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In June, FCS Financial notified members about a change in our Funds Held program which reduced the interest rate paid on these funds beginning July 1, 2016. Since that notification, we have received several questions and concerns about this change. FCS Financial recognizes the benefit member-owners derive out of having a Funds Held program; however, there are risks and costs associated with providing the flexibility that allows payments placed into this account to be held for future payments or loan related disbursements.

In the past, FCS Financial did not bear the full cost of this program because most costs were absorbed by our funding bank, AgriBank. AgriBank recently made a decision to stop subsidizing the cost of this program and instead pass the direct costs to those associations using Funds Held. We have estimated the increased cost for FCS Financial at over $1 million annually at the current level of usage. If we did not make changes, this increased cost would be covered by all cooperative members and only benefit those using the program.

The Funds Held program is a value added program that approximately 25 percent of the FCS Financial member-owners utilize. The Board and Management faced a tough decision ranging from: 1) eliminate the Funds Held program, 2) continue to pay an interest rate equal to the interest rate charged on the loan and pass the increased cost on to all member-owners through reduced patronage, 3) further restrict the amount that member-owners could put into Funds Held, or 4) pay a lower rate of return to members using Funds Held thus passing on the increased costs only to those members who use the program. We assessed the impact the increased costs would have on all of our member-owners and concluded the most responsible decision for all of our member-owners would be to maintain the program, but lower the rate paid on the balance in Funds Held to offset the increased cost. We believe it is important to still offer Funds Held to all of our member-owners. While the new rate is below the rate paid in the past, it remains above most current short-term interest rates available.

The responsibility of this decision was not taken lightly, but we feel it is consistent with the Farm Credit System’s mission, “to provide a reliable source of credit for American agriculture by making loans to qualified borrowers at competitive rates and providing insurance and related services.” We considered this decision to be the most equitable for all of our member-owners and one that supports our ability in offering competitive interest rates and a patronage program that will benefit all of our member-owners.

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