FY 2004 FCS Survey

Published by the Farm Credit Administration, Office of Inspector General on 2004-11-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

Office of
Inspector General
               FARM CREDIT SYSTEM
                   ANNUAL SURVEY

                    Fiscal Year 2004

                        October 2004
Memorandum	                                                      Farm Credit Administration
                                                                 1501 Farm Credit Drive
                                                                 McLean, Virginia 22102-5090

November 15, 2004

To:           Thomas McKenzie, Chief Examiner
              Office of Examination

From:         Stephen G. Smith
              Inspector General

Subject:      Fiscal Year 2004 Farm Credit System Examination Survey

The Office of Inspector General is pleased to issue the results of its post examination survey of
the Farm Credit institutions for Fiscal Year 2004. We sent 71 surveys and received 53
responses. The survey objectively measures the quality and consistency of the Agency’s
examination and enforcement functions.          During this reporting period there were no
enforcement actions.

Overall, Farm Credit institutions continued to provide favorable ratings. Further, the 75 percent
response rate on the survey was a significant increase over last year’s rate of 54 percent.
Several individual examiners received particularly high praise in survey responses and may
merit recognition. I will provide you this information in a separate communication.

I believe the survey results are self-explanatory and therefore, I have not scheduled a briefing.
However, I would be glad to do so at your request.


Copy to: Nancy C. Pellett, Chairman and CEO
         Douglas L. Flory, Board Member
         Michael M. Reyna, Board Member
         Keith H. Heffernan, Chief of Staff
         Eric Howard, Audit Follow-up Official
                       Farm Credit System 

                         Survey Results 


                        Fiscal Year 2004

                            Table of Contents

Annual Summary and Analysis of Responses for Fiscal Year 2004……………………….……1 

Appendix I – Summary of Responses Received to Questions 1 – 11…………………………...6 

Appendix II – Written Responses to Questions 12a, 12b and 24………………………….……13 

Appendix III – Numeric Results of Responses Received to Questions 1 – 11………….……..18 

Appendix IV - Comparison of Average Ratings for Fiscal Years 2000-2004 ………………….19 

Appendix V – Graph of Survey Responses by Question……………………………….………..20 

                         FARM CREDIT SYSTEM SURVEY 


                            FISCAL YEAR 2004


The Farm Credit Administration (FCA) is an independent Federal financial regulatory
agency of the United States government with regulatory, examination, and supervisory
responsibilities for the Farm Credit System (FCS) banks, associations, and related
institutions that are chartered under the Farm Credit Act of 1971, as amended.

The Office of Inspector General (OIG) established this on-going survey of FCS
institutions as the means to provide management with feedback on the quality and
consistency of the Agency’s examination and enforcement activities.


The survey objective is to get feedback from FCS institutions that candidly assesses
how well FCA is performing its examination and enforcement activities.

The survey instrument includes statements designed to rate and monitor Agency
performance of examination and enforcement activities in the following specific areas:

•	   the effectiveness of FCA’s communications with institutions;
•	   the reasonableness of Agency requests for data and information;
•	   the quality of examiners’ decision making during the exam process;
•	   the quality of written examination reports;
•	   the professionalism of FCA examination staff; and
•	   examiners’ responsiveness to the institutions’ concerns throughout the examination

The questions along with the responses received throughout the fiscal year are included
as Appendix I and II. A numeric breakdown of answers received is included as
Appendix III.

The OIG e-mails the survey to the chairman of the board and the chief executive officer
of each FCS institution after the FCA’s Office of Examination (OE) presents its Report of
Examination (ROE) to the institution board, or on issuance of the report if no board
presentation is planned. We ask the board and management to jointly complete the
survey and encourage narrative comments. All institutions are asked to answer
questions 1 through 12. The institutions can complete the survey online, mail a paper
copy, or fax the survey directly to the OIG. The OIG is responsible for analyzing,
summarizing and ensuring the confidentiality of the responses.

During FY 2004, OIG sent 71 surveys and received 53 responses—a 75 percent
response rate. This is an increase of 21 percent from the last reporting period. We sent

Farm Credit System Annual Survey                                                          1
1229 surveys since the beginning of this survey. We received a total of 871 replies—a
71 percent overall response rate.

                                  ANALYSIS OF RESPONSES

Overall ratings for FY 2004 continue to be favorable. The survey asks respondents to
rate each statement from 1 (completely agree) to 5 (completely disagree), thus the
lower the number, the more favorable the result. The overall average rating for the
eleven survey statements applicable to all institutions was 1.64. This is very similar to
the results from FY 2002 and FY 2003.

Over 89 percent of the responses either agreed or completely agreed and slightly more
than 10 percent indicated disagreement. This remains constant from FY 2003. The
best individual average rating (1.25) was received for question 8, which reads, “The
examination team acted courteously and professionally.” Question 8 has received the
best overall rating since the inception of the survey.

The least favorable average rating of 1.91 (which was still a favorable rating) was for
question 7.     Question 7 reads, “The examiner’s interpretation of the statutes,
regulations, and other guidance was consistent with previous examinations.”


As part of our analysis, we sorted the data to find out if there was any meaningful
correlation between ratings given on the survey and the following attributes: size of the
institution; institution type; CAMELS rating; FCS district; and examining field office.

                             SIZE OF INSTITUTION

                         Number of Range of Average Overall Average Overall Average
    Total Assets
                        Institutions    Rating          Rating          Rating
                        Responding     FY 2004         FY 2004         FY 2003
   Less than $100             3          1.09 – 1.55         1.33             1.64
     $100 - $199              9          1.00 – 3.09         1.88             1.68
     $200 - $299              3          1.00 – 2.00         1.36             1.72
     $300 - $399              5          1.09 – 2.50         1.57             1.45
     $400 - $599              8          1.00 – 1.91         1.35             1.63
     $600 - $799              8          1.09 – 3.00         1.76             1.63
    $800 and over            17          1.00 – 3.82         1.65             1.51

Observation: There is no significant correlation between size of institution and average

Farm Credit System Annual Survey                                                        2
                                    INSTITUTION TYPE

                          Number of Range of Average Overall Average Overall Average
 Type of Institution     Institutions    Rating          Rating          Rating
                         Responding     FY 2004         FY 2004         FY 2003
        FLCA                    4          1.00 – 2.00          1.39                1.30
       OTHER                    2          1.36 – 1.55          1.45                1.47
         ACA                    43         1.00 – 3.82          1.64                1.63
         FCB                    4          1.27 – 2.09          1.68                1.48

Observations: The overall ratings by institution type were generally unchanged from
last year. FLCA institutions gave the most favorable rating.

                                     CAMELS RATINGS

                        Number of        Range of        Overall Average    Overall Average
                       Institutions    Average Rating        Rating             Rating
                       Responding         FY 2004           FY 2004            FY 2003
   NO RATING                2            1.36 – 1.55          1.45                 1.54
        1                  39            1.00 – 2.73          1.49                 1.57
        2                  12            1.00 – 3.82          2.07                 1.70

Observations: As in previous years, there appears to be a slight correlation between
CAMELS ratings and survey results—the better the CAMELS rating, the better the
overall survey rating. Institutions with no CAMELS rating showed a slight increase in
their overall ratings. The overall average ratings in FY 2004 for institutions with
CAMELS ratings of “1” was slightly more favorable than in FY 2003. Institutions
surveyed with an overall CAMELS rating of “2” were less favorable than the previous
year. No responses were received from institutions with a CAMELS rating of “3” or


                        Number of        Range of        Overall Average    Overall Average
     District          Institutions    Average Rating        Rating             Rating
                       Responding         FY 2004           FY 2004            FY 2003
      Other                 2            1.36 – 1.55          1.45                 1.47
      Texas                12            1.00 – 2.09          1.47                 1.62
    AgriBank                8            1.00 – 2.00          1.51                 1.65
     CoBank                 3            1.09 – 2.18          1.58                 2.07
                                                                     (continued on next page)

Farm Credit System Annual Survey                                                                3
                                      D I S T R I C T (continued)

                        Number of          Range of          Overall Average   Overall Average
     District          Institutions      Average Rating          Rating            Rating
                       Responding           FY 2004             FY 2004           FY 2003
     AgFirst               15               1.00 – 3.82             1.61            1.54
   US AgBank               13               1.09 – 3.09             1.87
     Western                                                                        1.64
     Wichita                                                                        1.33

Observations: Effective October 1, 2003, the Western Farm Credit Bank merged with
and into the Farm Credit Bank of Wichita, to become U.S. AgBank FCB. U.S. AgBank
institutions had the least favorable overall average ratings. CoBank institutions, which
gave the least favorable ratings last fiscal year, had the most improved rating.

                                       FIELD OFFICE

                           Number of           Range of     Overall Average Overall Average
     Field Office         Institutions       Average Rating     Rating          Rating
                          Responding            FY 2004        FY 2004         FY 2003
        Dallas                  17             1.00 – 2.09            1.47           1.60
    Bloomington                 5              1.00 – 2.00            1.47           1.70
 Special Examination
                                1              1.55 – 1.55            1.55            *
  and Supervision
      McLean                    17             1.00 – 3.82            1.61           1.64
       Denver                   10             1.00 – 1.82            1.70           1.42
     Sacramento                 3              1.09 – 3.00            2.27           1.61

Observations: The Bloomington field office had the most improved average rating over
last year’s results. The Sacramento field office had the most significant decline in
ratings. Dallas and McLean field offices had slightly more favorable ratings, while
Denver had a slightly less favorable rating. The Special Examination and Supervision
Division (SESD) did not have any institutions responding in FY 2003, but rated a higher
average (1.55) than the overall rating by field office (1.68).

Farm Credit System Annual Survey                                                                 4
                            COMMENTS BY RESPONDENTS 

Many of the comments reflect the favorable ratings in the survey. There were many
comments reflecting praise for properly identifying key risk areas, quality of work
performed and the professionalism of the examiners. A complete set of survey
comments is included as Appendix I and II. OIG inserted or removed text in brackets to
clarify or keep anonymity among the responses.

The most common concerns were about the findings not being discussed prior to the
report being issued. In addition, several institutions expressed concern about FCA’s
interpretation of the Scope of Lending regulations, and Young, Beginning and Small
Farmers requirements. Finally, there were a few comments about timeliness of reports,
disruptiveness of business, and FCA’s staffing for the future.

Farm Credit System Annual Survey                                                     5
                                                                                              Appendix I

                              FARM CREDIT SYSTEM SURVEY 

                                SUMMARY OF RESPONSES 


                                   FISCAL YEAR 2004

                                                    Completely Agree       Completely Disagree
                   Question                                                                      Average
                                                      1        2       3          4       5
  1. The Report of Examination identified             24      23       4          1       1       1.72
     and prioritized all significant risks facing
     the institution.

   •	 Also recognized our FSA Guarantee (risk management) focus.
   •	 Key risk areas were properly identified.
   •	 Overall the priorities were adequate, however we felt there is too much emphasis put on
      the Young, Beginning and Small Farmer Program.
   •	 Reduced format also helped us focus on key issues-we liked it.
   •	 There was no emphasis on appropriate priority.
   •	 Exam stressed earnings but failed to recognize that actual earnings were on track with
      the projected earnings submitted to FCA the previous year with our [district] application.
      One large charge-off caused a difference. Exam identified growth of the portfolio while
      credit quality deteriorated as a risk. None of the new loans were classified.
   •	 Overstated risks associated with the [borrower’s name] loan by requiring it to be
      transferred to non-accrual as a result of “attribution,” when repayment from [corporation]
      was not in doubt.
   •	 Overall a good detailed report.

                                                    Completely Agree       Completely Disagree
                   Question                                                                      Average
                                                      1        2       3          4       5
  2. The Report of Examination fairly                28       21       1          2       1       1.62
     presented management’s response to
     issues discussed in the report.

   •	 One key finding and concern was not fully addressed prior to the issuance of the report.
   •	 Management’s practices and philosophy were fairly represented.
   •	 Included up-to-date as of close out comments—very good.
   •	 As stated above (Question 1, Comment 6), management pointed out the earnings
      projection and the fact that new loans were not classified, but exam still failed to

Farm Credit System Annual Survey                                                                           6
   •	 Misrepresented management's response regarding employee turnover and familiarity
      with recent changes made in the fiscal/operations area.
   •	 There were no issues which required management response.

                                                Completely Agree       Completely Disagree
                  Question                                                                   Average
                                                  1        2       3          4       5
  3. The Report of Examination was factually      29      20       1          3       0       1.58
     correct and presented well-supported
     and relevant conclusions about the
     condition and performance of the

   •	 We disagree with the key findings and concerns mentioned in #2 above (Question 2
      Comment 1).
   •	 The report and board presentation were accurate and complete.
   •	 To the point, no embellishments either way and limited editorializing.
   •	 We agree with the overall examination findings. We still choose to disagree over what is
      the appropriate level of capital.
   •	 Examiners remained focused on key issues.
   •	 The report and board presentation were accurate and complete.
   •	 The capital analysis was done effective 06-30-03 and had not reflected the improvement
      in CAR since that date. The facts were correct, 6-30-03 data is our highest loan volume
      period and as a result reflects a lower CAR ratio that time of year.
   •	 See previous comments (Question 2 Comment 5).
   •	 Overstated (by implication) that "turnover" had led to deficiencies cited in the exam
      report. Misrepresented turnover as 25%, but failed to clarify that it included planned
      downsizing and that it was for an 19-month period (not annualized).

                                                Completely Agree       Completely Disagree
                  Question                                                                   Average
                                                  1        2       3          4       5
  4. The Report of Examination was clearly        32      18       1          0       1       1.46
     written, concise, and understandable.

   •	 The report was appropriately brief and concise.
   •	 Appreciated by board and management.
   •	 Report was redundant and too verbose. The Agency must improve the report writing
      and insure emphasis on significant issues. Because you include minor and insignificant
      matters the board members lose confidence in your judgment. The FCA creates a
      serious safety/soundness condition by not limiting comments on what is truly relevant.
   •	 The report was appropriately brief and concise.

Farm Credit System Annual Survey                                                                       7
   NOTE: One institution did not respond to question #4.

                                                 Completely Agree       Completely Disagree
                  Question                                                                    Average
                                                   1        2       3          4       5
  5. The Report of Examination was                 32      18       2          1       0       1.47
     received in a timely manner and,
     therefore, the issues in the Report of
     Examination were still relevant.

   •	 It was perhaps prepared too quickly, before key findings were discussed with
      management, should have taken more time to discuss with management prior to issuing
   •	 The report was presented prior to schedule, and the schedule was properly coordinated.
   •	 The FCA staff in [field office] did an excellent job in getting the report compiled and
      issued to accommodate our Board schedule.
   •	 We wish [the] report could be received at an earlier time prior to board meeting.
   •	 The presentation to the board of directors was also completed in a timely fashion.
   •	 Don't agree that the issues of the exam were relevant in the first place.
   •	 Was not examiner's fault it's a "2" instead of a "1" our report was written timely, but we
      didn't have a scheduled board meeting until [a month later].

                                                 Completely Agree       Completely Disagree
                  Question                                                                    Average
                                                   1        2       3          4       5
  6. The examiners conveyed consistent             26      21       2          4       0       1.70
     messages and tone throughout the
     examination process (i.e., in the exit
     conference, Report of Examination, and
     board presentation.

   •	 At times, the “reviewers in training” would respond in one manner, then after having their
      responses reviewed by their “supervisor of training,” the response would be changed or
      responded to in a different manner.
   •	 A different message was conveyed in the written report compared with what was
      conveyed during the close-out with management.
   •	 Examiners used concise and consistent communications throughout the process.
   •	 EIC was judicious about discussing all findings at the exit conference and communicated
      any changes before the examination report was issued.
   •	 Mostly agree. The tone tends to change to slightly more negative during the
      presentation of the report when the Senior Examiner is involved. We had good
      exchange and understanding from the examination team.
   •	 Examiners were concise and straight forward in their assessments.

Farm Credit System Annual Survey                                                                        8
   •	 The exit conference didn't occur until two weeks after the exam. The report was written
      much more harsh than the exit conference. The board presentation was less severe
      than the exam was written.
   •	 Did not discuss turnover as an issue during the onsite review or during the exit
      conference. Never discussed "downsizing" that eliminated 5 positions in the first quarter
      2003 until it was addressed in the Board letter. A phone call was received by the CEO
      some three weeks after the exit conference (1 day before the Board letter was mailed) to
      inform him that this was now an issue.

                                                 Completely Agree       Completely Disagree   Average
                                                    1       2       3          4       5
  7. The examiners’ interpretation of the          21      22       5          4       1       1.91
     statutes, regulations, and other
     guidance was consistent with previous

   •	 Significant difference in interpretation of the "scope and eligibility" issues when
      compared to previous examinations.
   •	 Treatment of charge-offs is inconsistent with prior exams.
   •	 Emphasis on open access of loan system increased this examination. Prior
      examinations had not raised this as a concern.
   •	 The staff has definitely improved in this area.
   •	 Previous exams we were told to look at the FCA chairman's statements and make sure
      we were providing credit to rural America-we got challenged once and everyone came
      down on us as the agency turned in another direction. Exam was just following the
      agency each time, but the agency flip flopped under political pressure.
   •	 Emphasis on YBS issues has increased significantly in recent examinations. As a
      wholesale bank, we believe this is primarily a retail issue.
   •	 There were some scope of lending interpretations that were more conservative than we
      had experienced in the past, but they did not constitute significant areas of disagreement
      in the final exam results.
   •	 Previous exams had different interpretations of eligibility issues. Previous exams were
      not as harsh on credit admin. issues such as due diligence on participations purchased.
   •	 Application of non-accrual rules changed once again. Also, recovery costs calculation
      was changed from prior recommendations.
   •	 Always some areas where changes occur.

                                                 Completely Agree       Completely Disagree
                  Question                                                                    Average
                                                    1       2       3          4       5
  8. The examination team acted                    44       7       0          2       0       1.25
     courteously and professionally.

Farm Credit System Annual Survey                                                                        9
   •	 Issuing the report prior to discussing key findings and concerns with management is very
   •	 [Examiner], the EIC, was very professional and did a great job.
   •	 Excellent.
   •	 The exam team was very professional in its approach.
   •	 The exam team was very courteous and respectful.
   •	 Very professional team.
   •	 [Examiner] always conducts himself in a professional and courteous fashion.
   •	 The exam team, led by [examiner], was professional, courteous, and cooperative in all
   •	 Capital markets staff as brought in from [field office]. Dialog was productive.
   •	 Certain members of the team were belittling to certain credit officers.

                                                Completely Agree       Completely Disagree
                   Question                                                                  Average
                                                   1       2       3          4       5
  9. The examiner’s recommendations for           23      22       6          2       0       1.75
     corrective actions were reasonable and
     consistent with FCA’s role as an arm’s
     length regulator.

   •	 The recommendations and how they were conveyed are inconsistent with promoting the
      mission of the system.
   •	 Some recommendations did not consider the benefit to business when it was not a
      safety and soundness issue.
   •	 Did a better job this time moving away from getting involved in management—good to
      see the move back toward regulation. Agency through their examiners is still too deep
      into the details of YBS given the regulations and statute.
   •	 Except for the petty insignificant observations.
   •	 Examination generally focuses on safety and soundness issues. (YBS is an exception.)
   •	 YBS recommendations could be viewed as somewhat subjective and beyond the FCA
      role as an arms length regulator. However, the reviewers were acting within parameters
      established by FCA headquarters.
   •	 Comments concerning loan officer incentive programs were out of the realm of safety
      and soundness. Criticism of a program that has worked without problems for over 10
      years was not needed. Criticism of the assoc. pricing policy was not warranted.
   •	 Okay, except for e-commerce expectations (i.e. fire extinguishers, server security, etc.)
   •	 I question the need to strengthen the YBS analysis as recommended. YBS analysis
      should be tailored to the circumstances of the association, not a national "cookie cutter"
      approach. We are small (6 counties), highly visible, and have obviously good market
      penetration when comparing results to the 1997 Census of Agriculture. Although we

Farm Credit System Annual Survey                                                                       10
       agreed to strengthen the analysis, there is nothing to be gained by it to improve upon
       what is already happening.
   •	 No recommendations made. Suggestions to improve were reasonable.
   •	 There were no recommendations for corrective action.

                                                  Completely Agree       Completely Disagree
                                                    1        2       3          4       5
10. The examiners conducted examination             28      18       4          3       0       1.66
     and monitoring activities without undue
     interference with the operation of the
     institution, including the extent of
     information requested during these

   •	 The request to review out of two sites [site 1 and site 2] caused interference for the [site
      1] office and inconvenience for the administrative staff. Also, the FCA "reviewers in
      training" were based out of the [site 1] office, resulting in extra work for the administrative
      staff. The "trainees" should have been located in the administrative office location [site
      2]. There was a "break" between the review weeks due to some FCA training and/or
      meetings that needed to occur. This delay resulted in a longer than normal and
      "disjointed" review process.
   •	 Might have been beneficial if they had interacted more. Might have avoided
   •	 Examiners should not visit branch offices due to disruption of branch activities.
   •	 I feel they worked well with management at the busy time of renewals.
   •	 The exam team is experienced and professional. Industry practices were used to obtain
   •	 They were very conscientious about our time and prior commitments and they did little to
      disrupt our day-to-day operations.
   •	 Limited as best they could—still takes a lot more time than it should on our part.
   •	 They did this very well and we appreciate it.
   •	 They were conscientious about their requests from staff.
   •	 The exam team is experienced and professional. Industry practices were used to obtain
   •	 Generally, very good. However, some of the information that is included in request letter
      prior to review is already furnished as an ongoing matter. We recognize the difficulty in
      preparing for a review but it would be nice to eliminate more redundancy.
   •	 This was a limited scope exam due to a pending merger, and it was the least intrusive
      exam that I've ever been involved in. We were able to operate without any undue
      interference from the exam team.

Farm Credit System Annual Survey                                                                         11
   •	 Examiners did not get the list of loans to be examined until late in the week immediately
      prior to the examination. Difficult to get numerous branches coordinated to get files to
      central location on such short notice.
   •	 It expedited the on site review and was very helpful that copies of certain information
      was requested before the on site examination began. Likewise, it was very helpful that
      we received a list of items to have available before the examiners arrived.

                                                  Completely Agree       Completely Disagree
                  Question                                                                     Average
                                                    1        2       3          4       5
11. The board and management believe the           18       26       5          2       1       1.88
    findings of the examination will assist (or
    have assisted) the institution in
    correcting identified weaknesses.

   •	 The primary findings serve to interrupt and distract from our primary mission.
   •	 The examination did not reveal any unknown weaknesses or problems.
   •	 The board and management work hard to identify any problems or issues well in
      advance of them becoming safety or soundness issues, but always value the input and
      observations of the exam team.
   •	 We view the examination process as a learning opportunity and we will implement
      corrective actions that will improve our organization.
   •	 The findings were generally helpful, with the finding regarding loan database accuracy
      somewhat less helpful.
   •	 We had essentially a clean exam report that reiterated the information that the
      management team had been providing to our Board.
   •	 Issues were already identified by management.
   •	 As mentioned earlier, a large charge-off on a participation loan (due to fraud) resulted in
      reduced earnings. The association was on track with original earnings projections prior
      to this event. The board and management was aware of earnings shortfall prior to the
   •	 There were no identified weaknesses.

   NOTE: One institution did not respond to question #11.

Farm Credit System Annual Survey                                                                         12
                                                                                  Appendix II

                            FARM CREDIT SYSTEM SURVEY 

                               WRITTEN RESPONSES 


                                 FISCAL YEAR 2004


12a. What aspects of the examination did you find most beneficial?

   •	 Validation of our findings.
   •	 Continues to be the checking of our work by knowledgeable examiners.
   •	 Having a third party verify that we are operating in a safe and sound manner.
   •	 Confirmation of our YBS efforts. Affirmation of our efforts on “scope.”
   •	 Ability to discuss issues with exam team as they had findings.
   •	 I did not think any aspect was more beneficial. The examination itself is very beneficial.
      It keeps us on our toes. They try and find where we are weak, but as they found out, our
      management, are doing a very good job. The presentation to the full Board was the
      most beneficial aspect of the examination. The time spent with the full Board was very
      helpful in the understanding of the findings of the audit team. Communication between
      examiners and management was the most beneficial aspect of the examination. The
      aspect of the examination that I found most beneficial was that it confirmed our
      assessment. The aspect of the examination that I found most beneficial was the
      explanation of similar entity reporting. The in dept exam is of benefit to the Association
      and especially to the Board of Directors. It is an accurate and unbiased evaluation of the
      business. The information received was in most part, the quality of our Management
      team in meeting and responding to all aspects of our financial institution. Reported to
      Directors minor flaws which need correcting.
   •	 Opportunity for open discussion with examination team members.
   •	 Discussions with examiners, and explanations of the findings.
   •	 Report in open discussions and executive session was excellent.
   •	 Brief, concise report. Close-out discussion and final report were consistent.
   •	 Interaction with the commissioned and experienced examiners. Their insight and
      suggestions were very beneficial. Good communication with the association board was
      evident in relaying results of examination.
   •	 [Examiner] was our EIC and [examiner] was on site as well. They stuck to the big
      picture and when they identified what they felt was a weakness, they remained very
      matter of fact.
   •	 Independent third party evaluation of our operations.

Farm Credit System Annual Survey                                                               13
   •	 The exam team was very timely in sharing their findings with and didn't hold them back
      to the end of the exam process.
   •	 Excellent new report format. Very good Board presentation where examiners were very
      willing to answer all questions, regardless of the simplicity.
   •	 Discussion with the examiners regarding clarification of borrower rights/distressed loan
   •	 The CAMELS approach provided the [district] Board and management with a different
      viewpoint than what is received from the outside auditor and the institution's internal
   •	 The specific narratives around the CAMEL.
   •	 We utilize FCA exams as a positive tool for determination of areas of weakness. This
      team and exam process provided us with pertinent information and was helpful in these
   •	 All aspects of the exam will be beneficial.
   •	 Discussion of key issues of importance to the regulator.
   •	 Thirty percent of findings/recommendations were beneficial.
   •	 Examiners comments and recommendations regarding audit and review committees.
   •	 Brief, concise report. Close-out discussion and final report were consistent.
   •	 All aspects of the exam will be beneficial.
   •	 Recommendations concerning known best practices.
   •	 Good interaction with review staff. Professional manner in which the review was
      conducted. Good chance to obtain new ideas.
   •	 Discussions regarding loan participations.
   •	 Good cooperative posture, executive session. Comparison to where we stand in the
   •	 Review and discussion of the credit function (loan underwriting standards, scope of
      financing, etc.) and internal controls.
   •	 Interaction with the examiners on current topics of interest within the FC System.
   •	 Prior to exam Agency communications on focus areas.
   •	 Evaluation of Loan Assets. Evaluation of [institution] risk bearing capabilities.
      Comments on Board governance including emphasis on the internal audit process.
   •	 Credit Administration examination is very helpful.
   •	 General discussion about areas of the examination during the time the staff is here. It
      helps us understand some of regulation issues and reasons for them.
   •	 Validation of our own internal controls.
   •	 Efficiency of the on-site work.
   •	 Dialog with capital markets group had understanding of role department plays and
      related activities.

Farm Credit System Annual Survey                                                                 14
   •	 Some comments concerning credit admininstration weaknesses were beneficial.
   •	 Discussion of findings regarding scope and eligibility. Discussion of findings regarding
      credit administration.
   •	 The exam team was professional, attentive and efficient. The pre-exam dialogue and
      the detailed post-exam discussion of preliminary findings is very useful.
   •	 Renewed focus in compliance area.
   •	 Even though there were no identified weaknesses, the examination was very through
      and it was helpful to jointly consider and discuss the operation of the [institution] from the
      safety and soundness perspective of FCA.


12b. What aspects of the examination did you find least beneficial?

   •	 Continued criticism of capital levels based on standards issued by FCA which I believe
      are out of date.
   •	 Reviewing out of two locations, the "break" between review weeks (this resulted in
      moving the loan files twice back and forth between offices), the changing interpretations
      of the regulations (scope and eligibility), and we do not receive specific loan level
      memos on the credits reviewed during the examination.
   •	 The manner in which the report was issued with findings that were not previously
      discussed with management are completely at odds with normal professional standards
      of behavior. In effect, the association was blind-sided by key findings in the report.
   •	 We do not feel it is necessary or cost effective for three senior officers to present the
      review findings to our board when there are no significant concerns.
   •	 Requiring that the board of directors establish policy guidance for an initiative to move
      loan files from paper format to electronic format.
   •	 The exam team was very large for our facility which was difficult for them. However,
      they conducted the exam with little or no disruption to our daily operations.
   •	 Large number of noncommissioned examiners. Their lack of basic understanding of
      agriculture is very frustrating for association staff. Appears that FCA process for
      selecting employees is very lacking. One suggestion would be to follow what some
      districts utilize to hire good knowledgeable beginning employees. We are concerned
      that when large number of tenured knowledgeable FCA commissioned examiners retire,
      there will be a serious drop off in quality of personnel. This issue needs to be looked at!
   •	 We were already aware of most of the weaknesses identified and had plans in place to
      address them.
   •	 There is a lot of time and effort wasted on examining the Young, Beginning and Small
      Farmer program.
   •	 Continued emphasis on YBS policies, procedures, and related issues. Recognizing the
      ongoing need to provide training experience for new examiners, the lack of knowledge of

Farm Credit System Annual Survey                                                                   15
       agriculture of those present during the examination did not reflect positively to 

       association staff, or present the level of expertise expected of the regulator. 

   •	 The issue around Part Time Farmers that flip flopped from the previous exam.
   •	 The other 70% (see Question 12a Comment 22).
   •	 Inability to clear up ambiguity between mission (YBS) and regs that prohibit attainment
      of mission (less than full time farmer).
   •	 Still too much on issues that do not really related to safety and soundness. Examiners
      do not seem to lead the charge, but a constricting view towards new business
      opportunities is permeating through examination team.
   •	 YBS requirements.
   •	 YBS and the time devoted to review and discussion of YBS program and activities.
   •	 It was all generally beneficial.
   •	 Comment concerning the need for a different pricing policy, loan officer incentive policy
      and credit due diligence on participation loans. A.) E-commerce observations, B.)
      Speculation that “turnover” caused the credit administration deficiencies without any
      discussion with management as to “cause and effect,” C.) Inclusion of planned
      downsizing in turnover statistics to overstate the seriousness of the issue.
   •	 YBS expectations for analysis of market penetration, performance, and part-time farmer
      demographics vs. district and national FCS groups somewhat ignores the reality of the
      market we serve which is atypical for most associations. We have 6 counties with a very
      small population base and are not located to major employment areas, which obviously
      creates fewer opportunities for off-farm employment and attracts fewer YBS people back
      to the farm.
   •	 Anything that could be done to shorten the time between report date and delivery to the
      board would be helpful. While bullet format works well, need to be sure fuller discussion
      of issues is not neglected.
   •	 YBS focus.


24. If you have other comments about the report of examination or the examination process
    or experience, please enter them here.

   •	 FCA should reduce the length of the survey form. This survey form should be designed
      for electronic submission. [Note: OIG responded to this suggestion.]
   •	 While we do accept the findings of most of the report a key finding and concern that was
      raised in the written report was not addressed with management prior to issuing the
      report. This is very unprofessional. Once the report was issued we insisted on high
      level involvement of FCA administration officials to deal with the concern.
   •	 Our association is always concerned about a consistent interpretation of the regulations
      from year to year and from examiner to examiner. We also want to feel certain that we

Farm Credit System Annual Survey                                                                  16
       operate under the same parameters as any other [F]CS institution. During the past two
       exams, we have felt this consistency. Very courteous and helpful.
   •	 I thought the examiners were very thorough in the examination. The conclusions were
      fair and will help our Board to continue to monitor results where weakness was
      identified. To our Board, the FCA audit is a valuable tool in helping verify our reporting
      from management on the ongoing operations of the Association. We appreciate the
      working relationship with our examiners, their professional conduct and their ability to
      convey the findings in a very concise, understandable manner. [Examiner] did a good
      job of leading his team and making sure management understood any of their concerns
      or findings. Pleased with [examiner] and [examiner]’s willingness to work with us. FCA
      examiner, [examiner], was new to me but seemed very professional and qualified yet
      personable and easy to understand.
   •	 Just an overall clear, concise summation.
   •	 Adequate assessment and examination of association without undo interruption of
      operations or unnecessary reporting, and done so in a courteous and professional
   •	 Thorough exam by professional staff.
   •	 Please read my answer to #12b (Comment 7).
   •	 Very complete and detailed evaluation of our operations.
   •	 As I stated earlier, we view the examination process as a means of improving our
      organization and we utilize the examination findings and recommendations from the
      exam team in improving our operating procedures.
   •	 Very courteous and professional examination and examination team.
   •	 Especially appreciated the FCA team's professionalism and willingness to listen and
      dialogue with the institution management and board.
   •	 The process was disruptive but we know necessary. Suggest engagement of someone
      who can devise procedures to mitigate the level of disruption but not compromise your
   •	 Have observed a very high level of professionalism and integrity among examiners. Like
      the continued move toward electronic environment.
   •	 This is my first year on the board and I found the report very informative.
   •	 Look forward to more electronic communication and examination processes.
   •	 Very professionally completed and delivered.

Farm Credit System Annual Survey                                                                   17
                                                                                                                         Appendix III

                                                EXAMINED DURING FY 2004

                                                 Questions Applicable To All Institutions

        Question      Completely Agree         Agree            Neither           Disagree      Completely Disagree   Total   Average
                            (1)                 (2)               (3)                (4)                (5)         Answered Response
                     Number       %       Number     %      Number      %      Number    %      Number        %
     Question 1         24        45.28      23     43.40       4       7.55       1     1.89        1         1.89      53      1.72
     Question 2         28        52.83      21     39.62       1       1.89       2     3.77        1         1.89      53      1.62
     Question 3         29        54.72      20     37.74       1       1.89       3     5.66        0         0.00      53      1.58
     Question 4*        32        61.54      18     34.62       1       1.92       0     0.00        1         1.92      52      1.46
     Question 5         32        60.38      18     33.96       2       3.77       1     1.89        0         0.00      53      1.47
     Question 6         26        49.06      21     39.62       2       3.77       4     7.55        0         0.00      53      1.70
     Question 7         21        39.62      22     41.51       5       9.43       4     7.55        1         1.89      53      1.91
     Question 8         44        83.02       7     13.21       0       0.00       2     3.77        0         0.00      53      1.25
     Question 9         23        43.40      22     41.51       6     11.32        2     3.77        0         0.00      53      1.75
     Question 10        28        52.83      18     33.96       4       7.55       3     5.66        0         0.00      53      1.66
     Question 11*       18        34.62      26     50.00       5       9.62       2     3.85        1         1.92      52      1.88
     Total Responses   305        52.50     216     37.18      31       5.34      24     4.13        5         0.86     581      1.64

                                  Questions Applicable to Institutions Under Enforcement Actions

     There were no institutions under enforcement actions that responded to the survey this year.
     Total Number of Surveys Sent to Institutions:             71

     Total Number of Surveys Received From Institutions:       53
                                                           Appendix IV
           Fiscal Years 2000, 2001, 2002, 2003 and 2004

Question   FY 04        FY 03       FY 02       FY 01     FY 00

   1        1.72        1.75         1.58        1.66     1.46

   2        1.62        1.55         1.43        1.58     1.39

   3        1.58        1.63         1.65        1.66     1.56

   4        1.46        1.46         1.38        1.54     1.42

   5        1.47        1.41         1.32        1.53     1.42

   6        1.70        1.56         1.53        1.69     1.48

   7        1.91        1.90         1.66        1.71     1.53

   8        1.25        1.19         1.14        1.20     1.15

   9        1.75        1.76         1.78        1.78     1.56

  10        1.66        1.62         1.39        1.53     1.41

  11        1.88        1.88         1.70        1.82     1.48

Average     1.64        1.60         1.51        1.61     1.44

                                                                                                                               Appendix V 

                                                       Farm Credit System Annual Survey
                                                      Surveys Sent vs Responses Received

Number of Surveys

                        140               142            147
                        120         128
                        100                     110
                                                                101                      105                            101
                                                                                                           96   97
                        60                                                                                                                71
                                                                                               59                             55
                        40                                                                                                                     52

                               1997        1998           1999            2000            2001              2002            2003          2004
                                                                               Fiscal Year

                                                                      Surveys Sent   Reponses Received

                                                     Farm Credit System Annual Survey
                                                 Overall Average Response to Questions 1-11



                        1.8               1.82
     Average Response


                                                                                       1.61                          1.60




                              1997        1998          1999           2000           2001           2002            2003          2004
                                                                          Fiscal Year


Fraud   ™    Waste     ™    Abuse     ™    Mismanagement 


         Phone: 	Toll Free (800) 437-7322 

                            (703) 883-4316 

           Fax: 	 (703) 883-4059 

         e-mail: 	fca-ig-hotline@starpower.net
         mail: 	 Farm Credit Administration 

                  Office of Inspector General 

                  1501 Farm Credit Drive 

                  McLean, VA 22102-5090