Southern Outlook Conference Agricultural Outlook Atlanta, Georgia September 28, 2009

1. Southern Outlook ConferenceAgricultural OutlookAtlanta, Georgia September 28, 2009 Bill Melton Chief Lending Officer

2. Farm Credit System

3. Farm Credit System Credit Quality

4. AgFirst District

5. AgFirst District Credit Quality

6. Current Credit Conditions Deterioration Began Early in 2008

7. Challenges The Speed and Severity of the Economic Correction • Collapse of Financial & Credit Markets • The Run Up and Retreat in Commodity Prices During 2008 • Underwriting Standards that Did Not Incorporate the Depth of the Market Correction

8. Stages in Loan Deterioration

9. Challenges District is Inseparably tied to the General Economy • 33% of the AgFirst Associations’ borrowers are identified as highly dependenton non-farm income • A significant portion of the agricultural real estate is transitional • Large concentration in forest products • Decline in housing starts reverberating through industry • Large concentration in meat/protein sector

11. Industry Specific Concerns • Loans dependent on the general economy/housing • Transitional real estate to high wealth individuals • Forest products especially sawmills and planer mills • Landscape nurseries, sod farms, etc • Meat/protein sector • Hogs & dairy • Ethanol

12. 2009/10 Financial Outlook for Farm Credit • Capital levels may improve with slower growth - Strong capital levels will need to support the weaker credit quality • Credit quality expected to bottom out by year-end - But no positive credit quality bounce • AgFirst’s earnings enhanced by treasury profits - However, treasury profit will diminish over time • Weaker earnings at Associations due to credit quality issues & low interest rate on equity - Level of earnings will impact patronage distributions

13. 2009/10 Financial Outlook for Farm Credit • Much slower or even negative loan growth • Recession or effects of recession will continue to negatively impact the General Economy • Return to modest Profitability for some sectors of the Meat Complex • Tough times to continue for: • Pork and dairy • Ethanol production • Loans tied to the General Economy or Housing

14. 2009 Farm Prices Weakening

15. Farm Income Conditions Will be Diverse Again in 2010 Livestock and dairy losses may drive income back to 2006 levels! Recovery in 2010 will be limited with grains complex watching stock buildup and livestock/dairy completing liquidation process.

16. Challenges for 2009 & Beyond • Portfolio Management • Address Deterioration in Credit Quality • Maintain Adequate Capital & Liquidity • Price and Structure loans consistent with risk • Take advantage of opportunities to improve spreads • Operating Expense Management • Human Capital Management • Effectively Address Retirements/Changes in Leadership • Improve Diversity • Remaining Committed to the Cooperative Principles • Preserving the AgFirst Model

17. Next 12 Months Most Pressing Challenges • Managing and servicing weak or nonperforming assets • Equipping the staff to manage and service a deteriorating portfolio • Keeping ahead of the curve • Utilizing an effective strategy that maintain a viable institution in all environments • Keeping all constituents well informed

18. Market Approach in 2009/2010 • Focus on servicing “core agriculture” • Narrow strike zone • Take a pause on new lines of business • Focus on higher-quality loans • Limit new credit to upper-tiers of “acceptable” • Addressing concentration by obligor and commodity • Focus on higher spreads • Focus on actively managing the loan portfolio

19. Lessons Learned Confirmed • It is practically impossible to underwrite for a “bubble market” • Circumstances dictate a guarantor’s ability & willingness to perform • When dealing with multiple, limited guarantors, base the loan decision on the capacity of the weakest guarantor. • Sponsors are supportive as long as the project is performing • In widely participated/syndicated loans, a material portion of the risk is embedded in the composition of the lending group and the lead lender’s servicing expertise

20. Exposures to Stressed Sectors

21. Strategies Going Forward • Structure Deals More Conservatively • Higher liquidity / lower leverage requirements • No stand-alone project financing without confirmed “take out” • Collateralize guarantees up-front, if needed

22. Strategies Going Forward • Reduce Hold Positions • Obligor / Industry / Commodity • Understand Counterparty Relationships • “Position in Credit” • Percentage of the deal and who comprises the lender group • Performance of Servicer (experience / capacity)

23. Concerns • Overreaction by everyone in the chain • Potential for Credit Risk to impact Funding Cost • Political vulnerability of the Farm Credit System • Continuation of consolidation & globalization of Agriculture

24. Perspective

25. Perspective

26. Perspective • The nonaccrual volume is contained in a relatively small number of loans that are widely participated: • 54% of the District’s nonaccruals are to 10 loans • The lead lender is responsible for the bulk of the servicing

27. Perspective “Current period earnings are sufficient to fully fund all provisions for loans/investments and generate estimated net income of $272.4 million”

28. Ag SectorBalance Sheet Still Solid Deleveraging is not issue for much of agriculture!

29. Summary • Non-earnings assets could move to 3%-5% • Higher reserves for loan losses • More conservative credit underwriting and hold positions • Weaker Earnings • Flat to negative growth • Recovery not expected before 3rd quarter 2010 • Improvement directly tied to recovery of general economy • Beginning a major structural transformation in global markets for goods, services and capital

30. “Thank You” Eat more pork and drink more milk!