Annual Report - CoBank

Notes to Consolidated Financial StatementsCoBank, ACB($ in Thousands, Except Per Share Amounts and as Noted)Note 1 – OrganizationCoBank, ACB (CoBank or the Bank) is one of the banksof the Farm Credit System (System). CoBank provides loans,leases and other financial services to vital industries acrossrural America. The System is a federally chartered network ofborrower-owned lending institutions composed ofcooperatives and related service organizations. The Systemwas established in 1916 by the United States Congress and is aGovernment Sponsored Enterprise (GSE). We are federallychartered under the Farm Credit Act of 1971, as amended (theFarm Credit Act).On January 1, 2012, pursuant to the terms of theAgreement and Plan of Merger between CoBank and U.S.AgBank, FCB (AgBank), AgBank merged with and intoCoBank, FCB, a wholly-owned subsidiary of CoBank.CoBank, FCB was formed in connection with the merger andpreserves the statutory tax exemption applicable to FarmCredit Banks. Effective January 1, 2012, CoBank conducts itsTitle I lending business (primarily funding of Farm CreditAssociations) through CoBank, FCB. Refer to Note 18 foradditional information concerning the merger with AgBank.We are cooperatively owned by our U.S. customers,which consist of agricultural cooperatives, rural energy,communications and water companies, farmer-ownedfinancial institutions, including Agricultural CreditAssociations (Associations) and other businesses that servevital industries in rural America.Our wholly-owned leasing subsidiary, Farm CreditLeasing Services Corporation (FCL), specializes in leasefinancing and related services for a broad range of equipment,machinery, vehicles and facilities.In conjunction with other System entities, the Bankjointly owns the following service organizations, which werecreated to provide a variety of services for the System:(1) Federal Farm Credit Banks Funding Corporation(Funding Corporation), which issues, markets andprocesses Systemwide Debt Securities using a sellinggroup, and also provides financial management andreporting services for the combined entities of theSystem;(2) FCS Building Association, which leases premises andequipment to the Farm Credit Administration (FCA),the System’s regulator, as required by the FarmCredit Act; and(3) Farm Credit Association Captive InsuranceCompany, a reciprocal insurer that providesinsurance services such as directors and officersliability, fiduciary liability and a bankers bond toSystem organizations.We have a minority ownership interest in Farm CreditFinancial Partners, Inc., chartered under the Farm Credit Actas a service organization providing a range of support andtechnology services to certain Farm Credit Associations.Effective January 1, 2012, in connection with the merger ofAgBank, we also have a minority ownership interest inAgVantis, Inc., who is also chartered under the Farm CreditAct as a service organization providing a range of support andtechnology services to certain Farm Credit Associationsformerly affiliated with AgBank. Additionally, we have asmall equity interest in other System banks as required inconnection with the purchase and sale of participation loans.Copies of CoBank’s financial reports are available onrequest by calling or visiting one of our banking centerlocations and through our website at www.cobank.com.Copies of financial reports of our affiliated Associations andthe System are available on their respective websites.Note 2 – Summary of SignificantAccounting PoliciesBasis of Presentation and Principles of ConsolidationThe consolidated financial statements include theaccounts of CoBank and FCL after elimination of allsignificant intercompany accounts and transactions.The accompanying consolidated financial statementsexclude financial information of Northwest Farm CreditServices, ACA (Northwest) as well as the Farm CreditAssociations in the northeastern region of the United States(Northeast Associations), which are collectively referred to asour affiliated Associations. CoBank and our affiliatedAssociations are collectively referred to as the “District.”Note 17 contains additional information about our affiliatedAssociations, and the supplemental information on pages 108to 110 includes certain unaudited combined financialinformation of our affiliated Associations and the District.We prepare our financial statements in conformity withaccounting principles generally accepted in the United Statesof America (GAAP) and prevailing practices within thefinancial services industry. These principles require us tomake estimates and assumptions that affect the amountsreported in the consolidated financial statements andaccompanying notes. Actual results may differ from thoseestimates. Significant estimates are discussed in these notes tothe consolidated financial statements, as applicable. Certainreclassifications have been made to amounts reported inprevious years to conform to the 2011 presentation.CoBank 2011 Annual Report69