letter to
shareholders

Boldly Go

Navigating the Changing Landscape


Agricultural industry observers likely will regard 2014 as a watershed year. After a long period of success by many measures, last year we saw key indicators begin to moderate.

Even as the farm economy showed signs of slowing down from an extraordinary run, AgriBank and the 17 affiliated Farm Credit Associations that comprise the AgriBank District turned in another year of strong earnings and sound credit quality. We anticipate that the inevitable swing of market cycles will continue to place us in a more challenging operating environment in 2015, with earnings and credit quality returning closer to long-term averages. Our enterprise is in a strong position to manage through this environment. So are affiliated Associations and customer-owners.

Several key financial measures reflect our strong performance for 2014:
  • AgriBank net income increased $6.1 million from the previous year to $569.6 million, while District net income increased $58.0 million to nearly $1.9 billion — an all-time record for the District — driven by steady net interest income and diversified revenue.
  • AgriBank loan volume increased 5.3 percent from the previous year to $77.5 billion, reflecting continued growth in the loan portfolios of affiliated Associations.
  • AgriBank net operating rate of 7.2 basis points improved from 7.3 basis points in 2013, reflecting disciplined expense management.
  • Total patronage increased $2.5 million to $337.6 million.
Financial strength is the foundation of our ability to fulfill our mission to meet the credit needs of rural America over the long term. It's a key reason AgriBank was named the second safest bank in the United States in 2014 by Global Finance magazine, and earned a place on its "World's 50 Safest Banks" list for the second consecutive year. The ranking methodology includes total assets and an evaluation of long-term ratings from major rating agencies.

Customers have placed their trust in AgriBank and affiliated Farm Credit Associations for nearly 100 years. They can be confident we'll work hard every day to ensure they can continue to do business with one of the safest banks in the world.

As part of the Farm Credit System, we are preparing to celebrate our centennial in 2016. Approaching this milestone and anticipating our second century of serving agriculture and rural America, one thing is certain: We must “Boldly Go” forward. Business as usual won't cut it. Today's climate demands we demonstrate the courage and commitment to explore and embrace new ideas.

We are confident in our ability to seize an even bolder future, because we are working more collaboratively than ever with affiliated Associations across the 15-state AgriBank District. Through our Association-centric business model, we provide Associations — our owners — with the most competitive financial solutions to meet local market needs. This includes serving all potential customers across all agriculture, including non-traditional producers in our ever-evolving, increasingly diverse industry. We exist to support affiliated Associations as they focus directly on serving their customers — farmers, ranchers, agribusinesses, rural homeowners and other eligible borrowers. The future of agriculture across the District will require a strong AgriBank as well as our strong partnership with affiliated Associations.

Financial strength is the foundation of our ability to fulfill our mission to meet the credit needs of rural America over the long term.

New Frontiers


The American agricultural economy has enjoyed a long period of success. Since the Great Recession of 2008-2009, we've seen record commodity prices, land prices and farm income in most quarters. Throughout this period, farm balance sheets have strengthened.

However, in 2014, even as the overall economy began to pick up steam, we began to see telltale signs of a slowdown in the farm economy. Most crop prices fell, land values began to moderate and net farm income declined — although still above the long-term average. The prospect of a rise in interest rates could increase the cost of borrowing.

Perhaps the biggest challenge the District faces is the uncertainty that comes with increased market volatility. The seemingly increasing frenzy of competition, consolidation and globalization continues to challenge Farm Credit customers.

The evolving political and regulatory environment adds to this uncertainty. The massive five-year Farm Bill took more than two years to complete and tested veteran Farm Bill negotiators. Even though the traditional rural-urban coalition held together to support this bill in 2014, Agriculture Committee leaders said the next Farm Bill may prove even more challenging to draft given the continuing decline in the influence of rural interests. Through our efforts to support non-traditional agriculture such as local food and urban farming initiatives, we are serving a broader constituency — fulfilling our mission while helping win new allies for agriculture and Farm Credit along the way.

AgriBank, affiliated Associations and Farm Credit customers are in a strong position to weather the winds of change. Capital levels, and the composition of capital, are strong. Many customers have taken advantage of long-term, fixed rate financing that will insulate them from a rising interest rate environment. Farm Credit lenders continue to have excellent access to the longer-term capital markets via Federal Farm Credit Banks Funding Corporation fixed rate debt issuances. As a result, they can offer a full range of fixed rate borrowing alternatives to borrowers wanting to limit interest rate risk over the term of their debt.

AgriBank, affiliated Associations and Farm Credit customers are in a strong position to weather the winds of change.

Strategic Imperatives


AgriBank maintains strong core operations that enable us to deliver day in and day out to affiliated Associations. This core is rooted in operational excellence with a continuous improvement mindset that ensures our products and services remain relevant and integral to the success of affiliated Associations. It also encompasses the expertise we offer in products and services, risk management, and strategic business decisions.

In collaboration with affiliated Associations, AgriBank is committed to maintaining and enhancing this core to fulfill our vision to be the best source of financial solutions and services for agriculture and rural America. Toward that end, in concert with affiliated Associations and as a result of our District GPS strategic planning process, we have embarked on four strategic imperatives. These are multi-year areas of focus that will enable us to achieve our vision more effectively and efficiently — and to be Smart, Safe, Innovative, Collaborative:
  • Smart. Optimize the organization's effectiveness and impact in driving strategic vision. We will create greater alignment across our organization to mobilize our resources on our highest priorities with orchestration through our newly established Project Management Office, enhance our relationships with affiliated Associations, and ensure we have the talent and technology to deliver both today and in the future. This includes moving toward a more common set of back-office technology platforms across the District to increase reliability and responsiveness and eliminate redundancy.
  • Safe. Enhance risk management capabilities. With a continued eye on making sound decisions, we are building additional capacity to understand, evaluate and prioritize risk. This includes optimizing our data management processes, including governance, quality and security. We have assumed a leadership position across the System to improve capital modeling to enhance stress testing and economic capital capabilities. And we are implementing comprehensive business continuation and communications plans that include telling the Farm Credit story so key advocates and constituents understand the value we deliver to rural America.
  • Innovative. Create and deliver value through enhanced products and services to meet District/System mission. Our core products and services must continue to evolve. Continuously aligning them with affiliated Associations' business strategies is a must. For 2015, this will include identifying and prioritizing product and services opportunities — a process that has led to new risk management solutions such as AgriHedge and borrower interest rate swaps. We will also work with affiliated Associations to develop a strategy for business intelligence and Big Data.
  • Collaborative. Facilitate and support District and System effectiveness. AgriBank is positioned to provide strategic leadership to the District and System by facilitating a collaborative environment to find effective solutions to fulfill our mission. In 2015, key areas of focus include developing alternative strategies for capital efficiency, pricing and profitability to ensure we maintain dependable, efficient and sustainable funding for Associations and effectively leverage the District’s capital; and continuing to streamline District technology. We will also facilitate the development of District centers of excellence that affiliated Associations will drive and manage.
AgriBank maintains strong core operations that enable us to deliver day in and day out to affiliated Associations.

Mission-driven Sponsorships


Fulfilling our mission to serve agriculture includes providing sponsorship support to traditional and non-traditional agriculture in rural America and in the urban communities where we live and work. In 2014, AgriBank contributed nearly $2.4 million to organizations that are doing important work to build a bold ag future and improve the quality of life in our own backyard. These contributions include funding for the Rural Community Grant Fund, which supports projects in western North Dakota communities affected by oil and mineral exploration and production; support for charitable causes sponsored by the System; strategic sponsorships of traditional and non-traditional agricultural programs; support for Minneapolis-St. Paul charities; and funds to match employee contributions.

There is so much creative and critical work being done to support agriculture and our communities. We spend our sponsorship dollars strategically, with a focus on current and future farmers, rural communities, advocating for agriculture and Farm Credit, and agricultural universities.

The needs are great, and our contributions are an important investment for the future. For 2015, the AgriBank board of directors has agreed to significantly increase our giving by nearly $1 million, for a total of $3.3 million. This increase will help us fulfill requests from affiliated Associations to partner with them in support of worthy causes in the territories they serve. In 2015, AgriBank also plans to pool resources with affiliated Associations and other System Banks to fund several large, multi-year grants that will make a greater impact than we could have on our own to fulfill needs in areas such as rural health care and agriculture education.

For more details on our corporate citizenship initiatives, refer to our latest Giving Report on AgriBank.com.

We spend our sponsorship dollars strategically, with a focus on current and future farmers, rural communities, advocating for agriculture and Farm Credit, and agricultural universities.

Looking Ahead


The AgriBank District is a major player, and it’s critical we speak with a strong voice and act with the flexibility to meet changing needs.

Farm Credit's upcoming centennial celebration is less about the past 100 years than it is about the future. Today Farm Credit is the premier funding source for farmers and ranchers throughout the country, because — nearly a century ago and ever since — its members and leaders dared to be bold. They created a national network of borrower-owned lending institutions that, by its very structure, would ensure that borrowers' interests would be front and center.

They also created a System that has been able to grow and change. This includes change across the AgriBank District. We are continually evaluating our ability and effectiveness in serving our customer-owners, connecting them with funding and other financial solutions so they can feed America and, increasingly, the globe. It's a significant calling: The AgriBank District covers nearly 40 percent of all U.S. farmland and about half of U.S. cropland. It accounts for more than half the total value of all U.S. agricultural exports. The AgriBank District is a major player, and it's critical we speak with a strong voice and act with the flexibility to meet changing needs.

AgriBank board members and employees are stewards of the tremendous Farm Credit legacy. We take pride in the work we do, and we respect the strong partnerships we've built with affiliated Associations. By continually striving to work better together, we are confident we can continue to carry out our vital mission to provide reliable credit to borrowers through good times and challenging times.

New challenges are always on the horizon. Old solutions won't necessarily lead to success. To continue fulfilling our mission, we'll need to make bold moves. With nearly 100 years of experience through every conceivable market condition, we know the best way forward is to Boldly Go.



Douglas A. Felton
Chair, AgriBank

L. William York
CEO, AgriBank