Yosemite Farm Credit. Quarterly Financial Report

Transcription

1 Yosemite Farm Credit Quarterly Financial Report June 2018

2 TABLE OF CONTENTS A Message to Members 1 Consolidated Statements of Condition 2 Consolidated Statements of Comprehensive Income 3 Consolidated Statements of Changes in Shareholders Equity 4 Consolidated Statements of Cash Flows 5 Note to the Consolidated Financial Statements 6

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4 YOSEMITE FARM CREDIT, ACA CONSOLIDATED STATEMENTS OF CONDITION June 30, 2018 ($ in thousands) June 30, 2018 (unaudited) December 31, 2017 (audited) ASSETS Loans $ 2,784,095 $ 2,720,481 Less allowance for loan losses 6,843 6,368 Net loans 2,777,252 2,714,113 Cash Investment securities - held-to-maturity Accrued interest receivable Investment in CoBank, ACB Premises and equipment, net Other assets Total assets LIABILITIES Note payable to CoBank, ACB Cash management accounts Accrued interest payable Patronage distribution payable Other liabilities Total liabilities 5,144 9,465 16,564 18,655 30,059 29,640 87,036 86,804 18,798 18,563 7,081 11,858 $ 2,941,934 $ 2,889,098 $ 2,380,282 $ 2,349,763 47,712 42,234 4,745 3,937-12,688 4,630 6,817 2,437,369 2,415,439 Commitments and Contingencies SHAREHOLDERS' EQUITY Capital stock and participation certificates Unallocated retained earnings Accumulated other comprehensive loss Total shareholders' equity Total liabilities and shareholders' equity 1,848 1, , ,850 (27) (48) 504, ,659 $ 2,941,934 $ 2,889,098 The accompanying notes are an integral part of these financial statements. 2

5 YOSEMITE FARM CREDIT, ACA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME June 30, 2018 ($ in thousands) Quarter Ended 6/30/2018 Six Months Ended 6/30/2018 Quarter Ended 6/30/2017 Six Months Ended 6/30/2017 (unaudited) (unaudited) (unaudited) (unaudited) INTEREST INCOME Loans $ 32,593 $ 63,122 $ 25,947 $ 50,160 Investment securities Total interest income 32,805 63,555 26,206 50,683 INTEREST EXPENSE Note payable to CoBank, ACB Cash management accounts Total interest expense 13,718 25,487 9,328 17, ,900 25,820 9,429 17,696 Net interest income 18,905 37,735 16,777 32,987 Provision for credit losses Net interest income after provision for credit losses 18,363 37,059 16,492 32,271 NON-INTEREST INCOME Patronage distribution from Farm Credit Institutions Financially related services income Other non-interest income Total non-interest income NON-INTEREST EXPENSE Salaries and employee benefits Occupancy and equipment Farm Credit Insurance Fund premium Other non-interest expense Total non-interest expense Income before income taxes Provision for income taxes Net income 3,024 5,952 2,149 4, , ,392 8,239 2,772 5,788 4,877 10,111 4,665 9, , ,493 1,175 2,440 1,150 2,475 6,990 14,368 6,888 14,079 14,765 30,930 12,376 23, $ 14,765 $ 30,928 $ 12,376 $ 23,978 COMPREHENSIVE INCOME Amortization of retirement credits Total comprehensive income $ 14,776 $ 30,949 $ 12,387 $ 23,998 The accompanying notes are an integral part of these financial statements. 3

6 YOSEMITE FARM CREDIT, ACA CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY June 30, 2018 ($ in thousands) Accumulated Capital Stock Other Total & Participation Retained Comprehensive Shareholders' Certificates Earnings Loss Equity Balance at December 31, 2016 $ 1,845 $ 431,540 $ (91) $ 433,294 Comprehensive income 23, ,998 Stock and participation certificates issued Stock and participation certificates retired (57) (57) Balance at June 30, 2017 (unaudited) $ 1,851 $ 455,518 $ (71) $ 457,298 Balance at December 31, 2017 $ 1,857 $ 471,850 $ (48) $ 473,659 Comprehensive income 30, ,949 Stock and participation certificates issued Stock and participation certificates retired (56) (56) Net Patronage Distributions (34) (34) Balance at June 30, 2018 (unaudited) $ 1,848 $ 502,744 $ (27) $ 504,565 The accompanying notes are an integral part of these financial statements. 4

7 YOSEMITE FARM CREDIT, ACA CONSOLIDATED STATEMENTS OF CASH FLOWS June 30, 2018 ($ in thousands) Six months ended June 30, (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 30,928 $ 23,978 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses Depreciation and amortization Gain on sale of premises and equipment (6) (15) Stock patronage received from CoBank (143) (90) Changes in operating assets and liabilities: Increase in accrued interest receivable (419) (1,988) Decrease in other assets and receivable from CoBank 4,688 4,195 Increase in accrued interest payable Decrease in other liabilities (2,367) (1,871) Net cash provided by operating activities 34,747 26,170 CASH FLOWS FROM INVESTING ACTIVITIES: (Disbursements on) decrease in loans, net (63,614) 37,448 Payments received on investment securities 2,091 3,372 Purchase of premises and equipment, net (811) (681) Net cash (used in) provided by investing activities (62,334) 40,139 CASH FLOWS FROM FINANCING ACTIVITIES: Net draws (repayment) on note payable to CoBank 30,519 (53,010) Increase (decrease) in cash management account 5,478 (5,153) Patronage distributions (12,722) (11,479) (Retirement) issuances of capital stock and participation certificates, net (9) 6 Net cash provided by (used in) financing activities 23,266 (69,636) Net decrease in cash (4,321) (3,327) Cash at beginning of period 9,465 4,650 Cash at end of period $ 5,144 $ 1,323 SUPPLEMENTAL CASH FLOW INFORMATON: Cash paid for interest $ 25,012 $ 16,954 Cash paid for income taxes $ 2 $ 2 The accompanying notes are an integral part of these financial statements. 5

8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, Except as Noted) (Unaudited) Note 1 Organization and Significant Accounting Policies A description of the organization and operations of Yosemite Farm Credit, ACA, the significant accounting policies followed, and the financial condition and results of operations as of and for the year ended December 31, 2017 are contained in the 2017 Annual Report to Stockholders. These unaudited second quarter 2018 financial statements should be read in conjunction with the 2017 Annual Report to Stockholders. 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, 2017 as contained in the 2017 Annual Report to Stockholders. 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, Descriptions of the significant accounting policies are included in the 2017 Annual Report to Stockholders. 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 February 2018, the Financial Accounting Standards Board (FASB) issued guidance entitled Income Statement Reporting Comprehensive Income Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This guidance allows for the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the recently issued tax legislation, Tax Cuts and Jobs Act (TCJA) that lowered the federal corporate tax rate from 35% to 21%. The amount of the reclassification shall include the effect of the change in the tax rate on gross deferred tax amounts and related valuation allowances at the date of enactment of the TCJA related to items remaining in accumulated other comprehensive income. The guidance becomes effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to impact the Association s financial condition or results of operations. In August 2017, the Financial Accounting Standards Board (FASB) issued guidance entitled Targeted Improvements to Accounting for Hedging Activities. The guidance better aligns an entity s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in this guidance require an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. This guidance also addresses the timing of effectiveness testing, qualitative and quantitative effectiveness testing and components that can be excluded from effectiveness testing. This guidance becomes effective for interim and annual periods beginning after December 15, The adoption of this guidance is not expected to impact the Association s financial condition or results of operations. In March 2017, the FASB issued guidance entitled Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Cost. The guidance requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. This guidance becomes effective for interim and annual periods beginning after December 15, The adoption of this guidance did not impact the Association s financial condition or the results of operations. In August 2016, the FASB issued guidance entitled Classification of Certain Cash Receipts and Cash Payments. The guidance addresses specific cash flow issues with the objective of reducing the diversity in the classification of these cash flows. Included in the cash flow issues are debt prepayment or debt extinguishment costs and settlement of zero-coupon debt instruments or 6

9 other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing. This guidance becomes effective for interim and annual periods beginning after December 15, The adoption of this guidance did not impact the Association s financial condition or its results of operations. In June 2016, the FASB issued guidance entitled Measurement of Credit Losses on Financial Instruments. The guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Credit losses relating to available-for-sale securities would also be recorded through an allowance for credit losses. For public business entities that are not U.S. Securities and Exchange Commission filers this guidance becomes effective for interim and annual periods beginning after December 15, 2020, with early application permitted. The Association is evaluating the impact of adoption on its financial condition and results of operations. In February 2016, the FASB issued guidance entitled Leases. The guidance requires the recognition by lessees of lease assets and lease liabilities on the balance sheet for the rights and obligations created by those leases. Leases with lease terms of more than 12 months are impacted by this guidance. This guidance becomes effective for interim and annual periods beginning after December 15, 2018, with early application permitted. The Association is evaluating the impact of adoption on its financial condition and results of operations. In January 2016, the FASB issued guidance entitled Recognition and Measurement of Financial Assets and Liabilities. The guidance affects, among other things, the presentation and disclosure requirements for financial instruments. For public entities, the guidance eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value of financial instruments carried at amortized cost. This guidance became effective for interim and annual periods beginning after December 15, The adoption of this guidance did not impact the Association s financial condition or its results of operations. 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. The guidance sets forth the requirement for new and enhanced disclosures. The Association adopted the new standard effective January 1, 2018, using the modified retrospective approach. As the majority of the Association s revenues are not subject to the new guidance, the adoption of the guidance did not have a material impact on the financial position, results of operations, equity or cash flows. Note 2 Loans and Allowance for Loan Losses A summary of loans follows: June 30, 2018 December 31, 2017 Real estate mortgage $ 2,098,557 $ 2,049,385 Production and intermediate term 497, ,172 Agribusiness 186, ,227 Rural residential real estate 2,144 2,697 Total $ 2,784,095 $ 2,720,481 7

10 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 participation purchased and sold at June 30, 2018: Participations with Other Farm Credit Institutions Participations with Non- Farm Credit Institutions Total Participations Purchased Sold Purchased Sold Purchased Sold Real estate mortgage $ 62,008 $ 82,646 $ 231 $ - $ 62,239 $ 82,646 Production and intermediate term 49,129 4,225 3,466-52,595 4,225 Agribusiness 90,421 86, ,803 86,300 Total $ 201,558 $ 173,171 $ 4,079 $ - $ 205,637 $ 173,171 Nonperforming assets (including related accrued interest) and related credit quality statistics are as follows: June 30, 2018 December 31, 2017 Nonaccrual loans: Real estate mortgage $ 6,509 $ 5,631 Production and intermediate-term 4,700 3,912 Total nonaccrual loans $ 11,209 $ 9,543 Accrual loans 90 days or more past due - - Other property owned - - Total nonperforming assets $ 11,209 $ 9,543 8

11 The following table shows loans 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: June 30, 2018 December 31, 2017 Real estate mortgage Acceptable 94.4% 94.2% OAEM Substandard Total 100.0% 100.0% Production and intermediate-term Acceptable 90.1% 90.0% OAEM Substandard Doubtful Total 100.0% 100.0% Agribusiness Acceptable 98.3% 98.0% OAEM - - Substandard Total 100.0% 100.0% Rural residential real estate Acceptable 100.0% 100.0% OAEM - - Substandard - - Total 100.0% 100.0% All Loans Acceptable 93.9% 93.7% OAEM Substandard Doubtful - - Total 100.0% 100.0% 9

12 The following tables provide an age analysis of past due loans, including accrued interest. 90 Days or More Past Due Not Past Due or less than 30 Days Past Due Recorded Investment >90 Days and Accruing June 30, Days Past Due Total Past Due Total Loans Real estate mortgage $ 6,109 $ 559 $ 6,668 $ 2,117,001 $ 2,123,669 $ - Production & intermediate-term 12, , , ,054 - Agribusiness , ,151 - Rural residential real estate ,163 2,163 - Total $ 18,656 $ 1,186 $ 19,842 $ 2,794,195 $ 2,814,037 $ - 90 Days or More Past Due Not Past Due or less than 30 Days Past Due Recorded Investment >90 Days and Accruing December 31, Days Past Due Total Past Due Total Loans Real estate mortgage $ 1,086 $ 714 $ 1,800 $ 2,072,165 $ 2,073,965 $ - Production & intermediate-term 4, , , ,032 - Agribusiness , ,220 - Rural residential real estate ,706 2,706 - Total $ 6,424 $ 1,396 $ 7,820 $ 2,742,103 $ 2,749,923 $ - Note: The recorded investment in the loan 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 loan receivable. 10

13 Additional impaired loan information is as follows: Recorded Investment At June 30, 2018 At December 31, 2017 Unpaid Unpaid Principal Related Recorded Principal Balance Allowance Investment Balance Related Allowance Impaired loans with a related allowance for credit losses: Production & intermediate-term $ 905 $ 905 $ 136 $ 720 $ 720 $ 55 Total $ 905 $ 905 $ 136 $ 720 $ 720 $ 55 Impaired loans with no related allowance for credit losses: Real estate mortgage $ 6,508 $ 6,508 - $ 5,631 $ 5,631 - Production & intermediate-term 3,796 3,796-3,192 3,192 - Total $ 10,304 $ 10,304 $ - $ 8,823 $ 8,823 $ - Total impaired loans: Real estate mortgage $ 6,508 $ 6,508 $ - $ 5,631 $ 5,631 $ - Production & intermediate-term 4,701 4, ,912 3, Total $ 11,209 $ 11,209 $ 136 $ 9,543 $ 9,543 $ 55 Average Impaired Loans For the Three Months Ended June 30, 2018 June 30, 2017 Interest Average Income Impaired Recognized Loans Interest Income Recognized Impaired loans with a related allowance for credit losses: Real estate mortgage $ - $ - $ 137 $ - Production and intermediate-term Total $ 949 $ - $ 520 $ - Impaired loans with no related allowance for credit losses: Real estate mortgage $ 8,473 $ 38 $ 6,092 $ 6 Production and intermediate-term 3, , Total $ 12,257 $ 45 $ 9,094 $ 16 Total impaired loans: Real estate mortgage $ 8,473 $ 38 $ 6,229 $ 6 Production and intermediate-term 4, , Total $ 13,206 $ 45 $ 9,614 $ 16 11

14 Average Impaired Loans For the Six Months Ended June 30, 2018 June 30, 2017 Interest Average Income Impaired Recognized Loans Interest Income Recognized Impaired loans with a related allowance for credit losses: Real estate mortgage $ - $ - $ 68 $ - Production and intermediate-term Total $ 834 $ - $ 282 $ - Impaired loans with no related allowance for credit losses: Real estate mortgage $ 7,096 $ 44 $ 5,108 $ 15 Production and intermediate-term 3, , Total $ 10,674 $ 51 $ 7,287 $ 38 Total impaired loans: Real estate mortgage $ 7,096 $ 44 $ 5,176 $ 15 Production and intermediate-term 4, , Total $ 11,508 $ 51 $ 7,569 $ 38 A summary of changes in the allowance for credit losses and period end recorded investment in loans is as follows ($ thousands): Balance at December 31, 2017 Chargeoffs Recoveries Transfers (to) from Reserve for Unfunded Commitments Provision for Credit Losses/(Credit Loss Reversals) Balance at June 30, 2018 Real estate mortgage $ 3,459 $ - $ - $ (25) $ 85 $ 3,519 Production & intermediate-term 2, (202) 584 2,866 Agribusiness Rural residential real estate Total $ 6,368 $ - $ - $ (201) $ 676 $ 6,843 12

15 Balance at December 31, 2016 Chargeoffs Recoveries Transfers (to) from Reserve for Unfunded Commitments Provision for Credit Losses/(Credit Loss Reversals) Balance at June 30, 2017 Real estate mortgage $ 3,649 $ - $ - $ (22) $ 423 $ 4,050 Production & intermediate-term 2, (50) 208 2,872 Agribusiness Rural residential real estate Total $ 6,584 $ - $ - $ (14) $ 716 $ 7,286 Note 3 Capital The following sets forth the regulatory capital ratio requirements and ratios at June 30, 2018: Minimum with Buffer* Ratios as of Ratios June 30, 2018 Common Equity Tier 1 Capital 14.04% 7.0% 4.5% Tier 1 Capital 14.04% 8.5% 6.0% Total Capital 14.30% 10.5% 8.0% Tier 1 Leverage** 14.47% 5.0% 4.0% Minimum Requirement Unallocated Retained Earnings (URE) and 1.5% URE Equivalents Leverage 16.97% Permanent Capital 14.07% 7.0% If the capital ratios fall below the total requirements, including the buffer amounts, capital distributions (equity redemptions, dividends and patronage) and discretionary senior executive bonuses are restricted or prohibited without prior FCA approval. An existing regulation empowers FCA to direct a transfer of funds or equities by one or more System institutions to another System institution under specified circumstances. This regulation has not been utilized to date. The Association has not been called upon to initiate any transfers and is not aware of any proposed action under this regulation. Note 4 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 an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. The fair value measurement is not an indication of liquidity. See Note 15 to the 2017 Annual Report to Stockholders for a more complete description. There are no assets or liabilities measured at fair value on a recurring basis at June 30,

16 Assets and liabilities measured at fair value on a non-recurring basis are summarized below. Total Fair Value Total Gains June 30, 2018 Level 3 (Losses) Assets: Loans $ 766 $ (136) Total Fair Value Total Gains December 31, 2017 Level 3 (Losses) Assets: Loans $ 662 $ (55) With regard to nonrecurring measurements for impaired loans, it is not practicable to provide specific information on inputs as each collateral property is unique. The Association utilizes appraisals to value these loans and take into account unobservable inputs such as, income and expense, comparable sales, replacement cost and comparability adjustments. Valuation Techniques As more fully discussed in Note 15 of the 2017 Annual Report to Stockholders, the FASB guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following represent a brief summary of the valuation techniques used for the Bank and its related Associations assets and liabilities. For a more complete description, see Notes to the 2017 Annual Report to Stockholders. Loans Evaluated for Impairment: For certain loans evaluated for impairment under FASB impairment guidance, the fair value is based upon the underlying real estate collateral since the loans were collateraldependent. 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, a majority of these loans have fair value measurements that fall within Level 3 of the fair value hierarchy. When the value of the real estate, less estimated costs to sell, is less than the principal balance of the loan, a specific reserve is established. The fair value of these loans would fall under Level 2 of the hierarchy if the process uses independent appraisals and other market-based information. Note 5 Subsequent Events The Association has evaluated subsequent events through August 3, 2018, which is the date the financial statements were issued, and no material subsequent events were identified. 14