Annual Report - CoBank

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Operating Segment Financial ReviewWe conduct lending operations through three operatingsegments: Agribusiness, Strategic Relationships and RuralInfrastructure. We previously reported our results in foursegments; however, we have re-aligned our segment reportingin conjunction with changes in our management structure, asdisclosed in our most recent quarterly report, that becameeffective in the fourth quarter of 2009. The revised segmentreporting better reflects the industries we serve. Financialresults presented for the prior periods have been reclassifiedto conform to our current year presentation.We hold investments and other highly-liquid fundsprimarily to provide the liquidity necessary to support our corelending operations. Accordingly, net interest income oninvestment securities, federal funds sold, securities purchasedunder resale agreements and other highly-liquid funds isallocated to all operating segments, whereas the underlyinginvestment assets are not allocated.In addition to the operating segments described below,our Banking Services Group (BSG) provides capital marketssolutions that support our lending divisions. BSG managessyndications and loan sales with approximately 130 financialinstitutions. In 2009, we syndicated or sold approximately$10.9 billion of loan commitments to System entities andother financial institutions to help meet customers’ creditneeds and to effectively manage our capital and riskdiversification.BSG offers information and knowledge sharing servicesthat provide the Bank and its customers marketplace insight toenhance understanding of emerging business opportunitiesand risks. BSG also provides non-credit products and services,which include cash management, commercial credit card andmerchant card processing solutions. Revenues generated fromnon-credit products and services, as well as BSG’s operatingexpenses, are allocated to the appropriate operating segments.Net income by operating segment is summarized in theaccompanying table and is more fully disclosed in Note 15 tothe accompanying consolidated financial statements. Thefollowing tables also provide period-end and average loanamounts.Net Income by Operating Segment ($ in Thousands)Year Ended December 31, 2009 2008 2007Operating Segment:Agribusiness $ 288,533 $ 306,479 $ 248,663Strategic Relationships 96,964 67,846 50,827Rural Infrastructure 184,477 165,610 119,857Total Operating Segments 569,974 539,935 419,347Corporate/Other (4,558) (6,502) (3,737)Total $ 565,416 $ 533,433 $ 415,610Period-end Loan Portfolio by Operating Segment ($ in Millions)December 31, 2009 2008 2007 2006 2005Agribusiness $ 17,469 $ 18,498 $ 19,582 $ 15,449 $ 11,654Strategic Relationships 15,271 15,026 12,211 9,967 7,848Rural Infrastructure 11,434 11,026 8,698 7,660 6,795Total Loans $ 44,174 $ 44,550 $ 40,491 $ 33,076 $ 26,297Average Loan Portfolio by Operating Segment ($ in Millions)Year Ended December 31, 2009 2008 2007 2006 2005Agribusiness $ 18,229 $ 21,843 $ 16,866 $ 12,958 $ 11,571Strategic Relationships 15,062 13,670 10,602 8,593 7,197Rural Infrastructure 11,236 9,861 7,941 7,272 6,551Total Average Loans $ 44,527 $ 45,374 $ 35,409 $ 28,823 $ 25,319CoBank 2009 Annual Report34
The following table presents activity in the reserve for credit exposure by operating segment.Analysis of the Reserve for Credit Exposure ($ in Thousands)2009 2008 2007 2006 2005Beginning of Year $ 483,421 $ 447,226 $ 438,231 $ 437,140 $ 435,981Charge-offs:Agribusiness (36,958) (17,574) (1,859) (23,302) (13,313)Strategic Relationships - - - - -Rural Infrastructure (33,240) (8,000) - - (28,236)Total Charge-offs (70,198) (25,574) (1,859) (23,302) (41,549)Recoveries:Agribusiness 4,850 3,916 7,508 7,601 8,272Strategic Relationships - - - - -Rural Infrastructure 117 2,853 8,346 12,792 9,436Total Recoveries 4,967 6,769 15,854 20,393 17,708Net (Charge-offs) Recoveries (65,231) (18,805) 13,995 (2,909) (23,841)Provision (Reversal) Charged(Credited) to Earnings 80,000 55,000 (5,000) 4,000 25,000End of Year $ 498,190 $ 483,421 $ 447,226 $ 438,231 $ 437,140Components:Allowance for Loan Losses $ 369,817 $ 329,198 $ 447,226 $ 438,231 $ 437,140Reserve for Unfunded Commitments 128,373 154,223 n/a n/a n/aTotal Reserve for Credit Exposure (RCE) $ 498,190 $ 483,421 $ 447,226 $ 438,231 $ 437,140RCE/Total Loans 1.13% 1.09% 1.10% 1.32% 1.66%RCE/Nonguaranteed Loans(Excluding Loans to Associations) 1.98 1.85 1.66 2.03 2.63RCE/Impaired Loans 154 218 2,677 504 360RCE/Nonaccrual Loans 162 222 3,020 531 365Net (Charge-offs) Recoveries /AverageLoans (0.15) (0.04) 0.04 (0.01) (0.09)Allocation of the Reserve for Credit Exposure ($ in Thousands)December 31, 2009 2008 2007 2006 2005Agribusiness $ 367,308 $ 360,417 $ 304,076 $ 281,427 $ 287,127Strategic Relationships - - - - -Rural Infrastructure 130,882 123,004 143,150 156,804 150,013Total Reserve for Credit Exposure $ 498,190 $ 483,421 $ 447,226 $ 438,231 $ 437,140CoBank 2009 Annual Report35
Page 9 and 10: we believe CoBank iswell-positioned
Page 11 and 12: R E G I O N A L A G R I B U S I N E
Page 13 and 14: C O R P O R A T E A G R I B U S I N
Page 15 and 16: S T R A T E G I C R E L A T I O N S
Page 17 and 18: E L E C T R I C D I S T R I B U T I
Page 19 and 20: E N E R G Y & W A T E R B A N K I N
Page 21 and 22: E N E R G Y & W A T E R B A N K I N
Page 23 and 24: C O M M U N I C A T I O N S B A N K
Page 25 and 26: S T R AT E G I C R E L AT I O N S H
Page 27 and 28: Co b a n k 2009 financial r e p ort
Page 29 and 30: Five-Year Summary of Selected Conso
Page 31 and 32: institutions and members of the Sys
Page 33 and 34: Net interest income increased to $9
Page 35: The increase in Insurance Fund prem
Page 39 and 40: Noninterest income in our Agribusin
Page 42 and 43: We are limited to making loans and
Page 44 and 45: Prior to purchase, we assess the cr
Page 46 and 47: Our interest rate sensitivity posit
Page 48 and 49: We have included a summary of our d
Page 50 and 51: Due to the often volatile funding n
Page 52 and 53: We are Subject to Liquidity Risk wi
Page 54 and 55: CapitalWe believe that a sound capi
Page 56 and 57: Economic CapitalEconomic capital is
Page 58 and 59: The degree of management judgment i
Page 61 and 62: Consolidated Balance SheetsCoBank,
Page 63 and 64: Consolidated Statements of Changes
Page 65 and 66: Notes to Consolidated Financial Sta
Page 67 and 68: CashFor purposes of these financial
Page 69 and 70: A summary of the components of FCL
Page 71 and 72: The following table shows the fair
Page 73 and 74: The Insurance Fund is available to
Page 75 and 76: Description of EquitiesIn March 200
Page 77 and 78: The projected benefit obligation an
Page 79 and 80: Investment strategy and objectives
Page 81 and 82: As of December 31, 2009, the maximu
Page 83 and 84: Estimated Fair Value of Financial I
Page 85 and 86: To minimize the risk of credit loss
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Segment Financial InformationStrate
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Note 17 - Quarterly Financial Infor
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Supplemental District Financial Inf
Page 93 and 94:
Supplemental District Financial Inf
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Report of Independent AuditorsCoBan
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Management’s Report on Internal C
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Annual Report to Shareholders Discl
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Board of Directors Disclosure as of
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Senior OfficersCoBank, ACBRobert B.
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Senior Officers Compensation Discus
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Code of EthicsCoBank, ACBCoBank set
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CERTIFICATIONI, Robert B. Engel, Pr
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CERTIFICATIONI, David P. Burlage, S
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Customer PrivacyYour financial priv
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5 5 0 0 s o u t h Q u e b e c s t r
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