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Credit and Risk Management

FARM ASSETS / DEBT. U.S. ($billions)2005 20062007Real Estate1,5211,6351,858Non RE 284 285 311Total Assets1,8051,9202,169RE Debt 102 109 112Non RE Debt 92 98 102 Total Debt 194 207 214EQUITY$1,612$1,724$1,955 ROE 4.7

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Credit and Risk Management

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    1. Credit and Risk Management Corny Gallagher Agribusiness Executive Bank of America

    2. FARM ASSETS / DEBT U.S. ($billions) 2005 2006 2007 Real Estate 1,521 1,635 1,858 Non RE 284 285 311 Total Assets 1,805 1,920 2,169 RE Debt 102 109 112 Non RE Debt 92 98 102 Total Debt 194 207 214 EQUITY $1,612 $1,724 $1,955 ROE 4.7% 3.9% 4.4%

    8. FARM INCOME U.S. ($billions) 2005 2006 2007 Crops 116 120 136 Livestock 125 119 140 Cash Receipts 241 239 276 Cash Expenses 196 205 222 Govt. Payments 24 16 14 Net Farm Income $77 $68 $87 USDA

    9. FOCUS ON CASH FLOW The primary source of repayment of short term production loans is from the cash flow of the current years crops and livestock sales. The primary source of repayment of long term RE loans is the net income from the property pledged. Acres farmed times expected yields times forecasted prices determines income forecast. Less expected cost to produce the revenue determines the net income available to service debt.

    10. BUSINESS SUCCESS CHARACTERISTICS NEEDED TO MANAGE RISK Financial Management Equity Capital Diversification Vertical Integration Productivity and Technology Marketing Succession plan - Sustainabliity

    11. SUSTAINABILITY The Code is conceived around the three Es

    12. Driving Economic Forces in California Agriculture People Land Air Water Global Competitiveness

    13. California at Night

    15. Almonds: 100% Pistachios: 100% Walnuts: 100% Processing Tomatoes: 95% Figs, Dates, Olives, Kiwi: 100% Apricots: 95% Plums/Prunes: 97% Grapes: 87% Vegetables: Very high percentage While we will be discussing both types of Agriculture, I will be focusing primarily on Western specialty agriculture. It should be very clear that there not only are great opportunities within Western Specialty Agriculture for the application of information technology, the application of this technology is essential to the economic health of the industry. While we will be discussing both types of Agriculture, I will be focusing primarily on Western specialty agriculture. It should be very clear that there not only are great opportunities within Western Specialty Agriculture for the application of information technology, the application of this technology is essential to the economic health of the industry.

    17. FARMER MAC Farmer Mac is America's secondary market for first mortgage agricultural real estate loans. Farmer Mac was created by Congress to improve the availability of long-term credit at stable interest rates to America's farmers, ranchers and rural homeowners, businesses and communities. Farmer Mac accomplishes its public policy mission primarily by purchasing, or committing to purchase, qualified loans from agricultural mortgage lenders, thereby replenishing their source of funds to make new loans.

    18. FARMER MAC CREDIT STANDARDS AND GUIDELINES The borrowers pro forma debt-to-asset ratio should be 50% or less, on a market-value basis. Debt coverage ratio on the loan from pledged assets must be 1 to 1 or better. The borrowers pro forma overall total debt service coverage ratio should not be less than 1.25 to 1, including net income from farm and non-farm sources; Pro forma current ratio should not be less than 1 to 1.

    19. FARMER MAC CREDIT STANDARDS AND GUIDELINES The loan-to-appraised value (LTV) shall not exceed 70%, although Farmer Mac has established a maximum LTV of 75% in the case of qualified facility loans.

    20. UNIVERSITY OF CALIFORNIA COOPERATIVE EXTENSION 2006 SAMPLE COSTS TO ESTABLISH AN ORCHARD AND PRODUCE ALMONDS SAN JOAQUIN VALLEY NORTH MICRO SPRINKLER IRRIGATION

    21. COST TO ESTABLISH ALMONDS PER ACRE 3 YEAR INPUTS $4,400 $6,000 LAND $7,000 $15,000 TOTAL $11,400 $21,000 2006 SALES $10,000 $25,000 CURRENT NON AG $30,000+

    22. FORECASTED CASH FLOW DRIVERS LOW HIGH AVE YIELD 1,700 3,500 2,160 PRICE (10 YR) $0.86 $2.48 $1.52 INCOME $1,462 $8,680 $3,283 OP COSTS $1,791 $3,673 $2,000 NET INC NEG $5,000 $1,283

    23. FORECASTED DEBT SERVICE PER ACRE- RATE 8 % -20 YEARS DRIVERS LOW HIGH AVE COST $10,000 $30,000 $15,000 DEBT $5,000 $15,000 $10,500 NET INC NEG $5,000 $1,283 PAYMENT $509 $1,527 $ 1,070 COVERAGE RATIO 1.2 TO 1 MAX LOAN AT 1 TO 1 $12,500 PAY $1273

    24. SMALL AMOUNT OF CAL-MED LAND IN THE WORLD

    25. HIGH DENSITY OF PEOPLE IN CAL-MED REGIONS

    26. More than $15 billion in commitments to the industry sector. Clients value our industry knowledge and expertise as well as our ability to provide a complete range of financial products and services. We provide long term RE loans with flexible terms.

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