We are truly one District Connected, partners in preserving and strengthening the rural communities we serve… for today and future generations.
Working Together to Strengthen Our Legacy
Letter from L. William York and Richard H. Davidson
We're pleased to report the AgriBank District enjoyed another extraordinary year in 2013.
Our success stems directly from effective collaboration across the 15-state AgriBank District. AgriBank continues to embrace an Association-centric business model, actively working with 17 affiliated Farm Credit Associations to help them provide the most competitive financial solutions to meet local market needs. The affiliated Associations, in turn, focus directly on helping their customers — farmers, ranchers, agribusinesses, rural homeowners and other eligible borrowers — succeed through evolving market conditions. We are truly one District Connected, partners in preserving and strengthening the rural communities we serve … for today and future generations.
Several key financial measures reflect our strong performance for 2013:
- AgriBank net income increased 10 percent from the previous year to $563.6 million, while District net income increased more than 6 percent to $1.8 billion — the second-highest ever for AgriBank and an all-time record for the District — driven by increases in net interest income and improved credit quality.
- AgriBank loan volume increased 6 percent from the previous year to $73.7 billion, reflecting growth in the loan portfolios of affiliated Associations and expansion of the AgDirect equipment financing program.
- Bank net operating rate of 7.3 basis points, up from 6.4 basis points in 2012, reflects our investments in human capital
and technology to help affiliated Associations achieve their mission.
- Total patronage increased 7 percent to $335 million, buoyed by AgDirect patronage and significantly exceeding budget.
While we're pleased with our 2013 performance, we recognize it reflects just a point in time. We've enjoyed a long stretch of favorable market conditions, yet our business is cyclical. We need to continuously position AgriBank and the District for challenges that lie ahead, foreseen or not. We devote considerable resources to anticipate volatility in agricultural and financial markets, to understand the ever-changing needs of customers, and to develop innovative solutions to help customers navigate what's around the corner.
One thing that's certain is continued uncertainty. However, producers and processors across the District are better prepared than ever to handle this challenge.
After several years of increasingly favorable market conditions for the AgriBank District, in 2013 we began to see signs of market correction. For example, prices for soybeans and especially corn — key commodities across the District — have moderated from recent highs. Given the strong financial position and the revenue insurance coverage of most crop producers heading into the 2013-2014 marketing year, we don't expect the projected lower crop prices to have an immediate negative impact on crop producer balance sheets. However, sustained lower crop prices could result in financial stress for some producers and an eventual decline in land values, which would negatively affect producer balance sheets.
One thing that's certain is continued uncertainty. However, producers and processors across the District are better prepared than ever to handle this challenge. For example, a large majority of crop producers have capitalized on recent profitable years to build strong financial and liquidity positions. Lower commodity prices generally will be positive for producers and processors who purchase these commodities as inputs in the production of beef cattle, dairy products, pork, poultry and ethanol. Furthermore, many farmers have invested in equipment that improves efficiency, which further contributes to their profitability and ability to ride out a downturn.
Just as customers have built stronger balance sheets and enhanced their risk management practices, AgriBank and affiliated Associations have taken similar steps to protect against risks. Associations in the AgriBank District — with strengthened capital positions and conservative lending practices over the past five years — are well-positioned for a potential drop in land values. For example, affiliated Associations generally limit lending to a certain percentage of the appraised value of farmland or, in some of the highest value areas of the District, set fixed dollar amount per acre limits on what they will lend. The result: Farmers who purchase land at higher values are making higher down payments or providing additional collateral.
We continue to develop a framework and programs for addressing risks to AgriBank, the District and even the Farm Credit System.
Anticipating and preparing for risks facing the District is a key obligation of AgriBank. We continue to develop a framework and programs for addressing risks to AgriBank, the District and even the Farm Credit System.
Following are some of the ways AgriBank is addressing key challenges and opportunities:
- Credit — We continue to provide expertise supporting affiliated Associations and customers in areas such as building working capital, mitigating interest rate risk, lowering interest rates, insuring crops, managing margins and providing credit counseling. In 2013, we introduced the AgriHedge® risk management tool with a third party to provide farmers with a solution they can use to fix a price on a commodity without the hassle of daily margin calls and margin loans. Based on our experience in a pilot phase, we continue to refine and enhance the product and plan to roll it out further in 2014.
- Capital — In 2013 AgriBank issued $250 million shares of preferred stock, our first such offering. This stock offering provides AgriBank and the District with long-term access to capital, bolstering AgriBank's already strong reserves with high-quality, tier-one capital. This strong capital position will support future growth and ensure the District is well-positioned to meet the long-term credit needs of customers.
- Operations — We have a number of initiatives under way to help AgriBank and the District operate more efficiently and effectively. For example, recognizing that rating agencies, investors and others view the System as a single entity, AgriBank plays an active role in creating consistent data collection and analysis so we can better measure and monitor Systemwide risk exposures. And, for the first time in 2013, AgriBank hosted a process improvement conference to share best practices across the District, with the ultimate goal of improving operational efficiencies that create value for affiliated Associations and customers.
- Reputation — Our reputation — including the trust our customers and partners place in us — may be our most important asset, and in 2013 we took steps to build and protect it. We added resources to more effectively tell our story to the media and share our knowledge with affiliated Associations and the agricultural industry as whole. Enhanced Internet and sites will launch in early 2014 to support these efforts, ensuring key constituents understand the important role the AgriBank District and Farm Credit play in serving rural America.
AgriBank will continue to engage other System entities in developing initiatives that deliver continued reliable access to capital and funding, greater efficiencies to affiliated Associations, and long-term viability for the System. AgriBank executives hold key leadership roles in driving key strategic initiatives within the following System work groups: Credit Management, Data Repository, Diversity & Inclusion, Economic Capital, and Risk Management.
The main reason we support community programs is to fulfill our mission of supporting rural America — and because it's the right thing to do.
While our main role is to work with affiliated Associations to provide a reliable source of credit to farmers and ranchers, we also take seriously our broader mission to support agriculture and rural communities across America's heartland. We contributed significant resources in 2013 to support rural causes and stepped up efforts to support nontraditional urban agriculture, as well. We also continued to support those in need in the communities where we live and work in and around St. Paul, Minn.
Our 2013 contributions included:
- $500,000 to support programs in areas such as agricultural advocacy, disaster relief, education, food safety, land and water conservation, urban agriculture, and young/beginning/small farmer
- $150,000 to support Minneapolis-St. Paul area charities, including Merrick Food Shelf, United Way and Urban Roots, which supports youth development through community garden, conservation and nutrition programs
We continue to partner with Farm Credit Services of Mandan and Farm Credit Services of North Dakota to operate the Rural Community Grant Fund, which supports projects in North Dakota communities affected by oil and mineral exploration and production. The program has awarded more than $1.1 million since its inception in 2012.
AgriBank joined the three other banks in the Farm Credit System to provide $250,000 to launch a nationwide “Homegrown By Heroes” program boosting the efforts of U.S. farmer veterans to market their agriculture products. The program allows farmers who served in the U.S. armed forces to add the Homegrown By Heroes logo to their products' packaging and signage. The label is an easy way for consumers to identify farmer veteran products and support the nation's military veterans by purchasing those products.
Many of these initiatives build goodwill for AgriBank and help build support outside our traditional constituents. However, the main reason we support community programs is to fulfill our mission of supporting rural America — and because it's the right thing to do.
We believe different perspectives generate more ideas that enable us to better achieve our goals.
Diversity and Inclusion
AgriBank is committed to fostering a diverse and inclusive environment. Our employees have diversity in age, ethnicity, gender, religion and sexual orientation. Some are rooted in rural backgrounds, while others are more familiar with city life. We believe different perspectives generate more ideas that enable us to better achieve our goals.
AgriBank not only embraces policies that foster diversity and inclusion, we walk the talk. Employees have the opportunity to participate in a Diversity & Inclusion Council, whose mission is to increase AgriBank performance by fostering an inclusive work culture that respects and uses the diverse perspectives, backgrounds and experiences of all AgriBank employees. In 2013, the council marked its 5th anniversary. We also actively recruit employees from diverse backgrounds and support a wide range of causes in our communities.
We're confident we'll succeed as one District Connected, as we're so much stronger when we work together to achieve common goals.
AgriBank remains committed to helping position affiliated Associations as the premier funding source for farmers and ranchers throughout the District. As one District Connected, AgriBank, affiliated Associations and customer-owners share many mutual interests and interdependencies. We are always creating and implementing new ways to strengthen our connections so we can seize the opportunities available through our collective efforts.
For 2014, we plan to focus on the following strategic priorities:
- Alternative liquidity sources — While access to the unsecured agency debt markets remains reliable, and continues to be the primary source of liquidity for the District, we recognize it’s prudent to evaluate alternative
funding structures that will leverage the credit quality of the District’s asset base. AgriBank will review the feasibility of alternative sources of liquidity to ensure funding availability.
- Association lending authorities — We will leverage balance sheet strength and capital capacity at AgriBank to work cooperatively with Association partners to facilitate their use of lending authorities to enhance competitive positioning of the District within the loan participation, large agribusiness and capital markets market segments.
- Capital efficiency — AgriBank will continue to demonstrate leadership in evaluating and implementing the System's capital regulations. In conjunction with affiliated Associations, we will collectively advocate for striking the appropriate balance between capital adequacy and capital efficiency within the District by exploring creative and unique alternatives.
- Strategic vision and leadership — Our Association-centric business model creates an inextricable link between AgriBank and affiliated Associations. AgriBank is taking an active leadership role in ensuring the effective alignment of strategic direction for the District, enabled by a collaborative, integrated approach of identifying and responding to the emerging financial services needs of farmers, ranchers and rural America. A newly created District Strategic Advisory Group, consisting of affiliated Association Board chairs, vice chairs and CEOs, as well as AgriBank senior leadership and Board members, will facilitate a dynamic, disciplined and proactive process.
The AgriBank District plays an important role in U.S. agriculture, covering more than 40 percent of all U.S. farmland and more than half of U.S. cropland. The District accounts for about half the total value of all U.S. agricultural exports, meaning we also play a critical role feeding the world.
We take our responsibility very seriously to respect the legacy we inherited as well as to protect and enhance it for future generations. We're proud to partner with affiliated Associations and others to carry out our vital mission to provide reliable credit to borrowers through good times and challenging times. We're confident we'll succeed as one District Connected, as we're so much stronger when we work together to achieve common goals.
L. William York
Richard H. Davidson