1. Farm Credit Council Annual Meeting January 28, 2015 Farm Credit Administration William Hoffman, Chief Operating Officer Robert Coleman, Chief Examiner Charles Rawls, General Counsel Gary Van Meter, Director, Office of Regulatory Policy 1

2. Agenda  FCA Operations and Organizational Changes  Risks to Watch  FCA Risk Assessment and Analysis  Tier 1/Tier 2 Capital Framework  Regulations and Projects  Closing Comments 2

3. FCA Operations and Organizational Changes  FCA Operations  Budget and Audit  Organizational Changes 3

4. Risks to Watch Over 2015  Farmland values correction  Cash flow squeeze for grain/soybean farmers  California drought  World oil markets  Geopolitical developments 4

5. FCA Risk Assessment and Analysis—Risk Profile 5 Source: FCA's FIRS ratings database

6. FCA Risk Assessment and Analysis— OE Priorities  Proactive Risk Supervision  Portfolio Management in Volatile Times  Allowance for Loan Loss in Volatile Times  Large, Complex, and Shared Assets  Board Governance and Nominating Committees 6

7. Tier 1/Tier 2 Capital Framework: Regulatory Minimums  Current Minimums PCR = 7.0% TSR = 7.0% CSR = 3.5% At least 1.5% of CSR must consist of URE or NCPPS (all System institutions) NCR = 103% (banks only)  New Minimums CET1 = 4.5% T1 = 6.0% TC= 8.0% T1 Lev= 5.0% (all System institutions) 1.5% of 5.0% of T1 Lev must consist of URE & URE equivalents Permanent capital elements remain unchanged 7

8. Tier 1/Tier 2 Capital Framework: Conservation Buffer  A 2.5% CCB is applied to each standard:  CET1 = 4.5 min + 2.5 CCB = 7.0%  T1 = 6.0 min + 2.5 CCB = 8.5%  TC= 8.0 min + 2.5 CCB = 10.5%  CCB provides cushion before reaching regulatory minimums  If CCB is breached, limits are imposed on capital distributions and compensation bonuses: 8

9. Tier 1/Tier 2 Capital Framework: Issues  Time period before revolvement of CET1 allocated equities and association-held bank equities  Capitalization bylaw provisions  Safe harbor provision that allows distribution of capital without FCA approval if no reduction in CET1 from previous year 9

10. Tier 1/Tier 2 Capital Framework: Issues (cont’d)  Early distributions of allocated equities (Haircut provisions)  Leverage ratio  Ratio percentage of 5%  URE requirement of 1.5%  Risk weight treatment  Other Financing Institutions  Rural electric cooperative loans 10

11. Regulations and Policy  Standards of Conduct Proposed Rule  Investment Eligibility Proposed Rule  Case-by-Case Investment Requests  Territorial Concurrence Project  Rural Business Investment Companies (RBICs) 11

12. Regulations and Policy: Standards of Conduct Proposed Rule  We received a large number of thoughtful comments, suggestions, and concerns  We greatly appreciate the time and energy you put into this important topic  Many comments addressed rules on agents and lending transactions. We are focusing on these and all areas in our internal discussions  We plan to proceed carefully and are open to all ideas and options for proceeding  On Unified Agenda for September 2015 12

13. Regulations and Policy: Investment Eligibility Proposed Rule  Objectives are to:  Strengthen and modernize the investment eligibility criteria, asset class diversification requirements, obligor diversification requirements, and obligor limits  Comply with the Dodd-Frank Act by removing credit rating references and adding other standards of creditworthiness  Address the type and amount of investments an association may hold for risk management purposes.  Comment period closed on October 23, 2014  Community banks opposed association investment proposal based on IM on case-by-case requests  System institutions generally supported with some changes  Reviewing the nearly 1300 comment letters  Planning for Board to consider final rule in September 13

14. Regulations and Policy: Case- by-Case Investment Requests  Issued guidance in September on information to include in investment approval requests under 615.5140(e)  Guidance developed from experience with pilot programs  FCA has received one request and is working with an institution on its draft request  FCA considering guidance/answers to questions relating to types of investments likely to gain approval 14

15. Regulations and Policy: Territorial Concurrence Project  Reviewing 614.4070 - consent or notice for out-of-territory loans.  Prompted in part by FCS questions/concerns on how 614.4070 should apply to specialty loan programs (e.g., point-of-sale financing or on-line auctions for equipment), overchartered territories, and service to all markets/loan types.  Is the rule as relevant in today’s lending environment – should it be clarified, simplify and modernize the rule.  FCA will seek input from the FCS  FCA may consider asking questions in an ANPR 15

16. Regulations and Policy: RBICs  RBIC program goal:  Provide for the flow of capital to rural areas to stimulate the economy  Modeled after SBIC program at SBA  No government leverage  FCA works with USDA to process applications  All applicants must have 10% capital from FCS  Other capital from regulated entities  USDA makes final decisions on licensing/program management 16

17. Closing Comments  Comments  Questions  Thank you 17

18. Contact Information Farm Credit Administration William Hoffman (703) 883-4340 Robert Coleman (703) 883-4246 Charles Rawls (703) 883-4021 Gary Van Meter (703) 883-4026 18