Third Quarter Financial Report For the period ended December 31, 2017

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1 Third Quarter Financial Report -18 For the period ended December 31,

2 Farm Credit Canada Farm Credit Canada (FCC) is a financially self-sustaining federal Crown corporation, reporting to Canadians and Parliament through the Minister of Agriculture and Agri-Food. We provide financing and other services to more than 100,000 primary producers, value-added operators, suppliers and processors along the agriculture value chain. Operating from 100 offices located primarily in rural communities, our more than 1,800 permanent employees are passionate about the business of agriculture. Contact Corporate Communication at communications@fcc-fac.ca for more information. 2 Third Quarter Financial Report -18 Farm Credit Canada

3 Third Quarter Financial Report -18 For the period ended December 31, This report was prepared in accordance with the Treasury Board of Canada Standard on Quarterly Financial Reports for Crown Corporations and should be read in conjunction with disclosures and information contained in FCC s Annual Report and Corporate Plan Summary. 1 Financial results This document contains the corporation s unaudited financial results for the third quarter, which ended December 31,. The corporation is on track to meet the financial performance measures for the current fiscal year as outlined in the Corporate Plan Summary for -18 to Net overview ($ millions) Three months ended Nine months ended December 31, December 31, December 31, December 31, Net interest $ $ $ $ Provision for credit losses (22.6) (14.1) (27.9) (27.4) Non-interest Administration expenses (98.7) (95.2) (283.7) (274.4) Fair value adjustment (2.4) (7.1) (11.8) (10.8) Net $ $ $ $ Net for the nine-month period ended December 31,, increased by $41.0 million over the prior year. This was mainly due to an increase in net interest of $52.1 million, offset by an increase in administration expense of $9.3 million. Net interest for the nine-month period ended December 31,, increased by $52.1 million over the prior year primarily due to higher portfolio volumes partially offset by lower margins. The net interest margin for the nine-month period ended December 31,, decreased to 3.10% from 3.16% for the comparable period in -17, mainly due to fixed earning assets repricing in a more competitive interest rate environment. Administration expenses increased $9.3 million year-over-year due to an increase in salaries and benefits as well as an increase in other expenses mainly related to higher facilities and equipment expense. Fair value adjustment for the nine-month period ended December 31,, decreased $1.0 million mainly due to changes in fair value of financial instruments. 1 These documents are available at Farm Credit Canada Third Quarter Financial Report -18 3

4 Loans receivable FCC experienced overall growth in loans receivable of $2,555 million since March 31,, bringing its loan portfolio to $33,775 million at December 31,. Loan portfolio growth of 8.2% for the nine months ended December 31,, was slightly lower than the loan portfolio growth of 8.7% for the first nine months of the prior fiscal year. Higher disbursement volume year-over-year was more than offset by the increase in opening loans receivable, resulting in a lower growth rate. Cash flow Cash and cash equivalents at December 31,, decreased by $91.6 million from $866.1 million at December 31,. For the nine-month period ended December 31,, cash of $2,043 million and $76.1 million was used in operating activities and investing activities respectively, while $2,105 million was provided by financing activities. Outlook against Corporate Plan Summary FCC is projected to meet or exceed all year-end financial targets as outlined in the Corporate Plan Summary for -18 to Measure Outlook Net Ahead of Corporate Plan Return on equity Ahead of Corporate Plan Efficiency ratio On track with Corporate Plan Total capital ratio On track with Corporate Plan 4 Third Quarter Financial Report -18 Farm Credit Canada

5 Enterprise risk management FCC has an enterprise risk management framework to manage risks efficiently, consistently and in a co-ordinated manner. The corporation is exposed to six main categories of risk: credit, market, liquidity, operational, strategic and reputation. The FCC Board of Directors oversees the corporation's risk governance framework, which is supported by policies and committees that guide corporate decision-making. The Risk Committee of the Board reviews risk reporting quarterly. FCC's risk assessment process includes risk identification and assessment, measurement, control, monitoring and reporting. This is an ongoing process for credit and market risk. All risks are assessed annually during the strategic planning process and constitute the corporation's risk profile. Enterprise Management Team members are responsible for developing and implementing risk management strategies and action plans to mitigate the corporation's top risks. Based on these processes, no new material risks were identified this quarter. Farm Credit Canada Third Quarter Financial Report -18 5

6 Statement of management responsibility Management is responsible for the preparation and fair presentation of these consolidated quarterly financial statements in accordance with the Treasury Board of Canada Standard on Quarterly Financial Reports for Crown Corporations, and for such internal controls as management determines is necessary to enable the preparation of consolidated quarterly financial statements that are free from material misstatement. Management is also responsible for ensuring that all other information in this quarterly report is consistent, where appropriate, with the consolidated quarterly financial statements. Based on our knowledge, these unaudited consolidated quarterly financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of the corporation, as at the date of and for the periods presented in the consolidated quarterly financial statements. Michael Hoffort, P.Ag. President and Chief Executive Officer Rick Hoffman, CPA, CMA, MBA Executive Vice-President and Chief Financial Officer Regina, Canada February 4, Third Quarter Financial Report -18 Farm Credit Canada

7 Condensed Consolidated Financial Statements Consolidated Balance Sheet (thousands of Canadian dollars) March 31, Assets Cash and cash equivalents $ 774,486 $ 790,595 Temporary investments 434, ,530 Accounts receivable and prepaid expenses 44, ,110 Derivative financial assets 21,433 35,831 1,275,627 1,661,066 Loans receivable net (Notes 2 and 3) 33,552,959 31,007,050 Finance leases receivable net 18,844 16,468 Investment in associates 62,582 50,908 Venture capital investments 82,187 55,015 Post-employment benefit assets 69,448 53,536 33,786,020 31,182,977 Equipment and leasehold improvements 24,569 24,234 Computer software 31,497 32,966 Equipment under operating leases 102,482 90,850 Other assets 23,439 22, , ,229 Total assets $ 35,243,634 $ 33,014,272 Liabilities Accounts payable and accrued liabilities $ 58,945 $ 60,393 Derivative financial liabilities ,945 60,396 Borrowings (Note 4) Short-term debt 11,020,123 10,416,139 Long-term debt 17,941,313 16,508,032 28,961,436 26,924,171 Transition loan liabilities 149, ,024 Post-employment benefit liabilities 145, ,709 Other liabilities 20,832 19, , ,391 Total liabilities 29,336,770 27,272,958 Equity Contributed surplus 547, ,725 Retained earnings 5,288,539 5,106,783 Accumulated other comprehensive 69,798 86,271 Equity attributable to shareholder of parent entity 5,906,062 5,740,779 Non-controlling interest ,906,864 5,741,314 Total liabilities and equity $ 35,243,634 $ 33,014,272 The accompanying notes are an integral part of the condensed consolidated financial statements. Farm Credit Canada Third Quarter Financial Report -18 7

8 Consolidated Statement of Income Three months ended Nine months ended (thousands of Canadian dollars) Interest $ 348,900 $ 307,123 $ 964,341 $ 887,184 Interest expense 74,347 50, , ,856 Net interest 274, , , ,328 Provision for credit losses 22,569 14,146 27,860 27,442 Net interest after provision for credit losses 251, , , ,886 Net insurance 5,569 4,609 15,287 12,515 Net (loss) from investment in associates 1,034 2,335 (689) 2,562 Other expense (307) (344) (546) (672) Net interest and non-interest 258, , , ,291 Administration expenses Salary and benefits 60,799 57, , ,733 Other 37,902 37, , ,623 Total administration expenses 98,701 95, , ,356 Net before fair value adjustment 159, , , ,935 Fair value adjustment (2,410) (7,142) (11,851) (10,823) Net $ 157,169 $ 146,501 $ 490,090 $ 449,112 Net attributable to: Shareholder of parent entity $ 157,155 $ 146,489 $ 490,056 $ 449,085 Non-controlling interest The accompanying notes are an integral part of the condensed consolidated financial statements. 8 Third Quarter Financial Report -18 Farm Credit Canada

9 Consolidated Statement of Comprehensive Income Three months ended Nine months ended (thousands of Canadian dollars) Net $ 157,169 $ 146,501 $ 490,090 $ 449,112 Other comprehensive Items that are or may be reclassified to net Transfer of net realized gains on derivatives designated as cash flow hedges to net (5,475) (5,475) (16,365) (16,365) Net unrealized gains (losses) on available-forsale financial assets 316 (3) (108) 881 Total other comprehensive loss (5,159) (5,478) (16,473) (15,484) Total comprehensive $ 152,010 $ 141,023 $ 473,617 $ 433,628 Total comprehensive attributable to: Shareholder of parent entity $ 151,996 $ 141,011 $ 473,583 $ 433,601 Non-controlling interest The accompanying notes are an integral part of the condensed consolidated financial statements. Farm Credit Canada Third Quarter Financial Report -18 9

10 Consolidated Statement of Changes in Equity (thousands of Canadian dollars) Balance Sept. 30, Net Other comprehensive Dividend Paid Contributions from non-controlling interest Balance Contributed surplus $ 547,725 $ - $ - $ - $ - $ 547,725 Retained earnings 5,131, , ,288,539 Net gains (transfer of net gains) on derivatives previously designated as cash flow hedges 75,568 - (5,475) ,093 Net unrealized (losses) gains on available-forsale financial assets (611) (295) Total accumulated other comprehensive (loss) 74,957 - (5,159) ,798 Total equity attributable to parent 5,754, ,155 (5,159) - - 5,906,062 Non-controlling interest Total $ 5,754,695 $ 157,169 $ (5,159) $ - $ 159 $ 5,906,864 (thousands of Canadian dollars) Balance Sept 30, Net Other comprehensive Dividend Paid Distributions to non-controlling interest Balance Contributed surplus $ 547,725 $ - $ - $ - $ - $ 547,725 Retained earnings 5,001, ,489 - (268,300) - 4,879,609 Net gains (transfer of net gains) on derivatives previously designated as cash flow hedges 97,289 - (5,475) ,814 Net unrealized losses on available-for-sale financial assets (174) - (3) - - (177) Total accumulated other comprehensive (loss) 97,115 - (5,478) ,637 Total equity attributable to parent 5,646, ,489 (5,478) (268,300) - 5,518,971 Non-controlling interest (75) 530 Total $ 5,646,853 $ 146,501 $ (5,478) $ (268,300) $ (75) $ 5,519,501 The accompanying notes are an integral part of the condensed consolidated financial statements. 10 Third Quarter Financial Report -18 Farm Credit Canada

11 Consolidated Statement of Changes in Equity (continued) (thousands of Canadian dollars) Balance March 31, Net Other comprehensive Dividend Paid Contributions from non-controlling interest Balance Contributed surplus $ 547,725 $ - $ - $ - $ - $ 547,725 Retained earnings 5,106, ,056 - (308,300) - 5,288,539 Net gains (transfer of net gains) on derivatives previously designated as cash flow hedges 86,458 - (16,365) ,093 Net unrealized losses on available-for-sale financial assets (187) - (108) - - (295) Total accumulated other comprehensive (loss) 86,271 - (16,473) ,798 Total equity attributable to parent 5,740, ,056 (16,473) (308,300) - 5,906,062 Non-controlling interest Total $ 5,741,314 $ 490,090 $ (16,473) $ (308,300) $ 233 $ 5,906,864 (thousands of Canadian dollars) Balance March 31, Net Other comprehensive Dividend Paid Contributions from non-controlling interest Balance Contributed surplus $ 547,725 $ - $ - $ - $ - $ 547,725 Retained earnings 4,698, ,085 - (268,300) - 4,879,609 Net gains (transfer of net gains) on derivatives previously designated as cash flow hedges 108,179 - (16,365) ,814 Net unrealized (losses) gains on available-forsale financial assets (1,058) (177) Total accumulated other comprehensive (loss) 107,121 - (15,484) ,637 Total equity attributable to parent 5,353, ,085 (15,484) (268,300) - 5,518,971 Non-controlling interest Total $ 5,354,071 $ 449,112 $ (15,484) $ (268,300) $ 102 $ 5,519,501 The accompanying notes are an integral part of the condensed consolidated financial statements. Farm Credit Canada Third Quarter Financial Report

12 Consolidated Statement of Cash Flows Three months ended Nine months ended (thousands of Canadian dollars) Operating activities Net $ 157,169 $ 146,501 $ 490,090 $ 449,112 Adjustments to determine net cash (used in) provided by operating activities: Net interest (274,553) (256,402) (799,442) (747,328) Unwind adjustment on impaired loans 378 (853) (120) (2,900) Provision for credit losses 22,569 14,146 27,860 27,442 Fair value adjustment 2,410 7,142 11,851 10,823 Net () loss from investment in associates (1,034) (2,335) 689 (2,562) Amortization and depreciation 3,944 5,876 13,402 14,301 Other (14,648) , Net cash outflow from loans receivable (635,483) (655,186) (2,577,387) (2,494,864) Net cash inflow (outflow) from finance leases receivable 1, (1,931) (613) Net change in other operating assets and liabilities 4,935 38,213 (6,923) 29,911 Interest received 395, , , ,638 Interest paid (71,109) (50,764) (143,601) (128,898) Cash used in operating activities $ (408,828) $ (412,298) $ (2,043,006) $ (1,984,538) Investing activities Net cash inflow (outflow) from temporary investments $ 63,064 $ (13,044) $ 1,700 $ (43,043) Acquisition of venture capital investments (17,000) (1,667) (26,250) (23,576) Proceeds on disposal and repayment of venture capital investments - 7, ,000 Net cash outflow from investment in associates (3,825) (263) (12,363) (2,141) Purchase of equipment and leasehold improvements (1,982) (1,937) (6,389) (4,890) Purchase of computer software (1,551) (5,464) (5,879) (9,072) Purchase of equipment under operating leases (12,399) (14,793) (44,507) (41,419) Proceeds on disposal of equipment under operating leases 6,843 6,984 17,136 16,467 Cash provided by (used in) investing activities $ 33,150 $ (22,684) $ (76,052) $ (97,674) Financing activities Long-term debt issued $ 2,875,000 $ 2,740,000 $ 7,756,500 $ 7,743,000 Long-term debt repaid (1,861,000) (2,125,934) (4,554,263) (6,846,601) Short-term debt issued 1,929,231 4,077,053 7,186,454 13,160,738 Short-term debt repaid (2,521,364) (3,903,022) (7,975,810) (11,671,684) Dividend paid - (268,300) (308,300) (268,300) Cash provided by financing activities $ 421,867 $ 519,797 $ 2,104,581 $ 2,117,153 Change in cash and cash equivalents $ 46,189 $ 84,815 $ (14,477) $ 34,941 Cash and cash equivalents, beginning of period 728, , , ,387 Effects of exchange rate changes on the balances of cash held and due in foreign currencies (423) (187) (1,632) (272) Cash and cash equivalents, end of period $ 774,486 $ 866,056 $ 774,486 $ 866,056 Cash and cash equivalents consists of: Cash $ 646,250 $ 162,705 $ 646,250 $ 162,705 Short-term investments 128, , , ,351 The accompanying notes are an integral part of the condensed consolidated financial statements. 12 Third Quarter Financial Report -18 Farm Credit Canada

13 Notes to the Condensed Consolidated Financial Statements 1. Significant accounting policies Basis of presentation The condensed consolidated interim financial statements (interim financial statements) comply with the Standard on Quarterly Financial Reports for Crown Corporations issued by the Treasury Board of Canada. These interim financial statements do not include all of the information required for complete annual financial statements and should be read in conjunction with the annual audited financial statements for the year ended March 31,. Unless otherwise stated, all dollar amounts presented in the Notes to the Condensed Consolidated Financial Statements are in thousands of Canadian dollars, which is the functional currency of Farm Credit Canada (FCC). Accounting policies The accounting policies adopted in the preparation of these interim financial statements are consistent with those followed in the annual, audited financial statements for the year ended March 31,. Application of revised International Financial Reporting Standards The International Accounting Standards Board (IASB) issued amendments to IAS 7, Statement of Cash Flows, which were effective for FCC on April 1,. Adoption of the amendments resulted in no changes in accounting policies. The amendments require disclosures of changes in financing liabilities, including changes from cash flows and non-cash changes. Farm Credit Canada Third Quarter Financial Report

14 1. Significant accounting policies (continued) Accounting standards issued but not yet effective FCC has reviewed the new standards and amendments that have been issued but are not yet effective and determined that the following may have an impact on FCC in the future. Management is in the process of assessing the impact of these standards and amendments on FCC s financial statements and accounting policies, and therefore the extent of the impact of the adoption of these standards and amendments is unknown. A number of other new standards, amendments and improvements that have been issued by the IASB but are not yet effective are not listed below as FCC determined that they will not have a significant impact on the consolidated financial statements. Standard IFRS 9 Financial instruments Details In July 2014, the IASB issued the complete version of IFRS 9, first issued in November 2009, which brings together the classification and measurement, impairment and hedge accounting phases of the IASB s project to replace IAS 39. IFRS 9 introduces a principles-based approach to the classification of financial assets based on an entity s business model and the nature of the cash flows of the asset. It is anticipated this standard will change the classification of FCC s temporary investments and cash equivalents from available-for-sale to amortized cost and will change the measurement of FCC s venture capital investments from fair value through profit and loss (FVTPL) to amortized cost. IFRS 9 also introduces an expected loss impairment model for all financial assets not at FVTPL and certain off-balance sheet loan commitments and guarantees. An enterprise-wide project has been established to meet the requirement to adopt IFRS 9. It is supported by a formal governance framework and a robust implementation plan. The IFRS 9 expected loss impairment model has three stages: 1. On initial recognition, 12-month expected credit losses are recognized in profit or loss and a loss allowance is established. 2. If credit risk increases significantly and the resulting credit risk is not considered to be low, full lifetime expected credit losses are recognized. In assessing whether credit risk has increased significantly, entities are required to compare the risk of a default occurring on the financial instrument as at the reporting date, with the risk of a default occurring on the financial instrument as at the date of initial recognition. In subsequent reporting periods, if the credit risk of the financial instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then entities shall revert to recognizing 12 months of expected credit losses. 3. When a financial asset is considered credit-impaired, full lifetime expected credit losses are recognized and interest revenue is calculated based on the carrying amount of the asset, net of the loss allowance, rather than its gross carrying amount. FCC continues to refine and test the key models required under IFRS 9, and is assessing the impact of the change. As permitted, FCC will not restate its prior period comparative consolidated financial statements when it adopts the requirements of the new standard. FCC will recognize an adjustment to its opening April 1, 2018 retained earnings to reflect the application of the new requirements at the adoption date. Date of initial application April 1, Third Quarter Financial Report -18 Farm Credit Canada

15 1. Significant accounting policies (continued) Standard IFRS 16 Leases IFRS 17 - Insurance contracts Details In January, the IASB issued IFRS 16, which requires all leases to be reported on a lessee s balance sheet as assets and liabilities. There are also changes in accounting over the life of the lease. In particular, lessees will now recognize a front-loaded pattern of expense for most leases, even when they pay constant annual rentals. It is anticipated this standard will result in an increase in both lease assets and lease liabilities on the balance sheet as well as an accelerated pattern for expense recognition. Lessor accounting remains similar to current practice as lessors continue to classify leases as finance and operating leases. In May, the IASB issued IFRS 17, which provides a single principle-based standard to account for all types of insurance contracts. IFRS 17 provides updated information about the obligations, risks and performance of insurance contracts and increases transparency in financial information reported by insurance companies, which will give investors and analysts more confidence in understanding the insurance industry. It also introduces consistent accounting for all insurance contracts based on a current measurement model. FCC is assessing the impact of this standard and the extent of the impact of the adoption is unknown at this time. Date of initial application April 1, 2019 April 1, Loans receivable net Term to maturity ($ thousands) Within 1 year 1-5 years Over 5 years March 31, Floating $ 3,399,992 $ 14,197,117 $ 621,643 $ 18,218,752 $ 17,016,240 Fixed 3,654,351 9,969,317 1,956,900 15,580,568 14,228,183 Loans receivable gross 7,054,343 24,166,434 2,578,543 33,799,320 31,244,423 Deferred loan fees (24,112) (23,758) Loans receivable total 33,775,208 31,220,665 Allowance for credit losses (222,249) (213,615) Loans receivable net $ 33,552,959 $ 31,007,050 Farm Credit Canada Third Quarter Financial Report

16 3. Allowance for credit losses loans receivable ($ thousands) March 31, Individual allowance, beginning of period $ 78,370 $ 87,686 Provision for credit losses 6,533 5,030 Losses covered under the Hog Industry Loan Loss Reserve Program 1, Unwind adjustment on impaired loans (120) (3,403) Writeoffs (20,230) (15,096) Recoveries 1,686 3,421 Individual allowance, end of period $ 67,262 $ 78,370 Collective allowance, beginning of period $ 135,245 $ 122,344 Provision for credit losses 21,320 14,239 Losses covered under the Hog Industry Loan Loss Reserve Program (203) (241) Writeoffs (1,729) (1,743) Recoveries Collective allowance, end of period $ 154,987 $ 135,245 Total allowance $ 222,249 $ 213, Borrowings Short-term debt March 31, ($ thousands) Government of Canada debt Floating-rate borrowings $ 5,968,684 $ 6,026,860 Fixed-rate borrowings 4,544,216 3,883,242 10,512,900 9,910,102 Capital markets debt USD fixed-rate promissory notes (1) 507, ,037 Total $ 11,020,123 $ 10,416,139 (1) $403.9 million USD (March 31, - $380.2 million USD) Long-term debt March 31, ($ thousands) Government of Canada debt Floating-rate borrowings $ 13,087,329 $ 11,450,675 Fixed-rate borrowings 4,548,557 4,748,150 17,635,886 16,198,825 Capital markets debt Retail and institutional fixed-rate notes 305, ,207 Total $ 17,941,313 $ 16,508, Third Quarter Financial Report -18 Farm Credit Canada

First Quarter Financial Report For the period ended June 30, 2018

First Quarter Financial Report -19 For the period ended Farm Credit Canada Farm Credit Canada (FCC) is a financially self-sustaining federal Crown corporation, reporting to Canadians and Parliament through