Vous êtes sur la page 1sur 11

4I~.

E~5J~~edit
1478 Stone Point Drive, Suite 450
Roseville, CA 95667
Voice: 916.780.1166 Fax: 916.780.1820
E-mail: Ken.Graff@FarmCreditWest.com
iBI Website: www.FarmCreditWest.com

Second Quarter 2009 Financial Statements


Attached are unaudited second qUalter 2009 consolidated fmancial statements for Falm Credit West, ACA (FCW) and its wholly
owned subsidiaries Farm Credit West, FLCA and Farm Credit West, PCA. We believe the results reflect that FCW continues to be
positioned to withstand the challenging economic times. Net income for the first six months of 2009 was $44.1 million, which
represents an annualized return on average assets of 1.55%.

In spite of our continued positive results, these ale very challenging times. The United States is in the midst of the longest recession
since the Great Depression. The global economy is also extremely weak and that is having an impact on California agriculture because
many of the commodities produced here are exported, and thus supply/demand, and consequently prices, have been adversely
impacted. This has created fmancial challenges for our customers and is causing FCW's asset quality to decline. Lending staff are
working closely with customers to address problems in a timely and proactive manner. In addition, the tutmoil in the credit and
financial markets, while gradually subsiding, continues to pose challenges to our business. We continue to have adequate access to
funding, but not nearly the flexibility in products that we offered before the financial crisis.

It has now been over a year since the merger with Sacramento Valley Falm Credit. The merger brought many benefits, such as
increased commodity and geographic diversity, operating efficiencies through economies of scale and a lalger capital base to enhance
our ability to serve an agricultural industry that is also consolidating into increasingly larger entities. The merged FCW is stronger and
better positioned for the future.

FCW has continued to offer very competitive pricing to our customers. In addition, FCW maintains a unique advantage through its
patronage program. Our 2008 patronage dividends provided the equivalent of a 50 basis point (0.50%) reduction in the effective
interest rate paid by our customers in 2008. FCW has distributed cash patronage dividends totaling $126 million since we began
paying patronage. If operations continue to be as successful as we project, we will continue providing patronage on an annual basis to
customers who remain in good standing. This, combined with our excellent customer service, will not only differentiate us from our
competitors, but it will also provide our customers lower costs - a competitive advantage in their own operations.

Our preferred stock program provides another means of "adding value" to the customer relationship. This program enables our
customers to provide the capital needed to SUppOlt FCW's growth, while the customer is paid an attractive dividend on their investment.
During the first six months of 2009, stockholder preferred stock investments averaged $130 million. During that same period of time
we also held an average of $154 million customer-owned future payment fimds, thus customers entrusted us with an average of
$284 million of their funds during the first half of 2009. We continue to make the neceSSalY adjustments to ensure that both these
programs are safe investments for our customers and provide a competitive rate ofretum.

There continues to be significant problems in the commercial banking sector resulting fiom problems in the housing market, high
unemployment and consequently high credit card delinquencies, and rapidly emerging problems in commercial real estate loans. This
has resulted in the failure of over 50 commercial banks thus far this year and many more to follow. Meanwhile, FCW and the Farm
Credit System will experience some credit problems as a result of the depressed economy, but overall these problems should remain
manageable and we should continue to produce positive results, and remain positioned as a reliable and competitive source of credit
and related services to agriculture. We appreciate each and every customer of FCW, and hope that you as customer/stockholders
appreciate FCW's unfailing commitment to provide "Superior Service at Competitive Rates."

The undersigned certifY that we have reviewed this report, that it has been prepared under the oversight of the FCW Audit Committee,
and in accordance with all applicable statutory or regulatOly requirements and that the information contained herein is true, accurate,
and complete to the best of our knowledge and belief.

Adam B. Firestone
Chairman ofthe Board of Directors
.~~ethE.
JJ aff
resident and Chief Executive Officer

July 29, 2009


DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

These unaudited second quarter 2009 financial statements should be read in conjunction with the 2008 Annual Report to
Shareholders. All information for periods reported herein is for the merged Farm Credit West.

This Quarterly Report to Shareholders contains forward-looking statements. These statements are not guarantees of future
performance; future operations involve risks, uncertainties, and assumptions that are difficult to predict. Actual results and
developments may differ materially from our expectations and predictions due to a number of risks and uncertainties,
many of which are beyond our control. Readers are cautioned not to place undue reliance on these forward-looking
statements. We will not update such forward-looking statements to reflect subsequent events or circumstances.

1. Loan, Lease, and Security Volume: Loan and lease volume (net of sold loan participations and the allowance for
loan losses) was $5.2 billion at June 30, 2009 an increase of $0.7 billion (16%) in the twelve months since June 30,
2008 and an increase of $0.3 billion (6%) since December 31, 2008. In addition, at June 30, 2009 we serviced loans
and leases totaling $1.2 billion for other institutions.

The $5.6 billion total volume of loans and investment securities at June 30, 2009 represents a $0.7 billion (14%)
increase in loans and investment securities over the past twelve months and a $0.3 billion (5%) increase in such assets
since December 31, 2008. More moderate year-over-year growth is expected in 2009 compared to the relatively high
rate of growth in 2008.

2. Credit Risk Management: To help manage and diversify credit risk, our credit risk management framework
includes securitizing loans, obtaining credit guarantees, selling loan participation interests, limiting hold positions to
amounts below legal lending limits, and prudently establishing individual lending limits based on asset quality.

3. Portfolio Quality: As shown in the following table, our loan quality has declined slightly over the past 18 months.
The global economic recession has weakened the financial position of some producers, particularly in the dairy and
livestock segments of the portfolio.

June 30, 2009 December 31, 2008 December 31, 2007


Non-adversely classified assets 96.2% 97.8% 98.1%
Adversely classified assets 3.8% 2.2% 1.9%
Total 100.0% 100.0% 100.0%

4. Nonearning Assets: Nonearning assets (nonaccrual loan volume plus the volume of foreclosed assets) totaled
$90 million at June 30, 2009. This level represents a 27% increase since December 31, 2008 and a 101% increase
since June 30, 2008. The increase during the first half of 2009 is largely related to the March 2009 transfer to
nonaccrual status of one large loan complex. Also, two other large loan complexes were transferred to nonaccrual
status in December 2008. Combined, the three large loan transfers accounted for substantially all of the increase in
nonaccrual loan volume since June 30, 2008. Nonearning assets were 1.7% of loan volume plus interest at June 30,
2009 a level that is higher than our recent experience.

5. Allowance for Loan Losses and 2009 Loss Activity: Our allowance for loan losses (Allowance) totaled
$15.6 million (0.29% of loan principal and interest) at June 30, 2009 and was 0.20% of loan principal and interest at
June 30, 2008. The Allowance is our best estimate of the amount of probable losses existing in, and inherent in, our
loan portfolio as of the balance sheet date. We determine the Allowance based on a regular evaluation of the loan
portfolio, which generally considers recent historic charge-off experience adjusted for relevant factors.

We have recorded three losses in 2009 (totaling $1.9 million, or 0.04% of average loan volume) as well as a relatively
small amount of recoveries of prior loan losses (totaling $27 thousand). This activity year-to-date is consistent with
our long-term experience of moderate loan losses.
6. Net Income: Net income for the six months ended June 30, 2009 was $44.1 million an annualized rate of return on
average assets (ROA) of 1.55%. Net income for the first six months of 2008 was $47.4 million an ROA of 1.98%.
The key components in the $3.3 million (7%) year-over-year decrease in net income (and the corresponding decline in
ROA) have been:
The provision for loan losses increased by $8.1 million. Management has increased estimates of probable loan
losses due to the current stress in certain sectors of the agricultural economy and its impact on asset quality.
In the first half of 2008, we received $6.5 million in patronage distributions from AgBank, but in 2009, AgBank
has not distributed patronage.
In 2008, we recorded a benefit from income taxes of $6.1 million compared with provisions for income taxes of
$0.1 million in 2009. In May 2008, the FCW Board of Directors resolved to patronage to customers the taxable
proceeds, if any, of certain allocated stock owned in AgBank. This Board resolution allowed us to reverse a
deferred tax liability of $5.7 million, resulting in a benefit from income taxes of the same amount.
Partially offsetting the items above:
Net interest income increased $12.0 million primarily due to the significant increase in average earning asset
volume since the second quarter of 2008.
Noninterest expense decreased $2.0 million, as discussed below.

7. Noninterest Expense: During the second quarter of 2008, we recorded non-recurring merger implementation
expense of $5.0 million relating to the April 30, 2008 merger with Sacramento Valley Farm Credit. Excluding 2008
merger expense, total noninterest expense increased 14% for the first six months of 2009, compared to the same
period in 2008. This $2.9 million aggregate increase is largely due to a $2.2 million (72%) increase in Farm Credit
Insurance Fund premiums.

8. Amounts of Capital and Capital Adequacy: In the past twelve months, total members equity has increased
$80 million (11%). The increase was mainly due to a $58 million (9%) increase in unallocated retained earnings and
a $16 million (15%) increase in preferred stock.

As shown in the following table, we substantially exceeded each regulatory minimum capital requirements for all
periods presented.

Type of capital as % of Quarter ended Quarter ended Regulatory


risk-weighted assets June 30, 2009 December 31, 2008 Minimum
Permanent capital 12.6% 12.7% 7.0%
Total surplus 10.0% 10.5% 7.0%
Core surplus 10.0% 10.5% 3.5%

Shareholder report distribution: Our annual and quarterly reports to shareholders are available on our website,
www.FarmCreditWest.com, or can be obtained free of charge by calling us (916.780.1166). Annual reports are mailed to
shareholders approximately 90 days after calendar year end (as well as being available on our web site approximately 75
days after calendar year end) and quarterly reports are available approximately 40 days after the first, second, and third
calendar quarters end. The financial condition and results of operations of AgBank materially affect shareholder
investments in Farm Credit West. For free copies of the AgBank District Annual Report to Shareholders and copies of the
AgBank Districts most recent quarterly report to shareholders, please call our corporate headquarters or visit AgBanks
website at www.USAgBank.com.
FARM CREDIT WEST, ACA
CONSOLIDATED BALANCE SHEET
(in thousands)
June 30 December 31
2009 2008 2008 2007
ASSETS (Unaudited) (Audited)
Loans and leases $ 5,256,480 $ 4,511,500 $ 4,962,362 $ 3,941,047
Less: allowance for loan and lease losses (15,600) (9,200) (9,175) (9,150)
Net loans and leases 5,240,880 4,502,300 4,953,187 3,931,897
Cash 2,096 139 611 77
Accrued interest receivable 59,197 60,802 62,277 54,812
Investment securities available-for-sale 298,840 323,900 316,539 364,922
Investment securities held-to-maturity 93,231 109,375 103,037 116,413
Investment in AgBank 145,763 122,859 135,655 122,859
Foreclosed assets 67 1,539 105 91
Premises and equipment, net 11,733 12,625 11,303 11,832
Leased assets, net 8,148 10,768 6,146 8,823
Other assets 27,341 20,159 32,605 25,530
Total assets $ 5,887,296 $ 5,164,466 $ 5,621,465 $ 4,637,256

LIABILITIES
Note payable to AgBank $ 4,828,946 $ 4,237,081 $ 4,627,434 $ 3,713,877
Future payment funds 144,659 130,897 136,829 132,274
Note payable to CoBank 58,261 13,546 16,295 14,098
Accrued interest payable 8,989 11,706 10,777 14,476
Patronage distribution payable 28,000 21,500
Unfunded disbursements 4,962 8,203 11,782 26,340
Deferred tax liabilities, net 847 1,562 1,970 7,658
Other liabilities 18,553 19,581 23,360 20,101
Total liabilities 5,065,217 4,422,576 4,856,447 3,950,324
Commitments and contingent liabilities

MEMBERS' EQUITY
Preferred stock 127,626 111,215 109,995 100,333
Capital stock and
participation certificates 3,826 3,716 3,813 3,645
Unallocated retained earnings 681,972 623,487 639,558 578,051
Accumulated other comprehensive income 8,655 3,472 11,652 4,903
Total members' equity 822,079 741,890 765,018 686,932
Total liabilities and members' equity $ 5,887,296 $ 5,164,466 $ 5,621,465 $ 4,637,256

The accompanying notes are an integral part of these financial statements.


FARM CREDIT WEST, ACA
CONSOLIDATED STATEMENT OF INCOME
(unaudited and in thousands)
For the three months ended For the six months ended
June 30 June 30
2009 2008 2009 2008
INTEREST INCOME
Loans and leases $ 58,046 $ 57,199 $ 112,654 $ 118,479
Investment securities and other 4,755 5,884 9,679 12,661
Total interest income 62,801 63,083 122,333 131,140

INTEREST EXPENSE
Note payable to AgBank 27,947 35,728 56,418 75,664
Future payment funds 361 779 798 2,195
Note payable to CoBank 96 147 190 319
Total interest expense 28,404 36,654 57,406 78,178
Net interest income 34,397 26,429 64,927 52,962
Provision for loan losses 4,277 208 8,281 158
Net interest income after provision
for loan losses 30,120 26,221 56,646 52,804

NONINTEREST INCOME
Patronage distribution from AgBank 3,428 6,537
Rent on leased assets, net of depreciation 123 123 223 230
Financially related services income 11 10 26 27
Other noninterest income 3,309 3,196 11,631 8,147
Total noninterest income 3,443 6,757 11,880 14,941

NONINTEREST EXPENSE
Salaries and employee benefits 5,896 5,849 11,982 12,026
Information technology services 1,061 964 2,122 1,895
Occupancy and equipment 564 605 1,327 1,121
Farm Credit Insurance Fund premiums 2,618 1,597 5,282 3,079
Supervisory and examination expense 281 267 562 534
Loss on foreclosed assets 26 14 37
Merger related expense 5,000 5,000
Other noninterest expense 1,313 1,379 3,095 2,743
Total noninterest expense 11,733 15,687 24,384 26,435
Income before income taxes 21,830 17,291 44,142 41,310
Benefit from (provision for) income taxes 285 6,510 (63) 6,093
Net income $ 22,115 $ 23,801 $ 44,079 $ 47,403

The accompanying notes are an integral part of these financial statements.


FARM CREDIT WEST, ACA
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY
Six months ended June 30, 2009 and 2008
(unaudited and in thousands)
Capital Accumulated
Stock and Unallocated Other Total
Preferred Participation Retained Comprehensive Members'
Stock Certificates Earnings Income Equity
Balance at December 31, 2007 $ 100,333 $ 3,645 $ 578,051 $ 4,903 $ 686,932
Comprehensive income
Net income 47,403
Other comprehensive income (1,431)
Total comprehensive income 45,972
Effect of changing defined
benefit plan measurement date (98) (98)
Preferred stock issued 35,942 35,942
Preferred stock retired (25,060) (25,060)
Capital stock and participation
certificates issued 199 199
Capital stock and participation
certificates retired (128) (128)
Preferred stock dividends
declared and paid (1,869) (1,869)
Balance at June 30, 2008 $ 111,215 $ 3,716 $ 623,487 $ 3,472 $ 741,890

Balance at December 31, 2008 $ 109,995 $ 3,813 $ 639,558 $ 11,652 $ 765,018


Comprehensive income
Net income 44,079
Other comprehensive loss (2,997)
Total comprehensive income 41,082
Preferred stock issued 56,438 56,438
Preferred stock retired (38,807) (38,807)
Capital stock and participation
certificates issued 125 125
Capital stock and participation
certificates retired (112) (112)
Preferred stock dividends
declared and paid (1,665) (1,665)
Balance at June 30, 2009 $ 127,626 $ 3,826 $ 681,972 $ 8,655 $ 822,079

The accompanying notes are an integral part of these financial statements.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Dollar amounts are in thousands, except as noted.

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

A description of the organization and operations of Farm Credit West, significant accounting policies followed, and the
financial condition and results of operations as of, and for the year ended, December 31, 2008 are contained in the 2008
Farm Credit West Annual Report to Shareholders. These unaudited second quarter 2009 financial statements should be
read in conjunction with the 2008 Annual Report to Shareholders.

The accompanying financial statements contain all adjustments necessary for a fair presentation of the Associations
interim financial condition and results of operations. Farm Credit Wests accounting and reporting policies conform to
accounting principles generally accepted in the United States of America (GAAP) and prevailing practices within the
banking industry. Certain amounts in prior period consolidated financial statements have been reclassified to conform to
current financial statement presentation.

Effective January 1, 2009, the Association adopted FSP No. 157-2, Effective Date of FASB Statement No. 157. This
FSP delayed the effective date of Statement No. 157 for nonfinancial assets and nonfinancial liabilities. The impact of
adoption resulted in additional fair value disclosures but did not have an impact on our financial condition or results of
operations.

In April 2009, the FASB issued FSP No. 157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP 157-4
emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and
regardless of the valuation technique and inputs used, the objective for fair value measurement is unchanged from what it
would be if markets were operating at normal activity levels or transactions were orderly; that is, to determine the current
exit price. It sets forth additional factors that should be considered to determine whether there has been a significant
decrease in volume and level of activity when compared with normal market activity. The reporting entity shall evaluate
the significance and relevance of the factors to determine whether, based on the weight of evidence, there has been a
significant decrease in activity and volume. FSP 157-4 indicates that if an entity determines that either the volume or level
of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price
quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment
will be required to estimate fair value. It is further noted that a fair value measurement should include a risk adjustment to
reflect the amount market participants would demand because of the risk (uncertainty) in the cash flows.

FSP 157-4 also requires a reporting entity to make additional disclosures in interim and annual periods. It is effective for
interim periods ending after June 15, 2009, with early application permitted for periods ending after March 15, 2009.
Revisions resulting from a change in valuation techniques or their application are accounted for as a change in accounting
estimate. The Association adopted the FSP in second quarter 2009. The adoption did not have a material impact on the
financial condition or results of operations of the Association.

In April 2009, the FASB issued FSP No. 115-2, Recognition and Presentation of Other-Than-Temporary Impairments,
which amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary impairments on debt securities in the financial
statements. It does not change existing recognition and measurement guidance related to other-than-temporary
impairments of equity securities.

FSP 115-2 changes existing impairment guidance under FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities by eliminating the ability and intent to hold provision. In addition, impairment is now
considered to be other than temporary if an entity (i) intends to sell the security, (ii) more likely than not will be required to
sell the security before recovering its cost, or (iii) does not expect to recover the securitys entire amortized cost basis
(even if the entity does not intend to sell). The probability standard relating to the collectibility of cash flows is also
eliminated, and impairment is now considered to be other-than-temporary if the present value of cash flows expected to be
collected from the debt security is less than the amortized cost basis of the security (any such shortfall is referred to in FSP
115-2 as a credit loss). If an entity intends to sell an impaired debt security or more likely than not will be required to
sell the security before recovery of its amortized cost basis less any current-period credit loss, the impairment is other-
than-temporary and should be recognized currently in earnings in an amount equal to the entire difference between fair
value and amortized cost. If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not
more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated
into (i) the estimated amount relating to credit loss, and (ii) the amount relating to all other factors. Only the estimated
credit loss amount is recognized currently in earnings, with the remainder of the loss amount recognized in other
comprehensive income. For held-to-maturity securities, the portion of the other-than-temporary impairment not related to
a credit loss will be recognized in a new category of other comprehensive income and amortized over the remaining life of
the debt security as an increase in the securitys carrying amount. Disclosure requirements for impaired debt and equity
securities are expanded and will now be required quarterly, as well as annually.

FSP 115-2 is effective for interim and annual periods ending after June 15, 2009, with early application permitted for
periods ending after March 15, 2009. For securities held at the beginning of the interim period of adoption for which an
other-than-temporary impairment was previously recognized, if an entity does not intend to sell and it is more likely than
not that it will be required to sell before recovery of its amortized cost basis, the entity shall recognize the cumulative
effect of initially applying this FSP adjustment to the opening balance of retained earnings with a corresponding
adjustment to accumulated other comprehensive income. The Association adopted the FSP in the second quarter of 2009
and did not recognize an adjustment to beginning retained earnings or accumulated other comprehensive income since no
impairment losses were previously recognized.

In addition, in April 2009, the FASB issued FSP No. 107-1 and Accounting Principles Board (APB) No. 28-1, Interim
Disclosures about Fair Value of Financial Instruments. This FSP requires disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The FSP
is effective for interim periods ending after June 15, 2009, with early application permitted for periods ending after
March 15, 2009. The Association incorporated the required disclosures into the notes to the financial statements.

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events," which sets forth general standards of accounting for
and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to
be issued. Recognized subsequent events should be recognized in the financial statements since the conditions existed at
the date of the balance sheet. Nonrecognized subsequent events are not recognized in the financial statements since the
conditions arose after the balance sheet date but before the financial statements are issued or are available to be issued.
This Standard, which includes a required disclosure of the date through which an entity has evaluated subsequent events, is
effective for interim or annual periods ending after June 15, 2009.

NOTE 2 CONSOLIDATION

Effective after the close of business on April 30, 2008, Sacramento Valley Farm Credit, ACA (Sacramento Valley Farm
Credit) merged with Farm Credit West, ACA, with the resulting entity retaining the Farm Credit West, ACA name. The
merger was accounted for on a historical cost basis similar to the pooling of interest method of accounting with the
associations combined at their respective book values. Accordingly, the accompanying consolidated financial statements
have been restated to include the accounts and results of operations of Sacramento Valley Farm Credit and Farm Credit
West as if the merger had been in effect for all periods presented. Before the merger, the accounting practices used by
Sacramento Valley Farm Credit and Farm Credit West were comparable. During the second quarter of 2008, Farm Credit
West recorded $5.0 million in merger related expense.
NOTE 3 - ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS

An analysis of changes in the Allowance for Loan Losses (Allowance) is shown below.

For the six months ended June 30


2009 2008
Balance at beginning of year $ 9,175 $ 9,150
Provision for loan losses 8,281 158
Charge-offs ( 1,883 ) ( 181 )
Recoveries 27 73
Balance at end of quarter $ 15,600 $ 9,200

The following table presents Allowance information concerning impaired loans. Impaired loans include nonaccrual loans
and loans past due 90 days or more and still accruing interest.

June 30
2009 2008
Impaired loans with a related allowance $ 33,022 $ 5,289
Impaired loans with no related allowance 56,462 37,920
Total impaired loans $ 89,484 $ 43,209
Allowance on impaired loans $ 5,959 $ 3,159

The following table presents average impaired loans and interest income recognized on impaired loans.

For the six months ended June 30


2009 2008
Average impaired loans $ 77,814 $ 30,421
Interest recognized on impaired loans $ 641 $ 578

NOTE 4 MEMBERS EQUITY

Preferred Stock: Effective July 2003, Farm Credit West was authorized to issue and have outstanding up to 100 million
shares of class H preferred stock. In April 2007, the Farm Credit West stockholders authorized an increase of the
maximum preferred stock issuance to $200 million. Purchases may be made by individuals or entities that hold, at the
time of their purchase of preferred stock, legal title to, or beneficial interest in, shares of any class of Farm Credit West
common stock or participation certificates. Retirement of preferred stock upon the holders request is at the sole discretion
of the Board, or by Farm Credit Wests president when consistent with authority delegated by the Board.

The preferred stock dividend rate is a per annum rate which is subject to change each calendar month. For any particular
month, the dividend rate shall not exceed 8% nor be less than the federal funds rate. The average preferred stock dividend
rate was 2.58% during the first half of 2009 and 3.32% for the full year in 2008.

Common Stock: Farm Credit West issues the following classes of common stock: class C common stock and class F
participation certificates. Such equities are at-risk. At-risk equities can only be retired with the express approval of the
Farm Credit West Board of Directors, or by Farm Credit Wests president when consistent with authority delegated by the
Board, and only if the capitalization requirements described below have been met. At June 30, 2009, the required
common investment was $1 thousand per voting stockholder. Customers with multiple loans under common control
satisfy their equity ownership requirement with a single $1 thousand cash investment.

Capital Adequacy: Farm Credit capital adequacy regulations require all Farm Credit associations to achieve permanent
capital of 7% of risk-adjusted assets and off-balance-sheet commitments. Failure to meet the 7% capital requirement can
initiate certain mandatory and possibly additional discretionary actions by our regulator that, if undertaken, could have a
direct material effect on our financial statements. Associations are prohibited from reducing permanent capital by retiring
stock or making certain other distributions to shareholders unless prescribed capital standards are met. Farm Credit
regulations also require that additional minimum capital standards be achieved. These standards require all System
institutions to achieve and maintain ratios of: total surplus as a percentage of risk-adjusted assets of 7%; and, core surplus
as a percentage of risk-adjusted assets of 3.5%. For the quarter ended June 30, 2009, Farm Credit Wests permanent
capital, total surplus, and core surplus ratios were 12.6%, 10.0%, and 10.0%, respectively.

NOTE 5 FAIR VALUE MEASUREMENTS

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability. For additional information, see Note 2 to the 2008 Annual
Report to Shareholders Summary of Significant Accounting Policies.

The June 30, 2009 value of Farm Credit Wests investment securities - available-for-sale measured at fair value on a
recurring basis is summarized below. There were no other assets and no liabilities measured at fair value at that date.

Fair Value
Measurements Using
Significant Unobservable
Inputs (Level 3) Total Fair Value
Assets:
Investment securities available-for-sale $ 298,840 $ 298,840

The table below represents a reconciliation of Farm Credit Wests investment securities available-for-sale measured at
fair value on a recurring basis for the period from January 1, 2009 to June 30, 2009. There were no other assets and no
liabilities measured at fair value during that period.

Fair Value Measurements Using


Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale
Balance at January 1, 2009 $ 316,539
Unrealized losses included in other comprehensive loss ( 3,114 )
Settlements ( 14,585 )
Balance at June 30, 2009 $ 298,840

As more fully discussed in Note 2 to the 2008 Annual Report to Shareholders Summary of Significant Accounting
Policies, SFAS 157 establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. The following represents a brief summary of the
valuation technique used for Farm Credit Wests investment securities available-for-sale.

Where quoted prices are available in an active market, available-for-sale securities would be classified as Level 1. If
quoted prices are not available in an active market, the fair value of securities are estimated using pricing models, quoted
prices for similar securities received from pricing services or discounted cash flows. Generally, these securities would be
classified as Level 2. This would include certain mortgage-backed and asset-backed securities. Where there is limited
activity or less transparency around inputs to the valuation, the securities are classified as Level 3. Securities classified as
Level 3 include Farm Credit Wests mortgage-backed securities issued by the Federal Agricultural Mortgage Corporation,
the valuation of which involves significant unobservable inputs. Farm Credit West values its investment securities
available-for-sale by determining the present value of that security using a comparison of (a) the existing interest rates on
its securitized loans to (b) the current, adjusted market interest rate for securities with similar characteristics, and valuing
accordingly.

Assets are measured at fair value on a non-recurring basis at June 30, 2009 for each of the fair value hierarchy values. As
of June 30, 2009, the Association had loan assets of $27.0 million determined to be Level 3, comprised of $33.0 million in
nonaccrual loans net of the related $6.0 million specific allowance. Certain loans are evaluated for impairment under
SFAS No. 114, Accounting by Creditors for Impairment of a Loan an amendment of FASB Statements No. 5 and 15.
To estimate the impairment of certain loans, the Association uses the practical expedient method which is based upon the
fair value of the underlying collateral for collateral-dependent loans. At June 30, 2009, substantially all of the
Associations impaired loans that are recorded at fair value are secured by real estate. The fair value measurement process
uses appraisals performed by independent licensed appraisers and other market-based information, but in many cases it
also requires significant input based on managements knowledge of and judgment about current market conditions,
specific issues relating to the collateral and other matters. When the value of the real estate, less estimated costs to sell, is
less than the principal balance of the loan, a specific reserve is established in order to recognize the fair value. As a result,
the Association considers the appraisals used in its impairment analysis to be Level 3 inputs. Impaired loans are reviewed
and evaluated periodically for additional impairment, and reserves are adjusted accordingly.

Farm Credit Wests held-to-maturity investment securities are carried at amortized cost.

NOTE 6 INCOME TAXES

Farm Credit West, ACA conducts its business activities through two wholly-owned subsidiaries. Long-term mortgage
lending activities are conducted through a wholly-owned FLCA subsidiary which is exempt from federal and state income
tax. Short- and intermediate-term lending activities are conducted through a wholly-owned PCA subsidiary. As with the
PCA subsidiary, the ACA holding company is subject to income tax. Farm Credit West operates as a cooperative that
qualifies for tax treatment under Subchapter T of the Internal Revenue Code. Accordingly, under specified conditions,
Farm Credit West can exclude from taxable income amounts distributed as qualified patronage dividends in the form of
cash, stock, or allocated retained earnings. Provisions for income taxes are made only on those taxable earnings that will
not be distributed as qualified patronage dividends.

At its May 28, 2008 meeting, the Board resolved to patronage to customers the taxable proceeds, if any, of certain
allocated stock owned in AgBank. This Board resolution allowed Farm Credit West to eliminate a deferred tax liability of
$5.7 million, resulting in a positive impact on net income of the same amount.

The Sacramento Valley Farm Credit merger positioned Farm Credit West to recognize two deferred tax assets that had
previously been offset by valuation allowances at Sacramento Valley Farm Credit. The deferred tax assets recognized,
which are associated with a net operating loss carryforward and a portion of the allowance for loan losses, totaled
$1.5 million, resulting in a positive impact on net income of the same amount.

NOTE 7 SUBSEQUENT EVENTS

The Association has evaluated subsequent events through July 29, 2009, which is the date the financial statements were
issued. No subsequent event items met the criteria for disclosure.