Annual Report - CoBank

Note 16 – Quarterly Financial InformationUnaudited quarterly results of operations for the years ended December 31, 2011, 2010 and 2009, are shown in the table below.Quarterly Financial Information (Unaudited)2011 First Second Third Fourth TotalNet Interest Income $ 301,204 $ 276,537 $ 251,995 $ 241,291 $ 1,071,027Provision for Loan Losses 12,500 25,000 12,500 8,000 58,000Noninterest Income and Expenses, Net 19,694 25,519 27,872 37,249 110,334Provision for Income Taxes 56,949 45,290 41,706 52,161 196,106Net Income $ 212,061 $ 180,728 $ 169,917 $ 143,881 $706,5872010 First Second Third Fourth TotalNet Interest Income $ 230,720 $ 217,903 $ 226,276 $ 275,946 $950,845Provision for Loan Losses 12,500 4,000 21,000 22,500 60,000Noninterest Income and Expenses, Net 8,018 26,688 39,979 42,966 117,651Provision for Income Taxes 41,543 36,843 33,339 47,702 159,427Net Income $ 168,659 $ 150,372 $ 131,958 $ 162,778 $613,7672009 First Second Third Fourth TotalNet Interest Income $ 253,258 $ 239,679 $ 223,108 $ 229,918 $945,963Provision for Loan Losses 20,000 10,000 25,000 25,000 80,000Noninterest Income and Expenses, Net 28,237 32,299 45,631 28,103 134,270Provision for Income Taxes 45,164 41,243 35,704 44,166 166,277Net Income $ 159,857 $ 156,137 $ 116,773 $ 132,649 $565,416Note 17 – Affiliated AssociationsWe are chartered by the FCA to serve the Associationsthat provide credit and financially related services to or for thebenefit of eligible borrowers/shareholders for qualifiedpurposes primarily doing business in the New England states,New York, New Jersey, Alaska, Idaho, Montana, Oregon andWashington. The Associations are statutorily precluded by theFarm Credit Act from participating in the issuance ofSystemwide Debt Securities. Therefore, we are the primaryfunding source for our affiliated Associations. TheAssociations primarily originate and service short- andintermediate-term loans for agricultural purposes and securedlong-term real estate mortgage loans. The Associations mayalso purchase eligible loan participations from System entitiesand other lending institutions. Additionally, the Associationsserve as an intermediary in offering credit life insurance andmulti-peril crop insurance and providing additional financialservices to borrowers.The Farm Credit Act and FCA regulations require us toexercise limited supervision over the operating activities ofour affiliated Associations. These Associations and CoBankoperate under a debtor-creditor relationship evidenced by aGeneral Financing Agreement (GFA) entered into separatelywith each Association. The GFA sets forth the businessrelationship between us and each Association and alsoreferences certain requirements contained in the Farm CreditAct and FCA regulations. The Associations’ boards ofdirectors are expected to establish and monitor the necessarypolicies and procedures to comply with all FCA regulations.In all other respects, the lending relationship with theAssociations is substantially similar to that with our otherborrowers.The FCA’s capital adequacy regulations require allSystem institutions to individually maintain permanent capitalof 7 percent of average risk-adjusted assets. AtDecember 31, 2011, the permanent capital ratios of ouraffiliated Associations exceeded these standards.We make loans to the Associations, which, in turn, makeloans to their eligible borrowers. We have senior securedinterests in substantially all of the Associations’ assets, whichextend to the underlying collateral of the Associations’ loansto their customers. The loans outstanding to our affiliatedAssociations amounted to $11.2 billion at December 31, 2011.During 2011, $42.7 billion of advances on loans were made toour affiliated Associations and repayments totaled$42.9 billion.We have only limited access to Association capital. Ourbylaws permit our Board of Directors to set the target equitylevel for Association investment in the Bank within a range of4 to 6 percent of the one-year historical average of Associationborrowings. In 2011, the required investment level was4 percent. There are no capital sharing agreements between usand our affiliated Associations.CoBank 2011 Annual Report105