Management’s Discussion and Analysis Introduction The following discussion summarizes the financial position and results of operations of Farm Credit West, ACA and its subsidiaries Farm Credit West, FLCA and Farm Credit West, PCA, (collectively, Farm Credit West) for the year ended December 31, 2020. We have emphasized material known trends, commitments, events, or uncertainties that are reasonably likely to impact our financial condition and results of operations. The discussion and analysis should be read in conjunction with the consolidated financial statements, footnotes, and other sections of this report. The accompanying consolidated financial statements were prepared under the oversight of our Audit Committee. Our annual and quarterly reports to shareholders are available on our website, www.farmcreditwest.com, or can be obtained free of charge by calling our corporate headquarters at 916-780-1166, or by writing to Farm Credit West, 3755 Atherton Road, Rocklin, CA 95765. Annual reports are mailed to all stockholders within 90 days after year-end and are available on our website within 75 days after year-end; quarterly reports are available on our website within 40 days after each calendar quarter-end. The 2021 quarterly reports to shareholders will be available on approximately May 10, 2021, August 9, 2021, and November 9, 2021.
Business Overview Farm Credit System Structure and Mission We are one of 68 associations in the Farm Credit System (System), which was created by Congress in 1916 and has served agricultural producers for over 100 years. The System’s mission is to provide sound and dependable credit to American farmers, ranchers, and producers or harvesters of aquatic products, and farm-related businesses through a member-owned cooperative system. This is done by making loans and providing financial services to creditworthy individuals and businesses. Through its commitment and dedication to agriculture, the System continues to have the largest portfolio of agricultural loans of any lender in the United States. The Farm Credit Act established the Farm Credit System Insurance Corporation (Insurance Corporation or FCSIC) to administer the Farm Credit Insurance Fund (Insurance Fund). By law, the Insurance Fund is required to be used (1) to ensure the timely payment of principal and interest on System wide debt obligations (Insured Debt), (2) to ensure the retirement of protected stock at par or stated value, and (3) for other specified purposes. The System’s independent safety and soundness federal regulator is the Farm Credit Administration (FCA) which supervises, examines and regulates System institutions.
Our Structure As a cooperative, we are owned by the members we serve. We emphasize our cooperative structure by providing superior service at competitive rates and then, when circumstances allow, paying significant cash patronage. Patronage of $185.0 million was declared in 2020, including $55.0 million that was distributed to customers mid-year in 2020 and $130.0 million that was distributed to customers in early 2021. This resulted in a return of 1.50% of average 2020 eligible loan balances for Farm Credit West customers which effectively lowered their borrowing costs. The territory we serve covers a diverse area in parts of California, though it is primarily concentrated in the southern San Joaquin Valley, Central Coast, Sacramento Valley, and Imperial Valley; virtually all of Arizona; and a small region of Nevada. Note 1 to the financial statements includes a more detailed description of our chartered territory. We make long-term real estate mortgage loans to farmers, ranchers, agribusiness, and rural residents; production and intermediate-term loans for operating purposes, development and capital purchases; and financing leases. Additionally, we provide other financially related services to our borrowers. Our success begins with our extensive agricultural lending experience and market knowledge. Serving our customers is of paramount importance. The primary funding source for our lending and operations is our direct note from CoBank, ACB (CoBank). CoBank is a cooperative of which we are an owner and member. The financial condition and results of operations of CoBank materially affect the risk associated with shareholder investments in Farm Credit West. Shareholders of Farm Credit West may obtain copies of CoBank’s financial statements free of charge by calling 916-780-1166 or by writing to Farm Credit West, 3755 Atherton Road, Rocklin, CA 95765, or by accessing CoBank’s website at www.cobank.com. We purchase technology services from Financial Partners, Inc. (FPI), which is a technology service corporation. We are a shareholder in FPI along with four other FPI customers. Our equity investment in FPI is $3.4 million as of December 31, 2020. In addition, we purchase payroll and other human resource services from Farm Credit Foundations, a human resources service provider which serves a number of System entities. We are a shareholder in Foundations along with other System entities and our equity investment is less than $0.1 million. We also have invested $10.3 million in AgDirect, which is an agricultural equipment financing program offered through equipment dealers. Our investment is determined by the pool of leases that AgDirect has originated in our territory and that we have agreed to capitalize.
2020 ANNUAL 2 0 2 0 REPORT A N N U A| L23R E P O R T
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