Annual Report - CoBank

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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 $8 million,primarily due to increases in employee compensation expensesand Insurance Fund premiums.CoBank 2011 Annual Report107
Supplemental District Financial InformationCoBank, ACB and Affiliated AssociationsCombining Balance Sheets (Condensed)($ in Millions) (Unaudited)As of December 31, 2011CoBankCombinedAffiliatedAssociationsEliminationsCombinedDistrictInvestment Securities $ 12,995 $ - $ - $12,995Loans 46,285 13,243 (11,192) 48,336Less: Allowance for Loan Losses (388) (201) - (589)Net Loans 45,897 13,042 (11,192) 47,747Other Assets 4,398 824 (587) 4,635Total Assets $ 63,290 $ 13,866 $ (11,779) $65,377Bonds and Notes $ 57,104 $ 11,289 $ (11,225) $57,168Reserve for Unfunded Commitments 154 13 - 167Other Liabilities 1,136 183 (68) 1,251Total Liabilities 58,394 11,485 (11,293) 58,586Total Shareholders’ Equity 4,896 2,381 (486) 6,791Total Liabilities and Shareholders’ Equity $ 63,290 $ 13,866 $ (11,779) $65,377As of December 31, 2010CoBankCombinedAffiliatedAssociationsEliminationsCombinedDistrictInvestment Securities $ 12,617 $ - $ - $12,617Loans 49,992 13,149 (11,327) 51,814Less: Allowance for Loan Losses (400) (176) - (576)Net Loans 49,592 12,973 (11,327) 51,238Other Assets 3,617 810 (582) 3,845Total Assets $ 65,826 $ 13,783 $ (11,909) $67,700Bonds and Notes $ 60,324 $ 11,403 $ (11,364) $60,363Reserve for Unfunded Commitments 100 7 - 107Other Liabilities 996 148 (68) 1,076Total Liabilities 61,420 11,558 (11,432) 61,546Total Shareholders’ Equity 4,406 2,225 (477) 6,154Total Liabilities and Shareholders’ Equity $ 65,826 $ 13,783 $ (11,909) $67,700As of December 31, 2009CoBankCombinedAffiliatedAssociationsEliminationsCombinedDistrictInvestment Securities $ 11,808 $ - $ - $11,813Loans 44,174 12,805 (11,196) 45,783Less: Allowance for Loan Losses (370) (151) - (521)Net Loans 43,804 12,654 (11,196) 45,262Other Assets 2,549 819 (595) 2,768Total Assets $ 58,161 $ 13,473 $ (11,791) $59,843Bonds and Notes $ 52,911 $ 11,277 $ (11,239) $52,949Reserve for Unfunded Commitments 128 7 - 135Other Liabilities 1,064 140 (80) 1,124Total Liabilities 54,103 11,424 (11,319) 54,208Total Shareholders’ Equity 4,058 2,049 (472) 5,635Total Liabilities and Shareholders’ Equity $ 58,161 $ 13,473 $ (11,791) $59,843CoBank 2011 Annual Report108
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Everett DobrinskiChairmanRobert B.
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“ We firmly believe the combined
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associations are partnering with Co
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2012 BOARD OF DIRECTORSOccupation:F
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“WE ARE COMMITTEDTO GOOD GOVERNAN
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U.S. AgBank CEO Darryl Rhodes (fron
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KansasNew MexicoUtahFC of Ness City
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CorporateCitizenshipAT COBANKSuppor
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StrategicRelationshipsFarm Credit o
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RegionalAgribusinessBANKING GROUPCe
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CorporateAgribusinessBANKING GROUPK
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ElectricDistributionBANKING DIVISIO
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Power SupplyBANKING DIVISIONTri-Sta
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IndustryPortfoliosCoBank ended 2011
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CoBank is a financially strong,depe
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30COBANK 2011ANNUAL REPORTbuilding
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The information and disclosures con
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Financial Condition andResults of O
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Provision for Loan Losses and Reser
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Purchased services expense decrease
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AgribusinessOverviewThe Agribusines
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Rural InfrastructureOverviewThe Rur
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Credit ApprovalThe most critical el
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Total nonaccrual loans were $134.9
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Basis RiskBasis risk arises due to
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Our net interest income is lower in
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The notional amount of our derivati
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Reputation Risk ManagementReputatio
Page 61 and 62: Investment Securities ($ in Million
Page 63 and 64: In accordance with the Farm Credit
Page 65 and 66: Critical Accounting EstimatesManage
Page 67 and 68: Business OutlookWe closed our merge
Page 69 and 70: Consolidated Income StatementsCoBan
Page 71 and 72: Consolidated Statements of Cash Flo
Page 73 and 74: Consolidated Statements of Changes
Page 75 and 76: LoansWe report loans, excluding lea
Page 77 and 78: If we determine that a derivative n
Page 79 and 80: Reserve for Credit ExposureThe foll
Page 81 and 82: The information in the tables under
Page 83 and 84: The following tables present inform
Page 85 and 86: At December 31, 2011, gross minimum
Page 87 and 88: For impaired investment securities,
Page 89 and 90: At December 31, 2011, the assets of
Page 91 and 92: Preferred StockThe following table
Page 93 and 94: The following table provides a summ
Page 95 and 96: AssumptionsWe measure plan obligati
Page 97 and 98: Incentive Compensation PlansWe have
Page 99 and 100: Note 11 - Derivative FinancialInstr
Page 101 and 102: A summary of the impact of derivati
Page 103 and 104: Due to the uncertainty of expected
Page 105 and 106: Assets and Liabilities Measured atF
Page 107 and 108: Note 14 - Segment Financial Informa
Page 109 and 110: Note 15 - Commitments and Contingen
Page 111: Note 18 - Subsequent Events (Unaudi
Page 115 and 116: Supplemental District Financial Inf
Page 117 and 118: Report of Independent AuditorsCoBan
Page 119 and 120: Management’s Report on Internal C
Page 121 and 122: Annual Report to Shareholders Discl
Page 123 and 124: Board of Directors Disclosure as of
Page 131 and 132: Senior OfficersCoBank, ACBRobert B.
Page 133 and 134: Senior Officers Compensation Discus
Page 145 and 146: Code of EthicsCoBank, ACBCoBank set
Page 147 and 148: CERTIFICATIONI, Robert B. Engel, Pr
Page 149 and 150: LeadershipCoBank, ACBRobert B. Enge
Page 151 and 152: OfficeLocationsCoBank National Offi
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Annual Report - CoBank

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