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Farm Credit System Reports 2014 Second Quarter and Six-Month Net Income

NEW YORK, Aug. 1, 2014 - The Farm Credit System today reported combined net income of $1.196 billion
and $2.341 billion for the three and six months ended June 30, 2014, as compared with
combined net income of $1.104 billion and $2.246 billion for the same periods last year.

“The System continued to generate solid earnings despite an increasingly competitive
marketplace that has placed pressure on our net interest spread,” remarked Tracey E. McCabe,
President and CEO of the Federal Farm Credit Banks Funding Corporation. “The increase in
net income resulted primarily from growth in average earning assets and to loan loss reversals
reflecting the strong credit quality of the System’s loan portfolio.”

Results of Operations
Second Quarter and Six-Month 2014 Results Compared to Second Quarter and Six-Month 2013
Results

Combined net income increased $92 million or 8.3% and $95 million or 4.2% for the three and
six months ended June 30, 2014, as compared with the same periods in 2013. The increase for
the three-month period resulted primarily from an increase in net interest income of $53 million
and a loan loss reversal of $23 million, as compared with a provision for loan losses of $19
million in the prior year period. The increase for the six-month period was primarily due to a
loan loss reversal of $35 million, as compared with a provision for loan losses of $41 million in
the prior year period and to increases in net interest income of $36 million and noninterest
income of $21 million, partially offset by a $25 million increase in noninterest expense and a $13
million increase in the provision for income taxes.

Net interest income increased to $1.688 billion and $3.348 billion for the three and six months
ended June 30, 2014, as compared with $1.635 billion and $3.312 billion for the same periods
of the prior year. The increases in net interest income for both periods of 2014 resulted
primarily from a higher level of average earning assets. Average earning assets increased
$17.149 billion and $16.140 billion to $255.015 billion and $253.594 billion for the three and six
months ended June 30, 2014, as compared with the prior year periods. The higher levels of
average earning assets were primarily due to the continued growth in the System’s loan
portfolio and, to a lesser extent, growth in the investment portfolio.

The net interest margin was 2.65% and 2.64% for the three and six months ended June 30,
2014, as compared with 2.75% and 2.79% for the three and six months ended June 30, 2013.
The decline in the net interest margin for the three- and six-month periods resulted from a
decrease in the net interest spread of 11 and 15 basis points to 2.50% for both periods, as
compared with 2.61% and 2.65% for the same periods of the prior year. The decline in the net
interest spread resulted primarily from competitive pressures, greater average loan volume in
lower spread lines of business and a lesser amount of debt being called. The Banks called debt
totaling $10.9 billion during the first six months of 2014, as compared with $19.9 billion during
the first six months of 2013.

The System recognized loan loss reversals of $23 million and $35 million for the three and six
months ended June 30, 2014, as compared with provisions for loan losses of $19 million and
$41 million for the three and six months ended June 30, 2013. The loan loss reversal for the
first six months of 2014 consisted of $67 million of loan loss reversals recorded by certain
System institutions, partially offset by $32 million of provisions for loan losses recorded by other
System institutions. The loan loss reversal for the six months ended June 30, 2014 reflected
the overall strong credit quality of the loan portfolio, while the provision for loan losses recorded
by certain System institutions primarily reflected specific credit challenges for a limited number
of customers.

Noninterest income decreased $2 million to $140 million and increased $21 million to $285
million for the three and six months ended June 30, 2014, as compared with the same periods
of the prior year. The decrease for the three-month period primarily resulted from a $12 million
increase in losses on extinguishment of debt offset, in part, by a $9 million increase in mineral
income. The increase for the six-month period was primarily due to increases in mineral income
of $12 million, net gains on derivative and other transactions of $5 million and income earned on
Insurance Fund assets of $4 million. Also contributing to the increase in noninterest income
was a $4 million decrease in net other-than-temporary impairment losses on investments.
Partially offsetting these improvements in noninterest income for the six-month period was a $5
million decrease in gains on sales of investments and other assets, net.

Noninterest expense decreased $6 million to $590 million and increased $25 million to $1.197
billion for the three and six months ended June 30, 2014, as compared with the same periods of
the prior year. The decrease for the three-month period resulted from a $14 million net gain on
other property owned, as compared with a $20 million net loss on other property owned for the
same period in the prior year offset, in part, by increases in salaries and employee benefits of
$18 million and other operating expense of $7 million. The increase for the six-month period
was primarily due to increases in salaries and employee benefits of $37 million, other operating
expense of $11 million and occupancy and equipment expense of $8 million offset, in part, by
$13 million of net gains on other property owned, as compared with $21 million of net losses on
other property owned for the prior year period. The increase in salaries was a result of annual
merit increases and higher staffing levels at certain System institutions offset, in part, by a
decrease in pension expense.

The provisions for income taxes were $65 million and $130 million for the three and six months
ended June 30, 2014, as compared with $58 million and $117 million for the three and six
months ended June 30, 2013. The effective tax rate increased from 5.0% for the six months
ended June 30, 2013 to 5.3% for the six months ended June 30, 2014 due to increased
earnings at certain taxable System institutions.

Second Quarter 2014 Compared to First Quarter 2014
Net income was $1.196 billion for the second quarter of 2014, as compared with net income of
$1.145 billion for the first quarter of 2014. The increase in net income was due to increases in
net interest income of $28 million and loan loss reversal of $11 million and to a decrease in
noninterest expense of $17 million offset, in part, by a decrease in noninterest income of $5
million. The increase in net interest income was primarily due to increased loan volume in the
second quarter. The decrease in noninterest expense was primarily due to net gains on the
sale of other property owned in the second quarter.

Loan Portfolio Activity
Gross loans increased $3.994 billion or 2.0% to $205.054 billion at June 30, 2014, as compared
with $201.060 billion at December 31, 2013. The increase primarily resulted from increases in
loans to food and agribusiness companies and real estate mortgage loans. This increase was
offset, in part, by a decrease in production and intermediate-term loans due to seasonal
repayments on operating lines of credit as borrowers sold crops and paid down lines of credit.

Credit Quality
The System’s accruing loan volume was $203.480 billion at June 30, 2014, as compared with
$199.324 billion at December 31, 2013. Nonaccrual loans decreased $162 million to $1.574
billion at June 30, 2014, as compared with $1.736 billion at December 31, 2013. This decrease
in nonaccrual loans was primarily due to loan repayments in excess of loans being transferred
into nonaccrual status. At June 30, 2014, 60.5% of nonaccrual loans were current as to
principal and interest, as compared with 58.5% at December 31, 2013.

Nonperforming loans (which consist of nonaccrual loans, accruing restructured loans, and
accruing loans 90 days or more past due) decreased $157 million to $1.883 billion at June 30,
2014, as compared with $2.040 billion at December 31, 2013. These nonperforming loans
represented 0.92% of the System’s loans at June 30, 2014 and 1.01% at December 31, 2013.

The System’s other credit quality indicators also improved during the second quarter of 2014.
Loans classified under the Farm Credit Administration’s Uniform Loan Classification System as
“acceptable” or “other assets especially mentioned” as a percentage of loans and accrued
interest receivable were 97.9% at June 30, 2014 and 97.7% at December 31, 2013. Loan
delinquencies (accruing loans 30 days or more past due) as a percentage of accruing loans
remained at a low level of 0.25% at June 30, 2014, as compared with 0.29% at June 30, 2013.

The allowance for loan losses was $1.183 billion at June 30, 2014, as compared with $1.238
billion at December 31, 2013. Net loan charge-offs of $16 million were recorded during the first
six months of 2014, as compared with net loan charge-offs of $61 million for the same period of
the prior year. The allowance for loan losses as a percentage of total loans was 0.58% at June
30, 2014 and 0.62% at December 31, 2013. The allowance for loan losses was 63% of the
System’s total nonperforming loans and 75% of its nonaccrual loans at June 30, 2014, as
compared with 61% and 71% at December 31, 2013. Total capital and the allowance for loan
losses, which is a measure of risk-bearing capacity, totaled $45.919 billion at June 30, 2014 and
$43.839 billion at December 31, 2013, and represented 22.4% of System loans at June 30,
2014, as compared with 21.8% at December 31, 2013.

Liquidity and Capital Resources
Cash and investments (principally all of which were held for liquidity purposes) was $53.361
billion at June 30, 2014 and $51.893 billion at December 31, 2013. The System’s liquidity
position represented 175 days coverage of maturing debt obligations at June 30, 2014, as
compared with 194 days at December 31, 2013.

Total capital increased $2.135 billion during the first six months of 2014 to $44.736 billion. The
System’s surplus increased $1.540 billion to $36.600 billion during the first six months of 2014
due to net income earned and retained. Capital as a percentage of total assets increased to
16.8% at June 30, 2014, as compared with 16.3% at December 31, 2013.

About the Farm Credit System
The Farm Credit System is a federally chartered network of borrower-owned lending institutions
and related service organizations. The System specializes in providing financing and related
services to borrowers in the agricultural and rural sectors through the four Banks and 78
affiliated Associations. Unlike commercial banks, the Banks are not legally authorized to accept
deposits and they principally obtain their funds through the issuance of Systemwide Debt
Securities.

Additional Information
Copies of this press release, as well as other financial information regarding the System,
including its annual and quarterly information statements, are available on the Federal Farm
Credit Banks Funding Corporation’s website at www.farmcreditfunding.com. Additional
information regarding the Farm Credit System is available on the System’s website at
www.farmcredit.com.

For further information and copies of annual and quarterly information statements, contact:

Karen R. Brenner, Managing Director
Financial Management Division
Federal Farm Credit Banks Funding Corporation
10 Exchange Place, Suite 1401
Jersey City, NJ 07302
(201) 200-8081
E-mail - kbrenner@farmcreditfunding.com

Forward-Looking Statements
Any forward-looking statements in this press release are based on current expectations and are
subject to uncertainty and changes in circumstances. Actual results may differ materially from
expectations due to a number of risks and uncertainties. More information about these risks
and uncertainties is contained in the System’s annual and quarterly information statements.
The System undertakes no duty to update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise.

FARM CREDIT SYSTEM
COMBINED FINANCIAL STATEMENT DATA
(in millions)

STATEMENT OF CONDITION DATA

  June 30,
2014

(unaudited)

December 31,
2013

(audited)

Cash and investmenst $53,361 $51,893
Loans 205,054 201,060
Less: allowance for loan losses   (1,183)   (1,238)
      Net Loans  203,871  199,822
Accured interest receivable 1788 1,719
Other assets 3,572 3,852
Restricted assets 3,621 3,496
      Total assets $266,213 $260,782
     
Systemwide Debt Securities:    
      Due within one year $78,075 $70,132
      Due after one year 134,296 137,357
      Total Systemwide Debt Securities 212,371 207,489
Subordinated debt 1,555 1,555
Other bonds 2,278 3,215
Other liabilities    5,273    5,922
       Total liabilities 221,477 218,181
     
Preferred stock 2,471 2,496
Capital stock 1,647 1,645
Additional paid-in-capital 1,073 738
Restricted capital 3,621 3,496
Accumulated other comprehensive loss (676) (807)
Surplus    36,600    35,060
      Total capital    44,736    42,601
      Total liabilities and capital $266,213 $260,782

STATEMENT OF INCOME DATA

  For the
Quarter Ended
June 30,
For the
Six Months
Ended
June 30,
  (unaudited)
  2014 2013 2014 2013
         
Interest income $2,206 $2,110 $4,387 $4,265
Interest expense   (518)   (475) (1,039)    (953)
Net interest income 1,688 1,635 3,348 3,312
Loan loss reversal (provision for loan losses) 23 (19) 35 (41)
Noninterest income 140 142 285 264
Noninterest expense   (590)   (596) (1,197) (1,172)
Income before income taxes 1,261 1,162 2,471 2,363
Provision for income taxes    (65)    (58)    (130)    (117)
      Net income $1,104 $1,104  $2,341  $2,246
 
FARM CREDIT SYSTEM
COMBINED FINANCIAL STATEMENT DATA
(in millions)
Statement of Condition Data - Five Quarter Trend
  June 30,
2014
(unaudited)
March 31,
2014
(unaudited)
December 31,
2013
(audited)
September 30,
2013
(unaudited)
June 30,
2013

(unaudited)
Cash and investements $53,361 $51,739 $51,893 $50,459 $47,755
Loans 205,054 204,563 201,060 194,211 192,784
Less: allowance for loan losses   (1,183)   (1,221)   (1,238)   (1,237)    (1,323)
      Net loans  203,871  203,342   199,822   192,974   191,461
Accured interest receivable 1,788 1,605 1,719 2,137 1,765
Other assets 3,572 3,600 3,852 3,863 4,098
Restricted assets      3,621      3,556      3,496      3,447      3,396
      Total assets $266,213 $263,842 $260,782 $252,880 $248,475
           
Systemwide Debt Securities:          
      Due within one year $78,075 $76,722 $70,132 $66,089 $65,171
      Due after one year  134,296  134,936  137,357  134,799  133,872
      Total Systemwide Debt          
          Securities 212,371 211,658 207,489 200,888 199,043
Subordinated debt 1,555 1,555 1,555 1,555 1,555
Other bonds 2,278 1,840 3,215 3,175 2,066
Other liabilities     5,273     5,121     5,922     5,513 5,230
      Total liabilities  221,477  220,174  218,181  211,131  207,894
           
Preferred stock 2,471 2,500 2,469 2,378 2,204
Capital stock 1,647 1,630 1,645 1,637 1,618
Additional paid-in-capital 1,073 1,091 738 738 738
Restricted capital 3,621 3,556 3,496 3,447 3,396
Accumulated other          
      comprehensive loss (676) (752) (807) (1,171) (1,122)
Surplus    36,600    35,643    35,060    34,720    33,747
      Total capital    44,736    43,668    42,601    41,749    40,581
      Total liabilities and capital $266,213 $263,842 $260,782 $252,880 $248,475

Statement of Income Data – Five Quarter Trend (unaudited)

For the three months ended: June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
June 30,
2013
           
Interest income $2,206 $2,181 $2,2013 $2,163 $2,110
Interest expense  (518)  (521)  (510)  (494)  (475)
Net interest income 1,688 1,660 1,693 1,669 1,635
Loan loss reversal (provision for loan losses) 23 12 40 32 (19)
Noninterest income 140 145 177 180 142
Noninterest expense  (590)  (607)  (716)  (577)  (596)
Income before income taxes 1,261 1,210 1,194 1,304 1,162
Provision for income taxes    (65)    (65)    (53)    (51)    (58)
      Net income $1,196 $1,145 $1,141 $1,253 $1,104