses/ (Loan Loss Reversals)
Recoveries
836 1,026 1,029 451 550 7
Balance at June 30, 2018
583 549 625 324 13 6
$
– 11 – – – –
$
– – – – – –
$
157 61 98 29 – 2
$
$ 2,100
$
11
$
–
$
347
$ 2,436
Provision for Loan Losses/ (Loan Loss Reversals)
Balance at June 30, 2018
Balance at December 31, 2017 Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Mission-related Agricultural export finance
Charge-offs
Balance at June 30, 2019
$
Charge-offs
Recoveries
675 557 693 317 13 6
$
– 31 – – – –
$
– – – – – –
$
65 73 30 36 – 2
$ 2,261
$
31
$
–
$
206
$
740 599 723 353 13 8
740 599 723 353 13 8
$ 2,436
The Association maintains a separate reserve for unfunded commitments, which is included in Liabilities on the Association’s Consolidated Statement of Condition. The related provision for the reserve for unfunded commitments is included as part of the provision for credit losses on the Consolidated Statement of Comprehensive Income, along with the provision for loan losses. A summary of changes in the reserve for unfunded commitments follows: For the Three Months Ended June 30 2019 Balance at beginning of period Provision for unfunded commitments Total
For the Six Months Ended June 30 2019
2018
2018
$
398 16
$
340 44
$
411 3
$
382 2
$
414
$
384
$
414
$
384
Additional information on the allowance for loan losses follows: Recorded Investments in Loans Outstanding Ending Balance at June 30, 2019 Individually Collectively evaluated for evaluated for impairment impairment
Allowance for Loan Losses Ending Balance at June 30, 2019 Individually Collectively evaluated for evaluated for impairment impairment Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Rural residential real estate Mission-related Agricultural export finance Total
$
6 327 192 – – 550 –
$
830 699 837 451 – – 7
$
1,075
$
2,824
$
Total
$
$ 13,032
595,175 181,798 161,331 78,915 44 – 8,540
$ 1,025,803
Recorded Investments in Loans Outstanding Ending Balance at December 31, 2018 Individually Collectively evaluated for evaluated for impairment impairment
Allowance for Loan Losses Ending Balance at December 31, 2018 Individually Collectively evaluated for evaluated for impairment impairment Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Rural residential real estate Mission-related Agricultural export finance
9,721 2,029 211 – – 1,071 –
$
5 31 106 – – – –
$
705 637 826 330 – 216 7
$ 10,544 993 337 – – – –
$
610,032 181,442 151,736 79,908 45 1,118 8,539
$
142
$
2,721
$ 11,874
$ 1,032,820
A restructuring of a debt constitutes a troubled debt restructuring (TDR) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Association recorded no TDRs during the six months ended June 30, 2019 and June 30, 2018. The Association had no TDRs within the previous 12 months and for which there were subsequent payment defaults during the first six months of 2019 and 2018. Additional commitments to lend to borrowers whose loans have been modified in troubled debt restructurings were $341 at June 30, 2019 and $545 at December 31, 2018. The following table provides information on outstanding loans restructured in troubled debt restructurings at period end. These loans are included as impaired loans in the impaired loan table. Loans modified as TDRs
Real estate mortgage Production and intermediate-term Total
TDRs in Nonaccrual Status*
June 30, 2019
December 31, 2018
June 30, 2019
$
499 909
$
495 789
$
– –
$
– –
$
1,408
$
1,284
$
–
$
–
December 31, 2018
* Represents the portion of loans modified as TDRs (first column) that are in nonaccrual status.
NOTE 3 - CAPITAL A summary of select capital ratios based on a three-month average and minimums set by the Farm Credit Administration follows.
As of June 30, 2019 Risk Adjusted: Common equity tier 1 ratio Tier 1 capital ratio Total capital ratio Permanent capital ratio Non-risk-adjusted: Tier 1 leverage ratio Unallocated retained earnings and equivalents leverage ratio
As of December 31, 2018
Capital Conservation Buffer
Regulatory Minimums
Total
20.06% 20.06% 20.39% 20.41%
19.68% 19.68% 19.94% 19.98%
4.5% 6.0% 8.0% 7.0%
2.5%* 2.5%* 2.5%* –
7.0% 8.5% 10.5% 7.0%
21.22%
20.78%
4.0%
1.0%
5.0%
21.93%
21.41%
1.5%
–
1.5%
* The 2.5% capital conservation buffer over risk-adjusted ratio minimums will be phased in over three years under the FCA capital requirements. If capital ratios fall below the regulatory minimum plus buffer amounts, capital distributions (equity redemptions, cash dividend payments, and cash patronage payments) and discretionary senior executive bonuses are restricted or prohibited without prior FCA approval. The current regulations establish a three-year phase-in of the capital conservation buffer, which began on January 1, 2017. There will be no phase-in of the leverage buffer. The following tables present the activity in the accumulated other comprehensive loss, net of tax by component: For the Three Months Ended June 30 2019 2018 Pension and other benefit plans: Beginning balance Amounts reclassified from accumulated other comprehensive loss Net current period other comprehensive income
$ (500)
$ (775)
67 67
$ (567) 134 134
66 66
$ (433)
Ending balance
For the Six Months Ended June 30 2019 2018
$ (709)
$ (433)
$ (841) 132 132 $ (709)
The following table represents reclassifications out of accumulated other comprehensive income/(loss). Amount Reclassified from Accumulated Other Comprehensive Loss For the Three Months Ended June 30 2019 2018 Pension and other benefit plans: Net actuarial loss
$
67
$
66
Total reclassifications
$
67
$
66
Amount Reclassified from Accumulated Other Comprehensive Loss For the Six Months Ended June 30 2019 2018 Pension and other benefit plans: Net actuarial loss
$ 134
$ 132
Total reclassifications
$ 134
$ 132
Location of Gain/Loss Recognized in Statement of Income Salaries and employee benefits
Location of Gain/Loss Recognized in Statement of Income Salaries and employee benefits
NOTE 4 - FAIR VALUE MEASUREMENTS Accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability. See Note 2 of the 2018 Annual Report to Shareholders for a more complete description.
Assets measured at fair value on a recurring basis are summarized below: Fair Value Measurement Using Level 1 Level 2 Level 3 Assets held in nonqualified benefits trusts June 30, 2019 December 31, 2018
$ $
8 8
$ $
– –
$ $
– –
Total Fair Value $ $
8 8
The Association had no liabilities measured at fair value on a recurring basis at June 30, 2019 or December 31, 2018. Assets measured at fair value on a non-recurring basis for each of the fair value hierarchy values are summarized below: Fair Value Measurement Using Total Fair Level 1 Level 2 Level 3 Value June 30, 2019 Loans
$
─
$
─
$ 1,538
$
1,538
December 31, 2018 Loans
$
─
$
─
$
$
281
281
With regard to impaired loans and other property owned, it is not practicable to provide specific information on inputs as each collateral property is unique. System institutions utilize appraisals to value these loans and other property owned and takes into account unobservable inputs such as income and expense, comparable sales, replacement cost and comparability adjustments. The Association had no liabilities measured at fair value on a non-recurring basis at June 30, 2019 or December 31, 2018. Valuation Techniques As more fully discussed in Note 2 of the 2018 Annual Report to Shareholders, accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following presents a brief summary of the valuation techniques used by the Association for assets and liabilities, subject to fair value measurement. Assets Held in Non-Qualified Benefits Trusts Assets held in trust funds related to deferred compensation and supplemental retirement plans are classified within Level 1. The trust funds include investments that are actively traded and have quoted net asset values that are observable in the marketplace. Loans Evaluated for Impairment For impaired loans measured on a non-recurring basis, the fair value is based upon the underlying collateral since the loans are collateral dependent loans for which real estate is the collateral. The fair value measurement process uses independent appraisals and other market-based information, but in many cases, it also requires significant input based on management’s knowledge of and judgment about current market conditions, specific issues relating to the collateral and other matters. As a result, these fair value measurements fall within Level 3 of the hierarchy. When the value of the real estate, less estimated costs to sell, is less than the principal balance of the loan, a specific reserve is established. The fair value of these loans would fall under Level 2 hierarchy if the process uses independent appraisals and other market-based information. NOTE 5 - SUBSEQUENT EVENTS The Association has evaluated subsequent events through August 5, 2019, which is the date the financial statements were issued, and no material subsequent events were identified.