fresno madera farm credit 2015 financial... · i fresno madera farm credit, aca 2015 first quarter...

Fresno Madera Farm Credit

Agriculture is Our Only Business

2015 First Quarter

Financial Statements

TABLE OF CONTENTS

FRESNO MADERA FARM CREDIT, ACA

2015 FIRST QUARTER FINANCIAL STATEMENTS

Message from the President & Chairman .............................................................................. i Management’s Discussion and Analysis Financial Condition and Results of Operations ................................................................. 1 Financial Statements:

Consolidated Statement of Condition ................................................................... 3 Consolidated Statement of Income ........................................................................ 4 Consolidated Statement of Changes in Members’ Equity.............................. 5

Notes to Consolidated Financial Statements ..................................................................... 6

i


2015 FIRST QUARTER FINANCIAL STATEMENTS

MESSAGE TO STOCKHOLDERS

May 8, 2015 Dear Member: These consolidated financial statements reflect the status of the Fresno Madera Farm Credit, ACA and its subsidiaries at the end of the First Quarter. Results for interim periods are not necessarily indicative of results to be expected for the year. These financial statements were prepared and reviewed under the oversight of the Association’s Audit Committee. The stockholders' investment in the Association is materially affected by the financial condition and the results of the operation of the CoBank. The CoBank, FCB and CoBank District quarterly and annual reports are available free of charge by accessing CoBank’s website, www.cobank.com, or may be obtained at no charge by contacting us at 4635 W. Spruce, P.O. Box 13069, Fresno, California 93794-3069 or by calling (559) 277-7000. The undersigned certify they have reviewed this report, this report has been prepared in accordance with all applicable statutory or regulatory requirements and the information contained herein is true, accurate, and complete to the best of his or her knowledge and belief. Sincerely, __________________________________ ___________________________________

Denise Waite Audit Committee Chairperson

Fresno Madera Farm Credit, ACA Fresno Madera PCA / FLBA, FLCA

Keith Hesterberg, President and Chief Executive Officer


___________________________________

Frank Seelye Chief Financial Officer


MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except as noted)


1

LOAN PORTFOLIO

Total loan volume at March 31, 2015 was $955.4 million, a decrease of $46.7 million, or 4.7%, from total loan volume at December 31, 2014 of $1,002 million, and an increase of $70.6 million, or 8%, from the comparative period in 2014. The decrease in volume from year end reflects a normal pattern of seasonal pay downs while the increase from March 31, 2014 is the result of strong new business activity in the third and fourth quarters of 2014. New business development continues to exceed our goals; however, strong member profitability within our direct loan portfolio has slightly reduced the borrowing needs of our members.

Changes in the allowance for loan losses are summarized in Note 2, “Allowance for Loan Losses,” included in this quarterly report to shareholders. As of March 31, 2015, the allowance for loan losses decreased by $420 thousand from $4.86 million at December 31, 2014 to $4.44 million as of March 31, 2015. The allowance as a percentage of loans has decreased slightly from 0.48% at December 31, 2014 to 0.46% at March 31, 2015. The allowance for loan losses is maintained at a level considered adequate by management to provide for probable and estimable losses inherent in the loan portfolio. The allowance is based on a periodic evaluation of the loan portfolio by Management in which numerous factors are considered, including but not limited to current agricultural and economic conditions, loss experience, portfolio quality, and loan portfolio composition. Amounts continue to provide an adequate and sound allowance for loan losses.

RESULTS OF OPERATIONS

Net income for the three months ended March 31, 2015 was $4.4 million compared to $3.8 million from the comparative period in 2014 representing an increase of $0.6 million or 17%.

Net interest income for the three months ended March 31, 2015 was $5.7 million which is an increase of $344 thousand or 6% from the comparative period in 2014. The improvement is mainly attributable to higher average loan volume.

Loan loss reversal for the three months ended March 31, 2015 was $176 thousand compared to $159 from the comparative period in 2014. This reflects the seasonal changes in our volume and the changes in our expense estimate for the risk of losses in our portfolio. Further discussion of the provision for loan losses can be found in Note 2, “Allowance for Loan Losses,” included in this quarterly report to shareholders.

Noninterest income for the three months ended March 31, 2015 was $1.4 million which is an increase of $0.2 million from the comparative period in 2014. Noninterest income is primarily comprised of patronage distributions which reflect patronage income on direct borrowings from CoBank as well as participations purchased activity with CoBank and other Farm Credit Associations.

Noninterest expenses for the three months ended March 31, 2015 amounted to $2.9 million compared to $3.0 million from the comparative period in 2014 representing a decrease of $0.1 million or 3%. This resulted from decreases in salaries and benefits partially offset by an increase in other noninterest expenses.

MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except as noted)


2

CAPITAL RESOURCES

The Association continues to have a sound capital position with an average permanent capital ratio of 17.56% compared to our 14% Association minimum position and 7% regulatory minimum. Members’ equity at March 31, 2015 was $230.7 million representing an increase of $4.4 million or 2% from December 31, 2014. The increase in Members’ equity is attributed to the Association’s net operating results.

For additional information, please refer to the “Notes to Consolidated Financial Statements” and the Association’s 2014 Annual Report.

REGULATORY MATTERS On May 8, 2014, the Farm Credit Administration approved a proposed rule to modify the regulatory capital requirements for System Banks and Associations. The stated objectives of the proposed rule are as follows:

To modernize capital requirements while ensuring that institutions continue to hold sufficient regulatory capital to fulfill their mission as a government-sponsored enterprise,

To ensure that the System’s capital requirements are comparable to the Basel III framework and the standardized approach that the federal banking regulatory agencies have adopted, but also to ensure that the rules recognize the cooperative structure and the organization of the System,

To make System regulatory capital requirements more transparent, and To meet the requirements of section 939A of the Dodd-Frank Wall Street Reform and Consumer

Protection Act. As currently drafted, the proposed rule would, among other things, eliminate the core surplus and total surplus requirements and introduce common equity tier 1, tier 1 and total capital (tier 1 + tier 2) risk-based capital ratio requirements. The proposal would add a minimum tier 1 leverage ratio for all System institutions. In addition, the proposal would establish a capital conservation buffer, and modify and expand risk weightings. The revisions to the risk weightings of exposures would include alternatives to the use of credit ratings, as required by the Dodd-Frank Act. The proposed effective date is January 1, 2016. The public comment period ended on February 16, 2015. While uncertainty exists as to the final form of the proposed rule, based on our preliminary assessment, we do not believe the new rule will impose any significant constraints on our business strategies or growth prospects.

CONSOLIDATED STATEMENT OF CONDITION (Dollars in thousands)


3

The accompanying notes are an integral part of these consolidated financial statements.

March 31 December 312015 2014

UNAUDITED AUDITEDASSETS Loans 955,410$ 1,002,109$ Less allowance for loan losses 4,440 4,860 Net loans 950,970 997,249

Cash 1,447 9,719 Accrued interest receivable 6,172 8,005 Investment in CoBank 27,694 27,557 Other assets 7,294 9,959 Total assets 993,577$ 1,052,489$

LIABILITIES Note payable to CoBank 708,311$ 742,374$ Funds held 48,379 73,171 Accrued interest payable 731 1,952 Patronage distributions payable 4,570 4,570 Other liabilities 922 4,152 Total liabilities 762,913 826,219

MEMBERS' EQUITY Capital stock and participation certificates 759 766 Unallocated retained earnings 229,905 225,504 Total members' equity 230,664 226,270 Total liabilities and members' equity 993,577$ 1,052,489$

CONSOLIDATED STATEMENT OF INCOME (Dollars in thousands)


4


2015 2014UNAUDITED UNAUDITED

INTEREST INCOME Loans 7,475$ 7,140$ Total interest income 7,475 7,140

INTEREST EXPENSE Note payable to CoBank 1,739 1,761 Funds held 55 42 Total interest expense 1,794 1,803 Net interest income 5,681 5,337 (Loan loss reversal) (176) (159) Net interest income after loan loss reversal 5,857 5,496

NONINTEREST INCOME Financially related services income 124 87 Loan fees 94 120 Patronage distribution from Farm Credit Institutions 1,161 944 Other noninterest income 55 79 Total noninterest income 1,434 1,230

NONINTEREST EXPENSE Salaries and employee benefits 1,798 2,070 Occupancy and equipment 134 121 Farm Credit Insurance Fund premium 214 188 Supervisory and examination costs 86 80 Other noninterest expense 656 507 Total noninterest expense 2,888 2,966 Income before income taxes 4,403 3,760 Provision for income taxes 2 2 Net income 4,401$ 3,758$

COMPREHENSIVE INCOME Amortization of retirement costs -$ 28$ Total comprehensive income 4,401$ 3,786$

For the three monthsended March 31

CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITY (Dollars in thousands)


5


Capital AccumulatedStock and Unallocated Other Total

Participation Retained Comprehensive Members' UNAUDITED Certificates Earnings Income/(Loss) EquityBalance at December 31, 2013 761$ 214,282$ (119)$ 214,924$ Comprehensive income: Net income 3,758 3,758 Change in retirement obligation 28 28 Total comprehensive income 3,786 Capital stock and participation certificates issued 13 13 Capital stock and participation certificates retired (16) (16) Balance at March 31, 2014 758$ 218,040$ (91)$ 218,707$

Balance at December 31, 2014 766$ 225,504$ -$ 226,270$ Comprehensive income: Net income 4,401 4,401 Change in retirement obligation - - Total comprehensive income 4,401 Capital stock and participation certificates issued 8 8 Capital stock and participation certificates retired (15) (15) Balance at March 31, 2015 759$ 229,905$ -$ 230,664$

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except as noted)

(Unaudited)


6

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES A description of the organization and operations of Fresno Madera Farm Credit, ACA (ACA) and subsidiaries, Fresno Madera Federal Land Bank Association, FLCA (FLCA) and Fresno Madera Production Credit Association, (PCA) (collectively, the Association), the significant accounting policies followed, and the financial condition and results of operations as of and for the year ended December 31, 2014 are contained in the 2014 Annual Report to Shareholders. These unaudited first quarter 2015 financial statements should be read in conjunction with the 2014 Annual Report to Shareholders.

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial information. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements and should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2014 as contained in the 2014 Annual Report to Shareholders. In the opinion of management, the unaudited financial information is complete and reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of results for the interim periods. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2015. Descriptions of the significant accounting policies are included in the 2014 Annual Report to Shareholders. In the opinion of management, these policies and the presentation of the interim financial condition and results of operations conform with GAAP and prevailing practices within the banking industry.

In August 2014, the Financial Accounting Standards Board (FASB) issued guidance entitled “Presentation of Financial Statements – Going Concern.” The guidance governs management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This guidance requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year after the date the financial statements are issued or within one year after the financial statements are available to be issued, when applicable. Substantial doubt exists if it is probable that the entity will be unable to meet its obligations for the assessed period. This guidance becomes effective for interim and annual periods ending after December 15, 2016, and early application is permitted. Management will be required to make its initial assessment as of December 31, 2016.

In May 2014, the FASB issued guidance entitled, “Revenue from Contracts with Customers.” The guidance governs revenue recognition from contracts with customers and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Financial instruments and other contractual rights within the scope of other guidance issued by the FASB are excluded from the scope of this new revenue recognition guidance. In this regard, a majority of the Association’s contracts would be excluded from the scope of this new guidance. The guidance becomes effective for the first interim reporting period within the annual reporting periods after December 15, 2016. The Association is in the process of reviewing contracts to determine the effect, if any, on the Association’s financial condition or its results of operations.


(Unaudited)


7

Certain amounts in the prior period financial statements have been reclassified to conform to current financial statement presentation. 2. Loans and Allowance for Loan Losses A summary of loans follows:

The Association purchases or sells participation interests with other parties in order to diversify risk, manage loan volume and comply with Farm Credit Administration regulations. The following table presents information regarding participations purchased and sold as of March 31, 2015:

March 31, 2015 December 31, 2014

Real estate mortgage 621,316$ 619,423$ Production and intermediate-term 161,774 226,276 Agribusiness:

Cooperatives 47,556 46,676 Processing and marketing 106,347 93,821 Farm-related business 2,489 2,751

Lease receivables 15,928 13,162 Total loans 955,410$ 1,002,109$

Purchased Sold Purchased Sold Purchased Sold

Real estate mortgage 41,038$ 52,210$ 2,167$ -$ 43,205$ 52,210$ Production and intermediate-term 19,650 49,277 4,000 - 23,650 49,277 Agribusiness Cooperatives 48,447 4,154 3,263 - 51,710 4,154 Processing and marketing 51,047 13,476 18,568 - 69,615 13,476 Lease receivables 15,928 - - - 15,928 -

Total loans 176,110$ 119,117$ 27,998$ -$ 204,108$ 119,117$

Other Farm Credit Institutions

Non-Farm Credit Institutions Total


(Unaudited)


8

The following table shows loan and related accrued interest classified under the Farm Credit Administration Uniform Loan Classification System as a percentage of total loans and related accrued interest receivable by loan type as of:

High risk assets consist of impaired loans and other property owned. These nonperforming assets (including related accrued interest) and related credit quality are as follows:

March 31, 2015 December 31, 2014Real estate mortgage

Acceptable 99.34% 97.46%OAEM 0.07% 1.95%Substandard 0.59% 0.59%

Total 100.00% 100.00%Production and intermediate-term

Acceptable 100.00% 99.09%OAEM 0.00% 0.91%

Total 100.00% 100.00%Agribusiness

Acceptable 90.82% 89.53%Substandard 9.18% 10.47%

Total 100.00% 100.00%Lease receivables

Acceptable 99.96% 99.95%OAEM 0.04% 0.05%

Total 100.00% 100.00%Total Loans

Acceptable 98.07% 96.73%OAEM 0.05% 1.41%Substandard 1.88% 1.86%

Total 100.00% 100.00%

March 31, 2015 December 31, 2014

241$ 248$ Agribusiness 14,398 15,026

Total non-accrual loans 14,639 15,274 Accruing restructured loans - - Accruing loans 90 days past due - -

Total impaired loans 14,639 15,274 Other property owned - -

Total high risk assets 14,639$ 15,274$

Non-accrual loans:Real estate mortgage


(Unaudited)


9

Additional impaired loan information is as follows:

Note: The carrying value in the receivable is the face amount increased or decreased by applicable accrued interest and

unamortized premium, discount, finance charges, or acquisition costs and may also reflect a previous direct write-down of the investment.

Impaired loans with a related allowance for credit losses:

AgribusinessProcess and marketing 14,398$ 14,398$ 776$ -$ -$ -$

Total 14,398$ 14,398$ 776$ -$ -$ -$ Impaired loans with no related allowance for credit losses:

Real estate mortgage 241$ 346$ -$ 248$ 349$ -$ Agribusiness

Process and marketing - 3,231 - 15,026 18,257 - Total 241$ 3,577$ -$ 15,274$ 18,606$ -$ Total impaired loans:

Real estate mortgage 241 346 - 248 349 - Agribusiness

Process and marketing 14,398 17,629 776 15,026 18,257 - Total impaired loans 14,639$ 17,975$ 776$ 15,274$ 18,606$ -$

At March 31, 2015 At December 31, 2014

Carrying Value

Unpaid Principal Balance

Carrying Value

Unpaid Principal Balance

Related Allowance

Related Allowance


(Unaudited)


10

The following tables provide an age analysis of loan portfolio (including accrued interest).

Impaired loans with no related allowance for credit losses:

Real estate mortgage 246$ -$ 277$ -$ Production and intermediate-term - - - 1

Total with no related allowance 246 - 277 1 Impaired loans with a related allowance for credit losses:

AgribusinessProcess and marketing 14,531 - - -

Total with related allowance 14,531 - - - Total impaired loans:

Real estate mortgage 246 - 277 - Production and intermediate-term - - - 1 Agribusiness

Process and marketing 14,531 - - - Total impaired loans 14,777$ -$ 277$ 1$

For the Three Months EndedMarch 31, 2015 March 31, 2014

Average Impaired

Loans

Interest Income

Recognized

Average Impaired

Loans

Interest Income

Recognized

90 Daysor More

March 31, 2015 Past DueReal estate mortgage 625,996$ 70$ -$ 626,066$ -$ Production and intermediate-term 162,653 - - 162,653 - Agribusiness 142,453 - 14,398 156,851 - Lease receivables 16,012 - - 16,012 -

Total 947,114$ 70$ 14,398$ 961,582$ -$ December 31, 2014Real estate mortgage 625,852$ -$ -$ 625,852$ -$ Production and intermediate-term 227,459 - - 227,459$ - Agribusiness 143,566 - - 143,566 - Lease receivables 13,225 12 - 13,237 -

Total 1,010,102$ 12$ -$ 1,010,114$ -$

Current Loans

Accrual loans 90 days or More Past

Due30-89 Days

Past DueTotal Loans

Outstanding


(Unaudited)


11

In 2015, the Association revised its’ methodology for determining the allowance for credit losses. The new methodology takes into consideration potential losses related to unfunded commitments, and as a result, we have established a separate reserve for unfunded commitments, which is included in Other Liabilities on the Association’s balance sheet. The related provision for the reserve for unfunded commitments is included as part of the provision for credit losses on the income statement, along with the provision for loan losses. A summary of changes in the allowance for loan losses and period end recorded investment in loans is as follows:

Energy TotalAllowance for Credit Losses:

Beginning Balance at December 31, 2014 373$ 824$ 3,484$ 5$ 174$ 4,860$ Charge-offs - - - - - - Recoveries - - - - - - (Loan loss reversal)/Provision for Loan Losses (85) 118 (770) (5) 322 (420)

Ending Balance at March 31, 2015 288$ 942$ 2,714$ -$ 496$ 4,440$

Real estate mortgage

Production and intermediate-

term AgribusinessLease

receivables


Beginning Balance at December 31, 2013 394$ 2,000$ 2,046$ 15$ 328$ 4,783$ Charge-offs - - (12) - - (12) Recoveries - - - - - - (Loan loss reversal)/Provision for Loan Losses (44) 3 (126) (1) 9 (159)

Ending Balance at March 31, 2014 350$ 2,003$ 1,908$ 14$ 337$ 4,612$




receivables


Ending balance: Allowance individually evaluated for impairment -$ -$ 776$ -$ -$ 776$ Ending balance: Allowance collectively evaluated for impairment 289 942 1,937 - 496 3,664 Total 289$ 942$ 2,713$ -$ 496$ 4,440$

Recorded Investments in Loans Outstanding:Ending balance: Loans individually evaluated for impairment 241$ -$ 14,398$ -$ -$ 14,639$ Ending balance: Loans collectively evaluated for impairment 625,825 162,653 142,453 - 16,012 946,943 Total loans outstanding (P&I) at March 31, 2015 626,066$ 162,653$ 156,851$ -$ 16,012$ 961,582$




receivables


(Unaudited)


12

A summary of changes in the reserve for unfunded commitments follows:

The Association recorded no troubled debt restructurings during the three months ended March 31, 2015. 3. FAIR VALUE MEASUREMENTS Accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability. Refer to Note 2 to the 2014 Annual Report to Shareholders for a more complete description. The Association had no assets or liabilities measured at fair value on a recurring basis at March 31, 2015 or December 31, 2014. Assets measured at fair value on a non-recurring basis for each of the fair value hierarchy values are summarized below:

The Association had no liabilities measured at fair value on a non-recurring basis at March 31, 2015 or December 31, 2014.


Ending balance: Allowance individually evaluated for impairment -$ -$ -$ -$ -$ -$ Ending balance: Allowance collectively evaluated for impairment 373 824 3,484 5 174 4,860 Total 373$ 824$ 3,484$ 5$ 174$ 4,860$

Recorded Investments in Loans Outstanding:Ending balance: Loans individually evaluated for impairment 248$ -$ 15,026$ -$ -$ 15,274$ Ending balance: Loans collectively evaluated for impairment 625,604 227,459 128,540 - 13,237 994,840 Total loans outstanding (P&I) at December 31, 2014 625,852$ 227,459$ 143,566$ -$ 13,237$ 1,010,114$




receivables

March 31, 2015 December 31, 2014Reserve for unfunded commitments 244$ -$ Total 244$ -$

Total FairLevel 1 Level 2 Level 3 Value

Assets:March 31, 2015

Loans $ - $ - $ - $ - $ (776)December 31, 2014

Loans $ - $ - $ - $ - $ (28)

Fair Value Measurement Using Total Gains/(Losses)


(Unaudited)


13

VALUATION TECHNIQUES As more fully discussed in Note 2 to the 2014 Annual Report to Shareholders, accounting guidance establishes a fair value hierarchy, which requires the Association to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following represents a brief summary of the valuation techniques used by the Association for assets and liabilities, subject to fair value measurement. Loans For certain loans evaluated for impairment under accounting guidance, the fair value is based upon the underlying collateral since the loans were collateral dependent loans for which real estate is the collateral. The fair value measurement process uses independent appraisals and other market-based information, but in many cases it also requires significant input based on Management’s knowledge of and judgment about current market conditions, specific issues relating to the collateral and other matters. As a result, these fair value measurements fall within Level 3 of the hierarchy. When the value of the real estate, less estimated cost to sell, is less than the principal balance of the loan, a specific reserve is established and the net loan is reported at its fair value. 4. MANAGEMENT CHANGES On March 16, 2015 Gina White resigned her position as CFO and accepted another position within the Association. Frank Seelye was named interim CFO effective March 16, 2015. More information on Mr. Seelye can be found in the Disclosure Information, Senior Officers section of the 2014 Annual Report. 5. SUBSEQUENT EVENTS The Association has evaluated subsequent events through May 8, 2015 which is the date the financial statements were issued, and no material subsequent events were identified.

Fresno Madera Farm Credit, ACAFresno Madera Production Credit Association

Fresno Madera Federal Land Bank Association, FLCAPO Box 13069 ● Fresno, CA 93794-3069www.fmfarmcredit.com ● 559-277-7000

Agriculture is Our Only Business

fresno madera farm credit 2015 financial... · i fresno madera farm credit, aca 2015 first quarter...

Documents