Annual Report - CoBank

Supplemental District FinancialInformationCoBank, ACB and Affiliated AssociationsOur affiliated Associations operate independently andmaintain an arms-length relationship with us, except to thelimited extent that the Farm Credit Act requires us, as thefunding bank, to monitor and approve certain activities ofthese Associations. Accordingly, the financial information ofaffiliated Associations is not included in our auditedconsolidated financial statements. However, because of theinterdependent manner in which CoBank and its affiliatedAssociations operate, we believe that presenting combinedBank and Association financial information is meaningful forpurposes of additional analysis.The Combining Balance Sheets and Income Statements,ratios and other financial information on pages 108 to 110,present condensed combined financial information of CoBankand its affiliated Associations, which are collectively referredto as the District. As part of the combining process, allsignificant transactions between CoBank and the Associations,including loans made by the Bank to the affiliatedAssociations and the interest income/interest expense relatedthereto, and investments of the Associations in the Bank andthe earnings related thereto, have been eliminated.District Financial Condition and Results of OperationsTotal District period-end assets decreased by 3 percent in2011, compared to an increase of 13 percent in 2010, largelydue to a decline in period-end loan volume at the Bank.Period-end assets for the Associations grew 1 percent in 2011compared to 2 percent in 2010. The modest rate of growth atthe Associations reflected weak loan demand at the producerlevel of the U.S. farm economy in part due to the strongliquidity positions of many farmers and ranchers.At the end of 2011, combined District shareholders’equity was $6.8 billion and capital levels at all District entitieswere well in excess of minimum regulatory capitalrequirements.District net income increased to $923 million in 2011from $818 million for 2010. The combined net income of theAssociations increased 7 percent to $281 million in 2011. Thisincrease was primarily the result of an improvement in netinterest income and a lower combined provision for loanlosses, offset in part by lower noninterest income and higheroperating expenses.District net interest income increased by $142 million in2011. Net interest income for the Associations increased by$22 million in 2011, due to higher average loan volume andimproved lending spreads.The District’s provision for loan losses decreased to$122 million in 2011 from $146 million in 2010. TheAssociations’ provision for loan losses decreased to$64 million for 2011 compared to $86 million in 2010.Notwithstanding the lower level of provisions in 2011,ongoing credit challenges in the dairy, timber and nurseryindustries could lead to a decline in the credit quality of theAssociations’ retail loan portfolios and an increase in theirprovision for loan losses.District noninterest income totaled $165 million in 2011,and remained relatively unchanged from 2010. Noninterestincome at the Associations decreased by $15 million as the2010 period included refunds of a portion of Farm CreditInsurance Fund premiums paid in prior years.District operating expenses increased to $413 million, or5 percent, in 2011 from $393 million for 2010. Operatingexpenses at the Associations increased by $8 million,primarily due to increases in employee compensation expensesand Insurance Fund premiums.CoBank 2011 Annual Report107