Increase (decrease) in For the six months ended June 30, net income

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2 Copies of quarterly and annual reports are available upon request by contacting AgriBank, FCB, 30 E. 7th Street, Suite 1600, St. Paul, MN or by calling (651) Reports are also available at MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion is a review of the combined financial position and results of operations of AgriBank, FCB and Affiliated Associations which are part of the Farm Credit System (the System). This information should be read in conjunction with the accompanying combined financial statements, the notes to the combined financial statements and the 2011 annual report. We serve customers in states across America s heartland. AgriBank, FCB (AgriBank) provides funding to and is owned by its affiliated Associations, certain related entities and other financial institutions (OFIs). AgriBank and its affiliated Associations are collectively referred to as the District. The Associations are chartered to serve customers in substantially all of Arkansas, Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee, Wisconsin and Wyoming. The Associations provide credit and financial services to farmers, ranchers, rural residents and agribusinesses. RESULTS OF OPERATIONS District net income for the six months ended June 30, 2012 totaled $881.5 million compared to $710.3 million for the same period in The return on average assets increased to 2.10% for the six months ended June 30, 2012 from 1.77% for the comparable period in The following table illustrates changes in significant components of net income: (in millions) Increase (decrease) in For the six months ended June 30, net income Net interest income $1,111.7 $1,069.8 $41.9 Reversal of (provision for) credit losses 18.7 (38.2) 56.9 Non-interest income Salaries and employee benefits (255.6) (260.4) 4.8 Other operating expenses (133.9) (124.0) (9.9) Farm Credit System insurance expense (15.6) (18.3) 2.7 Net impairment losses recognized in earnings (7.3) (6.2) (1.1) Provision for income taxes (35.4) (25.4) (10.0) Net income $881.5 $710.3 $171.2 Net interest income for the six months ended June 30, 2012 increased $41.9 million or 3.9% compared to the same period in The increase in net interest income was due to the positive effects of changes in volume of $71.7 million, partially offset by negative effects of changes in rates of $28.5 million and changes in nonaccrual income of $1.3 million. Average earning assets increased to $82.0 billion for the six months ended June 30, 2012 compared to $78.4 billion for the same period in

3 Information regarding the year-to-date average daily balances (ADBs) and annualized average rates earned and paid on our portfolio follows: (in millions) For the six months ended June 30, ADB Rate NII ADB Rate NII Interest earning assets: Accrual loans $67, % $1,505.0 $64, % $1,517.4 Nonaccrual loans % % 21.4 Investment securities and federal funds 13, % , % 75.4 Other earning assets % % 5.5 Total 81, % 1, , % 1,619.7 Interest bearing liabilities 69, % , % Interest rate spread $12, % $11, % Impact of equity financing 0.22% 0.25% Net interest margin 2.72% 2.73% Net interest income $1,111.7 $1,069.8 Net interest margin has decreased by 1 basis point over the same period last year due to a 2 basis point increase in interest rate spread offset by a 3 basis point decline in the impact of equity financing. Equity financing represents the benefit of non-interest bearing funding, which was lower because of falling interest rates. Our average interest rate spread improved slightly from 2.48% in the first half of 2011 to 2.50% for the first half of This increase in interest rate spread was primarily due to increased spreads on converted fixed rate loans. Changes in loans are further discussed in the Loan Portfolio section of this report. The District recorded a reversal of provision for credit losses for the first half of 2012 of $18.7 million compared to a provision for credit losses of $38.2 million during the same period in The amounts reflect the change in the estimated losses in the loan portfolio during the periods. The reversals reflect the strong collateralization of the portfolios and continued improvement in credit quality. Included in the reversal of credit losses is a reversal of $1.0 million and provision expense of $2.6 million for a reserve for unfunded commitments and unfunded letters of credit, respectively. The reserve for unfunded commitments and letters of credit are recorded as a liability on the Combined Statements of Condition. The increase in non-interest income resulted from the following: A non-recurring $79.1 million distribution of our share of the Allocated Insurance Reserve Accounts (AIRA) we received during These reserve accounts were established in previous years by the Farm Credit System Insurance Corporation. The funds were returned when the level of the insurance fund increased beyond the required 2% of insured debt. There was no distribution during A $19.4 million increase in mineral income, earned from mineral rights, as lease bonus and royalty income continues to remain strong. These increases were partially offset by: A $6.3 million decrease in financially related services fees primarily due to a decrease in crop insurance fees. The volume of crop insurance coverage has actually increased throughout the District but due to changes in the crop insurance program, commission rates have dropped and resulted in lower fee income. A $9.7 million decrease in miscellaneous income and other gains, net, primarily due to losses related to receive-fixed swaps that were de-designated as hedging instruments when they became ineffective as they approach their October 2012 maturity. Refer to Note 7 for further discussion. The decrease in salaries and benefits resulted from the following: A $13.2 million decrease in salary expense due to a greater amount of expense deferred due, in part, to increases in loan originations and the corresponding increased allocations of costs related to loan originations, partially offset by annual merit increases as well as an increase in head count of 296 full-time equivalents (5.7%) from June 30, 2011 to June 30, An $8.4 million increase in benefits expense primarily driven by an increase in pension expense of $4.3 million reflecting the impact of the decline in the discount rate and the continued amortization of losses on plan assets in 2008, an increase in defined contribution plan expense of $1.1 million reflecting the increase in staffing (all new employees are in the defined contribution plan) and a $1.1 million increase in the medical and dental insurance expenses due to the rising cost of medical care. 2

4 Other operating expenses increased $10.0 million. The increase was spread among various categories of operating expenses including travel, advertising, public and member relations, purchased services and other miscellaneous expenses. Farm Credit System insurance expense decreased by $2.7 million reflecting the Farm Credit System Insurance Corporation premium rate of 5 basis points for the first half of 2012 compared to 6 basis points in the same period in AgriBank evaluates all investments in an unrealized loss position quarterly and determined that certain securities were in an other-thantemporary loss positions at June 30, As a result of its evaluations, AgriBank recognized $7.3 million in impairment losses during the first half of 2012 compared to $6.2 million for the same period in See additional discussion in the Investment Portfolio section of this report. The increase in the provision for income taxes for the first half of 2012 was related to increased income in the taxable entities, primarily due to reversals of credit losses in those entities as wells as decreased patronage deductions. LOAN PORTFOLIO The following table presents the components of loans: (in millions) June 30, December 31, Accrual loans: Real estate mortgage $39,797.2 $37,783.6 Production and intermediate term 18, ,198.7 Agribusiness 6, ,597.1 Rural residential real estate 2, ,257.1 Finance leases Other 2, ,109.8 Nonaccrual loans Total loans $70,802.4 $68,349.6 District loans totaled $70.8 billion at June 30, 2012, a $2.5 million or 3.6% increase from December 31, The increase in total loans from December 31, 2011 was primarily driven by strong business activity in real estate mortgage and long term lending as well as continued activity in large multiple lender credits offset by normal paydown activity. Typical seasonal increases on operating lines have been offset by paydowns as many borrowers sold crops and paid down operating lines in January following December increases in operating lines as inputs were purchased as part of tax planning strategies. Production and intermediate term loans have increased $1.5 billion from March 31, The components of risk assets follow (total loans include accrued interest receivable): (in millions) June 30, December 31, Nonaccrual loans $806.3 $884.9 Accruing restructured loans Accruing loans 90 days or more past due Total risk loans Other property owned Total risk assets $957.3 $1,033.6 Risk loans as a % of total loans 1.18% 1.33% Delinquencies as a % of total loans 0.71% 0.74% Our risk assets have decreased from December 31, 2011, remaining at acceptable levels. Based on management s analysis, all accruing loans 90 days or more past due were adequately secured and in the process of collection and, as such, were eligible to remain in accruing status. Nonaccrual loans represented 1.1% of total loans at June 30, 2012 compared to 1.3% at December 31, At June 30, 2012, 62.2% of nonaccrual loans were current as to principal and interest compared to 63.5% at December 31,

5 Comparative allowance coverage of various loan categories follows: June 30, December 31, Allowance as a % of: Loans 0.37% 0.44% Nonaccrual loans 32.23% 33.96% Total risk loans 30.69% 32.65% Net charge-offs as a % of average loans 0.03% 0.18% Adverse loans as a % of risk funds 14.33% 16.89% The District s allowance for loan losses is an estimate of losses on loans in the AgriBank and Association portfolios as of the financial statement date. AgriBank and Associations management determine the appropriate allowance levels based on a periodic evaluation of factors such as loan loss history, probability of default, estimated loss severity, portfolio quality and current economic and environmental conditions. During the first half of 2012, we decreased our allowance for loan losses by $40.6 million. The decline in the allowance was primarily driven by net charge-offs of $20.3 million and reversal of provision expense of $20.3 million (not including a $1.0 million reversal for unfunded commitments and a $2.6 million provision for unfunded letters of credit). The amounts reflect the change in the estimated losses in the loan portfolio during the periods. The reversals reflect the strong collateralization of the portfolios and continued improvement in credit quality. AgriBank and Associations management consider the allowance for loan losses at June 30, 2012 to be reasonable in relation to the risk in the loan portfolios. INVESTMENT PORTFOLIO At June 30, 2012, investment securities and federal funds held for liquidity purposes by AgriBank totaled $11.0 billion, an increase of $1.0 billion from December 31, AgriBank evaluates all investments in an unrealized loss position quarterly. As a result of these evaluations, AgriBank recognized $7.3 million in impairment losses during the first half of 2012 representing $1.0 million on a newly impaired security and $6.3 million on previously impaired securities. No other securities were in an other-than-temporary loss position. AgriBank continues to closely monitor its home equity asset-backed securities (ABS) and non-agency mortgage-backed securities (MBS), which are detailed in the table below: (in millions) As of June 30, 2012 As of December 31, 2011 Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value First liens $145.3 $ -- $51.9 $93.4 $163.9 $ -- $51.7 $112.2 Second liens Wrapped ABS Total home equity asset-backed securities $169.2 $4.3 $57.0 $116.5 $190.4 $3.7 $58.0 $136.1 Alt-A non-agency MBS - floating $14.6 $0.9 $3.1 $12.4 $16.9 $0.8 $4.2 $13.5 Alt-A non-agency MBS - fixed Alt-A non-agency MBS - ARM Jumbo non-agency MBS - floating Jumbo non-agency MBS - fixed Jumbo non-agency MBS - ARM Total non-agency mortgage-backed securities $271.2 $1.9 $32.1 $241.0 $300.9 $0.8 $47.9 $253.8 Total of above segments $440.4 $6.2 $89.1 $357.5 $491.3 $4.5 $105.9 $389.9 At June 30, 2012, AgriBank had securities that, because the ratings were downgraded below AAA, were no longer eligible under Farm Credit Administration (FCA) regulations. The fair value of all ineligible investments totaled $277.4 million including $163.7 million on which AgriBank has taken impairment charges. In addition, we held $88.4 million of ineligible commercial paper securities that matured in July Of the securities ineligible under the FCA regulations, securities totaling $275.8 million have been approved by the FCA to hold beyond six months and are included in our net collateral ratio. One security with a fair value of $1.6 million was submitted to the FCA for approval in July In addition, AgriBank held split-rated non-agency mortgage-backed securities and home equity asset-backed securities with a fair value of $71.3 million that were downgraded below AAA by at least one rating agency. There are no split-rated securities on which 4

6 AgriBank has taken impairment. AgriBank did not hold any non-agency mortgage-backed securities or home equity asset-backed securities on credit watch negative. Mission-related and other investments held by Associations consisted of $2.1 billion of government guaranteed instruments, $316.0 million of securities issued by the Federal Agricultural Mortgage Corporation (Farmer Mac), $0.9 million of investment securities of Agricultural Rural Community (ARC) bonds and a $2.6 million venture capital equity investment. The mission-related and other investments portfolio is evaluated for other-than-temporary impairment. As a result of these evaluations, one Association recognized $14 thousand of impairment losses during the six months ended June 30, 2012 on previously impaired securities. No securities were other-than-temporarily impaired during the same period in AGRICULTURAL CONDITIONS The United States Department of Agriculture (USDA) projection for 2012 net farm income of $91.7 billion, is down $6.3 billion from the 2011 forecast and up from 2010 levels, but does not include the impact of drought or increases in crop-related expenses. A further adjustment to this projection is likely once the full impact of the drought, crop insurance indemnification and the rise in feed costs are quantified. Drought Impact Extensive drought conditions in the U.S., particularly in the Midwest, have reduced projected crop yields, resulting in increased crop prices. Multi-peril crop insurance (MPCI) policies will generally mitigate the impact of the drought on most crop producers. These policies range in coverage levels from catastrophic and yield protection (at the lower end) to revenue protection (at the higher end). The MPCI policies are sold and serviced through private insurance companies designated by the USDA to provide insurance coverage. These companies share the risk of loss by reinsuring with large reinsurance companies. In addition, the USDA and its Federal Crop Insurance Corporation reinsures a portion of the risk along with the other private reinsurance companies. The USDA reported in 2011 that 88% of corn producers and 85% of soybean producers held multi-peril crop insurance. It is believed that these percentages would be indicative of the 2012 levels of insurance. The majority of these policies provide for revenue protection. In addition, many crop producers strengthened their financial positions over the past several years and are currently expected to withstand the financial impact of the drought. However, increased prices for corn and soybeans and other grains may place pressure on livestock, poultry, ethanol and dairy producers who rely on these inputs. Many of these producers have attempted to mitigate this risk by locking in prices for these inputs for the remainder of Land Values Monitoring of agricultural land values is extensive within the District. The AgriBank District conducts an annual Benchmark Survey, conducted by licensed real estate appraisers, of a sample of benchmark farms selected to represent the lending footprint of associations throughout the District. AgriBank is completing our annual land value study and expect to have the high level results mid-september Qualitative surveys of lending officers compiled by the Federal Reserve Banks of Chicago, Kansas City, and Minneapolis as of the end of the first quarter 2012 indicated sharply increasing farmland values. The Banks cited survey findings of a year-over-year increase in the value of non-irrigated farmland of 19-26%. Declining land values following sustained periods of land value increases have historically created conditions of considerable risk for collateral-based lenders. Nominal and real (inflation-adjusted) agricultural land values have increased in proportions greater than other asset classes such as stocks and urban residential and commercial land during the last decade, but District agricultural land values have, for the most part, escaped the valuation declines that other assets suffered during the recession. This is largely because the agricultural sector, particularly crop farming, remained profitable throughout the economic crisis period, and major agricultural lenders such as the Farm Credit System retained the capacity to continue lending for land purchases, unlike lenders to other industrial or consumer sectors. Our credit risk policies emphasize loan repayment capacity in addition to conservative assessments of collateral values that secure loans. Although FCA regulations allow real estate mortgage loans of up to 85% of appraised value, our underwriting standards generally limit lending to no more than 65% at origination. Due to very strong land values in much of our territory, many Associations have implemented risk management practices that incorporate loan-to-appraised-value thresholds below 65%. Furthermore, many District lenders impose a lending limit of fixed dollar amounts per acre based on the land s production capacity. While underwriting exceptions on loan-to-appraised-value are sometimes granted, in such cases they are often structured with additional principal payments in the early years to reduce the risk of lending at higher levels of appraised value. 5

7 FUNDING, LIQUIDITY AND MEMBERS EQUITY The System continues to have reliable access to the debt capital markets to support its mission of providing credit to farmers, ranchers and other eligible borrowers. During the first half of 2012, investor demand for Systemwide Debt Securities has remained favorable. Given the low interest rate environment, AgriBank continued to refinance callable bonds when advantageous in order to lower their cost of funds. AgriBank is responsible for meeting the District's funding, liquidity and asset/liability management needs. Access to funding remains the primary source of liquidity. AgriBank also maintains liquidity through its investment portfolio. AgriBank s liquidity policy and FCA regulations require maintaining a minimum of 90 days of liquidity on a continuous basis, assuming no access to the debt capital markets. The days of liquidity refers to the number of days of maturing debt covered by liquid investments. AgriBank currently operates with a liquidity target of 125 days. As of June 30, 2012, AgriBank had sufficient liquidity to fund all debt maturing within 135 days. AgriBank also has a contingency plan in the event that there is not ready access to traditional funding sources. This plan establishes other avenues for funding such as borrowing overnight via federal funds, using investment securities as collateral to borrow, allowing the investment portfolio to mature and selling investments. The composition of the liquidity investment portfolio is structured to provide at least 15 days of liquidity coverage in a combination of U.S. Treasury securities maturing within 3 years, debt to be settled and cash held in Federal Reserve Banks. As of June 30, 2012, AgriBank held U.S. Treasury securities with a book value of $3.0 billion. At June 30, 2012 AgriBank held qualifying assets in excess of that required to meet the 15 days of liquidity coverage. Total members equity at June 30, 2012 was $13.7 billion, an $858.4 million increase from December 31, Members equity was positively impacted by net income for the period, changes in other comprehensive income and increased capital stock and participation certificates. These increases were partially offset by earnings reserved for patronage distributions. The noncontrolling interest represents the equity investment of Associations and Farm Credit System entities outside the AgriBank District participating in the AgDirect program and receiving payroll and benefit services from Farm Credit Foundations (FCF). The AgDirect program was initiated in April 2011 and FCF formed a service corporation effective January 1, The noncontrolling interest for the AgDirect program and FCF at June 30, 2012 was $12.7 million and $0.4 million, respectively. Refer to Notes 1 and 2 in 2011 Annual Report for a more complete description. At June 30, 2012, AgriBank and each Association exceeded the regulatory minimum capital ratios, which are further discussed in Note 4 to the financial statements. CERTIFICATION The undersigned have reviewed the June 30, 2012 quarterly report of AgriBank, FCB and Affiliated Associations which has been prepared under the oversight of the AgriBank audit committee and in accordance with all applicable statutory or regulatory requirements and that the information contained herein is true, accurate and complete to the best of our knowledge and belief. Richard Davidson Chairman of the Board AgriBank, FCB August 9, 2012 L. William York Chief Executive Officer AgriBank, FCB August 9, 2012 Brian J. O Keane Executive Vice President, Banking and Finance and Chief Financial Officer AgriBank, FCB August 9,

8 COMBINED STATEMENTS OF CONDITION AgriBank, FCB and Affiliated Associations (Dollars in thousands) (unaudited) June 30, December 31, Assets Loans $70,802,356 $68,349,565 Allowance for loan losses 259, ,508 Net loans 70,542,497 68,049,057 Investment securities - AgriBank, FCB 10,365,745 9,688,571 Investment securities - Affiliated Associations 2,395,769 2,262,747 Other earning assets 140, ,945 Cash 298, ,862 Federal funds 649, ,976 Accrued interest receivable 777, ,969 Premises and equipment, net 338, ,019 Deferred tax assets, net 8,272 7,806 Assets held for lease, net 464, ,467 Derivative assets 100, ,444 Other property owned 110, ,260 Debt issuance costs 51,022 53,700 Other assets 186, ,852 Total assets $86,428,211 $83,136,675 Liabilities Bonds and notes $70,991,881 $68,262,968 Subordinated notes 600, ,000 Accrued interest payable 222, ,457 Derivative liabilities 22,696 17,466 Deferred tax liabilities, net 123, ,798 Accounts payable 95, ,386 Patronage payable 33, ,760 Postretirement liability 420, ,395 Collateral pledged by counterparties 47, ,120 Other liabilities 177, ,425 Total liabilities 72,735,943 70,302,775 Commitments and contingencies Members' equity Protected borrower equities 1,629 2,056 Capital stock and participation certificates 256, ,382 Allocated surplus 295, ,516 Unallocated surplus 13,700,271 12,875,783 Accumulated other comprehensive loss (574,543) (594,096) Noncontrolling interest 13,142 6,259 Total members' equity 13,692,268 12,833,900 Total liabilities and members' equity $86,428,211 $83,136,675 The accompanying notes are an integral part of these combined financial statements. 7

9 COMBINED STATEMENTS OF COMPREHENSIVE INCOME AgriBank, FCB and Affiliated Associations (Dollars in thousands) (Unaudited) Three months Six months For the period ended June 30, Interest income Loans $764,042 $770,891 $1,525,016 $1,538,758 Investment securities and other earning assets 37,064 40,357 75,048 80,905 Total interest income 801, ,248 1,600,064 1,619,663 Interest expense 236, , , ,899 Net interest income 565, ,918 1,111,711 1,069,764 (Reversal of) provision for credit losses (2,132) 13,136 (18,693) 38,158 Net interest income after (reversal of) provision for credit losses 567, ,782 1,130,404 1,031,606 Non-interest income Financially related services 23,045 29,267 44,343 50,601 Loan prepayment and fee income 9,667 9,397 22,364 18,901 Allocated insurance reserve account distribution 79, , Mineral income 27,956 10,656 40,507 21,074 Miscellaneous income and other gains, net 3,696 6,409 12,686 22,377 Total non-interest income 143,429 55, , ,953 Non-interest expense Salaries and employee benefits 127, , , ,448 Other operating expenses 68,663 63, , ,952 Farm Credit System insurance expense 7,870 9,181 15,551 18,304 Impairment losses recognized in earnings: Total other-than-temporary impairment losses 1,968 6,933 17,362 9,358 Portion of loss recognized in other comprehensive income (176) (2,965) (10,075) (3,149) Net impairment losses recognized in earnings 1,792 3,968 7,287 6,209 Total non-interest expense 205, , , ,913 Income before income taxes 504, , , ,646 Provision for income taxes 21,298 14,151 35,439 25,359 Net income $483,466 $366,145 $881,548 $710,287 Other comprehensive income Unrealized gains (losses) on investment securities not-other-than-temporarily impaired 1,066 17,264 (432) 12,872 Reclassification adjustment for (gains) losses included in net income (20) 1, ,857 Not-other-than temporary-impaired investments 1,046 19, ,729 Unrealized gains (losses) on investment securities with other-than-temporarily impairment 3,566 (5,095) 9,185 4,172 Reclassification adjustment for losses included in net income 1,812 2,044 6,310 4,262 Other-than-temporary-impaired investments 5,378 (3,051) 15,495 8,434 Unrealized losses on derivatives (35,560) (19,226) (11,150) (5,259) Reclassification adjustment for gains included in net income (49) (386) -- (920) Derivatives (35,609) (19,612) (11,150) (6,179) Employee benefits 7,331 (4,925) 14,663 12,530 Total other comprehensive (loss) income (21,854) (8,490) 19,553 29,514 Comprehensive income $461,612 $357,655 $901,101 $739,801 The accompanying notes are an integral part of these combined financial statements. 8

10 COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY AgriBank, FCB and Affiliated Associations (Dollars in thousands) (Unaudited) Accumulated Other Comprehensive Income (Loss) Capital Not-other-than- Other-than- Protected Stock and temporarily- temporarily- Total Borrower Participation Allocated Unallocated impaired impaired Employee Noncontrolling Members' Equities Certificates Surplus Surplus Investments Investments Derivatives Benefits Interest Equity Balance at December 31, 2010 $2,716 $247,194 $265,010 $11,576,553 $(25,461) $(48,703) $(12,228) $(347,137) $ -- $11,657,944 Net income 710, ,287 Other comprehensive income 14,729 8,434 (6,179) 12,530 29,514 Patronage (28,904) (28,904) Surplus allocated under nonqualified patronage program 20,464 (20,464) -- Redemption of allocated surplus under nonqualified patronage program (13,476) (13,476) Capital stock/participation certificates issued 13,594 13,594 Capital stock/participation certificates retired (364) (10,852) (11,216) Balance at June 30, 2011 $2,352 $249,936 $271,998 $12,237,472 $(10,732) $(40,269) $(18,407) $(334,607) $ -- $12,357,743 Balance at December 31, 2011 $2,056 $253,382 $290,516 $12,875,783 $(9,389) $(34,982) $(103,653) $(446,072) $6,259 $12,833,900 Noncontrolling interest equity investment 6,883 6,883 Net income 881, ,548 Other comprehensive income ,495 (11,150) 14,663 19,553 Patronage (33,365) (33,365) Surplus allocated under nonqualified patronage program 23,695 (23,695) -- Redemption of allocated surplus under nonqualified patronage program (18,976) (18,976) Capital stock/participation certificates issued 14,506 14,506 Capital stock/participation certificates retired (427) (11,354) (11,781) Balance at June 30, 2012 $1,629 $256,534 $295,235 $13,700,271 $(8,844) $(19,487) $(114,803) $(431,409) $13,142 $13,692,268 The accompanying notes are an integral part of these combined financial statements. 9

11 COMBINED STATEMENTS OF CASH FLOWS AgriBank, FCB and Affiliated Associations (Dollars in thousands) (Unaudited) For the six months ended June 30, Cash flows from operating activities Net income $881,548 $710,287 Adjustments to reconcile net income to cash flows from operating activities: Depreciation on premises and equipment 17,214 16,458 Gain on sales of premises and equipment (1,917) (1,108) Depreciation on assets held for lease 38,796 33,179 Gain on disposal of assets held for lease (72) (286) (Reversal of) provision for credit losses (18,693) 38,158 Loss on other property owned 4, Loss on derivative activities 1,144 2,915 Impairment of investment securities 7,287 6,209 Gain on sale of investment securities -- (90) Amortization of premiums and discounts on loans and investments 21,383 20,435 Insurance refund related to FAC stock (5,546) -- Changes in operating assets and liabilities: Accrued interest receivable 41,942 39,251 Other assets (52,186) 8,914 Accrued interest payable (19,291) (24,108) Other liabilities (46,793) 6,135 Total adjustments (12,331) 146,668 Net cash provided by operating activities 869, ,955 Cash flows from investing activities Increase in loans, net (2,488,880) (334,375) Proceeds from sales of other property owned 13,396 17,563 Decrease in other earning assets, net 70,421 66,687 Increase in investment securities, net (822,032) (915,734) Proceeds from the sale of investment securities ,734 Purchases of assets held for lease, net (61,716) (28,605) Purchases of premises and equipment, net (22,811) (23,400) Proceeds from insurance refund related to FAC stock 5, Net cash used in investing activities (3,306,076) (1,067,130) Cash flows from financing activities Consolidated bonds and notes issued 132,008, ,884,581 Consolidated bonds and notes retired (129,246,058) (134,722,265) Decrease in collateral pledged by counterparties, net (55,630) (24,200) Patronage distribution paid (199,119) (176,460) Redemption of surplus allocated under patronage program (18,976) (13,476) Capital stock/participation certificates issued, net 2,256 1,701 Increase in noncontrolling interest 6, Net cash provided by (used in) financing activities 2,497,655 (50,119) Net increase (decrease) in cash and federal funds 60,796 (260,294) Cash and federal funds at beginning of year 886, ,708 Cash and federal funds at end of year $947,634 $532,414 Supplemental schedule of non-cash activities Decrease in derivative assets $40,392 $28,275 Increase in derivative liabilities 5,230 1,089 Decrease in bonds from derivative activity (33,328) (20,270) Decrease in members' equity from cash flow derivatives (11,150) (6,179) Increase in members' equity from investment securities 16,040 23,163 Increase in members' equity from employee benefits 14,663 12,531 Loans transferred to other property owned 18,801 27,599 Patronage distributions payable to members 33,537 27,725 Financed sales of other property owned (3,837) -- Stock patronage issued Supplemental Information Interest paid $507,644 $574,007 Taxes paid 16,657 25,931 The accompanying notes are an integral part of these combined financial statements. 10

12 NOTES TO COMBINED FINANCIAL STATEMENTS AgriBank, FCB and Affiliated Associations NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES AgriBank, FCB and Affiliated Associations comprise one of the Districts of the Farm Credit System, a nationwide system of cooperatively owned banks and associations, established by Congress and subject to the provisions of the Farm Credit Act of 1971, as amended. At June 30, 2012, the District had 17 Agricultural Credit Association parent associations, each of which has wholly owned Federal Land Credit Association and Production Credit Association subsidiaries and AgriBank, FCB. AgriBank, FCB (AgriBank) serves as the intermediary between the financial markets and the retail lending activities of the District Associations. A description of the organization and operation of the District, significant accounting policies followed, combined financial condition, and results of operations as of and for the year ended December 31, 2011 are contained in the 2011 annual report. These unaudited second quarter 2012 combined financial statements should be read in conjunction with the annual report. The results of the six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the year ended December 31, The accompanying combined financial statements include the accounts of AgriBank combined with its 17 affiliated Associations and certain related entities. All significant transactions and balances between AgriBank and the Associations have been eliminated in combination. The accompanying financial statements contain all adjustments necessary for a fair presentation of the interim financial condition and results of operations and conform to accounting principles generally accepted in the United States of America and prevailing practices within the financial services industry. Recent Accounting Developments In December 2011, the Financial Accounting Standards Board (FASB) issued guidance entitled, Balance Sheet Disclosures about Offsetting Assets and Liabilities. The guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This includes the effect or potential effect of rights of setoff associated with an entity s recognized assets and recognized liabilities. The requirements apply to recognized financial instruments and derivative instruments that are offset in accordance with the rights of offset set forth in accounting guidance and for those recognized financial instruments and derivative instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset or not. This guidance is to be applied retrospectively for all comparative periods and is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this guidance will not impact financial condition or results of operations, but will result in additional disclosures. In June 2011, the FASB issued guidance entitled Presentation of Comprehensive Income. This standard eliminated the current option to report other comprehensive income and its components in the statement of changes in equity. An entity can elect to present items of net income and other comprehensive income in one continuous statement referred to as the Statement of Comprehensive Income or in two separate, but consecutive, statements. Each component of net income and each component of other comprehensive income, together with totals for comprehensive income and its two parts net income and other comprehensive income, would need to be displayed under either alternative. The statement(s) would need to be presented with equal prominence as the other primary financial statements. The guidance is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This guidance is effective as of the beginning of a fiscal year that begins after December 15, The adoption of this guidance did not have an impact on our financial condition or results of operations, but did result in changes to our financial statement presentation. In May 2011, the FASB issued guidance entitled, Fair Value Measurement Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS. The amendments clarify certain aspects of the fair value measurement and increases disclosure requirements. The amendments are applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, The adoption of this guidance did not have an impact on our financial condition or results of operations, but resulted in additional disclosures. In April 2011, the FASB issued guidance entitled A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This guidance provided additional guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring. The new guidance requires creditors to evaluate modifications and restructurings of receivables using a more principles-based approach, which may result in more modifications and restructurings being considered 11

13 troubled debt restructurings. The guidance is effective for annual periods ending on or after December 15, 2012, including interim periods within those annual periods. The adoption of this guidance did not have a significant impact on our financial statements. NOTE 2 LOANS Loans consisted of the following: June 30, 2012 December 31, 2011 Amount % Amount % Real estate mortgage $40,272, % $38,276, % Production and intermediate term 19,103, % 19,448, % Agribusiness 6,056, % 5,668, % Rural residential real estate 2,388, % 2,316, % Finance leases 508, % 521, % Other 2,472, % 2,118, % Total loans $70,802, % $68,349, % The other category is primarily comprised of communication and energy related loans as well as loans to AgriBank s Other Financial Institutions and loans originated under our Mission Related Investment authority. Participations We 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 or General Financing Agreement limitations. The following table presents information regarding participations purchased and/or sold: Other Farm Credit Institutions Non-Farm Credit Institutions Total Participations Participations Participations Participations Participations Participations As of June 30, 2012 Purchased Sold Purchased Sold Purchased Sold Real estate mortgage $763,657 $128,054 $1,903,973 $40,377 $2,667,630 $168,431 Production and intermediate term 520, ,938 2,884,110 39,654 3,404, ,592 Agribusiness 2,438, , , ,791 3,258, ,162 Rural residential real estate , , Finance leases 74,234 11, , ,520 11,241 Other 1,370,885 75,755 33, ,404,271 75,755 Total loans $5,167,253 $792,359 $5,841,573 $356,887 $11,008,826 $1,149,246 Other Farm Credit Institutions Non-Farm Credit Institutions Total Participations Participations Participations Participations Participations Participations As of December 31, 2011 Purchased Sold Purchased Sold Purchased Sold Real estate mortgage $756,174 $114,972 $1,837,541 $54,063 $2,593,715 $169,035 Production and intermediate term 518, ,375 2,573,324 45,354 3,092, ,729 Agribusiness 2,195, ,317 1,254, ,226 3,450, ,543 Rural residential real estate , , Finance leases 86,903 13, , ,758 13,381 Other 1,100,590 45,396 33, ,133,906 45,396 Total loans $4,658,022 $852,441 $5,908,160 $392,701 $10,566,182 $1,245,142 Information in the preceding chart excludes loans entered into under our Mission Related Investment authorities. 12

14 Portfolio Performance Risk loans are loans for which it is probable that all principal and interest will not be collected according to the contractual terms. (Risk loans include nonaccrual loans, accruing restructured loans and accruing loans 90 days or more past due). June 30, December 31, Nonaccrual loans: Current as to principal and interest $501,458 $561,771 Past due 304, ,171 Total nonaccrual loans 806, ,942 Accruing restructured loans 29,821 31,230 Accruing loans 90 days or more past due 10,763 4,197 Total risk loans $846,850 $920,369 Volume with specific reserves $249,260 $321,671 Volume without specific reserves 597, ,698 Total risk loans $846,850 $920,369 Specific reserves $79,561 $95,541 For the six months ended June 30, Income on accrual risk loans $1,159 $1,012 Income on nonaccrual loans 20,067 21,391 Total income on risk loans $21,226 $22,403 Average risk loans $905,306 $1,025,877 Risk assets by loan type (accruing volume includes accrued interest receivable) are as follows: June 30, December 31, Nonaccrual loans: Real estate mortgage $474,988 $492,938 Production and intermediate term 214, ,402 Agribusiness 41,062 71,370 Rural residential real estate 53,664 59,605 Finance leases 2,077 3,355 Other 19,692 8,272 Total nonaccrual loans $806,266 $884,942 Accruing restructured loans: Real estate mortgage $17,023 $18,683 Production and intermediate term 3,898 3,634 Agribusiness 4,433 4,514 Rural residential real estate Other 4,248 4,351 Total accruing restructured loans $29,821 $31,230 Accruing loans 90 days or more past due: Real estate mortgage $3,940 $2,109 Production and intermediate term 4,994 1,078 Rural residential real estate Finance leases Other 1, Total accruing loans 90 days or more past due $10,763 $4,197 Total risk loans $846,850 $920,369 Other property owned $110,427 $113,260 Total risk assets $957,277 $1,033,629 13

15 One credit quality indicator we utilize is the FCA Uniform Loan Classification System that categorizes loans into five categories. The categories are defined as follows: Acceptable assets are expected to be fully collectible and represent the highest quality, Other assets especially mentioned (special mention) assets are currently collectible but exhibit some potential weakness, Substandard assets exhibit some serious weakness in repayment capacity, equity, and/or collateral pledged on the loan, Doubtful assets exhibit similar weaknesses to substandard assets; however, doubtful assets have additional weaknesses in existing factors, conditions and values that make collection in full highly questionable, and Loss assets are considered uncollectible. The following table shows loans and related accrued interest classified under the FCA Uniform Loan Classification System by loan type: As of June 30, 2012 Acceptable Special mention Substandard/Doubtful Total Real estate mortgage $38,768, % $791, % $1,152, % $40,712, % Production and intermediate term 18,446, % 352, % 540, % 19,338, % Agribusiness 5,510, % 449, % 123, % 6,083, % Rural residential real estate 2,276, % 20, % 103, % 2,400, % Finance leases 502, % 2, % 3, % 508, % Other 2,386, % 19, % 74, % 2,480, % Total loans $67,891, % $1,635, % $1,998, % $71,525, % As of December 31, 2011 Acceptable Special mention Substandard/Doubtful Total Real estate mortgage $36,474, % $985, % $1,267, % $38,727, % Production and intermediate term 18,636, % 432, % 649, % 19,718, % Agribusiness 5,110, % 434, % 147, % 5,692, % Rural residential real estate 2,197, % 25, % 104, % 2,328, % Finance leases 513, % 2, % 5, % 521, % Other 2,034, % 46, % 44, % 2,124, % Total loans $64,968, % $1,926, % $2,218, % $69,113, % The following table provides an age analysis of past due loans by loan type (accruing volume includes accrued interest receivable): Not Past Due Days or Less than Days or More Total 30 Days Total As of June 30, 2012 Past Due Past Due Past Due Past Due Loans Accruing loans 90 days or more past due Real estate mortgage $154,925 $135,396 $290,321 $40,422,486 $40,712,807 $3,940 Production and intermediate term 65,135 60, ,038 19,212,786 19,338,824 4,994 Agribusiness 18,118 5,974 24,092 6,059,449 6,083, Rural residential real estate 29,826 15,161 44,987 2,355,805 2,400, Finance leases 1,416 1,388 2, , , Other 4,340 14,755 19,095 2,461,308 2,480,403 1,173 Total loans $273,760 $233,577 $507,337 $71,018,016 $71,525,353 $10,763 Not Past Due Days or Less than Days or More Total 30 Days Total As of December 31, 2011 Past Due Past Due Past Due Past Due Loans Accruing loans 90 days or more past due Real estate mortgage $147,278 $139,106 $286,384 $38,441,500 $38,727,884 $2,109 Production and intermediate term 69,127 70, ,310 19,579,317 19,718,627 1,078 Agribusiness 828 5,634 6,462 5,685,952 5,692, Rural residential real estate 34,525 20,338 54,863 2,273,297 2,328, Finance leases 555 1,915 2, , , Other 17,141 4,066 21,207 2,103,665 2,124, Total loans $269,454 $241,242 $510,696 $68,602,975 $69,113,671 $4,197 14

16 All risk loans are considered to be impaired loans. The following table provides additional impaired loan information: Recorded Investment 1 As of June 30, 2012 For the six months ended June 30, 2012 Unpaid Principal Interest Income Balance 2 Related Allowance Average Impaired Loans Recognized Impaired loans with a related allowance for loan losses: Real estate mortgage $103,842 $121,560 $24,534 $107,448 $ -- Production and intermediate term 111, ,199 42, , Agribusiness 14,582 14,514 7,266 25, Rural residential real estate 8,697 8,927 2,224 9, Finance leases Other 9,898 14,464 3,020 3, Total $249,260 $301,396 $79,561 $267,612 $ -- Impaired loans with no related allowance for loan losses: Real estate mortgage $392,109 $495,803 $ -- $410,158 $8,301 Production and intermediate term 112, , ,202 5,902 Agribusiness 30,913 43, ,380 5,966 Rural residential real estate 45,522 57, , Finance leases 1,665 1, , Other 15,215 23, , Total $597,590 $848,808 $ -- $637,694 $21,226 Total impaired loans: Real estate mortgage $495,951 $617,363 $24,534 $517,606 $8,301 Production and intermediate term 223, ,715 42, ,888 5,902 Agribusiness 45,495 57,726 7,266 67,608 5,966 Rural residential real estate 54,219 66,408 2,224 58, Finance leases 2,397 2, , Other 25,113 37,595 3,020 17, Total $846,850 $1,150,204 $79,561 $905,306 $21,226 1 The recorded investment in the receivable is the face amount increased or decreased by applicable accrued interest and unamortized premium, discount, finance charges and acquisition costs and may also reflect a previous direct write-down of the investment. 2 Unpaid principal balance represents the contractual principal balance of the loan. As of December 31, 2011 For the six months ended June 30, 2011 Unpaid Principal Interest Income Recorded Investment 1 Balance 2 Related Allowance Average Impaired Loans Recognized Impaired loans with a related allowance for loan losses: Real estate mortgage $108,666 $132,607 $25,423 $77,917 $ -- Production and intermediate term 151, ,401 47, , Agribusiness 45,033 52,854 17, , Rural residential real estate 11,924 15,193 2,785 6, Finance leases 1,952 1, Other 2,764 7,266 1,150 1, Total $321,671 $419,273 $95,541 $327,742 $ -- Impaired loans with no related allowance for loan losses: Real estate mortgage $405,064 $499,468 $ -- $369,491 $8,818 Production and intermediate term 102, , ,439 6,413 Agribusiness 30,851 47, ,325 5,789 Rural residential real estate 47,729 58, , Finance leases 1,425 1, , Other 10,847 18, , Total $598,698 $806,341 $ -- $698,135 $22,403 Total impaired loans: Real estate mortgage $513,730 $632,075 $25,423 $447,408 $8,818 Production and intermediate term 254, ,400 47, ,350 6,413 Agribusiness 75, ,833 17, ,006 5,789 Rural residential real estate 59,653 73,865 2,785 45, Finance leases 3,377 3, , Other 13,611 26,064 1, , Total $920,369 $1,225,614 $95,541 $1,025,877 $22,403 15

17 Troubled Debt Restructurings The following table presents information regarding troubled debt restructurings that occurred during the six months ended June 30, 2012: Pre-modification Outstanding Post-modification Outstanding As of June 30, 2012 Recorded Investment* Recorded Investment* Troubled debt restructurings: Real estate mortgage $11,187 $10,963 Production and intermediate term 7,416 7,440 Rural residential real estate Total loans $19,470 $19,159 * Pre-modification represents the recorded investment just prior to restructuring and post-modification represents the recorded investment immediately following the restructuring. The recorded investment is the face amount of the receivable increased or decreased by applicable accrued interest and unamortized premium, discount, finance charges and acquisition costs and may also reflect a previous direct write-down of the investment. A restructuring of a loan constitutes a troubled debt restructuring, also known as formally restructured, if the creditor for economic or legal reasons related to the debtor s financial difficulties grants a concession to the debtor that it would not otherwise consider. Concessions vary by program and are borrower-specific and may include interest rate reductions, term extensions, payment deferrals or the acceptance of additional collateral in lieu of payments. The post-modification outstanding recorded investment is higher than the pre-modification outstanding recorded investment, in certain segments, primarily due to the acceptance of additional collateral. As this table illustrates and as discussed above, Associations generally provide concessions which do not reduce the principal or interest to be collected. In limited circumstances, principal may be forgiven. When a restructured loan constitutes a troubled debt restructuring, these loans are included within our risk loans. All risk loans are analyzed within our allowance for loan losses. We record a specific allowance to reduce the carrying amount of the formally restructured loan to the lower of book value or net realizable value of collateral, if required. The following table presents information regarding troubled debt restructurings that occurred within the previous 12 months and for which there was a subsequent payment default during the six months ended June 30, 2012: Recorded As of June 30, 2012 Investment Troubled debt restructurings that subsequently defaulted: Real estate mortgage $1,505 Production and intermediate term 1,459 Rural residential real estate 127 Total $3,091 Troubled debt restructurings outstanding at June 30, 2012 totaled $163.8 million, of which $134.0 million were in nonaccrual status. Additional commitments to lend to borrowers whose loans have been modified in a troubled debt restructuring totaled $1.8 million at June 30, Allowance for Loan Losses A summary of the allowance for loan losses follows: For the six months ended June 30, Balance at beginning of year $300,508 $406,346 (Reversal of) provision for loan losses (20,318) 36,991 Charge-offs (31,846) (55,300) Recoveries 11,515 7,225 Balance at end of period $259,859 $395,262 We consider the allowance for loan losses at June 30, 2012 to be reasonable in relation to the risk in our loan portfolio. During the first half of 2012, we decreased our allowance for loan losses by $40.6 million. The decline in the allowance was primarily driven by net charge-offs of $20.3 million and reversal of provision expense of $20.3 million (not including a $1.0 million reversal for unfunded 16

18 commitments and a $2.6 million provision for unfunded letters of credit). The amounts reflect the change in the estimated losses in the loan portfolio during the periods. The reversals reflect the strong collateralization of the portfolios and continued improvement in credit quality. A summary of changes in the allowance for loan losses and period end recorded investments in loans by loan type is as follows: Real estate mortgage Production and intermediate term Agribusiness Rural residential real estate Finance leases Other Total Allowance for loan losses: Balance at December 31, 2011 $107,075 $124,448 $47,933 $12,789 $2,171 $6,092 $300,508 Provision for (reversal of) loan losses (9,450) (19,870) (1,844) 2, ,556 (20,318) Charge-offs (8,630) (15,676) (3,760) (3,779) -- (1) (31,846) Recoveries 6,924 4, ,515 Balance at June 30, 2012 $95,919 $93,160 $42,565 $11,302 $2,266 $14,647 $259,859 At June 30, 2012: Ending balance: individually evaluated for impairment $24,534 $42,173 $7,266 $2,224 $344 $3,020 $79,561 Ending balance: collectively evaluated for impairment $71,385 $50,987 $35,299 $9,078 $1,922 $11,627 $180,298 Recorded investments in loans outstanding: Ending balance at June 30, 2012 $40,712,807 $19,338,824 $6,083,541 $2,400,792 $508,986 $2,480,403 $71,525,353 Ending balance for loans individually evaluated for impairment $495,951 $223,675 $45,495 $54,219 $2,397 $25,113 $846,850 Ending balance for loans collectively evaluated for impairment $40,216,856 $19,115,149 $6,038,046 $2,346,573 $506,589 $2,455,290 $70,678,503 Real estate mortgage Production and intermediate term Agribusiness Rural residential real estate Finance leases Other Total Allowance for loan losses: Balance at December 31, 2010 $170,547 $145,748 $68,915 $12,999 $4,469 $3,668 $406,346 Provision for (reversal of) loan losses 4,496 1,871 15,396 10,537 (2,243) 6,934 36,991 Charge-offs (17,214) (19,681) (14,870) (3,491) -- (44) (55,300) Recoveries 1,227 5, ,225 Balance at June 30, 2011 $159,056 $133,593 $69,541 $20,244 $2,226 $10,602 $395,262 At December 31, 2011: Ending balance: individually evaluated for impairment $25,423 $47,525 $17,853 $2,785 $805 $1,150 $95,541 Ending balance: collectively evaluated for impairment $81,652 $76,923 $30,080 $10,004 $1,366 $4,942 $204,967 Recorded investments in loans outstanding: Ending balance at December 31, 2011 $38,727,884 $19,718,627 $5,692,414 $2,328,160 $521,714 $2,124,872 $69,113,671 Ending balance for loans individually evaluated for impairment $513,730 $254,114 $75,884 $59,653 $3,377 $13,611 $920,369 Ending balance for loans collectively evaluated for impairment $38,214,154 $19,464,513 $5,616,530 $2,268,507 $518,337 $2,111,261 $68,193,302 17

19 NOTE 3 INVESTMENT SECURITIES AND FEDERAL FUNDS AgriBank Investment Securities and Federal Funds A summary of the amortized cost, unrealized gains and losses and fair value of investment securities and federal funds follows: Weighted Amortized Unrealized Unrealized Fair Average As of June 30, 2012 Cost Gains Losses Value Yield Mortgage-backed securities $4,231,476 $40,650 $34,473 $4,237, % U.S. Treasury securities 3,004,204 4, ,008, % Commercial paper and other 2,565, ,564, % Federal funds 649, , % Asset-backed securities 368,591 4,346 57, , % U.S. Agencies 224,390 14, , % Total $11,043,550 $64,649 $92,981 $11,015, % Weighted Amortized Unrealized Unrealized Fair Average As of December 31, 2011 Cost Gains Losses Value Yield Mortgage-backed securities $4,156,732 $33,316 $49,301 $4,140, % U.S. Treasury securities 2,924,353 8, ,933, % Commercial paper and other 2,123, ,123, % Federal funds 299, , % Asset-backed securities 284,500 3,633 58, , % U.S. Agencies 243,634 17, , % Total $10,032,918 $63,659 $108,030 $9,988, % Commercial paper and other is primarily corporate and municipal obligations, certificates of deposit and term federal funds. All securities are classified as available-for-sale. A summary of the investments in an unrealized loss position presented by the length of time that the investments have been in a continuous unrealized loss position follows: Less than 12 months More than 12 months Fair Unrealized Fair Unrealized As of June 30, 2012 Value Losses Value Losses Mortgage-backed securities $643,193 $1,767 $448,654 $32,706 U.S. Treasury securities 940, Commercial paper and other 1,014, Asset-backed securities 129, ,596 56,933 Total $2,728,322 $3,342 $567,250 $89,639 Less than 12 months More than 12 months Fair Unrealized Fair Unrealized As of December 31, 2011 Value Losses Value Losses Mortgage-backed securities $269,359 $381 $642,583 $48,920 U.S. Treasury securities 50, Commercial paper and other 1,272, Asset-backed securities 83, ,620 58,036 Total $1,676,493 $1,074 $783,203 $106,956 AgriBank evaluates its investment securities for other-than-temporary impairment on a quarterly basis. Factors considered in determining whether an impairment is other-than-temporary include: 1) the length of time and the extent to which the fair value is less than cost, 2) the financial condition and near-term prospects of the issuer and, if applicable, the financial condition of any financial guarantor, 3) the estimated cash flow projections compared to contractual cash flows, and 4) AgriBank s intent to sell the impaired 18

20 security and whether AgriBank is more likely than not to be required to sell the security before recovery. In addition, AgriBank qualitatively considers other available information when assessing whether impairment is other-than-temporary. Based on the results of these evaluations, if it is determined that the impairment is other-than-temporary, the loss is separated into credit-related and noncredit-related components. The credit-related component is recognized through earnings and the non-credit related component is recognized in other comprehensive income. The credit-related components of the other-than-temporary impairment losses were determined by projecting cash flows using cash flow models which require certain market assumptions. The significant inputs into the models include assumptions with regard to interest rates, prepayment speeds, default rates and loss severities. The assumptions are applied at the individual security and associated collateral pool level. The unrealized losses primarily reflect concerns about the creditworthiness and liquidity of home equity related asset-backed and mortgage-backed securities. AgriBank determined that securities with a fair value of $163.7 million at June 30, 2012 were in an otherthan-temporary loss position compared to securities with a fair value of $162.2 million at December 31, As a result of its evaluations, AgriBank has recognized $7.3 million in net impairment losses during the first half of 2012, reflecting a gross impairment charge in 2012 of $17.4 million, net of $10.1 million related to the non-credit component which was recognized in other comprehensive income. AgriBank has determined no other securities were in an other-than-temporary loss position at June 30, The following represents the activity related to the credit loss component for investments that have been written down for other-thantemporary impairment and the credit component of the loss is recognized in earnings: For the the six months ended June 30, Credit loss component, beginning of year $103,680 $80,537 Initial credit impairment 977 1,947 Subsequent credit impairments 6,310 4,262 Credit loss component, end of year $110,967 $86,746 A summary of the contractual maturity at fair value and weighted average yield by maturity of investment securities and federal funds follows: Year of Maturity One Year One to Five to More Than As of June 30, 2012 or Less Five Years Ten Years Ten Years Total Mortgage-backed securities $ -- $2,047 $187,126 $4,048,480 $4,237,653 U.S. Treasury securities 1,904,477 1,104, ,008,683 Commercial paper and other 2,564, ,564,959 Federal funds 649, ,473 Asset-backed securities ,033 7, , ,322 U.S. Agencies 127, , ,128 Total $5,246,494 $1,408,829 $194,962 $4,164,933 $11,015,218 Weighted average yield 0.7% 1.5% 0.8% 1.1% 0.9% 19

21 Year of Maturity One Year One to Five to More Than As of December 31, 2011 or Less Five Years Ten Years Ten Years Total Mortgage-backed securities $ -- $676 $237,934 $3,902,137 $4,140,747 U.S. Treasury securities 1,820,833 1,112, ,933,150 Commercial paper and other 2,123, ,123,383 Federal funds 299, ,976 Asset-backed securities -- 83,771 10, , ,873 U.S. Agencies 29, , ,418 Total $4,273,593 $1,428,781 $247,961 $4,038,212 $9,988,547 Weighted average yield 0.9% 1.7% 0.8% 1.1% 1.1% The expected average life is 1.9 years for asset-backed securities and 3.1 years for mortgage-backed securities at June 30, Expected maturities differ from contractual maturities because borrowers may have the right to prepay obligations. Affiliated Association Investment Securities Mission-related and other investments held by Associations consisted of the following held-to-maturity investments: Weighted Amortized Unrealized Unrealized Fair Average As of June 30, 2012 Cost Gains Losses Value Yield Government guaranteed instruments $2,076,268 $20,910 $39,008 $2,058, % Farmer Mac mortgage-backed securities 315,986 6, , % ARC bonds % Venture capital equity investment 2,635 * * * * Total $2,395,769 $27,382 $39,130 $2,381, % Weighted Amortized Unrealized Unrealized Fair Average As of December 31, 2011 Cost Gains Losses Value Yield Government guaranteed instruments $1,915,583 $19,195 $36,578 $1,898, % Farmer Mac mortgage-backed securities 340,181 7, , % ARC bonds 1, , % Investment notes in a trust of equipment loans 3, , % Venture capital equity investment 1,885 * * * * Total $2,262,747 $26,591 $36,773 $2,250, % * Not applicable due to the nature of the investment The mission-related and other investments portfolio is evaluated for other-than-temporary impairment. As a result of these evaluations, one Association recognized $14 thousand of impairment losses during the six months ended June 30, 2012 on previously impaired securities. No securities were other-than-temporarily impaired during the same period in

22 NOTE 4 CAPITAL FCA's capital adequacy regulations require AgriBank and the Associations to maintain permanent capital of at least 7.0% of risk-adjusted assets. In addition, each System institution is required to maintain a total surplus to risk-adjusted assets ratio of at least 7.0% and a core surplus to risk-adjusted assets ratio of at least 3.5%. At June 30, 2012, AgriBank exceeded these requirements with a 21.3% permanent capital ratio, 17.9% total surplus ratio and 10.5% core surplus ratio. All District Associations exceeded the regulatory minimums at June 30, FCA regulations also require AgriBank to maintain a net collateral ratio of at least 103.0%. However, AgriBank is required by the regulator to maintain a higher minimum of 104.0% during the period in which AgriBank has subordinated notes outstanding. At June 30, 2012, AgriBank s net collateral ratio was 106.2%. NOTE 5 EMPLOYEE BENEFIT PLANS Net periodic benefit costs included the following components: Pension Other Pension Other For the six months ended June 30, Benefits Benefits Benefits Benefits Components of net periodic benefit cost Service cost $13,013 $280 $12,045 $325 Interest cost 23, , Expected return on plan assets (23,589) -- (23,859) -- Amortization of prior service cost (566) (348) (528) (312) Amortization of loss (gain) 15,685 (109) 13,517 (99) Net periodic benefit cost $27,562 $556 $23,262 $708 The District previously disclosed in our financial statements for the year ended December 31, 2011, that the District expected to contribute $36.0 million for pension benefits and $1.7 million for other postretirement benefits in As of June 30, 2012, the District expects to contribute $40.4 million for pension benefits and $1.5 million for other postretirement benefits in As of June 30, 2012, District employers have contributed $16.5 million to the pension plan. District employers anticipate contributing an additional $23.9 million to fund pension benefits in As of June 30, 2012, District employers have contributed $0.7 million for other postretirement benefits. District employers anticipate contributing an additional $0.8 million for other postretirement benefits in

23 NOTE 6 FAIR VALUE MEASUREMENTS Valuation Techniques FASB guidance on Fair Value Measurements defines fair value, establishes a framework for measuring fair value and requires disclosures for certain assets and liabilities measured at fair value on a recurring and non-recurring basis. These assets and liabilities primarily consist of investments available-for-sale, federal funds, derivative assets and liabilities, impaired loans, other property owned, and collateral liabilities. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Refer to Notes 2 and 15 of the 2011 Annual Report for a more complete description. The following represents a summary of the valuation techniques used to measure fair value on a recurring basis: Federal Funds The fair value of federal funds is generally their face value, plus accrued interest, as these instruments are highly liquid, readily convertible to cash, and short-term in nature. Investments Available-for-Sale The fair value of substantially all of our investment securities are determined from third-party valuation services that estimate current market prices. Level 2 inputs and assumptions related to third-party market valuation services are typically observable in the marketplace. Such services incorporate repayment assumptions and underlying mortgage-backed or asset-backed collateral information to generate cash flows that are discounted using appropriate benchmark interest rate curves and volatilities including LIBOR, Treasury and other Index benchmarks. Third-party valuations also incorporate information regarding broker/dealer quotes, available trade information, historical cash flows, credit ratings and other market information. Such valuations represent an estimated exit price, or price to be received by a seller in active markets to sell the investment securities to a willing participant. Level 3 inputs are based on the relatively illiquid marketplace for some investments and the lack of marketplace information available for significant inputs and assumptions to the valuation process. The fair value measurements of these assets are based on multiple factors including information obtained from third-party valuation services using both Level 2 and Level 3 inputs. These inputs include volatilities, market spreads, default probabilities, loss severities, prepayment speeds and dealer quotes. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates. FASB guidance requires us to provide quantitative information about significant unobservable inputs used in the fair value measurement for recurring and nonrecurring assets and liabilities within Level 3. However, a reporting entity is not required to create quantitative information if the unobservable inputs are not developed by the reporting entity. As the fair value is determined by third-party valuation services without adjustment by management, we have not reported this disclosure as these inputs are not reasonably available to us. The valuation process is described above. Derivative Assets and Liabilities The fair value of our derivative financial instruments is the estimated amount to be received to sell a derivative asset or paid to transfer a derivative liability in active markets among willing participants at the reporting date. Estimated fair values are determined through internal market valuation models. These models incorporate LIBOR swap curves, market volatilities and other inputs which are observable directly or indirectly in the marketplace. We compare internally calculated derivative valuations to broker/dealer quotes to substantiate the results. Collateral Pledged by Counterparties The majority of derivative contracts are supported by bilateral collateral agreements with counterparties requiring the posting of cash collateral in the event certain dollar thresholds of credit exposure are reached. The market value of collateral pledged by counterparties is its face value that approximates fair value. Standby Letters of Credit Estimating the fair value of letters of credit is determined by the inherent credit loss in such instruments. 22

24 Assets and liabilities measured at fair value on a recurring basis are summarized below: Fair Value Measurement Using Total Fair As of June 30, 2012 Level 1 Level 2 Level 3 Value Assets: Federal funds $ -- $649,473 $ -- $649,473 Investments available-for-sale: Mortgage-backed securities -- 3,996, ,077 4,237,653 U.S. Treasury securities -- 3,008, ,008,683 Commercial paper and other -- 2,564, ,564,959 U.S. Agency securities , ,128 Asset-backed securities , , ,322 Total investments available-for-sale -- 10,000, ,366 10,365,745 Derivative assets , ,052 Total assets $ -- $10,749,904 $365,366 $11,115,270 Liabilities: Collateral pledged by counterparties $47,490 $ -- $ -- $47,490 Derivative liabilities -- 22, ,696 Standby letters of credit ,625 2,625 Total liabilities $47,490 $22,696 $2,625 $72,811 Total Fair As of December 31, 2011 Level 1 Level 2 Level 3 Value Assets: Federal funds $ -- $299,976 $ -- $299,976 Investments available-for-sale: Fair Value Measurement Using Mortgage-backed securities -- 3,887, ,741 4,140,747 U.S. Treasury securities -- 2,933, ,933,150 Commercial paper and other -- 2,123, ,123,383 U.S. Agency securities , ,418 Asset-backed securities -- 83, , ,873 Total investments available-for-sale -- 9,288, ,843 9,688,571 Derivative assets , ,444 Total assets $ -- $9,729,148 $399,843 $10,128,991 Liabilities: Collateral pledged by counterparties $103,120 $ -- $ -- $103,120 Derivative liabilities -- 17, ,466 Total liabilities $103,120 $17,466 $ -- $120,586 We did not have any assets or liabilities transfer between levels during the first half of

25 The table below represents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3): Level 3 Instruments Only (In thousands) Asset-backed Securities Mortgage-backed Securities Standby Letters of Credit Balance at December 31, 2011 $146,102 $253,741 $ -- Total gains or (losses) realized/unrealized: Included in earnings (1,073) (6,214) 2,625 Included in other comprehensive income 1,358 16, Settlements (22,098) (23,384) -- Transfers in and/or out of Level Balance at June 30, 2012 $124,289 $241,077 $2,625 Level 3 Instruments Only Asset-backed Mortgage-backed Standby Letters of (In thousands) Securities Securities Credit Balance at December 31, 2010 $224,648 $314,357 $ -- Total gains or (losses) realized/unrealized: Total Fair Value Measurement Investments Available-for-Sale Total Fair Value Measurement Investments Available-for-Sale Included in earnings (2,687) (3,522) -- Included in other comprehensive income 2,950 14, Settlements (16,900) (38,212) -- Transfers in and/or out of Level Balance at June 30, 2011 $208,011 $287,073 $ -- The following represents a summary of the valuation techniques used to measure fair value on a non-recurring basis: Loans Certain collateral dependent loans are measured at fair value on a non-recurring basis when they are evaluated for impairment under FASB guidance in which fair values are based upon the underlying collateral. Costs to sell represent transaction costs and are not included as a component of the fair value. Since the value of the collateral, less estimated costs to sell, was less than the principal balance of the loan, specific reserves were established for these loans. If the process uses independent appraisals and other market-based information, they fall under Level 2. If the process requires significant input based on management s knowledge of and judgment about current market conditions, specific issues relating to the collateral and other matters, they fall under Level 3. Other Property Owned Other property owned is measured at fair value on a non-recurring basis when the fair value for other property owned is based upon the collateral fair value. Costs to sell represent transaction costs and are not included as a component of the fair value. If the process uses independent appraisals and other market-based information, they fall under Level 2. If the process requires significant input based on management s knowledge of and judgment about current market conditions, specific issues relating to the collateral and other matters, they fall under Level 3. Assets measured at fair value on a non-recurring basis for each of the fair value hierarchy values are summarized below: Fair Value Measurement Using Total Fair Total As of June 30, 2012 Level 1 Level 2 Level 3 Value Gain (Losses) Assets: Loans $ -- $79,178 $102,645 $181,823 $15,980 Other property owned , ,844 (4,401) Fair Value Measurement Using Total Fair Total As of December 31, 2011 Level 1 Level 2 Level 3 Value Gain (Losses) Assets: Loans $ -- $99,755 $139,407 $239,162 $19,336 Other property owned , ,790 (6,201) 24

26 NOTE 7 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES Use of Derivatives AgriBank maintains an overall interest rate risk management strategy that incorporates the use of derivative products to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. AgriBank s goals are to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that movements in interest rates do not adversely affect the net interest margin. As a result of interest rate fluctuations, hedged fixed-rate liabilities will appreciate or depreciate in market value. The effect of this unrealized appreciation or depreciation is expected to be substantially offset by AgriBank s gains or losses on the derivative instruments that are linked to these hedged assets and liabilities. Another result of interest rate fluctuations is that the interest income and interest expense of hedged floating-rate liabilities will increase or decrease. The effect of this variability in earnings is expected to be substantially offset by AgriBank s gains and losses on the derivative instruments that are linked to these hedged assets and liabilities. AgriBank considers the use of derivatives to be a prudent method of managing interest rate sensitivity, as it prevents earnings from being exposed to undue risk posed by changes in interest rates. AgriBank enters into derivative transactions, particularly interest rate swaps, to lower funding costs, diversify sources of funding, alter interest rate exposures arising from mismatches between assets and liabilities, or to better manage liquidity. AgriBank may also enter into derivatives with District Associations as a service to enable them to transfer, modify or reduce their exposure to retail interest rate risk. AgriBank substantially offsets this risk by concurrently entering into offsetting agreements with non-system institutional counterparties. Interest rate swaps allow AgriBank to raise long-term borrowings at fixed-rates and swap them into floating-rates that are lower than those available to AgriBank if floating-rate borrowings were made directly. Under interest rate swap arrangements, AgriBank agrees with other parties to exchange, at specified intervals, payment streams calculated on a specified notional principal amount, with at least one stream based on a specified floating-rate index. AgriBank may purchase interest rate options, such as caps, in order to offset the impact of rising interest rates on AgriBank s floating-rate debt, and floors, in order to offset the impact of falling interest rates on related floating-rate assets. The primary types of derivative instruments used and the amount of activity during the period (in notional amount) is summarized in the following table: Receive-Fixed Swaps Pay-Fixed and Amortizing Pay-Fixed Swaps Floating-for- Floating and Amortizing Floating-for- Floating Interest Rate Caps Other Derivatives (in millions) Total Balance at December 31, 2011 $4,750 $972 $2,250 $ -- $200 $8,172 Additions Maturities/amortization (450) (45) (500) -- (100) (1,095) Balance at June 30, 2012 $4,550 $1,027 $1,750 $ -- $100 $7,427 Receive-Fixed Swaps Pay-Fixed and Amortizing Pay-Fixed Swaps Floating-for- Floating and Amortizing Floating-for- Floating Interest Rate Caps Other Derivatives (in millions) Total Balance at December 31, 2010 $6,290 $832 $1,950 $3 $368 $9,443 Additions Maturities/amortization (440) (27) (467) Balance at June 30, 2011 $6,250 $855 $2,150 $3 $368 $9,626 Other derivatives consist primarily of forward starting swaps and swaptions. By using derivative products, AgriBank exposes itself to credit and market risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, AgriBank s credit risk will equal the fair value gain in a derivative. Generally, when the fair value of a derivative contract is positive, this indicates that the counterparty owes AgriBank, thus creating credit risk for AgriBank. When the fair value of the derivative contract is negative, AgriBank owes the counterparty and, therefore, AgriBank does not have credit risk to that counterparty. 25

27 To minimize the risk of credit losses, AgriBank only deals with non-customer counterparties that have an investment grade or better credit rating from a rating agency and also monitors the credit standing and levels of exposure to individual counterparties. AgriBank does not anticipate nonperformance by any of these counterparties. AgriBank typically enters into master agreements that contain netting provisions. These provisions allow AgriBank to require the net settlement of covered contracts with the same counterparty in the event of default by the counterparty on one or more contracts. Substantially all derivative contracts are supported by bilateral collateral agreements with counterparties requiring the posting of collateral in the event certain dollar thresholds of exposure of one party to the other are reached. These thresholds vary depending on the counterparty s current credit rating. At June 30, 2012, AgriBank s exposure to counterparties, net of collateral, was $50.2 million. At June 30, 2012, AgriBank held cash collateral of $47.5 million and securities of $22.0 million from counterparties. AgriBank s derivative activities are monitored by its Asset-Liability Management Committee (ALCO) as part of the Committee s oversight of AgriBank s asset/liability and treasury functions. AgriBank s ALCO is responsible for approving hedging strategies that are developed within parameters established by the Bank s board of directors through AgriBank s analysis of data derived from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into AgriBank s overall interest rate risk-management strategies. Accounting for Derivatives Fair-Value Hedges: For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. AgriBank includes the gain or loss on the hedged items in the same line item (interest expense) as the offsetting loss or gain on the related interest rate swaps. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recorded in current period earnings in Miscellaneous income and other gains, net in the Combined Statements of Comprehensive Income. Cash Flow Hedges: For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recorded in current period earnings in Miscellaneous income and other gains, net in the Combined Statements of Comprehensive Income. Derivatives not Designated as Hedges: For derivatives not designated as a hedging instrument, the related change in fair value is recorded in current period earnings in Miscellaneous income and other gains, net in the Combined Statements of Comprehensive Income. Financial Statement Impact of Derivatives The following table presents the gross fair value of derivative assets and derivative liabilities. The fair value of our derivative contracts are presented as Derivative assets and Derivative liabilities in the Combined Statements of Condition, and are presented net on the Combined Statements of Condition for counterparties with master netting agreements. June 30, 2012 December 31, 2011 Fair Value Fair Value Fair Value Fair Value Assets: Liabilities: Assets: Liabilities: Derivatives designated as hedging instruments: Receive-fixed swaps $185,327 $ -- $227,736 $ -- Pay-fixed and amortizing pay-fixed swaps , ,428 Floating-for-floating and amortizing floating-for-floating swaps -- 12, ,829 Total derivatives designated as hedging instruments 185, , , ,257 Derivatives not designated as hedging instruments: Receive-fixed swaps 6, Total derivatives not designated as hedging instruments 6, Credit valuation adjustments (306) -- Total derivatives $192,847 $115,491 $227,536 $104,558 The fair value of derivatives includes credit valuation adjustments (CVA). The CVA reflects credit risk of each derivative counterparty to which AgriBank has exposure, net of any collateral posted by the counterparty, and an adjustment for AgriBank s credit worthiness where the counterparty has exposure to AgriBank. The favorable CVA in 2012 is due to our counterparties exposure to AgriBank. Our counterparty with the greatest credit concerns continues to post full collateral for the market value of their derivative 26

28 portfolio with AgriBank. The change in the CVA for the period is included in Miscellaneous income and other gains, net on the Combined Statements of Comprehensive Income. Fair-Value Hedges: AgriBank recorded $4.7 million of gains for the six months ended June 30, 2012 compared to $3.8 million of losses for the same period in 2011 related to receive-fixed swaps which are designated as hedging instruments on the Combined Statements of Comprehensive Income. The gains and losses on the derivative instruments are recognized in Interest expense on the Combined Statements of Comprehensive Income. Cash Flow Hedges: The following table presents the amount of Other Comprehensive Income (OCI) recognized on derivatives. The gain (loss) on derivatives designated as hedges reclassified from accumulated other comprehensive income (AOCI) into income is included in Interest expense on the Combined Statements of Comprehensive Income. For the six months ended June 30, 2012: Derivatives - Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) Amount of Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion) and Amount Excluded from Effectiveness Testing Pay-fixed and amortizing pay-fixed swaps $(10,589) $244 $11 Floating-for-floating and amortizing floating-for-floating swaps (561) Other derivative products -- (244) -- Total $(11,150) $ -- $11 For the six months ended June 30, 2011: Derivatives - Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) Amount of Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion) and Amount Excluded from Effectiveness Testing Pay-fixed and amortizing pay-fixed swaps $(2,562) $390 $53 Floating-for-floating and amortizing floating-for-floating swaps (2,697) 1, Other derivative products -- (780) -- Total $(5,259) $920 $53 Derivatives not Designated as Hedges: AgriBank recorded $7.0 million of losses for the six months ended June 30, 2012 compared to $105 thousand of losses for the same period in 2011 related to receive-fixed swaps which are not designated as hedging instruments on the Combined Statements of Comprehensive Income. The gains and losses on the derivative instruments are recognized in Miscellaneous income and other gains, net on the Combined Statements of Comprehensive Income. The losses during the six months ended June 30, 2012 primarily represent swaps AgriBank purchased from another Farm Credit Bank in October 2008 that became ineffective in March 2012 requiring that the market value of the swaps ($6.7 million at June 30, 2012) be recognized on a mark-to-market basis. These losses are partially offset by gains of $5.0 million recognized in Interest expense on the Combined Statements of Comprehensive Income representing the amortization of the fair value adjustment recorded on hedged debt for the period the hedge was deemed effective. With the discontinuance of hedge accounting the fair value adjustment is amortized to income over the remaining life of the hedged item using the effective interest method. NOTE 8 COMMITMENTS AND CONTINGENCIES In the normal course of business, we have various contingent liabilities and commitments outstanding, primarily commitments to extend credit, which may not be reflected in the accompanying consolidated financial statements. We do not anticipate any material losses because of these contingencies or commitments. District entities may, from time to time, be named as defendants in certain lawsuits or legal actions in the normal course of business. At the date of these financial statements, management was not aware of any such actions that would have a material impact on the entities financial condition. However, AgriBank and Association management cannot ensure that such actions or other contingencies will not arise in the future. 27

29 While AgriBank is primarily liable for its portion of Systemwide bonds and notes, AgriBank is jointly and severally liable for the Systemwide bonds and notes of the other Farm Credit System Banks. The total bonds and notes of the System at June 30, 2012 were $190.7 billion. NOTE 9 SUBSEQUENT EVENTS We have evaluated subsequent events through August 9, 2012, which is the date the financial statements were available to be issued. There have been no material subsequent events that would require recognition in our Combined Financial Statements or disclosure in the Notes to those Combined Financial Statements. NOTE 10 AGRIBANK ONLY DATA Statements of Condition June 30, December 31, Loans, net $63,977,689 $62,033,794 Other assets 11,901,283 11,076,218 Total assets $75,878,972 $73,110,012 Liabilities $71,905,016 $69,303,825 Members' equity 3,973,956 3,806,187 Total liabilities and members' equity $75,878,972 $73,110,012 Statements of Income For the six months ended June 30, Interest income $710,692 $765,958 Interest expense 483, ,182 Net interest income 226, ,776 Provision for loan losses 4,100 2,500 Other, net 40,903 1,122 Net income $263,729 $219,398 Patronage $136,129 $118,245 Substantially all patronage is paid to the Associations and is eliminated in combination. 28

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32 AgriBank, FCB and Affiliated Associations 30 E. 7 th Street, Suite 1600 St. Paul, Minnesota (651) Visit us at