More annual reports from National Rural Utilities Cooperative Finance Corporation:
2023 ReportANNUAL REPORT 2015 About CFC CREATED AND OWNED BY THE MEMBERS WE SERVE The National Rural Utilities Cooperative Finance Corporation (CFC) is a nonprofit finance cooperative created and owned by America’s electric cooperative network. With approximately $23 billion in assets, CFC is committed to providing unparalleled industry expertise, financial flexibility and responsiveness to serve the needs of our member-owners. We are proud to be the premier market lender for the nation’s electric cooperatives. We operate under the cooperative principles and our core values of Service, Integrity and Excellence. What does that mean for our members? Our loans help our members acquire, construct and operate the utility infrastructure needed to deliver services that improve the quality of life in the communities they serve. CFC operates from its corporate headquarters in Dulles, Virginia. Meet Our Member-Owners Electric cooperatives play a critical role in our nation’s economy and in local communities, delivering safe, affordable and reliable power through a sophisticated network of generation, transmission and distribution resources. co-ops power nearly 80% of u.S. counties 42 MILLION PEOPLE 47States 2 message from the ceo and board president T he 12 months that mark CFC’s fiscal year 2015 (FY 2015) brought new challenges and new opportunities for the electric cooperative network. But while economic growth remained slow and regulatory uncertainties emerged, our electric cooperative members continued to thrive. The capital markets also remain an important source of funds for our members. To that end, during fiscal year 2015 CFC issued $725 million of unsecured dealer medium-term notes and $1.2 billion in collateral trust bonds. CFC’s bond issuances continue to be highly sought by a wide range of investors. We believe CFC’s credit quality is a reflection of the members we serve and the crown jewel of our financial and operational metrics. Electric cooperatives created CFC to meet a need for affordable, reliable funding, and the relationship between CFC and our members has flourished in the 46 years since. Our employees work hard every day to ensure CFC continues to serve our members to the best of our ability, regardless of how the finance world may evolve. As a testament to that, CFC made $2.7 billion in gross term loan advances to electric borrowers during the fiscal year ending May 31, 2015. Each of those loan advances draws on a diversified base of funding built on CFC’s decades of experience raising capital. Strategic partnerships developed with Farmer Mac and the U.S. Department of Agriculture, as well as investments from the electric cooperative network, have contributed to that diversity and the benefits it provides. Sheldon C. Petersen CFC CEO I am pleased to share with you CFC’s Annual Report for our fiscal year 2015, which demonstrates your financial cooperative’s solid performance for the period. You will find several key financial metrics illustrated in these pages. Highlights from the fiscal year include: • CFC’s adjusted* times interest earned ratio for FY 2015 was 1.13, and our adjusted debt-to-equity ratio was 6.26-to-1. • Total loans outstanding to members at May 31, 2015, were $21.5 billion, a net increase of $992 million during the 12 months of the fiscal year. • CFC remained committed to our mission to serve the electric cooperative network, and 98 percent of CFC’s credit outstanding was to electric borrowers at the close of the fiscal year. In July 2015, the board was pleased to approve a patronage capital allocation of $78 million for FY 2015. CFC retired and distributed $39 million in cash to members in September. Members also earned $63.6 million on their adjusted equity holdings in CFC in FY 2015, consisting of subscription, loan and member certificates. When you pair that total with the fiscal year 2015 patronage capital retirement, CFC put more than $100 million in cash back in the hands of our members in the last fiscal year alone. There are strong ties between the success of electric cooperatives and the success of CFC. Ours is a mutually beneficial relationship—critical in a time of financial and regulatory uncertainty. On behalf of the CFC Board of Directors, I thank you for your continued support. * For more information on the adjustments that CFC makes to its financial results for the purposes of its own analysis and covenant compliance and for a reconciliation of the non-GAAP measures to the applicable GAAP measures, please refer to “Non-GAAP Financial Measures” in the Management’s Discussion & Analysis (MD&A) section of the May 31, 2015, Form 10-K. CFC’s 10-K is available at www.nrucfc.coop. * Times interest earned ratio (TIER) based on GAAP results was less than 1.00 due to the $19 million net loss reported for the year ended May 31, 2015. Debt-to-equity ratio based on GAAP results was 24.11 at May 31, 2015. 3 Ray Beavers CFC Board President and CEO, United Cooperative Services (TX) 2015 CFC Board of Directors As of May 31, 2015 Pictured, front row from left, Mel Coleman, NRECA President and CEO, North Arkansas EC (AR); Dean R. Tesch, Board Chairman, Taylor EC, (WI); and Jimmy A. LaFoy, Director, Baldwin County EMC (AL); second row from left, Phil Carson, NRECA Vice President and Director, Tri-County EC (IL); Thomas L. Hayes, Board Vice President, Brown County REA (MN); Kirk A. Thompson, General Manager, CMS EC (KS); CFC Vice President R. Grant Clawson, Trustee, Continental Divide EC (NM); CFC Board President Ray Beavers, CEO, United Cooperative Services (TX); Roman E. Gillen, President & CEO, Consumers Power (OR); and Curtin R. Rakestraw II, Director, Sullivan County REC (PA); third row from left, Lyle Korver, CEO & General Manager, North West REC (IA); Stephen C. Vail, Board Chairman, NineStar Connect (IN); Robert M. Hill, Chair, First EC Corp., (AR); Harry N. Park, Director, Southern Rivers Energy (GA); Gregory D. Williams, General Manager & EVP, Appalachian EC (TN); Bradley J. Schardin, General Manager, Southeastern EC (SD); and CFC Board Secretary-Treasurer Mike Campbell, EVP & General Manager, Central Florida EC (FL); back row from left, Todd P. Ware, President & CEO, Licking Rural Electrification (OH); Doyle Jay Hanson, Board President, Fall River Rural Electric Cooperative (ID); Patrick L. Bridges, CFO, Tri-State G&T Association (CO); and Mark D. Snowden, CEO, Cimarron EC (OK). Not pictured, Kent D. Farmer, President & CEO, Rappahannock EC (VA). 4 From Electric Co-ops, For Electric Co-ops CFC is guided by a 23-member board of directors that represents 10 geographically defined districts, the electric cooperative network’s national trade association and an at-large director. Comprised exclusively of electric cooperative directors and executives, the board sets overall policy, establishes programs and develops strategies for CFC. CFC BOARD OFFICERS District 1 District 5 District 9 Ray Beavers President Grant Clawson Vice President Mike Campbell Secretary-Treasurer Curtin R. Rakestraw II Director Sullivan County Rural Electric Cooperative, PA Kent D. Farmer President & CEO Rappahannock Electric Cooperative, VA District 2 Harry N. Park Director Southern Rivers Energy, GA Mike Campbell Executive Vice President and General Manager Central Florida Electric Cooperative, FL District 3 Jimmy A. LaFoy Director Baldwin County Electric Membership Corporation, AL Gregory D. Williams General Manager & EVP Appalachian Electric Cooperative, TN District 4 Stephen C. Vail Board Chairman NineStar Connect, IN Todd P. Ware President & CEO Licking Rural Electrification, OH Dean R. Tesch Board Chairman Taylor Electric Cooperative, WI Lyle Korver CEO & General Manager North West Rural Electric Cooperative, IA Doyle Jay Hanson Board President Fall River Rural Electric Cooperative, ID Roman E. Gillen President & CEO Consumers Power, OR District 6 District 10 Thomas L. Hayes Board Vice President Brown County Rural Electrical Association, MN R. Grant Clawson Trustee Continental Divide Electric Cooperative, NM Bradley J. Schardin General Manager Southeastern Electric Cooperative, SD Ray Beavers CEO United Cooperative Services, TX District 7 District 11 Kirk A. Thompson General Manager CMS Electric Cooperative, KS The District 7 Director-Director position was vacant as of May 31, 2015. Mel Coleman Board President, NRECA CEO North Arkansas Electric Cooperative, AR District 8 Robert M. Hill Chair First Electric Cooperative Corporation, AR Mark D. Snowden CEO Cimarron Electric Cooperative, OK Phil Carson Board Vice President, NRECA Director Tri-County Electric Cooperative, IL At-Large Director Audit Committee Financial Expert Patrick L. Bridges CFO Tri-State Generation and Transmission Association, CO 5 BRIDGING THE FINANCIAL NEEDS OF OUR MEMBERS… Total Loans Outstanding As of May 31, 2015 Dollars in Billions $21B $20B $19B $18B At the end of FY2015, CFC’s loans outstanding totaled $21.5 billion. $21.5 $20.3 $20.5 $19.3 FY2011 $18.9 FY2012 FY2013 FY2014 FY2015 Total Loans Outstanding by member class As of May 31, 2015 Dollars in Millions At the end of FY2015, $21 billion, or 98 percent, of CFC’s credit outstanding was to electric borrowers, a share unchanged from FY2014 year-end. TOTAL $21,459 $16,095 Electric Distribution % 2 Telecommunications $386 98 Electric $21,073 % $4,181 Power Supply (G&T) $65 Statewide & Associate $386 Telecommunications 6 $732 NCSC BRIDGING THE FINANCIAL NEEDS OF OUR MEMBERS… Patronage Capital Retirement As of May 31, 2015 CFC retired $40 million in patronage capital in September 2014 (FY2015) and an additional $39 million in patronage capital in September 2015 (FY2016). As the only lender created and owned by America’s electric cooperative network, CFC is committed to our members’ financial success like no other. CFC’s patronage capital retirements play a role in that commitment and represent a key tenet of the cooperative business model. CFC is proud to have returned more than $1.5 billion in patronage capital to our members since 1980. The retirement in September 2015 represents the 36th consecutive year CFC has made a cash retirement of patronage capital. $1.35 BILLION Approximate cumulative Amount returned to members since 1980 $1.40 $1.43 $1.47 BILLION BILLION BILLION $1.51 BILLION As of fiscal year 2016, the CFC Board of Directors has retired $1.55 billion in patronage capital. 36 consecutive Years Cash Retirement of Patronage Capital FY2011 FY2012 FY2013 FY2014 FY2015 7 …TO THE GLOBAL CAPITAL MARKETS. Member Investments & Equity As of May 31, 2015 Dollars in Millions $618 Medium-term Notes 12% 36% 29% Members had more than $4 billion invested in CFC at May 31, 2015, and members’ equity totaled $1.167 billion. Member investments are an important expression of confidence in CFC. 23% $1,917 Short-term Funding (including Commercial paper, Daily liquidity Fund and Select Notes) $1,506 Members’ Subordinated Certificates $1,167 Members’ Equity Funding Sources As of May 31, 2015 Dollars in Millions During FY2015, CFC’s capitalization stood at $21.3 billion, compared with $20.6 billion at the prior year-end. $10,962 Capital Markets 51 8 $4,407 Guaranteed Underwriter Program 21 19 9 $4,041 MEMBERS $1,911 Farmer Mac …TO THE GLOBAL CAPITAL MARKETS. Adjusted Net Income For the period ended May 31, 2015 In its own analysis of operating results, CFC excludes from net income the noncash gains and losses related to the accounting for derivatives. Therefore, the CFC adjusted net income for FY2015 was $95.2 million, compared with adjusted net income of $153.4 million for FY2014. For an extensive review of how CFC treats derivatives and foreign currency transactions, refer to the Management’s Discussion & Analysis (MD&A) section of CFC’s May 31, 2015, Form 10-K. For an explanation of why the company feels that its non-GAAP adjusted measures are meaningful and for a reconciliation of the non-GAAP measures to the applicable GAAP measures, please refer to the “Non-GAAP Financial Measures” section in the MD&A. CFC reported a GAAP net loss of $19 million for the year ended May 31, 2015. CREDIT RATINGS As of May 31, 2015 CFC’s long- and short-term debts are rated by three major credit rating agencies registered with the U.S. Securities and Exchange Commission: Fitch Ratings, Moody’s Investor Service and Standard & Poor’s Corporation. CFC Debt Instrument Collateral Trust Bonds (CTBs) Medium-Term Notes (MTNs) InterNotes Subordinated Notes Commercial Paper (CP) Rating Outlook Fitch Ratings Standard & Poor’s Moody’s Investors Service A+ A A BBB+ F1 Stable A A A BBB+ A-1 Stable A1 A2 A2 A3 P-1 Stable On July 6, 2015, Standard & Poor’s revised CFC’s rating outlook to “Negative.” The ratings shown here have the meaning defined by each of the rating agencies. They are not recommendations to buy, sell or hold securities and are subject to revision at any time by the rating agencies. 9 LIFETIMES OF ELECTRIC CO-OP EXPERIENCE CFC Leadership team CFC’s senior leadership team and key staff have extensive experience in rural utility finance, operations and management. The chief executive officer and senior leadership team manage CFC’s operations and carry out the board’s directives. Sheldon C. Petersen Chief Executive Officer John T. Evans Executive Vice President and Chief Operating Officer Joel Allen Senior Vice President, Member Services Roberta Aronson Senior Vice President and General Counsel John Borak Senior Vice President, Credit Risk Management Brad Captain Senior Vice President, Corporate Relations Graceann Clendenen Senior Vice President, Corporate Services Sarah DeShazior Director, Corporate Administration Andrew Don Senior Vice President and Chief Financial Officer Steve Kettler Senior Vice President, Strategic Services Steven L. Lilly Senior Vice President, Special Asset Management Robin Reed Senior Vice President, Loan Operations Gregory Starheim Senior Vice President, Business and Industry Development 10 Electric cooperatives created CFC to meet a need for diverse, reliable funding, and the relationship between CFC and our members has flourished in the 46 years since. Sheldon C. Petersen Chief Executive Officer 11 Service. Integrity. Excellence.“ Our Vision To be our member-owners’ most trusted financial resource. Our Mission To bridge the financial needs of the rural electric network with the expectations of the global capital markets, one cooperative at a time. 20701 Cooperative Way | Dulles, Virginia 20166 Visit us at www.nrucfc.coop 703-467-1800 CFC is an equal opportunity provider and employer. 12
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