Annual Report 2017 | Page 3

MESSAGE FROM THE CHAIRPERSON OF THE BOARD AND CHIEF EXECUTIVE OFFICER Dear FCS Financial Member: We are very proud to present this 2017 Annual Report to Shareholders of FCS Financial. As a customer-owned cooperative, dedicated to serving agriculture and rural communities in Missouri, FCS Financial remains committed to supporting our owner-members and ensuring they have a consistent, reliable, and affordable source of credit and related services – today and tomorrow. The economic environment in 2017 continued to provide both opportunities and challenges for agriculture producers. Even with the current challenges that exist in agriculture, those producers with effective production, marketing, and financial management plans have been able to stabilize or improve their financial condition. FCS Financial had another solid year. The association continues to benefit from diversification across commodities and types of farming and ranching operations within our membership. In addition, our involvement in capital market participations with other entities brings additional geographic and earnings diversification to your cooperative. Earning assets grew at a relatively modest rate with the average daily balance (ADB) of our owned and managed assets increasing to $3.8 billion at December 31, 2017, compared to $3.7 billion at the end of 2016. We believe this rate of growth is reflective of the opportunities and conditions that currently exist in the marketplace. Net income at the end of 2017 was $70.1 million, for a return on average assets (ROA) of 1.8%. This compares to $61.6 million and an ROA of 1.7% at the end of 2016. 2017 net income was positively affected by several factors including a substantial increase in patronage from our funding bank and a reduction in the cost of insuring our portion of the Farm Credit System debt. Asset quality remained relatively unchanged at 97.4% owned acceptable and special mention, compared to 97.6% at the end of 2016. Loans 30 days or more past due, an indicator of potential future credit concerns, remained at very low levels and ended 2017 at 0.1%. The association’s permanent capital ratio, a key indicator of financial adequacy, was 18.3% as of December 31, 2017, and was well in excess of our regulatory requirement. Maintaining a strong capital position is critical to ensure the association is protected from unexpected losses and is well positioned for future opportunities to serve our owner-members, new members, and rural communities in Missouri. These positive results enabled your Board of Directors to declare a cash patronage distribution for 2017 of $21.8 million, or an average of approximately 0.75% of eligible owner-member borrowings from FCS Financial. This is a record level of patronage and brings the total distribution to over $97 million since 2006. We are especially pleased that this effectively reduces our owner-members’ borrowing costs in an already low interest rate environment, especially during this challenging period. We believe patronage provides our owner-members a significant benefit and is one of the many advantages of choosing FCS Financial as your source of financing. While the association’s success is shared directly with our owner-members through cash patronage, we also share our success with our rural communities. We are making meaningful financial contributions and investing significant employee resources to benefit education, young and beginning farmers, and agriculture- related youth programs. In 2017, we also introduced our Heartland Heroes program. This program was designed to help thos e who served in the military return to agriculture and our rural communities. Modeled after our successful Connect young and beginning farmer program, Heartland Heroes includes credit underwriting, communication, and knowledge-sharing components targeted towards the specific needs of veterans. In addition, some of our FCS Financial owner-members are volunteering their time and expertise to mentor and serve as a resource for the Heartland Heroes participants. As we look ahead, we recognize there is still much to be done. 2018 will bring new challenges and opportunities to our business. Lower projected net farm income, breakeven or below prices for most major commodities, a stronger dollar, and increasing interest rates will likely persist for the next several years. These challenges will likely impact the association’s earnings, credit quality, and growth opportunities. However, we believe that through sound financial management and prudent risk administration the association is well positioned to continue to serve agriculture and our rural communities. Our business operations continue to become more complex as increased regulatory requirements, rising costs related to technology and information security, and additional emphasis on internal controls continue to affect our cost of operations. Prudent management will be important for the foreseeable future to ensure the association continues to operate cost effectively, deliver value to our members, and support our rural communities across Missouri. A significant strength of FCS Financial is that we are a customer-owned cooperative whose primary purpose is to serve our owner-members. Our mission over our more than 100 years has not changed – to ensure that farmers, ranchers, and agribusinesses have a consistent, affordable and reliable source of funding – in all economic cycles. This has been the key to our success for over 100 years, and we believe it must remain our focus for the next 100 years. Thank you for choosing FCS Financial for your agricultural financing needs and we wish you continued success in 2018. Sincerely, James A. Nivens Chairperson of the Board FCS Financial, ACA David D. Janish Chief Executive Officer FCS Financial, ACA March 9, 2018 1