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Click Here to Read Cobank's 2015 Annual Report 6340 S. FIDDLERS GREEN CIRCLE GREENWOOD VILLAGE, CO 80111 ON THE FUTURE FOCUSED ROOTED IN THE PAST 800-542-8072 2015 ANNUAL REPORT 2015 6340 S. FIDDLERS GREEN CIRCLE GREENWOOD VILLAGE, CO 80111 ON THE FUTURE FOCUSED ROOTED IN THE PAST 800-542-8072 2015 ANNUAL REPORT 2015 FINANCIAL HIGHLIGHTS KEY METRICS 2015 49% STRATEGIC AS AN INTEGRAL MEMBER OF THE FARM CREDIT 22% RELATIONSHIPS RURAL INFRASTRUCTURE SYSTEM, OUR MISSION IS TO SERVE AS A DEPENDABLE PROVIDER OF CREDIT AND OTHER VALUE-ADDED FINANCIAL SERVICES 29% AGRIBUSINESS TO AGRICULTURE AND RURAL INFRASTRUCTURE Total Loans BUSINESSES FOR THE BENEFIT OF RURAL AMERICA. $89 BILLION AT 12/31/15 $117 $937 FOR THE YEAR 2015 2014 2013 $904 ($ in millions) $107 $856 $98 NET INTEREST INCOME $ 1,273 $ 1,232 $ 1,163 PROVISION (REVERSAL) FOR LOAN LOSSES 10 (15 ) – NET INCOME 937 904 856 PATRONAGE DISTRIBUTION 514 467 415 AT YEAR-END 2015 2014 2013 ($ in millions) AGRIBUSINESS $ 26,131 $ 24,359 $ 21,182 STRATEGIC RELATIONSHIPS 43,358 39,919 37,897 2013 2014 2015 2013 2014 2015 Total Assets Net Income RURAL INFRASTRUCTURE 19,552 16,104 14,524 ($ in billions) ($ in millions) TOTAL LOANS 89,041 80,382 73,603 $514 $7,810 $7,370 ALLOWANCE FOR CREDIT LOSSES 602 597 615 $467 $6,705 $415 TOTAL ASSETS 117,471 107,381 97,596 TOTAL SHAREHOLDERS’ EQUITY 7,810 7,370 6,705 FINANCIAL RATIOS 2015 2014 2013 (for the year) RETURN ON AVERAGE COMMON EQUITY 13.57 % 14.27 % 14.40 % RETURN ON AVERAGE ASSETS 0.86 0.89 0.91 RETURN ON ACTIVE PATRON INVESTMENT 19.76 18.59 17.53 NET INTEREST MARGIN 1.20 1.23 1.26 2013 2014 2015 2013 2014 2015 Patronage Total Shareholders' 14.95 15.70 16.72 Distribution Equity PERMANENT CAPITAL RATIO (at year end) ($ in millions) ($ in millions) T ABLE OF C ONTENTS “ 2 LETTER TO SHAREHOLDERS THE YEAR 2015 WAS ONE OF EXCEPTIONAL 8 BOARD OF DIRECTORS PERFORMANCE FOR 10 AGRIBUSINESS PORTFOLIO COBANK ON BEHALF OF THE CUSTOMERS 11 RURAL INFRASTRUCTURE PORTFOLIO WE SERVE ACROSS “ 13 STRATEGIC RELATIONSHIPS PORTFOLIO RURAL AMERICA. 14 CUSTOMER PROFILES — EVERETT M. DOBRINSKI 23 FARM CREDIT CENTENNIAL & ROBERT B. ENGEL 26 VALUE PROPOSITION COBANK 2015 ANNUAL REPORT 1 TO OUR SHAREHOLDERS By virtually any financial measure, the year 2015 was 2015 FINANCIAL RESULTS one of exceptional performance for CoBank on behalf CoBank’s average loan and lease volume increased of the customers we serve across rural America. Loan approximately 8 percent in 2015, to $83.1 billion. volume and profitability reached all-time highs. Credit That growth was driven by higher levels of borrowing quality, liquidity and capital levels remained very from affiliated Farm Credit associations, rural electric strong. The patronage distribution approved by our and communications service providers, and food board of directors was the largest in company history. and agribusiness customers. Net interest income increased by 3 percent, to $1.3 billion, reflecting And yet the story of success goes well beyond higher loan volume partially offset by lower spreads the numbers. At CoBank, the definition of success in our loan and investment portfolios. Net income must always include mission service—especially at also rose 4 percent to $936.7 million, compared to a time when the operating environment for many $904.3 million in 2014. rural industries is becoming more difficult, and the challenges of rural communities persist. Success Remarkably, it was CoBank’s 16th consecutive year means standing by our customers and helping of increased profitability. We’re extremely proud of them to manage through market volatility and that achievement, which reflects not only our growth disruptive change. It means providing more value but a continued focus on risk management and being to our customers than dependable credit, including good stewards of the resources our shareholders information and market insights that help them better entrust with us. There is likely no other bank in the understand and respond to the complex world around world with such a long track record of continuous them. It means investing in new products and services success delivering higher earnings on behalf of that will benefit customers and improve their banking its shareholders. experience over the long term, as well as serving as a socially responsible corporate citizen. Over the past Credit quality in CoBank’s loan portfolio continued year, CoBank made solid progress in all of these areas, to be extremely favorable, reflecting the strong thanks to the leadership and encouragement provided performance and credit profile of our customer by our board and the dedication and hard work base. At year-end, only 0.70 percent of the bank’s of our employees. loans were classified as adverse assets, compared to 1.84 percent at December 31, 2014. Nonaccrual loans We’re extremely pleased to share these totaled $156.8 million, compared to $130.3 million accomplishments in our 2015 annual report. The the year before. The bank’s allowance for credit losses pages that follow provide a comprehensive overview totaled $601.6 million at year-end, providing strong about the performance of your bank, including year- protection for the bank against losses in our loan end financials, governance information, customer portfolio. CoBank finished the year with $7.8 billion profiles, and details about our various loan portfolios of shareholders’ equity, and our capital levels and the industries we serve. We hope this report remained well in excess of regulatory minimums. provides you with a good understanding of our business and the role we play as a strategically As we move into 2016, we’re very pleased with the important source of credit for the U.S. rural economy strong financial condition of the bank and its ongoing and advocate for rural communities. We also hope ability to meet the financing needs of its customers it provides our customers with assurance about the and fulfill its mission of service to agriculture, rural strength and dependability of their bank as they face infrastructure and rural communities. a new year of challenge and opportunity. 2 ROOTED IN THE PAST FOCUSED ON THE FUTURE “ WE’RE VERY PLEASED WITH THE STRONG FINANCIAL CONDITION OF THE BANK AND ITS ONGOING ABILITY TO MEET THE FINANCING NEEDS OF “ ITS CUSTOMERS. Robert B. Engel Everett M. Dobrinski Chief Executive Officer Chairman COBANK 2015 ANNUAL REPORT 3 “ OVER THE PAST 10 YEARS, COBANK HAS DISTRIBUTED A REMARKABLE $3.5 BILLION IN PATRONAGE TO CUSTOMERS“ ACROSS RURAL AMERICA. 4 ROOTED IN THE PAST FOCUSED ON THE FUTURE PATRONAGE board seats elected on a one-member-one-vote basis Patronage payouts for 2015 will total a record and those elected on a modified equity basis. Most $514.1 million—over half of the bank’s earnings importantly, our board members will continue to be for the year. Under CoBank’s patronage plan for drawn from the rural industries we serve, and reflect cooperatives and other eligible borrowers, customers our enduring commitment to CoBank’s mission and receive 100 basis points of their average qualifying the needs of rural America. loan balance from the bank, 75 percent of which is paid in cash. The remaining 25 percent is distributed MISSION FULFILLMENT AND in CoBank stock until customers meet their equity CORPORATE SOCIAL RESPONSIBILITY requirement. Meanwhile, affiliated Farm Credit As a mission-based financial cooperative, CoBank associations receive 45 basis points in cash under makes every effort to embody the cooperative their own patronage plan. principle of “Concern for Community.” The bank has been fortunate to experience very strong financial We think it’s hard to overstate the value our results in recent years, and our board believes we customers derive from CoBank’s patronage plans. have an obligation to share that success with people Cash patronage reduces their overall cost of and communities in need. To that end, we contributed capital—and is especially meaningful in the ongoing approximately $8.4 million to nonprofit organizations low interest rate environment. The stock component during 2015 (including commitments for future years), of their patronage enables them to build an equity along with an additional $2.4 million in commercial stake in the bank over time and to have a voice in sponsorships and industry advocacy. the governance of our business. A substantial majority of our contributions and Over the past 10 years, CoBank has distributed a sponsorships are targeted to promote the health, remarkable $3.5 billion in patronage to customers vibrancy and development of America’s rural industries across rural America, highlighting once again the and communities. In partnership with customers, Farm enduring power of the cooperative model. Few other Credit institutions and other stakeholders, we support businesses have returned more monetary value to large, medium and small nonprofit organizations in America’s rural industries than CoBank over that rural areas across the U.S. We contribute to dozens of same time frame. land grant and other universities by funding research, GOVERNANCE AND scholarships and programs focused on agriculture, energy and other rural industries. And we sponsor BOARD RESTRUCTURING hundreds of trade groups and trade associations that In 2015, CoBank shareholders approved changes to advocate the policy interests of the customers and our governance bylaws that had been proposed as industries we serve. part of a formal governance review process that our board undertakes every five years. The changes will Mission fulfillment at CoBank takes other forms as be implemented gradually over a four-year period well. We have formal programs in place designed to ending in 2020 and include the following: ensure we serve the full continuum of borrowers in each of our industry segments, from large, established • Reducing the number of elected directors from enterprises with substantial capital needs to smaller 24 to 14.
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