FCS Financial 2013 Annual Report by FCS Financial

Annual Report 2013

Opening doors in rural Missouri since 1916.

FCS Financial, ACA

TABLE OF CONTENTS

MESSAGE FROM THE CHAIRPERSON OF THE BOARD AND CHIEF EXECUTIVE OFFICER ............................................................. 1 CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA ........................................................................................ 2 MANAGEMENT’S DISCUSSION AND ANALYSIS .................................................................................................................................... 3 REPORT OF MANAGEMENT .................................................................................................................................................................... 9 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING .................................................................................................. 10 REPORT OF AUDIT COMMITTEE .......................................................................................................................................................... 11 INDEPENDENT AUDITOR'S REPORT .................................................................................................................................................... 12 CONSOLIDATED FINANCIAL STATEMENTS ........................................................................................................................................ 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ..................................................................................................................... 17 DISCLOSURE INFORMATION REQUIRED BY REGULATIONS ............................................................................................................ 33 FUNDS HELD PROGRAM ....................................................................................................................................................................... 38 YOUNG, BEGINNING, AND SMALL FARMERS AND RANCHERS ........................................................................................................ 39

AgriBank, FCB’s (AgriBank) financial condition and results of operations materially impact members' investment in FCS Financial, ACA. To request free copies of the AgriBank and combined AgriBank and Affiliated Associations’ financial reports contact us at 1934 East Miller Street, Jefferson City, MO 65101, (573) 635-7956, via e-mail at jeffersoncitymo@myfcsfinancial.com, or our website www.myfcsfinancial.com. You may also contact AgriBank at 30 East 7th Street, Suite 1600, St. Paul, MN 55101, (651) 282-8800, or by e-mail at financialreporting@agribank.com. The AgriBank and combined AgriBank and Affiliated Associations’ financial reports are also available through AgriBank’s website at www.agribank.com. To request free copies of our Annual or Quarterly Reports contact us as stated above. The Annual Report is available on our website no later than 75 days after the end of the calendar year and members are provided a copy of such report no later than 90 days after the end of the calendar year. The Quarterly Reports are available on our website no later than 40 days after the end of each calendar quarter.

MESSAGE FROM THE CHAIRPERSON OF THE BOARD AND CHIEF EXECUTIVE OFFICER

Dear FCS Financial Customer: It is our pleasure to provide you with our 2013 Annual Report. In all respects, we had another strong year in 2013. The average daily balance of our owned and managed loan portfolio grew almost 13% in 2013 to $3.1 billion. Net income was $60.6 million or a return on assets of 2.0%. Our risk profile continues to be solid with credit quality at a historical high of 99.0%. Our permanent capital ratio, a key indicator of capital adequacy, was 16.2%. This was a decrease from 2012 due to the loan growth we experienced in 2013; however, this continues to be a strong level of capital. We continue to be extremely pleased with the performance of the Association. Our performance and strong financial position allowed the Board of Directors to declare patronage in excess of $8.5 million to our stockholders. Board and management take pride in the fact that this cooperative provides value to the marketplace via our people, products, pricing, and patronage. Our success is a reflection of the success of our customers. 2013 was another strong year for agriculture in general. Demand, both nationally and internationally, remained strong for agricultural products. Both corn and soybean production in Missouri was substantially above 2012 levels and producers experienced generally above-average yields and historically strong prices. However, due to variable weather conditions, there was significant variance in yields in certain parts of the state. After several difficult years, the protein sector of our portfolio began to see some relief as prices for feed and other inputs moderated and livestock prices rebounded to some degree. Overall, we saw continued interest in land purchases especially in the crop areas of our state. The economic and political environment at the national level continues to be challenging. The American economy continues to grow, although at repressed levels, and the political uncertainty makes for a challenging environment for agriculture. We continue to encourage producers to understand their risks and their cost of production in this type of an environment. What lies ahead in 2014 is hard to tell. Political gridlock, high land values, volatile commodity prices, market volatility, and general uncertainty will likely challenge FCS Financial and our customers in one form or another. We are well positioned financially and, with a talented team of employees, we will continue to strive to be the lender of choice for Missouri farmers, ranchers, and agribusinesses. Finally, we are proud of our accomplishments, but equally important, we are proud of the initiatives that allow us to continue to have a positive impact on rural Missouri. We have awarded more than 320 scholarships to young Missourians allowing them to pursue higher education. FCS Financial was a major contributor to the development of the new FFA curriculum that will be offered free to all high schools and community colleges in the state of Missouri. And we continue to be a major contributor in both financial and human resources to groups such as FFA, 4-H, and Young Farmers and Farm Wives. We believe strongly in giving back to the industry and communities in which we live and work.

Sincerely,

James Nivens Chairperson of the Board FCS Financial, ACA

David D. Janish Chief Executive Officer FCS Financial, ACA

March 5, 2014

CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA FCS Financial, ACA (Dollars in thousands) 2 0 13 S t a t e m e nt o f C o ndit io n D a t a Lo ans A llo wance fo r lo an lo sses Net lo ans

$ 2,372,559

$ 2,215,143

17,905

18,193

25,119

26,021

3 ,0 3 3 ,114

2,722,681

2,354,366

2,190,024

2,116,720

8 1,0 4 1

75,959

72,490

72,539

78,120

398

207

1,096

296

6 6 ,14 1

59,174

50,984

49,490

48,377

$ 3 ,18 0 ,3 6 5

$ 2,858,212

$ 2,478,047

$ 2,313,149

$ 2,243,513

$ 2 ,5 7 9 ,5 11

$ 2,309,753

$ 1,981,534

$ 1,861,972

$ 1,837,678

P ro tected members' equity Capital sto ck and participatio n certificates Unallo cated surplus

To tal liabilities and members' equity

2009

$ 2,740,586

Other assets

To tal members' equity

2010

16 ,9 3 7

Other pro perty o wned

Obligatio ns with maturities o f o ne year o r less

2011

$ 3 ,0 5 0 ,0 5 1

Investment in A griB ank, FCB

To tal assets

2012

$ 2,142,741

12 ,6 7 1

12,297

11,743

11,285

11,081

5 8 8 ,17 1

536,149

484,752

439,868

394,725

6 0 0 ,8 5 4

548,459

496,513

451,177

405,835

$ 3 ,18 0 ,3 6 5

$ 2,858,212

$ 2,478,047

$ 2,313,149

$ 2,243,513

$ 7 9 ,2 4 4

$ 70,692

S t a t e m e nt o f Inc o m e D a t a Net interest inco me P ro visio n fo r (reversal o f) lo an lo sses

1,0 0 0

$ 65,188

$ 58,907

$ 57,747

(2,000)

3,000

31,000

P atro nage inco me

15 ,0 9 0

14,772

14,597

16,864

14,610

Other expense, net

3 3 ,12 8

26,833

25,838

20,363

22,383

208

912

2,265

(2,362)

$ 60,423

$ 50,035

$ 50,143

$ 21,336

(B enefit fro m) pro visio n fo r inco me taxes Net inco me

(386) $ 6 0 ,5 9 2

Ke y F ina nc ia l R a t io s Return o n average assets

2 .0 %

2.4%

2.2%

2.3%

0.9%

10 .6 %

11.6%

10.6%

11.7%

5.4%

2 .8 %

2.9%

2.8%

2.7%

18 .9 %

19.2%

20.0%

19.5%

18.1%

Net charge-o ffs as a percentage o f average lo ans

0 .1%

(0.1%)

0.4%

0.2%

0.5%

A llo wance fo r lo an lo sses as a percentage o f lo ans

0 .6 %

0.7%

0.8%

1.1%

1.2%

P ermanent capital ratio

16 .2 %

17.1%

17.6%

16.6%

14.2%

To tal surplus ratio

15 .8 %

16.6%

17.1%

16.1%

13.7%

Co re surplus ratio

15 .8 %

16.6%

17.1%

16.1%

13.7%

Return o n average members' equity Net interest inco me as a percentage o f average earning assets M embers' equity as a percentage o f to tal assets

O t he r Lo ans serviced fo r A griB ank, FCB P atro nage distributio n payable to members

$ 2 19

$ 267

$ 379

$ 452

$ 589

$ 8 ,5 7 5

$ 9,026

$ 5,126

$ 5,000

$ --

The patronage distribution to members accrued for the year ended December 31, 2013 will be distributed in cash during the first quarter of 2014. The patronage distributions accrued for the years ended December 31, 2012, 2011, and 2010 were distributed in cash during the first quarter of each subsequent year. No income was distributed to members in the form of dividends, stock, or allocated surplus during these periods. No patronage was accrued for the year ended December 31, 2009.

Consolidated Five-Year Summary of Selected Financial Data

MANAGEMENT’S DISCUSSION AND ANALYSIS FCS Financial, ACA The following commentary reviews the consolidated financial condition and consolidated results of operations of FCS Financial, ACA (the Association) and its subsidiaries, FCS Financial, FLCA and FCS Financial, PCA (the subsidiaries) and provides additional specific information. The accompanying consolidated financial statements and notes to the consolidated financial statements also contain important information about our financial condition and results of operations. The Farm Credit System (System) is a nationwide system of cooperatively owned banks and associations established by Congress to meet the credit needs of American agriculture. As of December 31, 2013, the System consisted of three Farm Credit Banks (FCB), one Agricultural Credit Bank (ACB), and 82 customer-owned cooperative lending institutions (associations). The System serves all 50 states, Washington D.C., and Puerto Rico. This network of financial cooperatives is owned and operated by the rural customers the System serves. AgriBank, FCB (AgriBank), a System bank, and its affiliated associations are collectively referred to as the AgriBank Farm Credit District (AgriBank District or the District). FCS Financial, ACA is one of the affiliated associations in the District. The Farm Credit Administration (FCA) is authorized by Congress to regulate the System. The Farm Credit System Insurance Corporation (FCSIC) ensures the timely payment of principal and interest on Systemwide debt obligations and the retirement of protected borrower capital at par or stated value. FORWARD-LOOKING INFORMATION This Annual Report includes forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Words such as "anticipate", ―believe", "estimate", "may", ―expect‖, ―intend‖, and similar expressions are used to identify such forward-looking statements. These statements reflect our current views with respect to future events. However, actual results may differ materially from our expectations due to a number of risks and uncertainties which may be beyond our control. These risks and uncertainties include, but are not limited to:       

political, legal, regulatory, financial, and economic conditions and developments in the United States (U.S.) and abroad, economic fluctuations in the agricultural and farm-related business sectors, unfavorable weather, disease, and other adverse climatic or biological conditions that periodically occur and impact agricultural productivity and income, changes in U.S. government support of the agricultural industry and the System as a government-sponsored enterprise, as well as investor and rating agency actions relating to events involving the U.S. government, other government-sponsored enterprises, and other financial institutions, actions taken by the Federal Reserve System in implementing monetary policy, credit, interest rate, and liquidity risks inherent in our lending activities, and changes in our assumptions for determining the allowance for loan losses, and fair value measurements.

AGRICULTURAL AND ECONOMIC CONDITIONS The regional variations in weather patterns experienced in 2013 throughout the state continued into harvest and the fourth quarter. Overall, the weather patterns were favorable during the final spring crop growing weeks and harvesting time. The September rains delayed early corn and bean harvest, but the rains also provided needed moisture for many late planted beans in the state. Corn yields in the state were generally better than anticipated due to the absence of periods of triple digit temperatures and mostly adequate moisture conditions during pollination. Earlier planted soybeans and early maturing soybean varieties suffered the most yield reductions due to the July and August dry weather conditions in much of the state. The first fall frost dates held off allowing good yields for late and double crop beans. Overall corn yields were substantially better than the 2012 drought yields in the state. Soybean yields were lower in many areas, but better in some when compared to the 2012 yields. Prevented plant crop acres in the state were higher in 2013 due to the wet spring and early summer conditions. Crop insurance claims for 2013 were numerous, but down materially from the 2012 record claim numbers. Fall conditions allowed for second crop hay to be baled and hay supplies are considered to be above normal. Pasture conditions were generally favorable throughout most of the state going into winter. Grain prices continue to fluctuate due to world markets with corn prices being substantially lower than last year end. Soybean prices are down, but remain stronger relative to corn and are similar to last year. Cattle, dairy, and swine prices all continue to strengthen at year end increasing the profitability of these sectors when coupled with decreased grain prices.

LOAN PORTFOLIO Total loans were $3.1 billion at December 31, 2013, an increase of $309.5 million from December 31, 2012. The components of loans are presented in the following table (in thousands): A s o f December 31

2 0 13

2012

2011

A ccrual lo ans: Real estate mo rtgage

$ 1,6 9 8 ,7 3 0

$ 1,570,548

$ 1,329,091

P ro ductio n and intermediate term

7 3 6 ,7 8 7

813,414

690,599

A gribusiness

5 2 2 ,8 13

223,402

218,483

7 6 ,5 0 1

114,219

115,571

15 ,2 2 0

19,003

18,815

$ 3 ,0 5 0 ,0 5 1

$ 2,740,586

$ 2,372,559

Other No naccrual lo ans To tal lo ans

The increase in total loans from December 31, 2012 resulted primarily due to continued demand for productive crop land in our territory along with growth in our capital markets portfolio. We offer variable, fixed, capped, indexed, and adjustable interest rate loan programs to our borrowers. We also offer leases through Farm Credit Leasing. We determine interest margins charged on each lending program based on cost of funds, market conditions, and the need to generate sufficient earnings. As part of the Asset Pool program, we have sold participation interests in real estate loans to AgriBank. The total participation interests in this program were $228.6 million, $271.2 million, and $317.6 million at December 31, 2013, 2012, and 2011, respectively. Portfolio Distribution We are chartered to serve 102 counties in Missouri. We had loans concentrated in the state of Missouri totaling 84.3% of our portfolio at December 31, 2013. Agricultural concentrations exceeding 5.0% of our portfolio included: cash grains 40.0%, livestock 26.5%, agribusiness 8.6%, and landlords 7.2%. Additional commodity concentration information is included in Note 3. Our production and intermediate term loan portfolio shows some seasonality. Borrowings increase throughout the planting and growing seasons as farmersâ&#x20AC;&#x2122; operating and capital needs rise. These loans are normally at their lowest levels during the winter months because of operating repayments following harvest. Portfolio Credit Quality The credit quality of our portfolio improved during 2013. Adversely classified loans decreased to 1.0% of the portfolio at December 31, 2013, from 2.0% of the portfolio at December 31, 2012. Adversely classified loans are loans we have identified as showing some credit weakness outside our credit standards. We have considered portfolio credit quality in assessing the reasonableness of our allowance for loan losses. In certain circumstances, government guarantee programs are used to reduce the risk of loss. As of December 31, 2013, $198.5 million of our loans were, to some level, guaranteed under these government programs. Analysis of Risk The following table summarizes certain risk information (accruing loans include accrued interest receivable) (dollars in thousands): A s o f December 31

2 0 13

2012

2011

Lo ans: No naccrual A ccruing restructured A ccruing lo ans 90 days o r mo re past due To tal risk lo ans Other pro perty o wned To tal risk assets

$ 15 ,2 2 0

$ 19,003

$ 18,815

1,8 9 9

1,218

503

17 ,119

20,221

19,318

398

207

$ 17 ,18 8

$ 20,619

$ 19,525

Risk lo ans as a percentage o f to tal lo ans

0 .6 %

0.7%

0.8%

To tal delinquencies as a percentage o f to tal lo ans

0 .2 %

0.4%

0.3%

Our risk assets decreased from December 31, 2012 and remain at acceptable levels. Total risk loans as a percentage of total loans remains well within our established risk management guidelines. The decrease in nonaccrual loans was primarily due to principal payments on real estate mortgage related loans. Nonaccrual loans remained at an acceptable level at December 31, 2013 and represented 0.5% of our total portfolio. At December 31, 2013, 80.2% of our nonaccrual loans were current.

Analysis of the Allowance for Loan Losses The allowance for loan losses is an estimate of losses on loans in our portfolio as of the financial statement date. We determine the appropriate level of allowance for loan losses based on the periodic evaluation of factors such as loan loss history, estimated probability of default, estimated loss severity, portfolio quality, and current economic and environmental conditions. The following table presents allowance coverage, charge-off, and adverse asset information: A s o f December 31

2 0 13

2012

2011

A llo wance as a percentage o f: Lo ans

0 .6 %

0.7%

0.8%

No naccrual lo ans

111.3 %

94.2%

96.7%

To tal risk lo ans

9 8 .9 %

88.5%

94.2%

Net charge-o ffs as a percentage o f average lo ans

0 .1%

(0.1%)

0.4%

A dverse assets to risk funds

5 .9 %

11.2%

8.2%

In our opinion, the allowance for loan losses was reasonable in relation to the risk in our loan portfolio at December 31, 2013. Additional loan information is included in Notes 3, 10, 11, 12, and 13. RESULTS OF OPERATIONS The following table illustrates profitability information (dollars in thousands): Fo r the year ended December 31

2 0 13

Net inco me

2012

2011

$ 6 0 ,5 9 2

$ 60,423

2 .0 %

2.4%

2.2%

10 .6 %

11.6%

10.6%

Return o n average assets Return o n average members' equity

$ 50,035

Changes in these ratios relate directly to:   

changes in income as discussed below, changes in assets as discussed in the Loan Portfolio section, and changes in members’ equity as discussed in the Capital Adequacy section.

The following table summarizes the changes in components of net income (in thousands): Fo r the year ended December 31 2 0 13 Net interest inco me

2012

$ 7 9 ,2 4 4

P ro visio n fo r (reversal o f) lo an lo sses

$ 70,692

1,0 0 0

Increase (decrease) in net inco me 2011

2 0 13 v s 2 0 12

$ 65,188

(2,000)

3,000

$ 8 ,5 5 2 ( 3 ,0 0 0 )

$ 5,504 5,000

P atro nage inco me

15 ,0 9 0

14,772

14,597

Other inco me, net

5 ,8 2 9

8,283

5,870

( 2 ,4 5 4 )

2,413

3 8 ,9 5 7

35,116

31,708

( 3 ,8 4 1)

(3,408)

208

912

594

704

$ 60,423

$ 50,035

$ 16 9

$ 10,388

Operating expenses (B enefit fro m) pro visio n fo r inco me taxes Net inco me

(386) $ 6 0 ,5 9 2

3 18

2012 vs 2011

175

Net Interest Income Net interest income was $79.2 million for the year ended December 31, 2013. The following table quantifies changes in net interest income (in thousands): 2 0 13 v s 2 0 12 Changes in vo lume

$ 10 ,8 7 7

Changes in rates

( 2 ,7 15 )

Changes in no naccrual inco me and o ther Net change

390 $ 8 ,5 5 2

2012 vs 2011 $ 7,829 (1,777) (548) $ 5,504

Net interest income included income on nonaccrual loans that totaled $1.0 million, $0.6 million, and $1.2 million in 2013, 2012, and 2011, respectively. Nonaccrual income is recognized when received in cash, collection of the recorded investment is fully expected, and prior charge-offs have been recovered. Net interest margin (net interest income divided by average earning assets) was 2.8%, 2.9%, and 2.9% in 2013, 2012, and 2011, respectively. We expect margins to compress in the future as interest rates rise and competition increases.

Provision for (Reversal of) Loan Losses The fluctuation in the provision for (reversal of) loan losses is related to our estimate of losses in our portfolio for the applicable years. Refer to Note 3 for additional discussion. Patronage Income We received patronage income based on the average balance of our note payable to AgriBank. AgriBankâ&#x20AC;&#x2122;s Board of Directors sets the patronage rate. The patronage rates were 34.5 basis points, 32 basis points, and 31 basis points in 2013, 2012, and 2011, respectively. We recorded patronage income of $8.2 million, $6.5 million, and $5.7 million in 2013, 2012, and 2011, respectively. Since 2008, we have participated in the Asset Pool program in which we sell participation interests in certain real estate loans to AgriBank. As part of this program, we received patronage income in an amount that approximated the net earnings of the loans. Net earnings represents the net interest income associated with these loans adjusted for certain fees and costs specific to the related loans as well as adjustments deemed appropriate by AgriBank related to the credit performance of the loans, as applicable. In addition, we received patronage income in an amount that approximated the wholesale patronage had we retained the volume. Patronage declared on these pools is solely at the discretion of the AgriBank Board of Directors. We recorded asset pool patronage income of $6.8 million, $8.2 million, and $8.8 million in 2013, 2012, and 2011, respectively. As part of this income in 2012, we received a $436 thousand share of the distribution from the Allocated Insurance Reserve Accounts (AIRA) related to the Asset Pool program. These reserve accounts were established in previous years by the FCSIC when premiums collected increased the level of the Farm Credit Insurance Fund above the required 2.0% of insured debt. No such distributions were received in 2013 or 2011. Other Income The change in other income was primarily due to the decrease in AIRA distribution. Our share of distributions from AIRA was $2.2 million during 2012. Operating Expenses The following presents a comparison of operating expenses by major category and the operating rate for the past three years (dollars in thousands): Fo r the year ended December 31

2 0 13

Salaries and emplo yee benefits

2012

2011

$ 2 3 ,6 3 4

$ 22,109

$ 19,051

3 ,3 5 3

3,400

3,306

963

980

963

Occupancy and equipment

2 ,8 9 6

2,753

2,648

A dvertising and pro mo tio n

1,3 7 9

1,225

1,279

655

656

659

Farm Credit System insurance

2 ,3 2 4

986

1,093

Other

3 ,7 5 3

3,007

2,709

$ 3 8 ,9 5 7

$ 35,116

$ 31,708

1.4 %

1.4%

P urchased and vendo r services Co mmunicatio ns

Examinatio n

To tal o perating expenses Operating rate

The increases in operating expenses were primarily due to increased employee benefits and increased FCSIC insurance expense in 2013. The premium rate charged by FCSIC increased in 2013 compared to 2012. (Benefit from) Provision for Income Taxes The variance in (benefit from) provision for income taxes is related to our estimate of taxes based on taxable income. Patronage distributions to members reduced our tax liability in 2013, 2012, and 2011. Refer to Note 8 for additional discussion. FUNDING AND LIQUIDITY Funding We borrow from AgriBank under a note payable, in the form of a line of credit, as described in Note 6. The following table summarizes note payable information (dollars in thousands): Fo r the year ended December 31

2 0 13

A verage balance A verage interest rate

2012

2011

$ 2 ,3 7 8 ,3 0 1

$ 2,018,463

$ 1,824,292

1.6 %

1.9%

2.2%

Our other source of lendable funds is from unallocated surplus. The repricing attributes of our line of credit generally correspond to the repricing attributes of our loan portfolio which significantly reduces our market interest rate risk.

Liquidity Our approach to sustaining sufficient liquidity to fund operations and meet current obligations is to maintain an adequate line of credit with AgriBank. At December 31, 2013, we had $249.4 million available under our line of credit. We generally apply excess cash to this line of credit. CAPITAL ADEQUACY Total members’ equity increased $52.4 million during 2013 primarily due to net income for the period and a slight increase in capital stock and participation certificates partially offset by patronage distribution accruals. Members’ equity position information is as follows (dollars in thousands): A s o f December 31

2 0 13

M embers' equity

2012

2011

$ 6 0 0 ,8 5 4

$ 548,459

$ 496,513

Surplus as a percentage o f members' equity

9 7 .9 %

97.8%

97.6%

P ermanent capital ratio

16 .2 %

17.1%

17.6%

To tal surplus ratio

15 .8 %

16.6%

17.1%

Co re surplus ratio

15 .8 %

16.6%

17.1%

Our capital plan is designed to maintain an adequate amount of surplus and allowance for loan losses which represents our reserve for adversity prior to impairment of stock. We manage our capital to allow us to meet member needs and protect member interests, both now and in the future. At December 31, 2013, our permanent capital, total surplus, and core surplus ratios exceeded the regulatory minimum requirements. Additional discussion of these regulatory ratios is included in Note 7. In addition to these regulatory requirements, we establish an optimum permanent capital target. This target allows us to maintain a capital base adequate for future growth and investment in new products and services. The target is subject to revision as circumstances change. As of December 31, 2013, our optimum permanent capital target was to remain above 12%. The changes in our capital ratios reflect changes in capital and assets. Refer to the Loan Portfolio section for further discussion of the changes in assets. Additional members’ equity information is included in Note 7. INITIATIVES We are involved in a number of initiatives designed to improve our credit delivery, related services, and marketplace presence. FCS Financial Express We have entered into agreements with certain dealer networks to provide alternative service delivery channels to borrowers. These trade credit opportunities create more flexible and accessible financing options to borrowers through programs such as dealer point-of-purchase financing. Farm Cash Management We offer Farm Cash Management to our members. Farm Cash Management links members’ revolving lines of credit with an AgriBank investment bond to optimize members’ use of funds. RELATIONSHIP WITH AGRIBANK Borrowing We borrow from AgriBank to fund our lending operations in accordance with the Farm Credit Act. Approval from AgriBank is required for us to borrow elsewhere. A General Financing Agreement (GFA), as discussed in Note 6, governs this lending relationship. Cost of funds under the GFA includes a marginal cost of debt component, a spread component, which includes cost of servicing, cost of liquidity, and bank profit, and if applicable, a risk premium component. However, in the periods presented, we were not subject to the risk premium component. The marginal cost of debt approach simulates matching the cost of underlying debt with substantially the same terms as the anticipated terms of our loans to borrowers. This methodology substantially protects us from market interest rate risk. Investment We are required to invest in AgriBank capital stock as a condition of borrowing. This investment may be in the form of purchased stock or stock representing previously distributed AgriBank surplus. As of December 31, 2013, we were required to maintain a stock investment equal to 2.5% of the average quarterly balance of our note payable to AgriBank plus an additional 1.0% on growth that exceeded a targeted rate. AgriBank’s current bylaws allow AgriBank to increase the required investment to 4.0%. However, AgriBank currently has not communicated a plan to increase the required investment.

In addition, we are required to hold AgriBank stock equal to 8.0% of the quarter end Asset Pool program participation loan balance. At December 31, 2013, $45.4 million of our investment in AgriBank consisted of stock representing distributed AgriBank surplus and $35.6 million consisted of purchased investment. For the periods presented in this report, we have received no dividend income on this stock investment and we do not anticipate any in future years. Patronage We receive different types of discretionary patronage from AgriBank. AgriBank’s Board of Directors sets the level of patronage for each of the following:  

patronage on our note payable with AgriBank and patronage based on the balance and net earnings of loans in the Asset Pool program.

Patronage income on our note payable with AgriBank was received in the form of cash and AgriBank stock. Purchased Services We purchase various services from AgriBank including certain financial and retail systems, support, reporting, technology, and insurance services. The total cost of services we purchased from AgriBank was $1.2 million, $1.2 million, and $1.1 million in 2013, 2012, and 2011, respectively. Impact on Members’ Investment Due to the nature of our financial relationship with AgriBank, the financial condition and results of operations of AgriBank materially impact our members’ investment. To request free copies of the AgriBank and the combined AgriBank and Affiliated Associations’ financial reports contact us at 1934 East Miller Street, Jefferson City, MO 65101, (573) 635-7956, by e-mail at jeffersoncitymo@myfcsfinancial.com, or at www.myfcsfinancial.com. You may also contact AgriBank at 30 East 7th Street, Suite 1600, St. Paul, MN 55101, (651) 282-8800, or by e-mail at financialreporting@agribank.com. The AgriBank and combined AgriBank and Affiliated Associations’ financial reports are also available through AgriBank’s website at www.agribank.com. To request free copies of our Annual or Quarterly Reports contact us as stated above. The Annual Report is available on our website no later than 75 days after the end of the calendar year and members are provided a copy of such report no later than 90 days after the end of the calendar year. The Quarterly Reports are available on our website no later than 40 days after the end of each calendar quarter. RELATIONSHIP WITH OTHER FARM CREDIT INSTITUTIONS BGM Technology Collaboration We participate in the BGM Technology Collaboration (BGM) with certain other AgriBank District associations to facilitate the development and maintenance of certain retail technology systems essential to providing credit and other services to our members. BGM operations are governed by representatives of each participating association. The expenses of BGM are allocated to each of the participating associations based on an agreed upon formula. The systems developed are owned by each of the participating associations. Capital Markets Group We participate in the Capital Markets Group (CMG) with the two Farm Credit associations chartered in Illinois. CMG focuses on generating revenue and loan volume for the financial benefit of the three participating associations. The loan accounting function for CMG participations is performed by each association with respect to their participation ownership. Management for each association has direct decision-making authority over the loans purchased for their respective association. CMG provides an additional means for diversifying our portfolio by reducing concentration risk and positions us for continued growth. Unincorporated Business Entities (UBEs) Certain circumstances, primarily for legal liability purposes, may warrant the need to establish separate entities to acquire and manage complex collateral. As of December 31, 2013, we had an insignificant equity investment in RBF Acquisition VIII, LLC which owns the assets of an ethanol plant acquired from a troubled borrower in 2009. Investment in Other Farm Credit Institutions We have a relationship with CoBank, ACB (CoBank), a System bank, which involves purchasing and selling participation interests in loans. As part of this relationship, our equity investment in CoBank was $234 thousand, $203 thousand, and $151 thousand at December 31, 2013, 2012, and 2011, respectively. CoBank provides direct loan funds to associations in its chartered territory and makes loans to cooperatives and other eligible borrowers. We have a relationship with Farm Credit Foundations (Foundations) which involves purchasing human resource information systems, benefit, payroll, and workforce management services. Foundations was operated as part of AgriBank prior to January 1, 2012 when it formed a separate System service corporation. As of December 31, 2013 and 2012, our investment in Foundations was $32 thousand. The total cost of services we purchased from Foundations was $140 thousand and $143 thousand in 2013 and 2012, respectively.

REPORT OF MANAGEMENT FCS Financial, ACA

We prepare the consolidated financial statements of FCS Financial, ACA (the Association) and are responsible for their integrity and objectivity, including amounts that must necessarily be based on judgments and estimates. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements, in our opinion, fairly present the financial condition of the Association. Other financial information included in the Annual Report is consistent with that on the consolidated financial statements. To meet our responsibility for reliable financial information, we depend on accounting and internal control systems designed to provide reasonable, but not absolute assurance that assets are safeguarded and transactions are properly authorized and recorded. Costs must be reasonable in relation to the benefits derived when designing accounting and internal control systems. Financial operations audits are performed to monitor compliance. PricewaterhouseCoopers LLP, our independent auditors, audit the consolidated financial statements. They also conduct a review of internal controls to the extent necessary to comply with auditing standards generally accepted in the United States of America. The Farm Credit Administration also performs examinations for safety and soundness as well as compliance with applicable laws and regulations. The Board of Directors has overall responsibility for our system of internal control and financial reporting. The Board of Directors and its Audit Committee consults regularly with us and meets periodically with the independent auditors and other auditors to review the scope and results of their work. The independent auditors have direct access to the Board of Directors, which is composed solely of directors who are not officers or employees of the Association. The undersigned certify we have reviewed the Associationâ&#x20AC;&#x2122;s Annual Report and it 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 and belief.

James Nivens Chairperson of the Board FCS Financial, ACA

David D. Janish Chief Executive Officer FCS Financial, ACA

Steve Harrington Chief Financial Officer FCS Financial, ACA March 5, 2014

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING FCS Financial, ACA

The FCS Financial, ACA (the Association) principal executives and principal financial officers, or persons performing similar functions, are responsible for establishing and maintaining adequate internal control over financial reporting for the Association’s 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 the Association’s 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 the Association, (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 the Association, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Association’s assets that could have a material effect on its consolidated financial statements. The Association’s management has completed an assessment of the effectiveness of internal control over financial reporting as of December 31, 2013. In making the assessment, management used the 1992 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, the Association concluded that as of December 31, 2013, the internal control over financial reporting was effective based upon the COSO criteria. Additionally, based on this assessment, the Association determined that there were no material weaknesses in the internal control over financial reporting as of December 31, 2013.

David D. Janish Chief Executive Officer FCS Financial, ACA

Steve Harrington Chief Financial Officer FCS Financial, ACA March 5, 2014

REPORT OF AUDIT COMMITTEE FCS Financial, ACA

The consolidated financial statements were prepared under the oversight of the Audit Committee. The Audit Committee is composed of a subset of the Board of Directors of FCS Financial, ACA (the Association). The Audit Committee oversees the scope of the Association’s internal audit program, the approval, and independence of PricewaterhouseCoopers LLP (PwC) as independent auditors, the adequacy of the Association’s system of internal controls and procedures, and the adequacy of management’s action with respect to recommendations arising from those auditing activities. The Audit Committee’s responsibilities are described more fully in the Internal Control Policy and the Audit Committee Charter. Management is responsible for internal controls and the preparation of the consolidated 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 consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and to issue their report based on their audit. The Audit Committee’s responsibilities include monitoring and overseeing these processes. In this context, the Audit Committee reviewed and discussed the audited consolidated financial statements for the year ended December 31, 2013, with management. The Audit Committee also reviewed with PwC the matters required to be discussed by Statement on Auditing Standards No. 114, The Auditor’s Communication with Those Charged with Governance, and both PwC and the internal auditors directly provided reports on significant matters to the Audit Committee. The Audit Committee had discussions with and received written disclosures from PwC confirming its independence. The Audit Committee also reviewed the non-audit services provided by PwC, if any, and concluded these services were not incompatible with maintaining PwC’s independence. The Audit Committee discussed with management and PwC any other matters and received any assurances from them as the Audit Committee deemed appropriate. Based on the foregoing review and discussions, and relying thereon, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Annual Report for the year ended December 31, 2013.

Maurice Glosemeyer Chairperson of the Audit Committee FCS Financial, ACA Additional Audit Committee members: Michael Bruce James Davis David Meneely Troy Norton March 5, 2014

Independent Auditor's Report

To the Board of Directors and Members of FCS Financial, ACA, We have audited the accompanying consolidated financial statements of FCS Financial, ACA (the Association) and its subsidiaries, which comprise the consolidated statements of condition as of December 31, 2013, 2012 and 2011, and the related consolidated statements of income, changes in membersâ&#x20AC;&#x2122; equity and cash flows for the years then ended. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Association's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Association's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FCS Financial, ACA and its subsidiaries at December 31, 2013, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

March 5, 2014

PricewaterhouseCoopers LLP, 225 South Sixth Street, Suite 1400, Minneapolis, MN 55402 T: (612) 596 6000, www.pwc.com/us

CONSOLIDATED STATEMENTS OF CONDITION FCS Financial, ACA (in thousands) A s o f December 31

2 0 13

2012

2011

A SSET S Lo ans

$ 3 ,0 5 0 ,0 5 1

$ 2,740,586

16 ,9 3 7

17,905

18,193

3 ,0 3 3 ,114

2,722,681

2,354,366

A llo wance fo r lo an lo sses Net lo ans Investment in A griB ank, FCB

$ 2,372,559

8 1,0 4 1

75,959

72,490

A ccrued interest receivable

2 9 ,0 5 9

26,231

24,652

P remises and equipment, net

2 3 ,2 8 6

19,922

13,377

398

207

2 ,6 5 5

1,882

1,398

Other pro perty o wned Deferred tax assets, net Other assets To tal assets

11,139

11,557

$ 3 ,18 0 ,3 6 5

11,14 1

$ 2,858,212

$ 2,478,047

LIA B ILIT IE S No te payable to A griB ank, FCB

$ 2 ,5 4 4 ,9 7 5

$ 2,279,702

$ 1,955,423

A ccrued interest payable

9 ,8 4 2

9,457

9,966

P atro nage distributio n payable

8 ,5 7 5

9,026

5,126

Other liabilities

16 ,119

11,568

11,019

2 ,5 7 9 ,5 11

2,309,753

1,981,534

To tal liabilities Co ntingencies and co mmitments M E M B E R S ' E Q UIT Y P ro tected members' equity

12 ,6 7 1

12,297

11,743

5 8 8 ,17 1

536,149

484,752

Capital sto ck and participatio n certificates Unallo cated surplus To tal members' equity To tal liabilities and members' equity

6 0 0 ,8 5 4

548,459

496,513

$ 3 ,18 0 ,3 6 5

$ 2,858,212

$ 2,478,047

The acco mpanying no tes are an integral part o f these co nso lidated financial statements.

Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF INCOME FCS Financial, ACA (in thousands) Fo r the year ended December 31

2 0 13

Int e re s t inc o m e

2012

2011

$ 116 ,9 2 9

$ 108,784

$ 105,037

3 7 ,6 8 5

38,092

39,849

7 9 ,2 4 4

70,692

65,188

Int e re s t e xpe ns e Net interest inco me P ro v is io n f o r ( re v e rs a l o f ) lo a n lo s s e s

1,0 0 0

Net interest inco me after pro visio n fo r (reversal o f) lo an lo sses

(2,000)

3,000

7 8 ,2 4 4

72,692

62,188

14,597

O t he r inc o m e P atro nage inco me

15 ,0 9 0

14,772

Financially related services inco me

3 ,3 8 0

3,630

3,571

Fee inco me

1,7 5 5

2,015

2,334

A llo cated Insurance Reserve A cco unts distributio n

2,211

694

427

(35)

2 0 ,9 19

23,055

Salaries and emplo yee benefits

2 3 ,6 3 4

22,109

19,051

Other o perating expenses

15 ,3 2 3

13,007

12,657

To tal o perating expenses

3 8 ,9 5 7

35,116

31,708

Inco me befo re inco me taxes

6 0 ,2 0 6

60,631

50,947

M iscellaneo us inco me (lo ss), net To tal o ther inco me

20,467

O pe ra t ing e xpe ns e s

( B e ne f it f ro m ) pro v is io n f o r inc o m e t a xe s

(386)

Net inco me

$ 6 0 ,5 9 2

The acco mpanying no tes are an integral part o f these co nso lidated financial statements.

208

912

$ 60,423

$ 50,035

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERSâ&#x20AC;&#x2122; EQUITY FCS Financial, ACA (in thousands) Capital P ro tected

Sto ck and

M embers'

P articipatio n

Unallo cated

M embers'

Equity

Certificates

Surplus

Equity

B alance as o f December 31, 2010

To tal

$ 24

$ 11,285

$ 439,868

$ 451,177

Net inco me

50,035

Unallo cated surplus designated fo r patro nage distributio ns Capital sto ck and participatio n certificates issued

1,374

Capital sto ck and participatio n certificates retired

(6)

B alance as o f December 31, 2011

11,743

484,752

496,513

Net inco me

60,423

Unallo cated surplus designated fo r patro nage distributio ns Capital sto ck and participatio n certificates issued

(9,026)

1,624

Capital sto ck and participatio n certificates retired

(5)

(1,070)

(1,075)

B alance as o f December 31, 2012

12,297

536,149

548,459

Net inco me

6 0 ,5 9 2

Unallo cated surplus designated fo r patro nage distributio ns Capital sto ck and participatio n certificates issued

( 8 ,5 7 0 )

1,3 6 3

Capital sto ck and participatio n certificates retired

( 1)

B a la nc e a s o f D e c e m be r 3 1, 2 0 13

$ 12

The acco mpanying no tes are an integral part o f these co nso lidated financial statements.

(916)

(989) $ 12 ,6 7 1

(5,151) ---

--$ 5 8 8 ,17 1

(5,151) 1,374 (922)

1,3 6 3 (990) $ 6 0 0 ,8 5 4

CONSOLIDATED STATEMENTS OF CASH FLOWS FCS Financial, ACA (in thousands) Fo r the year ended December 31

2 0 13

2012

2011

C a s h f lo ws f ro m o pe ra t ing a c t iv it ie s Net inco me Depreciatio n o n premises and equipment Gain o n sale o f premises and equipment

$ 6 0 ,5 9 2

$ 60,423

$ 50,035

1,2 0 5

995

1,115

(254)

(105)

(643)

A mo rtizatio n o f premiums o n lo ans P ro visio n fo r (reversal o f) lo an lo sses

17 5

Sto ck patro nage received fro m Farm Credit Institutio ns (Gain) lo ss o n o ther pro perty o wned

1,0 0 0

(2,000)

3,000

( 3 ,6 8 9 )

(3,235)

(3,752)

(2)

(17)

( 3 ,3 7 4 )

(2,234)

287

Changes in o perating assets and liabilities: A ccrued interest receivable Other assets

(745)

A ccrued interest payable

385

Other liabilities Net cash pro vided by o perating activities

18 (509)

(3,914) 4,954 3

4 ,5 5 0

549

963

5 9 ,4 5 4

53,761

52,586

C a s h f lo ws f ro m inv e s t ing a c t iv it ie s Increase in lo ans, net (P urchases) redemptio ns o f investment in Farm Credit Institutio ns, net P ro ceeds fro m sales o f o ther pro perty o wned

( 3 10 ,5 8 3 )

(365,128)

( 1,4 2 3 )

(318)

548

P urchases o f premises and equipment, net Net cash used in investing activities C a s h f lo ws f ro m f ina nc ing a c t iv it ie s Increase in no te payable to A griB ank, FCB , net P atro nage distributio ns Capital sto ck and participatio n certificates retired, net Net cash pro vided by financing activities

169

(165,359) 3,764 716

( 3 ,9 2 6 )

(7,286)

(4,926)

( 3 15 ,3 8 4 )

(372,563)

(165,805)

2 6 5 ,2 7 3

324,279

118,470

( 9 ,0 2 0 )

(5,126)

(323)

(351)

(5,025) (226)

2 5 5 ,9 3 0

318,802

113,219

Net change in cash

Cash at beginning o f year

$ --

$ 1,3 2 5

$ 1,574

$ 1,315

624

670

634

541

651

1,416

Cash at end o f year S upple m e nt a l s c he dule o f no n- c a s h a c t iv it ie s Sto ck financed by lo an activities Sto ck applied against lo an principal Sto ck applied against interest Interest transferred to lo ans Lo ans transferred to o ther pro perty o wned P atro nage distributio ns payable to members

2 17

343

114

8 ,5 7 5

9,026

5,126

$ 3 7 ,3 0 0

$ 38,601

$ 39,846

204

955

S upple m e nt a l inf o rm a t io n Interest paid Taxes paid (refunded)

The acco mpanying no tes are an integral part o f these co nso lidated financial statements.

(177)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FCS Financial, ACA

NOTE 1: ORGANIZATION AND OPERATIONS Farm Credit System and District The Farm Credit System (System) is a nationwide system of cooperatively owned banks and associations established by Congress to meet the credit needs of American agriculture. As of December 31, 2013, the System consisted of three Farm Credit Banks (FCB), one Agricultural Credit Bank (ACB), and 82 customer-owned cooperative lending institutions (associations). AgriBank, FCB (AgriBank), a System bank, and its affiliated associations are collectively referred to as the AgriBank Farm Credit District (AgriBank District or the District). At December 31, 2013, the District consisted of 17 Agricultural Credit Associations (ACA) that each have wholly-owned Federal Land Credit Association (FLCA) and Production Credit Association (PCA) subsidiaries. FLCAs are authorized to originate long-term real estate mortgage loans. PCAs are authorized to originate short-term and intermediate-term loans. ACAs are authorized to originate long-term real estate mortgage loans and short-term and intermediate-term loans either directly or through their subsidiaries. Associations are authorized to provide lease financing options for agricultural purposes and are also authorized to purchase and hold certain types of investments. AgriBank provides funding to all associations chartered within the District. Associations are authorized to provide, either directly or in participation with other lenders, credit and related services to eligible borrowers. Eligible borrowers may include farmers, ranchers, producers or harvesters of aquatic products, rural residents, and farm-related service businesses. In addition, associations can participate with other lenders in loans to similar entities. Similar entities are parties that are not eligible for a loan from a System lending institution, but have operations that are functionally similar to the activities of eligible borrowers. The Farm Credit Administration (FCA) is authorized by Congress to regulate the System banks and associations. We are examined by the FCA and certain association actions are subject to the prior approval of the FCA and/or AgriBank. The Farm Credit Act established the Farm Credit System Insurance Corporation (FCSIC) to administer the Farm Credit Insurance Fund (Insurance Fund). The Insurance Fund is used to ensure the timely payment of principal and interest on Farm Credit Systemwide debt obligations, to ensure the retirement of protected borrower capital at par or stated value, and for other specified purposes. At the discretion of the FCSIC, the Insurance Fund is also available to provide assistance to certain troubled System institutions and for the operating expenses of the FCSIC. Each System bank is required to pay premiums into the Insurance Fund until the assets in the Insurance Fund equal 2.0% of the aggregated insured obligations adjusted to reflect the reduced risk on loans or investments guaranteed by federal or state governments. This percentage of aggregate obligations can be changed by the FCSIC, at its sole discretion, to a percentage it determines to be actuarially sound. The basis for assessing premiums is debt outstanding with adjustments made for nonaccrual loans and impaired investment securities which are assessed a surcharge while guaranteed loans and investment securities are deductions from the premium base. AgriBank, in turn, assesses premiums to District associations each year based on similar factors. Association FCS Financial, ACA (the Association) and its subsidiaries, FCS Financial, FLCA and FCS Financial, PCA (the subsidiaries) are lending institutions of the System. We are a member-owned cooperative providing credit and credit-related services to, or for the benefit of, eligible members for qualified agricultural purposes in 102 counties in the state of Missouri. We borrow from AgriBank and provide financing and related services to our members. Our ACA holds all the stock of the FLCA and PCA subsidiaries. In addition to the authorization described for the District our FLCA subsidiary also services certain long-term real estate loans owned by AgriBank. We offer credit life, term life, credit disability, crop hail, multi-peril crop, and Livestock Risk Protection insurance to borrowers and those eligible to borrow. We offer fee appraisals. We also offer leasing through Farm Credit Leasing. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Principles and Reporting Policies Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP) and the prevailing practices within the financial services industry. Preparing financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Certain amounts in prior yearsâ&#x20AC;&#x2122; financial statements have been reclassified to conform to the current yearâ&#x20AC;&#x2122;s presentation. Principles of Consolidation The consolidated financial statements present the consolidated financial results of FCS Financial, ACA and its subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

Significant Accounting Policies Loans: Loans are carried at their principal amount outstanding net of any unearned income and cumulative charge-offs. Loan interest is accrued and credited to interest income based upon the daily principal amount outstanding. Other loan fees are netted with the related origination costs and included as an adjustment to net interest income. The net amount of these fees and expenses are not material to the consolidated financial statements taken as a whole. We place loans in nonaccrual status when:  

principal or interest is delinquent for 90 days or more (unless the loan is well secured and in the process of collection) or circumstances indicate that full collection is not expected.

When a loan is placed in nonaccrual status, we reverse current year accrued interest to the extent principal plus accrued interest before the transfer exceeds the net realizable value of the collateral. Any unpaid interest accrued in a prior year is capitalized to the recorded investment of the loan, unless the net realizable value is less than the recorded investment in the loan, then it is charged-off against the allowance for loan losses. Any cash received on nonaccrual loans is applied to reduce the recorded investment in the loan, except in those cases where the collection of the recorded investment is fully expected and the loan does not have any unrecovered prior charge-offs. In these circumstances interest is credited to income when cash is received. Loans are charged-off at the time they are determined to be uncollectible. Nonaccrual loans may be returned to accrual status when:     

principal and interest are current, prior charge-offs have been recovered, the ability of the borrower to fulfill the contractual repayment terms is fully expected, the borrower has demonstrated payment performance, and the loan is not classified as doubtful or loss.

In situations where, for economic or legal reasons related to the borrower’s financial difficulties, we grant a concession for other than an insignificant period of time to the borrower that we would not otherwise consider, the related loan is classified as a troubled debt restructuring, also known as a restructured loan. A concession is generally granted in order to minimize economic loss and avoid foreclosure. Concessions vary by program and borrower and may include interest rate reductions, term extensions, payment deferrals, or an acceptance of additional collateral in lieu of payments. In limited circumstances, principal may be forgiven. Loans classified as troubled debt restructurings are considered risk loans. Allowance for Loan Losses: The allowance for loan losses is an estimate of losses in our loan portfolio as of the financial statement date. We determine the appropriate level of allowance for loan losses based on periodic evaluation of factors such as:     

loan loss history, estimated probability of default, estimated loss severity, portfolio quality, and current economic and environmental conditions.

Loans in our portfolio that are considered impaired are analyzed individually to establish a specific allowance. A loan is impaired when it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. We generally measure impairment based on the net realizable value of the collateral. All risk loans are considered to be impaired loans. Risk loans include:   

nonaccrual loans, accruing restructured loans, and accruing loans 90 days or more past due.

We record a specific allowance to reduce the carrying amount of the risk loan by the amount the recorded investment exceeds the net realizable value of collateral. When we deem a loan to be uncollectible, we charge the loan principal and prior year(s) accrued interest against the allowance for loan losses. Subsequent recoveries, if any, are added to the allowance for loan losses. An allowance is recorded for probable and estimable credit losses as of the financial statement date for loans that are not individually assessed as impaired. We use a two-dimensional loan risk rating model that incorporates a 14-point rating scale to identify and track the probability of borrower default and a separate 6-point scale addressing the loss severity. The combination of estimated default probability and loss severity is the primary basis for recognition and measurement of loan collectability of these pools of loans. These estimated losses may be adjusted for relevant current environmental factors. Changes in the allowance for loan losses consist of provision activity, recorded in ―Provision for (reversal of) loan losses‖ in the Consolidated Statements of Income, recoveries, and charge-offs. Investment in AgriBank: Accounting for our stock investment in AgriBank is on a cost plus allocated equities basis. Premises and Equipment: The carrying amount of premises and equipment is at cost, less accumulated depreciation. Calculation of depreciation is generally on the straight-line method over the estimated useful lives of the assets. Gains or losses on disposition are included in ―Miscellaneous income (loss), net‖ in the Consolidated Statements of Income. Depreciation and maintenance and repairs expenses are included in ―Other operating expenses‖ in the Consolidated Statements of Income and improvements are capitalized. Other Property Owned: Other property owned, consisting of real and personal property acquired through foreclosure or deed in lieu of foreclosure, is recorded at the 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. Revised estimates to the fair value less costs to sell 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. Related income, expenses, and gains or losses from operations and carrying value adjustments are included in ―Miscellaneous income (loss), net‖ in the Consolidated Statements of Income. Post-Employment Benefit Plans: The District has various post-employment benefit plans in which our employees participate. Expenses related to these plans are included in the ―Salaries and employee benefits‖ in the Consolidated Statements of Income. The defined contribution plan allows eligible employees to save for their retirement either pre-tax, post-tax, or both, with an employer match on a percentage of the employee’s contributions. We provide benefits under this plan in the form of a fixed percentage of salary contribution in addition to the employer match. Employer contributions are expensed when incurred. Certain employees also participate in the defined benefit retirement plan of the District. The plan is comprised of two benefit formulas. At their option, employees hired prior to October 1, 2001 are on the cash balance formula or on the final average pay formula. New benefits eligible employees hired between October 1, 2001 and December 31, 2006 are on the cash balance formula. Effective January 1, 2007, the defined benefit retirement plan was closed to new employees. The District plan utilizes the "Projected Unit Credit" actuarial method for financial reporting purposes and the "Entry Age Normal Cost" method for funding purposes. Certain employees also participate in the non-qualified defined benefit Pension Restoration Plan of the AgriBank District. This plan restores retirement benefits to certain highly compensated eligible employees that would have been provided under the qualified plan if such benefits were not above the Internal Revenue Code compensation or other limits. We also provide certain health insurance benefits to eligible retired employees according to the terms of those benefit plans. The anticipated cost of these benefits is accrued during the employees’ active service period. Income Taxes: The ACA and PCA accrue federal and state income taxes. Deferred tax assets and liabilities are recognized for future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. Deferred tax assets are recorded if the deferred tax asset is more likely than not to be realized. If the realization test cannot be met, the deferred tax asset is reduced by a valuation allowance. The expected future tax consequences of uncertain income tax positions are accrued. The FLCA is exempt from federal and other taxes to the extent provided in the Farm Credit Act. Patronage Program: We accrue patronage distributions according to a prescribed formula approved by the Board of Directors. Generally, we pay the accrued patronage during the first quarter after year end. Statements of Cash Flows: For purposes of reporting cash flow, cash includes cash on hand. Fair Value Measurement: The accounting guidance 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 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:    

quoted prices for similar assets or liabilities in active markets, 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, quoted prices that are not current, or principal market information that is not released publicly, inputs that are observable such as interest rates and yield curves, prepayment speeds, credit risks, and default rates, and inputs derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Unobservable inputs 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 assumptions 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. Recently Issued or Adopted Accounting Pronouncements We have assessed the potential impact of accounting standards that have been issued, but are not yet effective, and have determined that no such standards are expected to have a material impact to our consolidated financial statements. In addition, no accounting pronouncements were adopted during 2013.

NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES Loans consisted of the following (dollars in thousands): 2 0 13 A s o f December 31

A mo unt

Real estate mo rtgage

2012 %

2011

A mo unt

$ 1,7 0 7 ,9 3 9

5 6 .1%

$ 1,584,256

57.8%

$ 1,340,207

56.5%

P ro ductio n and intermediate term

7 3 9 ,4 0 9

2 4 .2 %

816,059

29.8%

695,237

29.3%

A gribusiness

5 2 6 ,0 3 6

17 .2 %

226,051

8.2%

221,545

9.3%

Other

7 6 ,6 6 7

2 .5 %

114,220

4.2%

115,570

4.9%

To tal

$ 3 ,0 5 0 ,0 5 1

10 0 .0 %

$ 2,740,586

100.0%

$ 2,372,559

100.0%

Portfolio Concentrations We have individual borrower, agricultural, and territorial concentrations. As of December 31, 2013, volume plus commitments to our ten largest borrowers totaled an amount equal to 5.7% of total loans and commitments. Agricultural concentrations were as follows: A s o f December 31

2 0 13

2012

Cash grains

4 0 .0 %

38.3%

36.3%

2011

Livesto ck

2 6 .5 %

29.0%

28.7%

A gribusiness

8 .6 %

5.5%

5.6%

Landlo rds

7 .2 %

7.3%

7.6%

P o ultry and eggs

4 .9 %

7.6%

10.4%

Other

12 .8 %

12.3%

11.4%

To tal

10 0 .0 %

100.0%

We are chartered to operate in 102 counties in Missouri. While these concentrations represent our maximum potential credit risk as it relates to recorded loan principal, a substantial portion of our lending activities are collateralized. This reduces our exposure to credit loss associated with our lending activities. We consider credit risk exposure in establishing the allowance for loan losses. Participations We may purchase or sell participation interests with other parties in order to diversify risk, manage loan volume, or comply with the FCA Regulations or General Financing Agreement (GFA) limitations. The following table presents information regarding participations purchased and sold (in thousands):

A s o f D e c e m be r 3 1, 2 0 13 Real estate mo rtgage P ro ductio n and intermediate term A gribusiness Other To tal

Other Farm

No n-Farm

A griB ank

Credit Institutio ns

To tal

P articipatio ns

So ld

P urchased

So ld

P urchased

So ld

( $ 2 2 5 ,9 10 )

$ 6 3 ,8 8 0

$ --

$ 6 3 ,8 8 0

( $ 2 2 5 ,9 10 )

( 2 7 ,0 6 5 )

2 5 ,3 8 6

( 8 7 ,0 11)

496

2 5 ,8 8 2

( 114 ,0 7 6 )

( 1,8 3 3 )

4 9 7 ,9 6 9

( 7 ,0 15 )

2 ,0 7 0

5 0 0 ,0 3 9

( 8 ,8 4 8 )

6 7 ,2 0 8

$ 2 ,5 6 6

$ 6 5 7 ,0 0 9

-( $ 2 5 4 ,8 0 8 )

6 7 ,2 0 8 $ 6 5 4 ,4 4 3

$ --

P urchased

-( $ 9 4 ,0 2 6 )

-( $ 3 4 8 ,8 3 4 )

A s o f December 31, 2012 Real estate mo rtgage P ro ductio n and intermediate term A gribusiness Other To tal

($ 277,511)

$ 123,925

($ 12,563)

$ --

$ 123,925

($ 290,074)

(37,413)

51,903

(62,855)

34,915

86,818

(100,268)

(7,089)

193,140

(9,398)

5,955

199,095

(16,487)

103,376

($ 322,013)

$ 472,344

($ 84,816)

$ 40,870

$ 513,214

($ 406,829)

($ 323,659)

$ 118,356

($ 6,600)

$ 2,572

$ 120,928

($ 330,259)

(42,350)

31,096

(95,326)

32,625

63,721

(137,676)

(8,074)

159,103

(16,879)

12,514

171,617

(24,953)

107,378

$ 47,711

$ 463,644

A s o f December 31, 2011 Real estate mo rtgage P ro ductio n and intermediate term A gribusiness Other To tal

-($ 374,083)

107,378 $ 415,933

-($ 118,805)

-($ 492,888)

Credit Quality and Delinquency One credit quality indicator we utilize is the FCA Uniform Classification System that categorizes loans into five categories. The categories are defined as follows:     

Acceptable: loans are expected to be fully collectible and represent the highest quality, Other assets especially mentioned (OAEM): loans are currently collectible, but exhibit some potential weakness, Substandard: loans exhibit some serious weakness in repayment capacity, equity, and/or collateral pledged on the loan, Doubtful: loans exhibit similar weaknesses to substandard loans; however, doubtful loans have additional weaknesses in existing factors, conditions, and values that make collection in full highly questionable, and Loss: loans are considered uncollectible.

The following table summarizes loans and related accrued interest receivable classified under the FCA Uniform Classification System by loan type (dollars in thousands): Substandard/ A cceptable A s o f D e c e m be r 3 1, 2 0 13

A mo unt

OA EM %

$ 1,7 0 1,14 6

9 8 .7 %

P ro ductio n and intermediate term

7 3 9 ,4 5 2

A gribusiness Other

5 0 0 ,8 8 5 7 6 ,4 6 3 $ 3 ,0 17 ,9 4 6

Real estate mo rtgage

To tal

A mo unt

Do ubtful/Lo ss %

$ 12 ,7 8 7

0 .7 %

9 8 .7 %

6 ,5 5 0

9 4 .8 % 9 9 .6 %

10 ,3 8 6 --

9 8 .0 %

$ 2 9 ,7 2 3

A mo unt

To tal %

A mo unt

$ 10 ,9 3 2

0 .6 %

$ 1,7 2 4 ,8 6 5

10 0 .0 %

0 .9 %

3 ,2 2 7

0 .4 %

7 4 9 ,2 2 9

10 0 .0 %

2 .0 % --

16 ,9 6 2 320

3 .2 % 0 .4 %

5 2 8 ,2 3 3 7 6 ,7 8 3

10 0 .0 % 10 0 .0 %

1.0 %

$ 3 1,4 4 1

1.0 %

$ 3 ,0 7 9 ,110

10 0 .0 %

A s o f December 31, 2012 Real estate mo rtgage

$ 1,568,771

98.1%

$ 3,515

0.2%

$ 27,643

1.7%

$ 1,599,929

100.0%

P ro ductio n and intermediate term

815,826

98.8%

1,351

0.2%

8,509

1.0%

825,686

100.0%

A gribusiness Other

202,018 109,413

89.0% 95.7%

11,053 231

4.9% 0.2%

13,846 4,641

6.1% 4.1%

226,917 114,285

100.0% 100.0%

$ 2,696,028

97.4%

$ 16,150

0.6%

$ 54,639

2.0%

$ 2,766,817

100.0%

To tal A s o f December 31, 2011 Real estate mo rtgage

$ 1,294,693

95.5%

$ 36,419

2.7%

$ 23,857

1.8%

$ 1,354,969

100.0%

P ro ductio n and intermediate term

691,547

98.2%

3,925

0.6%

8,329

1.2%

703,801

100.0%

A gribusiness Other

201,088 110,626

90.4% 95.4%

17,849 5,176

8.0% 4.5%

3,542 160

1.6% 0.1%

222,479 115,962

100.0% 100.0%

$ 2,297,954

95.9%

$ 63,369

2.6%

$ 35,888

1.5%

$ 2,397,211

100.0%

To tal

The following table provides an aging analysis of past due loans and related accrued interest receivable by loan type (in thousands): No t P ast Due

A s o f D e c e m be r 3 1, 2 0 13 Real estate mo rtgage

30-89

90 Days

Days

o r M o re

To tal

o r Less than 30 Days

To tal

P ast Due

Lo ans

$ 2 ,3 4 5

$ 1,7 0 1

$ 4 ,0 4 6

P ro ductio n and intermediate term

598

678

7 4 8 ,5 5 1

7 4 9 ,2 2 9

A gribusiness Other

-16 6

---

-16 6

5 2 8 ,2 3 3 7 6 ,6 17

5 2 8 ,2 3 3 7 6 ,7 8 3

$ 3 ,10 9

$ 1,7 8 1

$ 4 ,8 9 0

$ 3 ,0 7 4 ,2 2 0

$ 3 ,0 7 9 ,110

To tal

$ 1,7 2 0 ,8 19

$ 1,7 2 4 ,8 6 5

A s o f December 31, 2012 Real estate mo rtgage P ro ductio n and intermediate term A gribusiness Other To tal

$ 5,768

$ 2,825

$ 8,593

$ 1,591,336

$ 1,599,929

3,348

3,392

822,294

825,686

-250

---

-250

226,917 114,035

226,917 114,285

$ 9,366

$ 2,869

$ 12,235

$ 2,754,582

$ 2,766,817

$ 4,248

$ 1,338

$ 5,586

$ 1,349,383

$ 1,354,969

491

706

1,197

702,604

703,801

---

222,479 115,962

$ 4,739

$ 2,044

$ 6,783

$ 2,390,428

$ 2,397,211

A s o f December 31, 2011 Real estate mo rtgage P ro ductio n and intermediate term A gribusiness Other To tal

Risk Loans The following table presents risk loan information (accruing loans include accrued interest receivable) (in thousands): A s o f December 31

2 0 13

2012

2011

No naccrual lo ans: Current

$ 12 ,2 0 6

$ 14,731

3 ,0 14

4,272

4,409

15 ,2 2 0

19,003

18,815

1,8 9 9

1,218

503

To tal risk lo ans

$ 17 ,119

$ 20,221

$ 19,318

Vo lume with specific reserves

$ 5 ,4 9 1

$ 12,310

$ 8,806

11,6 2 8

7,911

10,512

To tal risk lo ans

$ 17 ,119

$ 20,221

$ 19,318

To tal specific reserves

$ 1,7 4 2

$ 4,441

$ 3,335

P ast due To tal no naccrual lo ans A ccruing restructured lo ans A ccruing lo ans 90 days o r mo re past due

Vo lume witho ut specific reserves

Fo r the year ended December 31

2 0 13

$ 14,406

2012

2011

Inco me o n accrual risk lo ans

$ 10 3

$ 41

Inco me o n no naccrual lo ans

1,0 15

625

1,173

To tal inco me o n risk lo ans A verage risk lo ans

$ 1,118

$ 666

$ 1,176

$ 2 6 ,2 9 3

$ 18,195

$ 32,421

The decrease in nonaccrual loans was primarily due to principal payments on a real estate mortgage related loans. Nonaccrual loans by loan type were as follows (in thousands): A s o f December 31

2 0 13

Real estate mo rtgage

$ 9 ,2 10

2012

2011

$ 13,709

$ 11,115

P ro ductio n and intermediate term

2 ,6 2 1

2,645

4,638

A gribusiness

3 ,2 2 3

2,649

3,062

16 6

$ 15 ,2 2 0

$ 19,003

$ 18,815

Other To tal

There were no loans 90 days or more past due and still accruing interest at December 31, 2013, 2012, and 2011.

All risk loans are considered to be impaired loans. The following table provides additional impaired loan information (in thousands): F o r t he ye a r e nde d D e c e m be r 3 1, 2 0 13

A s o f D e c e m be r 3 1, 2 0 13 Reco rded Investment

Unpaid P rincipal B alance

Related A llo wance

A verage Impaired Lo ans

Interest Inco me Reco gnized

Impaired lo ans with a related allo wance fo r lo an lo sses: Real estate mo rtgage P ro ductio n and intermediate term A gribusiness Other To tal

$ 4 ,2 4 8

$ 4 ,9 4 7

$ 1,17 3

$ 7 ,7 5 0

$ --

1,0 7 7

1,2 2 7

558

1,2 6 8

2 ,3 5 5

16 6

18 0

15 8

$ 5 ,4 9 1

$ 6 ,3 5 4

$ 1,7 4 2

$ 11,5 3 1

$ --

$ 5 ,5 8 4

Impaired lo ans with no related allo wance fo r lo an lo sses: Real estate mo rtgage

$ 6 ,8 9 7

$ --

$ 10 ,18 7

$ 809

P ro ductio n and intermediate term

2 ,8 2 1

5 ,7 8 6

3 ,3 2 2

269

A gribusiness

3 ,2 2 3

8 ,9 7 6

1,2 5 3

$ 11,6 2 8

$ 2 1,6 5 9

$ --

$ 14 ,7 6 2

$ 1,118

Other To tal To tal impaired lo ans: Real estate mo rtgage

$ 9 ,8 3 2

$ 11,8 4 4

$ 1,17 3

$ 17 ,9 3 7

$ 809

P ro ductio n and intermediate term

3 ,8 9 8

7 ,0 13

558

4 ,5 9 0

269

A gribusiness

3 ,2 2 3

8 ,9 7 6

3 ,6 0 8

16 6

18 0

15 8

$ 17 ,119

$ 2 8 ,0 13

$ 2 6 ,2 9 3

$ 1,118

Other To tal

$ 1,7 4 2

Fo r the year ended December 31, 2012

A s o f December 31, 2012 Reco rded Investment

Unpaid P rincipal B alance

Related A llo wance

A verage Impaired Lo ans

Interest Inco me Reco gnized

Impaired lo ans with a related allo wance fo r lo an lo sses: Real estate mo rtgage

$ 8,557

$ 8,921

$ 2,474

$ 6,851

$ --

1,103

1,234

821

1,319

2,650

6,361

1,146

2,855

$ 12,310

$ 16,516

$ 4,441

$ 11,025

$ --

$ 5,788

$ 6,982

$ --

$ 4,636

$ 22

2,123

5,154

2,534

476

A gribusiness

1,502

164

Other

$ 7,911

$ 13,638

$ --

$ 7,170

$ 666

P ro ductio n and intermediate term A gribusiness Other To tal Impaired lo ans with no related allo wance fo r lo an lo sses: Real estate mo rtgage P ro ductio n and intermediate term

To tal To tal impaired lo ans: Real estate mo rtgage

$ 14,345

$ 15,903

$ 2,474

$ 11,487

$ 22

P ro ductio n and intermediate term

3,226

6,388

821

3,853

476

A gribusiness

2,650

7,863

1,146

2,855

164

$ 20,221

$ 30,154

$ 4,441

$ 18,195

$ 666

Other To tal

Fo r the year ended December 31, 2011

A s o f December 31, 2011 Reco rded Investment

Unpaid P rincipal B alance

Related A llo wance

A verage Impaired Lo ans

Interest Inco me Reco gnized

Impaired lo ans with a related allo wance fo r lo an lo sses: Real estate mo rtgage

$ 3,906

$ 4,866

$ 814

$ 4,947

$ --

P ro ductio n and intermediate term

1,838

3,264

1,375

2,431

A gribusiness

3,062

6,380

1,146

12,539

$ 8,806

$ 14,510

$ 3,335

$ 19,917

$ --

$ 7,593

$ 11,462

$ --

$ 7,979

$ 616

2,919

6,124

3,462

242

1,502

1,063

318

$ 10,512

$ 19,088

$ --

$ 12,504

$ 1,176

To tal Impaired lo ans with no related allo wance fo r lo an lo sses: Real estate mo rtgage P ro ductio n and intermediate term A gribusiness To tal To tal impaired lo ans: Real estate mo rtgage

$ 11,499

$ 16,328

$ 814

$ 12,926

$ 616

P ro ductio n and intermediate term

4,757

9,388

1,375

5,893

242

A gribusiness

3,062

7,882

1,146

13,602

318

$ 19,318

$ 33,598

$ 3,335

$ 32,421

$ 1,176

To tal

The recorded investment in the loan is the face amount increased or decreased by applicable accrued interest and unamortized premium, discount, finance charges, and acquisition costs and may also reflect a previous direct charge-off of the investment. Unpaid principal balance represents the contractual principal balance of the loan. We did not have any material commitments to lend additional money to borrowers whose loans were at risk at December 31, 2013. Troubled Debt Restructurings Included within our loans are troubled debt restructurings. These loans have been modified by granting a concession in order to maximize the collection of amounts due when a borrower is experiencing financial difficulties. All risk loans, including troubled debt restructurings, are analyzed within our allowance for loan losses. The following table presents information regarding troubled debt restructurings that occurred during the year ended December 31 (in thousands): 2 0 13

2012

2011

P re-mo dificatio n P o st-mo dificatio n

Real estate mo rtgage P ro ductio n and intermediate term A gribusiness To tal

$ 659

$ 656

$ 295

$ 296

$ 4,353

1,0 3 5

1,746

1,745

3,433

$ 4,353 3,433

2 ,0 2 2

1,3 2 3

15,363

$ 2 ,7 3 7

$ 3 ,0 14

$ 2,041

$ 23,149

Pre-modification outstanding represents the recorded investment of the loan just prior to restructuring and post-modification outstanding 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, and acquisition costs and may also reflect a previous direct charge-off of the investment. The following table presents troubled debt restructurings that defaulted during the years ended December 31 in which the modification date was within 12 months of the respective reporting period (in thousands): 2 0 13 Real estate mo rtgage

$ 242

P ro ductio n and intermediate term To tal

2012 $ 154

2011 $ 828

277

$ 242

$ 204

$ 1,105

The following table presents information regarding troubled debt restructurings outstanding as of December 31 (in thousands): 2 0 13 Tro ubled debt restructurings

$ 9 ,4 9 0

Tro ubled debt restructurings in no naccrual status

7 ,5 9 1

2012

2011

$ 9,306

$ 10,921

8,088

10,418

There were no additional commitments to lend to borrowers whose loans have been modified in a troubled debt restructuring at December 31, 2013.

Allowance for Loan Losses A summary of the changes in the allowance for loan losses follows (in thousands): Fo r the year ended December 31

2 0 13

B alance at beginning o f year

2012

$ 17 ,9 0 5

P ro visio n fo r (reversal o f) lo an lo sses Lo an reco veries Lo an charge-o ffs

$ 18,193

$ 25,119

1,0 0 0

(2,000)

2,071

( 2 ,0 5 7 )

B alance at end o f year

2011

3,000 715

(359)

$ 16 ,9 3 7

(10,641)

$ 17,905

$ 18,193

The decrease in allowance for loan losses is related to improvement of our portfolio credit quality and other risk factors we consider in determining our allowance estimate. A summary of changes in the allowance for loan losses and period end recorded investments in loans by loan type follows (in thousands): Real Estate P ro ductio n and M o rtgage Intermediate Term

A gribusiness

Other

To tal

A llo wance fo r lo an lo sses: B alance as o f December 31, 2012 P ro visio n fo r (reversal o f) lo an lo sses Lo an reco veries Lo an charge-o ffs B alance as o f December 31, 2013

$ 5 ,5 5 0

$ 6 ,15 5

17 0

2 ,2 8 7

( 1,7 7 3 )

( 12 4 )

$ 3 ,9 7 9

$ 8 ,3 7 5

Ending balance: individually evaluated fo r impairment

$ 1,17 3

$ 558

Ending balance: co llectively evaluated fo r impairment

$ 2 ,8 0 6

$ 7 ,8 17

$ 5 ,0 6 6 (780) -( 15 9 ) $ 4 ,12 7 $ --

$ 1,13 4 (677) -( 1) $ 456

$ 17 ,9 0 5 1,0 0 0 89 ( 2 ,0 5 7 ) $ 16 ,9 3 7

$ 11

$ 1,7 4 2

$ 4 ,12 7

$ 445

$ 15 ,19 5

$ 3 ,0 7 9 ,110

Reco rded investments in lo ans o utstanding: Ending balance as o f December 31, 2013

$ 1,7 2 4 ,8 6 5

$ 7 4 9 ,2 2 9

$ 5 2 8 ,2 3 3

$ 7 6 ,7 8 3

Ending balance: individually evaluated fo r impairment

$ 9 ,8 3 2

$ 3 ,8 9 8

$ 3 ,2 2 3

$ 16 6

$ 17 ,119

Ending balance: co llectively evaluated fo r impairment

$ 1,7 15 ,0 3 3

$ 7 4 5 ,3 3 1

$ 5 2 5 ,0 10

$ 7 6 ,6 17

$ 3 ,0 6 1,9 9 1

A llo wance fo r lo an lo sses: B alance as o f December 31, 2011 (Reversal o f) pro visio n fo r lo an lo sses

$ 6,007

$ 7,223

(1,772)

(1,465)

$ 4,761

$ 202

305

932

(2,000) 2,071

Lo an reco veries

1,531

540

Lo an charge-o ffs

(216)

(143)

$ 5,066

$ 1,134

$ 6,155

$ 18,193

(359)

B alance as o f December 31, 2012

$ 5,550

Ending balance: individually evaluated fo r impairment

$ 2,474

$ 821

$ 1,146

Ending balance: co llectively evaluated fo r impairment

$ 3,076

$ 5,334

$ 3,920

$ 1,134

$ 13,464

$ 114,285

$ 2,766,817

$ --

$ 17,905 $ 4,441

Reco rded investments in lo ans o utstanding: Ending balance as o f December 31, 2012

$ 1,599,929

$ 825,686

$ 226,917

Ending balance: individually evaluated fo r impairment

$ 14,345

$ 3,226

$ 2,650

Ending balance: co llectively evaluated fo r impairment

$ 1,585,584

$ 822,460

$ 224,267

$ 114,285

$ 2,746,596

$ 10,174

$ 7,333

$ 7,066

$ 546

$ 25,119

555

6,815 --

$ --

$ 20,221

A llo wance fo r lo an lo sses: B alance as o f December 31, 2010 (Reversal o f) pro visio n fo r lo an lo sses

(4,026)

Lo an reco veries

379

336

Lo an charge-o ffs

(520)

(1,001)

B alance as o f December 31, 2011

(344) --

(9,120)

-$ 202

3,000 715 (10,641)

$ 6,007

$ 7,223

$ 4,761

Ending balance: individually evaluated fo r impairment

$ 814

$ 1,375

$ 1,146

Ending balance: co llectively evaluated fo r impairment

$ 5,193

$ 5,848

$ 3,615

$ 202

$ 14,858

$ 115,962

$ 2,397,211

$ --

$ 18,193 $ 3,335

Reco rded investments in lo ans o utstanding: Ending balance as o f December 31, 2011

$ 1,354,969

$ 703,801

$ 222,479

Ending balance: individually evaluated fo r impairment

$ 11,499

$ 4,757

$ 3,062

Ending balance: co llectively evaluated fo r impairment

$ 1,343,470

$ 699,044

$ 219,417

$ -$ 115,962

$ 19,318 $ 2,377,893

NOTE 4: INVESTMENT IN AGRIBANK As of December 31, 2013, we were required by AgriBank to maintain an investment equal to 2.5% of the average quarterly balance of our note payable to AgriBank plus an additional 1.0% on growth that exceeded a targeted rate. As of December 31, 2013, we were also required by AgriBank to maintain an investment equal to 8.0% of the quarter end balance of the participation interests in real estate loans sold to AgriBank under the Asset Pool program. The balance of our investment in AgriBank, all required stock, was $81.0 million, $76.0 million, and $72.5 million at December 31, 2013, 2012, and 2011, respectively. NOTE 5: PREMISES AND EQUIPMENT, NET Premises and equipment consisted of the following (in thousands): A s o f December 31 Land, buildings, and impro vements

2 0 13 $ 2 4 ,16 3

Furniture and equipment Subto tal Less: accumulated depreciatio n P remises and equipment, net

2012

2011

$ 17,436

$ 14,031

12 ,7 2 1

15,962

12,614

3 6 ,8 8 4

33,398

26,645

13 ,5 9 8

13,476

13,268

$ 2 3 ,2 8 6

$ 19,922

$ 13,377

NOTE 6: NOTE PAYABLE TO AGRIBANK Our note payable to AgriBank represents borrowings, in the form of a line of credit, to fund our loan portfolio. The line of credit is governed by a GFA and our assets serve as collateral. The following table summarizes note payable information (dollars in thousands): A s o f December 31

2 0 13

Line o f credit Outstanding principal under the line o f credit Interest rate

2012

2011

$ 2 ,8 0 0 ,0 0 0

$ 2,800,000

$ 2,200,000

2 ,5 4 4 ,9 7 5

2,279,702

1,955,423

1.6 %

1.7%

2.1%

Our note payable matures December 31, 2014, at which time the note will be renegotiated. The GFA provides for limitations on our ability to borrow funds based on specified factors or formulas relating primarily to outstanding balances, credit quality, and financial condition. At December 31, 2013, and throughout the year, we were within the specified limitations and in compliance with all debt covenants. NOTE 7: MEMBERS’ EQUITY Capitalization Requirements In accordance with the Farm Credit Act, each borrower is required to invest in us as a condition of obtaining a loan. As authorized by the Agricultural Credit Act and our capital bylaws, our Board of Directors has adopted a capital plan that establishes a stock purchase requirement for obtaining a loan of 2.0% of the customer’s total loan(s) or one thousand dollars, whichever is less. The purchase of one participation certificate is required of all customers to whom a lease is issued and of all non-stockholder customers who purchase financial services. The Board of Directors may increase the amount of required investment to the extent authorized in the capital bylaws. The borrower acquires ownership of the capital stock at the time the loan or lease is made. The aggregate par value of the stock is added to the principal amount of the related obligation. We retain a first lien on the stock or participation certificates owned by customers. Protection Mechanisms Under the Farm Credit Act, certain borrower equity is protected. We are required to retire protected borrower equity at par or stated value regardless of its book value. Protected borrower equity includes capital stock and participation certificates that were outstanding as of January 6, 1988, or were issued prior to October 6, 1988 as a requirement for obtaining a loan. If we were to be unable to retire protected borrower equity at par value or stated value, the FCSIC would provide the amounts needed to retire this equity. Regulatory Capitalization Requirements Under capital adequacy regulations, we are required to maintain a permanent capital ratio of at least 7.0%, a total surplus ratio of at least 7.0%, and a core surplus ratio of at least 3.5%. The calculation of these ratios in accordance with the FCA Regulations is discussed as follows:  

The permanent capital ratio is average at-risk capital divided by average risk-adjusted assets. At December 31, 2013, our ratio was 16.2%. The total surplus ratio is average unallocated surplus less any deductions made in the computation of permanent capital divided by average riskadjusted assets. At December 31, 2013, our ratio was 15.8%.

ď&#x201A;ˇ

The core surplus ratio is average unallocated surplus less any deductions made in the computation of total surplus and less any excess stock investment in AgriBank divided by average risk-adjusted assets. At December 31, 2013, our ratio was 15.8%.

Regulatory capital includes any investment in AgriBank that is in excess of the required investment under an allotment agreement with AgriBank. We had no excess stock at December 31, 2013, 2012, or 2011. Description of Equities The following table presents information regarding classes and number of shares of stock and participation certificates outstanding as of December 31, 2013. All shares and participation certificates are stated at a $5.00 par value. Shares Outstanding Class A co mmo n sto ck (pro tected)

2 ,4 3 8

Class C co mmo n sto ck (at-risk)

2 ,5 0 1,10 4

P articipatio n certificates (at-risk)

3 2 ,9 5 9

Series 1participatio n certificates (pro tected)

Under our bylaws, we are also authorized to issue Class B, Class D, and Class E common stock and Class F preferred stock. Each of these classes of stock is at-risk and nonvoting with a $5.00 par value per share. Currently, no stock of these classes has been issued. Only holders of Class C common stock have voting rights. Our bylaws do not prohibit us from paying dividends on any classes of stock. However, no dividends have been declared to date. Our bylaws generally permit stock and participation certificates to be retired at the discretion of our Board of Directors and in accordance with our capitalization plans, provided prescribed capital standards have been met. At December 31, 2013, we exceeded the prescribed standards. We do not anticipate any significant changes in capital that would affect the normal retirement of stock. In the event of our liquidation or dissolution, according to our bylaws, any remaining assets after payment or retirement of all liabilities will be distributed in the following order of priority: ď&#x201A;ˇ ď&#x201A;ˇ

first, to holders of Class F preferred stock, then, pro-rata to holders of all classes of common stock and participation certificates.

In the event of impairment, losses will be absorbed first by all classes of common stock and participation certificates and then by preferred stock; however, protected stock will be retired at par value regardless of impairment. All classes of stock and participation certificates are transferable to other customers who are eligible to hold such class in accordance with our bylaws and as long as we meet regulatory minimum capital requirements. Patronage Distributions We accrued patronage distributions of $8.6 million, $9.0 million, and $5.1 million at December 31, 2013, 2012, and 2011, respectively. Generally, the patronage distributions are paid in cash during the first quarter after year end. The Board of Directors may authorize a distribution of earnings provided we meet all statutory and regulatory requirements. The FCA Regulations prohibit patronage distributions to the extent they would reduce our permanent capital ratio below the minimum permanent capital adequacy standards. We do not foresee any events that would result in this prohibition in 2014.

NOTE 8: INCOME TAXES (Benefit from) Provision for Income Taxes Our (benefit from) provision for income taxes follows (dollars in thousands): Fo r the year ended December 31

2 0 13

2012

2011

Current: Federal

$ 387

State

$ 729

To tal current

$ 282

(37)

387

692

282

(773)

(706)

499

Deferred: Federal State

To tal deferred

(773)

222 (484)

131 630

(B enefit fro m) pro visio n fo r inco me taxes

($ 386)

$ 208

$ 912

Effective tax rate

( 0 .6 %)

0.3%

1.8%

The following table quantifies the differences between the (benefit from) provision for income taxes and income taxes at the statutory rates (in thousands): Fo r the year ended December 31

2 0 13

Federal tax at statuto ry rate

2012

$ 2 1,0 7 2

Impact o f graduated rates

State tax, net

P atro nage distributio ns

$ 20,615

(2,746)

(1,743)

(B enefit fro m) pro visio n fo r inco me taxes

(14,698)

( 19 ,0 0 4 )

Other

$ 17,322

(17,869)

( 2 ,5 5 0 )

Effect o f no n-taxable entity

2011

208

($ 386)

(23)

$ 208

$ 912

Deferred Income Taxes Tax laws require certain items to be included in our tax returns at different times than the items are reflected on our Consolidated Statements of Income. Some of these items are temporary differences that will reverse over time. We record the tax effect of temporary differences as deferred tax assets and liabilities netted on our Consolidated Statements of Condition. Deferred tax assets and liabilities were composed of the following (in thousands): A s o f December 31

2 0 13

A llo wance fo r lo an lo sses

2012

2011

$ 3 ,2 4 7

$ 2,304

$ 2,247

P o stretirement benefit accrual

284

266

279

A ccrued incentive

399

519

190

A ccrued severance A ccrued patro nage inco me no t received

( 4 10 )

(339)

(332)

A griB ank 2002 allo cated sto ck

( 5 13 )

(513)

A ccrued pensio n asset

(205)

(219)

(272)

Depreciatio n

Other assets

Other liabilities

(200)

(199)

(288)

Deferred tax assets, net

$ 2 ,6 5 5

$ 1,882

$ 1,398

Gro ss deferred tax assets

$ 3 ,9 8 3

$ 3,152

$ 2,803

Gro ss deferred tax liabilities

( $ 1,3 2 8 )

($ 1,270)

($ 1,405)

A valuation allowance for the deferred tax assets was not necessary at December 31, 2013, 2012, or 2011. We have not provided for deferred income taxes on approximately $24.2 million of patronage allocations received from AgriBank prior to 1993. Such allocations, distributed in the form of stock, are subject to tax only upon conversion to cash. Our intent is to permanently maintain this investment in AgriBank. Additionally, we have not provided deferred income taxes on accumulated FLCA earnings of $508.0 million as it is our intent to permanently maintain this equity in the FLCA or to distribute the earnings to members in a manner that results in no additional tax liability to us. Our income tax returns are subject to review by various United States taxing authorities. We record accruals for items that we believe may be challenged by these taxing authorities. However, we had no uncertain income tax positions at December 31, 2013. In addition, we believe we are no longer subject to income tax examinations for years prior to 2010.

NOTE 9: EMPLOYEE BENEFIT PLANS Pension and Post-Employment Benefit Plans Complete financial information for the pension and post-employment benefit plans may be found in the Combined AgriBank and Affiliated Associations 2013 Annual Report (District financial statements). The Farm Credit Foundations Plan Sponsor and Trust Committees provide oversight of the benefit plans. These governance committees are comprised of elected or appointed representatives (senior leadership and/or Board of Director members) from the participating organizations. The Coordinating Committee (a subset of the Plan Sponsor Committee comprised of AgriBank District representatives) is responsible for decisions regarding retirement benefits at the direction of the AgriBank District participating employers. The Trust Committee is responsible for fiduciary and plan administrative functions. Pension Plan: Certain employees participate in the AgriBank District Retirement Plan, a District-wide multi-employer defined benefit retirement 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. This Plan is noncontributory and covers certain eligible District employees. The assets, liabilities, and costs of the plan are not segregated by participating entities. As such, plan assets are available for any of the participating employers’ retirees at any point in time. Additionally, if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. Further, if we choose to stop participating in the plan, we may be required to pay an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Because of the multi-employer nature of the plan, any individual employer is not able to unilaterally change the provisions of the plan. If an employee transfers to another employer within the same plan, the employee benefits under the plan transfer. Benefits are based on salary and years of service. There is no collective bargaining agreement in place as part of this plan. As disclosed in the District financial statements, the defined benefit pension plan reflects an unfunded liability totaling $255.2 million at December 31, 2013. The pension benefits funding status reflects the net of the fair value of the plan assets and the projected benefit obligation at the date of these consolidated financial statements. The projected benefit obligation is the actuarial present value of all benefits attributed by the pension benefit formula to employee service rendered prior to the measurement date based on assumed future compensation levels. The projected benefit obligation of the District-wide plan was $1.0 billion, $1.1 billion, and $934.8 million at December 31, 2013, 2012, and 2011, respectively. The fair value of the plan assets was $759.5 million, $640.1 million, and $557.6 million at December 31, 2013, 2012, and 2011, respectively. The accumulated benefit obligation, which is the actuarial present value of the benefits attributed to employee service rendered before the measurement date and based on current employee service and compensation, exceeds pension plan assets. The accumulated benefit obligation for the District-wide plan was $864.2 million, $908.2 million, and $788.0 million at December 31, 2013, 2012, and 2011, respectively. The funding status is subject to many variables including performance of plan assets and interest rate levels. Therefore, changes in assumptions could significantly affect these estimates. Costs are determined for each individual employer based on costs directly related to their current employees as well as an allocation of the remaining costs based proportionately on the estimated projected liability of the employer under this plan. We recognize our proportional share of expense and contribute a proportional share of funding. Total plan expense for participating employers was $63.3 million, $52.7 million, and $44.0 million for 2013, 2012, and 2011, respectively. Our allocated share of plan expenses included in ―Salaries and employee benefits‖ in the Consolidated Statements of Income was $3.6 million, $2.8 million, and $2.5 million for 2013, 2012, and 2011, respectively. Participating employers contributed $59.0 million, $51.3 million, and $27.9 million to the plan in 2013, 2012, and 2011, respectively. Our allocated share of these pension contributions was $3.4 million, $2.7 million, and $1.5 million for 2013, 2012, and 2011, respectively. Benefits paid to participants in the District were $49.8 million in 2013, none of which were paid to our senior officers who were actively employed during the year. While the plan is a governmental plan and is not subject to minimum funding requirements, the employers contribute amounts necessary on an actuarial basis to provide the plan with sufficient assets to meet the benefits to be paid to participants. The amount of the total District employer contributions expected to be paid into the pension plans during 2014 is $32.6 million. Our allocated share of these pension contributions is expected to be $1.8 million. The amount ultimately to be contributed and the amount ultimately 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 the amounts reflected in the District financial statements. Retiree Medical Plans: District employers also provide certain health insurance benefits to eligible retired employees according to the terms of the benefit plan. The anticipated costs of these benefits are accrued during the period of the employee’s active status. Postretirement benefit cost included in ―Salaries and employee benefits‖ in the Consolidated Statements of Income were $318 thousand, $309 thousand, and $316 thousand for 2013, 2012, and 2011, respectively. Our cash contributions, equal to the benefits paid, were $182 thousand for each 2013, 2012, and 2011, respectively. Nonqualified Retirement Plan: We also participate in the District-wide non-qualified defined benefit Pension Restoration Plan. This plan restores retirement benefits to certain highly compensated eligible employees that would have been provided under the qualified plan if such benefits were not above the Internal Revenue Code compensation or other limits. As disclosed in the District financial statements, the Pension Restoration Plan reflects an unfunded liability totaling $25.3 million at December 31, 2013. This plan is funded as the benefits are paid; therefore, there are no assets in the plan and the unfunded liability is equal to the projected benefit obligation. The projected benefit obligation of the Pension Restoration Plan was $25.3 million, $23.5 million, and $16.6 million at December 31, 2013, 2012, and 2011, respectively. The accumulated benefit obligation for the Pension Restoration Plan was $19.8 million, $17.5 million, and $13.6 million at December 31, 2013, 2012, and 2011, respectively. The amount of the pension benefits funding status is subject to many variables including interest rate levels. Therefore, changes in assumptions could significantly affect these estimates.

Costs are determined for each individual employer based on costs directly related to their employees who participate in the plan. Total Pension Restoration Plan expense for participating employers was $3.6 million, $2.4 million, and $2.5 million for 2013, 2012, and 2011, respectively. Our allocated share of plan expenses included in ―Salaries and employee benefits‖ in the Consolidated Statements of Income was $142 thousand, $120 thousand, and $261 thousand for 2013, 2012, and 2011, respectively. The Pension Restoration Plan is unfunded and we make annual contributions to fund benefits paid to our retirees covered by the plan. Our cash contributions, equal to the benefits paid, were $279 thousand for 2013. There were no benefits paid under the Pension Restoration Plan to senior officers who were actively employed during the year. We made no cash contributions and paid no benefits during 2012 or 2011. Retirement Savings Plans We participate in a defined contribution retirement savings plan. For employees hired before January 1, 2007, employee contributions are matched dollar for dollar up to 2.0% and 50 cents on the dollar on the next 4.0% on both pre-tax and post-tax contributions. The maximum employer match is 4.0%. For employees hired after December 31, 2006, we contribute 3.0% of the employee’s compensation and will match employee contributions dollar for dollar up to a maximum of 6.0% on both pre-tax and post-tax contributions. The maximum employer contribution is 9.0%. We also participate in the Nonqualified Deferred Compensation Plan. Eligible participants must meet one of the following criteria: certain salary thresholds as determined by the IRS, be either a Chief Executive Officer or President of a participating employer, or have previously elected pre-tax deferrals in 2006 under predecessor nonqualified deferred compensation plans. Under this plan the employee may defer a portion of his/her salary, bonus, and other compensation. Additionally, the plan provides for supplemental employer matching contributions related to any compensation deferred by the employee that would have been eligible for a matching contribution under the retirement savings plan if it were not for certain IRS limitations. Employer contribution expenses for the retirement savings plans, included in ―Salaries and employee benefits‖ in the Consolidated Statements of Income, were $957 thousand, $819 thousand, and $725 thousand in 2013, 2012, and 2011, respectively. These expenses were equal to our cash contributions for each year. NOTE 10: RELATED PARTY TRANSACTIONS In the ordinary course of business, we may enter into loan transactions with our officers, directors, their immediate family members, and other organizations with which such persons may be associated. Such transactions are subject to special approval requirements contained in the 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 other persons. In our opinion, none of these loans outstanding at December 31, 2013 involved more than a normal risk of collectability. The following table presents information on loans and leases to related parties (in thousands): 2 0 13

2012

2011

A s o f December 31: To tal related party lo ans and leases

$ 10 ,6 7 2

$ 10,606

$ 9,945

A dvances to related parties

$ 7 ,3 9 1

$ 8,532

$ 6,243

Repayments by related parties

$ 8 ,3 6 5

$ 8,447

$ 5,231

Fo r the year ended December 31:

The related parties can be different each year end primarily due to changes in the composition of our Board of Directors. Advances and repayments to related parties at the end of each year are included in the preceding chart. We purchase various services from AgriBank including financial and retail systems, support, and reporting, technology services, insurance services, and internal audit services. The total cost of services we purchased from AgriBank was $1.2 million, $1.2 million, and $1.1 million in 2013, 2012, and 2011, respectively. We also purchase human resource information systems, benefit, payroll, and workforce management services from Farm Credit Foundations (Foundations). Foundations was operated as a part of AgriBank prior to January 1, 2012 when it formed a separate System service corporation. The System entities using Foundations’ services contributed an investment into the service corporation in January 2012. Our investment was $32 thousand at December 31, 2013 and 2012. The total cost of services purchased from Foundations was $140 thousand and $143 thousand in 2013 and 2012, respectively. NOTE 11: CONTINGENCIES AND COMMITMENTS In the normal course of business, we have contingent liabilities and outstanding commitments which may not be reflected in the accompanying consolidated financial statements. We do not anticipate any material losses because of these contingencies or commitments. We may be named as a defendant in lawsuits or legal actions in the normal course of business. At the date of these consolidated financial statements, we were not aware of any such actions that would have a material impact on our financial condition. However, such actions could arise in the future. We have commitments to extend credit and letters of credit to satisfy the financing needs of our borrowers. These financial instruments involve, to varying degrees, elements of credit risk not recognized in the financial statements. Commitments to extend credit are agreements to lend to a borrower as long as there is not a violation of any condition established in the loan contract. Standby letters of credit are agreements to pay a beneficiary if there is a default on a contractual arrangement. At December 31, 2013, we had commitments to extend credit and unexercised commitments related to standby letters of credit of $684.7 million. Additionally, we had $3.1 million of issued standby letters of credit as of December 31, 2013. Refer to Note 12 for additional discussion regarding standby letters of credit included in the Consolidated Statements of Condition.

Commitments to extend credit and letters of credit generally have fixed expiration dates or other termination clauses and we may require payment of a fee. If commitments to extend credit and letters of credit remain unfulfilled or have not expired, they may have credit risk not recognized in the financial statements. Many of the commitments to extend credit and letters of credit will expire without being fully drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. Certain letters of credit may have recourse provisions that would enable us to recover from third parties amounts paid under guarantees, thereby limiting our maximum potential exposure. The credit risk involved in issuing these financial instruments is essentially the same as that involved in extending loans to borrowers and we apply the same credit policies. NOTE 12: FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the asset or liability. Accounting guidance also establishes a fair value hierarchy, with three levels of inputs that may be used to measure fair value. Refer to Note 2 for a more complete description of the three input levels. Non-Recurring Basis We did not have any assets or liabilities measured at fair value on a recurring basis at December 31, 2013, 2012, or 2011. We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis. Information on assets measured at fair value on a non-recurring basis follows (in thousands): A s o f D e c e m be r 3 1, 2 0 13

Fair Value M easurement Using Level 1

Lo ans Other pro perty o wned A s o f December 31, 2012

Level 2

To tal Fair Value

Level 3

$ 3 ,9 3 6

$ --

$ 3 ,9 3 6

$ 642

Fair Value M easurement Using Level 1

Lo ans Other pro perty o wned A s o f December 31, 2011

To tal Fair Value

Level 2

Level 3

$ --

$ 3,258

$ 5,004

$ 8,262

414

Fair Value M easurement Using Level 1

Lo ans Other pro perty o wned

To tal Gains

$ --

Level 2

Level 3

To tal Fair Value

$ --

$ 3,732

$ 2,012

$ 5,744

215

To tal Gains (Lo sses) ($ 1,465) 17 To tal Gains (Lo sses) $ 4,407 (287)

Valuation Techniques Loans: Represents the carrying amount and related write-downs of loans which were evaluated for individual impairment based on the appraised value of the underlying collateral. When the value of the collateral, less estimated costs to sell, is less than the principal balance of the loan, a specific reserve is established. Costs to sell represent transaction costs and are not included as a component of the assetâ&#x20AC;&#x2122;s fair value. Other property owned: Represents the fair value and related losses of foreclosed assets that were measured at fair value based on the collateral value, which is generally determined using appraisals, or other indications based on sales of similar properties. Costs to sell represent transaction costs and are not included as a component of the assetâ&#x20AC;&#x2122;s fair value. Refer to Note 2 for a description of the methods used to determine the fair value hierarchy. NOTE 13: FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of all our financial instruments is as follows (in thousands): 2 0 13

2012

Carrying A s o f December 31

A mo unt

2011

Carrying Fair Value

A mo unt

Carrying Fair Value

A mo unt

Fair Value

F ina nc ia l a s s e t s : Net lo ans

$ 3 ,0 3 3 ,114

$ 3 ,0 2 1,3 18

$ 2,722,681

$ 2,780,077

$ 2,354,366

$ 2,414,152

$ 2 ,5 4 4 ,9 7 5

$ 2 ,5 19 ,4 7 6

$ 2,279,702

$ 2,316,963

$ 1,955,423

$ 1,993,890

F ina nc ia l lia bilit ie s : No te payable to A griB ank, FCB Unre c o gnize d f ina nc ia l ins t rum e nt s : Co mmitments to extend credit and letters o f credit

($ 860)

Quoted market prices are generally not available for our financial instruments. Accordingly, we base fair values on: ď&#x201A;ˇ

judgments regarding future expected losses,

($ 757)

($ 666)

   

current economic conditions, risk characteristics of various financial instruments, credit risk, and other factors.

These estimates involve uncertainties, matters of judgment, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Estimating the fair value of our investment in AgriBank is not practical because the stock is not traded. As discussed in Notes 2 and 4, the investment is a requirement of borrowing from AgriBank. A description of the methods and assumptions used to estimate the fair value of each class of our financial instruments, for which it is practical to estimate that value, follows: Net loans: Because no active market exists for our loans, fair value is estimated by discounting the expected future cash flows using current interest rates at which similar loans would be made or repriced to borrowers with similar credit risk. In addition, loans are valued using the Farm Credit interest rate yield curve, prepayment rates, contractual loan information, credit classification, and collateral values. As the discount rates are based upon internal pricing mechanisms and other management estimates, management has no basis to determine whether the fair values presented would be indicative of the exit price negotiated in an actual sale. Furthermore, certain statutory or regulatory factors not considered in the valuation, such as the unique statutory rights of System borrowers, could render our portfolio less marketable outside the System. For fair value of loans individually impaired, we assume collection will result only from the sale of the underlying collateral. Fair value is estimated to equal the total net realizable value of the underlying collateral. Costs to sell represent transaction costs and are not included as a component of the asset’s fair value. Note payable to AgriBank: Estimating the fair value of the note payable to AgriBank is determined by segregating the note into pricing pools according to the types and terms of the underlying loans funded. We discount the estimated cash flows from these pools using the current rate charged by AgriBank for additional borrowings with similar characteristics. Commitments to extend credit and letters of credit: Estimating the fair value of commitments and letters of credit is determined by the inherent credit loss in such instruments. NOTE 14: QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly consolidated results of operations for the year ended December 31 follows (in thousands): 2 0 13 Net interest inco me P ro visio n fo r lo an lo sses

First

Seco nd

$ 19 ,0 15

$ 19 ,3 8 4

Third $ 2 0 ,16 8

Fo urth $ 2 0 ,6 7 7

To tal $ 7 9 ,2 4 4

1,0 0 0

P atro nage inco me

3 ,4 2 7

3 ,2 5 8

2 ,9 9 8

5 ,4 0 7

15 ,0 9 0

Other expense, net

9 ,0 7 0

8 ,3 3 1

7 ,19 8

8 ,5 2 9

3 3 ,12 8

271

12 2

$ 13 ,10 1

$ 13 ,2 6 7

$ 15 ,8 4 6

P ro visio n fo r (benefit fro m) inco me taxes Net inco me 2012 Net interest inco me Reversal o f lo an lo ss pro visio n

First

Seco nd

$ 17,008

$ 17,328

Fo urth $ 18,539

$ 6 0 ,5 9 2 To tal $ 70,692

3,360

3,453

3,169

4,790

14,772

Other expense, net

7,052

5,044

6,943

7,794

26,833

208

$ 15,441

$ 60,423

Net inco me 2011 Net interest inco me P ro visio n fo r lo an lo sses

(2,000)

$ 18 ,3 7 8

(386)

P atro nage inco me (B enefit fro m) pro visio n fo r inco me taxes

Third $ 17,817

(823)

(43)

337

$ 13,359

$ 17,400

First

Seco nd

$ 16,127

(180) $ 14,223 Third

$ 15,752

$ 16,478

Fo urth $ 16,831

(2,000)

To tal $ 65,188

3,000

P atro nage inco me

3,084

3,230

3,355

4,928

14,597

Other expense, net

7,284

7,071

5,144

6,339

25,838

219

183

299

211

912

$ 11,708

$ 11,728

$ 11,390

$ 15,209

$ 50,035

P ro visio n fo r inco me taxes Net inco me

NOTE 15: SUBSEQUENT EVENTS We have evaluated subsequent events through March 5, 2014, which is the date the consolidated financial statements were available to be issued. There have been no material subsequent events that would require recognition in our 2013 consolidated financial statements or disclosures in the Notes to Consolidated Financial Statements. On March 5, 2014, the AgriBank Board of Directors approved an amendment to the capital plan which reduces the base required stock investment for all affiliated associations, including FCS Financial, ACA, from 2.5% to 2.25% effective March 31, 2014.

DISCLOSURE INFORMATION REQUIRED BY REGULATIONS FCS Financial, ACA (Unaudited) Description of Business General information regarding the business is discussed in Note 1 of this Annual Report. The description of significant business developments, if any, is discussed in the ―Management's Discussion and Analysis" section of this Annual Report. Description of Property The following table sets forth certain information regarding our properties: Lo catio n

Descriptio n

Usage

Jefferso n City

Owned

Headquarters

Camero n

Owned

B ranch

Chillico the

Owned

B ranch

Clinto n

Owned

B ranch

Co lumbia

Owned

B ranch

Creve Co eur

Leased

B ranch

Farmingto n

Leased

B ranch

Hannibal

Owned

B ranch

Harriso nville

Owned

B ranch

Higginsville

Owned

B ranch

Jefferso n City

Owned

B ranch

Jo plin

Owned

B ranch

Lebano n

Leased

B ranch

M aco n

Owned

B ranch

M arshall

Owned

B ranch

M aryville

Leased

B ranch

M exico

Owned

B ranch

Nevada

Owned

B ranch

Neo sho

Held Fo r Sale

B ranch

O'Fallo n

Owned

B ranch

St. Jo seph

Owned

B ranch

Sedalia

Owned

B ranch

Springfield

Owned

B ranch

Unio n

Leased

B ranch

West P lains

Leased

B ranch

Legal Proceedings Information regarding legal proceedings is discussed in Notes 11 of this Annual Report. We were not subject to any enforcement actions as of December 31, 2013. Description of Capital Structure Information regarding our capital structure is discussed in Note 7 of this Annual Report. Description of Liabilities Information regarding liabilities is discussed in Notes 6, 7, 8, 9, 11, and 13 of this Annual Report. Selected Financial Data The "Consolidated Five-Year Summary of Selected Financial Data‖ is presented at the beginning of this Annual Report. Management’s Discussion and Analysis Information regarding any material aspects of our financial condition, changes in financial condition, and results of operations are discussed in the "Management's Discussion and Analysis‖ section of this Annual Report.

Board of Directors Information regarding directors who served as of December 31, 2013, including business experience in the last five years and any other business interest where a director serves on the board of directors or as a senior officer follows: Kenneth Bergmann is a self-employed farmer growing wheat and alfalfa, raising cows/calves, and does custom hay harvesting. He works as a sales manager for S&H Farm Supply, Inc. He also serves as president of the Dadeville, MO R-2 school district. His board term expires in 2016. Michael L. Bruce is a self-employed grain and livestock farmer. His board term expires in 2014. Michael L. Cook, Outside Director, is a professor in the Department of Agricultural and Applied Economics at the University of Missouri-Columbia. His board term expires in 2014. James Davis is president and general manager of West Plains Auto World, an automobile sales company. He also runs Davis Farms, a cow/calf operation. His board term expires in 2014. Mark C. DeShon is a self-employed farmer raising dairy replacement heifers, beef-cows, and broiler chickens along with some grain and forage production. His board term expires in 2015. Dan Devlin is a self-employed grain farmer. He is a member of the Knox County Soil & Water Conservation District, University of Missouri Greenley Research Center Advisory Board, Missouri Wind Resources Board and finance committee for his local church. His board term expires in 2015. Maurice Glosemeyer, Audit Committee Chairperson, is a self-employed grain farmer and supervisor for ADM crop insurance. His board term expires in 2015. Daniel Hulse is a self-employed grain and livestock farmer and serves as a committee treasurer for his local church. His board term expires in 2016. Sherry Jones is a self-employed grain and livestock farmer. She is an appointed director of both the Missouri State Fair Commission and Missouri Agricultural and Small Business Development Authority and serves as President of the Livingston County Farm Bureau Board. Her board term expires in 2014. David Meneely, Outside Director, is the Executive Director for the Livingston County Farm Service Agency, Chillicothe, MO. His board term expires in 2015. James A. Nivens, Chairperson, is a self-employed grain and livestock farmer. His board term expires in 2015. Troy Norton, Outside Director, is member-owner of a public accounting firm and serves on the Heart of Missouri United Way board. His board term expires in 2016. Mark Pierce, Vice Chairperson, is a self-employed grain and livestock farmer and a dealer for Asgrow/DeKalb Monsanto Seed. He serves on the boards of the Buchanan County Farm Bureau in St. Joseph, MO, Buchanan County Planning & Zoning, and Regional Development Disability Advisory Council. His board term expires in 2016. Rick Rehmeier is president of Rehmeier Farms, Inc. a grain and livestock farming operation. He is a member of DRR Farms, LLC, a farming operation, and Parideum, a planning and consulting provider. He is also an Advisory Board member of a community bank. His board term expires in 2014. Charles Steck, is a self-employed grain and livestock farmer. He serves as manager of Steck Farms, LLC. His board term expires in 2016. Pursuant to our bylaws, directors are paid an annual retainer of $3,250 ($4,500 effective in 2014) for attendance at board meetings, committee meetings, or other special assignments. Directors are also reimbursed for reasonable expenses incurred in connection with such meetings or assignments. The Board of Directors has adopted a rate of $400 per day ($475 per day effective in 2014). The directors are also compensated $0.50 per mile honorarium for travel time. In recognition of the additional duties and responsibilities, the Chairperson and Vice Chairperson received an additional annual retainer of $2,400 ($3,000 effective in 2014) and $1,200 ($1,750 effective in 2014). Effective in 2014, committee chairpersons will be paid an additional annual retainer of $1,200. All retainers are paid biannually in January and July.

Information regarding compensation paid to each director who served during 2013 follows: Number o f Days Served

Kenneth B ergmann B ruce B jo rnso n* M ichael B ruce

Other

B o ard

To tal

B o ard

Official

Co mmittee

Co mpensatio n

M eetings

A ctivities

Co mpensatio n

15.0

7.0

$ 1,800

7.0

1.0

1,000

A udit

7,110

13.0

8.0

200

A udit

15,021

Go vernance & Co mpensatio n

10,905

Name o f Co mmittee Go vernance & Co mpensatio n

P aid in 2013 $ 16,129

M ichael Co o k

11.0

1.0

1,200

James Davis

14.0

4.5

600

A udit

13,861

M ark DeSho n

14.0

11.0

200

Legislative

16,924

Dan Devlin

14.0

5.0

200

Legislative

12,875

M aurice Glo semeyer

14.0

5.5

1,400

A udit

14,348

Daniel Hulse

15.0

7.5

1,600

Go vernance & Co mpensatio n

15,474

Sherry Jo nes

14.0

10.5

400

Legislative

16,045

David M eneely

15.0

6.5

600

A udit

14,988

James Nivens

15.0

15.5

2,400

Go vernance & Co mpensatio n

23,275

Tro y No rto n** M ark P ierce

9.0

0.0

200

15.0

25.0

1,800

Gene Rademacher*

A udit Go vernance & Co mpensatio n

8,045 26,242

5.0

1.5

Legislative

Rick Rehmeier

14.0

4.5

400

Legislative

12,806

Charles Steck**

9.0

1.5

Legislative

5,993

213.0

115.5

$ 14,000

To tal

$ 230,041

* Term expired in 2013. ** Term co mmenced in 2013.

Senior Officers The senior officers and the date each began his current position include: B usiness experience and emplo yment during past five years

Name

P o sitio n

David Janish

P resident and Chief Executive Officer (2013)

Senio r Vice P resident - Chief Operatio ns Officer,Co B ank, A CB , Wichita (2012 to July 2013) Senio r Vice P resident Finance, Chief Financial Officer U.S. A gB ank, FCB (2007 thro ugh 2011).

Steve Harringto n

Chief Financial Officer and Executive Vice P resident, Finance (2001)

Chief Financial Officer and Executive Vice P resident, Finance at FCS Financial (2001to present).

Jeff Ho uts

Executive Vice P resident, Operatio ns (2010)

Vice P resident â&#x20AC;&#x201C; Lending Services at FCS Financial (2006 thro ugh 2009).

Steve Iversen

. Executive Vice P resident, Risk M anagement (2010)

Directo r â&#x20AC;&#x201C; Who lesale Lending at A griB ank, FCB (2006 thro ugh 2009).

Kevin Langfo rd

General Co unsel (2001)

General Co unsel at FCS Financial (2001to present).

Senior Officer Compensation We believe the design and governance of our senior officer compensation program is consistent with the highest standards of risk management and provides total compensation that promotes our mission to ensure a safe, sound, and dependable source of credit and related services for agriculture and rural America. Our compensation philosophy aims to provide a competitive total rewards package that will enable us to attract and retain highly qualified officers with the requisite expertise and skills while achieving desired business results aligned with the best interests of our shareholders. The design of our senior officer compensation program supports our risk management goals through a set of checks and balances, including (1) a balanced mix of base and variable pay, (2) a balanced use of performance measures that are risk-adjusted where appropriate, and (3) a pay-for-performance process that allocates individual awards based on both results and how those results were achieved. The CEO, senior officers, and highly compensated individuals are compensated with a mix of a base salary and annual incentives as well as retirement plans generally available to all employees. Our Board of Directors determines the appropriate balance of goals in the annual incentive plan while keeping in mind their responsibilities to our shareholders. Base salary and the annual incentive plan are intended to be competitive with annual compensation for comparable positions at peer organizations. Base Salary: The CEO, senior officer, and highly compensated individual base salaries reflect the officerâ&#x20AC;&#x2122;s experience and level of responsibility. Base salaries are subject to review and approval by the Governance and Compensation Committee of our Board of Directors and are subject to adjustment based on changes in responsibilities or competitive market conditions.

Annual Incentive Plan: The CEO, senior officer, and highly compensated individual incentives are paid annually based on performance criteria established by our Board of Directors. The criteria related to the overall association performance include return on assets, loan volume, and credit quality. Additionally, performance criteria related to personal performance include attainment of personal objectives and performance ratings serve as qualifiers to be eligible to participate annually. The weighting of association performance and personal performance is dependent on the level of responsibility within the Association. We calculate the incentives after the end of the plan year (the plan year is the calendar year). We pay out the incentives within 90 days of year end. Retirement Plans: We have various post-employment benefit plans which are generally available to all association employees, including the CEO and senior officers, based on dates of service to the Association and are not otherwise differentiated by position, unless specifically stated. Information regarding the post-employment benefit plans is included in Notes 2 and 9 of this Annual Report. Other Components of Compensation: Additionally, compensation associated with any company-paid vehicles, group term life insurance premiums, disability insurance premiums, reimbursement of relocation expenses, or other taxable reimbursements may be made available to the CEO, senior officers, and highly compensated individuals based on job criteria or similar plans available to all employees. A summary of compensation earned by the CEO, senior officers, and highly compensated individuals follows (in thousands): Deferred/ Name o f Individual

Year

Salary

B o nus

P erquisites

David Janish, CEO

2 0 13

$ 13 8

$ --

$ 91

Kevin Langfo rd, Interim CEO

Other $9

To tal $ 238

2 0 13

13 2

19 4

Daryl Oldvader, CEO

2012

333

388

Daryl Oldvader, CEO

2011

323

443

A ggregate Number o f Senio r Officers/Highly Co mpensated Individuals, excluding CEO Five

2 0 13

Five

2012

$ 783 787

$ 320 341

$9 8

$ 333 31

$ 1,4 4 5 1,167

Five

2011

761

224

1,055

Effective December 31, 2012, Daryl Oldvader, CEO, retired. The Board appointed Kevin Langford to serve as interim CEO from January 1, 2013 through July 31, 2013. His compensation has been allocated based on the dates he served as CEO and compensation earned during that period. Beginning in 2013, ―Other‖ includes any changes in the value of pension benefits. The change in value of the pension benefits is defined as the change in the vested portion of the present value of the accumulated benefit obligation from December 31, 2012 to December 31, 2013 for the District-wide Pension Plan, as disclosed in Notes 2 and 9 of the consolidated financial statements of our 2013 Annual Report. This value is not reflected for the years 2012 or 2011. The ―Other‖ category includes employer match on defined contribution plans available to all employees. For comparability, disclosures from 2012 and 2011 have been modified to include this match. Members may request information on the compensation paid during 2013 to the individuals included in the preceding table. In accordance with the FCA Regulations, an advisory vote on CEO and/or senior officer compensation is required when 5% of the voting stockholders petition for such vote. Although the advisory votes are non-binding, our Board of Directors may take into consideration the outcome of the vote when making future CEO and senior officer compensation decisions. Beginning in 2015, the FCA Regulations require a non-binding vote by the voting stockholders, also referred to as an advisory vote, to be held if compensation (excluding changes in the value of pension benefits), as reported in the December 31, 2014 Annual Report, for either the CEO or the aggregate senior officer group increased 15% or more from December 31, 2013. During the year ended December 31, 2013 no advisory vote was held. A summary of the pension benefits attributable to the CEO, senior officers, and highly compensated individuals, as of December 31, 2013, follows (dollars in thousands):

Name o f Individual

P lan

A verage

P resent Value

P ayments

Years o f

o f A ccumulated

M ade During the

Credited Service

B enefits

Repo rting P erio d

A ggregate number o f senio r o fficers and highly co mpensated individuals, excluding CEO Five

A griB ank District Retirement P lan

3 1.6

$ 4 ,5 6 5

$ --

On October 3, 2012, FCA adopted a regulation that requires all System institutions to hold advisory votes on the compensation for all senior officers and/or the CEO when the compensation of either the CEO or the senior officer group increases by 15% or more from the previous reporting period. In addition, the regulation requires associations to hold an advisory vote on CEO and/or senior officer compensation when 5% of the voting stockholders petition for the vote and to disclose the petition authority in the annual report to shareholders. The regulation became effective December 17, 2012, and the base year for determining whether there is a 15% or greater increase was 2013. No association has held an advisory vote based on a stockholder petition in 2013. On January 17, 2014, the President signed into law the Consolidated Appropriations Act which includes language prohibiting the FCA from using any funds available to ―to implement or enforce‖ the regulation. In addition, on February 7, 2014, the President signed into law the Agricultural Act of 2014. Section 5404 of the law directs FCA to within 60 days of enactment of the law ―review its rules to reflect the Congressional intent that a primary responsibility of

boards of directors of Farm Credit System institutions, as elected representatives of their stockholders, is to oversee compensation practices.‖ FCA has not yet taken any action with respect to their regulation in response to these actions. Transactions with Senior Officers and Directors Information regarding related party transactions is discussed in Note 10 of this Annual Report. Travel, Subsistence, and Other Related Expenses Directors and senior officers are reimbursed for reasonable travel, subsistence, and other related expenses associated with business functions. A copy of our policy for reimbursing these costs is available by contacting us at 1934 East Miller Street, Jefferson City, MO 65101, (573) 635-7956, by e-mail at jeffersoncitymo@myfcsfinancial.com, or at www.myfcsfinancial.com. The total directors’ travel, subsistence, and other related expenses were $98 thousand, $106 thousand, and $106 thousand in 2013, 2012, and 2011, respectively. Involvement in Certain Legal Proceedings No events occurred 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, 2014 or at any time during 2013. Member Privacy The FCA Regulations protect members’ nonpublic personal financial information. Our directors and employees are restricted from disclosing information about our association or our members not normally contained in published reports or press releases. Relationship with Qualified Public Accountant There were no changes in independent auditors since the last Annual Report to members and we are in agreement with the opinion expressed by the independent auditors. The total fees paid during 2013 were $77 thousand. The fees paid were for audit services. Financial Statements The "Report of Management‖, ―Report on Internal Control Over Financial Reporting‖, ―Report of Audit Committee‖, ―Independent Auditor’s Report", "Consolidated Financial Statements‖, and ―Notes to Consolidated Financial Statements" are presented prior to this portion of the Annual Report. Young, Beginning, and Small Farmers and Ranchers Information regarding credit and services to young, beginning, and small farmers and ranchers, and producers or harvesters of aquatic products is discussed in an addendum to this Annual Report. Equal Employment Opportunity We are an equal opportunity employer. It is our policy to provide equal employment opportunity to all persons regardless of race, color, religion, national origin, sex, age, disability, veteran status, genetic information, sexual orientation, creed, marital status, status with regard to public assistance, membership or activity involving a local human rights commission, or any other characteristic protected by law. We comply with all state and local equal employment opportunity regulations. We conduct all personnel decisions and processes relating to our employees and job applicants in an environment free of discrimination and harassment.

FUNDS HELD PROGRAM FCS Financial, ACA The Association offers a Funds Held Program ("Funds Held") that provides for Borrowers to make advance payments on designated real estate loans and intermediate-term loans. The following terms and conditions apply to all Funds Held unless the loan agreement, or related documents, between the Association and Borrower provide for other limitations. Payment Application Loan payments received by the Association before the loan has been billed will normally be placed into Funds Held and applied against the next installment due. Loan payments received after the loan has been billed will be directly applied to the installment due on the loan and related charges, if any. Funds received in excess of the billed amount will be placed into Funds Held unless the Borrower has specified the funds to be applied as a special prepayment of principal. When a loan installment becomes due, moneys in Funds Held for the loan will be automatically applied toward the installment on the due date. Any accrued interest on Funds Held will be applied first. If the balance in Funds Held does not fully satisfy the entire installment, the Borrower must pay the difference by the installment due date. Account Maximum The amount in Funds Held may not exceed the lesser of two times the estimated annual payment or the unpaid balance of the related loan(s). Borrowers with Flex and Exceptional Rate Products are limited to a maximum of 10% of their original loan balance in Funds Held at any time. Interest Rate Interest will accrue on Funds Held at a simple rate of interest that may be changed by the Association from time to time. The interest rate may never exceed the interest rate charged on the related loan. The current interest rate is based upon the following criteria: 

Real estate loans and intermediate-term loans are paid a rate of interest equal to the loan rate.

Interest rates are currently reported on each Borrower’s year end loan statement. Withdrawals Money in Funds Held may be withdrawn for the following items, depending on the Borrower’s loan program: 

Borrowers with real estate loans and intermediate-term loans closed under the loan programs may use Funds Held for future installments, insurance, or real estate taxes on collateral for the respective loan, as well as for other eligible loan purposes.

Association Options In the event of default on any loan, or if Funds Held exceeds the maximum limit as established above, or if the Association discontinues its Funds Held program, the Association may apply funds in the account to the unpaid loan balance and other amounts due, and shall return any excess funds to the Borrowers. Uninsured Account Funds Held is not a depository account and is not insured. In the event of Association liquidation, Borrowers having balances in Funds Held shall be notified according to regulations. Questions: Please direct any questions regarding Funds Held to your local FCS representative.

YOUNG, BEGINNING, AND SMALL FARMERS AND RANCHERS FCS Financial, ACA (Unaudited) We have specific programs in place to serve the credit and related needs of young, beginning, and small farmers and ranchers in our territory. We use the Farm Credit Administration (FCA) definitions of young, beginning and small farmers, and ranchers as follows: 

Young: A farmer, rancher, or producer or harvester of aquatic products who is age 35 or younger as of the loan transaction date.



Beginning: A farmer, rancher, or producer or harvester of aquatic products who has 10 years or less farming or ranching experience as of the loan transaction date.



Small: A farmer, rancher, or producer or harvester of aquatic products who normally generates less than $250 thousand in annual gross sales of agricultural or aquatic products.

Demographics* We have used the 2007 USDA Ag Census as our source of demographic data for Young, Beginning, and Small Farmers (YBS). We have 100,983 farmers in our 102 county territory. Of these farmers, 5.8%, or 5,907, are young farmers, 27.0%, or 27,266, are beginning farmers, and 94.9%, or 95,838, are small farmers. The census data is as of 2007 whereas our portfolio data is based on the number of loans in the current year. Mission Statement Our Young, Beginning, and Small Farmer’s mission is to be the lender of choice by providing industry leading financial services, agricultural expertise, and cooperative educational opportunities to help them succeed in the marketplace. Quantitative Goals We will strive to maintain a portfolio mix of young, beginning, and small farmers that matches the marketplace based on recent USDA Ag Census data. Related services continue to be offered and sold to young, beginning, and small farmers on a statewide basis through our normal delivery channels. We are also a participating lender for the Missouri Linked Deposit Program which offers, among others, a program for Beginning Farmers. Additionally, we participate in the financial assistance program for beginning farmers that is administered through the Missouri Department of Agriculture's Agricultural and Small Business Development Authority. Special educational meetings are held periodically for promotional and educational purposes. 2013 Goals

2013 Actual

Number of young farmer customers:

3,278

3,354

Number of beginning farmer customers:

4,958

4,970

Number of small farmer customers:

11,405

11,445

Outreach Program

Young farmer volume:

$468.9

$516.4

In 2013, we held several crop meetings throughout the state that included participation from YBS customers. We also continue to host programs and seminars for Vo-Ag classes, young farmers, and other organizations throughout the state. All promotional information and brochures targeted to the YBS Program offer related services as part of the materials. We incorporate specific advertising campaigns and enewsletters for YBS customers in our media plan that target YBS publications. Additionally, we provide a grant program for eligible 4-H and FFA chapters to improve their communities and participate in the sponsorship of a video contest for FFA chapters. Finally, we are sponsoring the development of new curriculum for high school ag instructors.

Beginning farmer volume:

$630.8

$685.2

$1,219.3

$1,242.2

Young farmers with guaranteed loans:

365

367

Beginning farmers with guaranteed loans:

369

372

Small farmers with guaranteed loans:

581

485

Guaranteed young farmer volume :

$75.0

$87.4

Guaranteed beginning farmer volume:

$89.7

$96.0

New Customers

2013 Goals

2013 Actual

New young farmer customers:

465

373

New beginning farmer customers:

645

552

1,348

1,074

New small farmer customers:

Portfolio Goals (dollars in thousands)

Small farmer volume:

Guaranteed small farmer volume : $110.2 $120.3 We conduct advisory stockholder meetings annually that include YBS customers. We continue to evaluate options for providing joint educational programs with other agribusiness and academia associates in the state. The goal for 2013 was to continue working with educational groups that already have strong agricultural education programs. Funds were allocated in 2013 towards enhancement of current public relations and educational events with existing relationships. Safety and Soundness of the Program On June 20, 2002, we approved a policy that directed the establishment of programs to provide credit and closely related services to young, beginning, and small farmers, ranchers, or producers or harvesters of aquatic products. Implementation of this policy supported the availability of sound, adequate, and constructive credit and related services for YBS. On September 1, 2002, we implemented our YBS program. Our YBS policy was approved in November 2005. We monitor this program on an ongoing quarterly basis. The overall results of our YBS program have been favorable since implementation. We review its performance on an annual basis and make any necessary changes. *There are several differences in the methods by which the demographic and Farm Credit Administration Young, Beginning, and Small Farmer data is presented: Young farmers are defined by the FCA as 35 years old or less. The United States Department of Agriculture (USDA) demographic

stratification breaks at 34 years. Beginning farmers are defined by the FCA as having 10 years or less farming experience. There is no measurement matching this definition in the USDA Census; however, the census does identify farmers on their current farm less than 10 years. That statistic may include beginning farmers, but may also include experienced farmers who have recently changed farmsteads. The FCA Small Farmer definition matches closely with the USDA delineation. The USDA Census of Agriculture is the best source of demographic information within the association local service area. Even though the statistical results of the census do not match the FCA definitions exactly, they do provide a consistent source of measurement with which to assess association targets and goals.

FCS FINANCIAL ACA 1934 E MILLER ST JEFFERSON CITY MO 65101

Growing Relationships. Creating Opportunities. is a trademark of FCS Financial, ACA. Farm Cash Management is a registered trademark of AgriBank, FCB. FCS Financial is an equal opportunity provider. ÂŠ2013 FCS Financial, ACA.