Patronage
AgriBank has amended its capital plan effective July 1, 2017, to provide for adequate capital at AgriBank under the new capital regulations as well as to
create a path to long-term capital optimization within the AgriBank District. The plan optimizes capital at AgriBank; distributing available AgriBank
earnings in the form of patronage, either cash or stock. A key part of these changes involves maintaining capital adequacy such that sufficient earnings
will be retained in the form of unallocated retained earnings and allocated stock to meet the leverage ratio target and other regulatory or policy
constraints prior to any cash patronage distributions.
We receive different types of discretionary patronage from AgriBank. Beginning in 2017, patronage income earned may be paid in cash and AgriBank stock.
Patronage income for 2017, 2016, and 2015 was paid in the form of cash. AgriBank’s Board of Directors sets the level of:
wholesale patronage which includes patronage on our note payable with AgriBank
patronage based on the balance and net earnings of loans in the AgriBank Asset Pool program
partnership distribution based on our share of the net earnings of the loans in the AgDirect trade credit financing program, adjusted for required
return on capital and servicing and origination fees
Purchased Services
We purchase various services from AgriBank including certain financial and retail systems, financial reporting services, tax reporting services, technology
services, and insurance services.
The total cost of services we purchased from AgriBank was $1.2 million in 2017, 2016, and 2015.
During 2016, District associations and AgriBank conducted research related to the creation of a separate service entity to provide many of the business
services offered by AgriBank. A separate service entity allows District associations and AgriBank to develop and maintain long-term, cost effective
technology and business services. The service entity would be owned by certain District associations and AgriBank and will be named SunStream
Business Services (SunStream). An application to form the service entity was submitted in May 2017 to the FCA for approval.
Impact on Members’ Investment
Due to the nature of our financial relationship with AgriBank, the financial condition and results of operations of AgriBank materially impact our members’
investment.
OTHER RELATIONSHIPS AND PROGRAMS
Relationships with Other Farm Credit Institutions
Capital Markets Group: We participate in the Capital Markets Group (CMG) with two other AgriBank District associations. The CMG focuses on
generating revenue and loan volume for the financial benefit of all three participating associations. Management for each association has direct decision-
making authority over the loans purchased and serviced for their respective association. The business arrangement provides additional means for
diversifying each participant’s portfolio, helps reduce concentration risk, and positions the participants for continued growth.
BGM Technology Collaboration: We participate in the BGM Technology Collaboration (BGM) with two other AgriBank District associations to facilitate the
development and maintenance of certain retail technology systems essential to providing credit and other services to our members. BGM operations
are governed by representatives of each participating association. The expenses of BGM are allocated to each of the participating associations based on an
agreed upon formula. The systems developed are owned by each of the participating associations. In 2018, the BGM collaboration will become the Centric
Technology Collaboration (CTC), which will participate with certain other AgriBank District associations. The CTC will facilitate the development and
maintenance of the technology previously supported by BGM.
CoBank, ACB: We have a relationship with CoBank, ACB (CoBank), a System bank, which involves both purchasing and selling participation interests in
loans. As part of this relationship, our equity investment in CoBank was $355 thousand, $355 thousand, and $350 thousand at December 31, 2017, 2016,
and 2015, respectively.
Farm Credit Foundations: We have a relationship with Farm Credit Foundations (Foundations), which involves purchasing human resource information
systems, benefits, payroll, and workforce management services. As of December 31, 2017, 2016, and 2015, our investment in Foundations was $32
thousand. The total cost of services we purchased from Foundations was $187 thousand, $197 thousand, and $168 thousand in 2017, 2016, and 2015,
respectively.
Rural Business Investment Company: We and other Farm Credit Institutions are among the limited partners for RBICs. Refer to the Other Investment
section for further discussion.
Unincorporated Business Entities (UBEs)
In certain circumstances we may establish separate entities to acquire and manage complex collateral, primarily for legal liability purposes.
AgDirect, LLP: We participate in the AgDirect trade credit financing program, which includes origination and refinancing of agriculture equipment loans
through independent equipment dealers. The program is facilitated by another AgriBank District association through a limited liability partnership in
which we are a partial owner. Our investment in AgDirect, LLP, was $6.2 million, $4.7 million, and $1.7 million at December 31, 2017, 2016, and 2015,
respectively.
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