PRODUCER ECONOMICS AND OUTLOOK. Steve Kluemper Vice President Credit

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1 PRODUCER ECONOMICS AND OUTLOOK Steve Kluemper Vice President Credit

2 GreenStone 100+ year old cooperative $8+ billion in loans & leases 24,000+ ag/rural members $318 million paid in patronage in 13 years Loan, lease, tax, accounting, treasury, insurance and technology services 94% customer satisfaction 500+ employees, 36 branches Livestock, Crops & Consumer Diversification

3 U.S. AGRICULTURE FINANCIAL METRICS Source: USDA

4 Incomes have risen and recently dropped off Volatility has increased decade of profitability

5 Source: AgriBank GDP indexed Real Dollars

6 USDA annually projects 10-year income Projections have continued to decrease Still not bad from a historical perspective

7 USDA Projections USDA Baseline Projections - February F 2018F 2019F 2023F 2018 Bank Prime Rate Projections Corn Farm Price Projections Soybean Farm Price Projections Beef Farm Price Projections Pork Farm Price Projections All Milk Price Projections Sugar Beet Farm Price Projections

8 Outside equity deleveraged ag in 1980 s Much came from creditors Debt levels continue to grow

9 Debt / Income under 4.00 is the goal USDA projection with no new debt = 6.0x

10 MICHIGAN METRICS

11 Much volatility since 2003 Breakeven net farm income in 2016 Row Crops, Dairy, Eggs all down in 2016

12 Quality, Timely Information Needed Quality financial information critical to decision making and risk management Timely information is as important and should be a priority Need to know where you are, to know how to get where you are going Start simple, create curiosity, develop demand for deeper dives

13 Inputs Farm Name Year Acres Farmed Current Assets M&E Assets Total Assets Current Liabilities Total Liabilities Annual Gross Revenues Operating Expenses Depreciation Expense Interest Expense Income Tax Expense Other Expenses Owner Withdrawals Term Debt Principal Payments

14 Row Crop Peer Comparison 109 farms with 10 year trends $1.5+ billion assets 406+ thousand acres farmed Median farm size of 2,700 acres

15 Dairy Peer Comparison 122 dairies (87 in Michigan) with 10 year trends $2.8+ billion assets 200+ thousand cows in Michigan 55+ thousand cows in Wisconsin 1,000 cows median herd

16 Net Worth divided by Total Assets

17 Net Worth divided by Total Assets

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19 Adjusted Net Income before Interest and Depreciation Expenses less Principal and Interest Payments per Acre Farmed

20 $2 per Cwt. spread between 25 th and 75 th percentiles is mostly explained by WI vs. MI

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22 Adjusted Net Income before Interest and Depreciation Expenses less Principal and Interest Payments per Cwt. of Milk Sold

23 Current Assets minus Current Liabilities per Acre Farmed

24 Current Assets minus Current Liabilities per Cwt. of Milk Sold

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29 GREENSTONE S APPROACH

30 GreenStone s Goals 2009 & 2015 Build on reputation as preferred ag lender Past, current and future generations Be proactive in everything we do Internally and externally Anticipate & address cash flow shortages Get customer through the cycles Work with viable plans and shared solutions Assist others with recapitalizing their business Cautious in good times & Courageous in bad times

31 GreenStone s Approach Each customer s strengths and weaknesses are analyzed to prescribe the right solution

32 GreenStone s Approach Awareness & sense of urgency Identify and pursue options Frequent and detailed communication Include all stakeholders, owners, creditors, consultants, accountants, legal, etc. Agree on and document future expectations Legal documentation, covenants, entity reviews

33 GreenStone s Approach Financial and operational information Another form of communication Verification of financial information and projections to minimize surprises Set expectations for quality and timeliness Cash burn analysis models Liquidity analysis another communication tool Reasonable projections Scenario analysis

34 GreenStone s Approach Re-amortize debt to match useful life of assets Give borrower best chance of making it through Do it while we are both willing and able Do it while interest rates remain attractive Train inexperienced staff and customers with team approach and experienced staff Look for competent consultants and cooperative capital

35 Summary Most cash flows could be negative for 5 years Assets will lose significant value Debt will be reduced or at least rebalanced Quality financial statements and projections are required for management and bank decisions Decisions should focus on per unit profitability, risk scenario analysis and liquidity Proactive communication, planning & execution Strong bank competition for strong prospects We ll get through it with a sense of urgency

36 Lender s Toolbox Adjust repayment terms to type of asset Limit capital spending and owner withdrawals Have a Plan B and Exit Plan Consider alternative sources of capital Frequent lender/borrower meetings Interest only payments for a period of time Risk-based pricing Monthly or weekly cash flow projections Customer and other creditors all-in

37 Advice to Producers Understand and manage costs, risks & returns Question we ve always done it that way Maximize underperforming & excess resources Allocate capital from low to high return assets Look for new capital with consultants Utilize outside professional advisors Minimize family and capital expenditures Prioritize accurate, real-time records Financial and operational Historical and projected

38 Advice for Unsecured Lenders Have written credit policies, procedures and strategies approved by sales, credit, management and the board Required information, credit limits, terms, conditions, security, risks, authorities, exceptions Communicate policies with consistent actions to give credit & sales strength to enforce them When risks turn into repayment problems, encourage proactiveness and planning Secured creditors will get paid first but will work with you if you are proactive

39 PRODUCER ECONOMICS AND OUTLOOK Steve Kluemper Vice President Credit