Harnessing Our Strengths. Redefining Tomorrow. SEPTEMBER 30, 2012 QUARTERLY REPORT

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1 Harnessing Our Strengths. Redefining Tomorrow. SEPTEMBER 30, 2012 QUARTERLY REPORT

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 financial position and results of operations of AgriBank, FCB (AgriBank). This information should be read in conjunction with the accompanying financial statements, the notes to the financial statements and the 2011 annual report. AgriBank is one of the Banks of the Farm Credit System (the System). We serve customers in states across America s heartland. 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 Net income was strong for the nine months ended September 30, 2012 at $384.8 million, a 13.7% increase, compared to $338.4 million for the same period in The return on average assets was 0.69% for the nine months ended September 30, 2012 compared to 0.63% for the same period in The following table illustrates changes in significant components of net income: (in millions) Increase (Decrease) in For the nine months ended September 30, Net Income Net interest income $353.5 $342.0 $11.5 Provision for loan losses (6.4) (15.2) 8.8 Non-interest income Salaries and employee benefits (23.2) (25.0) 1.8 Other operating expenses (21.0) (19.0) (2.0) Loan servicing and other fees paid to Associations (18.4) (11.1) (7.3) Farm Credit insurance expense (3.0) (3.5) 0.5 Net impairment losses recognized in earnings (14.2) (12.4) (1.8) Net income $384.8 $338.4 $46.4 Net interest income for the nine months ended September 30, 2012, continues to be strong reflecting the positive impact of funding actions as we and our borrowers continued to take advantage of a declining interest rate environment. We repriced $17.9 billion of callable debt at lower costs. Borrowers converted $10.5 billion of fixed rate loans to lower fixed interest rates and also converted $700 million from variable to fixed rate products. In addition, many borrowers chose longer-term fixed rates on new loans. Net interest income increased $11.5 million or 3.4% from the same period in 2011 reflecting an increase in retail volume, primarily related to equipment financing participations purchased from the AgDirect program and, to a lesser extent, an increase in wholesale volume. Over time, if interest rates stabilize or increase, the positive impact on the net interest income we have experienced over the last several years from calling debt securities will likely diminish. 1

3 The following table presents the impact on net interest income due to changes in volume and rates based on the average daily balances for loans, investments and debt: (in millions) For the nine months ended September 30, Increase (decrease) due to: Volume 2012 vs 2011 Rate Total Interest income: Loans $60.9 $(139.6) $(78.7) Investments 0.6 (6.8) (6.2) Total interest income 61.5 (146.4) (84.9) Interest expense: Systemwide debt securities and other (41.5) Net change in net interest income $20.0 $(8.5) $11.5 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 nine months ended September 30, ADB Rate NII ADB Rate NII Interest earning assets: Wholesale loans $55, % $751.9 $51, % $816.3 Retail accrual loans 7, % , % Retail nonaccrual loans % % 6.3 Investments 11, % , % 66.9 Total earning assets 74, % 1, , % 1,145.7 Interest bearing liabilities 70, % , % Interest rate spread $3, % $3, % Impact of equity financing 0.07% 0.08% Net interest margin 0.64% 0.65% Net interest income $353.5 $342.0 The average interest rate spread was 0.57% during the nine months ended September 30, 2012 and Interest rate spread is the difference between the rate earned on interest earning assets and the rate paid on interest bearing liabilities. The majority of our earning assets are in wholesale loans. Wholesale loan spreads averaged 12 basis points for the nine months ended September 30, 2012 compared to 13 basis points in The change is primarily due to one Association paying a risk premium in 2011 but not in We estimate that the raw spread on all earning assets (rate earned minus transfer rate cost of funds) decreased from 40 basis points for the nine months ended September 30, 2011 to 39 basis points this year. This is primarily due to a decrease in investment spreads from 29 basis points to 23 basis points. We estimate our funding actions contributed 20 basis points to the interest rate spread in 2012 compared to 21 basis points in Changes in loans are further discussed in the Loan Portfolio section of this report. We recorded $6.4 million of provision expense during the nine months ended September 30, 2012, primarily related to an additional $2.8 million specific reserve on a participated dairy credit, $2.0 million additional reserves on AgDirect program loans purchased and $1.6 million of additional net reserves on retail asset pools purchased from various Associations. Comparatively, we recorded $15.2 million of provision expense during the same period in 2011, primarily related to a large customer in the poultry industry and general reserves on AgDirect program loans. The increase in non-interest income for the nine months ended September 30, 2012 was due to several factors: A $24.8 million increase in mineral income, earned from mineral rights, as lease bonus and royalty income continues to remain strong, specifically in the Williston Basin in western North Dakota. A non-recurring $15.0 million distribution received during the second quarter as our share of distributions from Allocated Insurance Reserve Accounts (AIRA). These reserve accounts were established by the Farm Credit System Insurance Corporation when premiums collected increased the level of the insurance fund above the required 2% of insured debt. Included in the $15.0 million was $5.5 million related to an interest in Farm Credit System Financial Assistance Corporation (FAC) stock, which had been purchased from certain affiliated Associations in 2006 and Legislation in 1987 had required certain Associations to purchase stock to capitalize the Farm Credit System FAC. There was no distribution in

4 An $8.7 million increase in loan prepayment and fee income. The majority of our prepayment and conversion fee income is recorded when Association loans financed through our wholesale loan volume prepay or convert, and the Association is assessed a wholesale fee. These increases were partially offset by: A $10.6 million decrease in miscellaneous income and other (losses) gains, net, primarily due to losses related to receive-fixed swaps that were de-designated as hedging instruments. Refer to Note 7 for further discussion. A $3.0 million decrease in business services income primarily due to the formation of Farm Credit Foundations (FCF) as a separate service corporation effective January 1, FCF operated as a part of AgriBank prior to January 1, FCF provides payroll, benefit and certain human resource consulting services to AgriBank and System entities both within and outside our District. The decrease in salaries and employee benefits expense was primarily due to the formation of FCF as noted above. In addition, there were non-recurring employee transition costs of $0.6 million included in the prior year. The increase in loan servicing and other fees paid to Associations was primarily due to the increase in loan servicing fees paid under the AgDirect program loan portfolio. We evaluate all investments in an unrealized loss position quarterly and determined that certain securities were in an other-thantemporary loss position at September 30, As a result of our evaluations, we recognized $14.2 million in impairment losses during the nine months ended September 30, 2012 compared to $12.4 million for the same period in See additional discussion in the Investment Portfolio section of this report. LOAN PORTFOLIO The following table presents the components of loans: (in millions) September 30, December 31, Accrual loans: Wholesale loans $58,030.8 $54,327.9 Real estate mortgage 5, ,187.7 Production and intermediate term 2, ,787.5 Agribusiness Loans to OFIs Other Nonaccrual loans Total loans $66,163.6 $62,043.0 Loans totaled $66.2 billion at September 30, 2012, an increase of $4.1 billion, or 6.6%, from December 31, Loan growth at the Associations, which directly impacts our wholesale loans balance, was due to strong levels of Association loan originations primarily in the real estate mortgage sector driven by demand for cropland. The increase from December 2011 was also due to increased purchases of retail equipment financing loans through the AgDirect program (included within the production and intermediate term category above) partially offset by normal paydowns on our loan participations purchased from Associations, primarily within the real estate mortgage category above. The components of risk assets follow (total loans include accrued interest receivable): (in millions) September 30, December 31, Nonaccrual loans $54.6 $62.0 Accruing restructured loans Accruing loans 90 days or more past due Total risk loans Other property owned Total risk assets $57.9 $67.0 Risk loans as a % of total loans 0.09% 0.11% Delinquencies as a % of total loans 0.05% 0.05% 3

5 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. Total risk loans as a percentage of total loans remains within our established risk management guidelines. Nonaccrual loans remained at an acceptable level at September 30, 2012, representing 0.1% of our total portfolio, consistent with December 31, At September 30, 2012, 61.2% of nonaccrual loans were current as to principal and interest compared to 70.5% at December 31, The decrease in this percentage was primarily due to the overall decrease in nonaccrual loans from December 31, Credit quality on loans remained at acceptable levels with 99.7% of our portfolio in the acceptable and special mention categories at September 30, 2012 and at December 31, Adversely classified volume was 0.3% at September 30, 2012 and at December 31, As of September 30, 2012, no Associations were declared in default of any covenants. No Associations are paying a risk premium in Comparative allowance coverage of various loan categories follows: September 30, December 31, Allowance as a % of: Loans 0.02% 0.01% Nonaccrual loans 23.50% 14.85% Total risk loans 22.76% 14.08% Net charge-offs as a % of average loans 0.00% 0.02% Adverse assets to risk funds 4.09% 5.32% The allowance for loan losses is an estimate of losses on loans in our portfolio as of the financial statement date. We determine the appropriate allowance level 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 nine months ended September 30, 2012, we increased our allowance for loan losses by $3.6 million, which was reflective of $6.4 million of provision expense offset by net chargeoffs of $2.8 million, primarily related to a participated dairy credit. The increase in allowance was related to an additional specific reserve on a participated dairy credit and additional reserves on certain loans in the retail asset pool portfolios and AgDirect program loans. We consider the allowance for loan losses at September 30, 2012 to be reasonable in relation to the risk in our loan portfolio. INVESTMENT PORTFOLIO At September 30, 2012, investment securities and federal funds totaled $11.7 billion, an increase of $1.7 billion from December 31, We evaluate all investments in an unrealized loss position quarterly. As a result of our evaluations, we recognized $14.2 million in impairment losses during the nine months ended September 30, 2012 representing $1.4 million on newly impaired securities and $12.8 million on previously impaired securities. No other securities were in an other-than-temporary loss position. The impairments reflect the deterioration of prepayment and severity assumptions based on specific history of those individual securities, as well as deteriorations in credit performance. 4

6 We continue to closely monitor our home equity asset-backed securities (ABS) and non-agency mortgage-backed securities (MBS), which are detailed in the table below: (in millions) As of September 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 $133.6 $ -- $34.0 $99.6 $163.9 $ -- $51.7 $112.2 Second liens Wrapped ABS Total home equity asset-backed securities $156.2 $4.5 $37.7 $123.0 $190.4 $3.7 $58.0 $136.1 Alt-A non-agency MBS - floating $13.0 $0.9 $2.0 $11.9 $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 $256.5 $3.8 $15.2 $245.1 $300.9 $0.8 $47.9 $253.8 Total of above segments $412.7 $8.3 $52.9 $368.1 $491.3 $4.5 $105.9 $389.9 At September 30, 2012, we had securities that, because their credit ratings were downgraded below AAA, were no longer eligible under Farm Credit Administration (FCA) regulations. The fair value of all ineligible investments totaled $289.6 million including $178.0 million on which we have taken impairment charges. Of the securities ineligible under the FCA regulations, securities totaling $285.2 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 and approved in October 2012 and three securities with a fair value of $2.8 million have not yet been submitted to the FCA for approval. Subsequent to September 30, 2012, 11 ABS and MBS related securities with a fair value of $28.9 million were downgraded below AAA and became ineligible. These securities will be submitted for FCA approval in the future. In addition, we held split-rated non-agency mortgage-backed securities and home equity asset-backed securities with a fair value of $69.9 million that were downgraded below AAA by at least one rating agency. There are no split-rated securities on which we have taken impairment. We also held $8.6 million of non-agency mortgage-backed securities and home equity asset-backed securities on credit watch negative. AGRICULTURAL CONDITIONS The United States Department of Agriculture (USDA) projects U.S. net farm income to exceed $122 billion in 2012 and net cash income to exceed $139 billion as of August 28, 2012, both record nominal values. The expected increase in income reflects large price-led gains in corn and soybean receipts as well as large increases in crop insurance indemnities. The report suggests that crop farm gains should be more than enough to offset livestock farmers' higher feed expenses and a decline in sales of wholesale milk. Drought Impact Extensive drought in the U.S., particularly in the Midwest, has reduced crop yields, resulting in increased crop prices. Multi-peril crop insurance (MPCI) will generally mitigate the impact of the drought for most crop producers. These insurance 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 private reinsurance companies and the USDA and its Federal Crop Insurance Corporation. Based on USDA information for the 2012 crop year, 84% of corn and soybean acres planted are covered by multi-peril crop 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 expected to withstand the financial impact of the drought. However, increased prices for corn and soybeans and other grains are placing pressure on livestock, poultry, ethanol and dairy producers who rely on these inputs. Some producers mitigated a portion of this risk by locking in prices for these inputs during However, many users of corn and soybeans may be unable to avoid some level of losses as we move into 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 5

7 throughout the District. The District s most recent real estate market value survey indicated that District real estate values, on average, increased 15.7% over the twelve-month period ending June 30, Qualitative surveys of lending officers compiled by the Federal Reserve Banks of Chicago, Kansas City and Minneapolis as of the end of the second quarter 2012 indicated sharply increasing farmland values. The Federal Reserve Banks cited survey findings of a year-over-year increase in the average value of non-irrigated farmland of 15-26%. 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. 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 nine months ended September 30, 2012, investor demand for Systemwide Debt Securities has remained favorable. Given the low interest rate environment, we continued to refinance callable bonds when advantageous in order to lower our cost of funds. We are responsible for meeting the District's funding, liquidity and asset/liability management needs. Access to funding remains the primary source of liquidity for us. We also maintain liquidity through our investment portfolio. Our 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. We currently operate with a liquidity operating target of 125 days. As of September 30, 2012, we had sufficient liquidity to fund all debt maturing within 143 days. We also have 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 September 30, 2012, we held U.S. Treasury securities with a book value of $3.2 billion. At September 30, 2012 we held qualifying assets in excess of that required to meet the 15 days of liquidity coverage. Total members equity at September 30, 2012 was $4.2 billion, a $359.7 million increase from December 31, Members equity was positively impacted by net income for the period, an increase in capital stock and participation certificates and a reduction in other comprehensive losses. This was partially offset by earnings reserved for patronage distributions. At September 30, 2012, we exceeded the regulatory minimum capital ratios, which are further discussed in Note 4 to the financial statements. CERTIFICATION The undersigned have reviewed the September 30, 2012 quarterly report of AgriBank, FCB which has been prepared under the oversight of the 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 November 9, 2012 L. William York Chief Executive Officer November 9, Brian J. O Keane Executive Vice President, Banking and Finance and Chief Financial Officer November 9, 2012

8 STATEMENTS OF CONDITION AgriBank, FCB (Dollars in thousands) (Unaudited) September 30, December 31, Assets Loans $66,163,595 $62,043,002 Allowance for loan losses 12,828 9,208 Net loans 66,150,767 62,033,794 Investment securities 10,950,040 9,688,571 Cash 233, ,086 Federal funds 756, ,976 Accrued interest receivable 412, ,390 Derivative assets 82, ,444 Other property owned 1,511 1,606 Debt issuance costs 51,369 53,700 Allocated prepaid pension costs 27,587 30,082 Other assets 30,085 30,363 Total assets $78,697,025 $73,110,012 Liabilities Bonds and notes $73,605,539 $68,262,550 Subordinated notes 500, ,000 Accrued interest payable 240, ,061 Derivative liabilities 22,850 17,466 Cash collateral pledged by counterparties 27, ,120 Accounts and other payables 116, ,145 Other liabilities 17,846 17,483 Total liabilities 74,531,188 69,303,825 Commitments and contingencies Members' equity Capital stock and participation certificates 1,952,927 1,825,177 Unallocated surplus 2,311,278 2,129,035 Accumulated other comprehensive loss (98,368) (148,025) Total members' equity 4,165,837 3,806,187 Total liabilities and members' equity $78,697,025 $73,110,012 The accompanying notes are an integral part of these financial statements. 7

9 STATEMENTS OF COMPREHENSIVE INCOME AgriBank, FCB (Dollars in thousands) (Unaudited) Three months Nine months For the period ended September 30, Interest income Loans $329,898 $358,588 $1,000,042 $1,078,839 Investment securities 20,191 21,179 60,739 66,887 Total interest income 350, ,767 1,060,781 1,145,726 Interest expense 223, , , ,714 Net interest income 126, , , ,012 Provision for loan losses 2,300 12,700 6,400 15,200 Net interest income after provision for loan losses 124, , , ,812 Non-interest income Loan prepayment and fee income 12,288 21,795 45,675 36,954 Mineral income 15,779 10,452 56,286 31,526 Allocated insurance reserve account distribution , Business services income 3,986 4,960 11,705 14,749 Miscellaneous income and other (losses) gains, net (5,823) (906) (11,183) (581) Total non-interest income 26,230 36, ,479 82,648 Non-interest expense Salaries and employee benefits 7,791 8,066 23,175 25,035 Other operating expenses 7,267 6,047 20,937 19,127 Loan servicing and other fees paid to Associations 6,342 4,378 18,367 11,090 Farm Credit insurance expense 1,047 1,216 3,026 3,473 Impairment losses recognized in earnings: Total other-than-temporary impairment losses 7,787 6,158 25,149 15,516 Portion of loss recognized in other comprehensive income (840) - (10,914) (3,149) Net impairment losses recognized in earnings 6,947 6,158 14,235 12,367 Total non-interest expense 29,394 25,865 79,740 71,092 Net income $121,086 $118,971 $384,815 $338,368 Other comprehensive income (loss) Unrealized gains (losses) on investment securities not-other-than-temporarily impaired 24,542 (168) 24,109 12,703 Reclassification adjustment for losses (gains) included in net income 415 (374) 1,393 1,484 Not-other-than-temporary-impaired investments 24,957 (542) 25,502 14,187 Unrealized gains (losses) on investment securities other-than-temporarily impaired 12,739 (6,633) 21,924 (2,460) Reclassification adjustment for losses included in net income 6,532 6,159 12,842 10,420 Other-than-temporary-impaired investments 19,271 (474) 34,766 7,960 Unrealized gains (losses) on derivatives 587 (85,420) (10,563) (90,679) Reclassification adjustment for (gains) losses included in net income (48) 49 (48) (871) Derivatives 539 (85,371) (10,611) (91,550) Total other comprehensive income (loss) 44,767 (86,387) 49,657 (69,403) Comprehensive income $165,853 $32,584 $434,472 $268,965 The accompanying notes are an integral part of these financial statements. 8

10 STATEMENTS OF CHANGES IN MEMBERS' EQUITY AgriBank, FCB (Dollars in thousands) (Unaudited) Balance at December 31, 2010 $1,727,643 $1,953,894 $(25,461) $(48,703) $(12,229) $3,595,144 Net income 338, ,368 Other comprehensive income (loss) 14,187 7,960 (91,550) (69,403) Patronage (179,090) (179,090) Capital stock/participation certificates issued 184, ,480 Capital stock/participation certificates retired (102,960) (102,960) Balance at September 30, 2011 $1,809,163 $2,113,172 $(11,274) $(40,743) $(103,779) $3,766,539 Balance at December 31, 2011 $1,825,177 $2,129,035 $(9,389) $(34,982) $(103,654) $3,806,187 Net income 384, ,815 Other comprehensive income (loss) 25,502 34,766 (10,611) 49,657 Patronage (202,572) (202,572) Capital stock/participation certificates issued 207, ,270 Capital stock/participation certificates retired (79,520) (79,520) Balance at September 30, 2012 $1,952,927 $2,311,278 $16,113 $(216) $(114,265) $4,165,837 The accompanying notes are an integral part of these financial statements. Capital Accumulated Other Comprehensive Income (Loss) Stock and Participation Unallocated Not-other-thantemporarily-impaired Other-thantemporarily-impaired Certificates Surplus Investments Investments Derivatives Total 9

11 STATEMENTS OF CASH FLOWS AgriBank, FCB (Dollars in thousands) (Unaudited) For the nine months ended September 30, Cash flows from operating activities Net income $384,815 $338,368 Adjustments to reconcile net income to cash flows from operating activities: Depreciation on premises and equipment 3,092 2,136 Gain on sales of premises and equipment (36) (16) Provision for loan losses 6,400 15,200 Loss on sales of other property owned Impairment of investment securities 14,235 12,367 Gain on sale of investment securities -- (463) Amortization of premiums and discounts on investments 13,473 13,435 Insurance refund related to FAC stock (5,546) -- Loss on derivative activities 3,644 5,098 Changes in operating assets and liabilities: Accrued interest receivable (779,388) (852,514) Other assets 12,550 5,479 Accrued interest payable (158) (106) Other liabilities 1,810 (1,174) Total adjustments (729,505) (799,858) Net cash used in operating activities (344,690) (461,490) Cash flows from investing activities (Increase) decrease in loans, net (3,355,660) 178,435 Proceeds from sales of other property owned 1,043 1,590 Increase in investment securities, net (1,228,909) (570,617) Proceeds from the sale of investment securities ,877 Purchases of premises and equipment, net (10,502) (9,288) Proceeds from insurance refund related to FAC stock 5, Net cash (used in) provided by investing activities (4,588,482) 144,997 Cash flows from financing activities Consolidated bonds and notes issued 198,263, ,826,682 Consolidated bonds and notes retired (192,872,014) (185,968,313) Decrease in cash collateral pledged by counterparties, net (75,350) (52,770) Patronage distribution paid (177,509) (208,735) Capital stock/participation certificates issued (retired), net 55,375 (9,127) Net cash provided by financing activities 5,194, ,737 Net increase in cash and federal funds 260, ,244 Cash and federal funds at beginning of year 729, ,539 Cash and federal funds at end of year $989,971 $971,783 Supplemental schedule of non-cash activities Decrease in derivative assets $57,447 $90,173 Increase in derivative liabilities 5,384 5,725 (Decrease) increase in bonds from derivative activity (48,576) 750 Decrease in members' equity from cash flow derivatives (10,611) (91,550) Increase in members' equity from investment securities 60,268 22,147 Loans transferred to other property owned 1,367 1,203 Interest capitalized to loan principal 769, ,622 Patronage refunds payable to owners 202, ,090 Stock patronage issued 72,375 91,816 Supplemental Information Interest paid $707,463 $803,820 The accompanying notes are an integral part of these financial statements. 10

12 NOTES TO FINANCIAL STATEMENTS AgriBank, FCB NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES AgriBank, FCB (AgriBank) is one of the Banks of the Farm Credit System (the 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. The System specializes in providing financing and related services to qualified borrowers for agricultural and rural purposes. AgriBank and its Affiliated Associations are collectively referred to as the District. At September 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. AgriBank serves as the intermediary between the financial markets and the retail lending activities of the District Associations. A description of our organization and operation, significant accounting policies followed, 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 third quarter 2012 financial statements should be read in conjunction with the annual report. The results of the nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the year ended December 31, 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 the 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: September 30, 2012 December 31, 2011 Amount % Amount % Wholesale loans $58,030, % $54,327, % Real estate mortgage 5,057, % 5,241, % Production and intermediate term 2,242, % 1,795, % Agribusiness 196, % 165, % Loans to Other Financial Institutions (OFIs) 578, % 474, % Other 56, % 38, % Total loans $66,163, % $62,043, % The other category is comprised of rural residential real estate, communication and energy related loans. Participations We may purchase participations from and sell participations to others, primarily Associations. Our participation activity is as follows: Other Farm Credit Non-Farm Credit Institutions Institutions Total Participations Participations Participations As of September 30, 2012 Purchased Purchased Purchased Real estate mortgage $5,054,238 $1,307 $5,055,545 Production and intermediate term 2,242, ,242,765 Agribusiness 196, ,954 Other 56, ,972 Total loans $7,550,929 $1,307 $7,552,236 Other Farm Credit Non-Farm Credit Institutions Institutions Total Participations Participations Participations As of December 31, 2011 Purchased Purchased Purchased Real estate mortgage $5,234,529 $4,713 $5,239,242 Production and intermediate term 1,794, ,795,022 Agribusiness 164, ,604 Other 38, ,621 Total loans $7,232,348 $5,141 $7,237,489 We do not have any participation interests sold as of September 30, 2012 or December 31,

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.) September 30, December Nonaccrual loans: Current as to principal and interest $33,426 $43,734 Past due 21,150 18,283 Total nonaccrual loans 54,576 62,017 Accruing restructured loans 1,636 1,943 Accruing loans 90 days or more past due 142 1,429 Total risk loans $56,354 $65,389 Volume with specific reserves $15,870 $17,047 Volume without specific reserves 40,484 48,342 Total risk loans $56,354 $65,389 Specific reserves $4,230 $3,176 For the nine months ended September 30, Income on accrual risk loans $96 $100 Income on nonaccrual loans 2,871 6,335 Total income on risk loans $2,967 $6,435 Average recorded risk loans $60,009 $90,220 Risk assets by loan type (accruing volume includes accrued interest receivable) are as follows: September 30, December 31, Nonaccrual loans: Real estate mortgage $49,573 $54,000 Production and intermediate term 4,705 7,570 Other Total nonaccrual loans $54,576 $62,017 Accruing restructured loans: Real estate mortgage $1,636 $1,943 Total accruing restructured loans $1,636 $1,943 Accruing loans 90 days or more past due: Real estate mortgage $131 $1,429 Production and intermediate term Total accruing loans 90 days or more past due $142 $1,429 Total risk loans $56,354 $65,389 Other property owned 1,511 1,606 Total risk assets $57,865 $66,995 One credit quality indicator we utilize is the Farm Credit Administration (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. 13

15 The following table shows loans and related accrued interest classified under the FCA Uniform Loan Classification System by loan type: As of September 30, 2012 Acceptable Special mention Substandard/Doubtful Total Wholesale loans $58,277, % $ $ $58,277, % Real estate mortgage 4,865, % 126, % 149, % 5,141, % Production and intermediate term 2,240, % 14, % 15, % 2,270, % Agribusiness 164, % 30, % 3, % 197, % Loans to OFIs 579, % , % Other 54, % % 1, % 57, % Total loans $66,183, % $172, % $169, % $66,524, % As of December 31, 2011 Acceptable Special mention Substandard/Doubtful Total Wholesale loans $54,595, % $ $ $54,595, % Real estate mortgage 4,968, % 168, % 177, % 5,314, % Production and intermediate term 1,785, % 12, % 18, % 1,817, % Agribusiness 138, % 23, % 3, % 165, % Loans to OFIs 475, % , % Other 36, % % 1, % 38, % Total loans $62,000, % $205, % $201, % $62,407, % The following table provides an age analysis of past due loans by loan type (accruing volume includes accrued interest receivable): Days Not Past Due or Days or More Total Less than 30 Days Total As of September 30, 2012 Past Due Past Due Past Due Past Due Loans Accruing loans 90 days or more past due Wholesale loans $ -- $ -- $ -- $58,277,928 $58,277,928 $ -- Real estate mortgage 14,689 16,170 30,859 5,110,812 5,141, Production and intermediate term 3, ,530 2,266,356 2,270, Agribusiness , , Loans to OFIs , , Other ,255 57, Total loans $19,195 $16,971 $36,166 $66,488,712 $66,524,878 $ Days Not Past Due or Accruing loans 90 Days or More Total Less than 30 Days Total days or more past As of December 31, 2011 Past Due Past Due Past Due Past Due Loans due Wholesale loans $ -- $ -- $ -- $54,595,258 $54,595,258 $ -- Real estate mortgage 18,931 11,579 30,510 5,284,354 5,314,864 1,429 Production and intermediate term ,289 1,815,711 1,817, Agribusiness , , Loans to OFIs , , Other ,245 37,464 38, Total loans $20,739 $12,305 $33,044 $62,374,380 $62,407,424 $1,429 14

16 All risk loans are considered to be impaired loans. The following table provides additional impaired loan information: As of September 30, 2012 For the nine months ended September 30, 2012 Recorded Unpaid Principal Related Investment 1 Balance 2 Average Impaired Loans Interest Income Recognized Allowance Impaired loans with a related allowance for loan losses: Real estate mortgage $11,712 $11,712 $3,018 $12,022 $ -- Production and intermediate term 4,158 4,245 1,212 6, Agribusiness Other Total loans $15,870 $15,957 $4,230 $18,352 $ -- Impaired loans with no related allowance for loan losses: Real estate mortgage $39,628 $60,292 $ -- $40,672 $1,801 Production and intermediate term , Agribusiness Other Total loans $40,484 $71,960 $ -- $41,657 $2,967 Total impaired loans: Real estate mortgage $51,340 $72,004 $3,018 $52,694 $1,801 Production and intermediate term 4,716 15,134 1,212 6, Agribusiness Other Total loans $56,354 $87,917 $4,230 $60,009 $2,967 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. The recorded investment may be less than the unpaid principal balance as payments on non-cash basis nonaccrual loans reduce the recorded investment. 2 Unpaid principal balance represents the contractual principal balance of the loan. As of December 31, 2011 For the nine months ended September 30, 2011 Recorded Unpaid Principal Related Investment 1 Balance 2 Average Impaired Loans Interest Income Recognized Allowance Impaired loans with a related allowance for loan losses: Real estate mortgage $10,051 $12,321 $2,193 $10,518 $ -- Production and intermediate term 6,869 11, , Agribusiness , Other Total loans $17,047 $24,239 $3,176 $36,939 $ -- Impaired loans with no related allowance for loan losses: Real estate mortgage $47,321 $66,218 $ -- $50,770 $1,508 Production and intermediate term 701 4, ,155 1,417 Agribusiness ,503 Other Total loans $48,342 $71,377 $ -- $53,281 $6,435 Total impaired loans: Real estate mortgage $57,372 $78,539 $2,193 $61,288 $1,508 Production and intermediate term 7,570 16, ,559 1,417 Agribusiness ,860 3,503 Other Total loans $65,389 $95,616 $3,176 $90,220 $6,435 15

17 Troubled Debt Restructurings Troubled debt restructurings that occurred during the nine months ended September 30, 2012 were $4.1 million and were within the real estate mortgage segment. The pre-modification outstanding recorded investment totaled $4.1 million and the post-modification outstanding recorded investment totaled $4.2 million. 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, primarily due to the capitalization of certain charges upon restructuring. As discussed above, we 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. There were no troubled debt restructurings that occurred within the previous 12 months and for which there was a subsequent payment default during the nine months ended September 30, Troubled debt restructurings outstanding at September 30, 2012 totaled $10.3 million, of which $8.7 million were in nonaccrual status. Additional commitments to lend to borrowers whose loans have been modified in a troubled debt restructuring totaled $42 thousand at September 30, Allowance for Loan Losses A summary of the allowance for loan losses follows: For the nine months ended September 30, Balance at beginning of period $9,208 $12,956 Provision for loan losses 6,400 15,200 Charge-offs (3,814) (5,085) Recoveries 1, Balance at end of period $12,828 $23,840 We consider the allowance for loan losses at September 30, 2012 to be reasonable in relation to the risk in our loan portfolio. We recorded $6.4 million of provision expense during the nine months ended September 30, 2012, primarily related to an additional specific reserve on a participated dairy credit and additional reserves on certain loans in the retail asset pool portfolios and AgDirect program loans. 16

18 A summary of changes in the allowance for loan losses and period end recorded investments in loans by loan type is as follows: Wholesale loans Real estate mortgage Production and intermediate term Agribusiness Loans to OFIs Other Total Allowance for loan losses: Balance at December 31, 2011 $ -- $4,167 $4,372 $208 $307 $154 $9,208 Provision for (reversal of) loan losses -- (158) 4,326 1, ,400 Charge-offs -- (603) (3,086) (125) (3,814) Recoveries ,034 Balance at September 30, 2012 $ -- $4,195 $5,855 $2,157 $374 $247 $12,828 At September 30, 2012: Ending balance: individually evaluated for impairment $ -- $3,018 $1,212 $ -- $ -- $ -- $4,230 Ending balance: collectively evaluated for impairment $ -- $1,177 $4,643 $2,157 $374 $247 $8,598 Recorded investments in loans outstanding: Ending balance at September 30, 2012 $58,277,928 $5,141,671 $2,270,886 $197,600 $579,761 $57,032 $66,524,878 Ending balance for loans individually evaluated for impairment $58,277,928 $51,340 $4,716 $ -- $ -- $298 $58,334,282 Ending balance for loans collectively evaluated for impairment $ -- $5,090,331 $2,266,170 $197,600 $579,761 $56,734 $8,190,596 Wholesale loans Real estate mortgage Production and intermediate term Agribusiness Loans to OFIs Other Total Allowance for loan losses: Balance at December 31, 2010 $ -- $9,244 $2,399 $571 $610 $132 $12,956 Provision for loan losses , ,200 Charge-offs -- (1,470) (72) (3,455) -- (88) (5,085) Recoveries Balance at September 30, 2011 $ -- $8,905 $3,050 $10,985 $719 $181 $23,840 At December 31, 2011: Ending balance: individually evaluated for impairment $ -- $2,193 $904 $ -- $ -- $79 $3,176 Ending balance: collectively evaluated for impairment $ -- $1,974 $3,468 $208 $307 $75 $6,032 Recorded investments in loans outstanding: Ending balance at December 31, 2011 $54,595,258 $5,314,864 $1,817,000 $165,723 $475,870 $38,709 $62,407,424 Ending balance for loans individually evaluated for impairment $54,595,258 $57,372 $7,570 $ -- $ -- $447 $54,660,647 Ending balance for loans collectively evaluated for impairment $ -- $5,257,492 $1,809,430 $165,723 $475,870 $38,262 $7,746,777 NOTE 3 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 September 30, 2012 Cost Gains Losses Value Yield Mortgage-backed securities $4,236,103 $47,221 $16,518 $4,266, % U.S. Treasury securities 3,158,494 5, ,163, % Commercial paper and other 2,908, ,908, % Federal funds 756, , % Asset-backed securities 417,219 4,573 38, , % U.S. Agencies 214,300 13, , % Total $11,690,471 $70,712 $54,815 $11,706, % 17