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Jill Long Thompson, Board Chair and Chief Executive Officer
Kenneth A. Spearman, Board Member
Leland A. Strom, Board Member
CREIM FARM * * EEGL INTERNATED
MINUTES OF THE REGULAR MEETING
OF THE
FARM CREDIT ADMINISTRATION BOARD
May 8, 2014
These minutes reflect the business transacted at the May 8, 2014, Regular Meeting of the Farm
Credit Administration Board (FCA Board) pursuant to the Government in the Sunshine Act (Act), 5
U.S.C. $ 552b, and the regulations of the Farm Credit Administration (FCA) adopted thereunder.
The FCA Board meeting was held at the FCA office in McLean, Virginia, beginning at 9:00 a.m. and
concluding at 10:41 a.m. Members of the Board present were:
Jill Long Thompson, Board Chair and Chief Executive Officer
Kenneth A. Spearman, Member
Leland A. Strom, Member
Others present included Charles Rawls, General Counsel; Dale Aultman, Secretary to the Board; staff
of the FCA and Farm Credit System Insurance Corporation (FCSIC); and six members of the general
public. (A list of staff attendees is attached as Exhibit A.)
The Secretary read a statement that announced the meeting would be conducted according to the
requirements of the Government in the Sunshine Act.
Board Chair Long Thompson reviewed the published Agenda. (A copy of the Public Announcement
publishing the Agenda for the meeting is attached as Exhibit B.)
Mr. Spearman moved to adopt the Agenda as published.
Mr. Strom seconded the motion.
There being no further discussion, Board Chair Long Thompson called the question.
The Secretary polled the Board Members and the motion carried unanimously.
1
Mr. Strom noted that the Agenda did included portions of the meeting that should be closed to the
public as permitted by the Government in the Sunshine Act and therefore moved that the meeting
be closed at that point.
Mr. Spearman seconded the motion.
There being no further discussion, Board Chair Long Thompson called the question.
The Secretary polled the Board Members and the motion carried unanimously.
OPEN SESSION
Approval of Minutes
Minutes for April 10, 2014
(BM-8-MAY-14-01)
Mr. Spearman moved to approve the minutes for the April 10, 2014, regular Board Meeting.
Mr. Strom seconded the motion.
There being no further discussion, Board Chair Long Thompson called the question.
The Secretary polled the Board Members and the motion carried unanimously. (BM-8-MAY-14-01)
(A copy of the "Board Action Item" is attached as Exhibit C.)
New Business
Capital - Tier 1/Tier 2 Framework, Proposed Rule
(BM-8-MAY-14-02)
J.C. Floyd of the Office of Examination and Becky Orlich and Jennifer Cohn of the Office of General
Counsel presented the Capital - Tier 1/Tier 2 Framework, Proposed Rule.
Board Chair Long Thompson asked that her written statement pertaining to the vote be attached as
an exhibit to the minutes. (A copy is attached at Exhibit D.)
Mr. Spearman asked that his written statement pertaining to the vote be attached as an exhibit to
the minutes. (A copy is attached at Exhibit E.)
Mr. Strom asked that his written statement pertaining to the vote be attached as an exhibit to the
minutes. (A copy is attached at Exhibit F.)
Board Chair Long Thompson asked if there was any further discussion and asked staff to provide
their recommendation Staff provided their recommendation.
Mr. Strom moved that the Board approve the Capital - Tier 1/Tier 2 Framework, Proposed Rule.
2
Mr. Spearman seconded the motion.
Board Chair Long Thompson asked if there was any further discussion.
There being no further discussion, Board Chair Long Thompson called the question.
The Secretary polled the Members and the motion carried unanimously. (BM-8-MAY-14-02)
(A copy of the "Board Action Item" is attached as Exhibit G.)
Reports
Ethics Update Report
Wendy Laguarda and Jeff Pienta of the Office of Office of General Counsel presented the Ethics
Update Report.
Board Chair Long Thompson asked if there were any questions or further discussion from the Board.
There were no further questions or discussion.
(A copy of the PowerPoint presentation is attached as Exhibit H.)
Farm Credit System Building Association Auditor's Report on 2013 Financial Audit
Rick Albrecht, President of the FCSBA, and Craig Hunter and Brynn McNeil of Cherry Beakert, LLP
presented the FCS Building Association Auditor's Report on 2013 Financial Audit.
Board Chair Long Thompson asked if there were any questions or further discussion from the Board.
There was no further discussion.
(A copy of the PowerPoint presentation is attached as Exhibit I.)
Before convening the closed session, Board Chair Long Thompson announced a 5 minute break,
without objection.
CLOSED SESSION
Board Chair Long Thompson announced that the next topic on the Agenda was a closed session item
pursuant to previous Board action and asked members of the public to exit.
Board Chair Long Thompson convened the closed session of the meeting at 10:13 a.m. and
instructed the Secretary to activate the electronic recording device so that the proceedings of the
closed session were properly recorded as required by the Government in the Sunshine Act.
Board Chair Long Thompson then instructed the General Counsel to furnish the Secretary with a
certification, pursuant to 5 U.S.C. § 552b(f), that the portions of the meeting held in closed session
may be properly closed to the public.
3
(A copy of the Certification is attached hereto as Exhibit J.)
Members of the Board present were:
Jill Long Thompson, Board Chair and Chief Executive Officer
Kenneth A. Spearman, Member
Leland A. Strom, Member
The above named constitute the full Board.
Others present included Dale Aultman, Secretary to the Board; and Charles Rawls, General Counsel.
(A list of staff attendees is attached hereto as Exhibit A).
Reports
Office of Secondary Market Oversight - Quarterly Update
Bruce Hudson of the Office of Secondary Market Oversight presented a quarterly update of activities.
Board Chair Long Thompson asked if there were any questions or further discussion from the Board.
There was no further discussion.
Executive Session with External Auditor
The Board Chair announced that the next topic on the Agenda was a closed executive session
pursuant to previous Board action and 5 U.S.C. § 552b(c)(2).
The Board Chair instructed all to exit except for Board Members, Executive Assistants, the General
Counsel, and the Secretary to the Board so that the Board could meet with Craig Hunter and Brynn
McNeil as approved by the Board previously.
ADJOURNMENT
There being no further business to come before the Board, Board Chair Long Thompson called for a
motion to adjourn the meeting.
Mr. Spearman moved that the meeting be adjourned.
Mr. Strom seconded the motion.
Board Chair Long Thompson called the question.
The Secretary polled the Board Members and the motion carried unanimously.
The meeting adjourned at 10:41 a.m.
4
NOTATIONAL VOTE ACTIONS
There were two notational vote actions approved by the FCA Board from April 11, 2014 through May
7, 2014, as follows:
Item Number
Action Date
Voting Results
Subject
NV 14-08
04/28/2014
Approved
Farm Credit of Southern Colorado, ACA, Class H Stock
NV 14-09
04/28/2014
Approved
Pre-Clearance of CoBank, ACB, Non-Cumulative Perpetual
Preferred Stock
The undersigned hereby certify that the foregoing minutes are the official minutes of the Regular
Meeting of the Farm Credit Administration Board held May 8, 2014.
/s/
/s/
Jill Long Thompson
Dale L. Aultman
Board Chair and Chief Executive Officer
Secretary to the Board
Approved: June 12, 2014
5
Exhibit A
Page 1 of 3
STAFF PRESENT AT THE
FCA REGULAR BOARD MEETING
May 8, 2014
JILL LONG THOMPSON, Board Chair and Chief Executive Officer
KENNETH A. SPEARMAN, Board Member
LELAND A. STROM, Board Member
OFFICE
OPEN SESSION
CLOSED SESSION
EXECUTIVE SESSION
Office of the Board
Aultman, Dale
X
X
X
Corey, Kathryn
X
Smulkstys, Inga
X
X
X
Calhoun, Gaye
X
Johansen, Mark
X
X
X
Buccolo, Deb
X
Middleton, Russell
X
X
COO
Hoffman, William
X
X
OCPA
Stokke, Mike
X
X
Quinn, Christine
X
X
Meaux, Willy
X
Yaghmour, Emily
X
OSMO
Rea, Laurie
X
X
Hudson, Bruce
X
Connor, Joe
X
OGC
Rawls, Charles
X
X
X
Strickland, Joy
X
X
Donner, Mary Alice
X
X
Laguarda, Wendy
X
Pienta, Jeff
X
Orlich, Becky
X
Cohn, Jennifer
X
6
Exhibit A
Page 2 of 3
OFFICE
OPEN SESSION
CLOSED SESSION
EXECUTIVE SESSION
OE
Coleman, Robert
X
X
Burke, Cindi
X
Connolly, Rachel
X
Doerr, Benjamin
X
Eccles, Jared
X
Hatzmann, Colin
X
Krawczewski, Jerome
X
Morgan, Matt
X
Ocheltree, Skyler
X
Pick, Vania
X
Swanson, John
X
Tetreault, Jake
X
Tillman, Jarvis
X
Muller, Jody
X
DeMarco, Sal
X
Hale, Joe
X
Anderson, Michael
X
X
Floyd, J.C.
X
OIG
Gallo, Katherine
X
X
Cherry Beakert, LLP
Hunter, Craig
X
X
McNeil, Brynn
X
X
ORP
Van Meter, Gary
X
X
Edelstein, Jeremy
X
X
McPhail, Lihong
X
X
OMS
Smith, Stephen
X
X
Fowlkes, Jerome
X
X
Shaffer, Jeannie
X
7
Exhibit A
Page 3 of 3
OFFICE
OPEN SESSION
CLOSED SESSION
EXECUTIVE SESSION
FCSIC
Rubin, Howard
X
X
Pfitzinger, Rick
X
X
FCSBA
Albrecht, Rick
X
GENERAL PUBLIC
6
8
Exhibit B
Farm Credit Administration
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090
PUBLIC ANNOUNCEMENT OF
MEETING SUBJECT TO THE GOVERNMENT IN THE SUNSHINE ACT
Farm Credit Administration Board
Regular Meeting
May 8, 2014
Summary: Notice is hereby given, pursuant to the Government in the Sunshine Act (5 U.S.C. Sec. 552b(e) (1)), of the
forthcoming regular meeting of the Farm Credit Administration Board.
Date and Time: The regular meeting of the Board will be held May 8, 2014. The meeting is scheduled to be held at the
office of the Farm Credit Administration in McLean, Virginia, from 9:00 a.m. until such time as the Board may conclude its
business.
Address: Farm Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102-5090. Submit attendance
requests via e-mail to [email protected]. See SUPPLEMENTARY INFORMATION for further information about
attendance requests.
For Further Information Contact: Dale L. Aultman, Secretary to the Farm Credit Administration Board (703) 883-4009.
TTY is (703) 883-4056.
Supplementary Information: Parts of this meeting of the Board will be open to the public (limited space available), and
parts will be closed to the public. Please send an e-mail to [email protected] at least 24 hours before the meeting.
In your e-mail include: name, postal address, entity you are representing (if applicable), and telephone number. You will
receive an e-mail confirmation from us. Please be prepared to show a photo identification when you arrive. If you need
assistance for accessibility reasons, or if you have any questions, contact Dale L. Aultman, Secretary to the Farm Credit
Administration Board, at (703) 883-4009. The matters to be considered at the meeting are:
OPEN SESSION
Approval of Minutes
1
April 10, 2014
New Business
2
Capital - Tier 1/Tier 2 Framework, Proposed Rule
Reports
3
Ethics Update Report
4
Farm Credit System Building Association Auditors' Report on 2013 Financial Audit
CLOSED SESSION
1
5
Office of Secondary Market Oversight Quarterly Report
EXECUTIVE SESSION
2
6
Executive Session - FCS Building Association Auditors' Report
April 28, 2014
/s/
Date
Mary Alice Donner
Acting Secretary to the Board
1
Session Closed-Exempt pursuant to 5 U.S.C. Section 552b(c)(8) and (9).
2
Session Closed - Exempt pursuant to 5 U.S.C. Section 552b(c)(2)
9
Exhibit c
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090
(703) 883-4000
BOARD ACTION ITEM
FCA
FARM CREDIT ADMINISTRATION
FCA BOARD ACTION ON
Minutes for April 10, 2014 Board Meeting
BM-8-MAY-14-01
Effective Date:
May 8, 2014
Effect on Previous Action:
None
THE FCA BOARD HEREBY:
Approves the minutes for the April 10, 2014, regular Board Meeting as submitted.
DATED THIS 8th DAY OF MAY 2014
BY ORDER OF THE BOARD
/s/
Dale L. Aultman
Secretary to the Board
10
Exhibit D
Statement
Jill Long Thompson, Board Chair
Farm Credit Administration Board Meeting
May 8, 2014
I am very proud of the work of FCA staff, and also the commitment of my fellow Board Members,
that have led to this Proposed Capital Rule we are considering today. Growing up on a family farm, I
remember learning at an early age the importance of having "at least two ways to pay for
something." It was much later as a Business student in college that I began to understand the
meaning and importance of capital.
Capital is important to both lenders and borrowers. In a cooperative network of borrower-owned
lending institutions, the capital structure necessary to achieve safety and soundness has its own
unique characteristics.
We have revised our capital regulations over time to reflect changing statutes, business conditions,
and widely accepted conventions. These proposed regulations are designed to improve the quality
of System capital and to make our capital regulations comparable with those of the regulators of
other financial institutions. We have adapted the Basel III framework to the System's unique
characteristics, its cooperative structure and GSE mission. Cooperative principles require current
borrowers to provide the capital for the safe operation of the System. This proposed rule adapts the
Basel III framework for use with the System. We invite comments on all aspects of our proposal, but
particularly on those adaptations we have made to accommodate the unique features of the System.
11
Exhibit E
Statement
Kenneth A. Spearman, Board Member
Farm Credit Administration Board Meeting
May 8, 2014
Madam Chair, I want to thank you for making the modernization of the System's capital regulations a
priority. Capital is the lifeblood of any financial institution. The proposed rule we are considering
today should not only strengthen the safety and soundness of the System, but also ensure the
System's ability to successfully serve and fulfill its public mission as a GSE for generations of farmers
and ranchers to come.
While I believe the FCA's current capital regulations have served the System and its borrower/owners
well, I believe it is appropriate for the Agency to modernize the System's capital requirements to
make them comparable to the Basel III framework and the rules that the U.S. banking agencies have
adopted, but also to ensure that the rule take into account the cooperative structure and the
organization of the System. This proposed rule attempts to strike a balance between the Basel III
framework goals and the System's unique cooperative structure.
Finally, I want to thank the staff who have spent untold hours developing this Proposed Rule. I've
had excellent briefings from Bill Dunn, Becky Orlich, Gary Van Meter, Jennifer Cohn and J.C. Floyd
during the development of the rule.
12
Exhibit F
Statement
Leland A. Strom, Board Member
Farm Credit Administration Board Meeting
May 8, 2014
Today, the FCA Board is considering a Notice of Proposed Rulemaking that would revise our
regulatory capital requirements for the Farm Credit System banks and associations to include tier 1
and tier 2 risk-based capital ratio requirements, a tier 1 leverage requirement, a capital conservation
buffer, revised risk weightings and additional public disclosure requirements. The revisions to the
risk weights would include an alternative to the use of credit ratings, as required by section 939A of
the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The FCA's objectives in proposing this rule are:
To modernize capital requirements while ensuring that institutions continue to hold enough
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 take into account the cooperative structure and the
organization of the System.
To make System regulatory capital requirements more transparent.
To meet the requirements of section 939A of the Dodd-Frank Wall Street Reform and
Consumer Protection Act.
In the past several years, the Federal banking agencies have been taking important steps to protect
the banking system from future financial crises such as the one that occurred from 2007 to 2009. In
its work on Basel III, the Basel Committee raised the resilience of the banking sector by strengthening
the regulatory capital framework. While it is important to address the issues that resulted in the
financial crisis, it is also important to keep the unique cooperative structure of the Farm Credit
System in mind as we consider this proposed rule. While the goal of this rulemaking process is to
ensure a resilient Farm Credit System, I am also cognizant of the need to create an appropriate
balance between sufficient capital requirements and meeting customer/shareholder value
expectations. FCA's capital regulations should result in a framework that provides for safe and sound
operations in addition to a level playing field.
An item of particular interest is proposed changes to risk weightings for OFIs (other financing
institutions). In this proposed rule we assign either a 20 percent or 100 percent risk weight to loans
made to OFIs. As a result, it removes the current intermediate risk weighting of 50 percent for those
OFIs that do not qualify for the 20 percent risk weight but have similar attributes. It is important to
ensure that this proposed capital treatment does not have a detrimental effect on the System's
funding of OFIs, and I am hopeful that the question we have proposed will result in comments that
will further our analysis of this issue.
I want to thank FCA staff for the exhaustive efforts in compiling this proposed rule, and for their
responsiveness in addressing the numerous items I have raised during the process. I look forward to
reviewing the comments we receive during the comment period.
13
Exhibit G
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090
(703) 883-4000
BOARD ACTION ITEM
FCA
FARM CREDIT ADMINISTRATION
FCA BOARD ACTION ON
Capital - Tier 1/Tier 2 Regulatory Capital Framework
Proposed Rule
BM-8-MAY-14-02
Effective Date:
May 8, 2014
THE FCA BOARD HEREBY:
Approves the proposed rule that would add a new part 628 to FCA's regulations
and amend parts 607, 614, 615, and 620, to modify the regulatory capital
requirements for System banks and associations.; and
Authorizes staff to make any technical or grammatical changes that may be
necessary prior to publication in the Federal Register.
DATED THIS 8th DAY OF MAY 2014
BY ORDER OF THE BOARD
/s/
Dale L. Aultman
Secretary to the Board
14
Ethics Update Report
Wendy Laguarda, DAEO
Charlie Rawls, ADAEO
Jeff Pienta, DEO
15
Exhibit H
2014 Ethics Strategic Priorities
& Initiatives
2
Ethics: Elevate Yourself to a Higher Standard
6/10/2014
16
Strengthening our Ethics
Outreach & Accountability
Ethics Topic for Supervisors
Meetings with Office Staff
Ethics Posters
Meeting with OGE Desk Officer
3
Ethics: Elevate Yourself to a Higher Standard
6/10/2014
17
Other Initiatives
Financial Disclosure Filings
Annual Ethics Training
Ethics Counseling
4
Ethics: Elevate Yourself to a Higher Standard
6/10/2014
18
Thank you
Questions
5
Ethics: Elevate Yourself to a Higher Standard
6/10/2014
19
Cherry Bekaert LLP
FCS Building Association
Report Regarding Financial Statement Audit
for the Year Ended
December 31, 2013
Audit Team
Craig Hunter, Partner
Brynn McNeil, Manager
Cherry Bekaert
Your guide forward
20
Exhibit I
FCS Building Association
Overview of Audit Results
We have completed our audit procedures related to the FCS Building
Association's year ended December 31, 2013 financial statements.
Our procedures and scope were substantially consistent with our planned
audit strategy and we did not experience any significant problems during
the audit process.
We issued an unqualified (clean) opinion on the Company's financial
statements (note new required format)
We received excellent cooperation from the Company's personnel.
Cherry Bekaert
21
Your guide forward
FCS Building Association 2010 Audit
2
General Financial Statement Comments
Strong Balance Sheet as of December 31, 2013
Cash reserve balance of $1.6 million
Current Ratio of 3 to 1
Total Liabilities to Equity Ratio 1 to 13
Operating loss for the year ended December 31, 2013, as budgeted
No new or unusual transactions noted for fiscal year 2013
No significant new disclosures noted for fiscal year 2013
Cherry Bekaert
22
Your guide forward
FCS Building Association 2010 Audit
3
Areas of Focus for the 2013 Audit
Procedures with respect to internal control
Leasing activities
Capital expenditures and repairs and maintenance
Related party transactions (FCSBA and FCA)
We identified no significant deficiencies or material weaknesses
Cherry Bekaert
23
Your guide forward
FCS Building Association 2010 Audit
4
Required Communications
The auditor's responsibility under generally accepted auditing standards -
reasonable assurance that financial statements are materially correct
Significant accounting policies are disclosed in Note 2 of the F/S's
We have considered management judgments and accounting estimates
included in the financial statements and believe them to be reasonable
There were no disagreements with management during the engagement
There were no major issues discussed with management prior to our being
retained
No irregularities or fraud identified as part of our audit
Cherry Bekaert
24
Your guide forward
FCS Building Association 2010 Audit
5
Exhibit J
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090
FCA
FARM CREDIT ADMINISTRATION
CERTIFICATE OF CLOSED MEETING
The General Counsel, in accordance with the Government in the Sunshine Act, 5 U.S.C. §552b(f)(1),
hereby certifies that the Farm Credit Administration Board regular meeting of May 8, 2014 was
properly closed to the public on the basis of the exemptions set forth below:
Supervisory and Oversight Activities of FCS Institution(s) - 5 U.S.C. § 552b(c)(8)
and (9).
Information related solely to the internal practices of an Agency - 5 U.S.C.
§552b(c)(2).
/s/
Date: May 8, 2014
Charles R. Rawls
General Counsel
25