Launch Pad Glossary of Terms

Transcription

1 Launch Pad Glossar ry of Terms

2 : The Farm Credit System has many terms uniquee to its entities and operations. The following are some of the most commonly used: Act -- The abbreviated term for the Farm Credit Actt of 1971, as amended. Adjustable Rate Mortgages (ARMs) -- A loan product which allows the customer to lock in a rate for a period of one (1), three (3), or five (5) years. At the end of this period, the rate re-adjusts at a pre-determined spread over the treasury which was determined at the time the loan was made. Agency -- When capitalized, the term refers to the Farm Credit Administration. AgFirst, FCB -- AgFirst Farm Credit Bank, formerlyy Farm Credit Bank of Columbia. Headquartered in Columbia, SC, this Institution provides loan funds and support servicess to associations serving Alabama, Delaware, Florida, Georgia, Maryland, Mississippi, North Carolina, Pennsylvania, South Carolina, Virginia, West Virginia, the District of Columbia, the Commonwealth of Puerto Rico, and parts of Kentucky, Louisiana, Ohio, and Tennessee. AgFirst was formed on April 1, 1995 as a result of a consolidation of the FCB of Columbia and the FCB of Baltimore. AgriBank, FCB -- AgriBank, a Farm Credit Bank based in St. Paul, MN, was formed as a result of the merger in May 1992 of the FCB of St. Louis with the FCB of St. Paul. On Jan. 1, 1994, AgriBank's territory expanded to include the Farm Credit Bank of Louisville. In 2003, AgAmerica FCB merged into AgriBank, adding additional territory areas. AgriBank provides loan funds and support services to the associations serving Arkansas, Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Tennessee, Wisconsin, Wyoming, and parts of Kentucky and Ohio. Agricultural Credit Association (ACA) -- An Agricultural Credit Association is the successor entity resulting from the merge of a Federal Land Bank Association or a Federal Land Credit Association and a Production Credit Association, and has the combined authority of the two institutions. An ACA borrows funds from a Farm Credit Bank or Agricultural Credit Bank to provide short-, intermediate-, and long-term credit to farmers, ranchers, and producers or harvesters of aquatic products. It also makes loans to these borrowers for certain processing and marketing activities, to rural homeowners for housing, and to certain farm-related businesses.. Agricultural Credit Bank (ACB) -- An ACB results from the merger of a Bank for Cooperatives and a Farm Credit Bank and has the combined authorities of those two institutions. An ACB is also authorized to finance U..S. agricultural exports and provide international banking servicess for farmer-owned cooperatives. CoBank is the only ACB in the Farm Credit System. Annual Percentage Rate (APR) -- Cost of your credit, including applicable fees and charges, on an annual rate. 1

3 Appraisal -- The valuation of collateral ( real estate,, chattels) pledged to the ACA as security for a loan. Assistance Board -- The Farm Credit System Assistance Board was established by the Agricultural Credit Act of 1987 to administer financial assistance to stressed System institutions. After completing its mission, the federall agency was shut down as scheduled on December 31, Associations -- This term is often used to describee all of the local entities which serve as the delivery points for credit to farmers, ranchers, and otherr agricultural producers, as well as rural homeowners. They include the four different types of associations, ACAs, FLBAs, FLCAs, and PCAs, all of which are defined in this glossary. Balance Sheet -- A statement which listss assets, liabilities and net worth, or what you own and what you owe. Balloon Loan -- A loan in which the amortization period exceeds the term of the loan. Balloon loans are due and payable in full at the endd of the balloon period. This allows the lender to reassess the loan and determine if it should be collected or continued. Banks -- The FCBs and the ACB. Basis Point -- Basis points are units of measureme ent used to describe interest rates. One hundred basiss points are equal to one percent.. A basis point is one one-hundredth of 1 percent. (8.5% equals 850 basis points.) Bullet Payment -- Payment on a note in which the entire note s principal (and possibly interest) comes due on a certain date (like a balloon), but usually the intent is not to just renew or refinance it. Cap -- The maximum percentage by which an interest rate can be increased or decreased, usually in association with ARMs CoBank -- CoBank was formed by the merger on January 1, 1989, of 10 of the 12 district Banks for Cooperative s and the Central Bank for Cooperatives. The resulting institution was the national Bank for Cooperatives. Subsequently, on January 1, 1995, it became the only Agricultural Credit Bank in the Farm Credit System when it merged with the Farm Credit Bank of Springfield (MA) and the Springfield Bank for Cooperatives. In 2012, U.S. AgBank FCB merged with and into CoBank. It is headquartered in Greenwood Village, Colorado. It has the combined lending authority of a FCB (serving associations in Alaska, Arizona, California, Colorado, Connecticut, Hawaii, Idaho, Kansas, Maine, Massachusetts, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Oregon, Rhode Island, Utah, Vermont, Washington, and parts of North Dakota and Wyoming) and a Bank for Cooperatives. It also is authorized to finance U.S. Agricultural exports and provide international banking servicess for farmer-owned cooperatives. Consumer Price Index (CPI) -- The CPI measuress prices of a fixed basket of goods bought by a typical consumer including food, transportation, shelter, utilities, clothing, 2

4 medical care, entertainment, and other items. The CPI, published by the Bureau of Labor Statistics in the Department of Labor, established in 1982 as the base (100) and is released monthly. It is widely used as cost-of-living benchmark to adjust Social Security payments and other payment schedules, union contracts and tax brackets. Also know as the cost-of living index. Contract Agriculture -- A producer establishes an agreementt usually with a processor or marketing firm and under the agreement must produce agricultural products or servicess with specific attributes or traits. Fannie Mae -- Fannie Mae is a publicly owned, government-sponsored enterprise chartered in 1938 to purchase mortgages from lenders and resell them to investors. The agency, formerly known as the Federal National Mortgage Corporation, packages mostly mortgages backed by the Federal Housing Administration, but also sells some non-governmentally backed mortgages. Shares of Fannie Mae itself, known as Fannie Maes, are traded on the New York Stock Exchange. Farm Credit Act (the Act) -- The statute under which the Farm Credit System operates. Its name in full is the Farm Credit Act of 1971, as amended. The Farm Credit Act recodified all previous acts governingg the Farm Credit System. It was most recently amended by the Farm Credit Reform Act of 1996 (P.L ). Farm Credit Administration (FCA or Agency) -- The Farm Credit Administration is the independent Federal government regulatory agencyy of the privately owned Farm Credit System. It is responsible for examining and regulating Farm Credit System institutions. FCA was created by Executive order in 1933 and derives its powers and authorities from the Farm Credit Act of 1971, as amended. It iss governed by a three-member board of directors, nominated by the President and confirmed by the Senate. It is headquartered in McLean, VA. The costss for FCA's regulation of the Farm Credit System are paid in full by assessments on System institutions. Farm Credit Administration Board -- The three-member Farm Credit Administration Board is the policy making body for the Farm Creditt Administration. Members are appointed by the President with the advice and consent of the U.S. Senate to 6 year terms on the board. Members may not be reappointed after serving a full term or more than 3 years of a previous member s term. The President designates one of the members as the Chairman of the Board, who also serves as Chief Executive Officer. Farm Credit Bank (FCB) -- Farm Credit Banks were established pursuant to the merger of a Federal Land Bank and a Federal Intermediate Credit Bank as required by the Agricultural Credit Act of FCBs provide services and funds to local associations which, in turn, lend those funds to farmers, ranchers, rural home buyers and some ag-related businesses. The three FCBs are: AgFirst, FCB; AgriBank, FCB; and Farm Credit Bank of Texas. The other "bank" inn the System is CoBank, which is an ACB. 3

5 Farm Credit Bank of Texas -- Headquartered in Austin, Texas, this institution provides support services and financing to associations serving Alabama, Louisiana, Mississippi, Texas, and parts of New Mexico. Farm Credit Council (FCC) -- The Farm Credit Council is the national trade association of the Farm Credit System. FCC represents the interests of the System in Washington, D.C. The Farm Credit Council enhances the competitive environment for the Farm Credit System by promoting and protecting the legislative and regulatory interests of System institutions, and helps them achieve additional benefits associated with being a System. It also provides insurance and other business services to System entities. Farm Credit Council Services (FCCServices) -- Farm Creditt Council Services is headquartered in Denver, CO. It provides training and management services (i.e. Captive Insurance) for System institutions. Farm Credit Insurance Fund (Insurance Fund) --- The Insurance Fund representss the Farm Credit System Insurance Corporation s equity, that is, the differencee between its total assets and its total liabilities, including insurance obligations. The Farm Credit Insurance Fund is maintained by FCSIC to protect investors in Systemwide debt securities. The Insurance Fund collects annual insurance premiums from System banks. Farm Credit Leasing Services Corporation (FCL) -- Farm Credit Leasing is a service entity that provides equipment leasing and related services to eligible borrowers including agricultural producers, cooperatives and rural utilities. FCL is owned by CoBank, ACB. Farm Credit Political Action Committee (PAC) -- Vehicle to collect money from Farm Credit board members and employees to be used inn shaping political policy. Funds are distributed to Members of Congress by Bank and Association Board members. Farm Credit System (FCS or System) -- The FCS is a nationwide network of borrower-owned lending institutions and specializedd service organizations. Borrowers include farmers, ranchers, rural homeowners, agricultural cooperatives, rural utility systemss and agribusinesses. Congress created thee system more than 100 years ago to provide American agriculture with a dependable source of credit and closely related services. Farm Credit System Insurance Corporation (FCSIC) -- The Farm Credit System Insurance Corporation was established by the Agricultural Credit Act of 1987 as an independent U.S. Governmen nt-controlled corporation to insure the timely payment of principal and interest on consolidated or Systemwide debt securities. It administers a System-financed insurance fund. The FCA Board serves ex officio as the Board of Directors for FCSIC; however, the chairman of the FCA Board is not permitted to serve as the chairman of the FCSICC Board of Directors. Farm Service Agency (FSA) -- The U.S. Department of Agriculture s Farm Servicee Agency. Formally known as (FmHA) Farmers Homee Administration, a government 4

6 lending institution that also makes agricultural loans. Sometimes referred to as the lender of last resort. Federal Agricultural Mortgage Corporation (Farmer Mac) -- Farmer Mac was created by the Agricultural Credit Act of 1987 to provide guarantees for the timely repayment of principal and interest on securities backed by pools of agricultural real estate or rural home loans. Farmer Mac is America' 's secondary market for first mortgage agricultural real estate loans. It was created by Congress to improve the availability of mortgage credit to America's farmers, ranchers and rural homeowners, businesses and communities. Farmer Mac does this primarily by purchasing qualified loans from lenders, thereby replenishing their source of funds to make new loans. While Farmer Mac is technically a System institution, it is controlled by an independent 15-member board comprised of five representativess of the System, five members from commercial banks and insurance companies and five public members appointed by the President. The System contributed about one half of the initial $21.6 million in capital raised for the start-up of Farmer Mac. Federal Farm Credit Banks Funding Corporation (Funding Corp.) -- The System entity which manages the sale of debt securities to finance the loans made by the institutions of the Farm Credit System. Based in Jersey City, NJ, the Funding Corp. manages the sale of Systemwide debt securities through a network of bond dealers. Federal Intermediate Credit Bank (FICB) -- The Agricultural Credits Act of 1923 providedd for the creation of 12 FICBs to discount farmers' short- and intermediate- term notes made by commercial banks, livestock loan companies, and thrift institutions. The Farm Credit Act of 1933 authorized Farmers to organize Production Credit Associations (PCAs), which could discount notes with FICBs. As a result, PCAs became the primary entities for delivery of short- and intermediate-term credit to farmers and ranchers. On July 6, 1988, the FICB and the Federal Land Bank in 11 of the 12 Farm Credit districts merged to become Farm Credit Banks. The Mergers were required by the Agricultural Credit Act of Federal Land Bank (FLB) -- Federal Land Banks were established by Congress in 1917 to provide long-term mortgage credit to farmers and ranchers, and later, to rural home buyers. They were required to merge with FICBs by the Agricultural Credit Act of Federal Land Bank Association (FLBA) -- A Federal Land Bank Association serves as a lending agent for a Farm Credit Bank. They make and service long-term mortgage loans to farmers, ranchers and rural home buyers. A FLBA does not own loan assets, but makes loans only on behalf of the Farm Credit Bank with which it is affiliated. As of October 1, 2000, there are no longer any FLBAs in the System. Federal Land Credit Association (FLCA) -- A Federal Land Credit Association is a FLBA which owns its own loan assets. An FLCA borrows funds from a Farm Credit Bank to make and service long-term loans to farmers, ranchers and rural home buyers. 5

7 Most present-day FLCAs are now subsidiaries of ACAs. Less than ten FLCAs operate independently. Financial Assistance Corporation (FAC) -- The Farm Creditt System Financial Assistance Corporation was established by the Agricultural Credit Act of 1987 to sell bonds, the proceeds of which were used to provide assistance to financially troubled System institutions. Of the $4 billion in FAC Bonds authorized for use in assisting System institutions, less than a third ($1.26 billion) were actually issued. The FAC's authority to issue bonds expired on September 31, All assisted institutions redeemed their assistance by April 1, 1994, almost 10 years early. Having completed its mission, the charter of the FAC was canceled by FCA Board in Fixed Rate -- The rate does not fluctuate during thee term of the loan. The rate is tied to a spread above the treasury index. Freddiee Mac -- Chartered by Congress in 1970, Freddie Mac is one of America's biggest buyers of home mortgages, providing a linkk between mortgage lenders and investors. Freddie Mac doesn't make mortgage loans directly to homebuyers. Rather, they buy mortgages from lenders including commercial banks,, mortgage banks, savings institutions and credit unions across the country to help finance American homes. FSA Guarantee -- Farm Service Agency loan guarantee; the loan is guaranteed by FSA up to 90% of loan loss, should a loss occur. Government Sponsored Enterprise (GSE) -- A GSE is a federally chartered corporation that is privately owned, designed to provide a source of credit nationwide, and limited to servicing one economic sector. Eachh GSE has a public or social purpose to improve credit to agriculture, education, or housing. GSEs are usually created because the private markets did not satisfy a purpose that the Congress deems worthy either to fill a credit gap or to enhance competitive behavior in the loan market. Each is given certain features or benefits, referred to as GSE attributes to allow it to overcome the barriers that prevented purely privatee markets. Sometimes the public assistance is only to get started, at other times it is ongoing. The Farm Credit System, Fannie Mae, Freddie Mac and Farmer Mac are GSEs. Gross Domestic Product (GDP) -- GDP is the market value of the goods and services produced by labor and property in the United States. GDP is made up of consumer and government purchases, private domestic investments, and nett exports of goods and services. Figures for GDP are released quarterly byy the Commerce Department. Growth of the U.S. economy is measured by the change in inflation-adjusted GDP, or real GDP. Formerly called Gross National Product.. Interestt -- Money paid for the use of money. It begins accruing at the date of loan disbursement. Interim Interest -- The interest which accrues on a loan from the date of disbursement until the beginning of the regular principal and interest cycle. 6

8 Intermediate Term Loan -- For the purchases of such items as chattels or real estate and set up on a term of greater than one year but less than 10 years. Joint and Several Liability --- The Farm Credit Act of 1971, as amended, authorizes each Farm Credit Bank to join with other banks of the Farm Credit System in issuing Systemwide notes, bonds, debentures, and other obligations. Each bank is primarily liable for the portion of any issue of Systemwide obligations made on its behalf and is jointly and severally liable for the payment of any additional sums as called upon by FCA in order to make payments of interest or principal that any bank primarily liable is unable to make. Jointly and severally is a legal phrase used in definitions of liability meaning that an obligation may be enforced against all obligors jointly, or against any one of them separately. LIBOR Rate (London Inter-Bank Offered Rate) --- This is a world rate for the cost of funds which is internationally used. The rate changes on a daily basis similar to stocks in the stock market or commodities in the futures market. The ACA LIBOR rate can change once a month for customers. Lifestyle Producer --This is a producer or rural resident who utilizes their agricultural assets to maximize their lifestyle throughh country living and small part-time farming or ranching. Some will maximize tax benefits against earnings and income while others attempt to reduce real estate taxes. Line of Credit (LOC) -- A Line of Credit Loan is onee in which not all funds are disbursed at closing, creating a commitment or draw capabilityy after closing, for the balance of funds, in one or more draws. Loan Fees -- Fees charged by the ACA in connection with the originationn or servicing of loans or appraisalss of property. Local markets -- A very fast growing trend in whichh the consumer prefers to purchase products from producers within their local area or region. Some producers and processors are certified organic while some market under the natural label. Long Term Loan -- The term of a loan for 10 to 30 years. Mortgage -- The legal documentation required to perfect the ACA's security interestt in a parcel of real estatee pledged by a borrower as collateral. Natural Agricultural Product -- Consumer demandd is growing for this segment of the food and fiber system. Regulation is much less restrictive for natural producers than organic producers and often includes using no artificial hormones on the livestock and limited use of commercial fertilizer and chemical applications. No Caps -- Interest rate whichh can be increased or decreasedd by any amount. Nonaccrual -- Loan in which interest accrual has been suspended and will not be reported as income. Loans are placed in nonaccrual because the full collection of 7

9 principal and interest is in doubt or the account is inn excess of 90 days delinquent with no documented plan of collection. Non-Revolving Loan -- These are generally referred to as Line of Credit LOC or Commitment Loans. The producer borrows a set amount of funds and once disbursed, these funds are not set back up in the loan to be drawn again as the loan pays down. A new note is signed each year by the borrower. Note -- A legal agreement signed by the borrower consenting to the terms of the loan and serves as the borrower's promise to repay. Operating Loan -- Loan for crop and livestock production needs. Organic Agriculture -- One of the fastes growing food and fiber segments. To be an organic producer/processor/retailer one has to comply with standards established by the USDA. For crops, it means they were grown without the use of conventional pesticides or artificial fertilizers, and that they were processed without ionizing radiation or food additives. For animals, it means they were reared without the routine use of antibiotics and without the use of growth hormones. Patronage Distribution -- A way of distributing the association's net income to borrower/owners. A borrower s refund is based on the proportion of interest earned on his loan to the total interest earned by the association. Prime Rate -- This is the administered rate chargedd by the largest banks in the United States. The ACA prices loans at a spread against this rate that appears in the Wall Street Journal. The rate we charge our customer can change once a month for customers. Principal -- The amount of the debt less the interest. The initial amount of funds borrowed. Production Credit Association (PCA) -- A Production Credit t Association is the System entity that delivers short- and intermediate-term loans to farmers and ranchers. A PCA borrows money from its Farm Credit Bank too loan to farmers. PCAs also own their loan assets. All present-day PCAs are subsidiaries of ACAs. Revolving Loan/Revolving Line of Credit (RLOC) -- A revolving loan is typically used by farmers for crop or livestock operating needs. As the farmer borrows funds and pays them back during the year, the funds repaid are sett up again so that they can again be drawn as called for in the producer's contract. It is not necessary for the producer to sign a new note in order to re-borrow on this revolving line during the operating year. Service Entity -- A service entity is an organizationn established by banks of the Farm Credit System to perform functions and services forr or on behalf of the organizing banks. Farm Credit Leasing is a service entity, as iss the Funding Corporation. Short Term Loan -- The term of a loan for 1 monthh to 365 days. 8

10 Spread -- The spread is the difference between thee stated interest rate and the index (Prime, LIBOR, or Treasuries) ). For example, a loann indexed to a prime rate of 6%, with a stated rate to the customer of 10%, would have a 4% spread over prime. System -- This term is often used to describe the entire Farm Credit System. System System Banks -- This term refers generically to all the banks of the Farm Credit -- the 3 Farm Credit Banks and CoBank. Systemwide Debt Securities -- Systemwide debt instrumentss (securities) include: Federal Farm Credit Banks Consolidatedd Systemwide Bonds; Federal Farm Credit Banks Consolidate d Systemwide Medium-Term Notes; Federal Farm Credit Banks Consolidated Systemwide Discount Notes; as well as any other debt securities which may be issued by the Banks pursuant to Section 4.2(d) of the Farm Credit Act. All are issued by the Funding Corporation to fund System lending operations. USDA - Acronym for the United States Department of Agriculture. VA Loan - Loan available to veterans as a benefitt through the Veterans Administration. Loans are guaranteed by the Department of Veteran s Affairs. *The Farm Credit Administration website, provides up-to-date information regarding many of the terms included in this Glossary in its FCS Information section, and was used as a source for some definitions in this document. 9