developed that FCS banks are commercial banks, then political pressure would build to subject them to
oversight by the bank regulators, specifically the OCC and the Federal Reserve. The FCA has indicated
that it will respond to my request for a comment on Global Finance's mischaracterization of the FCS
banks as commercial banks. I will share that response with FCW readers after I receive it. Finally, I
emailed CoBank to request that it inform the magazine that CoBank is not a commercial bank and to
cease publicizing, even indirectly, that it, and the other three FCS banks, are among the world's safest
commercial banks. So far, CoBank has not responded to this request.
What is happening at Lone Star Ag Credit?
As I reported in the FCW two months ago, on August 9 Lone Star Ag Credit, the FCS association
headquartered in Fort Worth, Texas, issued a Notification of Non-Reliance on Previously Issued Financial
Statements Applicable to the financial statements Lone Star issued for 2016 and the first quarter of 2017.
In a parallel move, the Farm Credit Administration dropped from its website Lone Star's quarterly call
reports for 2016 and the first quarter of 2017. Apart from the Notification of Non-Reliance, Lone Star has
posted absolutely nothing on its website about the "appraisal and accounting irregularities affecting a
segment of the Association's lending portfolio" that triggered the withdrawal of its financial statements
and call reports nor has it posted any other information about this accounting fiasco. While visitors to the
site will learn about the 2017 Lone Star Ag Credit Dove Hunt Invitational and the Annual Appreciation
Event for Corsicana Stockholders, there is no listing of the association's current management or of recent
management changes, if any, as well as corrective actions being taken to fix Lone Star's accounting
problems. As cooperatives, FCS associations should be fully transparent to its member/borrowers -- that
definitely is not the case today at Lone Star.
Will FCS of America and Frontier Farm Credit ever merge?
In the October 2014 FCW, I wrote about a "strategic alliance" that Frontier Farm Credit, which serves the
eastern third of Kansas, entered into with Farm Credit Services of America (FCSA), the largest FCS
association, which serves Nebraska, Wyoming, South Dakota, and Iowa. At June 30, 2017, FCSA has
assets of $26.9 billion while Frontier had assets of $2.0 billion. To the best of my knowledge, there are no
other strategic alliances in the FCS universe. According to a letter FCSA sent to its member/borrowers
when the "strategic alliance" was formed, the two associations "will be jointly managed under of a single
team of [FCSA] leaders."
The question then was why didn't Frontier simply merge with FCSA; that question still resonates today as
the FCSA management team runs Frontier even though Frontier has its own board of directors.
Presumably the FCSA managers in Kansas take their marching orders from Frontier's directors even if
those directors have adopted policies that differ from policies adopted by FCSA's directors. Although
there is a coordinating committee comprised of directors from both associations, it is puzzling as to how
one management team can be responsible to two independent boards of directors, especially given the
degree of operational integration of the two associations. The arbitrary manner in which income and
expenses are divided between the two associations, as summarized in their respective annual reports,
reinforces the key question: Why haven't Frontier and FCSA merged? Reasons not to merge are not at all
evident, which raises this question: What is the real reason they have not merged? As is the case in the
Lone Star Ag Credit situation, the lack of transparency here is very troubling, and should be especially so
for Frontier's member/borrowers since Frontier is very much the junior partner in this alliance. Worse for
Frontier's member/borrowers, they are stuck in the alliance because Frontier no longer has its own
management team.

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