Annual Report 2018 - Page 12

either cash or stock. The plan is designed to maintain 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 the following types of discretionary patronage from AgriBank:    wholesale patronage which includes patronage on our note payable with AgriBank pool program patronage based on the net earnings of loan participation interests sold to AgriBank distributions 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 Beginning in 2017, wholesale patronage income earned may be paid in cash and AgriBank stock. Wholesale patronage income for 2018, 2017, and 2016 was paid in cash. All pool program patronage and AgDirect distributions were paid in cash. Purchased Services We purchase various services from AgriBank, including SunStream Business Services, a division of AgriBank. The services include 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 $1.3 million, $1.2 million, and $1.2 million in 2018, 2017, and 2016, respectively. 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. CentRic Technology Collaboration: We participate in CentRic Technology Collaboration (CTC) with certain other AgriBank District associations. The CTC facilitates the development and maintenance of certain retail technology systems essential to providing credit and other services to our members. The CTC operations are governed by representatives of each participating association. The expenses of CTC 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. 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 at December 31, 2018, 2017, and 2016. Farm Credit Foundations: We have a relationship with Farm Credit Foundations (Foundations), a System service corporation, which involves purchasing human resource information systems, and benefit, payroll, and workforce management services. As of December 31, 2018, 2017, and 2016, our investment in Foundations was $32 thousand. The total cost of services we purchased from Foundations was $195 thousand, $187 thousand, and $197 thousand in 2018, 2017, and 2016, respectively. Rural Business Investment Company: We and other Farm Credit Institutions are among the limited partners for Rural Business Investment Companies (RBICs). Refer to Note 5 to the accompanying Consolidated Financial Statements 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 $6.7 million, $6.2 million, and $4.7 million at December 31, 2018, 2017, and 2016, respectively. Programs We are involved in a number of programs designed to improve our credit delivery, related services, and marketplace presence. AgDirect: We participate in the AgDirect trade credit financing program. Refer to the UBEs section for further discussion on this program. Farm Cash Management: We offer Farm Cash Management to our members. Farm Cash Management links members’ revolving lines of credit with an AgriBank investment bond to optimize members’ use of funds. REGULATORY MATTERS Investment Securities Eligibility In May 2018, the FCA Board approved a final rule to revise the requirements governing the eligibility of investment securities for System banks and associations. The new regulation revises the eligibility purpose, type, and amount of investments that a System association may hold. The regulation was effective January 1, 2019. We currently do not have investment securities on our Consolidated Statements of Condition. 9