3
RD
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
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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 for the nine months ended September 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. Economic factors influencing agriculture and our territory during the third quarter of 2019 include the ongoing trade issues with China, weather events in Eastern Colorado and a return to dry conditions for most of the state of Colorado. While much of the grain belt suffered delayed planting and prevented planting due to flooding and abundant rainfall, conditions in our territory were favorable for spring planted crops and the moisture received helped the wheat crop considerably. The third quarter conditions in the territory began to turn dry again and allowed for timely harvest of the wheat crop in Eastern Colorado. The wheat yields were a positive and many areas of our territory reported historic yields. The United States Department of Agriculture (USDA) estimates planted acres for corn reached 91.7 million acres. This is up 3 percent from last year and soybean acreage is even with last year’s planting. As a result of the spring challenges across the country and wet conditions, at the end of July, the USDA reported that 57 percent of the corn crop was in good or excellent condition as compared to 75 percent in the same period last year. The top four commodities produced or raised in our territory are cattle, corn, wheat and potatoes. Below is a discussion of these commodities in our territory for the third quarter of 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 has allowed cattle feeders and ranchers in the territory to rely less on grains and more on grass and hay to establish gain for their herds. Recent dry conditions in late summer have resulted in stress on the pastures in southern and eastern portions of our territory but generally, the conditions are much improved over this time last year. The reduction in grain needs for cattle feeding will help the outlook for cattle feeders. In mid-summer, a large packing facility that purchases beef from throughout our territory suffered a fire, which has negatively impacted feeder prices and demand for beef. 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 saw an early season rally but since have returned to mid $3.00 a bushel price ranges. A portion of our eastern Colorado territory received hail in the beginning of this quarter. Harvest is in full swing. Early indications are that corn yields are below expectations and the loss of productive acres to hail will have a negative impact on several of our producers. Wheat prices have held steady since the first of the year with no significant fluctuations. As mentioned, wheat crop yields were above normal throughout the United States. Within our territory, producers reported above normal yields and good price support. Due to early year pricing opportunities and strong yields, most producers in our territory saw wheat production as a positive point in their growing season. This will help strengthen their position and ability to withstand the impact of the later year hail on the corn crop. Potatoes are grown in the San Luis Valley, which is in the southwest region of our territory. The potato cash price of $9.00 per hundred weight 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. The 2019 growing conditions have not been as ideal. The Valley did not have as many hot days in the early growing season and less than normal sunlight due to cloudy, colder conditions. Potato harvest is in full swing now and typical crop yields are expected; just not quite to the level of last year. While the Midwest grain farmers face uncertainty, for producers in our territory there is anticipation of a positive year of production due to exceptional wheat yields and early moisture levels. Our borrowers should see some relief from prior years of losses and reach break even or profitable levels in 2019. Overall, producers in our territory remain optimistic for a profitable year in all commodity concentrations. LOAN PORTFOLIO Loans outstanding at September 30, 2019, totaled $1.027 billion, a decrease of $837 thousand, or 0.08%, from loans of $1.028 billion at December 31, 2018. The decrease was primarily due to a decrease in the Capital Markets
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portfolio of approximately $9.8 million partially offset by increases in our core loan portfolio due to marketing efforts bringing in new loans as well as draws on existing loan commitments. RESULTS OF OPERATIONS Net income for the nine months ended September 30, 2019, was $12.0 million, a decrease of $529 thousand, or 4.22%, from the same period ended one year ago. The decrease is primarily the result of higher provision for credit losses and lower noninterest income partially offset by higher net interest income. Net interest income for the nine months ended September 30, 2019, was $22.1 million, an increase of $1.5 million, or 7.05%, compared with the nine months ended September 30, 2018. Net interest income increased as a result of an increase in 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 nine months ended September 30, 2019, was $718 thousand, an increase of $621 thousand, or 640.21%, from the provision for credit losses for the same period ended one year ago. The provision for credit losses increased due to an increase in the required allowance for loan loss account balance as compared to prior year due to downgrades during the year and an increase in specific reserves. Noninterest income decreased $1.4 million during the first nine months of 2019 compared with the first nine months in 2018 primarily due to a decrease of $715 thousand in patronage distribution from CoBank and 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 $331 thousand decrease in other income. The decrease in other income is attributed to a $325 thousand gain from monetization of warrants that were received in 2018, but not in 2019. These decreases are partially offset by a $144 thousand increase in mineral income. We received mineral income of $643 thousand for the first nine months of 2019, which is distributed to us quarterly by CoBank. The increase in mineral income for the nine months ended September 30, 2019, compared with first nine months of 2018 is primarily the result of an increase in production revenue, from increased volumes, attributed to new wells added since October 1, 2018. The decrease in mineral income in third quarter of 2019 compared with the third quarter of 2018 is due to several leases expiring in third quarter of 2018 and the resulting generation of new lease income. During the first nine months of 2019, noninterest expense decreased $15 thousand to $13.3 million, primarily due to a decrease in salaries and employee benefits, occupancy and equipment expenses and other noninterest expenses, partially offset by increases in purchased services costs from AgVantis along with increased supervisory and exam costs. CAPITAL RESOURCES Our shareholders’ equity at September 30, 2019, was $265.5 million, an increase from $253.3 million at December 31, 2018. This increase is due to net income and amortization of pension costs included in the net periodic benefit costs, offset by net stock retirements. OTHER MATTERS On October 7, 2019, the Association announced a Reduction in Force program, which eliminated certain Association positions, including the following three members of the Executive Committee: the Chief Banking Officer, the Vice President of Operations and the Senior Vice President of Credit. On the same date, the Association announced a Voluntary Resignation Program that is available to staff. The full liability of the severance payments will not be known until the November 25 deadline for the voluntary resignation period has passed.
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 November 6, 2019
_//signed//_____________ Jeremy M. Anderson CEO November 6, 2019
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//signed// Shawna R Neppl CFO November 6, 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
September 30 2019
December 31 2018
UNAUDITED
AUDITED
$
1,027,326 3,464 1,023,862 1,942 20,029 32,435 603 12,073 3,139 3,953
$
1,028,163 2,863 1,025,300 9,015 16,531 32,435 137 11,939 2,409 5,031
$
1,098,036
$
1,102,797
$
815,294 12,507 1,444 455 423 2,369
$
828,090 10,647 1,884 4,500 735 411 3,193
Total liabilities
832,492
849,460
2,845 1,475 261,590 (366)
2,826 1,454 249,624 (567)
Commitments and Contingencies SHAREHOLDERS' EQUITY Preferred stock Capital stock Unallocated retained earnings Accumulated other comprehensive loss Total shareholders' equity
265,544
Total liabilities and shareholders' equity
$
1,098,036
253,337 $
1,102,797
The accompanying notes are an integral part of these consolidated financial statements.
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Farm Credit Southern Colorado, ACA
Consolidated Statement of Comprehensive Income (Dollars in Thousands)
UNAUDITED
For the three months ended September 30 2019 2018
For the nine months ended September 30 2019 2018
INTEREST INCOME Loans
$ 13,499
$ 12,839
$ 40,656
$ 36,607
13,499
12,839
40,656
36,607
6,079 52
5,766 19
18,360 146
15,869 46
6,131 7,368 (309)
5,785 7,054 (111)
18,506 22,150 718
15,915 20,692 97
7,677
7,165
21,432
20,595
47 175 818 196 16
47 192 1,395 218 10
94 375 2,456 247 643 82
124 395 3,171 678 499 413
1,252
1,862
3,897
5,280
2,413 333 536 172 118 824
2,504 336 483 (138) 176 112 962
7,446 1,022 1,608 518 343 2,375
7,604 1,089 1,436 (155) 512 286 2,555
4,396 4,533 -
4,435 4,592 3
13,312 12,017 4
13,327 12,548 6
4,533
4,589
12,013
12,542
67
67
201
199
4,656
$ 12,214
$ 12,741
Total interest income INTEREST EXPENSE Note payable to CoBank, ACB Other Total interest expense Net interest income (Credit loss reversal)/Provision for credit losses Net interest income after credit loss reversal/ provision for credit losses NONINTEREST INCOME Financially related services income Loan fees Patronage distribution from Farm Credit institutions Farm Credit Insurance Fund distribution Mineral income Other noninterest income 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 Total comprehensive income
$
4,600
$
The accompanying notes are an integral part of these consolidated financial statements.
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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 September 30, 2018
$ 2,619
$ 1,410
300 (120) 19 $ 2,818
$ 1,445
Balance at December 31, 2018 Comprehensive income Stock issued Stock retired Preferred stock dividends Balance at September 30, 2019
$ 2,826
$ 1,454
UNAUDITED
1,170 (1,196) 45 $ 2,845
Unallocated Retained Earnings $ 238,141 12,542
Accumulated Other Total Comprehensive Shareholders' Income/(Loss) Equity $
(841) 199
$
(642)
$
(567) 201
$
(366)
128 (93) (24) $ 250,659
$ 249,624 12,013
117 (96) $ 1,475
(47) $ 261,590
The accompanying notes are an integral part of these consolidated financial statements.
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$ 241,329 12,741 428 (213) (5) $ 254,280
$ 253,337 12,214 1,287 (1,292) (2) $ 265,544
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 third 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
7
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 no impact on the Association’s financial condition and results of operations. NOTE 2 - LOANS AND ALLOWANCE FOR LOAN LOSSES A summary of loans follows. September 30, 2019 Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Rural residential real estate Mission-related Agricultural export finance Total loans
$
601,225 187,251 153,536 75,715 43 1,040 8,516
$
1,027,326
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 September 30, 2019:
Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Total
Other Farm Credit Institutions Purchased Sold $ 36,587 $ 35,516 20,991 ─ 146,564 ─ 75,715 ─ 8,516 ─ $ 288,373 $ 35,516
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Non-Farm Credit Institutions Purchased Sold $ 1,782 $ ─ ─ ─ ─ ─ ─ ─ ─ ─ $ 1,782 $ ─
Total Purchased Sold $ 38,369 $ 35,516 20,991 ─ 146,564 ─ 75,715 ─ 8,516 ─ $ 290,155 $ 35,516
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: September 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
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December 31, 2018
89.04% 5.74% 5.12% 0.10% 100.00%
90.50% 4.17% 5.33% ─ 100.00%
90.68% 4.04% 5.28% ─ 100.00%
87.83% 5.25% 6.88% 0.04% 100.00%
94.04% 5.66% 0.30% 100.00%
97.08% 1.54% 1.38% 100.00%
89.67% 6.90% 3.43% 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%
90.13% 5.44% 4.37% 0.06% 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: September 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
December 31, 2018
$
8,354 115 13 1,040
$
10,049 129 337 ─
$
9,522
$
10,515
$
505 854
$
495 789
$
1,359
$
1,284
$
─
$
75
Total accruing loans 90 days past due
$
─
$
75
Total impaired loans and high risk assets
$
10,881
$
11,874
The Association had no other property owned for the periods presented. Additional impaired loan information is as follows: September 30, 2019 Unpaid Recorded Principal Related Investment Balance Allowance Impaired loans with a related allowance for loan losses: Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total Impaired loans with no related allowance for loan losses: Real estate mortgage Production and intermediate-term Agribusiness Total Total impaired loans: Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total
$
613 ─ 13 1,040 $ 1,667
$
$ 8,246 969 ─ $ 9,215
$
$ 8,859 969 13 1,040 $ 10,881
$ 10,248 1,446 152 1,078 $ 12,924
$
623 ─ 56 1,078 1,757
$
$
4 ─ 13 550 567
9,625 1,446 96 $ 11,167 $
$
4 ─ 13 550 567
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.
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For the Three Months Ended September 30, 2019 Average Interest Income Impaired Loans Recognized Impaired loans with a related allowance for loan losses: Real estate mortgage Agribusiness Mission-related Total Impaired loans with no related allowance for loan losses: Real estate mortgage Production and intermediate-term Agribusiness Total Total impaired loans: Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total
$
639 54 1,057
$
─ ─ ─
$
─ ─ ─
$
─ ─ ─
$
1,750
$
─
$
─
$
─
$
8,545 1,229 116
$
6 63 1
$
17,283 1,524 9
$
35 129 ─
$
9,890
$
70
$
18,816
$
164
$
9,184 1,229 170 1,057
$
6 63 1 ─
$
17,283 1,524 9 ─
$
35 129 ─ ─
$
11,640
$
70
$
18,816
$
164
For the Nine Months Ended September 30, 2019 Average Interest Income Impaired Loans Recognized Impaired loans with a related allowance for loan losses: Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total Impaired loans with no related allowance for loan 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 September 30, 2018 Average Interest Income Impaired Loans Recognized
For the Nine Months Ended September 30, 2018 Average Interest Income Impaired Loans Recognized
$
649 231 239 737
$
─ 4 ─ ─
$
184 ─ ─ ─
$
─ ─ ─ ─
$
1,856
$
4
$
184
$
─
$
9,815 940 40
$
255 90 1
$
15,099 1,766 3
$
─ ─ ─
$
10,795
$
346
$
16,868
$
─
$
10,464 1,171 279 737
$
255 94 1 ─
$
15,283 1,766 3 ─
$
─ ─ ─ ─
$
12,651
$
350
$
17,052
$
─
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The following tables provide an age analysis of past due loans (including accrued interest).
September 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 $ 2,865 6,101 ─ ─ ─ ─ ─ $ 8,966
30-89 Days Past Due $ ─ 2,520 ─ ─ ─ ─ ─ $ 2,520
90 Days or More Past Due $ 882 115 ─ ─ ─ ─ ─ $
997
90 Days or More Past Due $ 260 113 ─ ─ ─ ─ ─ $
373
Total Past Due $ 3,747 6,216 ─ ─ ─ ─ ─
Not Past Due or less than 30 Days Past Due $ 611,221 186,342 154,199 76,008 44 1,040 8,538
Recorded Investment in Loans Outstanding $ 614,968 192,558 154,199 76,008 44 1,040 8,538
Recorded Investment Accruing Loans 90 Days or More Past Due $ ─ ─ ─ ─ ─ ─ ─
$ 9,963
$1,037,392
$1,047,355
$
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
─
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 June 30, 2019 Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Mission-related Agricultural export finance Total
Total
Recoveries
Balance at September 30, 2019
836 1,026 1,029 451 550 7
$
─ ─ 117 ─ ─ ─
$
─ ─ ─ ─ ─ ─
$
19 (331) (56) 49 ─ 1
$
$ 3,899
$
117
$
─
$
(318)
$ 3,464
$
Balance at December 31, 2018 Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Mission-related Agricultural export finance
Charge-offs
Provision for Loan Losses/ (Loan Loss Reversals)
Charge-offs
Recoveries
Provision for Loan Losses
855 695 856 500 550 8
Balance at September 30, 2019
710 668 932 330 216 7
$
─ 2 117 ─ ─ ─
$
─ ─ 14 ─ ─ ─
$
145 29 27 170 334 1
$
$ 2,863
$
119
$
14
$
706
$ 3,464
$
12
855 695 856 500 550 8
Balance at June 30, 2018 Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Mission-related Agricultural export finance Total
Charge-offs
Total
Recoveries
Balance at September 30, 2018
740 599 723 353 13 8
$
─ 6 ─ ─ ─ ─
$
─ ─ ─ ─ ─ ─
$
(142) (46) 95 (14) ─ (1)
$
$ 2,436
$
6
$
─
$
(108)
$ 2,322
$
Balance at December 31, 2017 Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Mission-related Agricultural export finance
Provision for Loan Losses/ (Loan Loss Reversals)
Charge-offs
Provision for Loan Losses/ (Loan Loss Reversals)
Recoveries
675 557 693 317 13 6
$
─ 37 ─ ─ ─ ─
$
─ ─ ─ ─ ─ ─
$
(77) 27 125 22 ─ 1
$ 2,261
$
37
$
─
$
98
$
598 547 818 339 13 7
Balance at September 30, 2018 $
598 547 818 339 13 7
$ 2,322
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 September 30 2019 2018 Balance at beginning of period Provision for/(Reversal of) reserves for unfunded commitments Total
$
414
$
9 $
384
For the Nine Months Ended September 30 2019 2018 $
411
$
381
382
12
(3)
423
$
$
423
(1) $
381
Additional information on the allowance for loan losses follows:
Allowance for Loan Losses Ending Balance at September 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
$
4 ─ 13 ─ ─ 550 ─
$
851 695 843 500 ─ ─ 8
$
567
$
2,897
13
Recorded Investments in Loans Outstanding Ending Balance at September 30, 2019 Individually Collectively evaluated for evaluated for impairment impairment $
8,859 969 13 ─ ─ 1,040 ─
$ 10,881
$
606,109 191,589 154,186 76,008 44 ─ 8,538
$ 1,036,474
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 Total
$
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 nine months ended September 30, 2019 and September 30, 2018. The Association had no TDRs within the previous 12 months and for which there were subsequent payment defaults during the first nine months of 2019 and 2018. Additional commitments to lend to borrowers whose loans have been modified in troubled debt restructurings were $409 at September 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 September 30, 2019 Real estate mortgage Production and intermediate-term Total
TDRs in Nonaccrual Status*
December 31, 2018
September 30, 2019
December 31, 2018
$
505 854
$
495 789
$
─ ─
$
─ ─
$
1,359
$
1,284
$
─
$
─
* 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.
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 September 30, 2019
As of December 31, 2018
Capital Conservation Buffer
Total
20.19% 20.19% 20.57% 20.51%
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%
21.33%
20.78%
4.0%
1.0%
5.0%
22.04%
21.41%
1.5%
–
1.5%
Regulatory Minimums
* 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.
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The following tables present the activity in the accumulated other comprehensive loss, net of tax by component:
Pension and other benefit plans: Beginning balance Amounts reclassified from accumulated other comprehensive loss Net current period other comprehensive income/(loss)
For the Three Months Ended September 30 2019 2018
For the Nine Months Ended September 30 2019 2018
$ (433)
$ (567)
$ (709)
67 67
67 67
$ (366)
Ending balance
$ (841)
201 201
$ (642)
199 199
$ (366)
$ (642)
The following table represents reclassifications out of accumulated other comprehensive loss. Amount Reclassified from Accumulated Other Comprehensive Loss For the Three Months Ended September 30 2019 2018 Pension and other benefit plans: Net actuarial loss
$
67
$
67
Total reclassifications
$
67
$
67
Salaries and employee benefits
Amount Reclassified from Accumulated Other Comprehensive Loss For the Nine Months Ended September 30 2019 2018 Pension and other benefit plans: Net actuarial loss
$ 201
$ 199
Total reclassifications
$ 201
$ 199
Location of Loss Recognized in Statement of Income
Location of 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 September 30, 2019 December 31, 2018
$ $
11 8
$ $
– –
$ $
– –
Total Fair Value $ $
11 8
The Association had no liabilities measured at fair value on a recurring basis at September 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 September 30, 2019 Loans
$
─
$
─
$ 1,106
$
1,106
December 31, 2018 Loans
$
─
$
─
$
$
281
15
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 September 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 November 6, 2019, which is the date the financial statements were issued, and no material subsequent events were identified.
16