LETTER TO
SHAREHOLDERS

Mission Possible: supporting Farm Credit Associations
that serve rural communities and agriculture.

left: Matt Walther, Chair, AgriBank right: Bill Thone, CEO, AgriBank

Dear Shareholders:

AgriBank — your funding Bank — remains a pillar of financial strength.

With new, yet familiar, leaders atop the AgriBank Board of Directors and executive team in 2016, AgriBank continued to deliver on our value proposition to provide our customers and owners — the 17 Farm Credit Associations that comprise the AgriBank District — with competitive funding and innovative financial solutions. Our underlying financial strength continued to provide a stable foundation for District Associations to support rural communities and agriculture with reliable, consistent credit and financial services, ultimately fulfilling the Farm Credit mission.

We marked our 100-year milestone with a mission that has remained fundamentally the same since our founding in 1916. Thanks to a willingness and ability to continually adapt to new challenges and opportunities, Farm Credit remains as relevant as ever to farmers, ranchers and other rural borrowers.

As evidence of AgriBank's and the District's financial strength, we are pleased to present our 2016 financial results. The following key financial measures reflect our strong performance for 2016:
  • AgriBank loan volume increased 3.9 percent from the previous year to $86.1 billion, reflecting growth in wholesale loans to District Associations; and District loan volume increased 4.4 percent from the previous year to $99.1 billion, driven by District Associations fulfilling the Farm Credit mission to support farmers, ranchers and other customers with reliable, consistent credit
  • AgriBank net income increased 11.7 percent from the previous year to $536.1 million, and District net income remained strong at $1.8 billion, driven by continued strong net interest income
  • Shareholders' equity increased 6.0 percent to $5.5 billion for AgriBank and increased 7.7 percent to $20.8 billion for the District, positioning the Bank and District Associations to navigate through the current market cycle
  • AgriBank credit quality remained strong, with AgriBank nonadverse loans at 99.8 percent and District nonadverse loans at 96.5 percent, reflecting disciplined underwriting combined with the adequate liquidity and strong equity positions of many borrowers
  • AgriBank returned more than $332 million in earnings to our owners in the form of patronage refunds
  • AgriBank net operating rate of 7.5 basis points increased from 7.3 basis points in 2015, reflecting strategic investments in core operations
Third parties that assess AgriBank and other financial institutions consistently recognize AgriBank for financial strength. In their latest reports, the top three credit rating agencies affirmed their strong ratings with stable outlooks for AgriBank (Fitch, AA-; Moody's, Aa3; Standard & Poor's, AA-).

Our continued prudent financial management enables AgriBank to, in turn, lend financial strength to District Associations.
Whatever economic cycles we face, we're committed to keeping capital flowing to rural America through District Associations.

Changing Landscape

AgriBank, Associations and Farm Credit customer-owners are several years into navigating a more challenging business cycle. We remain in an "agriculture efficiency cycle," when many producers are having to reduce operating costs to better align with commodity prices. Lower prices for key District crops such as corn, soybeans and wheat have contributed to moderating farmland values and lower levels of net farm income.

Interest rates are on the rise, at least modestly, for the first time in a decade. Producers generally entered this cycle with strong financial positions as evidenced by low debt-to-equity positions that have moderated in the past few years but remain manageable. Additionally, most producers use various forms of risk management practices to reduce income volatility. Farm Credit was created to help producers through all conditions. Whatever economic cycles we face, we’re committed to keeping capital flowing to rural America through District Associations — capital that farmers, ranchers and other customers need to make their businesses successful — which means more jobs and economic growth, leading to more vibrant communities.

Farm Credit customer-owners will continue to face increasing risk, uncertainty and volatility. As we support District Associations in helping their customer-owners confront today's economic realities by making credit available at competitive rates, we will stay focused on our time-honored mission. This requires maintaining our strong financial foundation, enhancing our collaboration with District Associations and the entire Farm Credit System, and operating more efficiently.

A new administration and new Congress add to the uncertainty. Only time will tell what new leadership in Washington will bring to agriculture and economic policies. The AgriBank District Farm Credit Council and national Farm Credit Council monitor the political climate. They stand ready to help Farm Credit speak with a consistent voice on issues important for the System, rural communities and agriculture.

Transitions are also on the horizon within the Bank and District organizations. The Bank is undertaking a strategic transition that includes defining our long-term role and purpose in serving District Associations. The most significant change will be the likely formation of a new, independent service entity effective at the start of 2018. The service entity will help the Bank and participating District Associations develop and maintain long-term, cost-effective technology and business services. AgriBank and the District Associations that own the service entity will be making more than an investment in technology. We'll be entering into a long-term commitment to working with each other on behalf of Farm Credit customer-owners. This commitment will provide greater stability for technology and business services across the District and enable AgriBank to focus on its core funding role.

Several District Associations also are banding together for the long term through mergers that are on track to take effect in 2017. Upon approval by the Farm Credit Administration (FCA) and the Associations' shareholders, AgStar Financial Services, Badgerland Financial and 1st Farm Credit Services plan to merge in 2017 to create Compeer Financial. AgCountry FCS and United FCS plan to merge in 2017 under the AgCountry name. These Associations already have strong, extensive working relationships that provide a good foundation to join forces. AgriBank supports the combinations as a way for these Associations to increase member value, diversify risk and improve client service. If these two mergers occur, AgriBank will support 14 Farm Credit Associations that continue to serve 15 states in the heart of America’s production agriculture.
A new, independent service entity will help the Bank and District Associations develop and maintain long-term, cost-effective technology and business services.

Timeless Mission

The AgriBank Board of Directors, executive leaders and others designate time and resources each year for strategic planning, when we determine how to position AgriBank for sustainable success. We remain dedicated to the Farm Credit mission to support rural communities and agriculture with reliable, consistent credit and financial services today and tomorrow. AgriBank’s role supporting that mission remains unchanged. In examining how best to deploy our resources, we are strengthening our focus as a funding Bank for Associations. Accordingly, we refined the language in the Strategic Framework that describes our role in advancing the mission as follows:
  • Vision: We create value that empowers our owners to be the preferred financial partner for rural communities and agriculture
  • Value Proposition: As a Farm Credit Bank, we collaborate with our owners to deliver competitive funding and innovative financial solutions
  • Guiding Principles:
    Smart. We optimize our effectiveness
    Safe. We enhance our risk management capabilities
    Innovative. We provide enhanced products and services
    Collaborative. We facilitate relationships across the Bank, District and System
This language helps clarify the Bank's role for all stakeholders — including directors, management and employees of the Bank and District Associations. Every decision we make and everything we do follows from this framework.
We remain dedicated to the Farm Credit mission to support rural communities and agriculture with reliable, consistent credit and financial services today and tomorrow.

Strategic Imperatives

Through our strategic planning process, we identified three Strategic Imperatives in our 2017-2021 Business Plan to fully optimize our business model: Excel Operationally, Strengthen Relationships and Drive Capital Efficiency. These Strategic Imperatives are multi-year areas of focus that provide the roadmap to achieve our Vision and which will ultimately complement and enhance our core business. Each of the 2017-2021 Strategic Imperatives has corresponding goals for AgriBank management and staff.

The AgriBank board will measure the Bank's progress toward achieving the Strategic Imperatives based on feedback from Associations. They will use a scorecard that includes, in addition to a number of financial measures, the following goals for 2017:

Excel Operationally — As the lifeblood and foundation of AgriBank's success as the District's funding Bank, it is critical we deliver well-executed operations and services that contribute to the success of our customer-owners in their marketplaces.

Strengthen Relationships — District Associations are our owners, customers and long-term business partners. We engage in an intentional approach of actively listening to Associations to understand their expectations of AgriBank, their business challenges and strategies, and how AgriBank can deliver solutions and services that align with them and assist them in serving their marketplaces.

Drive Capital Efficiency — Collaborating with Associations requires us to challenge how we manage our financial resources so that we can best meet their needs and those of their customer-owners.

These Strategic Imperatives represent opportunities to improve what we already do well. Our net operating rate reflects a high degree of efficiency along with necessary strategic investments. The 2016 AgriBank Customer Satisfaction Survey reflects that District Associations continue to be highly satisfied with their relationship with the Bank — awarding an overall 98 percent customer satisfaction rating. And the Bank's regulatory capital ratios all remain well within or above regulatory minimums and AgriBank-targeted levels. By continuing to do what we do best, and doing it even better, AgriBank will fortify our ability to help ensure continued dependable, efficient and sustainable funding across the District.
By continuing to do what we do best, and doing it even better, AgriBank will fortify our ability to help ensure continued dependable, efficient and sustainable funding across the District.

Funding Focus

AgriBank and District Associations are inextricably linked in our collective efforts to support the Farm Credit mission. We are moving forward with a sharpened view of our role as a funding Bank in support of District Associations' efforts in their retail marketplaces. We will share greater success if we all focus on what we do best.

AgriBank supports District Associations. District Associations support farmers, ranchers and other Farm Credit customer-owners. Those farmers and ranchers, in turn, feed the world. This higher sense of purpose — supporting the people who feed the world — is what energizes AgriBank employees to do their best every day. With their hard work, and dedication from your AgriBank Board of Directors, we strive to make the Mission Possible — Supporting Farm Credit Associations That Serve Rural Communities and Agriculture.

To District Associations, thank you for the confidence you place in us to provide you with the most competitive funding and financial solutions. And thanks to the farmers, ranchers and others who have placed their trust in Farm Credit to help them succeed for more than 100 years. From our solid foundation of financial strength, we expect to help you succeed for another 100 years.


Matthew D. Walther
Chair, AgriBank, FCB


William J. Thone
CEO, AgriBank, FCB