Horizon Farm Credit, ACA ● 1
Horizon Farm Credit, ACA
THIRD QUARTER 2023
TABLE OF CONTENTS
Report on Internal Control Over Financial Reporting .................................................................... 2
Management’s Discussion and Analysis of
Financial Condition and Results of Operations .................................................................... 3
Consolidated Financial Statements
Consolidated Balance Sheets ................................................................................................ 9
Consolidated Statements of Comprehensive Income ......................................................... 10
Consolidated Statements of Changes in Members’ Equity ................................................ 11
Notes to the Consolidated Financial Statements ........................................................................... 12
CERTIFICATION
The undersigned certify that we have reviewed the September 30, 2023 quarterly report of
Horizon Farm Credit, ACA, that the report has been prepared under the oversight of the Audit
Committee of the Board of Directors and in accordance with all applicable statutory and
regulatory requirements, and that the information contained herein is true, accurate, and
complete to the best of our knowledge and belief.
Thomas H. Truitt, Jr.
Chief Executive Officer
Brian E. Rosati
Chief Financial Officer
Shawn D. Wolfinger
Chair of the Board
November 8, 2023
Horizon Farm Credit, ACA ● 2
Horizon Farm Credit, ACA
Report on Internal Control Over Financial
Reporting
The Association’s 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. This process provides 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.
Internal control over financial reporting 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
September 30, 2023. In making the assessment, management used the framework in Internal Control — Integrated Framework (2013),
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’s management concluded that as of September 30, 2023, the internal control over
financial reporting was effective based upon the COSO criteria. Additionally, based on this assessment, the Association’s management
determined that there were no material weaknesses in the internal control over financial reporting as of September 30, 2023.
Thomas H. Truitt, Jr.
Chief Executive Officer
Brian E. Rosati
Chief Financial Officer
November 8, 2023
Horizon Farm Credit, ACA ● 3
Horizon Farm Credit, ACA
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(dollars in thousands)
The following commentary reviews the financial condition and results of operations of Horizon Farm Credit, ACA (Association) for the
period ended September 30, 2023. The comments contained in this report should be read in conjunction with the accompanying
consolidated financial statements, notes to the consolidated financial statements and the 2022 Annual Report of the Association. The
accompanying consolidated financial statements were prepared under the oversight of the Audit Committee of the Board of Directors.
MERGER ACTIVITY
AgChoice Farm Credit, ACA, merged with MidAtlantic Farm Credit, ACA, (the Merger) to form Horizon Farm Credit, ACA, effective
July 1, 2022. Horizon Farm Credit, ACA, is headquartered in Mechanicsburg, PA. The Merger brought together two successful and
respected Associations to better serve agriculture and our rural communities through optimized resources, increased efficiency, and
greater access to specialized expertise.
The effects of the Merger are included in our financial position, results of operations and related metrics beginning July 1, 2022. Prior
year results are not relative of the Merger executed on July 1, 2022. Results of operations and equity reflect the results of MidAtlantic
Farm Credit, ACA through June 30, 2022, and the merged Association on July 1, 2022 and thereafter. Upon the closing of the Merger,
loans increased $2.6 billion, liabilities increased $2.2 billion and equity increased $438.6 million. These amounts include adjustments to
fair value, as required by accounting standards for business combinations. See further information regarding the Merger within Note 9 –
Merger Activity, of the Notes to the Consolidated Financial Statements.
The Merger was accounted for under the acquisition method of accounting in accordance with the FASB Accounting Standards
Codification (ASC) 805 Business Combinations (ASC 805). As the accounting acquirer, MidAtlantic Farm Credit recognized the
identifiable assets acquired and liabilities assumed in the Merger as of the Effective Date at their respective fair values. The fair value of
the net identifiable assets was substantially equal to the fair value of the equity interest exchanged in the Merger. As a result, no goodwill
was recorded.
LOAN PORTFOLIO
The Association provides funds to farmers, rural homeowners and farm-related businesses for the financing of short-term and
intermediate-term loans and long-term real estate mortgage loans. The Association’s loan portfolio encompasses a well-diversified range
of agricultural commodities, including cash grains, dairy, livestock, poultry, forest products, various crops, and also includes part-time
and rural home loans. In addition, the Association provides loans to lessors of agricultural real estate. Farm size varies and many of the
borrowers in the region have diversified farming operations. This factor, along with the opportunities for non-farm income, impacts the
level of dependency on any particular commodity.
Comparison of September 30, 2023 to December 31, 2022
Loans at September 30, 2023 totaled $6,426,715 compared to $6,055,951 at December 31, 2022, an increase of $370,764 (6.12 percent)
during the nine months. The Association’s allowance for loan losses of $19,107 decreased $4,199 (18.02 percent) during the first nine
months of 2023, resulting in net loans (loans less allowance for loan losses) of $6,407,608 and $6,032,645 at September 30, 2023 and
December 31, 2022, respectively. Nonaccrual loans decreased $1,724 (5.31 percent) from $32,490 at December 31, 2022 to $30,766 at
September 30, 2023. In addition, Other property owned decreased from $1,095 at December 31, 2022 (five properties) to $925 at
September 30, 2023 (four properties).
Horizon Farm Credit, ACA ● 4
There is an inherent risk in the extension of any type of credit and, accordingly, the Association maintains an allowance for loan losses
consistent with the risk measured in the portfolio. Credit administration remains satisfactory and the overall credit quality of the
Association’s loan portfolio has remained acceptable. The allowance for loan losses represented 0.30 percent and 0.38 percent of loans,
and 62.10 percent and 71.73 percent of nonaccrual loans, at September 30, 2023 and December 31, 2022, respectively. See also Note 2,
Loans and Allowance for Credit Losses, in the Notes to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
For the three months ended September 30, 2023
Net income for the three months ended September 30, 2023 totaled $29,165, a decrease of $5,532 (15.94 percent) compared to the three
months ended September 30, 2022. The decreased earnings primarily reflect the impact of the Association’s Provision for allowance for
credit loss recorded in the third quarter of 2023 and higher operating expenses. Major changes in the components of net income are
identified as follows:
• Net interest income for the three months was down $502 (1.17 percent); there are several key factors impacting the results. The
decrease in net interest income is attributable to (a) a $7,956 decrease due to changes in interest rates and (b) a decrease in net
interest recognized attributable to nonaccruing loans of $283, offset by (c) a $3,719 million increase resulting from a higher
daily balance of accruing portfolio volume, as well as the impact of the GAAP fair market value adjustments, and (d) a
favorable variance of $4,018 due to increased earnings on free cash held at AgFirst Farm Credit Bank (Bank or AgFirst).
• The Association recorded a provision for allowance for credit losses of $1,884 in the third quarter of 2023. In the third quarter
of 2022, the Association did not record a provision of allowance for credit losses. The Association’s nonaccrual loans to total
loans decreased from 0.54 percent at December 31, 2022 to 0.48 percent of the portfolio at September 30, 2023, and decreased
from 0.60 percent at September 30, 2022. See also Note 2, Loans and Allowance for Credit Losses, in the Notes to the
Consolidated Financial Statements.
• “Patronage refunds from other Farm Credit institutions” on the Consolidated Statements of Comprehensive Income of $10,049
and $9,809, respectively, includes accruals for the quarter ended September 30, 2023 and 2022, based on third quarter
operations only; management anticipates additional income for the remaining quarter in 2023. Since this income from the Bank
is reasonably estimable and because there is a history of these earnings, management is of the opinion that including this
income in quarterly operations provides shareholders with a more accurate forecast of annualized net income.
• The Noninterest income decrease in the third quarter of $93 (0.73 percent) primarily included, (a) a $228 decrease from Loan
Fees, (b) a decrease of $171 due to decreased gains on the sales of rural home loans, net and (c) a $326 decrease in other
noninterest income activity, partially offset by (d) an increase of $292 from Fees for finacially related services, (e) a $240
increase in Patronage related income and (e) an increase of $100 due to increased gains on sales of premises and equipment,
net.
• The Noninterest expense for the third quarter of 2023 was $23,423 as compared to $20,504 for the same period of 2022 or an
increase of $2,919 (14.24 percent). The change in Noninterest expense was primarily a result of higher salaries and benefits
expense and other operating expenses.
The three month increase of $2,396 (19.37 percent) for Salaries and employee benefits includes an increase of salaries due to
an increase in headcount of $1,716, increased cost of employee benefits of $131, and unfavorable deferred personnel costs of
$549. See also Note 7, Employee Benefit Plans, in the Notes to the Consolidated Financial Statements.
Occupancy and equipment and Other operating expenses increased $522 (11.45 percent) from $4,560 to $5,082, which
includes expense increases in employee training, travel, and operating costs.
Gains on other property owned, net increased $55. The varience is due to a decrease in other property owned expenses for the
third quarter of 2023 as compared to the third quarter of 2022.
• The Association recorded a Provision for income taxes of $473 and $339 for the third quarters of 2023 and 2022, respectively.
Horizon Farm Credit, ACA ● 5
For the nine months ended September 30, 2023
Net income for the nine months ended September 30, 2023 totaled $99,369 or $35,654 (55.96 percent) more than the nine months ended
September 30, 2022. Our stronger earnings primarily reflect the favorable impact of the Merger on net interest income due to increased
loan volume, partially offset by higher operating expenses. Major changes in the components of net income are identified as follows:
• Net interest income for the nine months was up $51,191 (62.72 percent); there are several key factors impacting the results.
The change in net interest income was primarily a result of earnings on acquired loans due to the Merger. The increase in net
interest income is attributable to (a) a $37,883 million change in volume due to a $2.3 billion increase in the balance of the
Association’s accruing portfolio volume primarily due to the Merger, as well as the GAAP fair market value adjustments, (b) a
favorable variance of $18,021 due to increased earnings on free cash held at the Bank, and (c) a $593 increase in net interest
recognized attributable to nonaccruing loans, offset by (d) a $5,306 decrease due to changes in interest rates.
• The Association recorded a provision of allowance for credit losses of $1,921 in the first nine months of 2023. In the first nine
months of 2022, the Association recorded a reversal of allowance for credit losses of $7,000. The Association’s nonaccrual
loans to total loans decreased from 0.54 percent at December 31, 2022 to 0.48 percent of the portfolio at September 30, 2023,
and decreased from 0.60 percent at September 30, 2022. See also Note 2, Loans and Allowance for Credit Losses, in the Notes
to the Consolidated Financial Statements.
• “Patronage refunds from other Farm Credit institutions” on the Consolidated Statements of Comprehensive Income is $29,815
as compared to $18,927 for the nine months ended September 30, 2023 and 2022, respectively. Since this income from the
Bank is reasonably estimable and because there is a history of these earnings, management is of the opinion that including this
income in quarterly operations provides shareholders with a more accurate forecast of annualized net income.
• Noninterest income for the nine months was up $14,104 (58.12 percent). The increase is primarily related to (a) an increase of
$10,888 in Patronage related income, (b) an increase of $3,129 due to higher Fees from financially related services, (c) an
increase of $739 from Loan Fees, (d) an increase of $133 due to higher gains on premises and equipment, net, offset partially
by (e) a decrease of $664 in gains on sales of rural home loans, net and (f) a decrease of $121 in other noninterest income.
• Noninterest expense increased $19,902 (40.94 percent) for the first nine months of 2023 as compared to 2022. The change in
Noninterest expense was primarily a result of the Merger.
The year-to-date increase for Salaries and employee benefits of $12,177 (39.46 percent) includes an increase of $10,840 (42.60
percent) in salaries and an increased cost of employee benefits of $3,239, both due to an increase in headcount primarily related
to the Merger, offset by favorable deferred personnel costs of $1,902.
Insurance Fund premiums expense increased $2,262 (48.63 percent) due to the Merger in conjunction with an increase in loan
volume during the first nine months of 2023 as compared to 2022. The Farm Credit System Insurance Corporation (FCSIC)
premium rate was 0.18 and 0.20 percent for the first nine months of 2023 and 2022, respectively.
Purchased services and Data processing expenses increased $460 (13.38 percent) during the first nine months of 2023 as
compared to 2022. The increase is principally due to third party service fees, and hardware and software.
Occupancy and equipment and Other operating expenses increased $4,863 (49.33 percent) from $9,858 to $14,721, which
includes increases in advertising, travel, and operating costs.
Gains on other property owned, net decreased $140. The decrease is primarily related to less gains on OPO sales for the first
nine months of 2023 as compared to 2022.
• The Association recorded a Provision for income taxes of $1,373 and $555, for the nine months ended September 30, 2023 and
2022, respectively.
Horizon Farm Credit, ACA ● 6
FUNDING SOURCES
The principal source of funds for the Association is the borrowing relationship established with the Bank through a General Financing
Agreement (GFA). The GFA utilizes the Association’s credit and fiscal performance as criteria for establishing a line of credit on which
the Association may draw funds. The Bank advances the funds to the Association in the form of notes payable. The notes payable are
segmented into variable rate and fixed rate sectors. The Association utilizes the variable rate note to fund variable rate loan advances and
operating funds requirements. The fixed rate note is used specifically to fund fixed rate loan advances made by the Association. Notes
payable to the Bank at September 30, 2023 was $5,280,173 compared to $4,910,198 at December 31, 2022. The increase during the
period of $369,975 (7.53 percent) corresponds to (a) the increase in the Association’s loan volume, (b) patronage payments to
stockholders, offset by (c) current year net cash generated from operating activities and (d) receipt of prior year Bank patronage.
CAPITAL RESOURCES
Capital serves to support asset growth and provide protection against unexpected credit and interest rate risk and operating losses. Capital
is also needed for future growth and investment in new products and services.
The Association Board of Directors establishes, adopts, and maintains a formal written capital adequacy plan to ensure that adequate
capital is maintained for continued financial viability, to provide for growth necessary to meet the needs of members/borrowers, and to
ensure that all stockholders are treated equitably. There were no material changes to the capital plan for 2023 that would affect minimum
stock purchases or have an effect on the Association’s ability to retire stock and distribute earnings.
Total members’ equity at September 30, 2023 totaled $1,193,749, an increase of $46,253 (4.03 percent) compared to total members’
equity of $1,147,496 at December 31, 2022. This increase is attributed to (a) Current Expected Credit Losses (CECL) cumulative effect
adjustment to retained earnings of $5,648, (b) Total Comprehensive income of $99,369, for the first nine months ended September 30,
2023, (c) net member capital stock/participation certificates retired of $443, (d) an estimated $57,750 cash patronage distribution accrual
for the first nine months of 2023, and (e) a $571 adjustment to the 2023 patronage distribution accrual.
The capital regulations ensure that the System’s capital requirements are comparable to the Basel III framework and the standardized
approach that the federal banking regulatory agencies have adopted. Regulatory ratios include common equity tier 1 (CET1) capital, Tier
1 capital, and total regulatory capital risk-based ratios. The regulations also include a Tier 1 leverage ratio which includes an unallocated
retained earnings (URE) and URE equivalents (UREE) component. The permanent capital ratio (PCR) remains in effect.
Risk-adjusted assets have been defined by FCA Regulations as the Balance Sheet assets and off-balance-sheet commitments adjusted by
various percentages, depending on the level of risk inherent in the various types of assets.
The ratios are calculated using three-month average daily balances, in accordance with FCA regulations, as follows:
• The CET1 capital ratio is the sum of statutory minimum purchased borrower stock, other required borrower stock held for a minimum of
7 years, allocated equities held for a minimum of 7 years or not subject to revolvement, unallocated retained earnings, paid-in capital,
less certain regulatory required deductions including the amount of investments in other System institutions, divided by average risk-
adjusted assets.
• The Tier 1 capital ratio is CET1 capital plus non-cumulative perpetual preferred stock, divided by average risk-adjusted assets.
•
The total capital ratio is Tier 1 capital plus other required borrower stock held for a minimum of 5 years, subordinated debt and limited-
life preferred stock greater than 5 years to maturity at issuance subject to certain limitations, allowance for credit losses and reserve for
unfunded commitments under certain limitations less certain investments in other System institutions under the corresponding deduction
approach, divided by average risk-adjusted assets.
• The permanent capital ratio is all at-risk borrower stock, any allocated excess stock, unallocated retained earnings, paid-in capital,
subordinated debt and preferred stock subject to certain limitations, less certain investments in other System institutions, divided by PCR
risk-adjusted assets.
• The Tier 1 leverage ratio is Tier 1 capital, divided by average assets less regulatory deductions to Tier 1 capital.
• The UREE leverage ratio is unallocated retained earnings, paid-in capital, and allocated surplus not subject to revolvement less certain
regulatory required deductions including the amount of allocated investments in other System institutions divided by average assets less
regulatory deductions to Tier 1 capital.
Horizon Farm Credit, ACA ● 7
The Association’s regulatory ratios are shown in the following table:
Ratio
Minimum Requirement with
Capital Conservation Buffer
Capital Ratios as of
September 30, 2023
Capital Ratios as of
September 30, 2022
Ris
k
-adjusted ratios:
CET1 Capital 7.00% 15.93% 16.83%
Tier 1 Capital 8.50% 15.93% 16.83%
Total Capital 10.50% 16.21% 17.23%
Permanent Capital Ratio 7.00% 15.97% 16.89%
N
on-ris
k
-adjusted:
Tier 1 Leverage Ratio 5.00% 17.23% 18.16%
UREE Leverage Ratio 1.50% 16.89% 17.78%
If the capital ratios fall below the minimum regulatory requirements, including the buffer amounts, capital distributions (equity redemptions,
dividends, and patronage) and discretionary senior executive bonuses are restricted or prohibited without prior FCA approval.
REGULATORY MATTERS
On October 12, 2023, the Farm Credit Administration approved a final rule governing the Farm Credit System's service to young,
beginning, and small (YBS) farmers and ranchers. The rule requires banks that fund the direct-lender associations to annually review and
approve the association YBS programs. The rule also requires direct-lender associations to enhance the strategic plan of its YBS
program. The strategic plan must contain specific elements that will be evaluated as part of a rating system to measure year-over-year
internal progress, which would allow the Farm Credit Administration to compare the success of the direct-lender' association's YBS
program. The final rule becomes effective on February 1, 2024.
On October 5, 2023, the Farm Credit Administration approved a final rule on cyber risk management that requires each System
institution to develop and implement a comprehensive, written cyber risk management program. Each institution's cyber risk plan must
require the institution to take the actions to assess internal and external risk factors, identify potential system and software vulnerabilities,
establish a risk management program for the risks identified, develop a cyber risk training program, set policies for managing third-party
relationships, maintain robust internal controls and establish board reporting requirements. The final rule will become effective on
January 1, 2025.
On April 14, 2022, the FCA approved a final rule that amends certain regulations to address changes in accounting principles generally
accepted in the United States. Such changes reflect the Current Expected Credit Losses (CECL) methodology that replaced the incurred
loss methodology upon adoption. Credit loss allowances related to loans, lessor’s net investments in leases, and held-to-maturity debt
securities are included in a System institution’s Tier 2 capital up to 1.25 percent of the System institution’s total risk weighted assets.
Credit loss allowances for available-for-sale debt securities and purchased credit impaired assets are not eligible for inclusion in a System
institution’s Tier 2 capital. The regulation did not include a transition phase-in period for the CECL day 1 cumulative effect adjustment to
retained earnings on a System institution’s regulatory capital ratios. In addition, the regulation did not include an exclusion for the CECL
day 1 cumulative effective adjustment from the “safe harbor” deemed prior approval provision for distributions. The rule became
effective on January 1, 2023.
On August 26, 2021, the FCA issued a proposed rule to revise its regulatory capital requirements to define and establish risk-weightings
for High Volatility Commercial Real Estate (HVCRE) by assigning a 150 percent risk-weighting to such exposures, instead of the current
100 percent. The proposed rule would ensure that the FCA’s rule remains comparable with the capital rule of other federal banking
regulatory agencies and recognizes the increased risk posed by HVCRE exposures. The public comment period ended on January 24,
2022.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Please refer to Note 1, Organization, Significant Accounting Policies, and Recently Issued Accounting Pronouncements, in the Notes to
the Financial Statements, and the 2022 Annual Report to Shareholders for recently adopted accounting pronouncements.
There were no ASUs issued by the Financial Accounting Standards Board (FASB) during the quarter that impacted the Association’s
Financial Statements.
Horizon Farm Credit, ACA ● 8
SHAREHOLDER INVESTMENT
Shareholder investment in the Association may be materially affected by the financial condition and results of operations of AgFirst
Farm Credit Bank (Bank or AgFirst). Copies of the Bank’s Annual and Quarterly reports are available upon request free of charge by
calling 1-800-845-1745, ext. 2764, or writing Matthew Miller, AgFirst Farm Credit Bank, P. O. Box 1499, Columbia, SC 29202.
Information concerning AgFirst Farm Credit Bank can also be obtained by going to AgFirst’s web site at www.agfirst.com. The Bank
prepares an electronic version of the Annual Report, which is available on the website, within 75 days after the end of the fiscal year. The
Bank prepares an electronic version of the Quarterly report within 40 days after the end of each fiscal quarter, except that no report needs
to be prepared for the fiscal quarter that coincides with the end of the fiscal year of the Bank.
WHISTLEBLOWER
Reports of suspected or actual wrongdoing involving the Association, its employees and/or Directors, can be made anonymously and
confidentially through the Association’s Whistleblower Hotline at 1-833-220-9773 or a link to the website is available at
www.horizonfarmcredit.ethicspoint.com.
Horizon Farm Credit, ACA
Consolidated Balance Sheets
September 30, December 31,
(dollars in thousands)
2023 2022
(unaudited) (audited)
Assets
Cash 5 $ 24 $
Loans 6,426,715 6,055,951
Allowance for loan losses (19,107) (23,306)
Net loans 6,407,608 6,032,645
Loans held for sale — 22
Other investments 800 452
Accrued interest receivable 40,498 28,833
Equity investments in other Farm Credit institutions 74,661 75,269
Premises and equipment, ne
t
29,020 28,336
Other property owned 925 1,095
Accounts receivable 30,953 36,936
Other assets 6,451 5,418
Total assets 6,590,921 $ 6,209,030 $
Liabilities
N
otes payable to AgFirst Farm Credit Ban
k
5,280,173 $ 4,910,198 $
Accrued interest payable 17,952 14,099
Patronage refunds payable 57,829 91,144
Accounts payable 12,188 17,950
Advanced conditional payments — 870
Other liabilities 29,030 27,273
Total liabilities 5,397,172 5,061,534
Commitments and contingencies (Note 8)
Members' Equity
Capital stock and participation certificates 21,440 21,883
Additional paid-in-capital 267,216 267,216
Retained earnings
Allocated 589,403 586,676
Unallocated 315,788 271,819
Accumulated other comprehensive income (loss) (98) (98)
Total members' equit
y
1,193,749 1,147,496
Total liabilities and members' equit
y
6,590,921 $ 6,209,030 $
Horizon Farm Credit, ACA • 9
The accompanying notes are an integral part of these consolidated financial statements.
(dollars in thousands)
2023 2022 2023 2022
Interest Income
Loans 101,314 $ 80,477 $ 292,456 $ 146,865 $
Interest Expense
N
otes payable to AgFirst Farm Credit Ban
k
59,020 37,681 159,643 65,243
N
et interest income 42,294 42,796 132,813 81,622
Provision for (reversal of) allowance for credit losses 1,884 — 1,921 (7,000)
N
et interest income after provision for (reversal of) allowance fo
r
credit losses 40,410 42,796 130,892 88,622
Noninterest Income
Loan fees 500 728 1,916 1,177
Fees for financially related services 1,810 1,518 6,034 2,905
Patronage refunds from other Farm Credit institutions 10,049 9,809 29,815 18,927
Gains (losses) on sales of rural home loans, ne
t
20 191 84 748
Gains (losses) on sales of premises and equipment, ne
t
152 52 339 206
Gains (losses) on other transactions 101 421 101 192
Other noninterest income 19 25 81 111
Total noninterest income 12,651 12,744 38,370 24,266
Noninterest Expense
Salaries and employee benefits 14,765 12,369 43,036 30,859
Occupancy and equipmen
t
1,004 957 2,666 2,045
Insurance Fund premiums 2,350 2,350 6,913 4,651
Purchased services 806 845 2,604 2,606
Data processing 456 361 1,294 832
Other operating expenses 4,078 3,603 12,055 7,813
(Gains) losses on other property owned, net (36) 19 (48) (188)
Total noninterest expense
23,423
20,504
68,520
48,618
Income before income taxes 29,638 35,036 100,742 64,270
Provision for income taxes 473 339 1,373 555
Net income 29,165 $ 34,697 $ 99,369 $ 63,715 $
Other comprehensive income net of tax
Employee benefit plans adjustments — 3 — 10
Comprehensive income 29,165 $ 34,700 $ 99,369 $ 63,725 $
The accompanying notes are an integral part of these consolidated financial statements.
Horizon Farm Credit, ACA
Comprehensive Income
(unaudited)
Ended September 30, Ended September 30,
For the Nine Months For the Three Months
Horizon Farm Credit, ACA • 10
Ca
p
ital Accumulated
Stock and
Other
Total
Partici
p
ation Additional Com
p
rehensive Members'
(dollars in thousands) Certificates
Paid-in-Ca
p
ital Allocated Unallocated Income (Loss) E
q
uit
y
Balance at December 31, 2021 11,814 $ — $ 407,650 $ 252,262 $ (435) $ 671,291 $
Comprehensive income 63,715 10 63,725
Capital stock/participation
certificates issued/(retired), net (215) (215)
Patronage distribution
Cash (49,816) (49,816)
Equity re-characterized due to merger 9,930 267,216 161,489 (60) 438,575
Patronage distribution adjustment (622) (2,756) (3,378)
Balance at September 30, 2022 21,529 $ 267,216 $ 568,517 $ 263,405 $ (485) $ 1,120,182 $
Balance at December 31, 2022 21,883 $ 267,216 $ 586,676 $ 271,819 $ (98) $ 1,147,496 $
Cumulative effect of change in
accounting principle 5,648 5,648
Comprehensive income 99,369 99,369
Capital stock/participation
certificates issued/(retired), net (443) (443)
Patronage distribution
Cash (57,750) (57,750)
Patronage distribution adjustment 2,727 (3,298) (571)
Balance at September 30, 2023 21,440 $ 267,216 $ 589,403 $ 315,788 $ (98) $ 1,193,749 $
(unaudited)
Consolidated Statements of Changes in
Horizon Farm Credit, ACA
The accompanying notes are an integral part of these consolidated financial statements.
Members’ Equity
Horizon Farm Credit, ACA • 11
Retained Earnin
g
s
Horizon Farm Credit, ACA ● 12
Horizon Farm Credit, ACA
Notes to the Consolidated Financial Statements
(dollars in thousands, except as noted)
(unaudited)
Note 1 — Organization, Significant Accounting Policies, and Recently Issued Accounting Pronouncements
Organization
The accompanying financial statements include the accounts of Horizon Farm Credit, ACA and its Production Credit Association (PCA)
and Federal Land Credit Association (FLCA) subsidiaries (collectively, the Association). Descriptions of the organization and
operations, the significant accounting policies followed, and the financial condition and results of operations for the Association as of
and for the year ended December 31, 2022, are contained in the 2022 Annual Report to Shareholders. These unaudited interim
consolidated financial statements should be read in conjunction with the latest Annual Report to Shareholders.
Effective July 1, 2022, AgChoice Farm Credit, ACA (AgChoice) merged into MidAtlantic Farm Credit, ACA (MidAtlantic) to form
Horizon Farm Credit, ACA. See Note 9, Merger Activity, for further information.
Basis of Presentation
In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary for a fair statement
of results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed.
Certain amounts in the prior period’s consolidated financial statements have been reclassified to conform to the current period
presentation. Such reclassifications had no effect on the prior period net income or total capital as previously reported.
The results of any interim period are not necessarily indicative of those to be expected for a full year.
Significant Accounting Policies
The Association’s accounting and reporting policies conform with U.S. generally accepted accounting principles (GAAP) and practices
in the financial services industry. To prepare the financial statements in conformity with GAAP, management must make estimates based
on assumptions about future economic and market conditions (for example, unemployment, market liquidity, real estate prices, etc.) that
affect the reported amounts of assets and liabilities at the date of the financial statements, income and expenses during the reporting
period, and the related disclosures. Although these estimates contemplate current conditions and expectations of change in the future, it is
reasonably possible that actual conditions may be different than anticipated, which could materially affect results of operations and
financial condition.
Management has made significant estimates in several areas, including loans and allowance for credit losses (Note 2, Loans and
Allowance for Credit Losses) and financial instruments (Note 6, Fair Value Measurement). Actual results could differ from those
estimates.
For further details of significant accounting policies, see Note 2, Summary of Significant Accounting Policies, from the latest Annual
Report.
Accounting Standards Effective During the Period
The Association adopted the Financial Accounting Standards Board (FASB) guidance entitled “Measurement of Credit Losses on
Financial Instruments” and other subsequently issued accounting standards updates related to credit losses on January 1, 2023. This
guidance replaced the current incurred loss impairment methodology with a single allowance framework for financial assets that
estimates the current expected credit losses (CECL) over the remaining contractual life for all financial assets measured at amortized cost
and certain off-balance sheet credit exposures. This guidance is applied on a modified retrospective basis. This framework requires
management to consider in its estimate of the allowance for credit losses (ACL) relevant historical events, current conditions
and
reasonable and supportable forecasts that consider macroeconomic conditions. In addition, the guidance amends existing impairment
guidance for held-to-maturity and available-for-sale investments to incorporate an allowance for credit losses related to these securities,
which will allow for the reversal of credit impairments in the event that the credit of an issuer improves.
Horizon Farm Credit, ACA ● 13
Also adopted effective January 1, 2023, was the updated guidance entitled “Financial Instruments – Credit Losses: Troubled Debt
Restructurings and Vintage Disclosure.” This guidance requires the creditor to determine whether a modification results in a new loan or
a continuation of an existing loan, among other disclosures specific to modifications with borrowers that are experiencing financial
difficulties. The update eliminated the accounting guidance for troubled debt restructurings by creditors. The update also requires
disclosure of current period gross write-offs by year of origination for financing receivables and net investments in leases on a
prospective basis.
The following table presents the impact to the allowance for credit losses and retained earnings upon adoption of this guidance on
January 1, 2023:
December 31, 2022 CECL Ado
p
tion Im
p
act Januar
y
1, 2023
Assets:
Allowance for loan losses $ 23,306 $
(
5,639
)
$ 17,667
Liabilities:
Allowance for credit losses on unfunded commitments $ 1,500
$
(
9
)
$ 1,491
Retained earnin
g
s:
Unallocated retained earnin
g
s $ 271,819 $ 5,648 $ 277,467
Loans and Allowance for Credit Losses
Loans are recorded at amortized cost basis, which is the principal amount outstanding adjusted for charge-offs, deferred loan fees or
costs, and valuation adjustments relating to hedging activities, if any. Loan origination fees and direct loan origination costs are netted
and capitalized and the net fee or cost is amortized over the average life of the related loan as an adjustment to interest income. Loan
prepayment fees are reported in interest income. Interest on loans is accrued and credited to interest income based on the daily principal
amount outstanding.
Nonaccrual Loans
Nonaccrual loans are loans for which there is reasonable doubt that all principal and interest will be collected according to the original
contractual terms and are generally considered substandard or doubtful, which is in accordance with the loan rating model, as described
below. A loan is considered contractually past due when any principal repayment or interest payment required by the loan instrument is
not received on or before the due date. A loan shall remain contractually past due until it is modified or until the entire amount past due,
including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in
full.
Consistent with prior practice, loans are generally placed in nonaccrual status when principal or interest is delinquent for 90 days (unless
adequately secured and in the process of collection), circumstances indicate that collection of principal and interest is in doubt or legal
action, including foreclosure or other forms of collateral conveyance, has been initiated to collect the outstanding principal and interest.
At the time a loan is placed in nonaccrual status, accrued interest that is considered uncollectible is reversed (if accrued in the current
year) or charged against the ACL (if accrued in prior years). Loans are charged-off at the time they are determined to be uncollectible.
When loans are in nonaccrual status, interest payments received in cash are generally recognized as interest income if the collectability of
the loan principal is fully expected and certain other criteria are met. Otherwise, payments received on nonaccrual loans are applied
against the recorded investment in the loan asset. Nonaccrual loans are returned to accrual status if all contractual principal and interest is
current, the borrower is fully expected to fulfill the contractual repayment terms and after remaining current as to principal and interest
for a sustained period or have a recent repayment pattern demonstrating future repayment capacity to make on-time payments. If
previously unrecognized interest income exists at the time the loan is transferred to accrual status, cash received at the time of or
subsequent to the transfer should first be recorded as interest income until such time as the recorded balance equals the contractual
indebtedness of the borrower.
Accrued Interest Receivable
The Association adopted the practical expedient to classify accrued interest on loans and investment securities in accrued interest
receivable and not as part of loans or investments on the Consolidated Balance Sheets. The Association also elected to not estimate an
allowance on interest receivable balances because the nonaccrual policies in place provide for the accrual of interest to cease on a timely
basis when all contractual amounts are not expected.
Horizon Farm Credit, ACA ● 14
Loan Modifications to Borrowers Experiencing Financial Difficulty
Loan modifications may be granted to borrowers experiencing financial difficulty. Modifications can be in the form of one or a
combination of principal forgiveness, interest rate reduction, other-than-insignificant payment delay or a term extension. Covenant
waivers and modifications of contingent acceleration clauses are not considered term extensions.
Collateral Dependent Loans
Collateral dependent loans are loans secured by collateral, including but not limited to agricultural real estate, crop inventory, equipment
and livestock. CECL requires an entity to measure the expected credit losses based on fair value of the collateral at the reporting date
when the entity determines that foreclosure is probable. Additionally, the Association adopted the fair value practical expedient as a
measurement approach for loans when the repayment is expected to be provided substantially through the operation or sale of the
collateral when the borrower is experiencing financial difficulties. Under the practical expedient measurement approach, the expected
credit loss is based on the difference between the fair value of the collateral less estimated costs to sell and the amortized cost basis of the
loan.
Allowance for Credit Losses
Beginning January 1, 2023, the ACL represents the estimated current expected credit losses over the remaining contractual life of
financial assets measured at amortized cost and certain off-balance sheet credit exposures. The ACL takes into consideration relevant
information about past events, current conditions and reasonable and supportable macroeconomic forecasts of future conditions. The
contractual term excludes expected extensions, renewals and modifications unless the extension or renewal options are not
unconditionally cancellable. The ACL comprises:
• the allowance for loan losses
• the allowance for unfunded commitments, which is presented on the Consolidated Balance Sheets in Other Liabilities, and
• the allowance for credit losses on investment securities, which covers held-to-maturity and available-for-sale securities and is
recognized within each investment securities classification on the Consolidated Balance Sheets.
Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are
inherently uncertain. Subsequent evaluations of the loan portfolio, considering macroeconomic conditions, forecasts and other factors
prevailing at the time, may result in significant changes in the ACL in those future periods.
Methodology for Allowance for Credit Losses on Loans
The allowance for loan losses represents management’s estimate of credit losses over the remaining expected life of loans. Loans are
evaluated on the amortized cost basis, including premiums, discounts, and fair value adjustments.
The Association employs a disciplined process and methodology to establish its allowance for loan losses that has two basic components:
first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement
of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of
loans that share similar risk characteristics.
Asset-specific loans are generally collateral-dependent loans (including those loans for which foreclosure is probable) and nonaccrual
loans. For an asset-specific loan, expected credit losses are measured as the difference between the amortized cost basis in the loan and
the present value of expected future cash flows discounted at the loan’s effective interest rate except that, for collateral-dependent loans,
credit loss is measured as the difference between the amortized cost basis in the loan and the fair value of the underlying collateral. The
fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather
than only on the operation) of the collateral. In accordance with the Association’s appraisal policy, the fair value of collateral-dependent
loans is based upon independent third-party appraisals or on collateral valuations prepared by in-house appraisers. When an updated
appraisal or collateral valuation is received, management reassesses the need for adjustments to the loan’s expected credit loss
measurements and, where appropriate, records an adjustment. If the calculated expected credit loss is determined to be permanent, fixed,
or non-recoverable, the credit loss portion of the loan will be charged off against the ACL.
In estimating the component of the allowance for loan losses that relates to loans that share common risk characteristics, loans are
evaluated collectively and segregated into loan pools considering the risk associated with the specific pool. Relevant risk characteristics
include loan type, commodity, credit quality rating, delinquency category or business segment or a combination of these classes. The
Horizon Farm Credit, ACA ● 15
allowance is determined based on a quantitative calculation of the expected life-of-loan loss percentage for each loan category by
considering the probability of default, based on the migration of loans from performing to loss by credit quality rating or delinquency
buckets using historical life-of-loan analysis periods for loan types, and the severity of loss, based on the aggregate net lifetime losses
incurred per loan pool.
The component of the allowance for loan losses also considers factors for each loan pool to adjust for differences between the historical
period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the
portfolio related to:
• lending policies and procedures;
• national, regional and local economic business conditions and developments that affect the collectability of the portfolio, including
the condition of various markets;
• the nature of the loan portfolio, including the terms of the loans;
• the experience, ability and depth of the lending management and other relevant staff;
• the volume and severity of past due and adversely classified or graded loans and the volume of nonaccrual loans;
• the quality of the loan review and process;
• the value of underlying collateral for collateral-dependent loans;
• the existence and effect of any concentrations of credit and changes in the level of such concentrations; and
• the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the
existing portfolio.
The Association’s macroeconomic forecast includes a weighted selection of the Moody’s baseline, upside 10
th
percent and downside 90
th
percent over reasonable and supportable forecast periods of three years. Subsequent to the forecast period, the Association reverts to long
run historical loss experience beyond two years gradually after the determined forecast horizon using a transition function to inform the
estimate of losses for the remaining contractual life of the loan portfolio.
The economic forecasts incorporate macroeconomic variables, including unemployment rates, Dow Jones Total Stock Market Index, and
corporate bond spreads. Also considered are loan and borrower characteristics, such as internal risk ratings, delinquency status, collateral
type, and the remaining term of the loan, adjusted for expected prepayments.
In addition to the quantitative calculation, the Association considers the imprecision inherent in the process and methodology, emerging
risk assessments and other subjective factors, which may lead to a management adjustment to the modeled allowance for loan loss
results. Expected credit loss estimates also include consideration of expected cash recoveries on loans previously charged-off or expected
recoveries on collateral dependent loans where recovery is expected through sale of the collateral. The economic forecasts are updated on
a quarterly basis.
Prior to January 1, 2023, the allowance for loan losses was maintained at a level considered adequate to provide for probable losses
existing in and inherent in the loan portfolio. The allowance was based on a periodic evaluation of the loan portfolio in which numerous
factors were considered, including economic conditions, collateral values, borrowers’ financial conditions, loan portfolio composition
and prior loan loss experience. The allowance for loan losses encompassed various judgments, evaluations and appraisals with respect to
the loans and their underlying collateral that, by their nature, contain elements of uncertainty and imprecision. Changes in the agricultural
economy and their impact on borrower repayment capacity would cause these various judgments, evaluations, and appraisals to change
over time. Management considered a number of factors in determining and supporting the levels of the allowance for loan losses, which
included, but were not limited to, the concentration of lending in agriculture, combined with uncertainties associated with farmland
values, commodity prices, exports, government assistance programs, regional economic effects and weather-related influences.
Allowance for Credit Losses on Unfunded Commitments
The Association evaluates the need for an allowance for credit losses on unfunded commitments under CECL and, if required, an amount
is recognized and included in Other Liabilities on the Consolidated Balance Sheets. The amount of expected losses is determined by
calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by the
Association and applying the loss factors used in the allowance for loan losses methodology to the results of the usage calculation. No
allowance for credit losses is recorded for commitments that are unconditionally cancellable.
Horizon Farm Credit, ACA ● 16
Note 2 — Loans and Allowance for Credit Losses
A summary of loans outstanding at period end follows:
September 30, 2023 December 31, 2022
Real estate mort
g
a
g
e $ 3,611,452 $ 3,529,846
Production and intermediate-term 1,450,063 1,454,345
A
g
ribusiness:
Loans to coo
p
eratives 106,887 106,603
Processin
g
and marketin
g
564,135 425,531
Farm-related business 138,029 132,515
Rural infrastructure:
Communication 213,750 188,658
Power and water/waste dis
p
osal 178,696 66,369
Rural residential real estate 91,763 91,131
Other:
International 67,114 55,563
Lease receivables 4,826 5,390
Total loans
$
6,426,715
$
6,055,951
A substantial portion of the Association’s lending activities is collateralized, and exposure to credit loss associated with lending activities is
reduced accordingly.
The Association may purchase or sell participation interests with other parties in order to diversify risk, manage loan volume, and comply
with Farm Credit Administration (FCA) regulations. The following tables present the principal balance of participation loans at periods
ended:
September 30, 2023
Within AgFirst District Within Farm Credit System Outside Farm Credit System Total
Participations
Purchased
Participations
Sold
Participations
Purchased
Participations
Sold
Participations
Purchased
Participations
Sold
Participations
Purchased
Participations
Sold
Real estate mortgage $ 61,860 $ 2,939 $ 18,038 $ 5,978 $
–
$
–
$ 79,898 $ 8,917
Production and intermediate-term 127,666 53,170 97,337 2,245
–
–
225,003 55,415
Agribusiness 111,711 96,754 273,366 46,024 136,432
–
521,509 142,778
Rural infrastructure 144,654
–
251,277
–
–
–
395,931
–
Othe
r
19,376
–
53,086
–
–
–
72,462
–
Total $ 465,267 $ 152,863 $ 693,104 $ 54,247 $ 136,432 $
–
$ 1,294,803 $ 207,110
December 31, 2022
Within AgFirst District Within Farm Credit System Outside Farm Credit System Total
Participations
Purchased
Participations
Sold
Participations
Purchased
Participations
Sold
Participations
Purchased
Participations
Sold
Participations
Purchased
Participations
Sold
Real estate mortgage $ 60,674 $ 8,150 $ 15,456 $ 8,273 $
–
$
–
$ 76,130 $ 16,423
Production and intermediate-term 125,473 57,255 85,618 4,560
–
–
211,091 61,815
Agribusiness 119,033 88,246 226,935 20,109 91,910
–
437,878 108,355
Rural infrastructure 77,775
–
182,278
–
–
–
260,053
–
Othe
r
2,475
–
59,245
–
–
–
61,720
–
Total $ 385,430 $ 153,651 $ 569,532 $ 32,942 $ 91,910 $
–
$ 1,046,872 $ 186,593
Horizon Farm Credit, ACA ● 17
The following table shows loans, classified under the FCA Uniform Loan Classification System, as a percentage of total loans by loan type
as of:
September 30, 2023 December 31, 2022*
Real estate mortgage:
Acceptable 96.84% 96.64%
OAEM 1.68 1.67
Substandard/doubtful/loss 1.48 1.69
100.00% 100.00%
Production and intermediate-term:
Acceptable 96.11% 96.63%
OAEM 2.09 1.55
Substandard/doubtful/loss 1.80 1.82
100.00% 100.00%
Agribusiness:
Acceptable 97.08% 98.41%
OAEM 2.20 0.66
Substandard/doubtful/loss 0.72 0.93
100.00% 100.00%
Rural infrastructure:
Acceptable 97.27% 100.00%
OAEM 2.73 0.00
Substandard/doubtful/loss 0.00 0.00
100.00% 100.00%
Rural residential real estate:
Acceptable 96.17% 96.97%
OAEM 2.18 1.70
Substandard/doubtful/loss 1.65 1.33
100.00% 100.00%
Other:
Acceptable 99.85% 99.90%
OAEM 0.15 0.06
Substandard/doubtful/loss 0.00 0.04
100.00% 100.00%
Total loans:
Acceptable 96.75% 97.01%
OAEM 1.90 1.44
Substandard/doubtful/loss 1.35 1.55
100.00% 100.00%
*
Prior to adoption of CECL on January 1, 2023, loans were presented with accrued interest receivable.
Accrued interest receivable on loans of $40,498 and $28,833 at September 30, 2023 and December 31, 2022, respectively, has been
excluded from the amortized cost of loans and reported separately in the Consolidated Balance Sheets.
The following table provides an aging analysis of past due loans as of:
September 30, 2023
30 Through
89 Days
Past Due
90 Days or
More Past
Due
Total Past
Due
Not Past Due
or Less Than
30 Days Past
Due Total Loans
90 Days or
More Past Due
and Accruing
Real estate mortgage $ 48,270 $ 8,621 $ 56,891 $ 3,554,561 $ 3,611,452 $
–
Production and intermediate-term 35,184 5,617 40,801 1,409,262 1,450,063
–
Agribusiness 4,316 97 4,413 804,638 809,051
–
Rural infrastructure
–
–
–
392,446 392,446
–
Rural residential real estate 1,420 224 1,644 90,119 91,763
–
Othe
r
–
–
–
71,940 71,940
–
Total $ 89
,
190 $ 14
,
559 $ 103
,
749 $ 6
,
322
,
966 $ 6
,
426
,
715 $
–
Horizon Farm Credit, ACA ● 18
Prior to the adoption of CECL, the aging analysis of past due loans reported included accrued interest as follows:
December 31, 2022
30 Through
89 Days
Past Due
90 Days or
More Past
Due
Total Past
Due
Not Past Due
or Less Than
30 Days Past
Due Total Loans
90 Days or
More Past Due
and Accruing
Real estate mortgage $ 8,085 $ 11,366 $ 19,451 $ 3,527,129 $ 3,546,580 $
–
Production and intermediate-term 5,580 3,947 9,527 1,453,317 1,462,844 34
Agribusiness 4,043 10,285 14,328 652,702 667,030 10,280
Rural infrastructure
–
–
–
255,447 255,447
–
Rural residential real estate 1,296 142 1,438 90,000 91,438
–
Othe
r
–
–
–
61,445 61,445
–
Total $ 19,004 $ 25,740 $ 44,744 $ 6,040,040 $ 6,084,784 $ 10,314
The following tables reflect nonperforming assets and related credit quality statistics as of:
September 30, 2023
Nonaccrual loans:
Real estate mort
g
a
g
e
$ 19,790
Production and intermediate-term 10,382
Agribusiness 102
Rural residential real estate 492
Total $ 30,766
Accruing loans 90 days or more past due:
Total
$
–
Total nonperforming loans $ 30,766
Total nonperforming assets $ 31,691
Nonaccrual loans as a percentage of total loans 0.48%
Nonperforming assets as a percentage of total
loans and other property owne
d
0.49%
Nonperforming assets as a percentage of capital 2.65%
December 31, 2022*
Nonaccrual loans:
Real estate mortgage
$ 24,614
Production and intermediate-term 7,316
Agribusiness 16
Rural residential real estate 544
Total $ 32,490
Accruing restructured loans:
Real estate mortgage $ 18,280
Production and intermediate-term 3,554
Agribusiness 101
Rural residential real estate 455
Total $ 22,390
Accruing loans 90 days or more past due:
Production and intermediate-term $ 34
Agribusiness 10,280
Total $ 10,314
Total nonperforming loans $ 65,194
Other property owned 1,095
Total nonperforming assets $ 66,289
Nonaccrual loans as a percentage of total loans 0.54%
Nonperforming assets as a percentage of total
loans and other property owne
d
1.09%
Nonperforming assets as a percentage of capital 5.78%
*Prior to adoption of CECL, nonperforming assets included accruing restructured loans and loans were presented including
accrued interest receivable.
Horizon Farm Credit, ACA ● 19
The following table provides the amortized cost for nonaccrual loans, with and without a related allowance for loan losses, and interest
income recognized on nonaccrual loans during the period:
September 30, 2023 Interest Income Recognized on Nonaccrual Loans
Nonaccrual loans:
Amortized
Cost with
Allowance
Amortized
Cost
without
Allowance Total
Three Months Ended
September 30, 2023
Nine Months Ended
September 30, 2023
Real estate mortgage $ 7,731 $ 12,059 $ 19,790 $ 381 $ 1,465
Production and intermediate-term 8,928 1,454 10,382 200 768
Agribusiness 108 (6) 102 2 8
Rural residential real estate 529 (37) 492 9 36
Total $ 17,296 $ 13,470 $ 30,766 $ 592 $ 2,277
Effective January 1, 2023, the Association adopted the CECL accounting guidance as described in Note 1. A summary of changes in the
allowance for credit losses by portfolio segment is as follows:
Real Estate
Mort
g
a
g
e
Production and
Intermediate-
term
A
g
ribusiness
Rural
Infrastructure
Rural
Residential
Real Estate Other Total
Allowance for Loan Losses:
Balance at June 30, 2023
$ 7,826 $ 7,425 $ 1,923 $ 242 $ 259 $ 66 $ 17,741
Charge-offs
– – – – – – –
Recoveries
153 – – – – – 153
Provision for loan losses
128 831 221 32
(
2
)
3 1,213
Balance at Se
p
tembe
r
30, 2023
$ 8,107 $ 8,256 $ 2,144 $ 274 $ 257 $ 69 $ 19,107
Allowance for Unfunded Commitments:
Balance at June 30, 2023
$ 59 $ 729 $ 761 $ 21 $ – $ 17 $ 1,587
Provision for unfunded commitments
11 295 333 22 – 10 671
Balance at Se
p
tembe
r
30, 2023
$ 70 $ 1,024 $ 1,094 $ 43
$
–
$ 27 $ 2,258
Total allowance for credit losses
$ 8,177 $ 9,280 $ 3,238 $ 317 $ 257 $ 96 $ 21,365
Allowance for Loan Losses:
Balance at Decembe
r
31, 2022
$ 9,679 $ 11,429 $ 1,722 $ 148 $ 264 $ 64 $ 23,306
Cumulative effect of a chan
g
e in accountin
g p
rinci
p
le
(
873
)
(
4,956
)
153 15 4 18
(
5,639
)
Balance at January 1, 2023 $ 8,806 $ 6,473 $ 1,875 $ 163 $ 268 $ 82 $ 17,667
Char
g
e-offs
– – – – – – –
Recoveries
280 6 – – – – 286
Provision for loan losses
(
979
)
1,777 269 111
(
11
)
(
13
)
1,154
Balance at Se
p
tembe
r
30, 2023
$ 8,107 $ 8,256 $ 2,144 $ 274 $ 257 $ 69 $ 19,107
Allowance for Unfunded Commitments:
Balance at Decembe
r
31, 2022
$ 34 $ 847 $ 593 $ 13 $ – $ 13 $ 1,500
Cumulative effect of a chan
g
e in accountin
g p
rinci
p
le
35
(
68
)
13 9 – 2
(
9
)
Balance at Januar
y
1, 2023
$ 69 $ 779 $ 606 $ 22 $
–
$ 15 $ 1,491
Provision for unfunded commitments
1 245 488 21 – 12 767
Balance at Se
p
tembe
r
30, 2023
$ 70 $ 1,024 $ 1,094 $ 43 $
–
$ 27 $ 2,258
Total allowance for credit losses
$ 8,177 $ 9,280 $ 3,238 $ 317 $ 257 $ 96 $ 21,365
Allowance for Loan Losses
*
:
Balance at June 30, 2022
$ 10,524 $ 11,328 $ 1,077
$
71
$
231
$ 63 $
23,294
Charge-offs
–
–
–
–
–
–
–
Recoveries
–
14
–
–
–
–
14
Provision for loan losses
(
596
)
105 466 25
(
10
)
10
–
Balance at Septembe
r
30, 2022
$ 9,928 $ 11,447 $ 1,543 $ 96 $ 221 $
73
$ 23,308
Balance at December 31, 2021
$ 12,282 $ 15,941 $ 1,691
$
66
$
278
$ 22 $
30,280
Charge-offs
–
–
–
–
(
4
)
–
(
4
)
Recoveries
14 18
–
–
–
–
32
Provision for loan losses
(
2,368
)
(
4,512
)
(
148
)
30
(
53
)
51
(
7,000
)
Balance at Septembe
r
30, 2022
$ 9,928 $ 11,447 $ 1,543 $ 96 $ 221 $
73
$ 23,308
*
For periods prior to January 1, 2023, the allowance for loan losses was based on probable and estimable losses inherent in the loan portfolio.
Loan modifications may be granted to borrowers experiencing financial difficulty. Qualifying disclosable modifications are one, or a
combination of, principal forgiveness, interest rate reduction, or a term or payment extension. Covenant waivers and modifications of
contingent acceleration clauses are not considered term extensions. Modified loans to borrowers experiencing financial difficulty and
activity on these loans were not material during the three and nine months ended September 30, 2023. There were no material
commitments to lend to borrowers experiencing financial difficulty whose loans have been modified at September 30, 2023.
Horizon Farm Credit, ACA ● 20
Loans held for sale were $0 and $22 at September 30, 2023 and December 31, 2022, respectively. Such loans are carried at the lower of
cost or fair value.
Troubled Debt Restructurings
Prior to the adoption of updated FASB guidance on loan modifications on January 1, 2023, a restructuring of a loan constituted a troubled
debt restructuring (TDR) if the creditor for economic or legal reasons related to the borrower’s financial difficulties granted a concession
to the borrower that it would not otherwise consider. Concessions varied by program, were borrower-specific, and could include interest
rate reductions, term extensions, payment deferrals or the acceptance of additional collateral in lieu of payments. In limited circumstances,
principal may have been forgiven. When a restructured loan constituted a TDR, these loans were included within impaired loans under
nonaccrual or accruing restructured loans.
The following tables present additional information regarding troubled debt restructurings that occurred during the period:
Three Months Ended September 30, 2022*
Outstanding Recorded Investment
Interest
Concessions
Principal
Concessions
Other
Concessions Total Charge-offs
Pre-modification:
Production and intermediate-term $
–
$ 1,623 $
–
$ 1,623
Total
$
–
$ 1,623 $
–
$ 1,623
Post-modification:
Production and intermediate-term $ 37 $ 1,631
$
–
$ 1,668 $
–
Total $ 37 $ 1,631 $
–
$ 1,668 $
–
Nine Months Ended September 30, 2022*
Outstanding Recorded Investment
Interest
Concessions
Principal
Concessions
Other
Concessions Total Charge-offs
Pre-modification:
Real estate mortgage $ 756 $ 3,736 $
–
$ 4,492
Production and intermediate-term
–
2,317
–
2,317
Total $ 756 $ 6,053
$
–
$ 6,809
Post-modification:
Real estate mortgage $ 756 $ 3,766
$
–
$ 4,522 $
–
Production and intermediate-term 37 2,328
–
2,365
–
Total $ 793 $ 6,094 $
–
$ 6,887 $
–
*
Prior to adoption of CECL on January 1, 2023, loans were presented with accrued interest receivable.
Interest concessions may include interest forgiveness and interest deferment. Principal concessions may include principal forgiveness,
principal deferment, and maturity extension. Other concessions may include additional compensation received which might be in the
form of cash or other assets.
There were no TDRs that occurred during the previous twelve months and for which there was a subsequent payment default during the
three and nine months ended September 30, 2022. Payment default is defined as a payment that was thirty days or more past due.
The following table provides information at period end on outstanding loans restructured in troubled debt restructurings. These loans
were included as impaired loans in the impaired loan table:
December 31, 2022*
Total TDRs Nonaccrual TDRs
Real estate mort
g
a
g
e $ 29,761 $ 11,481
Production and intermediate-term 5,736 2,182
A
g
ribusiness 101
–
Rural residential real estate 590 135
Total loans
$ 36,188 $ 13,798
Additional commitments to lend
$ 80
*
Prior to adoption of CECL on January 1, 2023, loans were presented with accrued interest receivable.
Horizon Farm Credit, ACA ● 21
Note 3 — Investments
Equity Investments in Other Farm Credit System Institutions
Equity investments in other Farm Credit System institutions are generally nonmarketable investments consisting of stock and
participation certificates, allocated surplus, and reciprocal investments in other institutions regulated by the FCA. These investments are
carried at cost and evaluated for impairment based on the ultimate recoverability of the par value rather than by recognizing temporary
declines in value.
Associations are required to maintain ownership in AgFirst (AgFirst or the Bank) in the form of Class B or Class C stock as determined
by the Bank. The Bank may require additional capital contributions to maintain its capital requirements. The Association owned 18.72
percent of the issued stock and allocated retained earnings of the Bank as of September 30, 2023 net of any reciprocal investment. As of
that date, the Bank’s assets totaled $43.4 billion and shareholders’ equity totaled $1.4 billion. The Bank’s earnings were $195 million for
the first nine months of 2023. In addition, the Association held investments of $3,094 related to other Farm Credit institutions.
Note 4 — Debt
Notes Payable to AgFirst Farm Credit Bank
The Association’s indebtedness to the Bank represents borrowings by the Association to fund its earning assets. This indebtedness is
collateralized by a pledge of substantially all of the Association’s assets. The contractual terms of the revolving line of credit are
contained in the General Financing Agreement (GFA). The GFA also defines Association performance criteria for borrowing from the
Bank, which includes borrowing base margin, earnings and capital covenants, among others.
Note 5 — Members’ Equity
Accumulated Other Comprehensive Income (AOCI)
Changes in Accumulated Other Comprehensive Income by Component (a)
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Balance at beginning of period $ (98) $ (428) $ (98) $ (435)
Equity re-characterized due to merge
r
–
(60)
–
(60)
Other comprehensive income before reclassifications
–
–
–
–
Amounts reclassified from AOCI
–
3
–
10
Net current period other comprehensive income
–
3
–
10
Balance at end of period $ (98) $ (485) $ (98) $ (485)
Reclassifications Out of Accumulated Other Comprehensive Income (b)
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022 Income Statement Line Item
Defined Benefit Pension Plans:
Periodic pension costs $
–
$ (3) $
–
$ (10) See Note 7.
Net amounts reclassified
$
–
$ (3) $
–
$ (10)
(a) Amounts in parentheses indicate debits to AOCI.
(b) Amounts in parentheses indicate debits to profit/loss.
Note 6 — Fair Value Measurement
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction
between market participants in the principal or most advantageous market for the asset or liability.
Accounting guidance establishes a hierarchy for disclosure of fair value measurements to maximize the use of observable inputs, that is,
inputs that reflect the assumptions market participants would use in pricing an asset or liability based on market data obtained from
sources independent of the reporting entity. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability
as of the measurement date. A financial instrument’s categorization within the hierarchy tiers is based upon the lowest level of input that
is significant to the fair value measurement.
Horizon Farm Credit, ACA ● 22
The classifications within the fair value hierarchy are as follows:
Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2 inputs include quoted prices for similar assets and liabilities in active markets; quoted prices in markets that are not active; and
inputs that are observable, or can be corroborated, for substantially the full term of the asset or liability.
Level 3 inputs are unobservable and supported by little or no market activity. Valuation is determined using pricing models, discounted
cash flow methodologies, or similar techniques, and could include significant management judgment or estimation. Level 3 assets and
liabilities also could include instruments whose price has been adjusted based on dealer quoted pricing that is different than the third-
party valuation or internal model pricing.
For a complete discussion of the inputs and other assumptions considered in assigning various assets and liabilities to the fair value
hierarchy levels, see the latest Annual Report to Shareholders.
There were no Level 3 assets or liabilities measured at fair value on a recurring basis for the periods presented. The Association had no
transfers of assets or liabilities into or out of Level 1 or Level 2 during the periods presented.
Fair values are estimated at each period end date for assets and liabilities measured at fair value on a recurring basis. The following tables
summarize assets measured at fair value at period end.
September 30, 2023
Fair Value Total
Measurement Using Fair
Level 1 Level 2 Level 3 Value
Recurring assets
Assets held in trust funds $ 3,250 $
–
$
–
$ 3,250
Nonrecurring assets
Impaired loans*
$
–
$
–
$ 11,654 $ 11,654
$
–
$
–
$ 1,028 $ 1,028
December 31, 2022
Fair Value Total
Measurement Using Fair
Level 1 Level 2 Level 3 Value
Recurring assets
Assets held in trust funds $ 3,197 $
–
$
–
$ 3,197
Nonrecurring assets
Impaired loans*
$
–
$
–
$ 10,051 $ 10,051
$
–
$
–
$ 1,217 $ 1,217
*Prior to the adoption of CECL on January 1, 2023, the fair value of impaired loans included accruing restructured loans and
loans past due 90 days and accruing.
Valuation Techniques
Assets held in trust funds
Assets held in trust funds, related to deferred compensation plans, are classified as Level 1. The trust funds include investments in
securities that are actively traded and have quoted net asset value prices that are directly observable in the marketplace.
Nonaccrual loans
Fair values of nonaccrual loans are estimated to be the carrying amount of the loan less specific reserves. Certain loans evaluated for
impairment under FASB guidance have fair values based upon the underlying collateral, as the loans were collateral-dependent.
Specific reserves were established for these loans when the value of the collateral, less estimated cost to sell, was less than the principal
balance of the loan. The fair value measurement process uses independent appraisals and other market-based information, but in many
cases it also requires significant input based on management's knowledge of and judgment about current market conditions, specific
issues relating to the collateral and other matters.
Horizon Farm Credit, ACA ● 23
For other property owned, the fair value is generally determined using formal appraisals of each individual property. These assets are
held for sale. Costs to sell represent transaction costs and are not included as a component of the fair value of other property owned. If
the process uses observable market-based information, the assets are classified as Level 2. If the process requires significant input based
upon management’s knowledge of and judgment about current market conditions, specific issues relating to the property and other
matters, the assets are classified as Level 3.
Note 7 — Employee Benefit Plans
The following is a table of retirement and other postretirement benefit expenses for the Association:
Three Months Ended Nine Months Ended
September 30, September 30,
2023 2022 2023 2022
Pension $ 932 $ 1,027 $ 2,655 $ 2,586
401(k) 831 636 2,471 1,473
Other postretirement benefits 293 287 870 622
Total $ 2,056 $ 1,950 $ 5,996 $ 4,681
Expenses in the above table are computed using allocated estimates of funding for multi-employer plans in which the Association
participates. These amounts may change when a total funding amount and allocation is determined by the respective Plan’s Sponsor
Committee. Also, market conditions could impact discount rates and return on plan assets which could change contributions necessary
before the next plan measurement date of December 31, 2023.
Further details regarding employee benefit plans are contained in the 2022 Annual Report to Shareholders.
Note 8 — Commitments and Contingent Liabilities
From time to time, legal actions are pending against the Association in which claims for money damages are asserted. On at least a
quarterly basis, the Association assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the
latest information available. While the outcome of legal proceedings is inherently uncertain, on the basis of information presently
available, management, after consultation with legal counsel, is of the opinion that the ultimate liability, if any, from these actions, would
not be material in relation to the financial position of the Association. Because it is remote that the Association will incur a loss or the
loss is not estimable, no liability has been recorded for any claims that may be pending.
Note 9 — Merger Activity
Effective July 1, 2022, AgChoice merged into MidAtlantic to form Horizon Farm Credit, ACA. The effects of the merger are included in
the Association’s results of operations, statement of condition, average balances, and related metrics beginning July 1, 2022.
The acquisition method of accounting requires the financial statement presentation of combined balances as of the date of merger, but not
for previous periods. The Consolidated Balance Sheet reflects the merged balances as of September 30, 2023 and December 31, 2022.
The Consolidated Statements of Income and Members’ Equity reflect the results of MidAtlantic prior to July 1, 2022, and the merged
Association after July 1, 2022. Information in the Notes to the Consolidated Financial Statements reflects balances of the merged
Association as of September 30, 2023 and December 31, 2022, and in the case of transactional activity, reflects MidAtlantic prior to
July 1, 2022 and the merged Association after July 1, 2022.
For further information, see Note 14, Merger Activity, in the Notes to the Consolidated Financial Statements of the 2022 Annual Report.
Note 10 — Subsequent Events
The Association evaluated subsequent events and determined that, except for as described below, there were none requiring disclosure
through November 8, 2023, which was the date the financial statements were issued.
On October 27, 2023 the AgFirst Board of Directors approved an increase to the Association Investment in AgFirst from 1.00 percent to
1.50 percent effective October 31, 2023. This resulted in an increase in the equity investment in AgFirst of $31.0 million to $102.5
million.
