Northwest Farm Credit Services 2012 Annual Report
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Transcript of Northwest Farm Credit Services 2012 Annual Report
Visit us at: northwestfcs.com
2012 Annual Report
OUR STEWARDSHIP CULTUREYou may receive multiple copies of the annual report due to system changes and the need to send annual �nancials to every stockholder of record.
Bruce Nelson Spokane, Washington; Dave Nisbet Bay Center, Washington; Herb Karst Sunburst, Montana; Mark Gehring Salem, Oregon; Drew Eggers Meridian, Idaho;
Rick Barnes Callahan, California; Christy Burmeister-Smith Newman Lake, Washington; Shawn Walters New Dale, Idaho; Kevin Riel Chair – Yakima, Washington;
Jim Farmer Nyssa, Oregon; Dave Hedlin Mt. Vernon, Washington; Karen Schott Vice Chair – Broadview, Montana; Julie Shiflett Spokane, Washington; John Helle Dillon, Montana
Director’s ReportAs business owners in the natural resources industries, we are entrusted stewards of our operations and
resources. The Northwest FCS board, management team and employees share a similar responsibility – to be wise stewards of your cooperative. We must ensure a strong, stable lending organization with capacity to serve generations to come. We engrain stewardship into our governance, management philosophy, business practices and, most importantly, our culture.
2012 was another excellent year for the association. I am proud to report record earnings of $187.3 million due primarily to growth and credit quality improvements in our loan portfolio. Capital increased to $1.6 billion. Consistently strong �nancial performance allows us to provide our customers with a sustainable and reliable patronage program, which reduces their costs of borrowing money. In 2012 the association provided $55.2 million in cash patronage. Since 2000, Northwest FCS has paid $377 million in cash patronage to customers who have provided a signi�cant economic boost to the rural communities we serve.
A key focus of the board has been re�ning our compensation philosophy. Our goal is to support a strong and enduring cooperative that successfully executes our mission to stockholders, while providing competitive income opportunities for employees. This year, we worked with an independent compensation expert who evaluated our existing programs and made recommendations to better align compensation with the sustainable, long-term goals of the organization. We believe the new compensation program will help us continually attract, motivate, and retain the talented employees we need to serve the next generation of agriculture.
On behalf of the Northwest FCS Board we thank our customer-owners for their continued business and look forward to another successful year.
2008 2009 2010 2011 2012
31.1
26.0
36.0
53.355.2
PATRONAGE PAID($ in millions)
BOARD OF DIRECTORSKevin Riel
Board Chair
2 3
Bruce Nelson Spokane, Washington; Dave Nisbet Bay Center, Washington; Herb Karst Sunburst, Montana; Mark Gehring Salem, Oregon; Drew Eggers Meridian, Idaho;
Rick Barnes Callahan, California; Christy Burmeister-Smith Newman Lake, Washington; Shawn Walters New Dale, Idaho; Kevin Riel Chair – Yakima, Washington;
Jim Farmer Nyssa, Oregon; Dave Hedlin Mt. Vernon, Washington; Karen Schott Vice Chair – Broadview, Montana; Julie Shiflett Spokane, Washington; John Helle Dillon, Montana
Director’s ReportAs business owners in the natural resources industries, we are entrusted stewards of our operations and
resources. The Northwest FCS board, management team and employees share a similar responsibility – to be wise stewards of your cooperative. We must ensure a strong, stable lending organization with capacity to serve generations to come. We engrain stewardship into our governance, management philosophy, business practices and, most importantly, our culture.
2012 was another excellent year for the association. I am proud to report record earnings of $187.3 million due primarily to growth and credit quality improvements in our loan portfolio. Capital increased to $1.6 billion. Consistently strong �nancial performance allows us to provide our customers with a sustainable and reliable patronage program, which reduces their costs of borrowing money. In 2012 the association provided $55.2 million in cash patronage. Since 2000, Northwest FCS has paid $377 million in cash patronage to customers who have provided a signi�cant economic boost to the rural communities we serve.
A key focus of the board has been re�ning our compensation philosophy. Our goal is to support a strong and enduring cooperative that successfully executes our mission to stockholders, while providing competitive income opportunities for employees. This year, we worked with an independent compensation expert who evaluated our existing programs and made recommendations to better align compensation with the sustainable, long-term goals of the organization. We believe the new compensation program will help us continually attract, motivate, and retain the talented employees we need to serve the next generation of agriculture.
On behalf of the Northwest FCS Board we thank our customer-owners for their continued business and look forward to another successful year.
2008 2009 2010 2011 2012
31.1
26.0
36.0
53.355.2
PATRONAGE PAID($ in millions)
BOARD OF DIRECTORSKevin Riel
Board Chair
2 3
Customer Capacity We exist to serve customers. Over the years, we’ve been developing the necessary
capacity to not only retain customers but to attract new customers. The �rst priority in serving more than 13,000 customers is to make sure we are creating an experience that leads to high customer engagement. Customer surveys in 2012 continue to re-�ect a high degree of loyalty from our customers, which is a key measure of customer engagement.
Serving young and beginning producers aligns with our business philosophy of stewardship. Our AgVision program has been a reliable source of credit for these pro-ducers since 2001. We know that getting people started in agriculture is more than lending money. It’s providing the education and mentoring that is critical for success in our volatile economy. Our investment in developing our Business Management Center and Knowledge Center is increasingly supporting our customers across the wide spectrum of agriculture.
Growth in quality customers is another important area of customer capacity. In 2012 loan volume grew across all business groups, increasing our total volume owned by 6.2 percent.
Human Resource CapacityServing our customers can’t be done to our high standards without talented and
engaged sta�. Building capacity on the human resource front is essential to having diverse, highly competent and engaged employees who are recognized as trusted advisors of the customers they serve and stewards of the communities where they work and live.
In 2012 we made a number of enhancements aimed at strengthening our human resource capacity, including increased investment in education, performance management systems and aligning our compensation programs with the long-term strategies of this association. Surveying employees about their levels of engagement has become a regular practice. High levels of engagement mean our employees feel valued and supported as they continue to create value for this organization and the customer-owners we serve.
Operations CapacityBehind the scenes, our operational capacity includes funding of loans, processing
loan payments, issuing insurance policies, accounting for expenses and income,
auditing, maintaining our facilities, supporting technology infrastructure, and a host of essential activities. These activities are not always visible to our customers, but the successful completion of this work is vital to our success.
In 2012, we reviewed a large number of internal processes and implemented 30 technology projects. These initiatives were wide ranging including controls, new website, upgrades to online banking, and updating policies and procedures.
Financial CapacityFinancial capacity means having an organization that can handle future customer
needs, can pay an appropriate return to our customer-owners in the form of patron-age, can invest in the business, and does all this in a world that is increasingly volatile.
2012 was a very strong year. Net income was $187.3 million, almost 18 percent above 2011. We had higher loan volumes, better credit quality resulting in a lower provision expense, steady margins on loans, and we received a refund from the Farm Credit System Insurance Fund. Even though credit quality is improving, we continue to maintain a relatively strong allowance for loan losses.
Capital is the other key aspect to our �nancial strength and capacity as it provides for future loan growth, acts as the last line of defense against volatility, and stands behind earnings and loan loss reserves in the area of risk management. In 2012, capital grew to $1.6 billion. We will continue to grow capital and build our �nancial capacity to ensure our customers can depend on us in the long term.
Looking AheadIn 2013, we’ll look closely at our lending standards to make sure we are anticipating
future challenges. Risks around rapidly accelerating land values and the long-range risk of increasing interest rates is concerning. Building our capacity to be a depend-able source of credit and a trusted advisor to the customers we serve is our responsi-bility, our privilege and our sole focus moving forward.
2008 2009 2010 2011 2012
1.11.2
1.31.4
1.6
C APITAL($ in billions)
2008 2009 2010 2011 2012
124.4
106.1
150.1159.2
187.3
NET INCOMEAFTER TAXES($ in millions)
CEO MessageA business philosophy of stewardship has been a part of agriculture for
generations. Stewardship is the careful and responsible management of
what is entrusted to you. As a cooperative, stewardship is the overarching
philosophy of Northwest FCS. When you put words into practice, this
means we e�ectively manage our business and build capacity today, while
constantly focusing on the long-term sustainability of our organization
and its ability to serve the future needs of agriculture.
Building organizational capacity and remaining relevant go hand
in glove. To ensure we are focused on the fundamentals that lead to
a sustainable, durable, and consistently performing business, we’ve
developed our business plan around four key business capacities.Phil DiPofi
President and CEO
4 5
Customer Capacity We exist to serve customers. Over the years, we’ve been developing the necessary
capacity to not only retain customers but to attract new customers. The �rst priority in serving more than 13,000 customers is to make sure we are creating an experience that leads to high customer engagement. Customer surveys in 2012 continue to re-�ect a high degree of loyalty from our customers, which is a key measure of customer engagement.
Serving young and beginning producers aligns with our business philosophy of stewardship. Our AgVision program has been a reliable source of credit for these pro-ducers since 2001. We know that getting people started in agriculture is more than lending money. It’s providing the education and mentoring that is critical for success in our volatile economy. Our investment in developing our Business Management Center and Knowledge Center is increasingly supporting our customers across the wide spectrum of agriculture.
Growth in quality customers is another important area of customer capacity. In 2012 loan volume grew across all business groups, increasing our total volume owned by 6.2 percent.
Human Resource CapacityServing our customers can’t be done to our high standards without talented and
engaged sta�. Building capacity on the human resource front is essential to having diverse, highly competent and engaged employees who are recognized as trusted advisors of the customers they serve and stewards of the communities where they work and live.
In 2012 we made a number of enhancements aimed at strengthening our human resource capacity, including increased investment in education, performance management systems and aligning our compensation programs with the long-term strategies of this association. Surveying employees about their levels of engagement has become a regular practice. High levels of engagement mean our employees feel valued and supported as they continue to create value for this organization and the customer-owners we serve.
Operations CapacityBehind the scenes, our operational capacity includes funding of loans, processing
loan payments, issuing insurance policies, accounting for expenses and income,
auditing, maintaining our facilities, supporting technology infrastructure, and a host of essential activities. These activities are not always visible to our customers, but the successful completion of this work is vital to our success.
In 2012, we reviewed a large number of internal processes and implemented 30 technology projects. These initiatives were wide ranging including controls, new website, upgrades to online banking, and updating policies and procedures.
Financial CapacityFinancial capacity means having an organization that can handle future customer
needs, can pay an appropriate return to our customer-owners in the form of patron-age, can invest in the business, and does all this in a world that is increasingly volatile.
2012 was a very strong year. Net income was $187.3 million, almost 18 percent above 2011. We had higher loan volumes, better credit quality resulting in a lower provision expense, steady margins on loans, and we received a refund from the Farm Credit System Insurance Fund. Even though credit quality is improving, we continue to maintain a relatively strong allowance for loan losses.
Capital is the other key aspect to our �nancial strength and capacity as it provides for future loan growth, acts as the last line of defense against volatility, and stands behind earnings and loan loss reserves in the area of risk management. In 2012, capital grew to $1.6 billion. We will continue to grow capital and build our �nancial capacity to ensure our customers can depend on us in the long term.
Looking AheadIn 2013, we’ll look closely at our lending standards to make sure we are anticipating
future challenges. Risks around rapidly accelerating land values and the long-range risk of increasing interest rates is concerning. Building our capacity to be a depend-able source of credit and a trusted advisor to the customers we serve is our responsi-bility, our privilege and our sole focus moving forward.
2008 2009 2010 2011 2012
1.11.2
1.31.4
1.6
C APITAL($ in billions)
2008 2009 2010 2011 2012
124.4
106.1
150.1159.2
187.3
NET INCOMEAFTER TAXES($ in millions)
CEO MessageA business philosophy of stewardship has been a part of agriculture for
generations. Stewardship is the careful and responsible management of
what is entrusted to you. As a cooperative, stewardship is the overarching
philosophy of Northwest FCS. When you put words into practice, this
means we e�ectively manage our business and build capacity today, while
constantly focusing on the long-term sustainability of our organization
and its ability to serve the future needs of agriculture.
Building organizational capacity and remaining relevant go hand
in glove. To ensure we are focused on the fundamentals that lead to
a sustainable, durable, and consistently performing business, we’ve
developed our business plan around four key business capacities.Phil DiPofi
President and CEO
4 5
MANAGEMENT EXECUTIVE COMMITTEEWe are a diverse group of individuals with di�erent skills and experiences. Many of us grew up on farms or
ranches. Others were raised in larger cities. We have tenured-wisdom in our ranks and fresh, inventive ideas coming
from the next generation. While our roles and responsibilities can be vastly di�erent, when you boil everything
down, we work really hard to take care of our customers, communities and each other.
You might say we’re all about taking care of people and taking care of business.
Ready to meet some amazing people?
They work here.Jim Allen Senior VP-Capital Markets; Stacy Lavin General Counsel; Phil DiPofi President and Chief Executive O�cer; John Phelan Executive VP-Chief Risk O�cer;
Kathy Payne Executive VP-Human Resources and Corporate Administration; Brent Fetsch Senior VP-Chief Strategy O�cer and Chief Information O�cer;
Tom Nakano Executive VP-Chief Financial O�cer; Mark Nonnenmacher Executive VP-Agribusiness; Fred DePell Executive VP-Financial Services
6 7
MANAGEMENT EXECUTIVE COMMITTEEWe are a diverse group of individuals with di�erent skills and experiences. Many of us grew up on farms or
ranches. Others were raised in larger cities. We have tenured-wisdom in our ranks and fresh, inventive ideas coming
from the next generation. While our roles and responsibilities can be vastly di�erent, when you boil everything
down, we work really hard to take care of our customers, communities and each other.
You might say we’re all about taking care of people and taking care of business.
Ready to meet some amazing people?
They work here.Jim Allen Senior VP-Capital Markets; Stacy Lavin General Counsel; Phil DiPofi President and Chief Executive O�cer; John Phelan Executive VP-Chief Risk O�cer;
Kathy Payne Executive VP-Human Resources and Corporate Administration; Brent Fetsch Senior VP-Chief Strategy O�cer and Chief Information O�cer;
Tom Nakano Executive VP-Chief Financial O�cer; Mark Nonnenmacher Executive VP-Agribusiness; Fred DePell Executive VP-Financial Services
6 7
Customer Steve Swank:
“Expanding Rancher”3X Farm
No one knows our
customers better than our front-line people who work with them every day. That’s why our branches
are brimming with talented, caring employees who make our customer service hum. Some of us are
outgoing. Others are more analytical. It takes the synergy of a team to make great things happen.
Angie Stanley:
“Road Warrior”Senior Insurance Agent
18YEARS OFSERVICE
Shaud Schwarzbach: Relationship Manager - Vice President
“Big Sandy Mayor” 5 YEARS OFSERVICE
Growing
RELATIONSHIPSis a key to our success.
When you talk to customer Steve Swank about our employees in Havre, Montana he’ll describe them as a great team who works well together, very professional and highly e�cient. Steve is a pretty good one to ask. He and his business partner Warren Lybeck have more than doubled the size of their wheat and cattle business since they started working with our lending team in 1998.
Every team needs a good point guard and in this case, that’s Relationship Manager Shaud Schwarzbach.He invests time getting to know customers’ busi-nesses from the ground up. That’s where trusted relationships grow. With boots on the ground, he’s able to assess our customers’ needs and see trends impacting their bottom lines.
Heidi Borlaug likes to play behind the scenes. It’s her job to analyze the numbers and put the loan package together. She has a skill for making the complex simple. Using balance sheets, income statements, tax returns, and income projections she helps our customers plan for the future and understand the decisions they make.
Stephannie Klein is a chief multi-tasker. As a �nancial specialist, she works with customers in the branch (and on the phone) to gather �nancials, input data, disburse money, accept payments, and always greets people with a smile. You need to be incredibly organized and extremely passionate about customer service to do Stephannie’s job.
Government rules and regulations can be confus-ing. Yet, Angie Stanley and our crop insurance team always �nd a way to make the information user friendly. Every operation is unique, so Angie helps customers understand what they need to do to get the risk protection they need. Crop insurance isn’t an eight-to-�ve job either. Customers call Angie day, night and weekends. When they need cover-age quickly or they’re hit with a sudden loss, Angie will drive hundreds of miles to help.
1YEAR OFSERVICE
Stephannie Klein:
“Cub Scout Leader”Financial Specialist
8 9
Heidi Borlaug:
“Wheat Farmer”Operations Manager
5YEARS OFSERVICE
Customer Steve Swank:
“Expanding Rancher”3X Farm
No one knows our
customers better than our front-line people who work with them every day. That’s why our branches
are brimming with talented, caring employees who make our customer service hum. Some of us are
outgoing. Others are more analytical. It takes the synergy of a team to make great things happen.
Angie Stanley:
“Road Warrior”Senior Insurance Agent
18YEARS OFSERVICE
Shaud Schwarzbach: Relationship Manager - Vice President
“Big Sandy Mayor” 5 YEARS OFSERVICE
Growing
RELATIONSHIPSis a key to our success.
When you talk to customer Steve Swank about our employees in Havre, Montana he’ll describe them as a great team who works well together, very professional and highly e�cient. Steve is a pretty good one to ask. He and his business partner Warren Lybeck have more than doubled the size of their wheat and cattle business since they started working with our lending team in 1998.
Every team needs a good point guard and in this case, that’s Relationship Manager Shaud Schwarzbach.He invests time getting to know customers’ busi-nesses from the ground up. That’s where trusted relationships grow. With boots on the ground, he’s able to assess our customers’ needs and see trends impacting their bottom lines.
Heidi Borlaug likes to play behind the scenes. It’s her job to analyze the numbers and put the loan package together. She has a skill for making the complex simple. Using balance sheets, income statements, tax returns, and income projections she helps our customers plan for the future and understand the decisions they make.
Stephannie Klein is a chief multi-tasker. As a �nancial specialist, she works with customers in the branch (and on the phone) to gather �nancials, input data, disburse money, accept payments, and always greets people with a smile. You need to be incredibly organized and extremely passionate about customer service to do Stephannie’s job.
Government rules and regulations can be confus-ing. Yet, Angie Stanley and our crop insurance team always �nd a way to make the information user friendly. Every operation is unique, so Angie helps customers understand what they need to do to get the risk protection they need. Crop insurance isn’t an eight-to-�ve job either. Customers call Angie day, night and weekends. When they need cover-age quickly or they’re hit with a sudden loss, Angie will drive hundreds of miles to help.
1YEAR OFSERVICE
Stephannie Klein:
“Cub Scout Leader”Financial Specialist
8 9
Heidi Borlaug:
“Wheat Farmer”Operations Manager
5YEARS OFSERVICE
Customer Dan DeRuyter:
“Progressive Thinker”George DeRuyter & Son Dairy
Customer George DeRuyter:
“Wise Founder”George DeRuyter & Son Dairy
You need honest people you can trust when you’re growing a business or diversifying into new areas. Customers George and Dan DeRuyter rely on our Sunnyside, Washington team to be a sounding board for the decisions they make. In the past 13 years the DeRuyters have expanded their dairy operation to milk more than 5,000 cows (10,900 total) and now grow almost 100 percent of their feed.
When customers want to know how their opera-tion stacks up with others, they can count on honest, helpful perspectives from relationship managers like Craig Shindler. Craig is a trusted advisor. He helps customers get where they want to be without gambling the farm. He’ll ask just the right questions and gather the best information possible to help them position for the opportunities ahead.
Petra Atilano is a no-nonsense woman with a great sense of humor. As a credit o�cer, she keeps everything and everyone on track. She �nds the right products, analyzes the credit, and moves complex loans through the approval process. Customers have con�dence when we say we’re going to get something done, Petra and the team will do it.
Debbie Parker knows people. She has seen just about everything in her 32 years as a �nancial specialist. The team goes to Debbie with questions about di�erent loan documents. She helps us brain-storm solutions for unique situations. If Debbie doesn’t have the answers to help our customers she de�nitely knows the people who do.
Information drives appraisals. The more an appraiser knows about properties sold and purchased the better they can determine real value. Doug Knox and our appraisal team have insights into hundreds of land sales. Customers depend on Doug to give them the objective information they need to make solid business decisions.
10 11
Doug Knox:
“Outdoor Enthusiast”Senior Appraiser
25YEARS OFSERVICE
Debbie Parker:
“Devoted Problem Solver”Financial Specialist
32YEARS OFSERVICE
7YEARS OFSERVICE
Petra Atilano:
“Multilingual Multi-tasker”Credit O�cer - Assistant Vice President
Craig Shindler: Relationship Manager - Assistant Vice President
“Trusted Advisor”7 YEARS OFSERVICE
Customer Dan DeRuyter:
“Progressive Thinker”George DeRuyter & Son Dairy
Customer George DeRuyter:
“Wise Founder”George DeRuyter & Son Dairy
You need honest people you can trust when you’re growing a business or diversifying into new areas. Customers George and Dan DeRuyter rely on our Sunnyside, Washington team to be a sounding board for the decisions they make. In the past 13 years the DeRuyters have expanded their dairy operation to milk more than 5,000 cows (10,900 total) and now grow almost 100 percent of their feed.
When customers want to know how their opera-tion stacks up with others, they can count on honest, helpful perspectives from relationship managers like Craig Shindler. Craig is a trusted advisor. He helps customers get where they want to be without gambling the farm. He’ll ask just the right questions and gather the best information possible to help them position for the opportunities ahead.
Petra Atilano is a no-nonsense woman with a great sense of humor. As a credit o�cer, she keeps everything and everyone on track. She �nds the right products, analyzes the credit, and moves complex loans through the approval process. Customers have con�dence when we say we’re going to get something done, Petra and the team will do it.
Debbie Parker knows people. She has seen just about everything in her 32 years as a �nancial specialist. The team goes to Debbie with questions about di�erent loan documents. She helps us brain-storm solutions for unique situations. If Debbie doesn’t have the answers to help our customers she de�nitely knows the people who do.
Information drives appraisals. The more an appraiser knows about properties sold and purchased the better they can determine real value. Doug Knox and our appraisal team have insights into hundreds of land sales. Customers depend on Doug to give them the objective information they need to make solid business decisions.
10 11
Doug Knox:
“Outdoor Enthusiast”Senior Appraiser
25YEARS OFSERVICE
Debbie Parker:
“Devoted Problem Solver”Financial Specialist
32YEARS OFSERVICE
7YEARS OFSERVICE
Petra Atilano:
“Multilingual Multi-tasker”Credit O�cer - Assistant Vice President
Craig Shindler: Relationship Manager - Assistant Vice President
“Trusted Advisor”7 YEARS OFSERVICE
12 13
You need to wear your credit hat one moment and your marketing hat the next when you’re a regional vice president like Doug Robison. He helps our branch sta� �nd the right �t between credit risk and business opportunity. In his loan approval role, Doug uses a strong credit philosophy. He knows there are opportunities and risks to take. So he works between the lines to �nd the best possible outcome for everyone.
Bill Perry deals in exceptions. Loans that exceed a certain size or risk category are sent to Bill and the prior approval team. He helps customers, one loan at a time. And he’s also bringing clarity and consistency to the way we underwrite credit. New automated processes give our people in the �eld more time to do their jobs and get to loan decisions quicker.
You don’t have to work here long to know change is constant. We’re always stretching to improve. That’s why we need mentors and trainers to share their knowledge and teach us the ropes. Norma Garcia-Park makes sure our processes are consistent. She teaches us how to put loan pack-ages together for review and approval. She has a knack for seeing our unique skill sets and how we need to grow to reach our full potential.
After a loan closes, Erin Wells’ group takes the reins. Some loan servicing actions are normal and routine, like monitoring taxes and insurance. Others require more attention, like requests to release collateral or re-amortize a loan. Erin knows odd things can happen after a loan closes, like construc-tion projects that may not go exactly as planned. That’s why our people in central servicing need to be good problem solvers and creative thinkers.
People have di�erent philosophies about risk. Some are naturally
conservative. Others are more aggressive. That’s why clarity, consistency and �nding common ground is so important
when you’re underwriting credit. No one has a crystal ball. So, when our people make loan decisions, they do so with
thousands of customers in mind who have entrusted us to be wise stewards of their capital.
Balancing
and risk.Doug Robison:
“The Middle Man”Regional Vice President
9YEARS OFSERVICE
12YEARS OFSERVICE
Norma Garcia-Park:
“Team Builder”Assistant Vice President Operations
Erin Wells:
“Team Roper”Vice President Central Servicing
13YEARS OFSERVICE
8YEARS OFSERVICE
Bill Perry:
“Decision Driver”Vice President Credit
12 13
You need to wear your credit hat one moment and your marketing hat the next when you’re a regional vice president like Doug Robison. He helps our branch sta� �nd the right �t between credit risk and business opportunity. In his loan approval role, Doug uses a strong credit philosophy. He knows there are opportunities and risks to take. So he works between the lines to �nd the best possible outcome for everyone.
Bill Perry deals in exceptions. Loans that exceed a certain size or risk category are sent to Bill and the prior approval team. He helps customers, one loan at a time. And he’s also bringing clarity and consistency to the way we underwrite credit. New automated processes give our people in the �eld more time to do their jobs and get to loan decisions quicker.
You don’t have to work here long to know change is constant. We’re always stretching to improve. That’s why we need mentors and trainers to share their knowledge and teach us the ropes. Norma Garcia-Park makes sure our processes are consistent. She teaches us how to put loan pack-ages together for review and approval. She has a knack for seeing our unique skill sets and how we need to grow to reach our full potential.
After a loan closes, Erin Wells’ group takes the reins. Some loan servicing actions are normal and routine, like monitoring taxes and insurance. Others require more attention, like requests to release collateral or re-amortize a loan. Erin knows odd things can happen after a loan closes, like construc-tion projects that may not go exactly as planned. That’s why our people in central servicing need to be good problem solvers and creative thinkers.
People have di�erent philosophies about risk. Some are naturally
conservative. Others are more aggressive. That’s why clarity, consistency and �nding common ground is so important
when you’re underwriting credit. No one has a crystal ball. So, when our people make loan decisions, they do so with
thousands of customers in mind who have entrusted us to be wise stewards of their capital.
Balancing
and risk.Doug Robison:
“The Middle Man”Regional Vice President
9YEARS OFSERVICE
12YEARS OFSERVICE
Norma Garcia-Park:
“Team Builder”Assistant Vice President Operations
Erin Wells:
“Team Roper”Vice President Central Servicing
13YEARS OFSERVICE
8YEARS OFSERVICE
Bill Perry:
“Decision Driver”Vice President Credit
Bottom-line
and accountability. It takes a lot of people
behind the scenes to make our business happen. We process thousands of loans and crop
insurance policies. We carefully review complex documents to make sure we have everything
right. If mistakes happen we �x them quickly. The customers we serve are our fellow employees
in the branches. Accuracy and dependability count when you’re supporting the team.14 15
If you’re buying a house or a piece of equipment you need a loan decision quickly. Kaylee Semprimoznik and her team are ready to help. These experienced underwriters gather the information needed from our branches, make a decision to fund and promptly generate loan documents. Financing unique country home properties is their specialty.
Crop insurance is a complicated business, espe-cially when you’re dealing with complex federal programs. Elisa Wollweber’s team processes cover-age for 45 di�erent crops all with di�erent rules and deadlines. We work with �ve di�erent insurance companies, each with unique software systems and processes. In the event of a loss, you want these people on your team because detail and accuracy count.
Sarah Bogart helps process large, complex, loans that are participated with other lenders. She works with attorneys, title companies, appraisers, and state and local agencies to put loan documents together. You need to be a great thinker with incredible attention to detail to do Sarah’s job. There’s always more than one way to structure a loan with so many moving parts.
When Carol Signalness does her job, customers may not notice. But that’s the way it should be when you’re helping branch sta� serve customers. Carol is one of our go-to people with loan account-ing questions. If there’s a problem with receiving or disbursing funds, or other loan accounting issues, she helps �x it quickly. Carol never gets rattled, even when our stress levels are high. She always says there’s nothing that can’t be �xed and together we solve the issues.
Carol Signalness:
“Trouble Shooter”Operations O�cer
37YEARS OFSERVICE
5YEARS OFSERVICE
Sarah Bogart:
“Detail Thinker”Senior Legal Assistant
Kaylee Semprimoznik:
“Faithful Volunteer”Credit Underwriter
2YEARS OFSERVICE
3YEARS OFSERVICE
Elisa Wollweber:
“Harvest Semi-Driver”Insurance Specialist
Bottom-line
and accountability. It takes a lot of people
behind the scenes to make our business happen. We process thousands of loans and crop
insurance policies. We carefully review complex documents to make sure we have everything
right. If mistakes happen we �x them quickly. The customers we serve are our fellow employees
in the branches. Accuracy and dependability count when you’re supporting the team.14 15
If you’re buying a house or a piece of equipment you need a loan decision quickly. Kaylee Semprimoznik and her team are ready to help. These experienced underwriters gather the information needed from our branches, make a decision to fund and promptly generate loan documents. Financing unique country home properties is their specialty.
Crop insurance is a complicated business, espe-cially when you’re dealing with complex federal programs. Elisa Wollweber’s team processes cover-age for 45 di�erent crops all with di�erent rules and deadlines. We work with �ve di�erent insurance companies, each with unique software systems and processes. In the event of a loss, you want these people on your team because detail and accuracy count.
Sarah Bogart helps process large, complex, loans that are participated with other lenders. She works with attorneys, title companies, appraisers, and state and local agencies to put loan documents together. You need to be a great thinker with incredible attention to detail to do Sarah’s job. There’s always more than one way to structure a loan with so many moving parts.
When Carol Signalness does her job, customers may not notice. But that’s the way it should be when you’re helping branch sta� serve customers. Carol is one of our go-to people with loan account-ing questions. If there’s a problem with receiving or disbursing funds, or other loan accounting issues, she helps �x it quickly. Carol never gets rattled, even when our stress levels are high. She always says there’s nothing that can’t be �xed and together we solve the issues.
Carol Signalness:
“Trouble Shooter”Operations O�cer
37YEARS OFSERVICE
5YEARS OFSERVICE
Sarah Bogart:
“Detail Thinker”Senior Legal Assistant
Kaylee Semprimoznik:
“Faithful Volunteer”Credit Underwriter
2YEARS OFSERVICE
3YEARS OFSERVICE
Elisa Wollweber:
“Harvest Semi-Driver”Insurance Specialist
Our people serve a broad cross-section of agricul-ture. Sharing what we’ve learned from successful customers and industry experts helps all of us manage our business better. That’s where Matt Kloes comes in. He coordinates our Knowledge Center teams, a diverse group of experienced, front-line sta� who work closely with customers in speci�c industries. Matt brings us to-gether to learn from each other. And he helps us share our unique understanding of Northwest agriculture with the customers we serve.
Customers who use our cash management services rely on Kelly Powell to help manage their day-to-day cash �ow. With online tools, customers can sweep excess funds to and from di�erent accounts to pay down their lines of credit or move money into a Future Payment Fund. With the sheer volume of daily activity, customers think of Kelly as a welcome extension to their in-house bookkeeping sta�.
Even with the best preparation, life events can take us by surprise. No one knows this better than Melissa Blumhagen. She has 12 years of insurance experience and helps our customers protect their �nances in the event of a death or disability. She researches underwrit-ing standards from 25 di�erent companies to �nd the right policy at the best rate. And if the unexpected hap-pens, Melissa will be there as your professional advisor, advocate and heart-felt friend.
When you’re ready to build your dream home, chances are you’ll be working with Angela Rapier. She’ll make sure your building experience is smooth – framing, plumbing, electrical, drywall and everything in between. Angela keeps a tight grip on the building process and inspections before she’ll release funds to contractors. But, she has a great working relationship with them. Many are her brothers-in-arms who also served in the military.
Dean Morrow and our credit team work closely with customers who are under �nancial stress for a variety of reasons. Dean’s goal is to help them create a plan to stay in business and repay their debts. Or in rare cases, allow them to gracefully exit the business and move on. Credit o�cers like Dean use compassion, honesty and a dogged pursuit of possibilities to help struggling customers get back on their feet and continue farming.
18 19
Customer relationships don’t end when the loan closes.
In fact, that’s when many of our jobs begin. We’re here to answer questions, solve problems, and make
sure our customers’ plans are coming together the way they envisioned. We keep most loans in our own
portfolio. No one can serve our customers better than the talented people who work here every day.
COOPERATIVEMaximizing our
value.
Dean Morrow:
“Adversity Strategist”Relationship Manager - Vice President
YEARS OFSERVICE
34
3YEARS OFSERVICE
Melissa Blumhagen:
“Crisis Counselor”Insurance & Debt Protection Specialist
2YEARS OFSERVICE
Angela Rapier:
“Navy Veteran”Construction Financial Specialist
25YEARS OFSERVICE
Kelly Powell:
“Money Mover”Senior Funds Management Specialist 5
YEARS OFSERVICE
Matt Kloes:
“World Traveler”Knowledge Center Coordinator
Our people serve a broad cross-section of agricul-ture. Sharing what we’ve learned from successful customers and industry experts helps all of us manage our business better. That’s where Matt Kloes comes in. He coordinates our Knowledge Center teams, a diverse group of experienced, front-line sta� who work closely with customers in speci�c industries. Matt brings us to-gether to learn from each other. And he helps us share our unique understanding of Northwest agriculture with the customers we serve.
Customers who use our cash management services rely on Kelly Powell to help manage their day-to-day cash �ow. With online tools, customers can sweep excess funds to and from di�erent accounts to pay down their lines of credit or move money into a Future Payment Fund. With the sheer volume of daily activity, customers think of Kelly as a welcome extension to their in-house bookkeeping sta�.
Even with the best preparation, life events can take us by surprise. No one knows this better than Melissa Blumhagen. She has 12 years of insurance experience and helps our customers protect their �nances in the event of a death or disability. She researches underwrit-ing standards from 25 di�erent companies to �nd the right policy at the best rate. And if the unexpected hap-pens, Melissa will be there as your professional advisor, advocate and heart-felt friend.
When you’re ready to build your dream home, chances are you’ll be working with Angela Rapier. She’ll make sure your building experience is smooth – framing, plumbing, electrical, drywall and everything in between. Angela keeps a tight grip on the building process and inspections before she’ll release funds to contractors. But, she has a great working relationship with them. Many are her brothers-in-arms who also served in the military.
Dean Morrow and our credit team work closely with customers who are under �nancial stress for a variety of reasons. Dean’s goal is to help them create a plan to stay in business and repay their debts. Or in rare cases, allow them to gracefully exit the business and move on. Credit o�cers like Dean use compassion, honesty and a dogged pursuit of possibilities to help struggling customers get back on their feet and continue farming.
18 19
Customer relationships don’t end when the loan closes.
In fact, that’s when many of our jobs begin. We’re here to answer questions, solve problems, and make
sure our customers’ plans are coming together the way they envisioned. We keep most loans in our own
portfolio. No one can serve our customers better than the talented people who work here every day.
COOPERATIVEMaximizing our
value.
Dean Morrow:
“Adversity Strategist”Relationship Manager - Vice President
YEARS OFSERVICE
34
3YEARS OFSERVICE
Melissa Blumhagen:
“Crisis Counselor”Insurance & Debt Protection Specialist
2YEARS OFSERVICE
Angela Rapier:
“Navy Veteran”Construction Financial Specialist
25YEARS OFSERVICE
Kelly Powell:
“Money Mover”Senior Funds Management Specialist 5
YEARS OFSERVICE
Matt Kloes:
“World Traveler”Knowledge Center Coordinator
Our PurposeTo improve the lives of our customers and employees, the communities where we work and raise our families,
and the Northwest food and �ber industries that perform a vital role in the United States and around the world.
Our Brand PromiseNorthwest Farm Credit Services is your trusted source for �nancial solutions.
No other lender understands agriculture better, and is more committed to its future and that of rural America.
Our Core ValuesRelationships We help rural communities prosper by serving one customer at a time. Knowing our customers and earning their trust is
the foundation for all we do. Being a cooperative, owned and governed by our customers sets us apart. We value diversity in
people and ideas. Our highly valued employees care, communicate well, and always strive to exceed customer expectations.
Integrity Our organization is built on the highest standards of integrity, ethical decision making, and sound internal controls.
Commitment We invest in customers, industries we serve, employees and rural communities. We provide e�ective business solutions that
focus on long-term success. We know what it takes to overcome challenges and value �nancial stability and sound planning.
Knowledge Seeking, interpreting, and sharing knowledge about the industries we serve is part of what makes us unique. We invest in
education for employees, directors and customers to meet changing marketplace needs.
WASHINGTON
Dave AllanMelissa Bedlington-KleindelJe� BosmaRuss ByerleyRoger Can�eldMike CobbBill denHoedRichard DeRuweFrank DeVriesScott EschbachPatrick EscureKevin FilbrunStacy GilmoreAlan Gro�Lori HaylesJim KileCris KincaidJim KlaustermeyerDave KlaveanoTristan KlesickChris KontosSteve KrupkeDavid LangeJosh LawrencePoppie MantoneDan McKayAlan MesmanJohn MillerPat MurphyChuck PodlichJe� RaapSara RolfsDerek SchaferJe� SchilterDanielle ScruppsBen SmithJerry SmithLori StonecipherMark TudorJake WardenaarAndy Werkhoven
YakimaLyndenOutlookTouchetOlympiaEphrateGrandviewDaytonLyndenYakimaQuincyPascoPascoWenatcheePascoSt. JohnPullmanOthelloPomeroyStanwoodWalla WallaReardanColfaxRoyal CityLyleAlmiraMt. VernonToledoChehalisOrondoEllensburgWenatcheeRitzvilleOlympiaRitzvilleSequimBenton CityWalla WallaGrandviewRoyal CityMonroe
OREGON
Monet AllenRoben ArnoldusEd BairLori BaleyTim BareGlenn BarrettJohn BoyerGreg BrinkRon BrownGeorge BussmannWarren ChamberlainTim DahleDan DawsonMike DeWallSusan DoverspikeRod FesslerJoe FineganBruce FordSkip GrayDennis HarmonRon HjortGary HullMatt InskoKenneth JensenAlan KeudellMark KrautmannDavid KunkelLeland LageDan C. LewisSharon LivingstonBill MartinScott McClaranRon MeyerGreg MyersDavid NealMary OlsonLarry ParkerAlan ParksAmy Doer�er PhelanVikki PriceJohn ReerslevStephen RothShannon RustAnna SullivanSteve Walker
Grenada, CACoveKlamath FallsMalinRoseburgBonanzaHainesJosephMilton-FreewaterSixesValeThe DallesRoseburgHarrisburgBurnsMadrasCorneliusHermistonAlbanyGrants PassOaklandLebanonLaGrandeValeAumsvilleSalemPortlandHood RiverGastonMt. VernonRufusJosephTalentTillamookTangentMonmouthHelixSilver LakeAumsvilleNyssaJunction CityBrothersEchoHerefordStan�eld
IDAHO
Robert BallCody BinghamJe� Blanksma, Jr.Adrian BoerRay CarlsonBill ClaytonCade CrapoRon ElkinCarl EllsworthDavid FunkLeRoy FunkBrent Gri�nJohn HeptonJackie HillmanBrian HuettigKen KoompinKaren LustigMarty LuxDan MaderRay MatsuuraKyle MeyerRon MioGreg MossKirk NickersonJe� PahlLisa PattersonErick PetersonDavid RallisonD. Brad ReedNate RiggersDoug Ru�Royce SchwenkfelderKirt SchwiederScott SearleTodd SimmonsRobert SwainstonRyan TelfordBernie TeunissenDale ThomasCamellia ThurgoodJustin TindallSteven TooneJames UdyTodd WebbShawn WebsterBerkley Wray
HamerJeromeHammettJeromeBlackfootWilderSt. AnthonyBuhlLeadoreHansenBurleyRupertNampaHamerHazeltonAmerican FallsCottonwoodNezperceGeneseeBlackfootRathdrumFruitlandKetchumHowePocatelloHeyburnMoscowFranklinIdaho FallsNez PerceAberdeenCambridgeIdaho FallsShelleyTerretonPrestonRich�eldCaldwellGoodingNampaBruneauGraceAmerican FallsDecloRexburgBlackfoot
MONTANA
Les ArthunBill Bergin, Jr.Adam BillmayerBart BitzKeven BradleySandy CareyTom CheethamCalvin DanreutherNels DeBruyckerVicki EggebrechtWarren FlynnConni FrenchJoe FretheimBeth Granger Greg GroveChad HansenCourtney HerzogCraig HenkeDale HirschCraig IversonTim JohnsonAlan KlempelPaul KronebuschTim LakeBill Lauckner, Jr.Kirk MontgomeryBryan MussardCorie MydlandTracy MyttyTracey PearceShawn RettigScott Ru�Dave SattorivaNancy SchleppDennis SchmiererKim SkinnerCarmie Ste�esSteve SwankKurt SwansonDuane TalcottDale TarumBob TaylorMiles TorskeCarl TraeholtBrian TutvedtLarry Tveit, Jr.Bruce UdelhovenJe� VolfMike WalleweinSteve Wood
WilsallMelstoneHogelandBig SandyCut BankBoulderRedstoneLomaChoteauMaltaTownsendMaltaShelbyGreat FallsMoccasinDillonRapeljeChesterKinseyWinnettDuttonBloom�eldConradPolsonNashuaRosebudDillonJolietFlorenceTwin BridgesRudyardCusterHinghamRinglingSavageHallPlevnaChinookValierHammondRichlandDentonHardinWolf PointKalispellFairviewWinifredJudith GapSunburstSheridan
Northwest FCS Local Advisors
20 21
Our PurposeTo improve the lives of our customers and employees, the communities where we work and raise our families,
and the Northwest food and �ber industries that perform a vital role in the United States and around the world.
Our Brand PromiseNorthwest Farm Credit Services is your trusted source for �nancial solutions.
No other lender understands agriculture better, and is more committed to its future and that of rural America.
Our Core ValuesRelationships We help rural communities prosper by serving one customer at a time. Knowing our customers and earning their trust is
the foundation for all we do. Being a cooperative, owned and governed by our customers sets us apart. We value diversity in
people and ideas. Our highly valued employees care, communicate well, and always strive to exceed customer expectations.
Integrity Our organization is built on the highest standards of integrity, ethical decision making, and sound internal controls.
Commitment We invest in customers, industries we serve, employees and rural communities. We provide e�ective business solutions that
focus on long-term success. We know what it takes to overcome challenges and value �nancial stability and sound planning.
Knowledge Seeking, interpreting, and sharing knowledge about the industries we serve is part of what makes us unique. We invest in
education for employees, directors and customers to meet changing marketplace needs.
WASHINGTON
Dave AllanMelissa Bedlington-KleindelJe� BosmaRuss ByerleyRoger Can�eldMike CobbBill denHoedRichard DeRuweFrank DeVriesScott EschbachPatrick EscureKevin FilbrunStacy GilmoreAlan Gro�Lori HaylesJim KileCris KincaidJim KlaustermeyerDave KlaveanoTristan KlesickChris KontosSteve KrupkeDavid LangeJosh LawrencePoppie MantoneDan McKayAlan MesmanJohn MillerPat MurphyChuck PodlichJe� RaapSara RolfsDerek SchaferJe� SchilterDanielle ScruppsBen SmithJerry SmithLori StonecipherMark TudorJake WardenaarAndy Werkhoven
YakimaLyndenOutlookTouchetOlympiaEphrateGrandviewDaytonLyndenYakimaQuincyPascoPascoWenatcheePascoSt. JohnPullmanOthelloPomeroyStanwoodWalla WallaReardanColfaxRoyal CityLyleAlmiraMt. VernonToledoChehalisOrondoEllensburgWenatcheeRitzvilleOlympiaRitzvilleSequimBenton CityWalla WallaGrandviewRoyal CityMonroe
OREGON
Monet AllenRoben ArnoldusEd BairLori BaleyTim BareGlenn BarrettJohn BoyerGreg BrinkRon BrownGeorge BussmannWarren ChamberlainTim DahleDan DawsonMike DeWallSusan DoverspikeRod FesslerJoe FineganBruce FordSkip GrayDennis HarmonRon HjortGary HullMatt InskoKenneth JensenAlan KeudellMark KrautmannDavid KunkelLeland LageDan C. LewisSharon LivingstonBill MartinScott McClaranRon MeyerGreg MyersDavid NealMary OlsonLarry ParkerAlan ParksAmy Doer�er PhelanVikki PriceJohn ReerslevStephen RothShannon RustAnna SullivanSteve Walker
Grenada, CACoveKlamath FallsMalinRoseburgBonanzaHainesJosephMilton-FreewaterSixesValeThe DallesRoseburgHarrisburgBurnsMadrasCorneliusHermistonAlbanyGrants PassOaklandLebanonLaGrandeValeAumsvilleSalemPortlandHood RiverGastonMt. VernonRufusJosephTalentTillamookTangentMonmouthHelixSilver LakeAumsvilleNyssaJunction CityBrothersEchoHerefordStan�eld
IDAHO
Robert BallCody BinghamJe� Blanksma, Jr.Adrian BoerRay CarlsonBill ClaytonCade CrapoRon ElkinCarl EllsworthDavid FunkLeRoy FunkBrent Gri�nJohn HeptonJackie HillmanBrian HuettigKen KoompinKaren LustigMarty LuxDan MaderRay MatsuuraKyle MeyerRon MioGreg MossKirk NickersonJe� PahlLisa PattersonErick PetersonDavid RallisonD. Brad ReedNate RiggersDoug Ru�Royce SchwenkfelderKirt SchwiederScott SearleTodd SimmonsRobert SwainstonRyan TelfordBernie TeunissenDale ThomasCamellia ThurgoodJustin TindallSteven TooneJames UdyTodd WebbShawn WebsterBerkley Wray
HamerJeromeHammettJeromeBlackfootWilderSt. AnthonyBuhlLeadoreHansenBurleyRupertNampaHamerHazeltonAmerican FallsCottonwoodNezperceGeneseeBlackfootRathdrumFruitlandKetchumHowePocatelloHeyburnMoscowFranklinIdaho FallsNez PerceAberdeenCambridgeIdaho FallsShelleyTerretonPrestonRich�eldCaldwellGoodingNampaBruneauGraceAmerican FallsDecloRexburgBlackfoot
MONTANA
Les ArthunBill Bergin, Jr.Adam BillmayerBart BitzKeven BradleySandy CareyTom CheethamCalvin DanreutherNels DeBruyckerVicki EggebrechtWarren FlynnConni FrenchJoe FretheimBeth Granger Greg GroveChad HansenCourtney HerzogCraig HenkeDale HirschCraig IversonTim JohnsonAlan KlempelPaul KronebuschTim LakeBill Lauckner, Jr.Kirk MontgomeryBryan MussardCorie MydlandTracy MyttyTracey PearceShawn RettigScott Ru�Dave SattorivaNancy SchleppDennis SchmiererKim SkinnerCarmie Ste�esSteve SwankKurt SwansonDuane TalcottDale TarumBob TaylorMiles TorskeCarl TraeholtBrian TutvedtLarry Tveit, Jr.Bruce UdelhovenJe� VolfMike WalleweinSteve Wood
WilsallMelstoneHogelandBig SandyCut BankBoulderRedstoneLomaChoteauMaltaTownsendMaltaShelbyGreat FallsMoccasinDillonRapeljeChesterKinseyWinnettDuttonBloom�eldConradPolsonNashuaRosebudDillonJolietFlorenceTwin BridgesRudyardCusterHinghamRinglingSavageHallPlevnaChinookValierHammondRichlandDentonHardinWolf PointKalispellFairviewWinifredJudith GapSunburstSheridan
Northwest FCS Local Advisors
20 21
IDAHO
73 Fort Hall Avenue, Suite AAmerican Falls, ID 83211208-226-1340
370 North Meridian Street, Suite ABlackfoot, ID 83221208-782-3800
1408 Pomerelle Avenue, Suite BBurley, ID 83318-2064208-678-6650
501 King StreetCottonwood, ID 83522208-962-2280
2225 West Broadway, Suite AIdaho Falls, ID 83402208-552-2300
2631 Nez Perce Drive, Suite 201Lewiston, ID 83501208-799-4800
16034 Equine DriveNampa, ID 83687208-468-1600
102 North State, Suite 2Preston, ID 83263208-852-2145
1036 Erikson DriveRexburg, ID 83440208-656-2100
815 North College RoadTwin Falls, ID 83303208-732-1000
139 River Vista Place, Suite 201Twin Falls, ID 83301208-732-1000
MONTANA
Tech Plaza, Building 1, Suite 3003490 Gable RoadBillings, MT 59108406-651-1670
1001 West Oak, Farm Credit Building, Suite 200Bozeman, MT 59772406-556-7300
519 South MainConrad, MT 59425406-278-4600
38 A South Central AvenueCut Bank, MT 59427406-873-9070
134 East Reeder StreetDillon, MT 59725406-683-1200
501 First Avenue SouthGlasgow, MT 59230406-228-3900
700 River Drive SouthGreat Falls, MT 59405406-268-2200
1705 Hwy 2 NW, Suite AHavre, MT 59501406-265-7878
120 Wunderlin Street, Suite 6Lewistown, MT 59457406-538-7737
502 South HaynesMiles City, MT 59301406-233-3100
3021 Palmer Street, Suite BMissoula, MT 59808406-532-4900
123 North Central AvenueSidney, MT 59270406-433-3920
OREGON
3370 10th Street, Suite BBaker City, OR 97814541-524-2920
2345 NW Amberbrook Drive, Suite 100Beaverton, OR 97006503-844-7920
650 E Pine, Suite 106ACentral Point, OR 97502541-665-6100
2911 Tennyson Avenue, Suite 301Eugene, OR 97408541-685-6140
300 Klamath Avenue, Suite 200Klamath Falls, OR 97601541-850-7500
308 SE 10th StreetOntario, OR 97914541-823-2660
12 Southwest NyePendleton, OR 97801541-278-3300
3113 S Highway 97, Suite 100Redmond, OR 97756541-504-3500
2222 NW Kline StreetRoseburg, OR 97471541-464-6700
650 Hawthorn Avenue SE, Suite 210Salem, OR 97309-9831503-373-3000
3591 Klindt Drive, Suite 110The Dalles, OR 97058541-298-3400
WASHINGTON
265 East George Hopper RoadBurlington, WA 98233 360-707-2353
629 South Market BoulevardChehalis, WA 98532360-767-1100
224 North Main StreetColfax, WA 99111509-397-2840
667 Grant Road, Suite 1East Wenatchee, WA 98802509-665-2160
1501 East Yonezawa BlvdMoses Lake, WA 98837509-764-2700
9530 Bedford StreetPasco, WA 99301509-542-3720
201 W Broadway Avenue, Suite BRitzville, WA 99169509-659-1105
1900 West Nickerson Street, Ste 215Seattle, WA 98119206-691-2000
1515 S Technology Blvd, Suite BSpokane, WA 99224509-340-5600
2735 Allen RoadSunnyside, WA 98944509-836-3080
1 West PineWalla Walla, WA 99362509-525-2400
1360 North 16th AvenueYakima, WA 98902509-225-3200
Northwest FCSHeadquarters
1700 S. Assembly StreetSpokane, Washington 99220(509) 340-5300
Northwest FCS Office Locations
22
2012 NORTHWEST FARM CREDIT SERVICES, ACA Annual Report to Stockholders
2012 ANNUAL REPORT 23
N O R T H W E S T F A R M C R E D I T S E R V I C E S , A C A
REPORT OF MANAGEMENT The financial statements of Northwest Farm Credit Services, ACA and its wholly owned subsidiaries
(Northwest FCS) are prepared by management, who is responsible for their integrity and
objectivity, including amounts necessarily based on judgments and estimates. The financial
statements have been prepared in conformity with accounting principles generally accepted in the
United States of America, and, in the opinion of management, fairly present the financial condition
of Northwest FCS. Other financial information included in the 2012 Annual Report to Stockholders
is consistent with that in the financial statements.
To meet its responsibility for reliable financial information, management depends on Northwest
FCS’ accounting and internal control systems, which have been designed to provide reasonable,
but not absolute, assurances that assets are safeguarded and transactions are properly authorized
and recorded. The systems have been designed to recognize the cost must be related to the
benefits derived. To monitor compliance, the Internal Audit staff performs audits of the accounting
records, reviews accounting systems and internal controls, and recommends improvements as
appropriate. The financial statements are audited by PricewaterhouseCoopers LLP, independent
auditors, who, as part of the audit process, also conduct an audit of internal controls to obtain a
sufficient understanding of the internal control structure in order to establish a basis for reliance
thereon in determining the nature, extent, and timing of procedures applied to the audit of the
financial statements. Northwest FCS is also examined by the Farm Credit Administration.
The Chief Executive Officer, as delegated by the Northwest FCS Board of Directors, has overall
responsibility for Northwest FCS’ system of internal controls and financial reporting. The Board has
delegated significant responsibility to the Audit Committee, which is comprised entirely of directors
who are independent of Northwest FCS’ management. The Audit Committee is responsible for
recommending to the Board the selection of independent auditors. It meets periodically with
management, the independent auditors, and the internal auditors to ensure they are carrying out
their responsibilities. The Audit Committee is also responsible for performing an oversight role by
reviewing and monitoring the financial, accounting, and auditing procedures of Northwest FCS in
addition to reviewing Northwest FCS’ financial reports. The independent auditors and the internal
auditors have full and free access to the Audit Committee, with or without the presence of
management, to discuss the adequacy of the internal control structure for financial reporting and
any other matters they believe should be brought to the attention of the committee.
The undersigned certify the 2012 Annual Report to Stockholders has been prepared in accordance
with all applicable statutory or regulatory requirements and the information contained herein is
true, accurate, and complete to the best of our knowledge.
Phil DiPofi
President and CEO
March 1, 2013
Tom Nakano
Executive VP-CFO
March 1, 2013
Kevin Riel
Chair of the Board
March 1, 2013
24 NORTHWEST FCS
N O R T H W E S T F A R M C R E D I T S E R V I C E S , A C A
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of Northwest FCS is responsible for establishing and maintaining adequate internal
control over financial reporting for Northwest FCS’ consolidated financial statements. For purposes
of this report, “internal control over financial reporting” is defined as a process designed by or
under the supervision of Northwest FCS’ principal executives and principal financial officers, or
persons performing similar functions, and effected by its board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting
information and the preparation of the consolidated financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America and
includes those policies and procedures that: (1) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of
Northwest FCS, (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial information in accordance with accounting principles generally
accepted in the United States of America, and that receipts and expenditures are being made only
in accordance with authorizations of management and directors of Northwest FCS, and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of Northwest FCS’ assets that could have a material effect on its consolidated financial
statements.
Northwest FCS’ management has completed an assessment of the effectiveness of internal control
over financial reporting as of December 31, 2012. In making the assessment, management used
the framework in Internal Control—Integrated Framework, promulgated by the Committee of
Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO”
criteria.
Based on the assessment performed, Northwest FCS concluded that as of December 31, 2012, the
internal control over financial reporting was effective. Additionally, based on this assessment,
Northwest FCS determined there were no material weaknesses in the internal control over financial
reporting as of December 31, 2012.
Northwest FCS’ independent auditors, PricewaterhouseCoopers LLP, who audit Northwest FCS’
consolidated financial statements, have issued a report on the effectiveness of internal control over
financial reporting. See Report of Independent Auditors.
Phil DiPofi
President and CEO
March 1, 2013
Tom Nakano
Executive VP-CFO
March 1, 2013
Kevin Riel
Chair of the Board
March 1, 2013
2012 ANNUAL REPORT 25
N O R T H W E S T F A R M C R E D I T S E R V I C E S , A C A
REPORT OF AUDIT COMMITTEE The Audit Committee is composed of six members of the Northwest FCS Board of Directors. In
2012, the Audit Committee met five times in person and participated in several conference calls.
The Audit Committee oversees the scope of Northwest FCS’ internal audit program, the
independence of the outside auditors, the adequacy of Northwest FCS’ system of internal controls
and procedures, and the adequacy of management’s action with respect to recommendations
arising from those auditing activities. In addition, the Audit Committee approved the appointment
of PricewaterhouseCoopers LLP (PwC) as our independent auditors for 2012. The Audit
Committee’s responsibilities are described more fully in the Internal Controls Policy and the Audit
Committee Operating Statement.
Management is responsible for internal controls and the preparation of the financial statements in
accordance with accounting principles generally accepted in the United States of America. PwC is
responsible for performing an independent audit of the financial statements in accordance with
generally accepted auditing standards in the United States of America and for issuing its report
based on the audit. The Audit Committee’s responsibilities include monitoring and overseeing these
processes.
In this context, the Audit Committee reviewed and discussed the audited financial statements for
the year ended December 31, 2012, with management. The Audit Committee also reviewed with
PwC the matters required to be discussed by Statement on Auditing Standards No. 114, as
amended (Communication with Audit Committees), and both PwC and the internal auditors directly
provided reports on significant matters to the Audit Committee.
The Audit Committee received the written disclosures and the letter from PwC in accordance with
Independence Standards Board Standard No. 1 (Independence Discussion with Audit Committees),
and discussed with PwC its independence. The Audit Committee requires prior approval of all non-
audit services provided by PwC. In 2012, PwC was not engaged for non-audit services. The Audit
Committee has discussed with management and PwC such other matters and received such
assurances from them as the Audit Committee deemed appropriate.
Based on the foregoing review and discussions, and relying thereon, the Audit Committee
recommended the Board of Directors include the audited financial statements in the annual report
as of and for the year ended December 31, 2012.
Christy Burmeister-Smith
Chair of the Audit Committee
March 1, 2013
Shawn Walters
Herb Karst
Dave Hedlin
John Helle
Karen Schott
26 NORTHWEST FCS
2012 ANNUAL REPORT 27
N O R T H W E S T F A R M C R E D I T S E R V I C E S , A C A
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion summarizes the financial position and results of operations of Northwest
Farm Credit Services, an Agricultural Credit Association, and its wholly-owned subsidiaries
(collectively referred to as Northwest FCS) for the year ended December 31, 2012. Comparisons
with prior years are included. The commentary should be read in conjunction with the
accompanying financial statements and footnotes. The financial statements were prepared under
the oversight of the Audit Committee.
Our quarterly and annual reports to shareholders may be obtained free of charge on our website,
www.northwestfcs.com or upon request at Northwest Farm Credit Services, ACA, P.O. Box 2515,
Spokane, Washington 99220-2515 or contacting by telephone at (509) 340-5300 or toll free (800)
743-2125.
Dollar amounts are in thousands unless otherwise stated.
Forward-Looking Statements Certain statements contained in this report that are not historical facts are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act. Our actual results
may differ materially from those included in the forward-looking statements that relate to plans,
projections, expectations, and intentions. Forward-looking statements are typically identified by
words such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “project,” “may,”
“will,” “should,” “would,” “could” or similar expressions. Although we believe the information
expressed or implied in such forward-looking statements is reasonable, no assurance can be given
that such projections and expectations will be realized or the extent to which a particular plan,
projection, or expectation may be realized. These forward-looking statements are based on current
knowledge and are subject to various risks and uncertainties, including, but not limited to:
fluctuations in the agricultural, energy, international and leasing industry sectors; weather,
disease, and other adverse climatic or biological conditions that impact agricultural productivity and
income; United States and global economic conditions; sovereign or regulatory actions; the level of
interest rates; changes in assumptions underlying the valuations of financial instruments; changes
in estimates underlying the allowance for credit losses; economic conditions and credit
performance of the loan portfolio, growth and seasonal factors; tax reform; the effect of banking
and financial services reforms; possible amendments to, and interpretations of, risk-based capital
guidelines and reporting instructions; the ability of states to adopt more extensive consumer
privacy protections through legislation or regulation; the resolution of legal proceedings and
related matters; and nonperformance by counterparties to derivative positions.
Business Overview Farm Credit System Structure and Mission
As of December 31, 2012, we are one of 82 associations in the Farm Credit System (System),
which was created by Congress in 1916 and has served agricultural producers for more than 95
years. The System’s mission is to provide sound and dependable credit to American farmers,
ranchers, and producers or harvesters of aquatic products and farm-related businesses through a
member-owned cooperative system. This is done by making loans and providing financial services.
Through its commitment and dedication to agriculture, the System continues to have the largest
portfolio of agricultural loans of any lender in the United States. The Farm Credit Administration
(FCA) is the System’s independent safety and soundness federal regulator and was established to
supervise, examine and regulate System institutions.
Our Structure and Focus
As a cooperative, we are owned by the members we serve. The territory we serve extends across
a diverse agricultural region consisting primarily of Washington, Idaho, Oregon, Montana and
Alaska. We make long-term real estate mortgage loans to farmers, ranchers, rural residents, and
agribusinesses and production and intermediate-term loans for agricultural production or operating
purposes. Additionally, we provide related services to our customers, such as credit life insurance,
multi-peril crop and crop hail insurance and business management services. Our success begins
with our extensive agricultural experience and knowledge of the market and is dependent on the
level of satisfaction we provide our customers.
As part of the System, we obtain the funding for our lending and operations from CoBank, ACB
(CoBank), which is one of the four Farm Credit System Banks. CoBank is a cooperative of which we
are a member. CoBank, its related associations, and AgVantis Inc. (AgVantis) a technology service
corporation, are referred to as the District. Effective January 1, 2012, U.S. AgBank, FCB merged
with CoBank, FCB, a wholly owned subsidiary of CoBank, ACB. The merger did not impact the
financial position or presentation of financial information for Northwest FCS.
28 NORTHWEST FCS
We, along with the customers’ investment in our association are materially affected by CoBank’s
financial condition and results of operations. The CoBank quarterly and annual reports are
available free of charge by accessing CoBank’s website, www.cobank.com, or may be obtained at
no charge by contacting us. Annual reports are available within 75 days after year end and
quarterly reports are available within 40 days after the calendar quarter end.
2012 Financial Highlights The year ended December 31, 2012 reflected positive financial performance. Record earnings and
a strong capital position allowed us to declare a cash patronage distribution of $55.2 million
representing a return of approximately 75 basis points for the majority of our eligible customers
based on their average 2012 loan balances. Other highlights include:
• Net income for the year was $187.3 million, up 17.7 percent from 2011. This increase was
driven by a rise in net interest income over 2011, achieved largely from loan growth and
lower funding costs, and a reduced provision for credit loss expense when compared to the
prior year. In addition, we received an $11.2 million refund in 2012 for premiums previously
paid to the Farm Credit System Insurance Corporation.
• Capital levels remained strong and well in excess of regulatory minimums. As of December
31, 2012, our members’ equity totaled approximately $1.6 billion, and our permanent capital
ratio was 13.4 percent.
• Our loan portfolio volume increased in 2012, with an ending gross loan and accrued interest
balance of $9.1 billion, an increase of 6.2 percent.
• Credit quality improved in 2012 as compared to 2011, and we anticipate this positive trend to
continue. Producers in certain industries struggled in 2012 with drought, lower commodity
prices and the overall U.S. economic environment, resulting in required allowance for loan
losses. However, the majority of our customers remained strong and well positioned entering
2013.
Commodity Review and Outlook The Northwest agricultural industry remains strong, supported by producers’ financial strength and
favorable markets. Exceptions include continued volatility in dairy markets and low open market
potato prices.
Strong yields and markets created an outstanding year for most wheat producers. Eastern and
southern Montana were exceptions, where drought reduced yields. Wheat markets face varying
influences, supported by a drought-stricken crop in the U.S. southern and central plains, but
pressured by ample wheat supplies and projections for increased wheat acres in 2013.
Sugar beet and onion growers were also profitable, while potato producers’ margins were
profitable on contracted potatoes. While contract potato prices are profitable, prices for potatoes
sold in the open market are below producers’ breakeven points. Sugar prices are expected to
moderate from recent highs, limited by higher global production and rising ending stocks.
Hay prices were strong, bolstered by tight supplies and strong exports. Despite increased costs for
rent, fertilizer, fuel and other inputs, hay growers were profitable in 2012. Strong hay, corn and
soybean prices, matched with volatile milk markets, resulted in inconsistent financial results for
dairies in 2012. Fourth quarter beef cattle markets were relatively strong following a turbulent
third quarter. Tight supplies continue to favor cow/calf producers, but limit gains for stockers and
feeders.
Favorable fall weather extended apple and pear harvests and minimized disruptions related to
labor supply constraints. The Northwest 2012/2013 fresh apple crop is 18.6 percent above the
previous record set in 2009/2010. However, short Northern Hemisphere apple supplies due to poor
crops in Michigan and the northeastern U.S. are driving market prices above historic seasonal
levels. Pear markets are supported by a smaller crop and good overall quality. Cherry growers’
bottom lines are less favorable. Although producers with strong tonnage, minimal cost and large-
sized, quality fruit experienced good returns, some producers struggled to break even. Favorable
weather in Washington and Oregon resulted in a record Washington wine grape harvest and
exceptional quality in Oregon. Wine grape and wine prices are strong, supported by a slight decline
in global acreage and increasing wine consumption.
An improving domestic economy is boosting nursery and greenhouse operators’ and forest
products producers’ profits. Most nursery and greenhouse operators were profitable in 2012.
Bookings are up significantly for spring 2013 shipments and supply shortages are creating
increased sales opportunities. Higher domestic lumber demand increased U.S. lumber production
and imports during the second half of 2012. Log prices remained at or below 2011 prices for most
of the year, increasing mills’ operating margins. However, log costs are expected to increase in
2013.
2012 ANNUAL REPORT 29
For more information on our industries served visit the Northwest FCS Knowledge Center at
www.northwestfcs.com.
Loan Portfolio Total loans and accrued interest outstanding were $9.1 billion at December 31, 2012, an increase
of $525.9 million, or 6.2 percent from the December 31, 2011 balance of $8.5 billion. During 2011,
total loans and accrued interest increased $29.8 million or 0.3 percent, from $8.5 billion at
December 31, 2010.
In 2012, our growth came primarily from existing customer expansion in land and capital
improvements, whereas during 2010 and 2011, our customer base remained fairly conservative in
terms of expansion. In addition, there had been above average profitability in many of the core
commodities, which allowed many producers to reduce reliance on operating funding in
2010/2011. Loans and accrued interest by type are as follows:
Real estate mortgage loans increased by $256,715, or 6.8 percent, during the year ended
December 31, 2012 as compared to December 31, 2011. Energy loans increased $125,760, or
121.6 percent, as compared to December 31, 2011.
Loan concentration by state as of December 31 was as follows:
Gross loans, impaired loans and related accrued interest for the past three years are presented in
the following table:
Overall high risk loans and interest decreased $72,649, or 24.5 percent, during the year ended
December 31, 2012 as compared to December 31, 2011. The majority of this decrease related to
nonaccrual loans, which decreased $73,029 or 30 percent, as compared with December 31, 2011,
primarily due to an improvement in the credit quality of loans to borrowers in certain agricultural
sectors.
The following table reflects activity within the nonaccrual loan portfolio:
30 NORTHWEST FCS
As of December 31, 2012, nonaccrual loans that were current as to principal and interest
installments totaled $125,206 representing 73.5 percent of the nonaccrual loan portfolio compared
to $178,550 representing 73.4 percent of the nonaccrual loan portfolio at December 31, 2011, and
$204,702 representing 74.2 percent of the nonaccrual loan portfolio at December 31, 2010.
Additional loan information is in Note 3 to the Consolidated Financial Statements, Loans and
Allowance for Loan Losses.
Allowance for Credit Losses The allowance for credit losses is comprised of the allowance for loan losses (ALL) and the reserve
for unfunded lending commitments. The allowance for credit losses is our best estimate of the
amount of probable losses inherent in our loan portfolio at the balance sheet date. The allowance
for credit losses is determined based on a periodic evaluation of the loan portfolio and unfunded
lending commitments, which generally considers types of loans, credit quality, specific industry
conditions, general economic and political conditions, and changes in the character, composition,
and performance of the portfolio, among other factors. The allowance for credit losses is calculated
based on a historical loss model that takes into consideration risk characteristics of our various
loan portfolios. We evaluate the reasonableness of this model and determine whether adjustments
to the allowance are appropriate to reflect the risks inherent in the portfolio.
Individual loans are evaluated based on the borrower’s overall financial condition, resources, and
payment record; the prospects for support from any financially responsible guarantor; and, if
appropriate, the estimated net realizable value of any collateral. The allowance for loan losses
attributable to these loans is established by a process that estimates the probable loss inherent in
the loans, taking into account various historical and projected factors, internal risk ratings,
regulatory oversight, geographic, industry and other factors.
We maintain a contingency loss on unfunded commitments. The contingency loss reflects our best
estimate of losses inherent in lending commitments made to customers but not yet disbursed.
Factors such as the likelihood of disbursements and the likelihood of losses given disbursement are
utilized in determining this contingency. This reserve is reported within other liabilities on the
Consolidated Balance Sheet and totaled $12,000 at December 31, 2012 and 2011 and $7,000 at
December 31, 2010.
The ALL reserves at December 31, 2012, 2011, and 2010 totaled $128,000, $126,500, and
$111,000, respectively. Specific loan loss reserves at December 31, 2012, 2011, and 2010 totaled
$47,971, $31,679, and $32,380, respectively. At December 31, 2012, this reserve is primarily
comprised of those agricultural sectors that continue to be impacted by volatility in commodity and
input prices, such as dairy, as well as those industries, such as nursery, that are impacted by the
overall downturn in the U.S. economy. Coverage of the ALL, as a percentage of certain key loan
categories, is presented in the following table:
Results of Operations Our net income for the year ended December 31, 2012, was $187,255, compared to $159,156 for
2011 and $150,064 for 2010. The following table provides detail of changes in the components of
our net income:
Net Interest Income: Net interest income was $6,472 higher in 2012 compared to 2011
primarily due to an increase in average loan volume, increased income from nonaccrual loans and
a decrease in the cost of funds. The cost of funds was impacted by the composition of the balance
sheet and the amount of equity available to fund loan volume. These items were partially offset by
a decrease in loan spread caused in part by greater prepayment expense, competitive pressures,
and lower interest rates. Net interest income was $13,862 higher in 2011 compared to 2010
primarily due to improved spread resulting from decreased funding costs. The improvement in
spread resulted from callable debt being called and replaced at lower interest rate levels, as well as
some floating rate debt repricing at a lower rate of interest. To a lesser extent, the change in net
interest income was also impacted by the composition of the balance sheet and the amount of
equity available for funding loan volume, which was influenced by decreased loan demand in 2011.
Influences on net interest income from changes in effective rates on, and volume of, interest-
earning assets and interest-bearing liabilities between the years ended December 31, 2012, and
2012 ANNUAL REPORT 31
2011, and between the years ended December 31, 2011, and 2010, are presented in the following
table:
Information regarding the average daily balances and average rates earned and paid on our
portfolio during 2012, 2011, and 2010 are presented in the following table:
Provision for credit losses: In recent years, our charge-offs, nonaccrual loans, and adverse
loans have been higher than our historical averages. Borrower distress led to higher allowance
levels and provisions for credit losses had a material impact to net income. The larger provision for
credit losses the past three years were due to the challenges facing certain agricultural sectors,
primarily dairy producers and nurseries. Charge-offs net of recoveries totaled $28,990, $26,841,
and $48,056 in 2012, 2011, and 2010, respectively.
Noninterest income: The increase in noninterest income of $15,037 in 2012 when compared to
2011 was primarily due to $11,238 in refunds received in 2012 from the Farm Credit System
Insurance Corporation (Insurance Corporation) related to the Farm Credit Insurance Fund
(Insurance Fund). As described in Note 1 to the Consolidated Financial Statements, Organization
and Operations, when the Insurance Fund exceeds the statutory 2 percent secure base amount,
the Insurance Corporation evaluates the insurance premium assessment rate for Farm Credit
System banks and may refund excess amounts. The Insurance Fund ended 2011 above the secure
base amount, and consequently in the second quarter of 2012, the Insurance Corporation
distributed to Farm Credit entities the excess amount. No similar refunds were received in 2011
and $9,312 of similar refunds were received in 2010. These refunds are recorded in Other income
on the Consolidated Statement of Income. Financially related services increased $2,336, or 17.6
percent as compared to 2011 related mainly to $2,147 received from profit sharing with insurance
companies from the 2011 crop year.
Operating expense: In 2012, operating expenses increased by $9,000 when compared to 2011.
The change is related mainly to salaries and benefits which increased $10,620 as compared to the
prior year. Salaries and benefits include normal annual salary increases, increased incentive
expenses for anticipated payouts related to 2012 performance and increased recognized expense
related to the defined benefit plan. This increase was partially offset by a decrease in Other
operating expense of $2,008 when compared to 2011. This decrease is attributed to higher
deferred loan origination costs and a decline in credit enhancement premiums as compared to the
prior year. Other operating expense also includes an additional $1,000 related to a previously
existing contingent liability related to revenue taxes. Decreases in operating expenses were in
occupancy and equipment and insurance fund premiums.
Operating expenses increased by $4,464 in 2011 compared to 2010. Factors contributing to this
increase when compared to the previous year were increases in purchased services, occupancy
and equipment, salaries, and other expenses. Purchased services were higher than the previous
year primarily due to a one-time retention payment made to the former CEO to assist with the
transition in 2011, as well as technology related initiatives and services provided by Farm Credit
Financial Partners, Inc. Salaries were higher due to normal annual salary increases, one-time
payments to selected individuals and retiring senior management, and greater than anticipated
payouts related to 2010 performance. These expenses were offset by a decrease in employee
benefits due primarily to a decrease in amortization of past actuarial plan losses on the defined
benefit plan. Other operating expense increased over the prior year due primarily to a contingent
liability of $2,000 related to revenue taxes.
Other noninterest expense: Other noninterest expense decreased $1,882 in 2012 when
compared to 2011. The majority of this decrease was attributed to losses related to other property
owned which were smaller in 2012 than 2011. In 2011, carrying values were reduced on several
assets held in other property owned and losses were recognized on properties sold throughout the
year. In 2010, no significant carrying value adjustments were recorded.
32 NORTHWEST FCS
Provision for income taxes: Income tax expense was $3,143 higher than in the previous year.
The effective tax rate was 4.8 percent for the year ended December 31, 2012 as compared to 3.8
percent for 2011. Contributing to the increase was a $1.0 million uncertain tax position recorded in
the year ended December 31, 2012 related to a state tax position. The remaining increase in taxes
is primarily related to non-patronage sourced income from our taxable entity. The tax expense in
2011 increased $3,064 as compared to 2010 primarily due to increased non-patronage sourced
income from our taxable entity and adjustments to our net deferred tax asset.
Liquidity and Funding Sources The primary source of our liquidity and funding is a direct loan from CoBank which is reported as
Note Payable to CoBank, ACB on the Consolidated Balance Sheet. As described in Note 7 to the
Consolidated Financial Statements, Note Payable to CoBank, ACB, this direct loan is governed by a
General Financing Agreement (GFA) and is collateralized by a pledge of substantially all of our
assets and is also subject to regulatory borrowing limits. The GFA includes financial and credit
metrics that if not maintained can result in increases to our funding costs. The GFA also requires
us to comply with FCA regulations regarding liquidity. To meet this requirement, we are allocated a
share of CoBank’s liquid assets. We are currently in compliance with the GFA and do not foresee
significant issues with obtaining funding or maintaining liquidity.
We plan to continue to fund lending operations primarily through the utilization of our borrowing
relationship with CoBank and retained earnings. CoBank’s primary source of funds is the ability to
issue Systemwide Debt Securities to investors through the Federal Farm Credit Bank Funding
Corporation. This access has traditionally provided a dependable source of competitively priced
debt that is critical for supporting our mission of providing credit to agriculture and rural America.
Although financial markets experienced significant volatility in the last few years, we were able to
obtain sufficient funding to meet the needs of our customers.
We have a secondary source of liquidity and funding through an uncommitted Federal Funds line
of credit with Wells Fargo. The amount available through this line is $75,000 and is intended to
provide liquidity for disaster recovery or other emergency situations. At December 31, 2012, no
balance was outstanding on this line of credit.
Asset/Liability Management In the normal course of lending activities, we are subject to interest rate risk. Our asset/liability
management objective is monitored and managed within interest rate risk limits designed to target
reasonable stability in net interest income over an intermediate planning horizon and to preserve a
relatively stable market value of equity over the long term. Mismatches and exposure in interest
rate repricing and indices of assets and liabilities can arise from product structures, customer
activity, capital re-investment, and liability management. While we actively manage interest rate
risk within the policy limits approved by the Board of Directors through the strategies established
by the Asset/Liability Committee (ALCO), there is no assurance that these mismatches and
exposures will not adversely impact our earnings and capital. Our overall objective is to develop
appropriately priced and structured loan products for our customers’ benefit and fund these
products with a blend of equity and debt obligations.
The interest rate gap analysis shown in the following table presents a comparison of interest-
earning assets and interest-bearing liabilities in defined time segments at December 31, 2012. The
interest rate gap analysis is a static indicator for how we are positioned by comparing the amount
of our assets and liabilities that reprice at various time periods in the future. The value of this
analysis can be limited given other factors such as the differences between interest rate indices on
loans and the underlying funding, the relative changes in the levels of interest rates over time, and
optionality included in loans and the respective funding that can impact future earnings and
market value.
2012 ANNUAL REPORT 33
Northwest FCS’ repricing gap as of December 31, 2012 is characterized as slightly asset sensitive.
An asset sensitive position is favorable to the association in a rising rate environment and is less
favorable when interest rates are declining. Given some of the inherent weaknesses with interest
rate gap analysis, simulation models are used to develop additional interest rate sensitivity
measures and estimates. The assumptions used to produce anticipated results are periodically
reviewed and models are tested to help ensure reasonable performance. Various simulations are
produced for net interest income and the market value of equity. These simulations help us assess
interest rate risk and make adjustments as needed to our products and related funding strategies.
Our interest rate risk management board policy establishes limits for changes in net interest
income and market value of equity sensitivities. These limits are measured and reviewed by the
ALCO monthly and reported to the Board of Directors at least quarterly. The Board policy limits for
net interest income and the market value of equity are a negative 15 percent change given parallel
and instantaneous shocks of interest rates up and down 2 percent. If the three-month Treasury bill
interest rate is less than 4 percent, then the downward shock is equal to one-half of the three-
month Treasury rate. The general financing agreement with CoBank also uses these simulation
results to assess our interest rate risk position and whether corrective action is necessary.
The upward and downward shocks reflected in the above table are based on parallel and
instantaneous interest rate movements of 1 and 2 percent. Due to extremely low short-term
interest rates in 2012, the 1 and 2 percent parallel and instantaneous downward shock scenarios
cannot be obtained. The downward interest rate shock in the preceding table was near zero.
As of December 31, 2012, all interest rate risk-related measures were within Board policy limits,
general financing agreement requirements, and management guidelines.
Members’ Equity We have a capitalization objective to build and retain adequate members’ equity for our continued
financial viability and to provide for growth necessary to competitively meet the needs of our
customers. In assessing the amount of capital needed, we take into account credit risk, funding
and interest rate risks, contingent and off-balance sheet liabilities and other conditions warranting
additional capital. As part of our capitalization plan we evaluate the financial benefits and costs of
using credit default swaps and other transactions. These transactions protect us against credit
losses and enhance our capital ratios. These transactions amortize down so financial benefits
diminish over time.
For the year ended December 31, 2012, total members’ equity increased $127,371 or 8.9 percent
from December 31, 2011. The increase in members’ equity was primarily due to earnings of
$187,255 partially offset by patronage payable of $55,245 and an increase in accumulated other
comprehensive loss of $4,716.
As displayed in the following table, at December 31, 2012, 2011, and 2010, we exceeded the
minimum regulatory requirements, which are noted parenthetically:
Management is not aware of any reasons why our regulatory capital requirements would not be
met in 2013. See Note 8 to the Consolidated Financial Statements, Members’ Equity for further
discussions of these regulatory ratios.
N O R T H W E S T F A R M C R E D I T S E R V I C E S , A C A
Phil DiPofi
President and CEO
March 1, 2013
Tom Nakano
Executive VP-CFO
March 1, 2013
Kevin Riel
Chair of the Board
March 1, 2013
34 NORTHWEST FCS
N O R T H W E S T F A R M C R E D I T S E R V I C E S , A C A
REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders
of Northwest Farm Credit Services
In our opinion, the accompanying consolidated balance sheet and the related consolidated
statements of income, comprehensive income (loss), changes in members’ equity and cash
flows present fairly, in all material respects, the financial position of Northwest Farm Credit
Services, ACA and its subsidiaries (the Association) at December 31, 2012, 2011 and 2010,
and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2012 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Association maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2012, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Association’s
management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting and for its assertion of the effectiveness of
internal control over financial reporting, included in the Report on Internal Control over
Financial Reporting appearing in the Association’s 2012 Annual Report to Stockholders. Our
responsibility is to express opinions on these financial statements and on the Association’s
internal control over financial reporting based on our integrated audits. We conducted our
integrated audits in accordance with the auditing standards of the Public Company Accounting
Oversight Board (United States) and in accordance with the auditing and attestation
standards established by the American Institute of Certified Public Accountants. Those
standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects. Our audits of
the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
An Association’s internal control over financial reporting is a process effected by those
charged with governance, management and other personnel, designed to provide reasonable
assurance regarding the preparation of reliable financial statements in accordance with
accounting principles generally accepted in the United States of America. An Association's
internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Association; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Association are being made only in accordance with authorizations of
management and those charged with governance; and (iii) provide reasonable assurance
regarding prevention or timely detection and correction of unauthorized acquisition, use, or
disposition of the Association's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent,
or detect and correct misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
March 1, 2013
2012 ANNUAL REPORT 35
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2012 ANNUAL REPORT 37
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2012 ANNUAL REPORT 39
40 NORTHWEST FCS
N O R T H W E S T F A R M C R E D I T S E R V I C E S , A C A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except as noted)
NOTE 1 > Organization and Operations
ORGANIZATION
Northwest Farm Credit Services, ACA and its subsidiaries, Northwest Farm Credit Services, FLCA
(the Federal Land Credit Association (FLCA)) and Northwest Farm Credit Services, PCA (the
Production Credit Association (PCA)), (collectively referred to as Northwest FCS) is a member-
owned cooperative that provides credit and financially related services to or for the benefit of
eligible customers primarily in the states of Washington, Idaho, Oregon, Montana and Alaska.
Northwest FCS is a lending institution of the Farm Credit System (the System), a nationwide
system of cooperatively owned banks and associations, which was established by Acts of Congress
to meet the credit needs of American agriculture and is subject to the provisions of the Farm Credit
Act of 1971, as amended (the Farm Credit Act). At December 31, 2012, the System was comprised
of three Farm Credit Banks, one Agricultural Credit Bank, and 82 associations.
CoBank, ACB (the Bank), its related associations and AgVantis, Inc. (AgVantis) are collectively
referred to as the CoBank District. The Bank provides the funding to associations within the District
and is responsible for supervising certain activities of the District associations. AgVantis, which is
owned by the entities it serves, provides technology and other operational services to certain
associations and to CoBank. The CoBank District consists of the Bank, 27 Agricultural Credit
Associations (ACA), which each have two wholly owned subsidiaries, (an FLCA and a PCA), two
FLCAs and AgVantis.
ACA parent companies provide financing and related services through their FLCA and PCA
subsidiaries. The FLCA makes secured long-term agricultural real estate and rural home mortgage
loans. The PCA makes short- and intermediate-term loans for agricultural production or operating
purposes.
Northwest FCS, along with other System institutions, owns Farm Credit Financial Partners, Inc.
(FPI), a dedicated service corporation that provides information technology solutions for various
Farm Credit entities. At December 31, 2012, Northwest FCS’ owned approximately 15 percent of
FPI.
In 2011, Northwest FCS began participating in AgDirect, LLP (AgDirect), a trade credit financing
program which includes origination and re-financing of agricultural equipment loans through
independent equipment dealers. The program is facilitated by a limited liability partnership in
which Northwest FCS is a partial owner. At December 31, 2012, Northwest FCS’ owned
approximately 10 percent of AgDirect.
Effective September 1, 2012, Northwest FCS joined an alliance with nine other Farm Credit
partners to provide financing for agribusiness companies under the trade name, ProPartners
Financial (ProPartners). ProPartners is directed by representatives from the participating
associations. The income, expense and loss sharing agreements are based on each association’s
participation interest in ProPartners’ loan volume, which is established according to a prescribed
formula which includes the risk funds of the associations. As of December 31, 2012, Northwest FCS
had a 25.75 percent participation interest in the alliance.
The Farm Credit Administration (FCA) is delegated authority by Congress to regulate the System
banks and associations. The FCA examines the activities of System institutions to ensure their
compliance with the Farm Credit Act, FCA regulations and safe and sound banking practices.
The Farm Credit Act established the Farm Credit System Insurance Corporation (Insurance
Corporation) to administer the Farm Credit Insurance Fund (Insurance Fund). By law, the
Insurance Fund is required to be used (1) to ensure the timely payment of principal and interest
on Systemwide debt obligations (Insured debt), (2) to ensure the retirement of protected stock at
par or stated value, and (3) for other specified purposes. The Insurance Fund is also available for
discretionary use by the Insurance Corporation in providing assistance to certain troubled System
institutions and to cover the operating expenses of the Insurance Corporation. Each System bank
is required to pay premiums, which may be passed on to the associations, into the Insurance Fund
based on its annual average outstanding insured debt adjusted to reflect the reduced risk on loans
or investments guaranteed by federal or state governments until the assets in the Insurance Fund
reach the “secure base amount”, which is defined in the Farm Credit Act as 2 percent of the
aggregate Insured Debt or such other percentage of the aggregate obligations as the Insurance
Corporation, in its sole discretion, determines to be actuarially sound. When the amount in the
Insurance Fund exceeds the secure base amount, the Insurance Corporation is required to reduce
premiums, as necessary to maintain the Insurance Fund at the 2 percent level. As required by the
2012 ANNUAL REPORT 41
Farm Credit Act, as amended, the Insurance Corporation may return excess funds above the
secure base amount to System institutions. The Bank passes this premium expense and the return
of excess funds as applicable through to each association based on the association’s average
adjusted note payable balance with the Bank.
OPERATIONS
The Farm Credit Act sets forth the types of authorized lending activity, persons eligible to borrow,
and financial services that Northwest FCS can offer. Northwest FCS is authorized to provide, either
directly or in participation with other lenders, credit, credit commitments, and related services to
eligible customers. Eligible customers include farmers, ranchers, producers or harvesters of aquatic
products, rural residents, and farm-related businesses.
Northwest FCS also serves as an intermediary in offering credit life insurance and multi-peril crop
insurance and provides additional services to customers such as fee appraisals and business
management services.
Northwest FCS’ financial condition may be impacted by factors that affect CoBank. The CoBank
Annual Report is available free of charge on CoBank’s website, www.cobank.com; or may be
obtained at no charge by contacting the Marketing Department, P.O. Box 2515, Spokane,
Washington 99220-2515 or calling (509) 340-5300. Upon request, stockholders of Northwest FCS
will be provided with a copy of the CoBank Annual Report, which includes the combined balance
sheet and income statements of CoBank and its related associations, and AgVantis. The CoBank
Annual Report discusses the material aspects of the Bank’s and District’s financial condition,
changes in financial condition, and results of operations.
NOTE 2 > Summary of Significant Accounting Policies
The accounting and reporting policies of Northwest FCS conform to accounting principles generally
accepted in the United States of America (GAAP) and prevailing practices within the banking
industry. The preparation of financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results may differ from these estimates. Significant
estimates are discussed in the footnotes, as applicable.
Certain amounts in prior years’ financial statements have been reclassified to conform to current
financial statement presentation. The reclassifications include amounts referred to as advance
conditional payment balances which have been reclassified and shown as liabilities rather than
netted within loans. The related interest expense has also been reclassified out of interest income
for the periods presented. The reclassification did not impact the results of operations or changes
in members’ equity.
The consolidated financial statements include the accounts of Northwest Farm Credit Services,
ACA, Northwest Farm Credit Services, FLCA, and Northwest Farm Credit Services, PCA. All
significant inter-company transactions have been eliminated in consolidation.
RECENTLY ISSUED OR ADOPTED ACCOUNTING PRONOUNCEMENTS
In December 2011, the Financial Accounting Standards Board (FASB) issued guidance entitled,
“Balance Sheet – Disclosures about Offsetting Assets and Liabilities.” The guidance requires an
entity to disclose information about offsetting and related arrangements to enable users of its
financial statements to understand the effects of those arrangements on its financial position. This
includes the effect or potential effect of rights of setoff associated with an entity’s recognized
assets and recognized liabilities. The requirements apply to recognized financial instruments and
derivative instruments that are offset in accordance with the rights of offset as stated in
accounting guidance and for those recognized financial instruments and derivative instruments that
are subject to an enforceable master netting arrangement or similar agreement, irrespective of
whether they are offset or not. This guidance is to be applied retrospectively for all comparative
periods and is effective for annual reporting periods beginning on or after January 1, 2013, and
interim periods within those annual periods. The adoption of this guidance will not impact
Northwest FCS’ financial condition or its results of operations, and will not result in additional
disclosures.
In June and December 2011, the FASB issued guidance entitled, “Comprehensive Income –
Presentation of Comprehensive Income.” This guidance is intended to increase the prominence of
other comprehensive income in financial statements. The main provisions of the guidance provides
that an entity that reports items of other comprehensive income has the option to present
comprehensive income in either one or two consecutive financial statements. The guidance did not
change the items that must be reported in other comprehensive income. With either approach, an
entity is required to present reclassification adjustments for items reclassified from other
comprehensive income to net income in the statement(s). The December 2011 guidance deferred
the effective date for the presentation of reclassification adjustments. This guidance is to be
applied retrospectively and is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2011. The adoption of this guidance did not impact the financial
42 NORTHWEST FCS
condition or results of operations, but resulted in changes to the presentation of comprehensive
income.
SIGNIFICANT ACCOUNTING POLICIES
CASH
Cash, as included in the statement of cash flows, represents cash on hand and on deposit at
financial institutions.
INVESTMENT SECURITIES
Northwest FCS may hold investments in accordance with mission-related investment and other
investment programs approved by the Farm Credit Administration. These programs allow
Northwest FCS to make investments that further the System’s mission to serve rural America.
Mission-related investments for which Northwest FCS has the intent and ability to hold to maturity
are classified as held-to-maturity and carried at cost, adjusted for the amortization of premiums
and accretion of discounts.
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Long-term real estate mortgage loans generally have original maturities ranging up to 40 years,
although the typical loan is 25 years or less. Short- and intermediate-term loans for agricultural
production or operating purposes generally have maturities of 10 years or less. Loans are carried
at their principal amount outstanding adjusted for charge-offs, deferred loan fees or costs, and
purchase premiums or discounts. Interest on loans is accrued and credited to interest income
based upon the daily principal amount outstanding. Loan origination fees and direct loan
origination costs are capitalized, and the net fee or cost is amortized over the life of the related
loan as an adjustment to yield.
Impaired loans are loans for which it is probable that not all principal and interest will be collected
according to the contractual terms of the loan and are generally considered substandard or
doubtful, which is in accordance with the loan rating model, as described below. Impaired loans
include nonaccrual loans, restructured loans, and loans past due 90 days or more and still accruing
interest. A loan is considered contractually past due when any principal repayment or interest
payment required by the loan instrument is not received on or before the due date. A loan shall
remain contractually past due until it is formally restructured or until the entire amount past due,
including principal, accrued interest, and penalty interest incurred as the result of past due status,
is collected or otherwise discharged in full.
Impaired loans are generally placed in nonaccrual status when principal or interest is delinquent
for 90 days or more (unless adequately secured and in the process of collection) or circumstances
indicate that collection of principal and/or interest is in doubt. When a loan is placed in nonaccrual
status, accrued interest deemed uncollectible is reversed (if accrued in the current year) and/or
charged against the allowance for loan losses (if accrued in the prior year). Loans are charged off
at the time they are determined to be uncollectible.
A restructured loan constitutes a troubled debt restructuring if for economic or legal reasons
related to the debtor’s financial difficulties, Northwest FCS grants a concession to the debtor that it
would not otherwise consider. Such concessions may include monetary concessions or other
modifications to the contractual terms of the loan. If the borrower’s ability to meet the revised
payment schedule is uncertain, the loan is classified as a nonaccrual loan.
When loans are in nonaccrual status, loan payments are generally applied against the recorded
nonaccrual balance. A nonaccrual loan may, at times, be maintained on a cash basis. As a cash
basis nonaccrual loan, the recognition of interest income from cash payments received is allowed
when the collectability of the recorded investment in the loan is no longer in doubt and the loan
does not have a remaining unrecovered charge-off associated with it. Nonaccrual loans may be
returned to accrual status when all contractual principal and interest are current, the borrower has
demonstrated payment performance, there are no unrecovered prior charge-offs, and collection of
future payments is no longer in doubt. If previously unrecognized interest income exists at the
time the loan is transferred to accrual status, cash received at the time of or subsequent to the
transfer is first recorded as interest income until such time as the recorded balance equals the
contractual indebtedness of the borrower.
Northwest FCS purchases loan and lease participations from other System and non-System entities
to generate additional earnings and diversify risk related to existing commodities financed and the
geographic areas served. Additionally, Northwest FCS sells a portion of certain large loans to other
System and non-System entities to reduce risk and comply with established lending limits. Loans
are sold following accounting requirements for sale treatment.
Northwest FCS uses a two-dimensional loan rating model based on internally generated combined
system risk rating guidance that incorporates a 14-point scale to identify and track the probability
of borrower default and a separate scale addressing loss given default over a period of time.
Probability of default is the probability that a borrower will experience a default within 12 months
from the date of the determination of the risk rating. A default is considered to have occurred if
2012 ANNUAL REPORT 43
the lender believes the borrower will not be able to pay its obligation in full or the borrower is past
due more than 90 days. The loss given default is management’s estimate as to the anticipated
economic loss on a specific loan assuming default has occurred or is expected to occur within the
next 12 months.
Each of the probability of default categories carries a distinct likelihood of default. The 14-point
scale provides for granularity of the probability of default, especially in the acceptable ratings.
There are nine acceptable categories that range from a loan of the highest quality to a loan of
minimally acceptable quality. The probability of default between 1 and 9 is very narrow and would
reflect almost no default to a minimal default percentage. The probability of default grows more
rapidly as a loan moves from a “9” to other assets especially mentioned and grows significantly as
a loan moves to a substandard level. A substandard rating indicates that the probability of default
is high.
The allowance is increased through provisions for loan losses and loan recoveries and is
decreased through reversals of provisions for loan losses and loan charge-offs. The allowance is
based on a periodic evaluation of the loan portfolio by management in which numerous factors are
considered, including economic conditions, loan portfolio composition, collateral value, portfolio
quality, current production conditions, and prior loan loss experience. The allowance for loan
losses encompasses various judgments, evaluations and appraisals with respect to the loans and
their underlying security that, by their nature, contain elements of uncertainty, imprecision and
variability. Changes in the agricultural economy and environment and their impact on borrower
repayment capacity will cause various judgments, evaluations and appraisals to change over time.
Accordingly, actual circumstances could vary significantly from Northwest FCS’ expectations and
predictions of those circumstances. Management considers the following factors in determining
and supporting the level of allowance for loan losses: the concentration of lending in agriculture,
combined with uncertainties associated with farmland values, commodity prices, exports,
government assistance programs, regional economic effects and weather-related influences.
The allowance for loan losses includes components for loans individually evaluated for impairment
and loans collectively evaluated for impairment. Generally, for loans individually evaluated the
allowance for loan losses represents the difference between the recorded investment in the loan
and the present value of the cash flows expected to be collected discounted at the loan’s effective
interest rate, or at the fair value of the collateral, if the loan is collateral dependent. For those
loans collectively evaluated for impairment, the allowance for loan losses is determined using an
estimate of expected losses based on historical experience for similar loans.
The reserve for unfunded lending commitments is based on management’s best estimate of losses
inherent in lending commitments made to customers but not yet disbursed. Factors such as
likelihood of disbursal and likelihood of losses given disbursement were utilized in determining this
contingency.
INVESTMENT IN COBANK, ACB
Northwest FCS' required investment in CoBank is in the form of Class A stock. The minimum
required investment is 4 percent of the prior year’s average direct loan volume. The investment in
CoBank is composed of patronage based stock and purchased stock. Accounting for this
investment is on the cost plus allocated equities basis.
OTHER PROPERTY OWNED
Other property owned, consisting of real and personal property acquired through foreclosure or
deed in lieu of foreclosure, is recorded at fair value less estimated selling costs upon acquisition.
Any initial reduction in the carrying amount of a loan to the fair value of the collateral received is
charged to the allowance for loan losses. On at least an annual basis, revised estimates to the fair
value are reported as adjustments to the carrying amount of the asset, provided that such
adjusted value is not in excess of the carrying amount at acquisition. Income and expenses from
operations, losses on sales and carrying value adjustments are included in other expense on the
Consolidated Statement of Income. Gains on sales are included in other income on the
Consolidated Statement of Income.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation. Land is carried at cost.
Depreciation is provided on the straight-line method over the estimated useful lives of the assets.
Gains and losses on dispositions are reflected in current operations. Maintenance and repairs are
charged to operating expense and significant improvements are capitalized.
ADVANCED CONDITIONAL PAYMENTS
Northwest FCS is authorized under the Farm Credit Act to accept advance payments from
borrowers. During the year ended December 31, 2012, advance conditional payments were
reclassified and are included in advance conditional payments and other interest-bearing liabilities
on the accompanying Consolidated Balance Sheet. All periods presented reflect the reclassification.
Previously, the advance conditional payments were netted within the borrower’s related loan
balance and amounts in excess of the loan balance were reported within advance conditional
payments and other interest-bearing liabilities on the accompanying Consolidated Balance Sheet.
44 NORTHWEST FCS
Advanced conditional payments are not insured. Interest is paid by Northwest FCS on such
accounts.
EMPLOYEE BENEFIT PLANS
Substantially all employees of Northwest FCS participate in its Defined Benefit Pension Plan
(Pension Plan) or the Farm Credit Foundations Defined Contribution/401(k) (Defined Contribution
Plan) Retirement Plan. Enrollment in the Pension Plan was curtailed in 1994. Existing employees
who elected to transfer and all new employees hired after December 31, 1994, participate in the
Defined Contribution Plan. The Pension Plan uses the “Entry Age Normal Cost” actuarial method for
funding purposes and the “Projected Unit Credit” actuarial method for financial reporting purposes.
The Defined Contribution Plan has two components. In this plan, Northwest FCS provides a
monthly contribution based on a defined percentage of the employee’s salary. Employees may also
defer a portion of their salaries in accordance Section 401(k) of the Internal Revenue Code to
which Northwest FCS matches a certain percentage of employee contributions. Defined
contribution costs are expensed in the same period that participants earn employer contributions
and employer matching costs are expensed as funded.
Certain management or highly compensated employees who participate in the Pension plan also
participate in a nonqualified Defined Benefit Restoration Plan (Restoration Plan) formally known as
the Northwest FCS Defined Benefit Restoration Plan. Each eligible employee whose retirement
benefit under the Pension Plan is limited by Internal Revenue Code Sections 401(a) (17), 415 or
any Code provision or government regulations subsequently issued will receive a benefit if these
programs are continued. Under the present plan, the monthly benefit is equal to the difference
between the participant’s actual monthly retirement benefit payment under the Pension Plan and
the monthly retirement benefit payment that would be payable to the participant under the
Pension Plan if the limitations of Internal Revenue Code Sections 401(a) (17), 415, or any code
provision or government regulations subsequently issued, did not apply.
INCOME TAXES
As previously described, Northwest Farm Credit Services, ACA conducts its business activities
through two wholly owned subsidiaries. Long-term mortgage lending activities are operated
through a wholly owned FLCA subsidiary which is exempt from federal and state income tax.
Short- and intermediate-term lending activities are operated through a wholly owned PCA
subsidiary. Operating expenses are allocated to each subsidiary based on estimated relative
service. All significant transactions between the subsidiaries and the parent company have been
eliminated in consolidation. The ACA, along with the PCA subsidiary, is subject to income taxes.
Northwest FCS accounts for income taxes under the liability method. Accordingly, deferred taxes
are recognized for estimated taxes ultimately payable or recoverable based on federal, state, or
local laws.
Northwest Farm Credit Services, ACA and its subsidiary, Northwest Farm Credit Services, PCA are
subject to federal income tax and pay state income taxes in Montana and Oregon. Both entities
currently operate as cooperatives that qualify for tax treatment under Subchapter T of the Internal
Revenue Code. Accordingly, under specified conditions, they can exclude from taxable income
amounts distributed as qualified patronage refunds in the form of cash, stock, or allocated surplus.
Provisions for income taxes are made only on those earnings that will not be distributed as
qualified patronage refunds.
Deferred taxes are recorded on the tax effect of all temporary differences based on the
assumption that such temporary differences are retained by Northwest FCS and will therefore
impact future tax payments. A valuation allowance is provided against deferred tax assets to the
extent that it is more likely than not (over 50 percent probability), based on management’s
estimate, that they will not be realized. The consideration of valuation allowances involves various
estimates and assumptions as to future taxable earnings, including the effects of Northwest FCS’
expected patronage program, which reduces taxable earnings.
Deferred income taxes have not been provided by Northwest FCS on stock patronage distributions
received from the Bank prior to January 1, 1993, the adoption date of the FASB guidance on
income taxes. Management’s intent is to permanently invest these and other undistributed
earnings in the Bank, or if converted to cash, to pass through any distribution related to pre-1993
earnings to Northwest FCS’ stockholders through qualified patronage allocations.
Northwest FCS has not provided deferred income taxes on amounts allocated to Northwest FCS
which relate to the Bank’s post-1992 earnings to the extent that such earnings will be passed
through to Northwest FCS’ stockholders through qualified patronage allocations. Additionally,
deferred income taxes have not been provided on the Bank’s post-1992 unallocated earnings. The
Bank currently has no plans to distribute unallocated Bank earnings and does not contemplate
circumstances that, if distributions were made, would result in taxes being paid by Northwest FCS.
PATRONAGE DISTRIBUTIONS FROM COBANK, ACB
Northwest FCS records patronage distributions from CoBank on an accrual basis. Under the current
CoBank capital plan, the bank distributes patronage from Northwest FCS’ direct lending business in
2012 ANNUAL REPORT 45
cash. For patronage applicable to participations sold to CoBank, patronage is distributed in 75
percent cash and 25 percent Class A stock.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY
In the normal course of business, Northwest FCS enters into derivative financial instruments
(derivatives) that are principally used to manage interest rate and exchange rate risk on assets.
Derivatives are recorded on the Consolidated Balance Sheet as assets and liabilities at fair value.
Changes in the fair value of a derivative are recorded in current period earnings or accumulated
other comprehensive income (loss) depending on the use of the derivative and whether it qualifies
for hedge accounting. For fair-value hedge transactions that hedge changes in the fair value of
assets, liabilities, or firm commitments, changes in the fair value of the derivative are recorded in
earnings and will generally be offset by changes in the hedged item’s fair value. For cash-flow
hedge transactions, in which Northwest FCS is hedging the variability of future cash flows related
to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the
derivative will generally be deferred and reported in accumulated other comprehensive income
(loss). The gains and losses on the derivative that are deferred and reported in accumulated other
comprehensive income (loss) will be reclassified as earnings in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item. The ineffective portion of all
hedges is recorded in current period earnings. For derivatives not designated as a hedging
instrument, the related change in fair value is recorded in current period earnings.
Northwest FCS formally documents all relationships between hedging instruments and hedged
items, as well as its risk management objectives and strategies for undertaking hedge transactions.
This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to
(1) specific assets or liabilities on the Consolidated Balance Sheet, or (2) firm commitments or
forecasted transactions. Northwest FCS also formally assesses (both at the hedge’s inception and
on an ongoing basis) whether the derivatives that are used in hedging transactions have been
highly effective in offsetting changes in the fair value or cash flows of hedged items and whether
those derivatives may be expected to remain highly effective in future periods. Due to the
structure of Northwest FCS’ current derivative transactions, management has no reason to believe
that hedge accounting qualifications will not be met and believes the transactions will continue to
be recorded in the manner described in Note 17 of these consolidated financial statements.
OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) is a measure of all changes in the equity of Northwest FCS as
a result of recognized transactions and other economic events of the period other than capital
transactions with the stockholders. Other comprehensive income (loss) refers to revenue,
expenses, gains and losses that under GAAP are recorded as an element of members’ equity and
comprehensive income but are excluded from net income. Other comprehensive loss is comprised
of adjustments related to Northwest FCS’ defined benefit pension and to adjustments related to its
derivative contracts used to manage interest rate and exchange rate risk on assets.
FAIR VALUE MEASUREMENTS
Accounting guidance defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. It describes three levels of inputs that may be
used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities that the reporting entity
has the ability to access at the measurement date. Level 1 assets include assets held in trust
funds, which relate to amounts in a deferred compensation and a supplemental retirement plan.
The trust funds include investments that are actively traded and have quoted net asset values that
are observable in the market place. Pension plan assets that are invested in equity securities,
including mutual funds, and fixed-income securities that are actively traded are also included in
Level 1.
Level 2 – Observable inputs other than quoted prices included within Level 1 that are observable
for the asset or liability either directly or indirectly. Level 2 inputs include the following: (a) quoted
prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar
assets or liabilities in markets that are not active so that they are traded less frequently than
exchange-traded instruments, the prices are not current or principal market information is not
released publicly; (c) inputs other than quoted prices that are observable such as interest rates
and yield curves, prepayment speeds, credit risks and default rates and (d) inputs derived
principally from or corroborated by observable market data by correlation or other means. Pension
plan assets that are derived from observable inputs, including corporate bonds and mortgage-
backed securities are reported in Level 2. This category includes derivative contracts.
Level 3 – Unobservable inputs are those that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. These unobservable inputs reflect the
reporting entity’s own assumptions about factors that market participants would use in pricing the
asset or liability. Level 3 assets and liabilities include financial instruments whose value is
determined using pricing models, discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of fair value requires significant management
judgment or estimation. This category generally includes certain private equity investments,
46 NORTHWEST FCS
retained residual interests in securitizations, asset-backed securities, highly structured or long-term
derivative contracts, certain loans and other property owned. Pension plan assets that are
supported by little or no market data in determining the fair value are included in Level 3.
The fair value disclosures are presented in Note 11, Note 14, and Note 16.
OFF-BALANCE SHEET CREDIT EXPOSURES
Commitments to extend credit are agreements to lend to customers, generally having fixed
expiration dates or other termination clauses that may require payment of a fee. Commercial
letters of credit are conditional commitments issued to guarantee the performance of a customer
to a third party. These letters of credit are issued to facilitate commerce and typically result in the
commitment being funded when the underlying transaction is consummated between the customer
and third party. The credit risk associated with commitments to extend credit and commercial
letters of credit is essentially the same as that involved with extending loans to customers and is
subject to normal credit policies. Collateral may be obtained based on management’s assessment
of the customer’s creditworthiness.
NOTE 3 > Loans and Allowance for Loan Losses
Northwest FCS’ portfolio is comprised of a wide array of commodities and product offerings. In
order to effectively serve this market, Northwest FCS has specialized staff and financial products
for these various markets and commodities. A summary of loans follows:
Northwest FCS may purchase or sell participation interests with other parties in order to diversify
risk, manage loan volume and comply with FCA regulations. The following table presents
information regarding participations purchased and sold as of December 31, 2012:
Northwest FCS' concentration of credit risk in various agricultural commodities and industries is
shown in the following table, which includes accrued interest:
While the amounts represent Northwest FCS' maximum potential credit risk as it relates to
recorded loan principal, a substantial portion of Northwest FCS' lending activities is collateralized
and exposure to credit loss associated with lending activities is reduced accordingly. An estimate of
the current loss exposure is considered in the determination of the allowance for loan losses in the
consolidated financial statements.
The amount of collateral obtained, if deemed necessary upon extension of credit, is based on
management’s credit evaluation of the borrower. Collateral held varies but typically includes
2012 ANNUAL REPORT 47
farmland and income-producing property, such as crops and livestock, machinery and equipment
as well as inventories and receivables. Long-term real estate loans are secured by first liens on the
underlying real property. Federal regulations state that long-term real estate loans are not to
exceed 85 percent (97 percent if guaranteed by a government agency) of the property’s appraised
value. However, a decline in a property’s market value subsequent to loan origination or advances,
or other actions necessary to protect the financial interest of Northwest FCS in the collateral, may
result in loan-to-value ratios in excess of the regulatory maximum.
One credit quality indicator utilized by Northwest FCS is the FCA Uniform Loan Classification
System that categorizes loans into five categories. The categories are defined as follows: Acceptable – assets are expected to be fully collectible and represent the highest quality;
Other assets especially mentioned (OAEM) – assets are currently collectible but exhibit some
potential weakness;
Substandard – assets exhibit some serious weakness in repayment capacity, equity, and/or
collateral pledged on the loan;
Doubtful – assets exhibit similar weaknesses to substandard assets; however, doubtful assets
have additional weaknesses in existing factors, conditions and values that make collection in
full highly questionable, and;
Loss – assets are considered uncollectible.
The following table shows loans and related accrued interest classified under the FCA Uniform
Loan Classification System as a percentage of total loans and related accrued interest receivable by
loan type as of December 31:
Impaired loans are loans for which it is probable that all principal and interest will not be collected
according to the contractual terms.
The following table presents information relating to impaired loans including accrued interest,
where applicable:
48 NORTHWEST FCS
Commitments to lend additional funds to debtors whose loans were classified as impaired at
December 31, 2012, 2011, and 2010 totaled $8,447, $15,023, and $20,479, respectively.
Nonperforming assets consist of impaired loans and other property owned. The following table
presents these in a more detailed manner than the previous table. These nonperforming assets,
including related accrued interest where applicable, are as follows:
Additional impaired loan information, including related accrued interest where applicable, as of
December 31, 2012, 2011 and 2010 is as follows:
2012 ANNUAL REPORT 49
Interest income is recognized and cash payments are applied on nonaccrual impaired loans as
described in Note 2. The following table presents interest income recognized on impaired loans:
Interest income on nonaccrual and accruing restructured loans that would have been recognized
under the original terms of the loans were as follows:
The following tables provide an aging analysis of past due loans and accrued interest:
50 NORTHWEST FCS
Note: The recorded investment in the 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 investment.
A restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or
legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it
would not otherwise consider.
The following table presents additional information regarding troubled debt restructurings that
occurred during the years ended December 31, 2012 and 2011:
Note: Pre-modification represents the recorded investment just prior to restructuring and post-modification represents the recorded investment immediately following the restructuring. The recorded investment is the face amount of the receivable 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 investment.
During 2012, troubled debt restructurings that occurred within the previous 12 months and for
which there was a subsequent payment default during the period totaled $105, substantially all
were classified as real estate mortgages.
The following table provides information on outstanding loans restructured in troubled debt
restructurings as of December 31 of the respective periods. These loans are included as impaired
loans in the impaired loans table.
2012 ANNUAL REPORT 51
Summaries of the changes in the allowance for loan losses and the ending balance of loans and accrued interest outstanding as of December 31, 2012, 2011 and 2010 are as follows:
52 NORTHWEST FCS
A summary of the changes in the reserve for unfunded lending commitments follows:
To mitigate the risk of loans being placed in nonaccrual status, Northwest FCS had entered into
long-term standby commitments to purchase agreements with the Federal Agricultural Mortgage
Corporation (Farmer Mac). The agreements, which were effectively credit guarantees that
remained in place until the loans were paid in full, gave Northwest FCS the right to sell the loans
identified in the agreements to Farmer Mac after four months of delinquency. Loans and related
accrued interest sold to Farmer Mac at December 31, 2012 and 2011 were $0, and $200 as of
December 31, 2010, respectively. The balance of the loans under the long-term standby
commitments was $0 at December 31, 2012 and 2011, and $78,903 at December 31, 2010,
respectively. Fees for such commitments totaled $0, $864, and $415 for the years ended
December 31, 2012, 2011, and 2010, respectively. In December 2011, Northwest FCS and Farmer
Mac agreed to terminate the aforementioned agreement without further obligation by either party.
Northwest FCS paid Farmer Mac $550 as part of the termination agreement, which is included in
the 2011 fees mentioned above. There was no activity related to Farmer Mac in 2012.
During 2007, 2004, and 2002, Northwest FCS entered into credit default swaps with Mt. Spokane
2007-A LLC (2007 LLC), Mt. Spokane 2004-A LLC (2004 LLC), and Mt. Spokane Trust 2002-A
(Trust), respectively, for credit enhancement purposes. Each of the agreements will remain in
place over the life of the loans under the swap agreement, and fees are paid accordingly based on
the volume of the loans under the agreements. At the establishment of each agreement,
Northwest FCS capitalized costs of $1,601, $2,318 and $2,618, respectively, all of which have been
amortized as of December 31, 2012. The following discussion provides the key provisions of each
of the agreements.
2007 LLC
Following the occurrence of a known loss, the 2007 LLC will be required to pay an amount to
Northwest FCS equal to the principal amount of the defaulted loan plus covered interest and costs
less any recoveries. However, no payment is due to Northwest FCS until Northwest FCS’ Retained
First Loss Notional Amount is reduced to zero. In addition to loss events, proportionate reductions
in the Retained First Loss Notional Amount will occur due to reductions of the Aggregate Notional
Amount of the Reference obligations associated with non-loss events such as repayment of loan
principal. As of December 31, 2012, the balance of the Retained First Loss Notional Amount was
$2,928 and the maximum amount of losses the 2007 LLC will be required to pay under the credit
default swap was $19,026. $233 of losses have been incurred by Northwest FCS.
2012 ANNUAL REPORT 53
2004 LLC
Pursuant to the credit default swap, following the occurrence of a known loss, the 2004 LLC will be
required to pay an amount to Northwest FCS equal to the principal amount of the defaulted loan
plus covered interest and costs less any recoveries. As of December 31, 2012, the maximum
amount of losses the 2004 LLC will be required to pay under the credit default swap was $14,103,
and $259 of losses have been incurred by the 2004 LLC.
TRUST
During 2012, Northwest FCS exercised its right to redeem the Trust transaction as the outstanding
balance was below 10 percent of the original balance as of June 30, 2012. The impacts of
unwinding this transaction to Northwest FCS’ financial position, capital ratios and credit quality
were minimal. As of December 31, 2012, $26 of losses have been incurred by the Trust.
The following tables provide information related to loan balances, and fees and amortization
pertaining to the aforementioned credit default swap agreements:
Mt. Spokane Trust 2002-A, LLC and Mt. Spokane 2004-A, LLC are variable interest entities created
by Bank of America to acquire eligible securities, which will be used as collateral to secure the
Failure to Pay Credit Event payment of the Trust or LLC under a credit default swap with
Northwest FCS. The securities are held in the form of direct obligations of, and obligations fully
guaranteed as to timely payment of principal and interest by, the United States of America,
obligations of the Federal National Mortgage Association, Federal Home Loan Mortgage
Corporation, Federal Home Loan Bank or obligations of any agency or instrumentality of the United
States of America the obligations of which are backed by the full faith and credit of the United
States of America.
Mt. Spokane 2007-A LLC is also a variable interest entity created by Lehman Brothers to acquire
eligible securities, which will be used as collateral to secure the Failure to Pay Credit Event
payment of the LLC under a credit default swap with Northwest FCS. The bankruptcy of Lehman
Brothers in 2008 did not have an economic impact on the LLC. The securities are limited to direct
obligations of, and obligations fully guaranteed as to timely payment of principal and interest by,
the United States of America or obligations of any agency or instrumentality of the United States of
America, the obligations of which are backed by the full faith and credit of the United States of
America. Eligible securities, however, will not include “real estate mortgages” (or interest therein)
as defined in Section 7701(i) of the Internal Revenue Code and the accompanying United States
Treasury Regulations. Management has evaluated these variable interest entities and concluded
that they are not subject to consolidation.
NOTE 4 > Investment in CoBank, ACB
At December 31, 2012, Northwest FCS’ investment in CoBank is in the form of Class A stock with a
par value of $100 per share. Northwest FCS is required to own stock in CoBank to capitalize its
direct loan balance and participation loans sold to CoBank. The current requirement for capitalizing
its direct loan from CoBank is 4 percent of Northwest FCS’ prior year average direct loan balance.
The 2012 requirement for capitalizing its patronage-based participation loans sold to CoBank is 8
percent of Northwest FCS’ prior ten-year average balance of such participations sold to CoBank.
Under the current CoBank capital plan applicable to such participations sold, patronage from
CoBank related to these participations sold is paid 75 percent cash and 25 percent Class A stock.
The capital plan is evaluated annually by CoBank’s board and management and is subject to
change. Estimating the fair value of Northwest FCS’ investment in CoBank is not practicable
because the stock is not traded.
The lending bank may require the holders of its equities to subscribe for such additional capital as
may be needed by the Bank to meet its capital requirements or its joint and several liability under
the Act and regulations. In making such a capital call, the Bank shall take into account the financial
condition of each such holder and such other considerations, as it deems appropriate.
54 NORTHWEST FCS
NOTE 5 > Premises and Equipment
Premises and equipment consist of the following:
Estimated useful lives are as follows: buildings are 30 years, improvements and leaseholds are the
lesser of remaining lease term or 10 years, and furniture and equipment are 1 to 7 years. Land is
not depreciated.
Northwest FCS is obligated under various noncancellable operating leases. Certain office space and
equipment are leased. Rental expense under these noncancellable operating leases was $6,403,
$6,352, and $6,297 for the years ended December 31, 2012, 2011, and 2010, respectively. At
December 31, 2012, future minimum lease payments for all noncancellable leases are as follows:
NOTE 6 > Other Property Owned
Net (gains)/losses on other property owned consist of the following:
NOTE 7 > Note Payable to CoBank, ACB
Northwest FCS’ indebtedness to CoBank represents borrowings by Northwest FCS to fund its loan
portfolio. This indebtedness is collateralized by a pledge of substantially all of Northwest FCS’
assets and is governed by a General Financing Agreement (GFA), which provides Northwest FCS
an open-ended revolving line of credit. The GFA and other term structures available to Northwest
FCS from CoBank are subject to periodic renewals in the normal course of business. Each debt
obligation has its own term and rate structure. Northwest FCS was in compliance with the terms
and conditions of the GFA as of December 31, 2012. The weighted average interest rate for all
debt was 1.66, 1.94, and 2.08 percent at December 31, 2012, 2011, and 2010, respectively. The
GFA will expire on May 31, 2013 and management expects renewal of the GFA at that time.
Through the direct note to the bank, Northwest FCS is liable for the following:
Fixed rate debt and floating rate debt typically have original maturities ranging from 1 to 30 years.
Discount notes have maturities from one day to 365 days. Floating rate notes have maturities
ranging from 6 months to 10 years. The revolving line of credit is renewed annually and is priced
at the overnight funds rate.
2012 ANNUAL REPORT 55
The maturities of debt within the direct note to the Bank as of December 31, 2012 are shown
below:
At December 31, 2012, callable debt was $743,000, with a range of call dates between January
2013 and June 2015.
Under the Farm Credit Act, Northwest FCS is obligated to borrow only from CoBank, unless CoBank
gives approval to borrow elsewhere. CoBank, consistent with FCA regulations, has established
limitations on Northwest FCS’ ability to borrow funds based on specified factors or formulas
relating primarily to credit quality and financial condition. At December 31, 2012, Northwest FCS’
note payable is within the specified limitations.
Northwest FCS has a secondary source of liquidity and funding through an uncommitted Federal
Funds line of credit with Wells Fargo. The amount available through this line is $75,000 and is
intended to provide liquidity for disaster recovery or other emergency situations. At December 31,
2012, no balance was outstanding on this line of credit. Additionally, until December 2012
Northwest FCS had a letter of credit facility with Bank of America to support letters of credit issued
on Industrial Revenue Bonds. This relationship has been discontinued.
NOTE 8 > Members’ Equity
A description of Northwest FCS' capitalization requirements, protection mechanisms, regulatory
capitalization requirements and restrictions, and equities are provided below.
CAPITAL STOCK AND PARTICIPATION CERTIFICATES
In accordance with the Farm Credit Act and Northwest FCS’ capitalization bylaws, each borrower is
required to invest in Northwest FCS as a condition of borrowing. Borrowers acquire ownership of
capital stock or participation certificates at the time the loan is made but usually do not make a
cash investment. Effective November 19, 2012, the aggregate par value of the stock is treated as a
non-interest bearing receivable from the customer. Prior to November 19, 2012, the aggregate par
value of the stock was usually added to the principal amount of the related loan obligation. At the
time this change occurred, approximately $13,169 was transferred from loans to other assets on
the Consolidated Balance Sheet. Northwest FCS retains a first lien on common stock or
participation certificates owned by its borrowers.
Pursuant to provisions of the Farm Credit Act, the System’s minimum initial borrower investment
requirement is one thousand dollars or 2 percent of the related loan balance on a per customer
basis, whichever is less. The bylaws of Northwest FCS provide its Board of Directors with the
authority to modify the capitalization requirements for new loans subject to a maximum of 4
percent of the related loan balance.
Retirement of equities noted above will be at the lower of par or book value, and repayment of a
loan does not automatically result in retirement of the corresponding stock or participation
certificates. Northwest FCS' Board of Directors considers the current and future status of
permanent capital requirements before authorizing any retirement of at-risk equities. Pursuant to
FCA regulations, should Northwest FCS fail to satisfy its minimum permanent capital requirements,
retirements of at-risk equities subsequent to such noncompliance would be prohibited, except for
retirements in the event of default or loan restructuring.
PROTECTED BORROWER STOCK
Protection of certain borrower stock (Class B participation certificates) is provided under the Farm
Credit Act, which requires Northwest FCS, when retiring protected borrower stock, to retire such
stock at par value or stated value regardless of its book value. Protected borrower stock includes
capital stock and participation certificates issued prior to October 6, 1988. As of December 31,
2012, Northwest FCS had no remaining protected borrower stock outstanding, as the last
remaining balance was retired during 2011.
REGULATORY CAPITALIZATION REQUIREMENTS AND RESTRICTIONS
The FCA's capital adequacy regulations require Northwest FCS to maintain permanent capital of 7
percent of average risk-adjusted assets. Failure to meet this requirement can initiate certain
mandatory and possibly additional discretionary actions by the FCA that, if undertaken, could have
a direct material effect on Northwest FCS’ financial statements. Northwest FCS is prohibited from
reducing permanent capital by retiring stock or making certain other distributions to stockholders
unless prescribed capital standards are met. The FCA regulations also require additional minimum
standards for capital be maintained. These standards require all System institutions to achieve and
56 NORTHWEST FCS
maintain ratios of total surplus as a percentage of risk-adjusted assets of 7 percent and of core
surplus (generally unallocated retained earnings) as a percentage of risk-adjusted assets of 3.5
percent. Northwest FCS’ permanent capital, core surplus, and total surplus ratios at December 31,
2012, were 13.4 percent, 13.3 percent, and 13.3 percent, respectively. Management is not aware
of any reasons why Northwest FCS’ regulatory capital requirements would not be met in 2013, nor
is it currently prohibited from retiring stock or distributing earnings or expected to be in 2013.
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. Northwest FCS has not been called upon to initiate any such
transfers and is not aware of any proposed action under this regulation.
DESCRIPTION OF EQUITIES
Northwest FCS is authorized to issue an unlimited number of shares of Class A common stock and
up to 500 million units of Class A participation certificates (PCs) with a par value of 5 dollars per
share. Class B PCs with a par value of 5 dollars per share are no longer being issued, and all were
retired as of December 31, 2011.
Class A common stock is at-risk, has voting rights, and may be retired at the discretion of
Northwest FCS' Board of Directors and, if retired, shall be retired at its book value, not to exceed
its par value. At December 31, 2012, there were 2,555,101 shares outstanding with a total par
value of $12,775.
Class A PCs are at-risk and do not have voting rights. Class A PCs may be retired at the discretion
of Northwest FCS' Board of Directors and, if retired, shall be retired at its book value, not to
exceed its par value. At December 31, 2012, there were 84,173 units outstanding with a total par
value of $421.
Voting common stock is converted to nonvoting common stock two years after the owner of the
stock ceases to be a borrower or immediately if the former borrower becomes ineligible to borrow
from Northwest FCS. Nonvoting common stockholders are eligible to participate in other services
offered by Northwest FCS. Each owner or the joint owners of voting common stock is entitled to a
single vote regardless of the number of shares held, while nonvoting common stock and
participation certificates provide no voting rights to their owners. Voting stock may not be
transferred to another person unless such person is eligible to hold such stock.
Losses that result in impairment of capital stock and PCs would be allocated to such equities on a
prorated basis. Upon liquidation of Northwest FCS, at-risk capital stock and participation
certificates would be utilized as necessary to satisfy any remaining obligations in excess of the
amounts realized on the sale or liquidation of assets. Equities protected under the Farm Credit Act
would continue to be retired at par or face value.
PATRONAGE
Northwest FCS’ bylaws provide for the payment of patronage distributions. All patronage
distributions to eligible stockholders shall be on a proportionate patronage basis as may be
approved by Northwest FCS’ Board of Directors, consistent with the requirements of Subchapter T
of the Internal Revenue Code. For the years ending December 31, 2012, 2011, and 2010, the
Board approved cash patronage distributions of $55,245, $53,264, and $35,958, respectively.
Patronage distributions are recorded on an accrual basis, based on estimated amounts. The
difference between the estimated accrual and the actual patronage distribution is reflected in
retained earnings in the year paid. In December 2012, the Board of Directors of Northwest FCS
approved a resolution to distribute 2013 earnings in the form of patronage dividends to its
stockholders. The patronage dividend will be accrued in 2013 and declared and paid in 2014.
All earnings not distributed as patronage allocations or appropriated for some other purpose are
retained as unallocated retained earnings. At December 31, 2012, all accumulated earnings are
retained as unallocated retained earnings. In accordance with Internal Revenue Service
requirements, each stockholder is sent a nonqualified written notice of allocation. Allocated, but
not distributed patronage refunds, are included in the unallocated retained earnings account. Such
allocations may provide a future basis for a distribution of capital. The Board of Directors considers
these unallocated retained earnings to be permanently invested in the Association. As such, there
is no current plan to revolve or redeem these amounts. No express or implied right to have such
capital retired or revolved at any time is granted.
OTHER ACCUMULATED COMPREHENSIVE INCOME (LOSS)
Northwest FCS reports accumulated other comprehensive income (loss) as a component of
members’ equity, which is reported net of taxes as follows:
2012 ANNUAL REPORT 57
NOTE 9 > Patronage Distributions from Farm Credit Institutions
Patronage income recognized from Farm Credit Institutions to Northwest FCS totals $42,028,
$39,883, and $38,962 for the years ended December 31, 2012, 2011, and 2010, respectively. Of
this amount $38,820, $38,077, and $37,454 for the years ended December 31, 2012, 2011, and
2010, respectively, was related to CoBank. Patronage distributed from CoBank was in cash and
stock. The amount declared in December 2012 was accrued and will be paid by CoBank in 2013. NOTE 10 > Income Taxes
The provision for income taxes follows:
The provision for (benefit from) income tax differs from the amount of income tax determined by
applying the applicable U.S. statutory federal income tax rate to pretax income as follows:
Deferred tax assets and liabilities are comprised of the following:
The calculation of deferred tax assets and liabilities involves various management estimates and
assumptions as to the future taxable earnings, including the amount of non-patronage income and
patronage income retained. The expected future tax rates are based upon enacted tax laws.
Northwest FCS recorded a valuation allowance of $35,434, $25,139, and $22,908 during 2012,
2011, and 2010, respectively. Northwest FCS will continue to evaluate the realizability of the
deferred tax assets and adjust the valuation allowance accordingly.
Northwest FCS has unrecognized tax positions for which a liability has been established. A $1.0
million uncertain tax position was recorded in the year ended December 31, 2012 related to a state
tax position. A reconciliation of the beginning and ending amount of unrecognized tax benefits is
as follows:
The total amount of unrecognized tax positions that, if recognized would impact the effective tax
rate is $1,000. Northwest FCS does not have any positions for which it is reasonably possible that
the total amounts of unrecognized tax positions will significantly increase or decrease within the
next 12 months.
58 NORTHWEST FCS
Northwest FCS recognizes interest and penalties related to unrecognized tax positions as an
adjustment to income tax expense. The amount of interest recognized was $58 for the year ended
December 31, 2012.
Tax years that remain open for federal and state income tax jurisdictions are generally 2009 and
forward.
NOTE 11 > Employee Benefit Plans
Certain employees of Northwest FCS participate in a Pension Plan. The Department of Labor has
determined the plan to be a governmental plan; therefore, the plan is not subject to the provisions
of the Employee Retirement Income Security Act of 1974, as amended (ERISA). As the plan is not
subject to ERISA, the plan’s benefits are not insured by the Pension Benefit Guaranty Corporation.
Accordingly, the amount of accumulated benefits that participants would receive in the event of
the plan’s termination is contingent on the sufficiency of the plan’s net assets to provide benefits at
that time. While the plan is a governmental plan and is not subject to minimum funding
requirements, Northwest FCS contributes amounts necessary on an actuarial basis to provide the
plan with sufficient assets to meet the benefits to be paid to participants. The amounts ultimately
to be contributed and to be recognized as expense as well as the timing of those contributions and
expenses, are subject to many variables including performance of plan assets and interest rate
levels. These variables could result in actual contributions and expenses being greater than or less
than anticipated.
For a limited number of highly-compensated participants in the Pension Plan mentioned above,
Northwest FCS also has a Restoration Plan that provides retirement benefits above the Internal
Revenue Code compensation limit for eligible individuals.
The Pension Plan was closed to new participants beginning January 1, 1995 and is
noncontributory. Benefits are based on salary and years of service. The following tables set forth
the obligations and funded status of Northwest FCS’ Pension Plan and Restoration Plan.
The funding status and the amounts recognized in the Consolidated Balance Sheet for post-
retirement benefit plans follows:
2012 ANNUAL REPORT 59
The projected benefit obligation, accumulated benefit obligation and the fair value of plan assets
for each of Northwest FCS’ employee benefit plans are presented in the following table. Each of
the plans has an accumulated benefit obligation in excess of plan assets in each of the periods
reported:
The components of net periodic pension expense and other amounts recognized in other
comprehensive income as of December 31 are as follows:
The estimated net loss and prior service cost for the Pension Plan and Restoration Plan that will be
amortized from accumulated other comprehensive income into net periodic benefit cost in 2013 is
$1,744 and $282, respectively.
Weighted average assumptions used to determine benefit obligations at December 31:
Weighted average assumptions used to determine net periodic benefit cost for the years ended
December 31:
The funding objective of the plans is to provide present and future retirement or survivor benefits
for its members by achieving an attractive rate of return, as defined by the plans’ policy
statements, without exposing the plan to undue risk. A Board of Trustees (Trustees), called the
Farm Credit Foundations Trust Committee, comprised of certain members of senior management
of the participating employers, supervises the investment assets of the plans on behalf of the
employers. The Trustees adopt an asset allocation strategy for each plan that reflects return and
risk objectives, plan liabilities, and other factors.
The Trustees employ a total return investment approach whereby a mix of equities and fixed
income investments are used to maximize the long-term return of plan assets for a prudent level
of risk. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities
over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan
funded status, and the participating entities’ financial conditions. The investment portfolio contains
a diversified blend of equity and fixed income investments. Furthermore, equity investments are
diversified across U.S. and non-U.S. stocks as well as growth, value, small, mid, and large
capitalizations. Other investment strategies may be employed to gain certain market exposures,
reduce portfolio risk, and to further diversify portfolio assets. Investment risk is measured and
monitored on an ongoing basis through annual liability measurements, periodic asset/liability
studies, and monthly and quarterly investment portfolio reviews.
60 NORTHWEST FCS
The Trustees have developed an asset allocation policy based on plan objectives, characteristics of
pension liabilities, capital market expectations and asset-liability projections. The policy is long-
term oriented and consistent with the risk exposure. The Trustees review the asset mixes
periodically and regularly monitor the portfolios to maintain compliance with pre-established
strategic allocation ranges. The asset allocation policy of the pension plan for 2013 is a target of
60 percent in equity securities, 35 percent in debt securities and 5 percent in real estate, which is
comparable to 2012.
The expected long-term rate of return assumption is determined by the Farm Credit Foundations
Plan Sponsor Committee (Plan Sponsor Committee) with input from the Trust Committee. The Plan
Sponsor Committee is comprised of certain members of senior management and boards of
directors of the participating employers. Historical return information is utilized to establish a best-
estimate range for each asset class in which the plan is invested. The most appropriate rate is
selected from the best-estimate range, taking into consideration the duration of plan benefit
liabilities and plan sponsor investment policies.
The fair values of the Pension Plan assets at December 31, 2012 by asset category are as follows:
There were no significant transfers between Level 1 and Level 2 and Level 3 during the year.
Pension Plan assets are diversified into various investment types as shown in the preceding table.
An investment consultant is utilized to ensure the diversification of assets. The assets are spread
among numerous fund managers. Diversification is also obtained by selecting fund managers
whose funds are not concentrated in individual stocks and, for the case of international funds,
individual countries.
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active
markets would be classified as Level 1. Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability through corroboration with observable market data would be
classified as Level 2. In addition, assets measured at Net Asset Value (NAV) per share and may be
redeemed at NAV per share at the measurement date are classified as Level 2.
Unobservable inputs (e.g. a company’s own assumptions and data) and assets measured at NAV
per share which may not be redeemed at NAV per share at the measurement date would be
classified as Level 3. All assets are evaluated at the fund level.
The following benefit payments, which reflect expected future service, as appropriate, are
expected to be paid:
2012 ANNUAL REPORT 61
Northwest FCS is expected to contribute $273 to its Restoration Plan in 2013. No contributions are
expected to be made to the Pension Plan. As of December 31, 2012 the Restoration Plan had the
following:
Employees who do not participate in the Pension Plan participate in the Defined Contribution Plan,
which is in accordance with Section 401 of the Internal Revenue Code. The plan requires the
employer to contribute 3 percent of eligible employee compensation for eligible employees. For
eligible employees hired prior to January 1, 2007, up to an additional 5 percent of compensation in
excess of the employee social security wage base is available. Defined Contribution Plan expense
recorded by Northwest FCS was $1,546, $1,486, and $1,325 in 2012, 2011, and 2010,
respectively.
All Northwest FCS employees may elect to defer a portion of their salaries in accordance with IRS
rules. For employees participating in the Pension Plan, Northwest FCS matches employee
contributions up to a maximum of 100 percent of the employees’ first 2 percent of salary and 50
percent on the next 4 percent of salary. For employees participating in the Defined Contribution
Plan, Northwest FCS matches employee contributions up to a maximum of 100 percent on the
employees’ first 6 percent of salary. Employer matching contributions were $2,297, $2,182, and
$2,399 for the years ended December 31, 2012, 2011, and 2010, respectively.
The senior officer compensation package, as administered by the Board Compensation Committee,
included a long-term incentive and retention program designed to retain senior management and
incent them for achieving certain specified personal and corporate goals through 2011. Northwest
FCS had established a Rabbi Trust for this plan and therefore accrued for the estimated liability
and also recorded an asset for contributions to cover estimated costs. During the year ended
December 31, 2012, the Board Compensation Committee approved a new long-term incentive plan
(LTIP) for senior management which began in 2012. The LTIP was only available to senior
management and included a single year plan for 2012 and a multi-year plan beginning in 2012. On
a go-forward basis this plan will be based on multiple years of corporate key results as compared
to the Board approved Business Plan.
NOTE 12 > Related Party Transactions
In the ordinary course of business, Northwest FCS enters into loan transactions with directors,
their immediate families, and other organizations with which such persons may be associated.
Such loans are subject to special approval requirements contained in FCA regulations and are
made on the same terms, including interest rates, amortization schedules and collateral, as those
prevailing at the time for comparable transactions with unrelated borrowers. Senior officers and
their immediate families are precluded from obtaining loans from Northwest FCS.
Loan information to related parties for the years ended December 31 is shown below:
In the opinion of management, none of these loans outstanding at December 31, 2012 involved
more than a normal risk of collectability.
Northwest FCS also recognized $38,820, $38,077, and $37,454 of patronage distributions from
CoBank for the years ended December 31, 2012, 2011, and 2010, respectively. Northwest FCS
owned approximately 12.2 percent of the outstanding common stock of CoBank at December 31,
2012.
In the normal course of business Northwest FCS purchases loan participations from CoBank and
also sells loan participations to CoBank. At December 31, 2012, Northwest FCS had sold
participation interests to CoBank totaling $887,628 and had purchased loan participation interests
from CoBank totaling $717,980.
During 2010, Northwest FCS provided a limited recourse collection guaranty to CoBank covering
four participated loans. As of December 31, 2012, there was one remaining loan with an
outstanding principal balance of $5,135. No additional commitments were available for this loan at
December 31, 2012. Pursuant to the terms of the transaction, Northwest FCS guaranteed
62 NORTHWEST FCS
collection of 20 percent of the outstanding balance of the loans over their respective remaining
terms.
The investment in FPI was $1,465 as of December 31, 2012, which was included in Other Assets
on the Consolidated Balance Sheet.
As of December 31, 2012, Northwest FCS’ investment in AgDirect was $13,428, which was
included in Other Assets on the Consolidated Balance Sheet.
As of December 31, 2012, Northwest FCS had a 25.75 percent participation interest in ProPartners,
resulting in $45,839 included in Loans on the Consolidated Balance Sheet.
NOTE 13 > Regulatory Enforcement Matters
No FCA regulatory enforcement actions currently exist with respect to Northwest FCS.
NOTE 14 > 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. See Note 2, Summary of Significant
Accounting Policies for additional information.
Assets and liabilities measured at fair value on a recurring basis at December 31, 2012, 2011, and
2010, for each of the fair value hierarchy values are summarized in the following tables:
The table below represents reconciliations of all Level 3 liabilities measured at fair value on a
recurring basis for the years ended December 31, 2012, 2011, and 2010.
2012 ANNUAL REPORT 63
There were no significant transfers between Level 1 and Level 2 during the year.
Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2012, 2011,
and 2010 for each of the fair value hierarchy values are summarized in the following table:
VALUATION TECHNIQUES
As more fully discussed in Note 2, Summary of Significant Accounting Policies, accounting 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 by Northwest FCS for assets and
liabilities.
ASSETS HELD IN NON-QUALIFIED TRUSTS
Assets held in trust funds related to deferred compensation and supplemental retirement plans are
classified within Level 1. The trust funds include investments that are actively traded and have
quoted net asset values that are observable in the marketplace.
DERIVATIVES
Exchange-traded derivatives valued using quoted prices would be classified within Level 1 of the
valuation hierarchy. However, few classes of derivative contracts are listed on an exchange; thus,
the derivative positions are valued using internally developed models that use as their basis readily
observable market parameters and are classified within Level 2 of the valuation hierarchy. Such
derivatives include interest rate and foreign currency cash flow hedges.
The models used to determine the fair value of derivative assets and liabilities use an income
statement approach based on observable market inputs, primarily the LIBOR swap curve and
volatility assumptions about future interest rate movements.
STANDBY LETTERS OF CREDIT
Standby letters of credit are classified within Level 3. The fair value of letters of credit approximate
the fees currently charged for similar agreements or the estimated cost to terminate or otherwise
settle similar obligations.
LOANS
For certain loans evaluated for impairment under FASB impairment guidance, the fair value is
based upon the underlying collateral since the loans are collateral-dependent loans for which real
estate is the collateral. The fair value measurement process uses 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, these fair value measurements fall within Level 3 of the
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.
OTHER PROPERTY OWNED
The process for measuring the fair value of other property owned involves the use of appraisals or
other market-based information. Costs to sell represent transaction costs and are not included as a
component of the asset’s fair value. As a result, these fair value measurements fall within Level 3
of the hierarchy.
NOTE 15 > Commitments and Contingencies
Northwest FCS has various commitments outstanding and contingent liabilities.
Northwest FCS may participate in financial instruments with off-balance-sheet risk to satisfy the
financing needs of its customers and to manage their exposure to interest-rate risk. These financial
instruments include commitments to extend credit and/or commercial letters of credit. The
64 NORTHWEST FCS
instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized
in the financial statements. Commitments to extend credit are agreements to lend to a customer
as long as there is not a violation of any condition established in the contract. Commercial letters
of credit are agreements to pay a beneficiary under conditions specified in the letter of credit.
Commitments and letters of credit generally have fixed expiration dates or other termination
clauses and may require payment of a fee. At December 31, 2012, $3,700,905 of commitments to
extend credit and $19,052 of commercial letters of credit were outstanding.
Since many of these commitments are expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements. However, these credit-related
financial instruments have off-balance-sheet credit risk because their amounts are not reflected on
the balance sheet until funded. The credit risk associated with issuing commitments is substantially
the same as that involved in extending loans to borrowers and management applies the same
credit policies to these commitments. Upon fully funding a commitment, the credit risk amounts
are equal to the contract amounts, assuming that borrowers fail completely to meet their
obligations and the collateral or other security is of no value. The amount of collateral obtained, if
deemed necessary upon extension of credit, is based on management’s credit evaluation of the
borrower.
Northwest FCS also participates in standby letters of credits to satisfy the financing needs of its
borrowers. These letters of credit are irrevocable agreements to guarantee payments of specified
financial obligations. Standby letters of credit are recorded at fair value on the Consolidated
Balance Sheet of Northwest FCS. At December 31, 2012, $70,281 of standby letters of credit were
outstanding. The standby letters of credit typically have expiration dates of one year or less.
Northwest FCS maintains a contingency reserve for unfunded commitments, which reflects our
best estimate of losses inherent in lending commitments made to customers but not yet disbursed
upon. The reserve totaled $12,000 at December 31, 2012 and 2011, and $7,000 at December 31,
2010.
During 2012 and 2011, Northwest FCS recorded a contingent liability of $1,000 and $2,000,
respectively, related to a revenue tax. Northwest FCS has been in contact with the taxing
authority and has initiated managed audit proceedings to obtain a resolution and determine any
amounts potentially owed for periods open within the statute of limitations.
In addition, actions are pending against Northwest FCS in which claims for monetary damages are
asserted. Based on current information, management and legal counsel are of the opinion that the
ultimate liability, if any resulting there from, would not be material in relation to the financial
position and results of operation of Northwest FCS.
NOTE 16 > Disclosures about Fair Value of Financial Instruments
Quoted market prices are generally not available for certain System financial instruments, as
described below. Accordingly, fair values are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various financial instruments, and
other factors. These estimates involve uncertainties and matters of judgment, and therefore
cannot be determined with precision. Changes in assumptions could significantly affect the
estimates.
The next table presents the carrying amounts and estimated fair values of Northwest FCS’ financial
instruments at December 31, 2012, 2011, and 2010:
A description of the methods and assumptions used to estimate the fair value of each class of
Northwest FCS' financial instruments for which it is practicable to estimate that value follows:
LOANS
Fair value is estimated by discounting the expected future cash flows using Northwest FCS’ current
interest rates at which similar loans would be made or repriced to borrowers with similar credit
risk. As the discount rates are based on Northwest FCS’ loan origination rates as well as
2012 ANNUAL REPORT 65
management estimates of credit risk, management has no basis to determine whether the
estimated fair values presented would be indicative of the assumptions and adjustments that a
purchaser of the loans would seek in an actual sale, which could be less.
For purposes of determining fair value of accruing loans, the loan portfolio is segregated into pools
of loans with homogeneous characteristics. Expected future cash flows and interest rates reflecting
appropriate credit risk are separately determined for each individual pool.
For nonaccrual loans, it is assumed that collection will result only from the disposition of the
underlying collateral. Fair value of these loans is estimated to equal the aggregate net realizable
value of the underlying collateral. When the net realizable value of collateral exceeds legal
obligation for a particular loan, the legal obligation was used for evaluating fair values of the
respective loans. The carrying value of accrued interest receivable was assumed to approximate its
fair value.
ALLOWANCE FOR LOAN LOSSES
As discussed in Note 2, the allowance for loan losses represents an estimate of the credit risk in
Northwest FCS' loan portfolio. Because the discount rate used to adjust the carrying value of each
loan pool to its fair value reflects the credit risk in the loan portfolio, the allowance for loan losses
is not considered necessary in determining the fair value of Northwest FCS' financial instruments.
ASSETS HELD IN NON-QUALIFIED BENEFITS TRUSTS
These assets relate to deferred compensation and supplemental retirement plans. As discussed in
Note 14, the fair value of these assets is quoted net asset values.
NOTE PAYABLE TO COBANK, ACB
Notes payable are not all regularly traded in the secondary market and those that are traded may
not have readily available quoted market prices. Therefore, the fair value of the majority of
instruments is estimated by calculating the discounted value of the expected future cash flows. To
the extent that quoted market prices on like instruments are available, the fair value of these
instruments is estimated by discounting expected future cash flows based on the quoted market
price of similar maturity U.S. Treasury notes, assuming a constant estimated yield spread
relationship between Systemwide bonds and notes and comparable U.S. Treasury notes.
DERIVATIVE ASSETS AND LIABILITIES
The fair value of derivative financial instruments is the estimated amount that Northwest FCS
would receive or pay to replace the instruments at the reporting date. The values are provided by
the Bank based on internal market valuation models.
STANDBY LETTERS OF CREDIT
The fair value of standby letters of credit is based on fees currently charged for similar
agreements.
NOTE 17 > Derivative Instruments and Hedging Activities
Northwest FCS maintains an overall risk management strategy that incorporates the use of
derivative financial instruments to minimize significant unplanned fluctuations in earnings that are
caused by interest rate volatility. Our goal is to manage interest rate sensitivity by modifying the
repricing or maturity characteristics of certain balance sheet assets and liabilities. Northwest FCS
also maintains a foreign exchange risk management strategy to reduce the impact of foreign
currency fluctuations on our foreign currency denominated loan assets. As a result of interest rate
and foreign exchange rate fluctuations, fixed rate assets and liabilities will appreciate or depreciate
in market value. The effect of this variability in earnings is expected to be substantially offset by
gains and losses on the derivative instruments that are linked to these assets and liabilities.
Northwest FCS considers the strategic use of derivatives to be a prudent method of managing
interest rate and foreign exchange risk, as it prevents earnings from being exposed to undue risk
posed by changes in interest rates or foreign exchange rates.
By using derivative instruments, Northwest FCS exposes itself to credit risk and market risk.
Generally, when the fair value of a derivative contract is positive, this indicates that the
counterparty owes Northwest FCS, thus creating a performance risk for Northwest FCS. When the
fair value of the derivative contract is negative, Northwest FCS owes the counterparty and,
therefore assumes no performance risk. Northwest FCS’ derivative activities are monitored by its
ALCO as part of the Committee’s oversight of the Association’s asset/liability and treasury
functions. The Committee is responsible for approving hedging strategies that are developed within
parameters established by Northwest FCS’ Board of Directors. The resulting hedging strategies are
then incorporated into Northwest FCS’ overall risk-management strategies.
66 NORTHWEST FCS
Northwest FCS has purchased an interest rate cap from CoBank to hedge the potential impact of
rising interest rates on our floating-rate debt. If the strike rate of the purchased interest rate cap is
exceeded, Northwest FCS will receive cash flows on the derivative to hedge our floating-rate
funding exposure above such strike levels. The interest rate cap is accounted for as a cash-flow
hedge. The cap has a notional amount of $73 million, and was purchased at a trade-date fair value
of $1,500. As of December 31, 2012, the cap fair value was $129 and the corresponding loss of
$1,371 was recorded to accumulated other comprehensive loss. As of December 31, 2011, the cap
fair value was $477 and the corresponding loss of $1,023 was recorded to accumulated other
comprehensive loss. At December 31, 2010, the cap fair value was $1,996 and the corresponding
gain of $496 was recorded to accumulated other comprehensive loss.
Northwest FCS also uses foreign exchange forward positions to “lock in” a desired cash flow on
foreign currency denominated loans. The specific terms and amounts of the forwards are
determined based on the known cash flows on the loans. Each cash flow is hedged via a separate
foreign exchange forward sale as it arises. As of December 31, 2012, Northwest FCS recorded a
derivative liability of $37 for its executed foreign currency forward contracts, with the
corresponding offset to accumulated other comprehensive loss adjusted in accordance with
accounting guidance on foreign currency translation. The fair value at December 31, 2011, was a
derivative liability of $293 with a corresponding offset to accumulated other comprehensive loss
adjusted in accordance with accounting guidance on foreign currency translation. The fair value at
December 31, 2010, was a derivative liability of $313 with a corresponding offset to accumulated
other comprehensive loss adjusted in accordance with accounting guidance on foreign currency
translation.
NOTE 18 > Quarterly Financial Information (Unaudited)
Quarterly results of operations for the years ended December 31, 2012, 2011, and 2010 follow:
Northwest FCS’ 2012 Quarterly Reports to Stockholders are available free of charge by contacting
Northwest Farm Credit Services, ACA, P.O. Box 2515, Spokane Washington 99220-2515 or
contacting by telephone at (509) 340-5300 or toll free (800) 743-2125 . Northwest FCS’ 2012
Quarterly Reports to Stockholders are also available free of charge at any office location or at
www.northwestfcs.com. The 2013 Quarterly Reports to Stockholders will be available on
approximately May 15, 2013, August 14, 2013, and November 14, 2013. The Northwest FCS 2013
Annual Report will be posted on www.northwestfcs.com by March 14, 2014.
NOTE 19 > Subsequent Event
Northwest FCS has evaluated subsequent events through March 1, 2013, which is the date the
financial statements were issued or available to be issued.
2012 ANNUAL REPORT 67
N O R T H W E S T F A R M C R E D I T S E R V I C E S , A C A
DISCLOSURE INFORMATION REQUIRED BY FARM CREDIT ADMINISTRATION REGULATIONS (UNAUDITED) DESCRIPTION OF BUSINESS
General information regarding the business is incorporated herein by reference to Note 1 of the
financial statements included in this annual report.
The description of significant developments, if any, is incorporated herein by reference to
“Management’s Discussion and Analysis” of Financial Condition and Results of Operations included
in this annual report.
DESCRIPTION OF PROPERTY
Northwest FCS is headquartered in Spokane, Washington. Northwest FCS owns and leases various
facilities across the territory it serves, which are described in this annual report.
LEGAL PROCEEDINGS
Information regarding legal proceedings is incorporated herein by reference to Note 15 of the
financial statements included in this annual report.
DESCRIPTION OF CAPITAL STRUCTURE
Information regarding capital structure is incorporated herein by reference to Note 8 of the
financial statements included in this annual report.
DESCRIPTION OF LIABILITIES
Information regarding liabilities is incorporated herein by reference to Notes 5, 7, 10, 11, 15, and
16 of the financial statements included in this annual report.
SELECTED FINANCIAL DATA
“Five Year Summary of Selected Financial Data” included in this annual report is incorporated
herein by reference.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s Discussion and Analysis included in this annual report is incorporated herein by
reference.
BOARD OF DIRECTORS
Corporate Governance
The Board of Directors of Northwest FCS is comprised of 14 director positions. Eleven directors are
elected by the voting membership. Each represents one of eleven geographic regions that
comprise Northwest FCS’ operating territory. Three directors are elected by the Board. Two of
these board-elected directors are Outside Directors who cannot be customers, stockholders,
employees or agents of any Farm Credit institution. One of these Outside Directors is designated
as a “financial expert” as defined by FCA Regulation. This director brings independence and
financial, accounting, and audit expertise to the Board and chairs the Board’s Audit Committee.
The other Outside Director position is used to bring independence, an outside perspective and
other areas of expertise to enhance Board oversight capabilities. Currently, both Outside Directors
qualify as financial experts and one acts as an alternate to the designated “financial expert.” The
third board-elected director position is a stockholder and is intended to help assure representation
of market segments not currently represented by a stockholder-elected director position or to bring
desired skills or background to the Board.
Northwest FCS’ Board has a comprehensive director training and development program in place.
This training consists of an annual board self-assessment of its governance practices as well as a
comprehensive new director orientation program. This program is intended to develop an
understanding of the roles and responsibilities of a director as well as to familiarize newer Board
members with key areas of financial performance, reporting and board oversight. This training
commitment involves an expectation of attendance by all directors at both Farm Credit System and
non-System meetings, seminars, and conferences as well as completion of a comprehensive board
training and leadership program during their term of service. This balance of training assures not
only an understanding of the Farm Credit System, but also exposes Board members to best
practices of other financial and lending institutions and allows them to benchmark Northwest FCS’
operations against those of other successful lending institutions.
The Board is independent of management. The CEO and Internal Audit report to the Board and no
management or employees may serve as directors. The Board generally has six regularly
scheduled meetings each year, plus interim conference calls as needed between meetings. One of
68 NORTHWEST FCS
those regularly scheduled meetings is conducted as a comprehensive three-day strategic planning
session. The Board currently operates with a structure of five committees – Governance, Audit,
Compensation, Risk and Strategy. These committees are structured to provide focus and expertise
in key areas of board oversight and to enhance the overall efficiency of scheduled Board meetings.
All policies, substantial contracts, and other major initiatives are generally reviewed by one of
these committees, with any actions recommended to the full Board for approval. Each committee
approves an operating statement outlining the purpose of the committee, its duties,
responsibilities, and authorities. Generally, these responsibilities are advisory in nature, with the
full Board acting on committee recommendations. These operating statements are reviewed and
approved by the full Board at least annually. This committee structure is organized to reflect
Northwest FCS’ key financial and operational areas of risk and to enhance the overall effectiveness
of the Board’s oversight of these areas. These committees generally meet as part of regularly
scheduled Board meetings and also conduct conference calls as needed to carry out their
responsibilities between those regular meetings. The following are full descriptions of those
committees:
Governance Committee
This committee is made up of the Chair and Vice Chair of the Board as well as the Chair of the
Compensation, Audit, Risk, and Strategy Committees. In years where a new Board Chair is elected,
the prior year’s Board Chair also serves on this committee. The Governance Committee has the
authority to review, prioritize, and recommend agenda items for Board meetings and is responsible
for all Board policies not assigned to other committees. Committee duties also include serving as
an ad hoc committee on major System and organizational issues as well as legislative and
regulatory affairs, including monitoring Northwest FCS’ lobbying activities. This committee also
oversees the director nomination and Board election processes, director training, Standards of
Conduct, and serves as a Search Committee for appointed director positions and CEO transition, if
needed.
Audit Committee
This committee is made up of at least four Board members, including at least one appointed
Outside Director. All members of the committee are expected to have practical knowledge of
finance and accounting, be able to read and have a working understanding of the financial
statements, or develop that understanding within a reasonable period of time after being
appointed to the committee. The director designated as the “financial expert” serves as the chair
of this committee. Outside Director Christy Burmeister-Smith currently serves in this position. The
Board of Directors has determined that Ms. Burmeister-Smith has the qualifications and experience
necessary to serve as an audit committee “financial expert,” as defined by FCA regulation, and she
has been designated as such. Outside Director Julie Shiflett also qualifies as a financial expert and
is a designated alternate to serve in Ms. Burmeister-Smith’s absence.
Audit Committee members are appointed by the Board. The Audit Committee has unrestricted
access to representatives of the Internal Audit department, independent public accountants, and
Finance Division. Internal Audit reports directly to this committee.
This committee assists the Board in fulfilling its oversight responsibility related to accounting
policies, internal controls, financial reporting practices, and regulatory requirements. This
committee has an operating statement detailing its purpose and key objectives, authority,
composition, meeting requirements, and responsibilities. The operating statement, among other
things, gives the committee the authority to hire and compensate the external auditor, approve all
audit and permitted non-audit services, review the audited financial statements and all public
financial disclosures, meet privately with internal and external auditors, and review any complaints
regarding accounting irregularities and fraud. The operating statement is posted on Northwest FCS’
website www.northwestfcs.com.
Compensation Committee
This committee consists of the Board Chair and Vice Chair, at least one Outside Director, and three
to four other Board members selected by the Board Chair and the Outside Director. Neither the
CEO nor any member of management can be involved in the selection of committee members nor
can they participate in any deliberations of the committee on matters relating to their own
compensation.
The committee is responsible for reviewing and recommending for full Board approval the
performance goals for the CEO and the evaluation of the CEO’s performance against those goals.
It also recommends to the Board all actions necessary to administer the CEO’s base salary and any
short-term or long-term incentive awards under the terms of the CEO’s compensation plan. This
committee is also responsible for recommending to the Board the terms of the Senior Officers’
compensation plan and participation of Senior Officers in that plan. The Board has delegated to the
CEO the responsibility to administer the base salaries of those Senior Officers within Board
approved guidelines. However, the CEO must review the base salary administration with the
Compensation Committee before it becomes effective. The committee also reviews and
2012 ANNUAL REPORT 69
recommends for Board approval any short- or long-term incentives to be awarded to Senior
Officers under the terms of their compensation plan. The committee is also responsible for director
compensation and for oversight of Northwest FCS’ employee salary structure, benefit plans, all
Board policies applicable to those plans and other human resource matters not specifically
assigned to other committees.
Risk Committee
This committee provides oversight for the majority of the enterprise risk management practices of
the association. This committee reviews credit portfolio policies and management reports that
monitor compliance with these policies. It also acts on behalf of the Board on certain delegated
credit related matters. The committee reviews and recommends to the full Board for approval
underwriting standards and portfolio and lending limit policies, which guide all of Northwest FCS’
lending and credit related activities. In addition to monitoring the overall credit characteristics of
the industries Northwest FCS serves and the existing portfolio, the committee also reviews and
recommends to the full Board for approval, certain credit related actions that exceed
management’s delegated authority. This committee also oversees key risk areas associated with
budget, operations, technology, funding, interest rate, liquidity, capital management as well as
those risks associated with its alliance partners and counterparties.
Strategy Committee
This committee provides oversight in developing and monitoring the association’s strategic and
business plans in accordance with Northwest FCS’ mission, policies and procedures. It is
responsible to ensure board planning sessions and the association’s overall strategic planning
processes serve as foundations for the Business Plan. This specifically includes evaluating potential
benefits, costs, risks and strategies for considering opportunities such as emerging technologies,
product development, joint ventures, strategic alliances and mergers and acquisitions. The
committee oversees marketing, advertising and contribution activity. It provides oversight of the
Local Advisor program, Crop Insurance, Business Management Center and Knowledge Center. The
committee also evaluates management’s assessment of the association’s internal strengths and
weaknesses and external factors such as economic, competitor and political trends. The
committee’s authority is generally limited to investigation, development of proposed positions, and
making recommendations to the full Board for approval when appropriate.
Northwest FCS Directors
The following represents information regarding the directors of Northwest FCS, including their
principle occupations, business experience and any business in which they serve on the board of
directors or as a senior officer. Unless otherwise noted, the principle occupation, business
experience and employment of the directors over at least the past five years, is related to their
farming, ranching or aquatics operations described below.
Rick Barnes – Callahan, California
Elected in 2010; term expires 2015
Principal Occupation/Experience: Owner/Operator, Limerock Ranch, a cow-calf operation with
some timber. Also produces grass hay for the horse market.
Other Affiliations: Director, Siskiyou Resource Conservation District
Christy Burmeister-Smith – Newman Lake, Washington
Board-Elected Outside Director
Elected in 2010; term expires 2015
Principal Occupation/Experience: Vice President-Controller and Principal Accounting Officer at
Avista Corporation, a provider of utility services. Serves as the designated “financial expert’ on the
Northwest FCS Board.
Other Affiliations: Director, Avista Foundations, a community investment program providing
funding to non-profit organizations; Director, YWCA of Spokane, social services provider
Drew Eggers – Meridian, Idaho
Elected in 2001; term expires 2014
Principal Occupation/Experience: Owner/operator, Drew Eggers Farms. Raises peppermint,
spearmint, winter wheat and silage corn.
Other Affiliations: Chairman, Leadership Idaho Agriculture Foundation
Jim Farmer – Nyssa, Oregon
Elected in 2010; term expires 2015
Principal Occupation/Experience: Part owner/Board member and Secretary/Treasurer,
Deseret Farms, a row crop farming operation. Serves as President/Board member, Fort Boise
Produce, a fresh onion packing and marketing operation.
Other Affiliations: Secretary/Treasurer, Nyssa Rural Fire Protection District
70 NORTHWEST FCS
Mark Gehring – Salem, Oregon
Elected in 2010; term expires 2015
Principal Occupation/Experience: Owner/operator, Gehring Farms; Managing Member, Gibson
Creek Farms, LLC. Raises marionberries, blackberries, radish seed, wheat and turf grass seed.
Other Affiliations: Mr. Gehring’s interests in RainSweet/RS Growers, Inc., a Salem, Oregon fruit
and vegetable processor, were sold to family members in 2012. Prior Board Chair, RainSweet/RS
Growers.
David Hedlin – Mt. Vernon, Washington
Elected in 2006; term expires 2016
Principal Occupation/Experience: Owner, R C Koudal Land Co. Raises vegetable seed, pickling
cucumbers, pumpkins and wheat.
Other Affiliations: Board Member, Northwest Ag Research Foundation, Skagitonians to Preserve
Farmland, and Skagit Valley Culinary Arts; Commissioner, Skagit County Dike District #9.
John Helle - Dillon, Montana
Elected in 2012; term expires 2017
Principal Occupation/Experience: Owner, Helle Livestock, a commercial and purebred sheep
operation. Runs cow/calf pairs and farms small grains and hay.
Other Affiliations: None
Herb Karst – Sunburst, Montana
Elected in 2008; term expires 2013
Principal Occupation/Experience: President, Karag, Inc., a family-held corporation producing
wheat, malting barley and other crops on a 4,300 acre farm in the joint venture 1927 Homestead.
Barley production consultant with Heineken International.
Other Affiliations: Board Member, The Farm Credit Council, a Farm Credit System trade
association handling legislative and regulatory matters.
Ed Malesich – Dillon, Montana
Elected in 1999; term expired 2012. Due to term limits, Mr. Malesich could not run for re-election.
He served as a director until his replacement was seated in March 2012.
Principal Occupation/Experience: Owner/President, Malesich Ranch Co.; Secretary/Treasurer,
Stone Creek Ranch. Commercial cow-calf operation, raises wheat, malt barley, and alfalfa hay.
Other Affiliations: Vice Chairman, Rocky Mountain Supply, a southwest Montana supply
cooperative; Director, CHS, Inc.
Bruce Nelson – Spokane, Washington
Elected in 1999; term expires 2014
Principal Occupation/Experience: Owner, Nelson Farms, Inc., Silver Creek Farms, Inc., and
Twin Buttes Farms, Inc., raising several varieties of wheat, peas, lentils, barley and nursery trees.
Other Affiliations: Director, Washington’s Nature Conservancy Board; Ag Advisory Board
Member for Congresswoman Cathy McMorris Rodgers
Dave Nisbet – Bay Center, Washington
Board-elected stockholder director
Elected in 2007; term expires 2017
Principal Occupation/Experience: Owner, Nisbet Oyster Co., Inc.; President and CEO, Goose
Point Oysters, Inc., and Hawaiian Shellfish, LLC, growing Pacific oysters and shellfish processing
plant.
Other Affiliations: Director, Pacific Shellfish Institute; Advisory Board Member, Oregon State
University Coastal Oregon Marine Experiment Station (COMES); Executive Board Member, OSU
Seafood Consumer Center.
Kevin Riel – Yakima, Washington
Elected in 2007; term expires 2017
Principal Occupation/Experience: President, Double R Hop Ranches, Inc., President, Trigen
Enterprises, Inc., Managing Partner, WLJ Investments LLC, and 4K Investments, LLC. Raises hops,
apples and Concord grapes.
Other Affiliations: Director, Hop Growers of America
Karen Schott – Broadview, Montana
Elected in 2006; term expires 2016
Principal Occupation/Experience: Owner/Secretary, Bar Four F Ranch, Inc. Raises winter
wheat, spring wheat, peas, and lease pasture operation.
Other Affiliations: Advisory Board Member, Southern Montana Experiment Station; President,
Broadview Community Center Board
2012 ANNUAL REPORT 71
Julie Shiflett – Spokane, Washington
Board-Elected Outside Director
Elected in 2008; term expires 2013
Principal Occupation/Experience: Executive Vice President and Chief Financial Officer, Red
Lion Hotels; founding partner of Northwest CFO, which assists emerging and mid-market
companies to increase cash flow, profitability, sales, and company value; past CFO for Signature
Genomic Laboratories and Columbia Paint and Coatings. Serves as the alternate to the designated
“financial expert” on Northwest FCS’ Board.
Other Affiliations: Chair, Deaconess Medical Center Board of Trustees; Director and Audit
Committee Chair, American Chemet Corporation, a powder based chemicals manufacturer.
Shawn Walters – Newdale, Idaho
Elected in 2010; term expires 2016
Principal Occupation/Experience: Owner, Shawn Walters Farms, Inc.; Co-Owner, Walters
Produce, Inc.; Partner in Walters & Walters, Aristocrat Farms, Idaho Grain Producers, Walters
Osgood Farms, and Walters Family Limited Partnership. Operates a fresh pack potato facility,
grows potatoes, wheat, barley and alfalfa.
Other Affiliations: Director, Enterprise Canal; Director, Idaho Business Council
COMPENSATION OF DIRECTORS
Director compensation is under the oversight of the Board’s Compensation Committee. The
committee conducts periodic director compensation studies to identify current compensation paid
to directors of Farm Credit and other similar entities. Based upon these studies, the compensation
committee recommends for approval adjustments to director compensation including any pay
differentials paid to the chairman or other key board positions. Absent such a study, board policy
limits any adjustment to director compensation to the cost of living index published each year by
FCA. Increases to director compensation typically become effective May 1 of each year.
Director compensation in 2012 was set at a rate of $48,798 per year for all directors. The Board
Chair and Chairs of both the Audit and Compensation Committees are paid $53,678. This
represents an additional 10 percent, and reflects their unique responsibilities and significant
additional time demands of these three positions. Director compensation paid annually to all
directors was increased effective May 2012 by $1,493 ($1,648 in the case of the Chair of the Board
and the Chairs of the Audit and Compensation Committees). Each director receives a monthly
retainer of $4,067 and the Board Chair and Chairs of the Audit and Compensation Committees
receive a monthly retainer of $4,473. No additional per diem is paid for attendance at Northwest
FCS meetings or functions. If a director is not able to attend a regular monthly board meeting,
then the director only receives the monthly retainer if attendance at or performance of other
official business during that month warrant that payment. In addition, Northwest FCS purchases an
Accidental Death and Disability policy for each director.
Directors and Senior Officers are reimbursed for reasonable travel expenses and related expenses
while conducting association business. In addition, directors are allowed reimbursement for
expenses related to their spouse attending the Annual Stockholder and Local Advisors Meeting,
summer planning session, the December Board meeting and one national meeting each year.
Directors’ spouse travel expenses may also be reimbursed for the legislative fly-in- if the spouse
participates in Congressional visits. In all other cases, spouse expenses are reimbursed only if
attendance at a meeting is preapproved by the Board. The aggregate amount of expenses
reimbursed to directors in 2012 was $106,789 compared to $137,382 in 2011 and $156,691 in
2010. The Director Compensation policy is available and will be disclosed to stockholders upon
request.
Information for each director for the year ended December 31, 2012, is as follows:
72 NORTHWEST FCS
SENIOR OFFICERS
Listed below is the CEO and eight Senior Officers of Northwest FCS who served during 2012. These
Senior Officers reported to the CEO and were on the Management Executive Committee (MEC) of
Northwest FCS. Information is provided on the experience of these Senior Officers, as well as on
any business for which they serve on the board of directors or act as a senior officer and the
primary business of that organization.
Phil DiPofi, President and CEO
Mr. DiPofi has served as President and CEO since January 1, 2011. Prior to that, he held various
senior officer positions with CoBank. Mr. DiPofi currently serves on the Board of Financial Partners,
Inc. (FPI) which provides technology support for Farm Credit institutions, including Northwest FCS.
He also serves on the board of Second Harvest Food Bank in Spokane, Washington. Second
Harvest leads a network of 250 neighborhood food banks and meal centers throughout Eastern
Washington and North Idaho.
Jim Allen, Senior Vice President-Capital Markets
Mr. Allen has served as Senior Vice President-Capital Markets since the unit’s inception in 1995. He
served on the MEC in early 2011 during the management transition and was then re-appointed in
July 2011, serving the remainder of the year. Prior to that, he held various positions for Northwest
FCS since being hired in 1978.
Fred DePell, Executive Vice President-Financial Services
Mr. DePell has served as Executive Vice President-Financial Services since 1992. Prior to that, he
held various positions for Northwest FCS since being hired in 1978. Mr. DePell serves on the board
of directors of the YMCA of the Inland Northwest (YMCA) headquartered in Spokane, Washington.
The YMCA is part of the largest not-for-profit community service organizations in America, working
to meet the health and social service needs of men, women and children.
Brent Fetsch, Senior Vice President-Chief Strategy Officer and Chief Information
Officer
Mr. Fetsch has served as Senior Vice President-Chief Strategy Officer and Chief Information Officer
since January 2011. Prior to that, he was Senior Vice President-Community Lending and also held
various positions for Northwest FCS since being hired in 1987.
Stacy Lavin, General Counsel
Mr. Lavin has served as General Counsel since May 2011. Prior to that, he was Assistant General
Counsel. Mr. Lavin has worked for Northwest FCS since 2001.
Tom Nakano, Executive Vice President-Chief Financial Officer
Mr. Nakano has served as Executive Vice President-Chief Financial Officer since October 2004.
Prior to that he was Vice President-Loan Accounting and Operations and held various positions for
Northwest FCS since being hired in 1993. Mr. Nakano serves on the Farm Credit Foundations
Consolidated Benefit Trust Committee. This committee oversees the fiduciary and plan
administrative responsibilities of the medical and welfare benefit plans offered by a number of
Farm Credit employers. He also serves as a board member of the Oregon State University Alumni
Association which engages alumni and friends to promote the advancement of the university and
build alumni membership, programs and value-added services.
Mark Nonnenmacher, Executive Vice President-Agribusiness
Mr. Nonnenmacher has served as Executive Vice President-Agribusiness since April, 2012. Mr.
Nonnenmacher has over 24 years of experience in the Farm Credit System, most recently at
CoBank managing the agribusiness lending operations of their Western Region.
Kathy Payne, Executive Vice President-Human Resources and Corporate
Administration
Ms. Payne has served as Executive Vice President-Human Resources and Corporate Administration
since July 2011. Prior to that she served as Executive Vice President-Human Resources and
Marketing, in a lead position in the Human Resources department since 1992 and in various other
positions since being hired in 1988. Ms. Payne serves on the board of directors of the Farm Credit
Foundations Consolidated Plan Sponsor Committee which oversees the plan design and non-
fiduciary responsibilities associated with the benefit plans offered by a number of Farm Credit
employers.
John Phelan, Executive Vice President-Chief Risk Officer
Mr. Phelan has served as Executive Vice President and Chief Risk Officer since January 2011. Prior
to that, he was Senior Vice President-Commercial Lending and held various positions with
Northwest FCS since being hired in 1992.
2012 ANNUAL REPORT 73
COMPENSATION OF CEO AND SENIOR OFFICERS
Executive Compensation - Summary
Our compensation program for the CEO and Senior Officers of Northwest FCS is designed to
reward management for performance that builds long-term value for our stockholders, fulfills our
mission, ensures safety and soundness of our organization and builds the value of our cooperative.
We accomplish this by tying a significant portion of compensation for our leadership team to
balanced scorecards of performance measures that are consistent with our strategy and mission.
To demonstrate our commitment to align compensation with strong governance practices that are
in our stockholders’ interests, in 2012, the Compensation Committee (Committee):
Approved a number of enhancements that strengthen the linkage between pay and
performance of the organization,
Implemented changes that place more emphasis on multiple-year measurements to
reward for sustained performance,
Reviewed the competitive marketplace to ensure competitiveness of compensation,
Reviewed the overall compensation program design, including incentive plans, to ensure
it does not encourage excessive risk taking, and
Assessed Committee governance to ensure the Committee follows best governance
practices, and modified its charter accordingly, including retaining its own independent
consultant.
Compensation Philosophy
Our compensation program is intended to:
Support a strong and enduring cooperative enterprise,
Successfully execute our mission,
Reinforce a high-performance culture through pay for performance,
Attract and retain talented staff needed to achieve our mission, and
Provide competitive total compensation opportunities that balance current rewards with
long-term opportunities, and that provide security contingent upon performance.
Linking Pay and Performance
Our framework for compensation is designed to pay for performance. To achieve competitive
compensation levels, our management must achieve strong results across multiple measures of
performance. As a result, a large percentage of their compensation is “at risk” - if Northwest FCS
results are below our plan, compensation paid will be less than competitive levels. The at-risk
component of compensation is provided through short- and long-term incentives while the “fixed”
portion is salary and benefits, as explained below.
Program Design Our compensation program for the CEO and Senior Officers has four components:
Component Purpose
Salary Pay a competitive salary to reward for experience, skills and performance.
Provide a competitive basis for other rewards based on salary.
Short-Term
Incentive Plan
(STIP)
Reward for accomplishing annual Northwest FCS’ goals that over time result
in long-term success. Reward for profitability, return on stockholder equity,
loan quality, expense control, and achieving strategic goals. Reward for
individual employee contributions.
Long-Term
Incentive Plan
(LTIP)
Reward for sustained performance, safety and soundness of Northwest FCS.
Reward for achieving multiple-year Northwest FCS’ goals for profitability,
return on stockholder equity, loan quality, capital adequacy and achieving
strategic goals. Retain top performers through long-term payouts based on
performance.
Benefits Provide financial security and convenience for our employees through a
competitive benefits program and limited perquisites; considered “indirect”
compensation.
Total Each component and the total compensation package is managed to be
competitive and ensure a linkage to performance.
Performance Assessment
The Committee implemented a framework of multiple performance metrics and goals and
individual performance assessment to reinforce our pay for performance philosophy.
This framework balances annual and multiple-year performance measurement scorecards that are
composed of multiple measures. In 2012, the Committee approved the implementation of a new
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STIP based upon multiple measures of performance, including individual performance, and a new
LTIP that is based upon multiple years of performance, replacing the prior LTIP.
The following table summarizes the scorecards for each plan:
Component Weight Measure/Goal Performance Period
STIP 30%
20%
20%
10%
20%
After-tax Net Income
Return on Equity
Adverse Assets/Risk Funds
Efficiency Ratio
Strategic Business Objectives
Annual
LTIP 15%
15%
25%
20%
25%
After-tax Net Income
Return on Equity
Adverse Assets/Risk Funds
Core Capital
Strategic Business Objectives
Multiple-Year
The Committee approves financial targets and goals for each category at the beginning of each
performance period, including minimum levels of performance that are required for an award to be
earned in each category, and maximum levels of performance on which incentive will be paid. The
approved financial targets and goals are aligned with the organization’s business plan financial
metrics to ensure Senior Officer incentives match business plan objectives. The Committee retains
discretion to adjust awards or performance assessments as needed to ensure rewards
appropriately represent pay for performance.
In addition to the measures and goals listed above, the adjustments to base salary and STIP
awards are also determined based upon individual performance of the participant. As a part of the
Northwest FCS’ performance management process, all employees are provided performance
reviews and in the case of the CEO, the performance review is conducted by the Committee with
input from the Board of Directors.
2012 Compensation Decisions
All Senior Officers appointed to serve on the MEC participate in the STIP and LTIP. The target
awards for the STIP range from 25 percent to 60 percent of salary and the actual STIP awards
may range from 0 percent to 200 percent of their target awards depending upon Northwest FCS’
performance and individual performance. STIP awards are paid in the year following the
performance period, after the Committee approves achievement of financial targets and goals and
individual awards to Senior Officers. Target awards for the LTIP implemented in 2012 range from
20 percent to 60 percent of salary with a range of opportunity from 0 percent up to 200 percent of
their target award.
The LTIP was implemented in 2012 with a plan that is based upon 2012-13 performance. In
addition, to facilitate the transition from the prior LTIP to the new LTIP, a one-year “stub-plan”
was implemented that was based upon 2012 performance. LTIP awards for the 2012 stub plan will
be paid in 2013 based upon the 2012 performance period after the Committee approves
achievement of financial targets and goals. The 2012-2013 LTIP awards, if any, will be paid in
2014.
The measures used in incentive compensation are what we believe to be the key drivers of
Northwest FCS’ long-term success, and are directly correlated to the pay received by Senior
Officers. Components of Senior Officer compensation increased or decreased in 2012 based on the
level of achievement of these goals, which are tied to Northwest FCS’ mission and strategy. To calculate incentive awards, Northwest FCS aggregates the performance under each plan and
calculates a separate Corporate Performance Factor (CPF) for the STIP and LTIP. For the STIP,
individual performance is assessed (see Performance Assessment above) and used to determine an
Individual Performance Factor (IPF) used in the incentive award calculation. Actual awards under
the STIP and LTIP for the CEO and Senior Officers were determined as follows:
Actual STIP and LTIP awards earned for the President and CEO and other Senior Officers are
presented in the Summary Compensation Table below.
Discouraging Imprudent Risk Taking
Our compensation program is structured to provide a balance of components that are based upon
multiple financial and non-financial measures of performance. It is designed to encourage the
appropriate level of risk-taking consistent with maintaining safety and soundness and
2012 ANNUAL REPORT 75
measurements aligned with our business strategy and mission. The Committee has taken the
following measures to ensure our compensation program does not encourage inappropriate risk
taking:
Implemented caps on incentive plans,
Implemented a new LTIP that measures performance over more than one year,
Designed our incentive plans to provide rewards based upon multiple financial and non-
financial measures and goals,
Incorporated individual performance that is based upon our performance management
system into the STIP awards,
Engaged our independent consultant to conduct a risk review of compensation and
benefit programs,
Approved performance targets and ranges for STIP and LTIP metrics consistent with our
business plan, strategy and mission, and
Retained discretion to adjust awards as needed.
Compensation Governance Process and Decisions
The Committee is composed of members of our Board of Directors and recommends to the Board
CEO and Senior Officer compensation decisions. In carrying out its responsibilities, the Committee
regularly reports to and consults with the Board and, when appropriate, discusses compensation
matters with the CEO. The Committee reviews pay and performance matters throughout the year
with the assistance of its independent consultant. The Committee’s process includes:
Selecting and approving performance measures in the balanced scorecards and Senior
Officer individual performance goals for performance assessment,
Reviewing mid-year performance results and accruals of STIP and LTIP awards,
Reviewing corporate performance against approved goals and determining final
achievement,
Assessing CEO performance and reviewing Senior Officer performance assessments
conducted by the CEO,
Determining each component of CEO compensation and approving each component of
Senior Officer compensation for the next fiscal year using market comparisons and
performance assessments,
Approving actual awards under incentive programs based upon performance
assessments,
Approving overall compensation plans and any design changes to compensation
programs for the next fiscal year,
Reviewing and approving programs that provide benefits or potential benefits to
management such as employment agreements, severance benefits and other benefit
programs, and
An annual assessment of the risk of programs to ensure the operation of the programs
does not create a material adverse risk to the organization.
In conducting its responsibilities as determined by the Board, the Committee has considered the
minimum requirements of this Committee including:
Long-term compensation and retirement benefit obligations and concluded these are
appropriate for the participants in the plans and their roles and responsibilities,
Incentive programs in the risk review to determine these programs are not unreasonable
or disproportionate to the services provided by Senior Officers and other employees of
Northwest FCS, and
Levels and design of Senior Officer total compensation to ensure alignment with
Northwest FCS’ strategy.
CEO Compensation
The Committee reviews the CEO’s total compensation based on the CEO’s performance, Northwest
FCS’ performance and market considerations prepared by the independent consultant. Market
considerations include compensation for CEOs of comparable financial institutions, including other
Farm Credit System entities, approved by the Committee annually. The CEO participates in the
STIP and LTIP programs provided for Senior Officers of Northwest FCS, in addition to receiving
salary and benefits. The CEO’s STIP potential in 2012 was a target of 60 percent to be awarded for
meeting these pre-established goals described above, and with the opportunity to earn up to 120
percent for exceeding those goals. The CEO’s LTIP award potential is a target of 60 percent to be
awarded for meeting these pre-established goals, with a maximum award of 120 percent for
exceeding those goals.
The “Short-term Bonus” shown in the table below reflects the STIP earned by the CEO in each
year. The “Deferred Award” shown for 2010 and 2011 reflects the LTIP award earned by the CEO
in each year together with any gains or losses incurred on these funds while held in Trust in each
of the years identified. The first award from the new LTIP represents the “stub plan” award for
76 NORTHWEST FCS
performance against pre-established goals for 2012 when this plan was implemented. In the
future, awards will be based upon either 2 or 3 years of performance.
Because Mr. DiPofi was not able to participate in Northwest FCS’ Defined Benefit Pension Plan, in
addition to his compensation outlined above, Northwest FCS makes an annual contribution to his
Non-Qualified Defined Contribution Plan. The amount is equal to the lesser of $200,000 or 15
percent of the total of his base salary and short-term incentive award each year. It is reported
under “Perquisites/Other” in the table below.
CEO Compensation shown for 2010 in the chart below reflects that paid to Mr. Penick, President
and CEO of Northwest FCS until his retirement on December 31, 2010. Compensation for the years
2011 and 2012 reflect that awarded or paid to Mr. DiPofi, who assumed the position of President
and CEO effective January 1, 2011.
Senior Officer Compensation
Senior Officers participate in the STIP and LTIP in addition to receiving base salary and benefits
generally provided to management personnel. The Committee reviews the Senior Officers’ total
compensation based on their individual performance assessments provided by the CEO, Northwest
FCS’ performance and market considerations prepared by the independent consultant using the
same comparable financial institutions as used for the CEO’s compensation. The STIP and LTIP
provide Senior Officers the opportunity to earn awards as a percent of their base salaries for
meeting pre-established performance goals. For 2012, STIP targets ranged from 25 percent to 40
percent with the potential to earn a maximum of 50 percent to 80 percent for exceeding those
goals, and LTIP targets ranged from 20 percent to 35 percent with the potential to earn a
maximum of 40 percent to 70 percent for exceeding those goals.
Summary Compensation Table
The compensation shown in the table below is the actual compensation earned by the CEO and
Senior Officers during the years ended December 31, 2012, 2011, and 2010. The short-term
incentive shown in the next table for the Senior Officers reflects the combined short-term incentive
earned in each year, which is paid to these Senior Officers in the following year once final year-end
financial performance has been determined. The “Deferred Award” in this chart reflects the
combined long-term awards to the Senior Officers who participated in a long-term incentive plan in
the year they were earned, together with any gains or losses incurred on those awards that are
held in trust, in the year identified. These awards are subject to market value fluctuations while
held in trust. Therefore, the amount actually paid reflects those gains/losses while held in Trust.
The first award from the new long-term plan represents the “stub plan” award for performance
against pre-established goals for 2012 when this plan was implemented. In the future, awards will
be based upon either 2 or 3 years of performance, as previously discussed.
* Jay Penick (2010 only) and Phil DiPofi (2011 and 2012 only)
**Deferred Awards – This figure reflects the principal amount of the long-term incentive earned in
each of the years shown along with gains/losses incurred on the funds held in trust that year. In
the case of Senior Officers, this amount also includes retention awards made to those officers who
did not participate in the long-term incentive plan.
***Perquisites/Other - The CEO and select Senior Officers are provided a leased vehicle for their
business and personal use. The income related to personal use of those vehicles, as determined by
Internal Revenue Service regulations, is included in the their total compensation. This item
includes any cash or non-cash compensation or awards paid to the CEO or these Senior Officers.
In years where the total volume of these perquisites is less than $5,000, no reporting is required.
The 2010 figure includes a one-time retention payment made to Mr. Penick to assist with the
transition to the new CEO as needed throughout 2011, and the residual value of the leased vehicle
that was given to Mr. Penick on his retirement. The 2011 and 2012 figures include the income
related to Mr. DiPofi’s personal use of the leased vehicle he is provided, and the annual
contribution to his nonqualified deferred compensation plan described above. In addition, the 2011
figure also includes a portion of his moving and relocation expenses that were “grossed up” to
compensate him for the tax impact of those reimbursed expenses.
****The number of Senior Officers (excluding the CEO) shown in the chart above who served in
2012 was eight; in 2011 was ten; and in 2010, was seven and included Mr. DiPofi, who served as
COO – President and CEO-elect during the month of December 2010.
2012 ANNUAL REPORT 77
Total compensation paid during the last fiscal year to any Senior Officer, or to any other employee
included in the aggregate, is available and will be disclosed to stockholders upon request. Senior
Officers are reimbursed for travel expenses and related expenses while conducting business for
Northwest FCS.
The combined long-term awards actually paid to the Senior Officers (excluding the CEO) were
$179,550, $1,281,804 and $265,169 for the years 2012, 2011 and 2010, respectively. These
reflect long-term awards made in 2008, 2007 and 2006, respectively, that were actually paid out in
the years noted and include gains/losses on those amounts while held in trust. This includes the
retention payment made to those Senior Officers who do not participate in the long-term incentive
plan. The 2011 figure also includes the complete payout of all LTIP awards held in trust for two
Senior Officers who retired in 2011.
TRANSACTIONS WITH SENIOR OFFICERS AND DIRECTORS
Information regarding related party transactions is incorporated herein by reference from Note 12
to the financial statements included in this annual report.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
There were no events during the past five years that are material to evaluating the ability or
integrity of any person who served as a director or Senior Officer on January 1, 2013, or at any
time during 2012.
RELATIONSHIP WITH INDEPENDENT PUBLIC AUDITORS
There were no changes in independent public auditors since the prior annual report to
stockholders. There were no material disagreements with the independent public accountants on
any matter of accounting principles or financial statement disclosure during this period.
AUDIT FEES AND EXPENSES
Fees and expenses incurred by Northwest FCS for audit services rendered by its independent
auditors, PricewaterhouseCoopers, LLP, for the years ended December 31, 2012, 2011 and 2010,
were $368,500, $368,500 and $379,500, respectively. These fees and expenses were incurred for
the annual financial statement audit, including the audit of internal controls over financial reporting
as of December 31, 2012, 2011, and 2010.
FINANCIAL STATEMENTS
The financial statements, together with the Report of Independent Auditors dated March 1, 2013,
and the Report of Management appearing in this annual report, are incorporated herein by
reference.
RELATIONSHIP WITH COBANK, FCB
Northwest FCS’ statutory obligation to borrow from CoBank, FCB is discussed in Note 7.
CoBank, FCB’s ability to access the capital of Northwest FCS is discussed in Note 4.
The major terms of any capital preservation, loss sharing or financial assistance agreements
between Northwest FCS and CoBank, FCB are discussed in Notes 1 and 8.
A discussion of how the financial condition and results of operations of CoBank, FCB may
materially affect stockholder investment in Northwest FCS and Northwest FCS’ investment in
CoBank, FCB is discussed in Note 1.
CoBank, FCB is required to distribute its annual report to shareholders of Northwest FCS if a
“significant event,” as defined by FCA regulation occurs.
PRIVACY PROTECTION AFFORDED UNDER FCA REGULATIONS
Customer financial privacy and the security of other non-public information are important.
Therefore, Northwest FCS holds customer financial and other non-public information in strict
confidence. Federal regulations allow disclosure of such information by Northwest FCS only in
certain situations.
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N O R T H W E S T F A R M C R E D I T S E R V I C E S , A C A
DESCRIPTION AND STATUS REPORT ON THE YOUNG, BEGINNING AND SMALL FARMERS PROGRAM Program Definitions Northwest FCS has a specific program in place to serve the credit and related needs of young,
beginning, and small farmers and ranchers (YBS) in our territory. The definitions of young,
beginning, and small farmers and ranchers, as developed by the Farm Credit Administration follow:
• Young – A farmer, rancher, producer or harvester of aquatic products who is age 35 or
younger, as of the loan transaction date.
• Beginning – Any farmer, rancher, producer or harvester of aquatic products who has 10
years or less farming or ranching experience, as of the loan transaction date.
• Small – Any farmer, rancher, producer, or harvester of aquatic products who generates less
than $250,000 in annual gross sales of agricultural or aquatic products.
Mission and Objectives
Mission Statement:
To advance young, beginning, and small farmers' success via deliberate strategies in lending and
professional development.
Objectives of the program: • To support agriculture by encouraging and developing competent YBS customers to enter into
or remain in agriculture by supporting their efforts to do so.
• To recognize the challenges facing YBS customers attempting to obtain credit and establish a
viable enterprise and to establish Northwest FCS as a leader in providing those products and
services necessary for them to overcome those challenges.
• To develop business relationships with next generation producers who:
o Exhibit the management skills necessary to build a solid financial position.
o Contribute to the agricultural community.
o Will become profitable customers for the association.
• To provide adequate Board oversight to ensure the needs of this market are met on a
constructive, safe, and sound basis.
Services Provided Several credit and related services are offered through the Board approved YBS program directly
and in coordination with other organizations that allow Northwest FCS to effectively serve the
needs within these producer segments:
• AgVision is the Board approved program that enriches our ability to serve the young,
beginning, small, and minority producers who are actively involved in farming and those who
may not meet traditional credit standards. AgVision customers account for approximately
$245 million of loan volume. Through this program, special consideration is given in loan
underwriting ratios, interest rate concessions, and origination and appraisal fee waivers. Over
$1 million in fee waivers have been provided to AgVision customers since 2001, with over
$100,000 in fees waived in 2012.
• More than $425,000 has been reimbursed to customers for educational expenses, technology
purchases, recordkeeping, and tax planning and preparation services since the 2001 inception
of the AgVision program. Reimbursements totaled $66,488 in 2012.
• An advisory group of young, beginning, and small farmers and ranchers was created to
provide Northwest FCS with customer feedback, function as a liaison to association
management, and advance YBS program impact within the agricultural community.
• Training programs are targeted to young, beginning, small, and minority producers, focusing
on areas such as farm economics, financial literacy, profitability, cash flow and succession
planning. Several workshops are held in Spanish each year.
• The Northwest FCS’ Business Management Center helps customers assess, understand, and
improve management practices through group and individual interactions via orientations,
workshops, and consulting. Many YBS customers have taken part in these various workshops.
• Northwest FCS provides donations and sponsors state and local FFA activities and
conventions, state 4-H activities and conventions, agricultural leadership and educational
programs, and other youth programs.
• In 2012, Northwest FCS awarded thirty-two $1,500 college scholarships to qualified high
school seniors and twelve $1,500 scholarships to college students.
2012 ANNUAL REPORT 79
• Northwest FCS offers many services; including crop insurance, life insurance, and debt
protection that help our YBS producers mitigate risk.
• A portion of the young, beginning, and small loan portfolio is supported by government
guarantees, including guarantees by the Farm Service Agency (FSA) and USDA’s Business and
Industry Guaranteed Loan Program.
Government Guaranteed Loans to YBS Farmers and Ranchers
Regional Demographics The service area of Northwest FCS primarily includes the states of Washington, Montana, Oregon,
Idaho, and Alaska. The following table compares demographic information from the USDA’s 2007
Census of Agriculture for young, beginning, and small producers in the territory to the 2002
census. This census is conducted every five years. 2012 Census data will be available in early
2014.
Census of Agriculture - Young, Beginning, and Small Producers
2007 vs. 2002
The 2007 Census of Agriculture results show a 2 percent increase in young producers, a 1 percent
increase in small producers and a 3 percent decrease in beginning producers from 2002 to 2007.
YBS Volume in the Northwest FCS Portfolio The following table reflects the percentage of young, beginning and small producers’ loans in the
Northwest FCS loan portfolio as of December 31, 2012. Methods by which the Census
demographics and the Northwest FCS’ data presented differ. The Census data is based on number
of producers, while the Northwest FCS’ data is based on number of loans.
Young, Beginning, Small Farmers and Ranchers – Number and Volume of Loans
Outstanding (Including available commitment)
Goals and Results Quantitative targets have been established by Board policy for young, beginning and small
producers’ loan volume and numbers based upon demographic data. These targets are as follows:
2012 Young, Beginning and Small Service Goals & Results
The data reveals Northwest FCS met its loan number and volume goals for young producers.
Although the data reveals that Northwest FCS did not meet its loan number goals for beginning
and small producers, Northwest FCS did see an increase in small producers from 2011. Some of
the decrease in volume and numbers can be attributed to the positive agricultural environment in
2012. Northwest FCS will continue its mission to advance young, beginning, and small farmers
through deliberate lending strategies and educational opportunities.
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