YANKEE FARM CREDIT, ACA
2016 ANNUAL REPORT
Contents
President’s Message .................................................................................................................... 2
Board Chairperson’s Message ..................................................................................................... 3
Five Year Summary of Selected Financial Data ........................................................................... 4
Management’s Discussion and Analysis ...................................................................................... 5
Directors and Senior Officers .................................................................................................... 11
Report of Independent Auditors................................................................................................. 18
Consolidated Financial Statements ............................................................................................ 19
Notes to Consolidated Financial Statements .............................................................................. 23
Shareholder Disclosure Information .......................................................................................... 42
Certification Statement .............................................................................................................. 43
Borrower Privacy Statement ...................................................................................................... 44
Whistleblower Information........................................................................................................ 44
Office Locations........................................................................................................................ 44
Young, Beginning and Small Farmers ....................................................................................... 45
Relationship with CoBank, ACB ............................................................................................... 46
Information about the Farm Credit System ................................................................................ 47
Employees ................................................................................................................................ 48
Directors ................................................................................................................................... 49
Nominating Committee ............................................................................................................. 50
1
PRESIDENT’S MESSAGE
Investing in Improvement
Agriculture and banking are fast-changing industries. In order to thrive in current and future environments,
Yankee Farm Credit is making strategic investments in technology and business processes. Conversion to the new
IT system is underway and is central to our goal of providing more online banking technology and access to
centralized services in 2018—as well as protecting data and transactions from the threats of identity theft and
security breaches.
The strength that has been built into the Yankee Farm Credit balance sheet allows the investment in needed
changes without compromising the available capital and service that Yankee members and customers have come
to expect.
2016 in Review
Loan volume has increased again in 2016. This volume growth comes from increases with existing customers as
well as the addition of 74 new or returning customers. However, net profits have seen a decline based on the
increased cost from conversion activities and the cost of enhanced risk management practices.
Credit quality pressures in 2016 have come mostly from low commodity prices in the dairy and timber portfolios.
·
·
·
·
·
The permanent capital ratio decreased from 19.6% to 18.9%
Loans originated by the Association increased by $61 million (9%) to $749 million
Total assets surpassed $500 million for the first time
High risk asset increased from 0.4% to 1.2% of total loan volume
Net income was $9.3 million, down 9% from 2015
The Board of Directors approved a patronage refund for 2016 of $5.1 million. That is 1.00% of average loan
volume, and 55% of net income. It will be paid 100% in cash.
Relationships that Last Generations
Although much time and money will be invested in changes to technology and internal controls in the short term,
long-term focus will not change: member satisfaction, engaged employees, and sustainable growth. The
enhancements implemented this year will deliver secure and solid performance for years to come.
The strong platform of knowledgeable employees, solid financial performance, and engaged membership will
support the long-term vision of Yankee Farm Credit. As your new President and CEO, I am excited about the
enhancements we will implement in the coming year and the solid performance they will allow us to achieve for
years to come.
Brenda Frank
President and CEO
March 6, 2017
2
BOARD CHAIRPERSON’S MESSAGE
In 2016 the Farm Credit System celebrated 100 years of service to farmers. The creation of the Farm Credit
System was a response to the need for reliable credit in rural communities. As was the case with many of the
progressive initiatives of the early 20th century, its success was tied to local implementation and governance
through cooperatives such as Yankee. That success was evident in the member and staff turnout at the 100-year
celebration cookouts held last summer at Yankee’s branch offices. The old photos and documents pulled together
by the staff of the former Champlain Valley and Connecticut Valley associations are reminders of all the hard
work that preceded us and that we are the current custodians of this important service to agriculture.
Your Board of Directors had a busy year in 2016. We made two major changes we are certain will strengthen the
long-term viability of Yankee Farm Credit. We conducted an extensive search that resulted in the hiring of a new
CEO, and we undertook a detailed review of our technology and service providers that resulted in making a
decision to change technology platforms.
A resounding “thank you” is in order to George Putnam for his leadership, hard work, and ethical compass during
his ten years as CEO and prior years in other roles. Brenda has taken over from George an association that has
excellent staff and top-notch financials. We look forward to Brenda’s engaging management style building on the
current excellence of Yankee.
The board recognizes that to stay relevant in business today, regular review, and, at times, important changes are
required to remain competitive. While our members and customers will not experience the technological changes
being implemented until 2018, the investments of time and resources started in 2016, reflecting the forwardlooking goals of the association.
We are pleased with the strategic alliance with AgFirst, which is based in Columbia, South Carolina. The alliance
will offer necessary banking technology, as well as access to other centralized services vital to running the
association and providing for the needs of our members. Our connection to CoBank, our funding bank, remains
intact and strong.
While the job at hand is significant, we are convinced we have the best people in place to manage the changes in
the coming years and continue adding value for our members, customers, and the business of agriculture in our
communities. As always, if you have comments or concerns, please contact Brenda, me, or any of the other
directors.
Paul Franklin
Board Chairperson
March 6, 2017
3
YANKEE FARM CREDIT, ACA
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(in thousands)
2016
2015
CONSOLIDATED BALANCE SHEETS
Loans
$
Less allowance for loan losses
Net loans
Cash
Investment in CoBank, ACB
Other assets
Total assets
$
480,625
5,793
474,832
4,161
18,014
10,899
507,906
Note payable to CoBank, ACB
Other liabilities
Total liabilities
399,144
9,344
408,488
Stock and participation certificates
Unallocated surplus
Accum. other comprehensive (loss)
Total members' equity
Total liabilities and members' equity
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
Net interest income
Provision for credit losses
Non-interest income
Non-interest expense
Provision for income taxes
Net income
Comprehensive Income
$
$
$
$
$
KEY FINANCIAL RATIOS
Return on average assets
Return on average members' equity
Net interest margin
Members' equity to assets
Debt to members' equity
Net charge-offs (recoveries) to avg. loans
Allowance for loan losses to loans
and accrued interest receivable
Permanent capital ratio
Total surplus ratio
Core surplus ratio
Net income distributed as patronage
in the following year:
Cash
$
1,092
99,887
(1,561)
99,418
507,906
16,307
711
4,675
10,975
3
9,293
9,545
$
$
$
$
$
$
$
449,000
5,123
443,877
4,210
16,637
9,729
474,453
372,830
6,634
379,464
1,093
95,709
(1,813)
94,989
474,453
15,135
(136)
4,235
9,281
1
10,224
10,167
2014
$
$
$
$
$
$
$
433,339
5,283
428,056
1,182
15,721
9,072
454,031
356,885
7,473
364,358
1,082
90,347
(1,756)
89,673
454,031
14,690
11
3,694
8,310
3
10,060
9,670
2013
$
$
$
$
$
$
$
413,304
5,186
408,118
1,282
14,952
7,029
431,381
339,736
7,015
346,751
1,068
84,928
(1,366)
84,630
431,381
14,256
329
3,193
7,807
2
9,311
9,915
2012
$
$
$
$
$
$
$
385,100
4,788
380,312
2,522
13,583
6,137
402,554
316,179
6,764
322,943
1,030
80,551
(1,970)
79,611
402,554
12,414
84
3,361
7,017
3
8,671
8,676
1.9%
9.5%
3.6%
19.6%
4.1:1
0.00%
2.3%
11.0%
3.6%
20.0%
4.0:1
0.01%
2.4%
11.5%
3.6%
19.8%
4.1:1
0.00%
2.3%
11.3%
3.7%
19.6%
4.1:1
(0.00%)
2.3%
11.0%
3.6%
19.8%
4.1:1
0.03%
1.2%
18.9%
18.7%
18.7%
1.1%
19.6%
19.3%
19.3%
1.2%
19.4%
19.2%
19.2%
1.3%
18.7%
18.5%
18.5%
1.2%
19.9%
19.6%
19.4%
5,115
4
$
4,862
$
4,641
$
4,934
$
4,918
YANKEE FARM CREDIT, ACA
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the Years Ended December 31, 2016, 2015 and 2014
(Dollars in thousands, except as noted)
FORWARD LOOKING STATEMENTS
This annual report contains forward-looking statements.
These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions that
are difficult to predict. Words such as “anticipates,”
“believes,” “could,” “estimates,” “may,” “should,” “will,”
or other variations of these terms are intended to identify
the forward-looking statements. These statements are based
on assumptions and analyses made in light of experience
and other historical trends, current conditions, and expected
future developments. However, actual results and
developments may differ materially from our expectations
and predictions due to a number of risks and uncertainties,
many of which are beyond our control. These risks and
uncertainties include, but are not limited to: weatherrelated, disease, and other adverse climatic or biological
conditions that periodically occur that impact agricultural
productivity and income; economic fluctuations in the
agricultural, rural utility, international, and farm-related
business sectors; changes in United States government
support of the agricultural industry; political, legal,
regulatory and economic conditions and developments in
the United States and abroad; and actions taken by the
Federal Reserve System in implementing monetary policy.
·
Other income, excluding patronage refunds from
CoBank, was $221 thousand higher in 2016. Higher fee
income related to financial services, combined with the
sale of Association property in Newport, Vermont,
contributed to this higher position of other income. See
Note 5 to the Consolidated Financial Statements,
“Premises and Equipment” for additional information
on the sale of the Newport, Vermont property.
·
Patronage refunds from CoBank was $219 thousand
higher in 2016. More detail on this is given below.
The major changes in the components of net income are
shown in the following table:
Effect on net income
Increase (decrease)
Net interest income
Provision for credit losses
Patronage refunds from CoBank
Other income, exclusive of
patronage refunds from CoBank
and FCSIC refunds
Other expense
Provision for income taxes
Total decrease (increase) in net
income
Net income in 2016 was $9.293 million, a decrease of $931
thousand (9.1%) from 2015.
The most significant factors contributing to decreased net
income in 2016 were:
·
Net interest income was $1.172 million more in 2016.
This is discussed in more detail below.
The return on average assets (ROA) decreased to 1.9% in
2016 as compared to 2.3% in 2015 and 2.4% in 2014. The
return on average members’ equity (ROE) decreased to
9.5% in 2016 as compared to 11.0% in 2015 and 11.5% in
2014.
RESULTS OF OPERATIONS
·
·
Other expenses were $1.694 million higher than in
2016, primarily due to increased costs to meet
regulatory requirements. This is discussed in more
detail below.
2016 vs. 2015 2015 vs. 2014
$
1,172
$
445
(847)
147
219
260
221
(1,694)
(2)
$
( 931)
(72)
(618)
2
$
164
Net interest income: In 2016, net interest income was
$16.307 million, an increase of $1.172 million (7.7%) from
2015. The following table shows the principal components
of net interest income before the provision for credit losses.
Interest earning assets consist of accrual loans, and interest
bearing liabilities consist of the note payable to CoBank.
The provision for credit losses was $847 thousand
higher in 2016. The increase in loan volume and
slightly lower credit quality contributed to this higher
provision for credit losses. More detail on the provision
for credit losses is given below.
5
Interest income on
interest earning assets
$
Interest expense on
interest bearing liabilities
Subtotal
Interest income on
nonaccrual loans
Net interest income before the
provision for credit losses $
2016
2015
2014
19,707 $
17,599 $
17,032
3,612
16,095
2,495
15,104
2,388
14,644
212
31
46
16,307 $
15,135 $
Patronage refunds from CoBank: Patronage refunds from
CoBank consisted of the following:
2016
Patronage refunds on
the Association’s note
payable to CoBank
Patronage refunds on
participation loans sold
to CoBank
Total
14,690
The “subtotal” above can be analyzed in terms of changes
in volumes and rates on interest earning assets and interest
bearing liabilities. The following table summarizes the
applicable volumes and rates. All numbers are averages for
the year.
2016
Volumes:
Interest earning assets
Interest bearing liabilities
Loanable equity
Rates:
Interest earning assets
Interest bearing liabilities
Interest rate spread
2015
4.15%
0.72%
3.43%
2014
$
1,671 $
1,563 $
1,496
$
1,190
2,861 $
1,079
2,642 $
886
2,382
See Note 4 to the Consolidated Financial Statements,
“Investment in CoBank, ACB,” for additional information
about the patronage relationship between the Association
and CoBank.
2014
Other income, exclusive of patronage refunds from CoBank
and refunds from FCSIC: In 2016, this category increased
by $221 thousand (13.9%) as compared to the prior year.
Fees for financial services increased by $138 thousand
(9.1%) from 2015. Also contributing to the increase was
the sale of Association property in Newport, Vermont. See
Note 5 to the Consolidated Financial Statements, “Premises
and Equipment” for additional information.
$ 452,903 $ 424,009 $ 405,291
371,396
347,871
331,797
$ 81,507 $ 76,138 $ 73,494
4.35%
0.97%
3.38%
2015
4.20%
0.72%
3.48%
Other expense: In 2016, this category increased by $1.694
million (18.3%), primarily due to the $863 thousand
increase in salaries and employee benefits, $161 thousand
increase in premiums paid to Farm Credit Insurance Fund
(see Note 1.A for more detail on the Farm Credit Insurance
Fund) and $655 thousand in other expenses, which includes
purchased services to assist the Association in meeting
regulatory requirements.
The following table shows the effects of the above changes
in volumes and rates on net interest income:
Effect on net interest income*
increase(decrease)
2016 vs. 2015 2015 vs. 2014
Due to changes in volumes
$
1,029
$
667
Due to changes in interest rates
(38)
(207)
Total increase in net
interest income*
$
991
$
460
*considering interest earning assets & interest bearing liabilities
only
Provision for income taxes: The provision for income taxes
consisted of the following:
2016
Net interest margin (net interest income as a percent of
average earning assets) was 3.6% in 2016, as compared to
3.6% in 2015 and 3.6% in 2014.
Provision for income taxes
$
2015
3 $
2014
1 $
See Note 8 to the Consolidated Financial Statements,
“Income Taxes,” for more detail.
Provision for credit losses: There was a provision for credit
losses of $711 thousand consisting of a $674 thousand
increase to the allowance for loan losses and increase of
$37 thousand to the reserve for unfunded commitments.
The 2016 provision for credit losses of $711 thousand
compares to a net provision reversal of $136 thousand in
2015 and a net provision of $11 thousand in 2014. The
increase in the net provision in 2016 was due to the increase
in loan volume combined with a slight decline in credit
quality.
LOAN PORTFOLIO
Year-end 2016 loan volume was $480.6 million, which was
$31.6 million (7.0%) higher than at year-end 2015. The
increase in loan volume is primarily due to increases in the
portfolio during the year and year-end advances on existing
commitments. Average loan volume in 2016 was $452.9
million, which was $28.9 million (6.8%) higher than in
2015. In 2015, year-end loan volume increased by $15.7
million (3.6%) from year-end 2014, while average loan
volume for the year increased by $18.7 million (4.6%).
6
3
The loan portfolio continues to be primarily concentrated in
the dairy industry, with 51% of loans invested in dairy
businesses at December 31, 2016. The second largest
concentration is timber, with 13% of the loan portfolio.
Loans to maple represent 10% of the loan portfolio, while
farm related businesses represents 6% of the portfolio. Fruit
& vegetables and livestock both represent 4% of the loan
portfolio, while part-time farmers represent 3% of the
portfolio. The remaining 9% of the loan portfolio includes
rural homeowners and a variety of other miscellaneous
agricultural operations, as well as most of the purchased
participation loans, with no single category comprising
more than 3% of the loan portfolio.
6%
4% 4% 3% 9%
10%
13%
51%
Year
2016
2015
2014
2013
2012
2011
2010
2009
Avg. Price Change From Avg. Price Change From
w/o premium Prior Year with premium Prior Year
$15.86
(9%)
n/a
n/a
17.46
(28%)
n/a
n/a
24.34
21%
$24.34
19%
20.15
9%
20.41
6%
18.54
(9%)
19.22
(6%)
20.42
21%
20.42
21%
16.85
30%
16.87
20%
12.92
(32%)
14.07
(27%)
(Prices quoted are the Federal Order 1 statistical uniform
price for milk delivered to Boston, in $/cwt. Average prices
for the year are the December-November prices, reflecting
payments received by farmers in January-December. The
“premium” referenced above is the Milk Income Loss
Contract, which expired September 2014.)
Loans by Industry
12/31/16
The declining milk prices have been accompanied by a
decrease in the cost of farm inputs, particularly purchased
feed. The composite Feed Index published by the USDA
was 103 for 2016, down 3% from 106 in 2015 (revised).
Dairy
Timber
Maple
Farm Related Business
Fruit & Vegetables
Livestock
Part-Time Farmers
Other
Our loan portfolio is geographically diversified throughout
our assigned territory, which consists of all of Vermont,
four counties in western New Hampshire, and two counties
in northeastern New York. As of December 31, 2016,
approximately 73% of our loan volume was with Vermont
borrowers, 13% with New Hampshire borrowers, and 10%
with New York borrowers.
Included in loans are purchased participation loans of $20.6
million (4.3% of the portfolio). These loans are primarily
categorized as marketing and processing ($10.3 million),
which is included in the industry category other, and farm
related business ($4.8 million). The remaining balance of
participation loans are in timber ($2.0 million), dairy ($1.6
million), livestock ($1.0 million), and maple ($38 thousand)
which are included in the corresponding categories above,
and various other categories ($789 thousand) which are
included in the industry category other.
13%
10%
4%
Loan
Volume by State
12/31/16
Vermont
New Hampshire
At December 31, 2015, the two most significant industry
concentrations were dairy (49%) and timber (15%). Loans
to maple represented 9% of the loan portfolio, farm related
businesses (6%), fruit & vegetables (4%) and livestock
(4%).
New York
Other
73%
There are several ways to examine the quality of the
Association's loan portfolio. One measure of loan quality is
to consider the level of “high risk assets.” High risk assets
include the following:
See Note 3 to the Consolidated Financial Statements,
“Loans and Allowance for Loan Losses,” for additional
information about the Association’s loan portfolio,
including the volume of loans to each of the abovementioned industries.
·
The dairy industry experienced lower prices in 2016
following lower prices in 2015 and higher prices in 2014.
The outlook for 2017 is for slightly increasing prices.
7
Nonaccrual loans. These are loans for which it is
probable that all principal and interest will not be
collected according to the contractual terms. The
Association does not record interest income on these
loans on an accrual basis. Delinquent loans will
generally be classified as nonaccrual when they
become 90 days past due.
·
·
·
Accrual loans 90 days or more past due. These are
loans on which the Association is recording interest on
an accrual basis, even though they are severely past
due. Such loans are adequately secured and in the
process of collection.
Credit Classification:
Acceptable
OAEM*
Substandard
Doubtful
Loss
Total loans
Accrual troubled debt restructured loans (TDR). These
are loans on which the Association is recording interest
on an accrual basis, but the Association has made a
monetary concession to the borrower, such as a belowmarket interest rate or a reduction in principal or
interest owed. Such loans are usually former
nonaccrual loans on which the contractual terms have
been modified, and which are now performing under
the new contractual terms.
*Other Assets Especially Mentioned
Two additional measures of loan quality are the
delinquency rate and loan charge-offs. The average
delinquency rate for the year increased during 2016 but was
below our internal goals. There were two charge-offs
totaling $14 thousand and one recovery totaling $10
thousand in 2016.
2016
Net loan charge-offs (recoveries)
Amount
$
As % of average loans
2014
99.4%
1.2%
0.0%
0.0%
0.0%
1.2%
100.0%
0.3%
0.0%
0.1%
0.0%
0.4%
100.0%
0.5%
0.0%
0.1%
0.0%
0.6%
100.0%
2014
4
$
0.00%
21
$
12
0.00%
(0.00%)
Percentages based on volume.
The following table shows performing loans and high risk
assets. By this measure, loan quality declined in 2016.
Performing loans
High risk assets
Nonaccrual loans
Loans 90+ days past due
Accrual TDR loans*
OPO
Total high risk assets
Total loans + OPO
2015
Accrual loans 30 days or more past due (as % of total accrual loans)
At December 31
0.3%
0.4%
0.2%
Average for the year
1.1%
0.5%
0.7%
All loans that do not fall into one of these categories are
considered performing loans.
December 31,
2015
99.6%
December 31,
2015
2014
93.7%
92.6%
3.2%
3.1%
3.1%
4.2%
0.0%
0.1%
0.0%
0.0%
100.0%
100.0%
Percentages based on volume.
Other property owned (OPO). This is property
formerly owned by a borrower and typically offered as
security for a loan, but now owned by the Association
as the result of a default on the loan. Other property
owned is usually acquired by the Association through a
foreclosure action, a deed in lieu of foreclosure, or
other legal action.
2016
98.8%
2016
93.1%
4.1%
2.8%
0.0%
0.0%
100.0%
Taking all of these measures together, loan quality declined
slightly in 2016. Despite the decline, overall loan quality at
December 31, 2016 was at a satisfactory level and met all
internal goals established by the Association.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at year end was $5.793
million, as compared to $5.123 million in 2015, and $5.283
million in 2014. The $670 thousand increase in the
allowance in 2016 consists of a $674 thousand provision for
the allowance for loan losses as well as charge-offs of $14
thousand offset by a recovery of $10 thousand.
Percentages based on volume.
*rounds to zero
See Note 3 to the Consolidated Financial Statements,
“Loans and Allowance for Loan Losses,” for additional
information about the allowance for loan losses, including a
summary of activity in the account.
Another measure of loan quality is to consider the credit
classification of loans according to the Uniform
Classification System. By this measure, loan quality was
approximately stable in 2016. The following table includes
all loans (including nonaccrual loans), but not other
property owned (of which the Association has none).
8
FarmStart, LLP is an initiative pioneered by Farm Credit
East and CoBank to make investments in startup farming
operations (starter farmers). The goal of FarmStart is to
provide working capital to help startup farmers establish a
positive business and credit history during the early phases
of their business careers. Within five years, recipients
should be positioned to graduate to a conventional loan.
FUNDING SOURCES, LIQUIDITY AND INTEREST
RATE RISK
The Association obtains funds by borrowing from CoBank
on a revolving line of credit. The funding relationship with
CoBank is governed by a General Financing Agreement
(GFA). At December 31, 2016, this ratio was 86.3%, as
compared to 85.6% and 85.9% at December 31, 2015 and
2014, respectively. Because the funding relationship with
CoBank provides sufficient liquidity, the Association does
not maintain large balances in cash or other liquid
investments.
At December 31, 2016, the Association’s net investment in
these programs was $301 thousand.
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
The Association attempts to limit interest rate risk by
matching the interest rate characteristics of its debt with the
interest rate characteristics of its loans. The Association
offers both variable and fixed rate loans. At the end of
2016, the accrual loan portfolio consisted of approximately
86% variable rate loans and 14% fixed rate loans. The
interest rate charged to the Association on debt used to fund
the fixed rate loans is itself a fixed rate, which limits
interest rate risk on that portion of the portfolio. The
interest rate charged to the Association on the remaining
debt is a variable rate, but the Association has the ability to
change the variable rate charged to borrowers as needed.
Accumulated other comprehensive income consists of two
components: the effect of Financial Accounting Standards
Board (FASB) guidance on pensions and post-retirement
health care. The guidance requires an employer to
recognize the overfunded or underfunded status of a defined
benefit postretirement plan as an asset or liability in its
statement of financial position and recognize changes in
that funded status in the year in which the changes occur
through other comprehensive income.
The components of accumulated other comprehensive
income is detailed below:
The Association funds approximately 82% of its loans with
debt as described above. The remaining 18% is funded with
equity. This has the effect of making the Association
sensitive to interest rates as follows: if interest rates rise and
all other factors remain equal, the Association’s net interest
income will increase; and, conversely, if interest rates fall
and all other factors remain equal, the Association’s net
interest income will decrease.
Pension
Post-Retirement Healthcare
Total Accumulated Other
Comprehensive (Loss)
2016
(1,496)
(65)
$
December 31,
2015
(1,691)
(122)
(1,561) $
(1,813) $
2014
(1,689)
(67)
(1,756)
CAPITAL RESOURCES
Members’ equity was 19.6% of assets at December 31,
2016, as compared to 20.0% and 19.8% at the end of 2015
and 2014, respectively.
At December 31, 2016, the weighted average rate of
interest charged to the Association by CoBank was 1.21%.
MISSION RELATED INVESTMENTS
The primary measure of capital adequacy is the permanent
capital ratio as defined by the FCA. At December 31, 2016,
the Association's permanent capital ratio was 18.9% as
compared to 19.6% at December 31, 2015 and 19.4% at
December 31, 2014. The Association continues to exceed
all capital requirements of both FCA and CoBank.
Additionally, the Association sets internal goals for all
capital requirements and all were met in 2016.
The Farm Credit Act states that the mission of the Farm
Credit System is “to provide for an adequate and flexible
flow of money into rural areas.” To further this mission to
serve rural America, the System has initiated mission
related programs and other mission related investments
approved by the Farm Credit Administration (FCA). The
Association has invested in two mission related investment
programs.
See Note 7 to the Consolidated Financial Statements,
“Members’ Equity,” for additional information about the
Association’s capitalization policies, equities, and
regulatory capitalization requirements.
In 2006, the Association invested in Vermont Capital
Partners, LP. Vermont Capital Partners, LP is a joint
venture between the Vermont Economic Development
Authority (VEDA) and Brook Venture Partners, an
investment company in the Boston area.
In 2011, the Association invested in FarmStart, LLP.
9
· To meet certain requirements of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the
Dodd-Frank Act).
PATRONAGE PROGRAM
Prior to the beginning of any fiscal year, the Association’s
Board of Directors, by adoption of a resolution, may
establish a Patronage Allocation Program to distribute its
available consolidated net earnings. This resolution
provides for the application of net earnings in the manner
described in the Association’s Bylaws. This includes the
setting aside of funds to increase surplus to meet minimum
capital adequacy standards established by FCA regulations,
to increase surplus to meet Association capital adequacy
standards to a level necessary to support competitive
pricing at target earnings levels, and increasing surplus for
reasonable reserves.
The New Capital Regulations, among other things, replace
existing core surplus and total surplus requirements with
common equity tier 1 (CET1), tier 1 and total capital (tier 1
plus tier 2) risk-based capital ratio requirements. The New
Capital Regulations also add a tier 1 leverage ratio for all
System institutions, which replaces the existing net
collateral ratio for System banks. In addition, the New
Capital Regulations establish a capital conservation buffer
and a leverage buffer; enhance the sensitivity of risk
weightings; and, for System banks only, require additional
public disclosures. The revisions to the risk weightings
include alternatives to the use of credit ratings, as required
by the Dodd-Frank Act.
The Association declared a patronage distribution of $5.115
million based on 2016 earnings, to be distributed 100% in
cash in March 2017. The patronage distribution for 2015
(distributed in 2016) was $4.862 million, 100% cash, and
the patronage distribution for 2014 (distributed in 2015)
was $4.641 million, 100% cash.
The New Capital Regulations set the following minimum
risk-based requirements:
· A CET1 capital ratio of 4.5 percent;
· A tier 1 capital ratio (CET1 capital plus additional
tier 1 capital) of 6 percent; and
· A total capital ratio (tier 1 plus tier 2) of 8 percent.
The increase in patronage distribution in 2016 to $5.115
million, up from $4.862 million in the previous year, was
primarily due to the increase in loan volume.
The New Capital Regulations also set a minimum tier 1
leverage ratio (tier 1 capital divided by total assets) of 4
percent, of which at least 1.5 percent must consist of
unallocated retained earnings (URE) and URE
equivalents, which are nonqualified allocated equities
with certain characteristics of URE.
The increase in patronage distribution in 2015 to $4.862
million, up from $4.641 million in 2014, was primarily due
to the increase in loan volume.
The patronage rate was 100bps for 2016, 2015 and 2014.
REGULATORY MATTERS
The New Capital Regulations establish a capital cushion
(capital conservation buffer) of 2.5 percent above the riskbased CET1, tier 1 and total capital requirements. In
addition, the New Capital Regulations establish a leverage
capital cushion (leverage buffer) of 1 percent above the tier
1 leverage ratio requirement. 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 New Capital Regulations establish a
three-year phase-in of the capital conservation buffer
beginning January 1, 2017. There will be no phase-in of
the leverage buffer.
As of December 31, 2016, we had no enforcement actions
in effect and FCA took no enforcement actions on us during
the year.
On March 10, 2016, the FCA adopted final rules (the New
Capital Regulations) relating to regulatory capital
requirements for System banks, including CoBank, and
Associations. The New Capital Regulations take effect
January 1, 2017. The stated objectives of the New Capital
Regulations are as follows:
· To modernize capital requirements while
ensuring that System institutions continue to hold
sufficient regulatory capital to fulfill the System’s
mission as a government-sponsored enterprise;
· To ensure that the System’s capital requirements
are comparable to the Basel III framework and the
standardized approach that the federal banking
regulatory agencies have adopted, but also to ensure
that the rules recognize the cooperative structure and
the organization of the System;
· To make System regulatory capital requirements
more transparent; and
We will be in compliance with the New Capital
Regulations on January 1, 2017.
10
YANKEE FARM CREDIT, ACA
DIRECTORS AND SENIOR OFFICERS
Board of Directors pictured left to right:
Back row: Ken Deon, Tom Colgan, Bryan Davis, Walt Gladstone, Brad Maxwell, Rocky Giroux, Rocki-Lee DeWitt
Front row: Celeste Kane-Stebbins, Paul Franklin, Rene Saenger, Alan Bourbeau, Steve Taylor
DIRECTORS
The Association has a board of 12 directors. Nine directors are
elected by and from the voting members of the Association.
The nine elected directors select two additional types of
directors:
·
·
An Outside Director may not be a member of the
Association.
The Appointed Director must be a member of the
Association.
In addition to the nine Elected Directors, there are two Outside
Directors and one Appointed Director.
The nine Elected Directors are elected by region:
Region
1
No. of
Directors
3
2
3
3
3
Territory
NY: Clinton, Essex
VT: Chittenden, Franklin, Grand Isle
NH: Coos, Grafton
VT: Caledonia, Essex, Lamoille,
Orange, Orleans, Washington
NH: Cheshire, Sullivan
VT: Addison, Bennington, Rutland,
Windham, Windsor
Paul B. Franklin, Chairperson (Region 3)
Paul B. Franklin, age 64, has served as director since 2011.
His current term expires in 2017. Paul grew up on a small
dairy farm in Plainfield, New Hampshire. After graduating
from the University of New Hampshire, Mr. Franklin and his
wife Nancy started a pick-your-own (PYO) strawberry
operation. Forty years later, with the enlisted help of their
three children, they own and operate Riverview Farm in
Plainfield, New Hampshire, a 45-acre fruit and vegetable
operation specializing in PYO apples, blueberries, raspberries,
and pumpkins. Mr. Franklin manages field operations and
cider pressing, and Mrs. Franklin, with the help of daughter
Amy, oversees the retail barn, PYO, and school tours. In
addition, they own a 170-acre wood lot managed for timber
and firewood production, recreation, and wildlife habitat. For
22 years, Mr. Franklin was a member and Chairman of the
New Hampshire Board of Tax and Land Appeals, serving as
tax administrative judge. Currently, he is Treasurer of the New
Hampshire Fruit Growers Association, a Director of the New
Hampshire Statewide Program of Action to Conserve our
Environment, and the Plainfield Town and School Moderator.
Rocklyn A. Giroux, Vice Chairperson (Region 1)
Rocklyn A. Giroux, age 71, has served as director since 2003.
His current term expires in 2018. He co-owns Adirondack
11
Farms LLC in Peru, New York, with Jon Rulfs and Jake
Swyers. The dairy farm has 2,350 milking cows and raises all
of its crops on 5,700 acres of land. From 1972 to 1995, Mr.
Giroux operated Giroux Bros. Inc., a John Deere dealership in
Plattsburgh and Malone, New York. From 1985 to 1986 he
was President of the New York Equipment Dealers
Association. Mr. Giroux serves on the boards of the Clinton
County One Work Force employment training organization,
Mountain View Equipment LLC farm equipment dealership,
the William H. Miner Institute agricultural research facility,
and the CVPH Medical Center Foundation. In addition, Mr.
Giroux is a Beekmantown Fire Department Commissioner. He
and his wife Chris reside in Plattsburgh, where they enjoyed
raising their five children and now enjoy being grandparents to
their 11 grandchildren.
Alan J. Bourbeau (Region 1)
Alan J. Bourbeau, age 56, has served as a director since 2007.
His current term expires in 2019. Mr. Bourbeau owns and
operates a third-generation farm located on Pond Road in
Swanton, Vermont. Mr. Bourbeau and his wife Kimberly have
been married for 36 years and have three children and five
grandchildren. Mr. Bourbeau and his two sons operate
Bourbeau & Sons, Inc., which has a 260 cow milking herd and
raises all its own replacement livestock. In 2007, the Bourbeau
family built a sugarhouse and expanded the sugar woods to
35,000 taps. In addition to managing Bourbeau & Sons, Inc.,
Bourbeau Farm LLP, and Greens Corners Maple Products,
LLC, Mr. and Mrs. Bourbeau and buy and sell 700,000 to
1,000,000 pounds of syrup per year from other maple
producers. Mr. Bourbeau currently serves as St. Albans
Cooperative Creamery Chair of the Audit Committee and
Director on the Nominating Committee. He also has served
nine years with the Swanton Planning Commission (seven as
Chairman); 18 years as Franklin County Field Days Director
(four as Vice-Chairman); six years as a Young Cooperator
Member for the St. Albans Cooperative; 17 years as a member
of the St. Albans Elks Lodge #1566 (12 years an officer, five
as Chairman of the Trustees, and Exalted Ruler 2004-2005);
and seven years as the President of the former Sheldon Jack
O’Lopes snowmobile club.
Thomas J. Colgan (Appointed Director)
Thomas J. Colgan, age 63, was appointed as a director in
2012. His current term expires in 2018. Since 1997, Mr.
Colgan has served as President and CEO of Wagner Forest
Management, Ltd., a timber management company
headquartered in Lyme, New Hampshire. He previously
worked for Scott Paper Company in Maine. Mr. Colgan holds
multiple degrees from Duke University, including a M.S. in
Forestry. He serves as a senior officer of Wagner Forest
Management, Ltd. (a forest management company that serves
as the manager for Bayroot, LLC, Wagner Energy, LLC, and
Yankee Forest, LLC); Wagner Wind Energy III, LLC, an
electrical generation company; and Bright Lake, LLLP, and
Mirage Flats Holding, LLC, real estate holding companies.
Mr. Colgan as serves on the Boards of Directors of RAS-Tech,
LLC, a recycler of asphalt shingles; Woodbrowser, Inc., a
lumber brokerage firm in Grantham, New Hampshire; North
Country Procurement, a biomass procurement organization
based in Rumney, New Hampshire; and the National Alliance
of Forest Owners, a trade association. Mr. Colgan also is a
member of the Town of Lyme Conservation Commission.
While Yankee’s second largest industry concentration is the
timber industry, the association has not previously had a
director from this industry. Mr. Colgan is the Association’s
first appointed director, and the first director to represent the
timber industry.
Bryan E. Davis (Region 2)
Bryan E. Davis, age 61, has served as a director since 2010.
His current term expires 2019. He and his wife Susan have
owned and operated Grand View Farm in Derby Line,
Vermont since 1978. The farm consists of 135 milkers and
150 head of replacement cattle. They have a son, two
daughters, and four grandchildren. After college, their son
Jeremy and his wife Jen moved onto the farm and are an
integral part of the operation. Mr. Davis holds an A.S. in
Forestry Management and Land Surveying from Paul Smiths
College. He currently serves as Director, Treasurer, and
Chairman of the Quality Committee of the St. Albans
Cooperative Creamery, a milk marketing co-operative;
Chairman of the New England Dairy Promotion Board, and
Director of The United Dairy Industry Association, both of
which are involved in dairy promotion; Chair of the Derby
School Board; member and past President of the Orleans
County Farm Bureau; member of the Elks Club; and member
of the Orleans County Sugarmakers.
Kenneth F. Deon (Outside Director)
Kenneth F. Deon, 61, has served as a director since 2016. His
current term expires in 2019. Mr. Deon grew up in
Plattsburgh, New York and graduated from SUNY
Plattsburgh. His career as a CPA was primarily at KPMG,
which included managing partner of the offices in Burlington,
Vermont; Albany, New York; and West Palm Beach, Florida.
Mr. Deon has over 30 years of experience providing audit and
advisory services to clients in a number of industries,
primarily focused in operations, processes, and technical
accounting assistance, including business combinations,
regulatory accounting, and financial reporting. His audit
experience includes IPO/SEC and Sarbanes-Oxley regulatory
requirements. He also was Adjunct Professor of Accounting at
Union Graduate School and at Saint Michael’s College. After
32 years at KPMG, Ken retired in 2015. He currently lives in
Greer, South Carolina.
Dr. Rocki-Lee DeWitt (Outside Director)
Dr. Rocki-Lee DeWitt, age 60, has served as a director since
2004. Her current term expires in 2019. She received her
Ph.D. in Strategic Management from Columbia University and
M.S. in Agricultural Economics from the Ohio State
12
University. Dr. DeWitt is Professor of Management at the
School of Business Administration at the University of
Vermont. She conducts research on strategies for sustaining
family and closely-held businesses and has served as a
business advisor to multiple family businesses. Her
professional affiliations include the Academy of Management
and the Strategic Management Society. She is a member of the
Board of Directors of the Greater Burlington Industrial
Council, an economic development organization. Dr. DeWitt
has been previously employed as Dean of the School of
Business Administration at the University of Vermont,
Associate Dean of Professional Master’s Programs at the
Pennsylvania State University, and as an agricultural parts
sales manager with Case-IH. Raised on a dairy farm in
Accord, New York, Dr. DeWitt was a 4-H member for ten
years. Dr. DeWitt and her spouse, Josephine Herrera, reside in
Charlotte, Vermont.
Walter M. Gladstone (Region 2)
Walter M. Gladstone, age 55, has served as director since
2008. His current term expires in 2017. Mr. Gladstone and his
wife Margaret live in Bradford, Vermont, where they own and
operate Newmont Farm, LLC, which milks 1,200 cows and
raises a commensurate number of young stock. Corn and
alfalfa mixed grasses are grown on 1,500 acres for roughage
for the dairy, and over 150 acres of pumpkins and winter
squash are wholesaled locally and across New England. The
Gladstones have three sons. A graduate of Vermont Technical
Collee, Will is an integral partner of Newmont Farm, LLC; he
and his wife Brooke have two daughters. John, a graduate of
Vermont Technical College, operates his own trucking
business. Matt, a graduate of the State University of New
York at Cobleskill, provides equipment maintenance and
cropping at Newmont Farm, LLC. Mr. and Mrs. Gladstone are
active breeders of high quality Morgan horses, serving the
local and national markets of the Morgan horse industry. They
also are the managers of Gladstone Brothers, LLC, where their
three sons are members. Mr. Gladstone serves on the Board of
Directors of the Connecticut River Watershed Farmers
Alliance.
Celeste Kane-Stebbins (Region 1)
Celeste Kane-Stebbins, age 61, has served as a director since
2008. Her current term expires in 2017. Ms. Kane-Stebbins
grew up on the family dairy farm in Sheldon, Vermont, where
she and her husband, Gregory, now reside. They became Farm
Credit customers in 1976 when they financed their first dairy
farm in West Enosburg with a loan from the Federal Land
Bank of Springfield. Over the years they have expanded their
business through the purchase of the Sheldon farm in 1993
and a neighboring farm in 2003; they lease two additional
farms for crop land. They formed Stebbinshire Farms, Inc. in
2010. Ms. Kane-Stebbins serves as Secretary/Treasurer and
her primary responsibilities include bookkeeping, payroll, and
tax preparation. The farm employs five full-time and four parttime employees, including two of their sons, Sean and
Michael. Stebbinshire Farms milks approximately 375 head
and raises all replacements, has a 4,500-tap maple operation,
and sells logs and firewood. In addition to her farm work, Ms.
Kane-Stebbins works full-time as Director of Quality and Risk
Management at Copley Hospital in Morrisville, Vermont. She
earned a B.S. from the University of Vermont and a M.S. from
the University of Phoenix. She is the mother of four children.
She has served as a director of Sheldon School for 15 years,
director on the Franklin County Farm Bureau Board, and
director on the Cold Hollow Career Center Allied Health
Advisory Board.
Bradley N. Maxwell (Region 2)
Bradley N. Maxwell, age 61, has served as director since
2012. His current term expires in 2018. Mr. Maxwell grew up
in Coventry, Vermont, on the dairy farm that his parents
started in 1959. He currently owns and operates Maxwells’
Neighborhood Farm, LLC and Neighborhood Equities, LLC
with his parents and brothers. Mr. Maxwell and his family
have been with Yankee Farm Credit for three generations.
Over the past 15 years, the farm has grown from a 120-cow
dairy to the current herd of 800 milking cows and 700 head of
young stock. Ever-expanding and diversifying, Neighborhood
Energy, LLC’s methane digester began operation in late 2008.
Its newest ventures are a small sugaring operation and a
greenhouse. Mr. Maxwell and his wife Jean have four
children. Their oldest son, Matthew, began working on the
farm as a full time employee in 2007. Neighborhood Farm
employs seven other full-time employees. In addition to his
work on the farm, Mr. Maxwell has been an integral part of
the local and agricultural communities over the past 20 years,
including coaching elementary and high school basketball,
serving on the Coventry Selectboard, and serving as a director
on the New England Dairy Promotion Board.
Rene M. Saenger (Region 3)
Rene Saenger, age 59, has served as a director since 2015. Her
current term expires in 2019. Ms. Saenger has been a member
of Farm Credit since 1983 when she and her husband, Paul,
purchased their first farm in Weybridge, Vermont. In 1988,
the Saengers moved to Shoreham and for the next 26 years
operated Cream Hill Farm, a 1600 acre, 1600 head capacity
beef feeding facility. From 2001 to 2014, she was responsible
for the day to day management of Cream Hill Farm. In April
2014, the real estate containing the improvements and
infrastructure for feeding cattle were sold to a young farmer.
Ms. Saenger retains approximately 1000 acres of agricultural
land, which is leased to neighboring farms. Ms. Saenger has a
B.S. in Agriculture from the University of Illinois and holds a
50 Ton Master Captain’s license. From 1986 to 1992, she
owned and operated Farm Management Services, a forage
analysis lab. She currently is Zoning Administrator of the
town of Shoreham, Vermont and is an Emergency Medical
Technician for the Shoreham First Response team.
13
Stephen H. Taylor (Region 3)
Stephen H. Taylor, age 77, has served as director since 2009.
His current term expires in 2018. Mr. Taylor lives in the
Meriden Village section of Plainfield, New Hampshire, where
he farms with his three sons, Jim, Bill and Rob. Their farm,
begun in 1970, currently includes a 60-cow dairy herd, 7,000tap maple operation, and a cheese-making venture. From 1982
to 2007 Mr. Taylor served as the New Hampshire
Commissioner of Agriculture. Prior to that, in addition to
developing the family farm enterprise, he worked many years
as a daily newspaper reporter and editor and as a freelance
writer for agricultural, forestry, and other publications. Mr.
Taylor has served and continues to serve on many community
and state-level boards and committees. He currently is a
member of the Boards of Directors of the Cornish Fair
Association and the Eastern States Exposition. He serves as
the Moderator for the Meriden, New Hampshire Village Water
District. He is a grandfather of seven.
The Executive Committee consists of five directors, who met
five times by conference call and twice in person in 2016. Mr.
Rocklyn Giroux is Chairperson.
Membership/Governance Committee
The purpose of this committee is to oversee the Board
nomination and election processes, as well as Board conduct,
compensation, credit quality, performance, and governance
practices. Additionally, the committee considers membership
issues, including member/applicant appeals of adverse credit
decisions.
The Membership/Governance Committee consists of five
directors, who met two times in 2016 in person. Mr. Alan
Bourbeau is Chairperson.
SENIOR OFFICERS
Brenda K. Frank (President and CEO)
Brenda K. Frank, age 45, has been employed by the
Association since September 2016. Ms. Frank’s 27 years of
experience in agriculture commenced with managing the
family farm in Minnesota. Subsequently, at Syngenta, she
worked in sales and IT. At Cargill, she managed marketing
and agronomy. For 10 years prior to joining the Association,
she directed Farm Credit Canada’s Western Provinces
commercial lending and point-of-sale functions, as well as
worked closely with the Board of Directors to create long-term
business strategy and develop enterprise risk management and
corporate planning processes. Ms. Frank holds a M.B.A. from
the University of Maryland and a B.S. in Soil Science from the
University of Minnesota. She is a Chartered Director from
McMasters University in Canada and continues in the study
and advancement of effective corporate governance.
BOARD COMMITTEES
The Board of Directors has established four standing
committees. Each committee is governed by a formal charter.
The directors serving on each committee as of December 31,
2016 are indicated on page 49.
Audit Committee
The purpose of this committee is to assist the Board in
fulfilling its fiduciary and oversight responsibilities for the
financial reporting process, the system of internal controls, the
audit process, and the Association’s process for monitoring
compliance with laws, regulations, policies, standards of
conduct, and public responsibilities. No member of this
committee also serves on the Executive Committee.
The Audit Committee consists of six directors, who met five
times in 2016 in person. Dr. Rocki-Lee DeWitt is Chairperson.
Compensation Committee
The purpose of this committee is to review the performance of
the President/CEO and recommend to the full Board
appropriate compensation for the President/CEO. The
committee also approves the overall compensation plan for
senior officers.
The Compensation Committee consists of five directors, who
met two times in 2016 in person. Mr. Tom Colgan is
Chairperson.
Executive Committee
The purpose of this committee is to approve or deny credit in
specific situations. The committee is further charged with
making decisions on non-credit issues as directed by the
Board. No member of this committee also serves on the Audit
Committee.
14
John S. Peters (Senior Vice President/Chief Credit Officer)
John S. Peters, age 65, has been employed by the Association
(or one of its predecessors) since 1973. He was hired as a
Loan Officer, working primarily in the Middlebury and
Rutland offices. From 1974 to 1986, he served as Branch
Manager of the Middlebury office. He subsequently worked in
the Williston and St. Albans offices as Branch Manager. In
1994 he obtained his Certified General Appraiser's license and
served as an Association Appraiser. In 1995, with the
formation of Yankee Farm Credit, ACA, he became the
Director of Quality Control in charge of Credit and Collateral
Review and Internal Audit. In 2005 he was named an
Association Vice President. In 2006 he assumed the position
of Vice President of Operations. In 2012 he became the Senior
Vice President/Chief Credit Officer. Mr. Peters holds a B.S. in
Agriculture from the University of Vermont.
Pamela A. Simek (Senior Vice President/Chief Financial
Officer)
Pamela A. Simek, age 58, has been employed by the
Association since 1995 when she was hired as an
Administrative Assistant in the Williston office. In 1997, she
became Assistant Treasurer and Personnel Coordinator. In
2003, Ms. Simek assumed the position of Controller and
moved to the Middlebury, Vermont office. In June 2014, she
was named Acting Chief Financial Officer and Corporate
Treasurer. In November 2014 she assumed the position of
Senior Vice President/Chief Financial Officer. Prior to
working for the Association, Ms. Simek worked as a legal
office administrator in Burlington, Vermont. Ms. Simek holds
a B.S. in Accounting and a B.A. in History from Trinity
College. In 2010, she graduated from the Farm Credit Council
Services Leadership Development Program Level 1, and in
2013 attended the Gettysburg Leadership Experience.
Kenneth R. Button (Senior Vice President)
Kenneth R. Button, age 63, has been employed by the
Association (or one of its predecessors) since 1978. He was
hired as a Loan Officer in the Middlebury office, and became
the Branch Manager in 1986. In August 2006, he became a
Senior Vice President. Prior to working for the Association,
Mr. Button worked for the Farmers Home Administration. Mr.
Button holds a B.S. in Agriculture from the University of
Vermont. In 2007, he graduated from the Farm Credit Council
Services Leadership Development Program Level 2.
Michael K. Farmer (Senior Vice President/Chief Systems
Officer)
Michael K. Farmer, age 50, has been employed by the
Association (or one of its predecessors) since 1989. He was
hired as a Loan Officer in the White River Junction, Vermont
office and moved to St. Albans as a Senior Loan Officer in
1998. He became the Branch Manager in 2006 and in 2011
became a Senior Vice President and Regional Manager. In
2014, he was promoted to Chief Systems Officer and relocated
to the Williston office. Mr. Farmer holds a B.S. in Agricultural
Economics from the University of Vermont. In 2012, he
graduated from the American Bankers Association’s Stonier
Graduate School of Banking. In 2007, he graduated from the
Farm Credit Council Services Leadership Development
Program Level 2.
continues to manage the Association’s Financially Related
Services (FRS), which includes Appraisal, Consulting, Crop
Insurance, Financial Records/ Payroll and Taxes. Prior to
working for Farm Credit, he worked four years as a Regional
Farm Management Specialist for Cornell Cooperative
Extension at Miner Institute in Chazy, New York. Mr. Yates
grew up on the family farm in the United Kingdom, graduated
with a National Diploma in Agriculture from Seale Hayne
Agricultural College, and earned a M.S. in Agricultural
Economics from Cornell University. Mr. Yates is retiring on
April 1, 2017.
James E. Mills, Jr., Risk Director
Jim Mills, Jr., age 46, has been employed by the Association
since March 2016. He was hired into the new role of Risk
Director and has primary responsibility for internal audit and
the implementation of an enterprise risk management
program. He is the Association’s liaison with external
reviewers, auditors, and regulators. Mr. Mills works primarily
out of the Williston office. Prior to joining the Association,
Mr. Mills spent 15 years with Bombardier, Inc. and seven
years with JPMorgan, holding several risk management,
corporate governance, and credit administration roles. Mr.
Mills holds a B.S. in Business Administration, with
concentrations in Finance and Management Information
Systems, from the University of Vermont.
COMPENSATION OF DIRECTORS AND SENIOR
OFFICERS
A. Director Compensation
Directors are compensated at a flat daily rate for attendance at
Board meetings and other activities authorized by the Board.
Per Board Policy dated June 29, 2010, the rate was $450 per
day ($500 per day for the Chairperson at meetings at which he
or she presided, and $500 per day for the Chairperson of the
Audit Committee at meetings where he or she presided).
Directors also receive an annual retainer of $3,500 ($4,500 for
the Chairperson) and are paid for participating in telephone
conference calls. There were nine Board meetings held during
2016. Other activities attended by Directors included, but were
not limited to: Association committee meetings, national
directors’ meetings, and national training sessions.
Compensation paid to directors in 2016 was:
Geoffrey C. Yates (Senior Vice President/Chief Strategy
Officer)
Geoffrey C. Yates, age 64, has been employed by the
Association (or one of its predecessors) since 1980. He was
hired as a Farm Business Consultant and Manager of the Farm
Business department, working at the Chazy office. He became
Association Chief Appraiser in 1986 and holds Certified
General Appraiser licenses in Vermont, New York, and New
Hampshire. In 2015, Mr. Yates was promoted to Senior Vice
President/Chief Strategy Officer and assists with Association
strategic planning efforts, including Human Resources. He
15
Director
Alan J. Bourbeau
Thomas J. Colgan
Bryan E. Davis
Kenneth F. Deon
Rocki-Lee DeWitt
Paul B. Franklin
Rocklyn A. Giroux
Walter M. Gladstone
Celeste Kane Stebbins
Bradley N. Maxwell
Rene M. Saenger
Stephen H. Taylor
Total
2016
2016
2015
2014
Brenda K. George S. George S. George S.
Frank Putnam Putnam Putnam
Salary
$ 76,154 $ 268,000 $ 260,000 $ 250,000
Bonus
25,000
10,000
Deferred/perquisites
35,000
Other
615
7,080
7,487
7,142
Total
$ 136,769 $ 275,080 $ 277,487 $ 257,142
Days Served
Board
Other
Meetings Activities Compensation
9
9
11,100
9
13
12,250
9
3
8,850
4
4
8,850
8
16
12,225
9
28
21,975
9
17
18,250
9
10
11,050
9
13
13,750
9
8
10,875
9
14
17,850
9
9
12,450
102
144
$159,475
CEO
Senior Officers*
Number in group
Salary
Bonus
Deferred/perquisites
Other
Total
2016
Six
$796,137
23,355
$819,492
2015
Five
$683,021
23,576
$706,597
2014
Six
$759,660
763
24,615
$785,038
*Includes senior officers and top salaried employees, but not the CEOs.
Additional detail regarding director compensation paid for
committee services (included in the table prior) is as follows:
Director
Audit
Bourbeau
2,250
Davis
Colgan
Deon
900
DeWitt
2,500
Franklin
Giroux
Gladstone
Kane
Stebbins
Maxwell
2,250
Saenger
2,250
Taylor
2,250
Total
$12,400
Senior officers are paid under the same salary administration
program as all other employees. Generally, each employee is
paid in accordance with the responsibilities of his or her
position, and the performance of the employee in that position.
Each employee’s salary level is generally reviewed annually.
There are no special incentive or bonus programs for senior
officers, nor are senior officers covered by employment
agreements, except as described below.
Committee
CompenMembership/
sation
Executive Governance
900
900
900
1,925
675
675
900
2,375
2,375
2,200
900
2,075
900
The amounts identified as bonuses in the above CEO table
reflect unique bonuses that were awarded to the CEOs only
and are not guaranteed in any year. Bonus and
deferred/perquisites amounts for Ms. Frank reflect relocation
incentives.
Additionally, the bonus amounts for senior officers may
include the value of service awards. These bonuses are not
incentive based awards.
900
900
$4,050
$10,950
$4,500
The amounts listed in the Other categories above are the value
of the personal usage of the assigned company cars, as
described below.
B. Senior Officer Compensation
The following tables show the total compensation paid by the
Association in each of the last three years to the CEO(s) and to
the senior officers as a group (excluding the CEOs). George S.
Putnam held the position of President and CEO until
December 23, 2016. Brenda K. Frank held the position of
Interim President and CEO, transitioning to President and
CEO effective December 23, 2016. Disclosure of the total
compensation paid during the last fiscal year to any senior
officer included in the aggregate is available to shareholders
on request.
16
Ms. Frank was hired effective September 30, 2016, and is
employed as President and CEO under terms of an
employment agreement through December 31, 2019.
C. Travel, Subsistence and Other Related Expenses
The Association’s travel policy provides that directors and
employees will be reimbursed for reasonable out-of-pocket
expenses while traveling on official Association business.
Business use of a personal automobile is reimbursed at the
IRS standard mileage rate. Some employees are assigned a
company car. A copy of the Association’s travel policy is
available to shareholders on request. The total amount of
reimbursement for travel, subsistence and related expenses for
all directors as a group was $63,636, $58,615, and $33,137 in
2016, 2015, and 2014 respectively.
TRANSACTIONS AND LOANS WITH DIRECTORS
AND SENIOR OFFICERS
The Association abides by all policies and procedures of
CoBank, ACB and the Farm Credit Administration pursuant to
transactions and loans with directors and senior officers of the
Association.
A. Transactions Other Than Loans
The Association had no transactions other than loans with any
directors or senior officers, their immediate family members,
or any organizations with which they are affiliated, which are
required to be disclosed in this section.
B. Loans
Loans to directors and senior officers, their immediate family
members, or any organizations with which directors and senior
officers are affiliated, were made in the ordinary course of
business and on the same terms, including interest rate,
amortization schedule, and collateral, as those prevailing at the
time for comparable transactions with other persons, and did
not involve more than the normal risk of collectability.
INVOLVEMENT IN CERTAIN LEGAL
PROCEEDINGS
There were no matters which came to the attention of
management or the Board of Directors regarding involvement
of current directors or senior officers in specified legal
proceedings which are required to be disclosed in this section.
RELATIONSHIP WITH INDEPENDENT PUBLIC
ACCOUNTANTS
There were no material disagreements with our independent
public accountants, PricewaterhouseCoopers, LLP (PwC) on
any matter of accounting principles or financial statement
disclosures during this period. In 2016, the Association paid
PwC a fee of $50,000 for audit services and a fee of $15,500
for tax services.
17
Report of Independent Auditors
To the Board of Directors
of Yankee Farm Credit, ACA
We have audited the accompanying consolidated financial statements of Yankee Farm Credit, ACA and its
subsidiaries (the “Association”), which comprise the consolidated balance sheets as of December 31, 2016,
2015, and 2014, and the related consolidated statements of comprehensive income, changes in members’
equity and cash flows for the years then ended.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the Company's
preparation and fair presentation of the consolidated 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 Company'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 accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated 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 consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Yankee Farm Credit, ACA and its subsidiaries as of December 31, 2016,
2015, and 2014, 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.
March 6, 2017
PricewaterhouseCoopers LLP, 185 Asylum Street, Suite 2400, Hartford, CT 06103
T: (860) 241 7000, F: (860) 241 7590, www.pwc.com/us
18
YANKEE FARM CREDIT, ACA
CONSOLIDATED BALANCE SHEETS
December 31,
2015
(in thousands)
2016
ASSETS
Loans originated by the Association
Plus loans purchased
Less participations sold
Loans held by the Association
Less allowance for loan losses
Net loans
Cash
Accrued interest receivable
Patronage refunds due from CoBank, ACB
Investment in CoBank, ACB
Mission related investment
Premises and equipment, less
accumulated depreciation
Other assets
Total assets
LIABILITIES
Note payable to CoBank, ACB
Patronage distribution payable
Reserve for unfunded commitments
Other liabilities
Total liabilities
MEMBERS' EQUITY
Capital stock and participation certificates
Unallocated surplus
Accumulated other comprehensive (loss)
Total members' equity
Total liabilities and members' equity
$
$
$
$
749,390
20,632
289,397
480,625
5,793
474,832
$
688,636
22,495
262,131
449,000
5,123
443,877
2014
$
561,530
17,482
145,673
433,339
5,283
428,056
4,161
1,620
4,203
18,014
301
4,210
1,484
3,302
16,637
307
1,182
1,308
2,718
15,721
491
3,637
1,138
507,906
3,498
1,138
474,453
3,184
1,371
454,031
399,144
5,115
129
4,100
408,488
1,092
99,887
(1,561)
99,418
507,906
$
$
$
372,830
4,862
92
1,680
379,464
1,093
95,709
(1,813)
94,989
474,453
$
$
$
The accompanying notes are an integral part of these financial statements.
19
356,885
4,641
90
2,742
364,358
1,082
90,347
(1,756)
89,673
454,031
YANKEE FARM CREDIT, ACA
CONSOLIDATED STATEMENTS OF INCOME
2016
INTEREST INCOME
Loans
Total interest income
$
19,919
19,919
INTEREST EXPENSE
Note payable to CoBank, ACB
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision
for credit losses
OTHER INCOME
Patronage refunds from CoBank, ACB
Fees for financial services
Loan fees and other income
Total other income
OTHER EXPENSE
Salaries and employee benefits
Occupancy and equipment
Farm Credit Insurance Fund premium
Fees paid to Farm Credit Financial Partners, Inc.
Other expenses
Total other expense
Year ended December 31,
2015
(in thousands)
$
17,630
17,630
$
17,078
17,078
3,612
3,612
2,495
2,495
2,388
2,388
16,307
711
15,135
(136)
14,690
11
15,596
15,271
14,679
2,861
1,655
159
4,675
2,642
1,517
76
4,235
2,382
1,267
398
4,047
6,148
502
544
1,298
2,483
10,975
5,285
489
383
1,296
1,828
9,281
5,075
389
347
1,105
1,747
8,663
$
10,225
1
10,224
$
10,063
3
10,060
$
(57)
10,167
$
Income before income taxes
Provision for income taxes
Net income
$
9,296
3
9,293
OTHER COMPREHENSIVE INCOME
OCI related to pension liabilities
Comprehensive Income
$
252
9,545
The accompanying notes are an integral part of these financial statements.
20
2014
(390)
9,670
YANKEE FARM CREDIT, ACA
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
Accumulated
Other
Unallocated Comprehensive
Surplus
Income (Loss)
(in thousands)
Capital Stock
and Participation
Certificates
Balance at December 31, 2013
$
Comprehensive income
Net income
Other comprehensive income
Adjustment for pension liabilities
Pension
Post Retirement Healthcare
Total comprehensive income
Capital stock/PCs issued
Capital stock/PCs retired
Patronage distributions in cash
1,068
Balance at December 31, 2014
Comprehensive income
Net income
Other comprehensive income
Adjustment for pension liabilities
Pension
Post Retirement Healthcare
Total comprehensive income
Capital stock/PCs issued
Capital stock/PCs retired
Patronage distributions in cash
Comprehensive income
Net income
Other comprehensive income
Adjustment for pension liabilities
Pension
Post Retirement Healthcare
Total comprehensive income
Capital stock/PCs issued
Capital stock/PCs retired
Patronage distributions in cash
10,060
-
-
$
(1,366)
$
-
84,630
10,060
(4,641)
-
(396)
6
9,670
149
(135)
(4,641)
1,082
90,347
(1,756)
89,673
-
10,224
-
10,224
-
-
(2)
(55)
(2)
(55)
10,167
(4,862)
-
160
(149)
(4,862)
1,093
95,709
(1,813)
94,989
-
9,293
-
9,293
-
-
195
57
195
57
9,545
149
(135)
-
139
(140)
$
84,928
-
160
(149)
-
Balance at December 31, 2015
Balance at December 31, 2016
$
Total
Members'
Equity
1,092
(396)
6
(5,115)
$
99,887
$
(1,561)
The accompanying notes are an integral part of these financial statements.
21
139
(140)
(5,115)
$
99,418
YANKEE FARM CREDIT, ACA
CONSOLIDATED STATEMENTS OF CASH FLOWS
2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
Provision for loan losses
Noncash increase in investment in CoBank, ACB
Increase in accrued interest receivable
Increase (decrease) in other liabilities
Decrease (increase) in other assets
Gain from sales of premises and equipment
Total adjustments
Net cash provided by operating activities
$
Year ended December 31,
2015
2014
(in thousands)
9,293
$
10,224
$
10,060
297
670
(435)
(226)
2,709
6
(69)
2,952
12,245
273
(136)
(307)
(217)
(1,116)
417
(31)
(1,117)
9,107
221
11
(178)
(63)
361
744
(373)
723
10,783
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in loans, net
Expenditures for premises and equipment
Proceeds from sales of premises and equipment
Increase in distribution of CoBank, ACB
earnings receivable
Increase in investment in CoBank, ACB
Net cash used in investing activities
(31,535)
(488)
121
(15,644)
(629)
73
(19,922)
(2,415)
399
(901)
(942)
(33,745)
(584)
(609)
(17,393)
(583)
(591)
(23,112)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on note payable under financing
agreement with CoBank, ACB
Repayment of note payable to CoBank, ACB
Capital stock and participation certificates issued
Capital stock and participation certificates retired
Patronage distribution paid
Net cash provided by financing activities
433,728
(407,414)
141
(142)
(4,862)
21,451
587,795
(571,851)
160
(149)
(4,641)
11,314
362,966
(345,817)
149
(135)
(4,934)
12,229
Net (decrease) increase in cash
Cash at beginning of year
Cash at end of year
$
Supplemental schedule of non-cash investing and financing activities
Patronage distribution declared
$
Accrued interest receivable transferred to loans
(49)
4,210
4,161
5,115
90
$
$
3,028
1,182
4,210
4,862
41
The accompanying notes are an integral part of these financial statements.
22
$
$
(100)
1,282
1,182
4,641
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except as noted)
NOTE 1 - ORGANIZATION AND OPERATIONS
B. The Association, CoBank and FPI
Yankee Farm Credit, ACA (the Association) is one of the
associations of the Farm Credit System.
The Association is a member-owned cooperative which
provides credit and credit-related services to eligible
borrowers/members for qualified agricultural purposes within
its chartered territory, which consists of: the State of Vermont;
Cheshire, Coos, Grafton and Sullivan counties in the State of
New Hampshire; and Clinton and Essex counties in the State
of New York.
A. The Farm Credit System
The Farm Credit System (System) is a nationwide system of
cooperatively owned banks and associations established by
Acts of Congress to provide credit and other financial services
to farmers and other eligible borrowers. The System is subject
to the provisions of the Farm Credit Act of 1971, as amended
(the Farm Credit Act).
The Association is affiliated with CoBank, ACB, one of the
four banks in the System. CoBank, headquartered near
Denver, Colorado, is the Association’s source of funds.
The Association’s financial condition may be impacted by
factors which affect CoBank. CoBank’s Annual Report to
Stockholders discusses material aspects of its financial
condition, changes in financial condition, and results of
operations. In addition, CoBank’s Annual Report discusses the
impacts of the Insurance Corporation and other forms of intraSystem financial assistance. Information on obtaining a copy
of CoBank’s annual and quarterly financial statements is
provided on page 47 of this report.
At December 31, 2016, the System was comprised of four
banks and approximately 73 associations. Each association is
affiliated with one of the banks. The banks lend funds to the
associations, supervise the activities of the associations,
provide other services to the associations, and may engage in
activities not related to the associations. The banks obtain
funds principally by jointly selling Systemwide debt
obligations to the public.
The Farm Credit Administration (FCA) is an agency in the
executive branch of the Federal government, delegated
authority by Congress to regulate all System institutions. The
FCA examines the activities of System associations to ensure
their compliance with the Farm Credit Act, FCA regulations
and safe and sound banking practices. (See www.fca.gov)
The Agricultural Credit Act of 1987 established the Farm
Credit System Insurance Corporation (Insurance Corporation)
to administer the Farm Credit Insurance Fund (Insurance
Fund). The primary purpose of the Insurance Fund is to ensure
the timely payment of principal and interest on Systemwide
debt obligations. The Insurance Fund is funded by premiums
paid by System banks (which may then be passed on to
associations) until the monies reach the “secure base amount,”
which is defined in the Farm Credit Act as 2.0% of the insured
obligations. When the amount in the Insurance Fund exceeds
the secure base amount, the Insurance Corporation is required
to reduce premiums as necessary to maintain the Insurance
Fund at the 2.0% level. As required by the Farm Credit Act, as
amended, the Insurance Corporation may return excess funds
above the secure base amount to System institutions. (See
www.fcsic.gov)
23
Farm Credit Financial Partners, Inc. (FPI) is an entity that
provides important services to the Association. FPI is owned
by four Farm Credit System associations. The Association was
previously an owner of FPI, but effective December 31, 2014
entered into a vendored services agreement with FPI and no
longer has an ownership interest in the organization. FPI,
which is headquartered near Springfield, Massachusetts,
provides accounting, information technology, and other
services to the four owner associations, CoBank, the
Association, and other customers.
C. Operations
The Association makes short-term and intermediate-term
loans for agricultural production or operating purposes, and
long-term real estate mortgage loans. The Association also
offers credit-related financial services, including: credit life
insurance and crop insurance (the Association acts as agent,
not principal); bookkeeping; farm accounting software; tax
return preparation and tax planning; fee appraisals; consulting;
and leasing.
The Farm Credit Act sets forth the types of authorized lending
activity, persons eligible to borrow from, and financial
services which can be offered by the Association. Eligible
borrowers include farmers, ranchers, producers or harvesters
of aquatic products, rural residents and farm-related
businesses.
D. Subsidiaries
The Association (which is an agricultural credit association or
ACA) has two wholly-owned subsidiaries: Yankee Farm
Credit, PCA (a production credit association) and Yankee
Farm Credit, FLCA (a federal land credit association). The
PCA is presently dormant. The FLCA holds certain assets,
primarily long-term real estate loans, and related liabilities.
All other assets and liabilities are held by the ACA. The
FLCA is exempt from federal and state income tax. The ACA
and PCA are taxable. This annual report presents the
Association and its subsidiaries on a consolidated basis.
E. Types of System Banks and Associations
For the purpose of reading this report, it may be helpful to
know the various types of banks and associations in the
System, and their principal authorities:
Banks
FCB – Farm Credit Bank – Authorized to provide funds and
other services to Farm Credit associations.
ACB – Agricultural Credit Bank – Authorized to provide
funds and other services to Farm Credit associations and to
farmers’ cooperatives.
Associations
PCA – Production Credit Association – Authorized to provide
short and intermediate term loans to eligible borrowers.
FLCA – Federal Land Credit Association – Authorized to
provide long-term real estate mortgage loans to eligible
borrowers.
ACA – Agricultural Credit Association – Authorized to
provide both short/intermediate term loans and long-term real
estate mortgage loans to eligible borrowers. ACAs may have
PCAs and/or FLCAs as wholly-owned subsidiaries.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accounting and reporting policies of the Association
conform with accounting principles generally accepted in the
United States of America (GAAP) and prevailing practices
within the banking industry. The preparation of financial
statements in conformity with GAAP requires management to
make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Significant estimates are discussed in these footnotes, as
applicable. Actual results may differ from these estimates.
A. Recently Issued or Adopted Accounting
Pronouncements
In August 2014, the Financial Accounting Standards Board
(FASB) issued guidance entitled “Presentation of Financial
Statements — Going Concern.” The guidance governs
management’s responsibility to evaluate whether there is
substantial doubt about an entity’s ability to continue as a
going concern and to provide related footnote disclosures.
This guidance requires management to perform interim and
annual assessments of an entity’s ability to continue as a going
concern within one year after the date the financial statements
are issued or within one year after the financial statements are
available to be issued, when applicable. Substantial doubt
exists if it is probable that the entity will be unable to meet its
obligations for the assessed period. This guidance becomes
effective for interim and annual periods ending after
December 15, 2016, and early application is permitted. The
Association adopted this guidance in the fourth quarter of
2016 and management made its initial assessment as of
December 31, 2016.
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 will evaluate the impact of adoption on the
System’s financial condition and its 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. This guidance becomes effective for interim and
annual periods beginning after December 15, 2018, with early
application permitted. The Association is currently evaluating
the impact of adoption on its financial condition and results of
operations.
In January 2016, the FASB issued guidance entitled
“Recognition and Measurement of Financial Assets and
Liabilities.” The guidance affects, among other things, the
presentation and disclosure requirements for financial
instruments. For public entities, the guidance eliminates the
requirement to disclose the methods and significant
assumptions used to estimate the fair value of financial
instruments carried at amortized cost. This guidance becomes
24
effective for interim and annual periods beginning after
December 15, 2017. The adoption of this guidance is not
expected to impact the Association’s financial condition or its
results of operations.
In May 2014, the FASB issued guidance entitled, “Revenue
from Contracts with Customers.” The guidance governs
revenue recognition from contracts with customers and
requires an entity to recognize revenue to depict the transfer of
promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. Financial
instruments and other contractual rights within the scope of
other guidance issued by the FASB are excluded from the
scope of this new revenue recognition guidance. In this
regard, a majority of the Association’s contracts would be
excluded from the scope of this new guidance. In August
2015, the FASB issued an update that defers this guidance by
one year, which results in the new revenue standard becoming
effective for interim and annual reporting periods beginning
after December 15, 2017. The Association is in the process of
reviewing contracts to determine the effect, if any, on its
financial condition or results of operations.
B. Loans and Allowance for Loan Losses
Long-term real estate mortgage loans generally have
maturities ranging up to 25 years. Substantially all short-term
and intermediate-term loans for agricultural production or
operating purposes have maturities of 10 years or less.
Loans are carried at their principal amount outstanding.
Impaired loans are generally placed in nonaccrual status when
principal or interest is delinquent for 90 days or more (unless
adequately secured and in the process of collection) or
circumstances indicate that collection of principal and/or
interest is in doubt. When a loan is placed in nonaccrual status,
accrued interest deemed uncollectible is either reversed (if
accrued in the current year) or charged against the allowance
for loan losses (if accrued in prior years). Loans are charged
off at the time they are determined to be uncollectible.
When loans are in nonaccrual status, payments are generally
applied against the recorded investment in the loan asset.
Interest income is generally recognized only to the extent that
payments are received once the recorded investment is
reduced to zero. Nonaccrual loans may be reinstated to accrual
status when principal and interest are current, the borrower has
demonstrated payment performance, there are no unrecovered
prior charge-offs and collection of future payments is no
longer in doubt. If previously unrecognized interest income
exists at the time the loan is transferred to accrual status, cash
received at the time of or subsequent to the transfer is first
recorded as interest income until such time as the recorded
balance equals the contractual indebtedness of the borrower.
25
In cases where a borrower experiences financial difficulties
and the Association makes certain monetary concessions to
the borrower through modifications to the contractual terms of
the loan, the loan is classified as a restructured loan. A
restructured loan constitutes a troubled debt restructuring if,
for economic or legal reasons related to the borrower’s
financial difficulties, the Association grants a concession to
the borrower that it would not otherwise consider. If the
borrower’s ability to meet the revised payment schedule is
uncertain, the loan is classified as a nonaccrual loan.
The Association purchases loan participations from other
System entities to generate additional earnings and diversify
risk related to existing commodities financed and the
geographic area served. Additionally, the Association sells a
portion of certain large loans to other System entities to reduce
risk and comply with established lending limits. These sold
loans are accounted for following the accounting requirements
for sale treatment.
The Association uses a two-dimensional risk rating model that
is based on the Combined System Risk Rating Guidance that
incorporates a 14-point probability of default (PD) scale and a
6-point loss given default (LGD) scale. Probability of default
is an estimate of the probability that a borrower will
experience a default within 12 months from the date of the
determination of the PD rating. A default is considered to have
occurred if the borrower is past due more than 90 days or the
lender determines the borrower will be unlikely to pay its
obligation in full without recourse by the lender to actions
such as collecting on security. The loss given default is
management’s estimate as to the anticipated economic loss on
a specific loan assuming default has occurred or is expected to
occur within the next 12 months. The combination of its PD
and LGD ratings constitute a loan’s risk rating.
Each of the PD categories carries a distinct percentage of
default probability. The 14-point PD scale provides for
granularity of the probability of default, especially within the
acceptable credit classification. There are nine PD categories
within the acceptable classification that range from a borrower
of the highest quality (a “1”) to a borrower of minimally
acceptable quality (a “9”). The range of probability of default
between “1” and “9” is very narrow and would reflect almost
no default to a minimal default percentage. The probability of
default grows more rapidly as a loan moves from a “9” to the
other assets especially mentioned credit classification (a “10”)
and grows significantly as a loan moves to a substandard
(viable) credit classification (an “11”). A substandard (nonviable) credit classification (a “12”) indicates that the
probability of default is high.
The credit risk rating methodology is a key component of the
Association’s allowance for loan losses evaluation, and is
generally incorporated in its loan underwriting standards and
internal lending limit.
The allowance for loan losses is maintained at a level
considered adequate by management to provide for probable
and estimable losses inherent in the loan portfolio. The
allowance for loan losses encompasses various judgments,
evaluations and appraisals with respect to the loans and their
underlying security that, by their nature, contain elements of
uncertainty and imprecision. Changes in the agricultural
economy and their impact on borrower repayment capacity
will cause these various judgments, evaluations and appraisals
to change over time. Accordingly, actual circumstances could
vary significantly from the Association’s expectations and
predictions of those circumstances. Management considers the
following factors in determining and supporting the level of
allowance for loan losses: the concentration of lending in
agriculture, combined with uncertainties associated with
farmland values, commodity prices, exports, government
assistance programs, regional economic effects and weatherrelated influences.
The allowance for loan losses includes components for loans
individually evaluated for impairment and for loans
collectively evaluated for impairment. Generally, for loans
individually evaluated the allowance for loan losses represents
the difference between the recorded investment in the loan and
the present value of the cash flows expected to be collected
discounted at the loan’s effective interest rate, or at the fair
value of the collateral, if the loan is collateral dependent. For
those loans collectively evaluated for impairment, the
allowance for loan losses is generally based on recent chargeoff experience adjusted for relevant environmental factors.
When adjusting the historical charge-off experience, the
Association considers changes in credit risk classification,
collateral values, risk concentrations, weather related
conditions and economic conditions.
The Association maintains a separate reserve for unfunded
commitments, which is separately noted in the “Liabilities”
section of the Association’s consolidated balance sheets.
E. Mission Related Investment
The Association may hold investments in accordance with
mission related investment programs approved by the FCA.
These programs allow the Association to make investments
that further the System’s mission to serve rural America. The
investment is reported using the equity accounting method
with realized gains or losses recognized in current operations.
F. Other Property Owned
Other property owned, consisting of real and personal property
acquired through foreclosure or deed in lieu of foreclosure, is
recorded at fair value less estimated selling costs. Revised
estimates to the fair value less cost to sell are reported as
adjustments to the carrying amount of the asset, provided that
such adjusted value is not in excess of the carrying amount at
acquisition. Income and expenses from operations and
carrying value adjustments are included in (gains) losses on
other property owned.
G. Premises and Equipment
Premises and equipment are carried at cost less accumulated
depreciation. Land is carried at cost. Depreciation is computed
principally using the straight-line method over the estimated
useful lives of ten to forty years for buildings and
improvements, three to seven years for furniture and
equipment, and five years for automobiles. Gains and losses
on dispositions are reflected in current operations.
Maintenance and repairs are charged to operating expense, and
improvements are capitalized.
H. Employee Benefit Plans
Employees are eligible to participate in a deferred
compensation plan. A certain percentage of employee
contributions is matched by the Association. Costs for this
plan are expensed as funded.
C. Cash
Cash, as included in the consolidated financial statements,
represents cash on hand and on deposit at financial
institutions. At times, cash deposits may be in excess of
federally insured limits.
D. Investment in CoBank, ACB
The Association’s required investment in CoBank is in the
form of Class A Stock. The minimum required investment is
4.00 percent of the prior year’s average direct loan volume.
The investment in CoBank is comprised of patronage based
stock and purchased stock. The requirement for capitalizing
patronage-based participation loans sold to CoBank is 8.00
percent of the prior ten-year average of such participations
sold to CoBank.
The Association also provides a non-contributory defined
contribution retirement plan for employees. Costs for this plan
are expensed as funded.
Certain former employees of the Association (retirees and
vested former employees) participate in a defined benefit
retirement plan. The “Projected Unit Credit” actuarial method
is used for financial reporting purposes and the “Entry-Age
Normal Cost” method is used for funding purposes.
26
I. Income Taxes
As previously described, the Association operates through two
wholly-owned subsidiaries. The FLCA subsidiary is exempt
from federal and other income taxes as provided in the Farm
Credit Act.
The Association, and the PCA subsidiary, are subject to
certain income taxes. The Association is eligible to operate as
a cooperative that qualifies for tax treatment under Subchapter
T of the Internal Revenue Code. Accordingly, under specified
conditions, the Association can exclude from taxable income
amounts distributed as qualified patronage refunds in the form
of cash, stock or allocated surplus. Provisions for income taxes
are made only on those earnings that will not be distributed as
qualified patronage refunds. The Association distributes
patronage on the basis of book income. Deferred taxes are
recorded on the tax effect of all temporary differences based
on the assumption that such temporary differences are retained
by the institution and will therefore impact future tax
payments. A valuation allowance is provided against deferred
tax assets to the extent that it is more likely than not (over 50
percent probability), based on management’s estimate, that
they will not be realized.
Level 1 — Quoted prices in active markets for identical assets
or liabilities that the reporting entity has the ability to access at
the measurement date. Level 1 asset and liabilities include
debt and equity securities and derivative contracts that are
traded in an active exchange market, as well as certain
U.S. Treasury, other U.S. Government and agency mortgagebacked debt securities that are highly liquid and are actively
traded in over-the-counter markets. The Association does not
have any Level 1 financial instruments.
Level 2 — Observable inputs other than quoted prices
included within Level 1 that are observable for the asset or
liability either directly or indirectly. Level 2 inputs include the
following: (a) quoted prices for similar assets or liabilities in
active markets; (b) quoted prices for identical or similar assets
or liabilities in markets that are not active so that they are
traded less frequently than exchange-traded instruments, the
prices are not current or principal market information is not
released publicly; (c) inputs other than quoted prices that are
observable such as interest rates and yield curves, prepayment
speeds, credit risks and default rates and (d) inputs derived
principally from or corroborated by observable market data by
correlation or other means.
Level 3 — Unobservable inputs that are supported by little or
no market activity and that are significant to the fair value of
the assets or liabilities are considered Level 3. These
unobservable inputs reflect the reporting entity’s own
assumptions about assumptions that market participants would
use in pricing the asset or liability. Level 3 assets and
liabilities include financial instruments whose values are
determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments
for which the determination of fair value requires significant
management judgment or estimation. This category generally
includes nonaccrual loans, other property owned and note
payable to CoBank.
Deferred income taxes have not been provided by the
Association on patronage distributions from the Farm Credit
Bank of Springfield (FCB) prior to January 1, 1993, the
adoption date of the FASB guidance on income taxes.
Management’s intent is to permanently invest these and other
undistributed earnings in CoBank, thereby indefinitely
postponing their conversion to cash. (CoBank is the successor
to the FCB.) Additionally, deferred income taxes have not
been provided on CoBank’s unallocated earnings because
CoBank currently has no plans to distribute unallocated
earnings.
J. Patronage Refund from CoBank
The fair value disclosures are presented in Note 11 and Note
14.
The Association records patronage refunds from CoBank on
the accrual basis.
L. Off-Balance-Sheet Credit Exposures
K. Fair Value Measurement
Commercial letters of credit are conditional commitments
issued to guarantee the performance of a borrower to a third
party. These letters of credit are issued to facilitate commerce
and typically result in the commitment being funded when the
underlying transaction is consummated between the borrower
and the third party. The credit risk associated with letters of
credit is essentially the same as that involved with extending
loans to borrowers and is subject to normal credit policies.
Collateral may be obtained based on management’s
assessment of the customer’s creditworthiness.
The FASB guidance defines fair value, establishes a
framework for measuring fair value and expands disclosures
about fair value measurements. It describes three levels of
inputs that may be used to measure fair value:
27
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN
LOSSES
A summary of loans follows:
December 31,
2016
2015
2014
$ 206,714 $ 187,050 $ 180,548
1,898
2,045
2,267
27,992
26,417
24,051
Long-term farm mortgage
Country home
Farm related business
Production and
intermediate term
Total loans originated
by the Association
Plus participations purchased
Less participations sold
Loans held by the Association $
512,786
473,124
354,664
749,390
688,636
561,530
20,632
22,495
17,482
289,397
262,131
145,673
480,625 $ 449,000 $ 433,339
We may purchase or sell participation interests with other
parties in order to diversify risk, manage loan volume and
comply with FCA regulations.
All of the Association’s loan participations are with other
Farm Credit institutions. The following table presents
information regarding the balances of participations purchased
and sold as of December 31, 2016.
Participations
Purchased
Sold
Long-term farm mortgage
$ 13,980 $ 11,423
Farm related business
6,264
1,564
Production and intermediate term
388
276,410
Total
$ 20,632 $ 289,397
The Association’s concentration of credit risk in various
agricultural commodities is shown in the following table.
While the amounts represent the Association’s maximum
potential credit risk as it relates to recorded loan principal, a
substantial portion of the Association’s lending activities is
collateralized and the Association’s exposure to credit loss
associated with lending activities is reduced accordingly. An
estimate of the Association’s credit risk exposure is
considered in the determination of the allowance for loan
losses.
December 31,
2016
2015
2014
Commodity Amount
%
Amount
%
Amount
%
Dairy
$ 245,952 51% $ 221,596 49% $ 220,954 51%
Timber
63,985 13%
65,742 15%
61,124 14%
50,188 10%
42,151 9%
38,224 9%
Maple
FRB*
28,185 6%
27,655 6%
25,144 6%
Fruit &
Vegetables
20,739 4%
19,071 4%
18,019 4%
Livestock
16,987 4%
17,281 4%
16,727 4%
Part-time
Farmer
12,221 3%
12,011 3%
11,360 3%
42,368 9%
43,493 10%
41,787 9%
Other
Total
$ 480,625 100% $ 449,000 100% $ 433,339 100%
*Farm Related Business
The amount of collateral obtained, if deemed necessary upon
extension of credit, is based on management’s credit
evaluation of the borrower. Collateral held varies, but
typically includes farmland and income-producing property,
such as crops and livestock, as well as equipment and
receivables. Long-term real estate loans are secured by first
liens on the underlying real property. Federal regulations state
that long-term real estate loans are not to exceed 85% (97% if
guaranteed by a government agency) of the property’s
appraised value. However, a decline in a property’s market
value subsequent to loan origination or advances, or other
actions necessary to protect the financial interest of the
Association in the collateral, may result in loan to value ratios
in excess of the regulatory maximum.
Impaired loans include nonaccrual loans plus restructured
accrual loans. The following table presents information
relating to impaired loans:
December 31,
2016
Nonaccrual loans:
Current
Past due
Total nonaccrual loans
$
Restructured accrual loans
Total impaired loans
28
636 $
4,978
5,614
94
$
5,708 $
2015
785 $
700
1,485
517
2,002 $
2014
1,247
988
2,235
539
2,774
categories are defined as follows:
A summary of impaired loans follows:
2016
Nonaccrual loans:
Long-term farm mortgage
Farm related business
Production and
intermediate term
Total nonaccrual loans
Restructured accrual loans:
Long-term farm mortgage
Total impaired loans
$
December 31,
2015
737 $
111
·
2014
765 $
391
·
1,116
671
4,766
5,614
329
1,485
448
2,235
94
5,708 $
517
2,002 $
539
2,774
·
·
$
One credit quality indicator utilized by the Association is the
Farm Credit Administration Uniform Loan Classification
System that categorizes loans into five categories. The
·
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, and
Loss – assets are considered uncollectible.
The following table shows loans and related accrued interest as a percentage of total loans and related accrued interest receivable
by loan type as of:
2016
December 31,
2015
2014
36.2%
2.5%
1.2%
39.9%
35.8%
1.5%
1.3%
38.6%
35.6%
1.3%
2.0%
38.9%
Country Home
Acceptable
OAEM
Substandard/Doubtful
Total
0.3%
0.1%
0.4%
0.4%
0.1%
0.5%
0.5%
0.1%
0.6%
Farm related business
Acceptable
OAEM
Substandard/Doubtful
Total
12.3%
0.3%
12.6%
12.1%
0.4%
0.3%
12.8%
12.5%
0.4%
12.9%
Production and Intermediate Term
Acceptable
OAEM
Substandard/Doubtful
Total
44.3%
1.5%
1.3%
47.1%
45.4%
1.2%
1.5%
48.1%
44.2%
1.7%
1.7%
47.6%
93.1%
4.1%
2.8%
100.0%
93.7%
3.2%
3.1%
100.0%
92.8%
3.1%
4.1%
100.0%
Long-term farm mortgage
Acceptable
OAEM
Substandard/Doubtful
Total
Total Loans
Acceptable
OAEM
Substandard/Doubtful
Total
29
The following table provides an age analysis of all loans and related accrued interest more than 30 days past due as of December
31, 2016:
Long-term farm mortgage
Farm related business
Production and intermediate term
Loans held by the Association
Past Due
30-89
> 90
Days
Days
Total
$
613 $
96 $
709
733
117
850
110
4,760
4,870
$
1,456 $
4,973 $
6,429
There were no loans that were 90 days or more past due but still classified as accrual at December 31, 2016.
A restructuring of a debt constitutes as troubled debt restructuring if the Association, for economic or legal reasons related to the
member’s financial difficulties, grants a concession to the member that it would not otherwise consider. As of December 31,
2016 the Association had troubled debt restructurings of $94 thousand.
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
December 31,
December 31,
December 31,
2016
2015
2014
TDRs in Nonaccrual Status*
December 31,
December 31,
December 31,
2016
2015
2014
Long-term farm
Mortgage
$
94 $
517 $
539 $
Farm related business
28
133
Production and
intermediate term
7
9
Total
$
94 $
552 $
681 $
*represents the portion of loans modified as TDRs that are in nonaccrual status
-
$
-
$
- $
28
133
7
35 $
9
142
The Association had no new troubled debt restructurings occurring during the year ended December 31, 2016. During 2016 no
troubled debt restructurings defaulted.
Additional impaired loan information is as follows:
Recorded
Investment
At 12/31/16
Impaired Loans with a related
allowance for loan losses:
Long-term farm mortgage
Farm related business
Production and intermediate term
Total
Impaired Loans with no related
allowance for loan losses:
Production and intermediate term
Total
$
Unpaid
Principal
Balance*
$
756 $
145
4,807
5,708 $
$
-
1,414 $
251
4,971
6,636 $
342
342 $
$
Average
Impaired
Loans
Related
Allowance
58 $
23
244
325 $
-
$
Interest
Income
Recognized
884 $
186
4,827
5,897 $
8
161
13
182
-
30
30
$
Total Impaired Loans:
Long-term farm mortgage
$
756 $
1,414 $
58 $
884 $
251
23
186
Farm related business
145
Production and intermediate term
4,807
5,313
244
4,827
Total
$
5,708 $
6,978 $
325 $
5,897 $
*Unpaid principal balance represents the borrower’s contractual balance of the loan.
30
8
161
43
212
Recorded
Investment
At 12/31/15
Impaired Loans with a related
allowance for loan losses:
Long-term farm mortgage
Farm related business
Production and intermediate term
Total
Impaired Loans with no related
allowance for loan losses:
Production and intermediate term
Total
$
Unpaid
Principal
Balance*
$
1,282 $
391
329
2,002 $
$
-
1,857 $
842
774
3,473 $
19
19 $
$
Average
Impaired
Loans
Related
Allowance
59 $
72
75
206 $
-
Interest
Income
Recognized
1,409 $
408
591
2,408 $
-
$
$
Total Impaired Loans:
Long-term farm mortgage
$
1,282 $
1,857 $
59 $
1,409 $
Farm related business
391
842
72
408
Production and intermediate term
329
793
75
591
Total
$
2,002 $
3,492 $
206 $
2,408 $
*Unpaid principal balance represents the borrower’s contractual balance of the loan.
Recorded
Investment
At 12/31/14
Impaired Loans with a related
allowance for loan losses:
Long-term farm mortgage
Farm related business
Production and intermediate term
Total
Impaired Loans with no related
allowance for loan losses:
Long-term farm mortgage
Farm related business
Production and intermediate term
Total
$
$
$
$
Unpaid
Principal
Balance*
1,646 $
672
439
2,757 $
2,191 $
1,029
836
4,056 $
8 $
9
17 $
25 $
12
31
68 $
Average
Impaired
Loans
Related
Allowance
173 $
165
87
425 $
-
$
$
Total Impaired Loans:
Long-term farm mortgage
$
1,654 $
2,216 $
173 $
Farm related business
672
1,041
165
Production and intermediate term
448
867
87
Total
$
2,774 $
4,124 $
425 $
*Unpaid principal balance represents the borrower’s contractual balance of the loan.
1,842 $
818
581
3,241 $
10 $
- $
10
20 $
1,852 $
818
591
3,261 $
47
12
1
60
-
47
12
1
60
Interest
Income
Recognized
28
16
31
75
-
28
16
31
75
There were no material commitments to lend additional funds to members whose loans were classified as impaired at December
31, 2016.
31
The following table presents information relating to interest income on nonaccrual loans that would have been recognized under
the original terms of the loans:
Year ended December 31,
2016
2015
2014
Interest income that would have been
recognized under the original loan terms
Less: interest recognized
Interest not recognized
$
486 $
212
274 $
$
201 $
32
169 $
235
47
188
A summary of changes in the allowance for loan losses and period end recorded investment in loans is as follows:
Long-term
farm
mortgage
Allowance for Loan Losses:
Balance at December 31, 2015
Charge-offs
Recoveries
Provision for credit losses
Balance at December 31, 2016
$
10
(1)
9
2,633
$
9
$
58
$
Recorded Investment in Loans
Outstanding:
Ending Balance for loans collectively
evaluated for impairment
$
208,515
Ending Balance for loans individually
evaluated for impairment
$
Ending Balance: collectively
evaluated for impairment
Ending Balance: individually
evaluated for impairment
Ending Balance at
December 31, 2016
$
Country
Home
$
$
2,380
311
2,691
$
$
Production &
intermediate
term
Farm related
business
$
$
324
(1)
(54)
269
$
$
2,409
(13)
10
418
2,824
$
5,123
(14)
10
674
5,793
$
246
$
2,580
$
5,468
-
$
23
$
244
$
325
$
1,898
$
32,547
$
231,957
$
474,917
756
$
-
$
145
$
4,807
$
5,708
209,271
$
1,898
$
32,692
$
236,764
$
480,625
32
$
Total
Long-term
farm
mortgage
Allowance for Loan Losses:
Balance at December 31, 2014
Charge-offs
Recoveries
Provision for credit losses
Balance at December 31, 2015
$
10
10
2,321
$
$
59
Recorded Investment in Loans
Outstanding:
Ending Balance for loans collectively
evaluated for impairment
$
Ending Balance for loans individually
evaluated for impairment
$
Ending Balance: collectively
evaluated for impairment
Ending Balance: individually
evaluated for impairment
Ending Balance at
December 31, 2015
$
$
2,570
(190)
2,380
$
Country
Home
$
$
$
344
(25)
2
3
324
$
$
5,283
(25)
4
(139)
5,123
10
$
252
$
2,334
$
4,917
$
-
$
72
$
75
$
206
187,700
$
2,045
$
32,295
$
224,958
$
446,998
1,282
$
-
$
391
$
329
$
2,002
188,982
$
2,045
$
32,686
$
225,287
$
449,000
Country
Home
$
$
2,397
$
$
173
Recorded Investment in Loans
Outstanding:
Ending Balance for loans collectively
evaluated for impairment
$
Ending Balance for loans individually
evaluated for impairment
$
Ending Balance at
December 31, 2014
$
$
3,153
(583)
2,570
$
$
$
$
Production &
intermediate
term
Farm related
business
40
(30)
10
Ending Balance: collectively
evaluated for impairment
Ending Balance: individually
evaluated for impairment
$
$
Total
2,359
2
48
2,409
Long-term
farm
mortgage
Allowance for Loan Losses:
Balance at December 31, 2013
Charge-offs
Recoveries
Provision for credit losses
Balance at December 31, 2014
Production &
intermediate
term
Farm related
business
$
$
374
(18)
6
(18)
344
10
$
$
-
180,689
$
1,654
182,343
Total
$
$
1,619
740
2,359
$
5,186
(18)
6
109
5,283
179
$
2,272
$
4,858
$
165
$
87
$
425
2,314
$
27,787
$
219,775
$
430,565
$
-
$
448
$
672
$
2,774
$
2,314
$
28,235
$
220,447
$
433,339
Our methodology for determining the allowance for loan losses takes into consideration potential losses related to unfunded
commitments, and as a result, we have established a separate reserve for unfunded commitments, which is included in Liabilities
on the Association’s balance sheets.
33
The provision for the reserve for unfunded commitments is part of the Provision for Credit Losses on the income statement. The
components of the Provision for Credit Losses are presented in the table below:
Year ended December 31,
2016
2015
2014
Provision (Reversal of Provision) for loan losses $
674 $
(139) $
109
Provision (Reversal of Provision) for unfunded
commitments
37
3
(98)
Total provision for credit losses
$
711 $
(136) $
11
NOTE 4 - INVESTMENT IN COBANK, ACB
The Association’s investment in CoBank, ACB is in the form
of Class A stock with a par value of $100 per share. The
Association is required to invest in CoBank for two purposes.
First, the Association is required to invest in CoBank to
capitalize the Association’s loan from CoBank. The
capitalization requirement for this purpose is 4% of the
average borrowings for the current year. For 2016, the
required investment in CoBank for this purpose was $14.842
million and the actual investment was $14,834 million. When
the Association’s investment is more than the required
amount, CoBank adjusts the interest rate to the Association to
compensate for any capital excess of the required amount. As
the capitalization requirement is measured at year-end, the
interest rate adjustment will be effective in the subsequent
year.
Second, the Association is required to invest in CoBank to
capitalize any participation loans sold to CoBank. In 2016, the
capitalization requirement for this purpose was 8% of the
previous ten years’ average participations sold. For 2016, the
required investment in CoBank for this purpose was $5.412
million and the actual investment was $3.180 million. When
the Association’s investment is less than the required amount,
CoBank pays a portion of the patronage refunds to the
Association in the form of stock. Currently, CoBank pays the
refunds 75% in cash and 25% in stock.
The noncash patronage refund received by the Association
was $436 thousand, $307 thousand and $178 thousand in
2016, 2015, and 2014 respectively.
CoBank’s capital plan is evaluated annually by CoBank’s
board and management and is subject to change.
CoBank may require the holders of stock to subscribe for such
additional capital as may be needed to meet its capital
requirements or its joint and several liability under the Act and
regulations. In making such a capital call, CoBank shall take
into account the financial condition of each such holder and
such other considerations, as it deems appropriate.
The Association owned 0.6% of the issued stock of CoBank
on December 31, 2016. As of that date, CoBank’s assets
totaled $126.1 billion and members’ equity totaled $8.6
billion. CoBank earned net income of $946 million during
2016. .
NOTE 5 – PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
2016
2015
2014
Land
$
545 $
548 $
548
Buildings and improvements
3,058
2,925
2,642
Furniture and equipment
645
645
561
Automobiles
744
682
680
4,992
4,800
4,431
Less accumulated depreciation
1,355
1,302
1,247
Total net premises and
equipment
$
3,637 $
3,498 $
3,184
In October 2016, the previous office and land owned by the
Association in Newport, Vermont was sold. The price
received for the property was $75 thousand. Book value of the
property at the time of the sales was $13 thousand. The
Association realized a gain of $62 thousand which is included
in the Consolidated Statements of Income in loan fees and
other income for the year.
In August 2016, the Association purchased the building it
previously leased in Chazy, NY. The purchase price paid by
the Association for the building and land was $140 thousand
and is included in the table above.
Additionally, land was purchased in Derby, Vermont and
construction of a new office building was started in 2014.
This building was occupied in March 2015 and the cost of the
building ($780 thousand) and the land ($257 thousand) are
included in the above table.
34
considering the Capitalization Plan as well as regulatory and
other requirements.
NOTE 6 – NOTE PAYABLE TO COBANK, ACB
The Association’s indebtedness to CoBank represents
borrowings by the Association to fund its loan portfolio. This
indebtedness is collateralized by a pledge of substantially all
of the Association’s assets, and is governed by a General
Financing Agreement. The interest rate is periodically
adjusted by CoBank. The average interest rate was 1.21% at
December 31, 2016. The average interest rate at December 31,
2015 was 0.83%. The average interest rate at December 31,
2014 was 0.71%.
Each owner or joint owners of Class B stock is entitled to a
single vote, while Class B participation certificates provide no
voting rights to their owners. Voting stock may not be
transferred to another person unless such person is eligible to
hold voting stock.
At December 31, 2016, the Association had 201,608 shares of
Class B stock outstanding at a par value of $5 per share, and
16,794 shares of Class B participation certificates outstanding
at a par value of $5 per share.
CoBank, consistent with FCA regulations, has established
limitations on the Association’s ability to borrow funds based
on specified factors or formulas relating primarily to credit
quality and financial condition. At December 31, 2016, the
Association’s note payable was within the specified
limitations.
B. Patronage Distributions and Allocated Surplus
Subject to the Farm Credit Act, and the Association’s Bylaws
and Capitalization Plan, the Association’s Board of Directors
may authorize the distribution of Association earnings in the
form of a patronage distribution. Patronage distributions are
made in the following year and may be made in cash or
allocated surplus or any combination, as long as the cash
portion is at least 20%. Beginning in 2002, patronage
distributions have been 100% in cash. Earnings not distributed
are retained as unallocated surplus.
NOTE 7 – MEMBERS’ EQUITY
The Association’s capitalization policies are specified in the
Bylaws (Article VIII) and the Capitalization Plan. The
Capitalization Plan is subject to change by the Board of
Directors at any time, and is normally updated annually.
Copies of the Association’s Bylaws and Capitalization Plan
are available to members upon request.
For December 31, 2016, 2015 and 2014, patronage
distribution payable was $5.115 million, $4.862 million and
$4.641million, respectively. The patronage rate has remained
at one percent of average daily balance for all years presented.
A more detailed description of the Association’s capitalization
policies, equities, and regulatory capitalization requirements
and restrictions is provided below.
A.
The Association had no allocated surplus as of December 31,
2016.
Capital Stock and Participation Certificates
In accordance with the Farm Credit Act, each borrower is
required to invest in the Association as a condition of
borrowing. The Association’s Bylaws and Capitalization Plan
specify that each borrower shall invest, at the time the loan is
made, in Class B stock for agricultural loans or Class B
participation certificates for country home and farm-related
business loans. The required amount of stock or participation
certificates is 2.0% of the loan, with a cap of $1 thousand per
customer, which is the legal minimum requirement.
C. Accumulated Other Comprehensive Income (Loss)
The Association reports accumulated other comprehensive
income/loss in its Consolidated Statements of Changes in
Members Equity. Other comprehensive income refers to
revenue, expenses, gains and losses that under GAAP are
reported as an element of members’ equity and comprehensive
income but excluded from net income.
The borrower acquires ownership of the capital stock or
participation certificates at the time the loan is made, but
usually does not make a cash investment. The aggregate par
value is added to the principal amount of the related loan
obligation. The Association retains a first lien on the stock or
participation certificates owned by borrowers. Retirement of
such equities will generally be at the lower of par or book
value, and repayment of a loan does not automatically result in
retirement of the corresponding stock or participation
certificates. All stock and participation certificates are retired
at the discretion of the Association’s Board of Directors after
35
Net
Pension
Adjustment
$ (1,691)
Balance at January 1, 2016
Other comprehensive income
(loss) before reclassification
Amounts reclassified from
accumulated other
comprehensive income (loss)
Net current-period other
comprehensive income (loss)
Balance at December 31, 2016 $
Net PostRetirement
Healthcare
Total
$
(122) $ (1,813)
146
76
222
49
(19)
30
195
(1,496) $
57
(65) $
252
(1,561)
The following table presents the effect of reclassifications out
of accumulated other comprehensive income (loss) on net
income.
Location of Gain/Loss
Amount
Recognized on Income
Reclassified
Statement
Pension Adjustment
$
49
Benefits Expense
Post-Retirement Healthcare
(19) Benefits Expense
Total reclassifications
$
30
Additional information on pension and post-retirement
healthcare is found in Note 9.
D. Dividends
The Association’s regulatory capital ratios were:
Core surplus
Total surplus
Permanent capital
Value at
December 31, 2016
18.66%
18.66%
18.91%
Regulatory
Minimum
3.5%
7.0%
7.0%
The Association’s internal permanent capital goal for 2016
was a range of 18.5% to 20.5%, which was met, as shown by
the table above.
The Association is not aware of any regulatory restrictions to
retire stock or distribute earnings during the fiscal year
subsequent to the fiscal year just ended.
Although permitted under Article VIII, Section 890 of the
Association’s Bylaws, the Association typically does not pay
dividends on stock or participation certificates.
An FCA regulation empowers it to direct a transfer of funds or
equities by one or more System institutions to another System
institution under specified circumstances. The Association had
not been called upon to initiate any transfers and is not aware
of any proposed action under this regulation.
E. Risks Associated With Members’ Equity
NOTE 8 – INCOME TAXES
Ownership of stock, participation certificates and allocated
surplus is subject to certain risks that could result in a partial
or complete loss. These risks include excessive levels of loan
losses experienced by the Association, losses resulting from
contractual and statutory obligations, impairment of ACB
stock owned by the Association, losses resulting from adverse
judicial decisions or other losses that may arise in the course
of business. In the event of such impairment, borrowers would
remain liable for the full amount of their loans.
The provision for income taxes follows:
Any losses which result in impairment of capital stock and
participation certificates would be allocated to such purchased
capital on a pro rata basis. In the case of liquidation or
dissolution of the Association, capital stock, participation
certificates, and allocated surplus would be utilized as
necessary to satisfy any remaining obligations in excess of the
amounts realized on the sale or liquidation of assets.
F. Regulatory Capitalization Requirements and
Restrictions
FCA’s capital adequacy regulations require the Association to
maintain specified minimum amounts of core surplus, total
surplus and permanent capital. Failure to meet these capital
requirements can initiate certain mandatory and possibly
additional discretionary actions by FCA that, if undertaken,
could have a direct material effect on the Association’s
financial statements. The Association is prohibited from
retiring stock or making certain other distributions to
shareholders unless these capital standards are met.
Year Ended December 31,
2016
2015
2014
Current:
Federal
State
Deferred:
Federal
State
Total provision for
income taxes
$
3
$
$
3 $
- $
1
3
-
-
1 $
3
The FLCA subsidiary, which contains primarily long-term real
estate mortgage loans, is exempt from income tax.
The following table quantifies the differences between the
provision for income taxes and the amount of income tax
determined by applying the applicable U.S. statutory federal
income tax rate to pretax income of the Association.
Year Ended December 31,
2016
2015
2014
Federal tax at statutory rate
$
State tax, net of federal
income tax effect
Effect of tax exempt FLCA
Patronage distributions
Change in valuation allowance
Other
Total provision for
income taxes
$
36
3,160 $
2
(2,122)
(1,739)
854
(152)
3 $
3,476 $
2
(2,240)
(1,653)
514
(98)
1 $
3,421
2
(2,400)
(1,578)
683
(125)
3
Savings Plan. The Employee Savings Plan has two
components:
Deferred Tax Assets and Liabilities; Valuation Allowance
Based on the Association’s strategic financial plan, primarily
expected future patronage programs and the tax benefits of the
FLCA subsidiary, management believes that as of the end of
2016, none of the Association’s net deferred tax asset will be
realizable in future periods. Accordingly, a valuation
allowance is provided against net deferred tax assets since it
has been determined that it is more likely than not (over 50
percent probability), based on management’s estimate, that
they will not be realized.
Schedule A – Employer Matching Contributions
Under this part of the plan, the Association matches 100% of
employee contributions up to a maximum employee
contribution of 6% of salary. Employer contributions charged
to expense were approximately $244 thousand, $215 thousand,
and $198 thousand in 2016, 2015, and 2014, respectively.
Schedule B – Employer Contributions
Under this part of the plan, the Association contributes a
percentage of each employee’s salary, based on years of
service. Employer contributions charged to expense were $241
thousand, $218 thousand and $218 thousand in 2016, 2015
and 2014, respectively.
Deferred tax assets and liabilities in accordance with
accounting guidance are comprised of:
Allowance for loan losses
Deferred compensation and
other postretirement benefits
Net operating loss
Other
Deferred tax asset
December 31,
2016
2015
2014
$
1,102 $
991 $
955
1,195
4,972
664
7,933
1,212
4,377
517
7,097
1,198
3,908
391
6,452
Bank stock patronage after
December 31, 1992
Retirement benefits
CoBank, ACB patronage
Depreciation
Deferred tax liability
81
743
1,039
56
1,919
81
763
938
53
1,835
81
777
834
35
1,727
Subtotal
Less valuation allowance
6,014
6,014
5,262
5,262
4,725
4,725
Net deferred tax asset
$
-
$
-
$
Defined Benefit Plan
Prior to 1998, the Association offered the CoBank, ACB
Retirement Plan, a non-contributory multiple employer
defined benefit retirement plan (Defined Benefit Plan). No
current employees of the Association participate in this plan.
The Association continues to participate in this plan only to
the extent that it has retirees and vested former employees in
the plan. The Defined Benefit Plan serves the same five Farm
Credit System employers as the Employee Savings Plan.
Benefits are based on years of service and compensation
during the highest four consecutive years of employment.
December 31,
2015
2016
Change in Benefit Obligation
Benefit obligation at
beginning of year
$
Service cost
Interest Cost
Plan amendments
Actuarial (gain)/loss, net
Benefits Paid
Benefit obligation at
end of year
$
-
The Association recognized interest and penalties related to
unrecognized tax benefits as an adjustment to income tax
expense. The amount of interest recognized was $0 and the
amount of penalties recognized was $0 for 2016. The total
amount of unrecognized tax benefits that, if recognized would
affect the effective tax rate, is $0. The Association did not
have any positions for which it is reasonably possible that the
total amounts of unrecognized tax benefits will significantly
increase or decrease within the next 12 months. No uncertain
tax positions were taken by the Association during 2016, 2015
or 2014. The tax years that remain open for federal and major
state income tax jurisdictions are 2013 and forward.
2,309 $
99
(104)
(259)
2,531 $
98
(54)
(266)
2,198
100
532
(299)
2,045 $
2,309 $
2,531
December 31,
2015
2016
Change in Plan Assets
Fair value of plan assets at
beginning of year
Actual return on plan assets
Employer contributions
Benefits Paid
Fair value of plan assets at
end of year
NOTE 9 - EMPLOYEE RETIREMENT PLANS
Employee Savings Plan
The Association participates in the CoBank, ACB Employee
Savings Plan (“Employee Savings Plan”). The Employee
Savings Plan serves five employers in the Farm Credit
System, including the Association and CoBank. All active
employees of the Association participate in the Employee
Funded status
Fourth quarter employer
contributions and other
Net amount recognized
at end of year
37
2014
2014
$
2,505 $
141
(259)
2,765 $
6
(266)
2,843
221
(299)
$
2,387 $
2,505 $
2,765
$
342 $
196 $
234
$
342 $
196 $
234
The fair values of the Association’s pension plan assets at December 31, 2016, by asset category are as follows:
Cash
Domestic Equity:
Large-cap growth funds
Large-cap equity funds
Small-cap growth funds
International Equity:
International fund
Fixed Income:
Total return fund
Emerging Markets:
Equity & fixed income
Fund
Hedge funds
Fair value of plan assets at
end of year
$
Level 1
Level 2
5 $
-
$
Level 3
NAV*
Total
$
- $
- $
5
541
434
434
114
114
230
541
-
-
230
-
517
318
-
-
835
-
-
-
112
116
112
116
1,293 $
318 $
-
$
776 $
2,387
*Certain investments that are measured at fair value using the net asset value (NAV) per share as a practical
expedient have not been classified in the fair value hierarchy. The fair values amounts presented in this table
are intended to permit reconciliation of the fair value hierarchy to the net assets in the pension plan.
For measurement purposes, a 7.0% annual rate of increase
in the cost of covered health care benefits was assumed for
2016. The rate was assumed to decrease by 0.3% each year
through 2024 and remain at that level thereafter.
The following tables show the impact of this plan on the
financial statements:
December 31,
2015
2016
Balance sheets:
Intangible asset
(included in other assets)
Pension liability
(included in other liabilities)
Accumulated other
comprehensive income
2014
342
196
234
-
-
-
(1,495)
(1,691)
Assumptions
We measure plan obligations and annual expense using
assumptions designed to reflect future economic conditions.
As the bulk of pension benefits will not be paid for many
years, the computations of pension expenses and benefits
are based on assumptions about discount rates, estimates of
annual increases in compensation levels and expected rates
of return on plan assets.
(1,689)
Year Ended December 31,
2016
2015
2014
The weighted-average rate assumptions used in the
measurement of the Association’s benefit obligations are as
follows:
Statements of income:
Expense (Benefit) recognized
in salaries and employee
benefits
$
49 $
36 $
16
Other
The following table sets forth information about the
Association’s post-retirement health care benefit plan
funding status and assumptions used to determine benefits
obligations.
Discount rate
Rate of compensation increase
(qualified plans only)
Benefit obligations
Net liability recognized
$
Net periodic (income) expense$
71 $
71
(19) $
2015
2014
147 $
141
147
141
(49) $
4.75%
December 31,
2015
4.55%
4.75%
2014
4.10%
4.75%
The weighted average rate assumptions used in the
measurement of our net periodic benefit cost are as follows:
December 31,
2016
2016
4.30%
Discount rate
Expected rate of return on plan
assets (qualified plans only)
Rate of compensation increase
(qualified plans only)
(3)
38
2016
4.55%
December 31,
2015
4.10%
2014
4.85%
6.63%
7.25%
7.25%
4.75%
4.75%
4.75%
The discount rates are calculated using a spot yield curve
method developed by an independent actuary. The approach
maps a high-quality bond yield curve to the duration of the
plans’ liabilities, thus approximating each cash flow of the
liability stream to be discounted at an interest rate
specifically applicable to its respective period in time.
NOTE 11 – FAIR VALUE MEASUREMENTS
Accounting guidance from FASB defines fair value as the
exchange price that would be received for an asset or paid
to transfer a liability in an orderly transaction between
market participants in the principal or most advantageous
market for the asset or liability. See Note 2L for additional
information.
The expected rate of return on plan assets is based on a
review of past and expected future anticipated returns on
plan assets. The expected rate of return on plan assets
assumption also matches the pension plan’s long-term
interest rate assumption used for funding purposes.
There were no assets measured at fair value on a recurring
basis at December 31, 2016, 2015, or 2014.
Assets measured at fair value on a non-recurring basis at
December 31, 2016, 2015, and 2014, for each of the fair
value hierarchy values are summarized as follows:
NOTE 10 – RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Association enters
into loan transactions with officers and directors of the
Association, their immediate families, and other
organizations with which such persons may be associated.
Such loans are subject to special approval requirements
contained in FCA regulations and are made on the same
terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with
unrelated borrowers.
December 31, 2016
Fair Value Measurement Using
Level 1
Level 2
Level 3
Assets:
Impaired Loans
Total liabilities
Assets:
Impaired Loans
Total liabilities
Beginning balance
New loans
Repayments
Ending balance
$
$
-
$
$
5,708
5,708
$
$
-
$
$
-
$
$
2,002
2,002
December 31, 2014
Fair Value Measurement Using
Level 1
Level 2
Level 3
Assets:
Impaired Loans
Total liabilities
Information on loans to related parties is shown below.
December 31,
2015
-
December 31, 2015
Fair Value Measurement Using
Level 1
Level 2
Level 3
The Association has a policy that loans to directors and
senior officers must be maintained at an Acceptable or
Other Assets Especially Mentioned (OAEM) credit
classification. If the loan falls below the OAEM credit
classification, corrective action must be taken and the loan
brought back to either Acceptable or OAEM within a year.
If not, the director or senior officer must resign from the
Board or employment.
2016
$
$
$
$
-
$
$
-
$
$
2,774
2,774
There were no liabilities measured at fair value on a
recurring or non-recurring basis at December 31, 2016,
2015, or 2014.
2014
$
25,499 $ 21,060 $ 21,817
18,640
18,692
11,090
(18,104)
(14,253)
(11,847)
$ 26,035 $ 25,499 $ 21,060
As more fully discussed in Note 2, FASB 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 represent a brief summary of the valuation
techniques used by the Association for asset and liabilities:
In the opinion of management, none of the loans
outstanding to officers and directors at December 31, 2016
involved more than a normal risk of collectability.
Effective December 31, 2014, the Association ceased to be
an owner of FPI and entered into a vendored services
relationship. FPI and the nature of the Association’s
relationship with it are more fully described in Note 1 to the
Consolidated Financial Statements, “Organization and
Operations.” Fees paid to FPI are separately disclosed in
the consolidated statements of income.
39
conditions, risk characteristics of various financial
instruments, and other factors. These estimates involve
uncertainties and matters of judgment, and therefore cannot
be determined with precision. Changes in assumptions
could significantly affect the estimates.
Impaired Loans
For certain loans evaluated for impairment under FASB
impairment guidance, the fair value was based upon the
underlying collateral. The fair value measurement process
uses 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 related 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 collateral, less estimated costs to sell, is less
than the principal balance of the loan, a specific reserve is
established.
The estimated fair values of the Association’s financial
instruments are as follows:
December 31, 2016
Carrying
Fair
Amount
Value
NOTE 12 - COMMITMENTS AND CONTINGENCES
The Association has various commitments outstanding and
contingent liabilities as discussed elsewhere in these Notes
to Consolidated Financial Statements.
Financial assets:
Loans, net
Cash
Investment in CoBank, ACB
$ 474,832 $ 476,973
4,161
4,161
18,014
18,014
Financial liabilities:
Note payable to CoBank, ACB
$ 399,144 $ 398,829
December 31, 2015
Carrying
Fair
Amount
Value
There are no actions pending against the Association in
which claims of money damages are asserted.
NOTE 13 - COMMITMENTS TO EXTEND CREDIT
AND STANDBY LETTERS OF CREDIT
In the normal course of business, the Association makes
commitments to extend credit and issues or participates in
standby letters of credit. At December 31, 2016, $77.652
million of commitments to extend credit were outstanding.
Of this amount $2.857 million were standby letters of
credit, with expiration dates ranging from January 2017 to
December 2017.
Financial assets:
Loans, net
Cash
Investment in CoBank, ACB
$ 443,877 $ 443,495
4,210
4,210
16,637
16,637
Financial liabilities:
Note payable to CoBank, ACB
$ 372,830 $ 372,789
December 31, 2014
Carrying
Fair
Amount
Value
Since many of these commitments are expected to expire
without being drawn upon, the total commitments do not
necessarily represent future cash requirements. However,
these credit-related financial instruments have off-balancesheet credit risk, because their amounts are not reflected on
the balance sheet until funded or drawn upon. The credit
risk associated with issuing commitments to extend credit
and standby letters of credit is substantially the same as that
involved in extending loans to borrowers and the same
credit policies are applied by management.
Financial assets:
Loans, net
Cash
Investment in CoBank, ACB
$ 428,056 $ 427,280
1,182
1,182
15,721
15,721
Financial liabilities:
Note payable to CoBank, ACB
$ 356,885 $ 356,987
A description of the methods and assumptions used to
estimate the fair value of each class of the Association’s
financial instruments for which it is practicable to estimate
that value follows:
A. Loans
NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
Fair value is estimated by discounting the expected future
cash flows using the Association’s and/or the Bank’s
current interest rates at which similar loans would be made
to borrowers with similar credit risk. As the discount rates
are based on the Association’s current loan rates as well as
management estimates, management has no basis to
determine whether the estimated fair values presented
would be indicative of assumptions and adjustments that a
purchaser of the Association’s loans would seek in an
The following tables present the carrying amounts and fair
values of the Association’s financial instruments at
December 31.
Quoted market prices are generally not available for certain
Association financial instruments, as described below.
Accordingly, fair values are based on judgments regarding
future expected loss experience, current economic
40
to the types and terms of the loans (or other assets) which it
funds. Fair value of the note payable is estimated by
discounting the anticipated cash flows of each pricing pool
using the current rate that would be charged for additional
borrowings. For purposes of this estimate it is assumed the
cash flow on the note is equal to the principal payments on
the Association’s loan receivables plus accrued interest on
the note payable. This assumption implies that earnings on
the Association’s interest margin are used to fund operating
expenses and capital expenditures. The note payable to
CoBank, ACB is classified as a Level 3 in the fair value
measurement hierarchy.
actual sale, which could be less. Loans are classified as a
Level 3 in the fair value measurement hierarchy.
B. Cash
The carrying value is a reasonable estimate of the fair
value. Cash is classified as a Level 1 in the fair value
measurement hierarchy.
C. Investment in CoBank, ACB
Estimating the fair value of the Association’s investment in
CoBank is not practicable because the stock is not traded.
As described in Note 4, the investment is a requirement of
borrowing from CoBank and is carried at cost plus
allocated equities on the consolidated balance sheets. The
investment in CoBank, ACB is classified as a Level 3 in the
fair value measurement hierarchy.
NOTE 15 – SUBSEQUENT EVENTS
The Association has evaluated events through March 6,
2017, which is the date the financial statements were issued
or available to be issued and no material subsequent events
were identified.
D. Note Payable to CoBank, ACB
The note payable is segregated into pricing pools according
41
SHAREHOLDER DISCLOSURE INFORMATION
The following information is required to be disclosed to shareholders:
Description of Business
Please refer to Note 1 to the Consolidated Financial Statements, “Organization and Operations,”
for information concerning the organization and operations of the Association.
Description of Property
At year-end the Association owned the following offices:
Location
Chazy, New York
Derby, Vermont
Middlebury, Vermont
St. Albans, Vermont
White River Jct., Vermont
Description
Office building (2540 sq. ft.) on 2.8 A land
Office building (4000 sq. ft.) on 1.7 A land
Office building (4300 sq. ft.) on 1.7 A land
Office building (4300 sq. ft.) on 3.2 A land
Office building (4300 sq. ft.) on leased land
Legal Proceedings and Enforcement Actions
Please refer to Note 12 to the Consolidated Financial Statements, “Commitments and
Contingencies,” for information concerning any legal proceedings against the Association. There
are no enforcement actions in effect against the Association by its regulator, the Farm Credit
Administration.
Description of Capital Structure
Please refer to Note 7 to the Consolidated Financial Statements, “Members’ Equity,” for
information concerning the capital structure of the Association.
Description of Liabilities
Please refer to Note 6 to the Consolidated Financial Statements, “Note Payable to CoBank,
ACB,” for a description of debt outstanding. The description of contingent liabilities is outlined
in Note 12 to the Consolidated Financial Statements, “Commitments and Contingencies.”
Association Quarterly Reports
The Association’s quarterly reports are available on the Association website (website address is
on page 44). Quarterly reports as of March 31, June 30 and September 30 are available 40 days
after quarter-end.
42
YANKEE FARM CREDIT, ACA
CERTIFICATION STATEMENT
FOR
2016 ANNUAL REPORT
The Board of Directors and management are responsible for the consolidated financial statements and other
information in this Annual Report. This responsibility includes the preparation of the consolidated statements in
accordance with accounting principles generally accepted in the United States of America, appropriate with the
circumstances and consistently applied. This responsibility also includes the fairness of the estimates and judgments
required, and the reliability of the underlying data.
The steps taken to meet this responsibility include maintaining a system of internal controls, providing for the
training of personnel, promulgating written policies and procedures and, in general, seeking to create an atmosphere
conducive to proper reporting and ethical behavior.
The Audit Committee of the Board of Directors is assigned the task of assisting the Board in fulfilling its oversight
responsibilities. The Audit Committee is comprised of Rocki-Lee DeWitt, Alan Bourbeau, Kenneth Deon, Bradley
Maxwell, Rene Saenger and Stephen Taylor. None of the committee members is an officer or employee of the
Association. The Audit Committee meets periodically with the internal auditor and the independent auditors, both
with and without management present. These consolidated financial statements were prepared under the oversight
of the Audit Committee.
On the basis of the above-mentioned and other controls, policies, and independent reviews, the Board and
management believe that the responsibility described in the first paragraph has been fulfilled in all material respects.
The Audit Committee has reviewed and discussed these audited financial statements with both management and the
independent auditors. The Audit Committee has discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 114, “The Auditor’s Communication with Those Charged with
Governance.” The Audit Committee has received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit
Committees.” The Audit Committee has discussed, and confirmed, with those same auditors their independent
status.
The signatories have reviewed this report and certify that it has been prepared in accordance with all applicable
statutory or regulatory requirements and that the information contained herein is true, accurate, and complete to the
best of his or her knowledge and belief, and that the consolidated financial statements in the opinion of the Board of
Directors and management fairly present the consolidated financial condition of the institution except as otherwise
noted.
Paul B. Franklin
Chairperson, Board of Directors
Brenda K. Frank
President and CEO
Rocki-Lee DeWitt
Chairperson, Audit Committee
Pamela A. Simek
SVP/Chief Financial Officer
March 6, 2017
43
YANKEE FARM CREDIT, ACA
BORROWER PRIVACY STATEMENT
Your privacy is important to us. We do not sell or trade our borrowers’ personal information to marketing
companies or information brokers. Since 1972, Farm Credit Administration regulations have governed the
disclosure of borrower information. In accordance with those regulations, we may disclose your information to
others only in the following circumstances:
·
·
·
·
·
·
Examiners, auditors and reviewers may review loan files.
We may provide information in certain types of legal or law enforcement proceedings.
We may share your information with other Farm Credit institutions that you do business with.
We may be a credit reference for you with other lenders and provide information to a credit bureau or other
consumer reporting agency.
If one of our employees applies to become a licensed real estate appraiser, we may give copies of real estate
appraisal reports to the State agency that licenses appraisers when required. We will first remove as much
personal information from the appraisal report as possible.
We may share your information in other circumstances if you consent in writing.
As a member/owner of this Association, your privacy and the security of your personal information are vital to
our continued ability to serve your ongoing credit needs.
WHISTLEBLOWER INFORMATION
The Association has engaged Lighthouse Services to provide an anonymous Whistleblower Hotline and web
service for submitting reports. It provides for the confidential, anonymous submission of concerns related to
accounting, financial reporting, fraud, unethical behavior, auditing matters and other types of improper behavior,
by employees, members, directors and vendors of the Association without fear of retribution.
Website: www.lighthouse-services.com/yankeeaca
By phone 1-844-380-0005
YANKEE FARM CREDIT, ACA
OFFICE LOCATIONS
Yankee Farm Credit, ACA
9784 Route 9
P.O. Box 507
Chazy, NY 12921
(800) 545-8374
(518) 846-7330
Yankee Farm Credit, ACA
320 Exchange Street
Middlebury, VT 05753
(800) 545-1169
(800) 388-2692
Yankee Farm Credit, ACA
250 Commerce Way
Newport, VT 05855
see note
(800) 370-2738
(802) 334-8050
Yankee Farm Credit, ACA
130 Upper Welden Street
P.O. Box 240
St. Albans, VT 05478
(800) 545-1097
(802) 524-2938
Yankee Farm Credit, ACA
52 Farmvu Drive
White River Jct., VT 05001
(800) 370-3276
(802) 295-3670
Yankee Farm Credit, ACA
289 Hurricane Lane, Suite 102
Williston, VT 05495
(800) 639-3053
(802) 879-4700
Note: The mailing address of the Derby office is 250 Commerce Way, Newport, VT 05855.
The physical address is 250 Commerce Way, Derby, VT 05829.
Website: www.YankeeACA.com
44
YANKEE FARM CREDIT, ACA
YOUNG, BEGINNING AND SMALL FARMERS
Mission Statement: Yankee Farm Credit believes in supporting Young, Beginning and Small (YBS) farmers.
They represent the future of farming. The entry of YBS farmers into the industry is critical to the long-term
success of agriculture. The Association’s Board Policy on Young, Beginning, and Small Farmers provides a
mandate to Association management to assure this success.
Young, Beginning and Small farmers are defined as:
Young farmer: A farmer, rancher, or producer or harvester of aquatic products who is
age 35 or younger as of the loan transaction date.
Beginning farmer: A farmer, rancher, or producer or harvester of aquatic products who
has 10 years or less farming, ranching, or aquatic experience as of the loan transaction date.
Small farmer: A farmer, rancher, or producer or harvester of aquatic products who
normally generates less than $250,000 in annual gross sales of agricultural or aquatic
products.
The 2012 Census of Agriculture (the most recent available) indicates 9,700 farms are located within the
Association’s geographic territory (as described on page 7 of the MD&A). The following table provides a
comparison of data from the 2012 Census of Agriculture with Association data as of year-end 2016. Association
Data includes timber operations, the Census Data does not. Census data indicates that 39.2% of Young, 29.0% of
Beginning, and 28.0% of Small farmers have debt involved with their operations. Census data also indicates that
66.3% of Small farmers have less than $10,000 in annual sales of agricultural products.
Young
Beginning
Small
2012 Census Data1
# of
% of Total
Farms
Farms
1,157
11.9%
3,007
31.0%
8,928
92.0%
Association Data2 as of 12/31/2016
% of Total
Loan Volume3
Loan Volume3
Loan #s
Goal
Actual
20.3%
$ 65,200,000
$ 70,156,145
30.3%
$106,400,000
$132,783,617
35.0%
$ 68,300,000
$ 66,102,334
# of
Loans
369
551
638
1
The source of this data is a unique extract of the 2012 Ag Census data performed by the Farm Credit Council and considers both principal
and junior operators.
2
Association Data adjusted to exclude Country Home and Farm Related Business loans.
3
Volume refers to outstanding gross principal balance, prior to any participations sold.
Quantitative Goals: The Association established loan volume goals for credit to YBS farmers as listed in the
table above.
Qualitative Goals: The Association strives to serve as a reliable and consistent provider of sound and
constructive credit to YBS farmers. The Association makes every effort to meet the credit needs of YBS farmer
applicants. Referrals to and coordination with governmental and private sources such as Farm Service Agency,
Vermont Agricultural Credit Corporation, leases and private party financing often play an important role in
serving these customers.
The Association is involved in, and supports, a number of activities and programs designed to benefit YBS
farmers. The Association is a partner in, and has invested in, FarmStart, LLP. Contributions are made regularly
to agriculturally-related organizations such Extension Service, FFA, and 4-H that provide education and
experience to our future farmers. The Association awards up to four scholarships each year to family members of
customers enrolled in higher education programs, preferentially agricultural programs. Association employees
routinely serve in a variety of capacities, e.g., as classroom instructors and mentors, in furtherance of the
Association’s efforts to assist YBS farmers. YBS farmers also receive discounts on fees for Financial Services,
such as tax preparations, payroll processing and records services. In 2016, over $11 thousand in discounts for
these services was given to YBS farmers.
Methodology: The Association employs various measures to ensure that credit and related services offered to
YBS farmers are provided in a safe and sound manner in accordance with the Association’s risk-bearing
capacity. The Association’s quality control plan calls for periodic review of certain loans made to YBS farmers.
45
YANKEE FARM CREDIT, ACA
RELATIONSHIP WITH COBANK, ACB
CoBank, ACB is the funding bank for the Association. A description of the organizational relationship between
CoBank and the Association can be found in Note 1 to the Consolidated Financial Statements, “Organization and
Operations.”
The Association borrows funds from CoBank. The Association is not permitted to borrow funds from other
sources without the permission of CoBank. Information about the borrowing relationship between the
Association and CoBank can be found in Note 6 to the Consolidated Financial Statements, “Note Payable to
CoBank, ACB,” and in Management’s Discussion & Analysis (MD&A, the section titled “Funding Sources,
Liquidity and Interest Rate Risk”).
In addition to borrowing, the Association also engages in the following transactions with CoBank:
·
The Association buys participation loans from CoBank. Participation loans are discussed in Note 3 to the
Consolidated Financial Statements, “Loans and Allowance for Loan Losses,” and in the MD&A—the
section titled “Loan Portfolio.” (The Association may also buy participation loans from other Farm Credit
institutions, in addition to CoBank.)
·
The Association sells participation loans to CoBank. Participation loans are discussed in Note 3 to the
Consolidated Financial Statements, “Loans and Allowance for Loan Losses,” and in the MD&A—the
section titled “Loan Portfolio.” (The Association may also sell participation loans to other Farm Credit
institutions, in addition to CoBank.)
CoBank is a cooperative, and the Association invests in CoBank. Information about the Association’s investment
in CoBank can be found in Note 4 to the Consolidated Financial Statements, “Investment in CoBank, ACB.”
CoBank may pay patronage refunds to the Association, based on the business that the Association does with
CoBank. Patronage refunds from CoBank are discussed in Note 4 to the Consolidated Financial Statements,
“Investment in CoBank, ACB,” and in the MD&A—the section titled “Patronage refunds from CoBank.”
There are no capital preservation, loss sharing, or financial assistance agreements between the Association and
CoBank. CoBank does not have access to the Association’s capital. CoBank and the Association are each
responsible for their own interest rate risk.
Shareholders’ investments in the Association may be materially affected by the financial condition and results of
operations of CoBank. CoBank’s annual and quarterly reports are available without charge from any of our
offices (see page 44) for contact information) or directly from CoBank (see page 47 for contact information).
46
YANKEE FARM CREDIT, ACA
RELATIONSHIP WITH COBANK, ACB
(continued)
Contact information for CoBank, ACB:
Springfield Banking Center
Corporate Headquarters
mailing
address:
CoBank, ACB
240B South Road
Enfield, CT 06082
mailing
address:
CoBank, ACB
6340 S. Fiddlers Green Circle
Greenwood Village, CO 80111
physical
address:
CoBank, ACB
240B South Road
Enfield, CT 06082
physical
address:
CoBank, ACB
6340 S. Fiddlers Green Circle
Greenwood Village, CO 80111
telephone:
(800) 876-3227
telephone:
(800) 542-8072
Website: www.cobank.com
INFORMATION ABOUT THE FARM CREDIT SYSTEM
A brief description of the Farm Credit System is contained in Note 1 to the Consolidated Financial Statements,
“Organization and Operations.” Additional information about the Farm Credit System can be obtained from any
of our offices, listed below, or from the Federal Farm Credit Banks Funding Corporation:
Federal Farm Credit Banks Funding Corporation
101 Hudson Street, Suite 3505
Jersey City, NJ 07302
telephone: (201) 200-8131
Website: www.farmcreditfunding.com
47
YANKEE FARM CREDIT, ACA
EMPLOYEES
Chazy, New York
Robert Guay, Manager of Appraisal Services
Danielle Tierney, Financial Services Assistant
Geoffrey Yates, SVP/Chief Strategy Officer
White River Junction, Vermont
Elizabeth Bayne, Business Consultant
Christopher Bessette, VP/CLD Manager
Nicholas Bullock, Sr. Farm Tax and Records Specialist
Kevin Channell, Loan Officer
Katheryne Coombs, Loan Officer
Cory Haggett, Loan Officer
Michael Moloney, Manager Tax Services
Kristen Murray, Farm Tax Specialist
Morgan Rilling, AVP/Branch Manager
April Smith, Training Coordinator
Desiree Smith, Office Assistant
WendySue Smith, Office Assistant
Jesse Taft, Credit Analyst/CLD
Matthew Thompson, Credit Analyst
Middlebury, Vermont
Amelia Baisden, Loan Doc. Specialist
Gisele Bronson, Credit Analyst
Kenneth Button, SVP/Branch Manager
Shannon Francis, Financial Services Assistant
Cheryl Heath, Sr. Farm Tax and Records Specialist
Alyth Hescock, Appraiser
Susan Kelley, Int. Credit Review/Sr. Tax. Spec.
Kelsey Klauzenberg, Office Assistant
Kyle Lussier, Loan Officer
Charlie Messenger, Crop Insurance Agent
Greg Pugh, Loan Officer
Abigail Roleau, Accounting Assistant (PT)
Pamela Simek, SVP/Chief Financial Officer
Kristi Wood, Loan Officer
Williston, Vermont
Teresa Adone, Executive Assistant
Michael Farmer, SVP/Chief Systems Officer
Brenda Frank, President and CEO
Samuel Hartman, Systems Analyst (PT)
James Mills, Jr., Risk Director
John Peters, SVP/Chief Credit Officer
Erika Quick, Marketing Coor./Admin Assistant
Vanda Ripley, Accounting Assistant
Ruchel St. Hilaire, HR Director
Daniel Shepard, Controller
Lisa Wener, Sr. Accounting Assistant
Newport/Derby, Vermont
Craig Erickson, Loan Officer
Nicholas Guyer, Appraiser Trainee
David Keenan, Sr. Loan Officer
Joanna Lidback, Business Consultant
Stacy Newton, Office Assistant
Loren Petzoldt, VP/Branch Manager
Peggy Reed, Credit Analyst/Office Assistant
Randall Smith, Credit Analyst/Tax Specialist
Suzie Wheeler, Tax Specialist/Office Assistant
St. Albans, Vermont
Carly Bushey, Credit Analyst
Justin Clough, Credit Representative
Chuck Custeau, Loan Officer
Pamela Custeau, Loan Doc. Specialist
Joy Doane, Financial Services Asst. (PT)
Nathan Goddard, Appraiser
Lisa Gravel, Manager of Records Services
David Lane, SVP/Branch Manager
Alicia Marcy, Farm Tax and Records Specialist
Suzanne Petig, Loan Officer
Thomas St. Pierre, Sr. Loan Officer
Kelly St. Pierre-Raymond, Office Assistant
Ellen Stebbins, Loan Doc. Specialist/OA
Shantel Thomas, Financial Services Asst. (PT)
Mark Viens, Credit Analyst
See page 44 for physical and mailing addresses for the offices.
48
YANKEE FARM CREDIT, ACA
DIRECTORS
Paul B. Franklin, Chairperson
141 River Road
Plainfield, NH 03781
(603) 298-8519
Region 3 – Committees 2, 3
Term Expires 2017
Rocki-Lee DeWitt
6181 Greenbush Rd.
Charlotte, VT 05445
(802) 656-0043
Outside Director – Committees 1, 2
Term Expires 2019
Rocklyn A. Giroux, Vice Chairperson
8096 Route 9
Plattsburgh, NY 12901
(518) 561-2537
Region 1 – Committees 3, 4
Term Expires 2018
Walter M. Gladstone
440 Mallary Rd.
Bradford, VT 05033
(802) 222-9232
Region 2 – Committees 2, 3
Term Expires 2017
Alan J. Bourbeau
30 Pond Rd
Sheldon, VT 05483
(802) 524-2768
Region 1 – Committees 1, 4
Term Expires 2019
Celeste Kane-Stebbins
9437 VT Route 105
Enosburg Falls, VT 05450
(802) 933-4975
Region 1 – Committees 3, 4
Term Expires 2017
Thomas J. Colgan
264 Orford Road
Lyme, NH 03768
(603) 795-2002
Appointed Director – Committees 2, 3
Term expires 2018
Bradley N. Maxwell
732 Maxwell Road
Newport, VT 05855
(802) 522-5582
Region 2 – Committees 1, 2
Term Expires 2018
Bryan E. Davis
1422 Herrick Road
Derby, VT 05829
(802) 873-3941
Region 2 – Committee 4
Term Expires 2019
Rene M. Saenger
PO Box 205
Shoreham., VT 05770
(802) 897-5331
Region 3 – Committees 1,4
Term expires 2019
Kenneth F. Deon
26 Latour Way
Greer, SC 29650
(518-390-0899
Outside Director – Committee 1
Term Expires 2019
Stephen H. Taylor
PO Box 271
Meriden, NH 03770
(603) 469-3375
Region 3 – Committee 1
Term expires 2018
Committees as of 12/31/2016
1 – Audit Committee
2 – Compensation Committee
3 – Executive Committee
4 – Membership/Governance Committee
49
YANKEE FARM CREDIT, ACA
NOMINATING COMMITTEE
Alternates
Members
Region #1
Andrew Brouillette
3989 VT Route 105
Sheldon, VT 05483
(802) 933-8845
Region #1
Arnold Mercy
2637 South Main St.
Montgomery Center, VT 05471
(802) 326-4200
Wynn Paradee
2286 Sheldon Rd
Sheldon, VT 05483
(802) 524-4202
David Conant
2258 West Main Street
Richmond, VT 05477
(802) 434-2588
Mark A. Wrisley
199 Clark Road
Essex, NY 12936
(518) 963-4039
Region #2
Paul Gingue
1800 Higgins Hill Rd.
Waterford, VT 05819
(802) 535-4010
Region #2
Rendell Tullar
268 NH Route 10
Orford, NH 03777
(603) 353-4860
Richard Martin
1066 Route 102
Guildhall, VT 05905
(802) 328-4120
Denis Ward
3037 Littleton Rd.
Monroe, NH 03771
(603) 638-2282
Patrick Waterbury
397 Vaughan Farms Road
East Thetford, VT 05043
(802) 359-2919
Region #3
David Ainsworth
86 VT Route 14
South Royalton, VT 05068
(802) 763-8017
Region #3
Paul Doton
202 Lakota Rd.
Woodstock, VT 05091
(802) 457-3292
Bruce Bascom
64 Sugarhouse Rd.
Alstead, NH 03602-9801
(603) 835-6361
David Goodhouse
1212 Baileys Mill Rd.
Reading, VT 05062
(802) 484-5540
William Nop
509 Route 7
Salisbury, VT 05769
(802) 388-3565
50
NOTES
51
NOTES
52