Special Annual Report Issue - AgGeorgia Farm Credit

Inside:Special Annual Report Issue

Leaderis published quarterly for stockholders, directorsand friends of AgGeorgia Farm Credit.PresidentBill NewberryI want a free EmergencyCrank/Battery Radio!Enter our drawing for a free Crank Powered Radio with AM/FM/Shortwave 1 & 2 by fillingout the coupon below and mailing it in. This radio features a Dynamo Hand Crank which providespower anywhere, anytime; AM/FM/SW 1 & 2 radio bands; Crank Powered emergencylight; built-in rechargeable NiMH battery; 360 degree telescopic antenna; earphone jack; DC4.5V Jack; carrying case with shoulder strap. We will be giving away six of these handy itemsso send in your coupon today!The winners of the softsided briefcase in the Fall Issue were: Kim Cook of Hall County; Jana Williamsof Cook County; Julia Roberts of Cook County; Charles Eady of Gordon; Steve Milfordof Hart County and Johnnie Mixon of Vienna.NamePhone ( )Street Address (needed for delivery)City County ZipPlease check the appropriate box(es) I would like more information about Farm Credit services/products Please have a loan officer contact me.Mail this coupon to:AgGeorgia Farm Credit | PO Box 2536 | Gainesville, GA 30503BOARD OF DIRECTORSGerald D. AndrewsJohn W. Bagwell Jr.Tuttle W. BarksdaleEdward M. Beckham IIJack Bentley Jr.William L. BrownJames B. CarltonCarroll CastleberryBilly J. ClaryDan N. CrumptonGuy DaughtreyJ.E. “Bud” JonesHoward LawsonRonney S. LedfordJoseph M. MeeksBobby G. MillerDave NeffDan RainesGeorge R. ReevesAnne G. SiskDavid H. SmithJ. T. Woodard Sr.Franklin B. WrightEDITOR & MARKETING MANAGERMary KileyPUblisherAgFirst Farm Credit BankPublishing DIRECTOrDonna CamachodesignersDarren HillAmanda SimpsonTravis TaylorCassandra ZimmerlyPRINTERSpectra True ColourCirculationKathi DeFlorioAddress changes, questions, comments orrequests for copies of our financial reportsshould be directed to AgGeorgia Farm Creditby writing P.O. Box 1548, Dublin, GA 31040 orcalling 800-868-6404. Our quarterly financialreport can also be obtained on our website:www.aggeorgia.comEmail: mkiley@aggeorgia.com.AgGeorgia..Winter 2007

Table of ContentsThe annual AgGeorgia Farm Credit“Classic” was held the first weekend inJanuary in Tifton, Georgia. There were 70steers and heifers exhibited during thisevent with eleven counties in the southcentral Georgia area being represented.These counties were: Echols, ...Page 8While growing up on his father’sfarm, Gary Paulk never had any ideas,thoughts, dreams or plans of ever growingmuscadines, much less becoming one ofthe largest muscadines growers in thecountry.“I absolutely loved growing up on a farmand my daddy had a big influence...Page 24Where in Georgia is This?This memorial marking the final resting place of Colonel Benjamin Hawkins is locatedwhere in Georgia? Colonel Hawkins served on General George Washington’s staff duringthe Revolutionary War. He was born in 1754 and died in 1816.Answer to the last issue’s photo: This tribute to baseball’s legend Ty Cobb is located inRoyston, Georgia.4 Spotlight on Taylor County6 Taylor County GeorgiaStrawberry Festival 20077 Habersham CountyProperty For Sale8 AgGeorgia Farm Credit“Classic”10 Association Newswelcome Our Newest StaffMembersFloyd County Town andCountry DinnerAssociation Presents ServiceAwards11 Association NewsAgGeorgia OfficesCelebrate with CustomerAppreciation Events13 Association NewsAgGeorgia Farm CreditHeifer Show Held inCalhouninsurance Reminder14 Georgia Farm CreditAssociations AwardScholarships to FVSUStudents16 Cotton: From Field to Fabric22 2006 Farm Family of theYear24 It Was Hogs to Muscadinesfor Georgia Farmer of theYear Gary Paulk26 AgGeorgia Farm Credit- Ag Loans & a Whole LotMore32 2006 Annual ReportAgGeorgia..Winter 2007

Spotlight on Taylor CountyBy: Sybil WillinghamAn arrow head kicked up in a freshlyplowed field is a sudden reminderof the presence of the native peopleswho once lived on the land that is nowTaylor County. It is not hard to imagine thescenes that surrounded them. In some ways,it is much the same today. The fall line thatmarks with a sandy streak that was the seashore divides the county. The northern partis hilly with deep rock formations whilethe southern part is sandy with acrub oakand pine forests. Gopher tortoises burrowin the sand hills. Creeks feed into the FlintRiver and teem with fish. A rare inlandstand of eastern white cedar, exquisitepitcher plants and other rare and endangeredflora and fauna live along the banksof Whitewater Creek and Cedar Creek.When naturalist William Bartram exploredthe area in 1779 he noted the natives that heencountered as well as the plants, animalsand soils of the region.Colonel Benjamin Hawkins wasappointed by George Washington in 1796as Indian agent to all of the tribes east ofthe Mississippi River and South of the OhioRiver. He established a settlement on thenorth side of the Flint River. On the southside of the river was a fort. The combinedarea, called the Agency Reserve, totaled3000 acres and is still visible on the landlot maps as lines drawn at 45-degrees tothe usual land lot north-south orientation.The agency was self-sufficient, with foodplots, orchards, and animal feed lots. Skillsand trades were taught to the Indians. Here,Hawkins entertained travelers, missionariesand tribal leaders. In 1805, the federalgovernment began a road to connect thecities of the east coast with New Orleans.The route, which followed the Lower CreekTrading Path, came through Hawkins’This field of hay promises agood supply of winter feed.Photo by Nancy Payne.agency, crossed the river and headed west.It was called “the federal road” and later theWire Road, for the telegraph wire that wasstrung along the route. The road followspresent day Georgia Highway 208.With more traffic came the desire formore land. The Treaty of Indian Springsceded the area to the government. The Stateof Georgia distributed the newly surveyedland by lottery in 1827. The early settlers ofthe area established small family farms of202 acres. A few plantations later occupiedrich flood plains land along the river andother fertile areas.Churches were soon established bythe faithful. Antioch Baptist Church andCrowell Methodist Church on the northside of the county were founded in the1820s. Other early churches were Bethelneat Butler, and New Hope near Reynolds,and Hays Campground now Union MethodistChurch. Taylor County Camp Groundis the site of an old fashioned camp meetingevery summer. On the grounds are an openair tabernacle, cottages and facilities forthose who come for fellowship and revival.The coming of the railroads broughtmore settlers to the area. Taylor Countywas formed in 1852, taken from parts ofMacon, Marion and Talbot Counties. Itwas named for Mexican War hero PresidentZachary Taylor. Although Reynolds,in the eastern end of the county reservedspace for a county seat, Fifty Mile Stationwas chose because of its central location.It was soon renamed Butler. A fine brickcourthouse was constructed on the squarein the middle of town and served as the seatof local government until 1935 when a new,larger courthouse replaced it. The statelyGreek revival building is the main countyoffice building and courthouse.The residents of Taylor County sawno need to secede from the Union when thequestion came up in 1860. They voted forAgGeorgia..Winter 2007

When naturalist William Bartram explored the area in 1779 he noted thenatives that he encountered as well as the plants, animals and soils of the region.the co-operationist delegates to the GeorgiaSecession Convention held in Milledgevillein January of 1861. Never-the-less, whenwar came, they were among the first to volunteerto serve in the Army of the Confederacy.By the time the war ended in April of1865, nearly every able-bodied white manin the county between the ages of 15 and55 had served. Many did not return, buriedin some far-away unknown grave. Most ofthe ones who made it home were missinglimbs or suffered from illness contractedin service. A monument on the courthousesquare was erected in 1911 by the Wallace-Edwards Chapter of the United Daughtersof the Confederacy in memory and honorof the Confederate soldiers from TaylorCounty.As the population grew, communitiessprang up around the county, especiallyclose to the railroads. Once thriving settlements,Charing, Mauk, Rupert, Potterville,and Howard remain as living reminders ofa simpler time. Other communities, likePebble, Fickling Mill, Southland, Crossroadsand Crowell are now only road names.Rural schools were built in the 1930s. Whenthe county schools were consolidated in the1950s, the rural schools were given to clubsformed to accept them for the communities.Of those, only Mauk Schoolhouse isstill owned and used by the club. CrowellSchoolhouse is owned and used by CrowellUnited Methodist Church.A historical marker at the intersectionof the Fall Line Freeway and John B. GordonRoad east of Reynolds tells the story ofBeechwood Plantation. Former ConfederateGenral John B. Gordon who laterserved as Georgia Governor and UnitedStates Senator began acquiring land on theFlint River in 1873. His Beechwood Plantationeventually sprawled to 10,000 acres inTaylor and Macon Counties. Here Gordonexperimented with grafted pecan trees, andraised Texas long horned cattle, paintedponies and goats.A historical markerat the intersection of theFall Line Freewayand John B. Gordon Roadeast of Reynolds tellsthe story of BeechwoodPlantation.Taylor County remains mainly agrarian.Fields of corn, peanuts, soybeans,watermelons and cotton stretch across thesummer landscape. Orchards of peach treesyield their luscious fruit from mid-May tomid-August to be packed and shipped topoints all over the country.Pine trees are planted, harvested andplanted again in a continuing cycle thatproduces pulp for paper and other products.The woods also provide the habitat for wildlife and a profitable sideline for landowners.The population of the county swells duringhunting season as sportsmen pursue thattrophy buck, wild hog or bearded turkey.One thing that western Taylor Countyhas plenty of is sand. It is said that the firstrail car of sand was loaded and sent off as aprank. The young pranksters were surprisedwhen a check came for them in payment forthe sand. This became a successful industrythat has thrived for over 100 years.Silver Dollar Raceway near Reynoldsdraws drag racing fans from all over thesouth-east. Billed as “excitement- a quartermile at a time,” the NHRA quarter mile dragstrip hosts races, car shows and specialevents year-round.Local festivals are great small townfun. The Countryside Festival in Butler inthe fall and the Georgia Strawberry Festivalin Reynolds in the spring are opportunitiesfor local folks to show their good ol’southern hospitality to visitors. But thenthe welcome mat is always out in TaylorCounty where everyone is treated like homefolks. Taylor County today remains mainlyagrarian. Photo by E. Kelly Bond.AgGeorgia..Winter 2007

Taylor CountyGeorgia Strawberry Festival, 2007With today’s hectic and sometimesscary world, don’t youwish you could go back to asimpler time and place? Well, Reynolds,Georgia becomes “Strawberry RFD” andturns back the clock to April 27 and 28, 1957as it welcomes visitors to the 9th annualGeorgia Strawberry Festival. Don’t expectto sit and rock on the front porch, though.There will be plenty to do starting in thepark on Friday evening. The Women’s Clubladies serve up good ol’ country cookin’ tobe enjoyed under the shade trees while agospel group picks old time gospel favoritesin the gazebo. Fresh strawberry shortcakefinished off the meal. Across the street aregames and rides and more food choices incase you missed the supper.On Saturday, grab some pancakes atthe Methodist Church and find your spotto watch the 10AM Teddy Bear Parade. Allkids are invited to join in! The Trae ChevroletGrand Parade follows with antiquecars and tractors, marching bands and anassortment of other entries. The tractorsand antique engines will be on display inthe park after the parade.Over 100 artists and craftsmen fromaround the southeast will have booths onthe streets and in the park offering uniquehandcrafted products. The Flint EnergiesStrawberry Cook-Off in Flint EnergiesAuditorium is planned for 1PM and drawssome of Georgia’s finest cooks.The festival promises good, wholesomefun for the whole family. 2006 Strawberry Festival Cook-Off WinnersHere are three of the winning recipes fromlast year’s Strawberry Festival Cook-Off.Bridget Wingate with her prize-winningFresh Strawberry Cake. Photo by E. KellyBond.Theresa Windham and her 1st placeLuscious Strawberry Cheesecake.Photo by E. Kelly Bond.Jane Morris and her prize-winningStrawberry Cream Supreme pie. Photo by E.Kelly Bond.AgGeorgia..Winter 2007

Fresh Strawberry Cake1st Place Cakes - Bridget WingateIngredients:1 box Yellow cake mix1 cup Sour cream1/3 cup Oil¼ cup Sugar¼ cup Water1pint Whipping cream¾ cup Sugar3 cups StrawberriesDirections:1. Mix first 5 ingredients and bake in 4, 8”cake pans until done. Let cool.2. Beat whipping cream & sugar until stiffpeaks form.3. Layer cake with whipping cream. Thenput some strawberries on top of whippingcream on each layer.4. Finish cake with remaining whippedcream.Luscious StrawberryCheesecake1st Place Cheesecakes - Theresa WindhamIngredients:1 box White cake mix4 tbsp Butter, melted4 Large eggs.2 pkg Cream cheese1 can sweetened condensed milk½ cup Sour cream1 tsp Vanilla½ tsp Almond1 cup Strawberries, choppedDirections:1. Heat oven to 325°. Grease 9” spring-formpan. Reserve ½ cup of cake mix. Blendremainder with 4 tbsp butter and 1 egg.The batter should form a ball. Spread thebatter evenly over the bottom and up 1 inchof the pan side.2. Mix together the cream cheese and thesweetened condensed milk. Add to it thereserved cake mix, 3 eggs, sour cream,vanilla, almond and strawberries.3. Pour onto crust.4. Bake 45-50 minutes5. Chill at least 1 hour.Strawberry CreamSupreme1st Place Pies - Jane G. MorrisIngredients Serves: 12Crust:1 ½ cups Graham crackers, crushed(Crush these in a plastic bag)¼ cup Butter, melted3 tbsp Sugar1 -12 oz Cool WhipFilling:18 oz. Sour cream1 pkg. Instant vanilla pudding &pie filling2 cups Strawberries, sliced(sprinkled with Splenda)2 tbsp Pecans, choppedDirections:1. Mix the graham crackers, butter andsugar in the plastic bag used to crush thecrackers. Press crumb mixture into bottomof a springform pan.2. Whisk cool whip & sour cream together.Add pudding mix and whisk until blended& smooth.3. Spread half of filling over crust. Arrangesliced strawberries over filling, and thenspread the rest of filling over strawberries.Sprinkle with copped pecans.4. Refrigerate.5. Cut into wedges and garnish with astrawberry fan.6. Variation: Add sliced bananas with thestrawberries. NOTE: If bananas are added,serve same day as it is prepared. HabershamCounty PropertyFor SaleFor sale in Habersham County 20.1acres for $365,000 with frontage on statehighway. This property has a stream and abarn and joins U.S. government property.Inquires to be directed to sdean@aggeorgia.com or telephone 706 499-5455.For sale in Habersham County32.48 acres for $1,200,000 with 800 feet onone of the best trout streams in Georgia, theSoque River. The property has a 2200 squarefoot brick dwelling with a full basement.Inquires to be directed to sdean@aggeorgia.com or telephone 706 499-5455. AgGeorgia..Winter 2007

AgGeorgiaOffices Celebratewith CustomerAppreciation EventsThe, Sylvester and Moultrie branchoffices showed their appreciation for theircustomer during recent events.Sylvester Branch held their CustomerAppreciation luncheon on Wednesday,November 8th. Approximately 126 customers,family members and employees enjoyeda seafood buffet prepared by Roscoe Gay.Ray Hendrick, Tara Bozeman, CoreyCottle, Karen Norton, Steve Vick and SteveYearta of the Moultrie office sponsoredlunch at the Colquitt County Ag Center onNovember 30th. Roscoe Gay cooked friedquail and chicken with all the trimmingsfor 135 eager partakers. Several door prizeswere presented to those in attendance. AgGeorgia.11.Winter 2007

The Key to YourMortgage FinancingWhy landbank is the home loan solutionCompetitive market ratesKnowledgeable and experienced loanofficers to efficiently process your loanLarger tracts consideredProperty may be used for both residentialand agricultural purposesProperty may be accessed by a private roadEasements may be permissible providedsuch easements do not render the propertyunmarketableProperty may be located in areas less than25% developedFast loan approval and closingConvenient online applicationwww.landbanksolutions.comWhitney Bledsoe | 800.768.3276Donna Edwards | 866.615.7088Rhonda Shannon | 800.768.3031

Association NewsAgGeorgia Farm CreditHeifer Show Held in CalhounShown here are two photos of the winners of the Farm Credit Heifer Show held this pastNovember in Calhoun. Madison Miller of the Gordon County 4H showed the Champion 5thGrade or below Reserve Champion Angus. Madison was also the Showmanship winner forher class. Supreme Champion Heifer Shown by Lea Crump Gordon County 4-HerReserve Supreme Heifer shown by Kallie Johnson Cherokee County 4-HerInsuranceReminderAgGeorgia Farm Credit, Agricultural CreditAssociation (Association) loan agreementsand/or commitment letters stipulate thatborrowers obtain and maintain insuranceon property pledged as security for loanswith the association named as mortgagee orloss payee as appropriate.This notice is a reminder that theminimum amount of coverage requiredto be maintained is the lesser of your loanbalance(s), the actual cash value of theproperty, the replacement cost of the propertyor the amount stipulated by your loanofficer. Since the amount required could beless than the amount for which the propertycan be insured, you are encouraged toconsider higher limits where applicable toadequately protect your equity interest inthe property.If the property securing your loan consistsof improved real estate, unless otherwiseadvised, at a minimum, your policymust insure against the following perils:fire and lightening, wind, hail, aircraft orvehicle damage, riot or civil commotion,explosion, smoke damage, water damage(other than flood), falling objects, weightof snow, ice or sleet and vandalism. Lossor damage from flooding is also required ifyour loan was made after October 4, 1996,and at the time the loan was made the propertywas located in a government mandateSpecial Flood Hazard Area and flood insurancewas available.If the property securing your indebtednessconsists of personal property includingvehicles, machinery or equipment, in additionto the causes of loss cited in the precedingparagraph, the property must also beAgGeorgia.13.Winter 2007

insured against theft, and where applicable,such as with mobile machinery and equipment,collision and upset.If your current coverage does notconform to these requirements, pleasecontact your insurance representative andeffect the necessary changes to insure yourcoverage does comply with these requirements.Please contact your local AgGeorgiaFarm Credit representative if you have anyquestions or comments. Georgia FarmCredit AssociationsAward Scholarshipsto FVSU StudentsThe Georgia Farm Credit Associationsawarded scholarships to three students inthe Fort Valley State University College ofAgriculture, Home Economics and AlliedPrograms in January.Jack Drew, chief operating officer ofthe AgGeorgia Farm Credit AgriculturalCredit Association, and Lisa Corbett, vicepresident of the AgSouth Farm CreditACA, presented $500 GFCA scholarshipsto Nicole M. Cook, a senior majoring inanimal science and veterinary science technologyand Esther Nicole Hunt and AshleeMcGhee, both juniors majoring in plantscience.The scholarships awarded during a10 a.m. presentation ceremony in the C.W.Pettigrew Farm and Community LifeCenter on Jan. 11 were the first given toFVSU students by the Georgia Farm CreditAssociations.During the scholarship presentation,Drew said that the Georgia Farm CreditAssociations are “proud to continue ourlegacy of promoting agricultural educa-FVSU ag students awarded GFCA scholarships (From left) Neal Leonard, USDA-1890 liaisonofficer at FVSU, Dr. Mack Nelson, FVSU dean of the College of Agriculture, Home Economicsand Allied Programs; FVSU students Nicole M. Cook, Esther Nicole Hunt and Ashlee McGhee;Lisa Corbett, AgSouth Farm Credit vice president; Jack Drew, AgGeorgia Farm Credit chiefoperating officer; Mary Kiley, AgGeorgia Farm Credit marketing manager; and Dr. MarkLatimore, FVSU interim head of agricultural instruction, pause for a group photo during theGFCA scholarship presentation ceremony in FVSU’s C.W. Pettigrew Center, Jan. 11.tion through the inception of a scholarshipprogram at Fort Valley State University.”“Farm Credit has always supportedFFA, 4-H and other ag education programsthroughout the state and we look forwardto contributing to the education of studentsat FVSU’s College of Agriculture throughour state scholarship program,” he told thestudents.Nelson said that the college – and theuniversity – deeply appreciated the supportand commitment to education and agriculturethat the GFCA offered through itsscholarship program.“We look forward to a growing relationshipbetween the Georgia Farm CreditAssociations and this university,” Nelsonsaid. “It is through the active commitmentof both private and public sector agenciesthat education – not just agricultural education,but all education – will continue togrow and flourish at Fort Valley State Universityand other seats of higher learning inGeorgia and the nation.”AgGeorgia Farm Credit ACA, withcorporate offices in Dublin, AgSouth FarmCredit ACA, headquartered in Statesboro,and Southwest Georgia Farm CreditACA, based in Bainbridge, play a key rolein serving the credit needs of Georgia’sfarmers, ranchers, and ag cooperatives, andthe mortgage needs of Georgia’s homeownerswith a combined loan volume in thestate in excess of $2.1 billion. AgGeorgia.14.Winter 2007

When you find the “perfect piece of land,” call us.Landbank, a new service from AgGeorgia Farm Credit, offers the perfect solution forabsolutely anyone interested in a loan to purchase land.Experience the difference experience makes.800.868.6404 | www.landbanksolutions.comAgGeorgia.15.Winter 2007

Cotton:From Field to FabricArticle and photos courtesy of the Georgia Cotton Commission.CottonCotton remains the most miraculous fiberunder the sun, even after 8,000 years. Noother fiber comes close to duplicating allof the desirable characteristics combinedin cotton. The fiber of a thousand facesand almost as many uses, cotton is notedfor its versatility, appearance, performanceand above all, its natural comfort. From alltypes of apparel, including astronauts’ inflightspace suits, to sheets and towels, andtarpaulins and tents, cotton in today’s fastmovingworld is still nature’s wonder fiber.It provides thousands of useful productsand supports millions of jobs as it movesfrom field to fabric.Economics of CottonA National Cotton Council analysisaffirms that today’s modern cotton productionsystem provides significant benefits torural America’s economy and environment.Healthy rural economies are based on stablefarm income, and cotton yields and pricesare often among the healthiest of all fieldcrops, vegetable or fruit.Cotton continues to be the basicresource for thousands of useful productsmanufactured in the U.S. and overseas. U.S.textile manufacturers use an annual averageof 7.6 million bales of cotton. A bale is about500 pounds of cotton. More than half of thisquantity (57%) goes into apparel, 36% intohome furnishings and 7% into industrialproducts. If all the cotton produced annuallyin the U.S. were used in making a singleproduct, such as blue jeans or men’s dressshirts, it would make more than 3 billionpairs of jeans and more than 13 billion men’sdress shirts.An often-overlooked component of thecrop is the vast amount of cottonseed that isproduced along with the fiber. Annual cottonseedproduction is about 6.5 billion tons,of which about two-thirds is fed whole tolivestock. The remaining seed is crushed,producing a high-grade salad oil and ahigh protein meal for live- stock, dairy andpoultry feed. More than 154 million gallonsof cottonseed oil are used for food productsranging from margarine and cooking oils tosalad dressing.Young cotton seedlings emerge from the soil within a week or two of planting. Flower budsform a month to six weeks later and the blossoms appear AgGeorgia.16.Winter in another three weeks. Bolls 2007open 50 to 70 days after bloom allowing air to dry the white, clean fiber inside.The average U.S. crop moving fromthe field through cotton gins, warehouses,oilseed mills and textile mills to the consumer,accounts for more than $35 billionin products and services. This injection ofspending is a vital element in the health ofrural economies in the 17 major cotton-producingstates from Virginia to California.The gross dollar value of cotton andits extensive system of production, harvestingand ginning provides countless jobs formechanics, distributors of farm machinery,consultants, crop processors and peoplein other support services. Other alliedindustries such as banking, transportation,warehousing and merchandising alsobenefit from a viable U.S. cotton productionsystem.Annual business revenue stimulatedby cotton in the U.S. economy exceeds $120billion, making cotton America’s numberone value-added crop. The farm value ofU.S. cotton and cottonseed production isapproximately $5 billion. Overseas sales ofU.S. cotton make a significant contributionto the reduction in the U.S. trade deficit.Annual values of U.S. cotton sold overseashave averaged more than $2 billion.Recently, the U.S. has supplied over 10.5million bales of the world’s cotton exports,accounting for about 37% of the total worldexport market. The largest customers forU.S. cotton are Asia and Mexico. Exportsof yarn, denim and other U.S.-manufacturedcotton products have increased dramaticallysince the early 1990s, from 1.38 millionbale equivalents in 1990, to more than 4million bale equivalents in 1998.Crop ProductionThe Cotton Belt spans the southernhalf of the Unites States, from Virginia toCalifornia. Cotton is grown in 17 states andis a major crop in 14. Its growing season ofapproximately 150 to 180 days is the longest

In the western statesnearly the entire cropis irrigated.of any annually planted crop in the country.Since there is much variation in climate andsoil, production practices differ from regionto region. In the western states, for example,nearly the entire crop is irrigated.Planting begins in February in southTexas and as late as June in northern areasof the Cotton Belt. Land preparation actuallystarts in the fall, shortly after harvest.Stalks from the old crop are shredded toreduce food supplies for overwinteringpests. Usually, this residue is left on thesurface to protect the soil from erosion. Theuse of heavy mechanical harvesters compactsthe soil, sometimes requiring tillageto loosen the soil for the next crop’s roots.PlantingPlanting is accomplished with 6, 8, 10or 12-row precision planters that place theseed at a uniform depth and interval. Youngcotton seedlings emerge from the soil withina week or two after planting, dependingon temperature and moisture conditions.Squares, or flower buds, form a month tosix weeks later and creamy to dark yellowblossoms appear in another three weeks.Pollen from the flower’s stamen is carried tothe stigma, thus pollinating the ovary. Overthe next three days, the blossoms graduallyturn pink and then dark red before fallingoff, leaving the tiny fertile ovary attached tothe plant. It ripens and enlarges into a podcalled a cotton boll.Individual cells on the surface of seedsstart to elongate the day the red flower fallsoff (abscission), reaching a final length ofover one inch during the first month afterabscission. The fibers thicken for the nextmonth, forming a hollow cotton fiber insidethe watery boll. Bolls open 50 to 70 daysafter bloom, letting air in to dry the white,clean fiber and fluff it for harvest.AgGeorgia.17.Winter 2007

The cotton belt spans the southern half of the United States, from Virginia to California and is a major crop in Georgia.Soil ConservationCotton producers expend extra effortsto minimize soil erosion. Cotton is sensitiveto wind-blown soil because the plant’sgrowing point is perched on a delicate stem,both of which are easily damaged by abrasionfrom wind-blown soil. For that reason,many farmers use minimum tillage practiceswhich leave plant residue on the soilsurface thereby preventing wind and watererosion.Conservation tillage, the practice ofcovering the soil in crop residue year ‘round,is common in windy areas. A growingnumber of producers also are moving tominimum tillage, or a no-till system, toreduce soil movement. In the rain belt, landterracing and contour tillage are standardpractices on sloping land to prevent thewashing away of valuable topsoil.IrrigationThe cotton plant’s root system is veryefficient at seeking moisture and nutrientsfrom the soil. From an economic standpoint,cotton’s water use efficiency allowscotton to generate more revenue per gallonof water than any other major field crop.Most of the U.S. cotton acreage is grownonly on rain moisture. A trend toward supplementalirrigation to carry a field throughdrought has increased in acreage and helpedstabilize yields.Cotton’s peak need for water occursduring July, when it is most vulnerable towater stress. A limited supply of irrigationwater is being stretched over manyacres via the use of highly efficient irrigationmethods such as low energy precisionapplications, sprinklers, surge and dripirrigation. Not only has irrigation stabilizedyields for many growers, it also has allowedproduction in the desert states of California,Arizona and New Mexico.HarvestingWhile harvesting is one of the finalsteps in the production of cotton crops, itis one of the most important. The crop mustbe harvested before weather can damage orcompletely ruin its quality and reduce yield.Cotton is machine harvested in the U.S.,beginning in July in south Texas and inOctober in more northern areas of the Belt.Stripper harvesters, used chiefly in Texasand Oklahoma, have rollers or mechanicalbrushes that remove the entire boll fromthe plant. In the rest of the Belt, spindlepickers are used. These cotton pickers pullthe cotton from the open bolls using revolvingbarbed spindles that entwine the fiberand release it after it has separated from theboll.Seed Cotton StorageOnce harvested, seed cotton mustbe removed from the harvester and storedbefore it is delivered to the gin. Seed cottonis removed from the harvester and placed inmodules, relatively compact units of seedcotton. A cotton module, shaped like a giantbread loaf, can weigh up to 25,000 pounds.GinningFrom the field, seed cotton moves tonearby gins for separation of lint and seed.The cotton first goes through dryers toreduce moisture content and then throughcleaning equipment to remove foreignmatter. These operations facilitate processingand improve fiber quality. The cottonAgGeorgia.18.Winter 2007

Since it is a non-perishable crop, cotton storedin a government-approved warehouse provides asecure basis for a monetary loan.is then air conveyed to gin stands whererevolving circular saws pull the lint throughclosely spaced ribs that prevent the seedfrom passing through. The lint is removedfrom the saw teeth by air blasts or rotatingbrushes, and then compressed intobales weighing approximately 500 pounds.Cotton is then moved to a warehouse forstorage until it is shipped to a textile millfor use. A typical gin will process about 12bales per hour, while some of today’s moremodern gins may process as many as 60bales an hour.ClassingAfter the lint is baled at the gin,samples taken from each bale are classedaccording to fiber strength, length, lengthuniformity, color, non-fiber content andfineness using high volume instrumentation(HVI) and the aid of an expert calleda Classer. Scientific quality control checksare made periodically to ensure that instrumentand Classer accuracy is maintained.Cotton of a given variety producesfibers of approximately the same length.Since the fibers may vary within a bale,length uniformity allows a determinationof the variability within that bale. Otherquality factors also are important. Thefiber’s fineness is important for determiningthe type of yarns that can be made from thefiber—the finer the cotton fibers, the finerthe yarns. Color or brightness of the fibersalso is important.Cotton that is very white generally isof higher value than cottons whose colormay have yellowed with exposure to elementsbefore harvesting. Cotton, beinga biological product, typically containsparticles of cotton leaves called trash. Theamount of trash also influences the cotton’svalue since the textile mill must removetrash before processing. The fiber’s strengthalso is an important measurement that ultimatelyinfluences the fabrics made fromthese fibers. The U.S. Department of Agriculture(USDA) establishes classing standardsin cooperation with the entire cottonindustry.MarketingCotton is ready for sale after instrumentclassing establishes the qualityparameters for each bale. The marketing ofcotton is a complex operation that includesall transactions involving buying, selling orreselling from the time the cotton is ginneduntil it reaches the textile mill. Growersusually sell their cotton to a local buyeror merchant after it has been ginned andbaled, but if they decide against immediatesale they can store it and borrow moneyagainst it. Since it is a non-perishable crop,cotton stored in a government-approvedwarehouse provides a secure basis for amonetary loan.CottonseedCotton actually is two crops, fiber andseed. About one-third of the cottonseedproduced from a typical crop is crushedfor oil and meal used in food products andin livestock and poultry feed. For each 100pounds of fiber produced by the cottonplant, it also produces about 162 pounds ofcottonseed.Approximately 5 percent of the totalseed crop is reserved for planting; theremainder is used for feeding as wholeseeds or as raw material for the cottonseedprocessing industry. After being separatedfrom the lint at the gin, the cotton’s seed istransported to a cottonseed crushing mill.There it is cleaned and conveyed to delintingmachines which, operating on the sameprinciple as a gin, remove the remainingshort fibers which are known as linters. Thelinters go through additional processingsteps before being made into a wide varietyAggeorgia.19.Winter 2007

For each 100 pounds of fiber produced by the cotton plant,it also produces about 162 pounds of cottonseed.of products ranging from mattress stuffingto photographic film. After the linters areremoved, the seed is put through a machinethat employs a series of knives to loosen thehulls from the kernel. The seeds are thenpassed through shakers and beaters.The separated hulls are marketed forlivestock feed or industrial products andthe kernels are ready for the extraction ofoil, the seed’s most valuable byproduct.Solvent extraction or presses remove theoil. After further processing, the oil is usedin cooking or salad oil, shortening andmargarine. Limited quantities also go intosoaps, pharmaceuticals, cosmetics, textilefinishes and other products. The remainingmeat of the kernel is converted into meal,the second most valuable by-product. Highin protein, it is used in feed for all classesof livestock and poultry. Cottonseed mealmakes an excellent natural fertilizer forlawns, flower beds and gardens.Yarn ProductionModernization efforts have broughtmajor changes to the U.S. textile industry.Equipment has been streamlined and manyoperations have been fully automated withcomputers. Machine speeds have greatlyincreased. At most mills the opening ofcotton bales is fully automated. Lint fromseveral bales is mixed and blended togetherto provide a uniform blend of fiber properties.To ensure that the new high-speedautomated feeding equipment performs atpeak efficiency and that fiber propertiesare consistent, computers group the balesfor production/feeding according to fiberproperties.The blended lint is blown by air fromthe feeder through chutes to cleaning andcarding machines that separate and alignthe fibers into a thin web. Carding machinescan process cotton in excess of 100 poundsper hour. The web of fibers at the front ofthe card is then drawn through a funnelshapeddevice called a trumpet, providinga soft, rope-like strand called a sliver (pronouncedSLY-ver). As many as eight strandsof sliver are blended together in the drawingprocess. Drawing speeds have increased tremendouslyover the past few years and nowcan exceed 1,500 feet per minute.Roving frames draw or draft the sliversout even more thinly and add a gentle twistas the first step in ring spinning of yarn.Ring spinning machines further draw theroving and add twist making it tighter andthinner until it reaches the yarn thicknessor “count” needed for weaving or knittingfabric. The yarns can be twisted many timesper inch. Ring spinning frames continue toplay a role in this country, but open-endspinning, with rotors that can spin five tosix times as fast as a ring spinning machine,are becoming more widespread. In openendspinning, yarn is produced directly fromsliver. The roving process is eliminated.Other spinning systems have alsoeliminated the need for roving, as well asaddressing the key limitation of both ringand open-end spinning, which is mechanicaltwisting. These systems, air jet andVortex, use compressed air currents to stabilizethe yarn. By removing the mechanicaltwisting methods, air jet and Vortex arefaster and more productive than any othershort-staple spinning system. After spinning,the yarns are tightly wound aroundbobbins or tubes and are ready for fabricforming. Ply yarns are two or more singleyarns twisted together. Cord is plied yarntwisted together.FabricManufacturingCotton fabric manufacturing startswith the preparation of the yarn for weavingor knitting. Annually, textile mills in theU.S. normally produce about eight billionsquare yards each of woven and three billionsquare yards of knitted cotton goods.Cotton fabrics, as they come fromthe loom in their rough, unfinished stages,are known as greige goods. Most undergovarious finishing processes to meet specificend-use requirements. Some mills, in additionto spinning and weaving, also dye orprint their fabrics and finish them. Otherssell greige goods to converters who have thecloth finished in independent plants.Finishing processes are numerous andcomplex, reflecting today’s tremendousrange and combination of colors, texturesand special qualities. In its simplest form,finishing includes cleaning and preparingthe cloth, dyeing or printing it and thentreating it to enhance performance characseeCotton, page 31AgGeorgia.20.Winter 2007

AgGeorgia.21.Winter 2007

2006 Farm Family of the Year –Broad River Soil & Water ConservationDistrict And Ag-Georgia Farm CreditApartnership was created three yearsago between the Broad River Soiland Water Conservation Districtand AgGeorgia Farm Credit. The partnershipwas developed so that the Farm Familyof the Year could be better recognized andhonored for their contribution to the protectionof our natural resources and theircommitment to the betterment of theircommunity.The 2006 Farm Family of the Year isa beef cattle operation located in the quitecommunity of Smithonia. Chantilly Farm isthe center of life for Ted and Patsy Hughes.Their farming is their life and lifestyle. TheHughes are active in their church and community.They enjoy gardening, fishing intheir well stocked pond, and watchingwildlife from their deck at sunrise. Theyhave so many animals and birds on theirfarm which they take much pleasure inseeing and listening to their singing andchatter. Also, the Hughes are very hospitableand enjoy inviting friends and familyto their farm. Last year Chantilly Farm wasincluded in the farm tour, sponsored by theOglethorpe County Chamber of Commerce,the Farm Bureau and the Cattleman’s Association.The Hughes enjoy reading, music,and playing with their three grandchildren.The current farming operation consistsof a cow/calf operation. Presently theoperation consist of 65 brood cows andthe Hughes precondition and stocker theircalves to market as heavy feeders. ChantillyFarm purchased the first 93 acres in 1966, 53additional acres were purchased last year,and they rent 30 acres adjoining the farm.An extensive health program is maintained.Also they have introduced a programfor reducing parasites in their herd management.Their working facility is in-doorsand their corrals are protected by heavy useareas providing a sound and stable foundationfor working animals.The grazing program installed in 1979that is called the “Wagon Wheel” wherethe pastures are arranged around the hubs.The Hughes have installed three of thesehubs that are 75’ x 75’ heavy use areas, andthey serve 17 pastures that average 4-5 acreseach. The spring located on the farm wasnot considered to be in a desirable locationto adequately rotate their animals on thepastures. To overcome this they developedthe spring by installing an l000 gallon septictank designed especially for the spring withnine 4” holes in the bottom. The spring wasdug out with a track hoe and tank installedon a bed of gravel. The area was back filledwith gravel and dirt. Now they have anaccessible water supply with 1000 gallonsin reserve, and 50 to 60 gallons per minuteover-flow.Chantilly Farm utilizes a 60 day breedingprogram for their brood cows. Becausethe calves are so bunched, when they worktheir cattle, they can do everything neededat the same time. Because the cattle are allsame color, nearly the same size, and thesame quality, they are able to market themas groups. Their calves are born in Decemberand January, weaned and preconditionedin August or September, turned outon grass with supplemental feed to meettheir planned market weight, and marketedat a selected weight.The hay produced is simply excessgrass there is not just hay fields set aside.When they get to a pasture in the rotationthat they really don’t need, they cut it forhay. A major part of their plan includes overseedingpastures with rye grass for wintergrazing and hay. As much as possible ChantillyFarm tries to maintain clover standsin their pastures that are mixed fescue/common bermuda. To maintain their standsof grasses they manage the timing of theirfertilization program. If the Bermuda startsgaining, they simply fertilize in the winter.And if the fescue starts getting ahead, theyfertilize in the summer. Soil testing andapplying lime and poultry litter as recom-AgGeorgia.22.Winter 2007

The Hughes since their first year farming, have been acutely awareof the need for soil and water conservation.mended keeps the vegetation healthy. Alltheir poultry litter comes from one sourcewhich assists with knowing the quality ofmaterial received. The Hughes spot spraywith 2-4-D and Remedy to control weedsand brush in pastures and on fence lines.Five Strands of electric fences are utilizedon perimeter fences and bull lots and singleto 3 strands for cross fences. Very little bushhogging is utilized due to the intensive rotationalgrazing system.The Hughes since their first yearfarming, have been acutely aware of the needfor soil and water conservation. Some of theadditional conservation practices installedare farm ponds, waterways, and filter strips.Their ponds and creeks are fenced and livestockare not allowed in them. They havefenced out wetlands and provided areas forwildlife habitat. Conservation is a numberone priority for Chantilly Farm.Ted and Patsy Hughes’ plan for thefuture of Chantilly Farm is to continue tooperate their farm in a manner that providesthem with top quality livestock for market,and continue to improve the productivityand appearance of their land. “We are gratefulto the NRCS for the information, technicalexpertise, and opportunity they provide.Our land is our greatest asset and we wantto protect it, and improve it, and pass it onto our children in better shape than whenwe acquired it.”We, the Broad River Soil and WaterConservation District and AgGeorgia FarmCredit, are proud to announce the FarmFamily of the Year in the Broad River Soiland Water Conservation District as beingChantilly Farm of the Smithonia communityin Oglethorpe County. The successof this farm is due to their devotion to theland, hard work and their ability to run thisoperation with wise business decisions.Congratulations to Ted and Patsy Hughes! AgGeorgia.23.Winter 2007

It Was Hogs To Muscadines ForGeorgia Farmer Of The Year Gary PaulkMOULTRIE, GA – While growingup on his father’s farm, GaryPaulk never had any ideas,thoughts, dreams or plans of ever growingmuscadines, much less becoming one of thelargest muscadines growers in the country.“I absolutely loved growing up ona farm and my daddy had a big influenceon me,” said Paulk of Wray, GA. “I wasinvolved in the 4-H programs and showedhogs while in high school.After graduating from high school,Paulk went to Valdosta State and studiedpre-med, but transferred to the Universityof Florida where he graduated with a degreein agronomy. He and his wife, Ann, returnedhome to the farm where he managed hisfather’s hog operation.“We had a Farrow-to-finish operationwith 300 sows,” said Paulk, “I wasresponsible for raising the pigs and marketingroughly 20 pigs per year per sow. Theaverage delivery was 100 plus pigs a week.”It wasn’t long, however, that thingswould change for Paulk.“In talking to J.A. Ledger, a retiredcounty agent who had a nursery, I asked forsome advice for the future,” said Paulk. “Hesaid to take a look at grapes. He said ‘there’sscuppernong vines on every tree up anddown the road and people love ‘em.”So, Paulk decided to give blueberriesand grapes a try. And the gamble has beenrewarding as Paulk has developed intothe largest muscadine grape grower in thesoutheast, leading to his selection as the2006 Swisher Sweets/Sunbelt Expo SoutheasternFarmer of the Year for Georgia. Hewas nominated for the award by PhillipEdwards of the University of GeorgiaExtension Service.Paulk and eight other finalists fromAlabama, Florida, Kentucky, Mississippi,North Carolina, South Carolina, Tennesseeand Virginia will be honored duringChip Blaylock and Tom Ryan present Gary Paulk (center) with theGeorgia Farmer of the Year Award.the Sunbelt Expo in Moultrie, GA, duringthe dates of Oct. 16-19. The 2006 SwisherSweets/Sunbelt Expo Southeastern Farmerof the Year will be announced at a luncheonon Tuesday, Oct. 17.Paulk, as the Georgia state winner,will receive $2,500 from Swisher Internationalof Jacksonville, FL, who along withthe Sunbelt Expo, have sponsored theSoutheastern Farmer of the Year Award for17 years. He will also receive a jacket, and a$200 gift certificate from the Williamson-Dickie Company; a $500 gift certificatefrom Southern States; and a fireproof homesafe ($300 value) from Misty Morn SafeCompany.Additionally, the 2006 SoutheasternFarmer of the Year will receive a $14,000cash award from Swisher; a customdesignedjacket, another $500 gift certificateand $500 cash from Dickies; the use ofa Massey Ferguson tractor of their choicefor a year from Massey Ferguson NorthAmerica; a $3,600-custom designed gunsafe from Misty Morn; and another $500gift certificate from Southern States.“Today, when it comes to the muscadinegrape business, there’s nothing wedon’t do,” said Paulk. “In addition to planting,growing and processing, we sell freshmuscadines to Wal-Mart, BiLo and Publix.”see Muscadine, page 31AgGeorgia.24.Winter 2007

We Put Our Profits in Your Pockets!And we’ve proved it again last March when member-borrowers of AgGeorgia FarmCredit received patronage refunds totaling nearly$16.5 MillionApproximately thirty percent or $4.9 million of the refund was paid in cash. Thebalance was placed in allocated surplus in the names of the individual memberborrowers.This is the 19th consecutive year we’ve paid a patronage refund. Since 1988,AgGeorgia Farm Credit has returned a total of $202 million to its member-borrowersthrough patronage refunds and surplus revolvements.When we distribute our profits to our borrowers, it reduces the effective cost ofborrowing and it proves that there are distinct financial benefits in doing businesson a cooperative basis!AgGeorgia.25.Winter 2007

AgGeorgia Farm Credit -Ag Loans and a Whole Lot MoreA Proud Historyof ServiceFor over 90 years the Farm CreditSystem has played a key role in financingthe transformation of American agricultureinto the world’s most productive sourceof food and fiber. As a financial cooperative,owned and directed by its borrowers,AgGeorgia Farm Credit, as a part of theFarm Credit System, has a unique historyand proud record of serving farmers, ranchers,and rural Americans.With total assets of over $154 billioninvested in the operations of Americanfarmers, ranchers, ag cooperatives, ruralutilities and rural home mortgages, theFarm Credit System today is the largestsingle source of agricultural credit in theUnited States.Today AgGeorgia Farm Credit servesthe credit needs of 79 counties in Georgiaand has assets in excess of $1 billion. Oursuccessful business results over the yearshave allowed AgGeorgia to pay patronageevery year since 1988–more than$202 million has been paid in cash to ourpatrons!Whether you are seeking an educationalexperience for your child throughan agricultural project loan, financing for ahome, crop operating funds, a poultry operation,timber investment, recreational land,or access to the capital markets for agribusiness,AgGeorgia has the products andthe experienced staff to serve your needs.DID YOU KNOW that AgGeorgiaFarm Credit does Ag loans and a wholelot more? Sure, we’ve been making loansto farmers for over 90 years, but did youknow that we also offer insurance, leasing,appraisal services and mortgage loans? Wecan help you with a processing and marketingor a farm related business loan.Loan Programsand Interest RateOptionsAgGeorgia Farm Credit offers a widevariety of loan programs and interest rateoptions that are flexible to meet the diverseneeds of its borrowers, yet, competitivewithin the marketplace. While somelenders only offer short term loans withlimited products and rates, AgGeorgia FarmCredit offers a full service menu of financingoptions. Short and intermediate termloans are available on a variable or a fixedrate basis for the life of the loan. Long-termmortgage loans are also available under ourvariable, adjustable and fixed rate programs.However simple or complex your operation,we have the loan program and interest rateproduct for you.QuickCreditThe QuickCredit program offersrapid turn-around on smaller, non-residentialcredit requests by one or two individuals.An excellent quick and efficientdelivery of credit, amounts up to $200,000can be applied for with certain limits ontotal indebtedness and program participation.Loan decisions can be made almostinstantly; time to closing would be based oncollateral requirements. Check with yourlocal branch office for details on this innovativeprogram.Trade CreditTrade Credit is a service offered to areaparticipating equipment dealers for point ofsale financing. Providing a convenience foryou, the customer, and assisting the salesmanin completing the sale, Trade Creditoffers fast and efficient service while youare processing your equipment purchase.Ask your equipment salesman if they are aparticipating dealer, if not, contact us fordetails.Guaranteed LoansAgGeorgia Farm Credit has beendesignated as a preferred lender in conjunctionwith the USDA/Farm ServiceAgency’s Guaranteed Farm Loan program.FSA guaranteed loans provide lenders witha guarantee against certain loss of principaland interest on a loan. The guaranteeAgGeorgia.26.Winter 2007

Our successful business results over the years have allowedAgGeorgia to pay patronage every year since 1988–more than $202 million hasbeen paid in cash to our patrons!permits opportunity for agricultural creditto farmers who do not meet normal underwritingstandards. Loan purposes can be foroperating, farm land purchases, real estateimprovements and debt refinancing.Servicesand BenefitsPatronage ProgramA major difference between AgGeorgiaFarm Credit and other lenders is thatFarm Credit returns its profits to its borrowers.As a cooperative we can share ourprofits with our borrowers through PatronageRefunds. A patronage refund is a wayof distributing the association’s net incometo its member-stockholders. A member’srefund is based on the proportion of interestearned on his or her loan to the total interestearned by the association and is a way torefund a portion of the interest you paid onyour loan. This reduces your effective costof borrowing. So it pays to do business withAgGeorgia Farm Credit.AccountAccessAccountAccess is your loan information–aclick away. View your accountinformation online at any time at www.aggeorgia.com. You can also make your loanpayments when it’s convenient for you...24hours a day, 7 days a week. Your annualyear-end statement or IRS 1098 and 1099tax forms are also available online throughAccountAccess.LoanLineLoanLine is around-the-clock phoneaccess to loan information. At Farm Credit,we understand that your day doesn’t endat five o’clock. That’s why we’ve createdLoanLine, your 24-hour toll-free telephoneaccess to loan information. LoanLine, worksaround your schedule. Dial toll-free 1-877-LoanLine (1-877-562-6546).AutoDraftAutoDraft is the fastest, easiest wayto make your Farm Credit installment.AutoDraft electronically deducts your loanpayment from your bank account every timeit’s due. No need to write a check, no cumbersomepayment book to keep up with, noenvelope to mail. Your payment is alwayson time, so you don’t have to worry aboutlate payments. AutoDraft is the easiest, nohassleway to keep up with your account.AgrilineAn Agriline Account gives you accessto your line of credit 24 hours a day, sevendays a week. You write yourself a loancheck whenever and wherever you want.With your Agriline Account, you’ll receivechecks personalized with either your nameand address or the name and address of yourbusiness. You are mailed a monthly statementwith all the details of your accountactivity the previous month. Borrowing hasnever been more convenient.FastCashFastCash is the safe, dependable wayto draw funds from your Line of Credit loan.All you do is call us, let us know how muchyou need, and we’ll deposit that amountelectronically into your checking or savingsaccount. Just call before 2:00 p.m., and thefunds will be in your account the next day.If your call is received after 2:00 p.m., yourtransaction will be processed promptly thenext business day. The exact time of daythe money is credited to your account maydepend on your bank’s practices.Sweep AccountsAutoBorrow and AgSweep are specialbusiness accounts that are linked to yourFarm Credit Line of Credit Loan. Thesetools were developed by Farm Credit andare designed solely for Farm Credit borrowersto help you manage your cash foroptimal efficiency. AutoBorrow’s specialfeatures automatically move your cash tothe right place each day to minimize yourexpenses and maximum your income,transferring money to pay down your FarmCredit line of credit loan or drawing theAggeorgia.27.Winter 2007

Whether you’re expanding your operations or just starting out inthe poultry industry, we’re ready to help you grow.exact dollar amount needed from your lineof credit loan to cover expenses. You haveaccess to your account and can view all ofyour AutoBorrow transactions online fromyour home or office computer. AgSweep is acash management product that links a FarmCredit loan to a Command Deposit Accountat a commercial bank. Advances and paymentsare automatically posted to the FarmCredit loan depending on the balance in thecommand deposit account.Appraisal ServicesThe complexity of today’s financialand legal environments demands expertisefor appraisal services. Appraisals of agriculturalenterprises (real estate, machinery,equipment, and livestock) and ruralproperties require qualified experts whounderstand the intricacy of modern agricultureand today’s rural environment. Ourappraisers have the resources, informationand knowledge to enable them to providevaluable services for purchasing, selling,borrowing/lending and financial planning.The comprehensive evaluation you receivefrom an AgGeorgia Farm Credit state certifiedappraiser is your assurance of a superiorvaluation for your financial needs. Ourexpertise ensures accuracy on complexproperties or situations, and adheres to therequirements of the Uniform Standards ofProfessional Appraisal Practice (USPAP).Experts inAgricultural andLand LoansPoultryAs a poultry operator, you have ademanding business. To be successful, youmust monitor everything from light andtemperature to water and airflow insideyour poultry houses. You also need an experiencedlender, one who understands thepoultry industry and knows how to helpyou succeed. At AgGeorgia Farm Credit,you’ll find loan officers who specialize infinancing poultry operations. They understandthe complex needs and demands of asuccessful operation and are committed toyour success. Whether you’re expandingyour operations or just starting out in thepoultry industry, we’re ready to help yougrow.CattleAgGeorgia Farm Credit loan officersknow cattle operations first-hand, whichmeans you don’t have to “translate” yourbusiness to us. We understand the specialrequirements of cattle operations. Whetheryou need to purchase brood cattle, establishpasture, purchase machinery, equipmentor vehicles, need money for feed, fertilizer,veterinary costs or farm improvements,contact us. Our commitment to agriculture,along with our experience with cattlemen,makes us the best.Row CropsWe make agricultural loans. AgGeorgiaFarm Credit loan officers know agriculturallending like no one else; that’sprobably because a good number of themgrew up on farms themselves. We have theknowledge to review your personal situationand provide customized solutions foryour needs. While agricultural lendingseems to be a come-and-go trend for manylenders, Farm Credit has been providingcredit to farmers for over 90 years. Whetheryou’re growing peanuts, cotton, watermelonsor vegetables we understand the specialrequirements of all farming operations. Letus show you what we can do for you.TimberA successful timber operation demandsa long term commitment. And you needa lender who is willing to go the distancewith you. AgGeorgia Farm Credit loan officersunderstand what it takes to financeyour investment in timberland; we havespecialists in the industry. Our knowledge,competitive rates and flexible terms makeus the logical choice for financing whetheryou’re looking for investment property,machinery, need funds for road maintenance,fire roads and drainage ditches, oroperating expenses. If you want to invest intimberland or just want land in the countrycall us, we know where to begin.AgGeorgia Farm Credit is proud tooffer an innovative loan service that willenhance your choices in financing your landpurchases. With a landbank loan you canfinance your home mortgage, rural propertiesand land for investment or recreationalpurposes.AgGeorgia.28.Winter 2007

Land PurchasesAgGeorgia Farm Credit is the landspecialist. We are dedicated to being yourlender of choice when you need a loan forland. Of course, we finance all the needs ofthe full time farmer, which includes farmableland, pastureland and timberland. Wealso finance part-time farmers and landownerswho just want to own land as a stableinvestment for the future. In addition, wealso finance the same kinds of land for nonfarminglandowners. Our loan officers fullyunderstand the unique reasons for owningland and we will create the perfect loanpackage for your specific needs. Contact usif you’re interested in purchasing land, refinancingthe loan you currently have on yourland, or in discussing financing options forland.Lifestyle LoansThere’s nothing like escaping to yourown place in the country. Perhaps you’relooking for a quiet weekend retreat, a newhunting camp or a spot where your childrencan explore nature. Maybe you plan tobuild a retirement home on that special sitesomeday. Whether your ideal experience ishunting, fishing, riding horses, digging inthe dirt or just relaxing, that place can beyours. AgGeorgia Farm Credit is the expertin financing rural real estate. With morethan 90 years of country lending experience,we understand the goals and dreams of ourcustomers and the considerations involvedin purchasing land in the country.Mortgage LoansAgGeorgia Farm Credit is the keyto your mortgage financing. Through ourtrademark landbank loan service our SecondaryMarket option allows financing forproperties located virtually anywhere forprimary residence, second home, or investmentpurposes. Program alternatives withnumerous program choices are just a fewof the reasons why landbank is your homeloan solution. We offer competitive marketrates and our knowledgeable and experiencedloan officers will efficiently processyour loan with fast approval and closing.You can even apply for a loan online. Homeloan advantages feature optional in-houserural property financing with patronagedividends.Construction to Permanent Options:Our landbank construction loans give youcontrol and flexibility of your funds forconstruction. These loans are set up withease and convenience, and they allow youto determine the amount to be converted topermanent, long-term financing.EquipmentOur loan staff is prepared to provideyou with fast approval of equipment loans.Financing your equipment with AgGeorgiaFarm Credit will allow you to take advantageof dealer cash discounts and modernizeyour equipment. A variety of terms andinterest rate plans are offered to provideyou with flexible financing.Aggeorgia.29.Winter 2007Recreational PropertiesThere’s nothing like a day spenthunting or fishing. Except, maybe a dayspent hunting and fishing on your ownland. Imagine your own country retreatwhere you can spend as much time as youwant, doing what you love. AgGeorgiaFarm Credit has sound, dependable creditand financial solutions to help you putyour roots in your country getaway spot.Our competitive interest rates and flexibleterms make us the logical choice for financingyour retreat in the country. Whetheryou’re looking for a place to hunt, fish, orsimply want to make a solid investment inthe land, we know where to begin.NurseryAt AgGeorgia Farm Credit, we understandnursery and greenhouse operations.Our loan officers are knowledgeable andcan help tailor a financial package to fityour situation. So whether you’re a commercialoperator, or a part-time operator,we’ll keep you growing.

AgGeorgia Farm Credit is not only a lender,but we are on your team in helping you succeed.TurfTurf growers are in a unique businesswith different needs and requirements thanmany other types of agriculture. AgGeorgiaFarm Credit’s turf specialists know yourbusiness and are able to provide you with avariety of options to assist you in financingyour special needs, whether that is operatingfunds, equipment or land purchases.Operating LoansAgGeorgia loan officers understand theyearly cyclical nature of agriculture. That’swhy we offer annual and revolving lines ofcredit to farm owners and operators. Paymentscan be arranged to coincide withyour crop or livestock income. Borrowingfor your operating capital may allow youto take advantage of cash discounts, lock inprices by paying ahead, and receive tax benefitsby prepaying expenses.Marketing &Processing LoansThe costs involved with agriculturalproduction do not stop with the rawproduct. This loan program supports marketingand/or processing activities relatedto the production of agricultural products.Farm Credit loan officers understand theunique needs of today’s diverse agricultureindustry. We can save you money nowby providing you with a customized loanpackage that meets your needs.Agricultural-RelatedBusiness LoansAgGeorgia Farm Credit also providesloans for those who furnish farm-relatedservices directly related to the productionof agricultural products. The key aspectof this category is the service provided.Examples of services include: crop spraying,fertilizer spreading, custom harvesting,grain drying/storage, livestock breeding,veterinary services, hauling for farmers, andrecord keeping. This list is not intended tobe all-inclusive; there are many other qualifyingservices not listed here. Farm Creditloan officers are available to meet with youto discuss a customized loan package thatwill meet your needs now and in the future.LeasingThrough Farm Credit Leasing, weoffer lease financing for all types of vehicles,equipment, machinery, implementsand buildings. FCL also provides relatedservices such as specification assistance,volume purchase discounts, fleet incentivesand rebates for cars, vans, SUVs and lighttrucks. FCL can also sell your equipment atlease end. Farm Credit Leasing actively syndicatesand funds multimillion-dollar leaseprojects. Let us assist you on your nextleasing project.Managing RiskAgGeorgia Farm Credit is not only alender, but we are on your team in helpingyou succeed. We offer services to helpmanage against unforeseen risk with productssuch as crop insurance and term lifeinsurance.Crop InsuranceWe are a licensed crop insuranceagency prepared to help you protect yourinvestment. Farm Credit offers Multi-Peril, Hail, and Group Risk crop insuranceprograms.Term Life InsuranceAnother advantage to being anAgGeorgia Farm Credit member is beingable to purchase Premier Life Insurance.Each policy is individually underwrittenand the amount of insurance does notdecrease. Once your debt to Farm Credit ispaid off, as long as the premiums are paid,the insurance is yours to keep. Each policyis guaranteed renewable and you can nameyour own beneficiary. One, five, and tenyear options are available. AgGeorgia.30.Winter 2007

Cotton continued from page 20teristics. To produce a smooth surface inpreparation for dyeing and finishing, thegreige goods are passed rapidly over gasfiredjets or heated copper plates to singeoff lint and loose threads. Moving at speedsthat can be greater than 200 yards a minute,the material is scoured and bleached in acontinuous process that involves the use ofhydrogen peroxide. The time for the chemicalsto do the preparation reactions occursfrom piling the fabric on conveyor belts thatpass through steaming chambers, or stackingin large steam-heated, J-shaped boxesbefore the goods are withdrawn from thebottom.If a more lustrous cloth is desired,the goods are immersed under tension ina caustic soda solution and then later neutralized.The process, called mercerizing,causes the fiber to swell permanently. Thisgives the fabric a silken sheen, improves itsstrength and increases its affinity for dye.Mercerizing also can be done at the yarnstage.FinishingFinishing, as the term implies, is thefinal step in fabric production. Hundredsof finishes can be applied to textiles, andthe methods of application are as varied asthe finishes. Cotton fabrics are probablyfinished in more different ways than anyother type of fabrics. Some finishes changethe look and feel of the cotton fabric, whileothers add special characteristics such asdurable press, water repellency, flame resistance,shrinkage control and others. Severaldifferent finishes may be applied to a singlefabric.Cotton’s Major UsesU.S. textile mills presently consumeapproximately 7.6 million bales of cottona year. Eventually, about 57% of it is convertedinto apparel, more than a third intohome furnishings and the remainder intoindustrial products. Cotton’s competitiveshare of U.S. produced textile end-usesshows a steady increase, presently standingat approximately 34%. Cotton’s share of theretail apparel and home furnishings markethas grown from a historic low of 34% in theearly 1970s to more than 60% today. Cottonis used for virtually every type of clothing,from coats and jackets to foundation garments.Most of its apparel usage, however, isfor men and boys’ clothing. Cotton suppliesover 70% of this market, with jeans, shirtsand underwear being major items. In homefurnishings, cotton’s uses range from bedspreadsto window shades. It is by far thedominant fiber in towels and washcloths,supplying almost 100% of that market.Cotton is popular in sheets and pillowcases,where it holds over 60% of the market.Industrial products containing cotton areas diverse as wall coverings, book bindingsand zipper tapes. The biggest cotton usersin this category, however, are medical supplies,industrial thread and tarpaulins. Muscadine continued from page 24There’s 192 acres of muscadine grapeson the farm today that yield 5,000 poundsper acre. In his Muscadine Products Corporation,there’s 30,000 gallons of bulkmuscadine juice produced, 5,000 cases ofbottled muscadine juice, 2,200 cases and1,000 pounds of muscadine seed and skinnutraceuticals.“We even tried figs, peaches, plum,nectarines, strawberries and even kiwi,”said Paulk. “Determining the most feasibleand sustainable crops for our farm has beena challenge.”With the sow operation gone, Paulkdoesn’t live by muscadines alone. His operationcovers 1,368 acres and also includescotton, which is grown on 318 acres, yielding800 pounds per acre. There also 160acres of peanuts with a 3,500 pound peracre yield, 80 acres of pecans, which are intheir first year of rejuvenation, 350 acres oftimber and 6 acres of organic blueberries.“When we first went into the muscandinebusiness, many people told us ‘youcan’t sell those things’” said Paulk. “Now,we sell them New York to Miami and insome spots all over the country.“As our current markets and the familiarityof muscadines expand, we are planningon offering more muscadine products,”he continued. “We also plan to help establishour local winery over the next severalyears. The winery will add value to evenmore muscadines for processing.”Another area scheduled for expansionis agritourism. “We want to expand farmtours of our farms,” said Paulk. “We havehad several in the past and want to addmore. We also plan to plant food plots andparticipate in CRP programs so that quail,turkey and deer hunting will be a part ofour agritourism plan.”Paulk’s wife, Ann, plays a major role inthe farming operation as bookkeeper. Sheis also a kindergarten teacher. They havefour children – son Chris, who works forthe muscadine corporation; son Eric, whois a medical resident in Greenville, NC;daughter Amy, who attends Valdosta State;and daughter Anna, who is a junior in highschool.“Farming is not just a livelihood,” saidPaulk. “It’s a way of life. And I’m very thankfulto be a part of the agriculture industry. Ihope people will say someday that I madecontributions to our society.”Previous state winners from Georgiainclude: Timothy McMillan of Enigma,1990; Bud Butcher of Senoia, 1991; JamesLee Adams of Camilla, 1992; John Morganof Mystic, 1993; Alan Verner of Rutledge,1994; Donnie Smith of Willachoochee, 1995;Armond Morris of Ocilla, 1996; ThomasColeman, Jr, of Hartsville, 1997; GlennHeard of Bainbridge, 1998; Bob McLendonof Leary, 1999; James Lee Adams of Camilla,2000; Daniel Johnson of Alma, 2001;Armond Morris of Ocilla, 2002; Jim Donaldsonof Metter, 2003; Joseph Boddiford, Jr. ofSylvania, 2004; and Jimmy Webb of Leary,2005.James Lee Adams of Camilla wasselected as the Southeastern Farmer ofthe Year in 2000 and Armond Morris gaveGeorgia its second overall winner in 2002. AgGeorgia.31.Winter 2007

Annual ReportAGGEORGIA FARMAgGeorgia FarmCREDIT,Credit, ACA2006 ANNUAL REPORT2006 Annual ReportContentsMessage from the Chief Executive Officer...............................................................................................................33-34Report of Management...................................................................................................................................................35Five-Year Summary of Selected Financial Data ...........................................................................................................36Management’s Discussion & Analysis of Financial Condition & Results of Operations........................................37-45Disclosure Required by FCA Regulations................................................................................................................46-49Report of the Audit Committee......................................................................................................................................50Report of Independent Auditors.....................................................................................................................................51Financial Statements..................................................................................................................................................52-55Notes to Financial Statements...................................................................................................................................56-67ManagementWilliam H. Newberry, Jr. .................................................................................... President and Chief Executive OfficerJack C. Drew, Jr. .........................................................................Executive Vice President and Chief Operating OfficerErnest L. Ghee.................................................................Executive Vice President and Commercial Lending PresidentThomas E. Kight, Jr........................................................................Executive Vice President and Director of MarketingJohn P. Lowry III. ..............................................................Executive Vice President and Information System ManagerChristopher H. Scott.............................................................................................. Treasurer and Chief Financial OfficerMichael A. Sheppard................................................................................Executive Vice President and Chief AppraiserPatricia G. Thomas............................................................ Executive Vice President and Director of Risk ManagementAlton Thornton.......................................................................... Executive Vice President and Retail Lending PresidentBoard of DirectorsEdward M. Beckham, II..................................................................................................................................... ChairmanFranklin B. Wright .....................................................................................................................................Vice ChairmanGerald D. Andrews................................................................................................................................................DirectorJohn W. Bagwell, Jr. .............................................................................................................................................DirectorTuttle W. Barksdale...............................................................................................................................................DirectorJack W. Bentley, Jr................................................................................................................................................DirectorWilliam L. Brown .................................................................................................................................................DirectorJames B. Carlton....................................................................................................................................................DirectorCarroll C. Castleberry............................................................................................................................................DirectorBilly J. Clary..........................................................................................................................................................DirectorDan N. Crumpton ..................................................................................................................................................DirectorGuy A. Daughtrey .................................................................................................................................................DirectorJ. E. Jones ..............................................................................................................................................................DirectorHoward Lawson ....................................................................................................................................................DirectorRonney S. Ledford ................................................................................................................................................DirectorJoseph Marion Meeks............................................................................................................................................DirectorRobert G. Miller ....................................................................................................................................................DirectorR. David Neff ........................................................................................................................................................DirectorJ. Dan Raines, Jr....................................................................................................................................................DirectorGeorge R. Reeves..................................................................................................................................................DirectorAnne G. Sisk..........................................................................................................................................................DirectorDavid H. Smith......................................................................................................................................................DirectorJ.T. Woodard, Sr. ..................................................................................................................................................DirectorAgGeorgia.32.Winter 2007

AgGeorgia Farm Credit, ACAMessage from the Chief Executive OfficerAs I sit down to compose this message, it is hard to believe that another year has passed. It was a busyyear for AgGeorgia Farm Credit and I am pleased to report that 2006 was very successful. Asindicated in the accompanying financial statements, your Association once again experienced stronggrowth in business and very strong returns for the membership while maintaining sound capitalstrength for the future.2006 was a year of strong business activity thanks to growth in a wide variety of new customersutilizing our services and the strong loyalty that you, as existing member/patrons, have shown bycontinuing to bring your financing needs to AgGeorgia.It was a challenging year for crops with a midseason change to drought conditions and extendedperiods of high temperatures; however, with some late moderations and improved fall conditionsresults were better than expected. The livestock sector began to experience pressure from feed costwith drought-shortened hay crops and pressure on feed grain supplies with increased demands from therenewable fuels expansion.The general economy continued to improve slowly during the year and predictions are that theeconomy in Georgia will continue improving through 2007. Interest rates stabilized during the yearand cost of energy has come down from the high levels reached earlier. Hopefully these two thingswill help to moderate total business inputs. It appears 2007 has the opportunity for positive results inthe ag sector as global demand for value- added products, whether it be food products or renewablefuels, continues to increase on improved economies.Our successful business results over the years have allowed AgGeorgia, under its cooperative form, topay patronage refunds every year since 1988. The impact of AgGeorgia’s consistent ability to paypatronage and revolve excess surplus in a timely manner is best recognized in the total amount of cashthat it has returned to its patrons. Since AgGeorgia and its predecessor associations began payingpatronage, over $202 million has been paid in cash to its patrons. This represents a significant amountof money going back into the economies of the 79 counties served by AgGeorgia.AgGeorgia.33.Winter 200722006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACAThe Board and staff of AgGeorgia understand the changing landscape and challenges for achievingsuccess in a rural economy. We will continue to provide a strong presence of service in thecommunity. Our emphasis will continue to focus on:‣ Marketing AgGeorgia’s services in all of the Association’s territory with continuedemphasis on the young, beginning and small farmer segment and the non-traditionallifestyle farmer.‣ Maximizing returns to patrons through sound business growth, additional revenue fromthe home mortgage market, leasing, financially-related services and operatingefficiencies.‣ Providing an experienced staff ready to respond with service and products of value.‣ Maintaining a safe and sound financial institution that is operated to the satisfaction of,and responsive to its patrons, creditors, auditors and regulator.On behalf of the Board, management and staff, I want to thank you for patronizing your cooperative.Our annual satisfaction survey continues to indicate a high positive rating for our service. I want toassure you that we will continue to live up to the standards of integrity and work ethic, and that indoing so we become your premier provider of financial services. I encourage you to tell friends,neighbors and new arrivals to the country about AgGeorgia and what it has to offer.Whether you are seeking, an educational experience for your child through an agricultural project loan,financing for a home in the country, financing for your crop operating funds, crop insurance,equipment lease, financing a poultry operation, financing that timber investment/recreational land, oraccess to the capital markets for funding needs of a complex agribusiness, AgGeorgia has the productsand the experienced staff to serve your needs.The Board and staff of AgGeorgia wish for all our patrons a prosperous 2007. Please call on us at anyof our 19 locations, visit us on the web at www.aggeorgia.com or call us and we’ll come to you. We’ll bethere when you need us!February 28, 2007William H. Newberry, Jr.Chief Executive OfficerAgGeorgia.34.Winter 2007

AgGeorgia Farm Credit, ACAReport of ManagementReport of ManagementThe accompanying consolidated financial statements andrelated financial information appearing throughout thisannual report have been prepared by management ofAgGeorgia Farm Credit, ACA (Association) inaccordance with generally accepted accountingprinciples appropriate in the circumstances. Amountswhich must be based on estimates represent the bestestimates and judgments of management. Managementis responsible for the integrity, objectivity, consistency,and fair presentation of the consolidated financialstatements and financial information contained in thisreport.Management maintains and depends upon an internalaccounting control system designed to providereasonable assurance that transactions are properlyauthorized and recorded, that the financial records arereliable as the basis for the preparation of all financialstatements, and that the assets of the Association aresafeguarded. The design and implementation of allsystems of internal control are based on judgmentsrequired to evaluate the costs of controls in relation tothe expected benefits and to determine the appropriatebalance between these costs and benefits. TheAssociation maintains an internal audit program tomonitor compliance with the systems of internalaccounting control. Audits of the accounting records,accounting systems and internal controls are performedand internal audit reports, including appropriaterecommendations for improvement, are submitted to theBoard of Directors.The consolidated financial statements have beenexamined by independent public auditors, whose reportappears elsewhere in this annual report. TheAssociation is also subject to examination by the FarmCredit Administration.The consolidated financial statements, in the opinion ofmanagement, fairly present the financial condition of theAssociation. The undersigned certify that the 2006Annual Report has been prepared in accordance with allapplicable statutory or regulatory requirements and thatthe information contained herein is true, accurate, andcomplete to the best of our knowledge and belief.The accompanying consolidated financial statementswere prepared under the oversight of the AuditCommittee of the Board of Directors.Edward M. Beckham, IIChairman of the BoardWilliam H. Newberry, Jr.Chief Executive OfficerChristopher H. ScottChief Financial OfficerFebruary 28, 2007AgGeorgia.35.Winter 20074

(UNAUDITED)(UNAUDITED)Annual ReportAg Georgia Farm Credit, ACAConsolidated Five - Year Summary of SelectedAg Georgia Farm Credit, ACAConsolidated Financial Five-Year Data Summaryof Selected Financial Financial Data DataConsolidated Five - Year Summary of SelectedDecember 31,(dollars in thousands) 2006 2005 2004 2003 2002Balance Sheet DataDecember 31,(dollars Cash in thousands) $ 2006 10,100 $ 2005 8,256 $ 2004 3,806 $ 2003 7,013 $ 2002 9,392Loans 979,983 878,228 788,829 728,177 694,147Balance Less: allowance Sheet Data for loan losses 7,645 11,959 12,314 21,216 20,828CashNet loans$972,33810,100 $866,2698,256 $776,5153,806 $706,9617,013 $673,3199,392Loans 979,983 878,228 788,829 728,177 694,147Investment in other Farm Credit institutions 14,434 10,185 9,555 9,445 10,619Less: allowance for loan losses 7,645 11,959 12,314 21,216 20,828Other property owned 85 1,218 — 7 16Other Net loans assets 972,338 41,992 866,269 38,725 776,515 32,555 706,961 18,723 673,319 17,340Investment Total in assets other Farm Credit institutions $ 1,038,949 14,434 $ 924,653 10,185 $ 822,431 9,555 $ 742,149 9,445 $ 710,686 10,619Other property owned 85 1,218 — 7 16Notes payable to AgFirst Farm Credit Bank*Other assets$ 851,53841,992$ 755,58438,725$ 668,12532,555$ 601,63718,723$ 563,05217,340Accrued interest payable and other liabilitieswithTotalmaturitiesassetsof less than one year$ 1,038,94929,123$ 924,65323,899$ 822,43119,680$ 742,14927,235$ 710,68626,758Notes payable Total liabilities to AgFirst Farm Credit Bank* $ 851,538 880,661 $ 755,584 779,483 $ 668,125 687,805 $ 601,637 628,872 $ 563,052 589,810Accrued interest payable and other liabilitiesProtected borrower stock 482 644 840 1,097 1,477with maturities of less than one year 29,123 23,899 19,680 27,235 26,758Capital stock and participation certificates 3,693 4,005 3,882 3,762 3,773Retained Total earnings liabilities 880,661 779,483 687,805 628,872 589,810Protected Allocated borrower stock 88,186 482 83,529 644 81,438 840 81,420 1,097 85,918 1,477Capital Unallocated stock and participation certificates 65,927 3,693 56,992 4,005 48,466 3,882 34,410 3,762 37,736 3,773Retained Accumulated earnings other comprehensive income (loss) — — — (7,412) (8,028)Allocated Total members' equity 158,288 88,186 145,170 83,529 134,626 81,438 113,277 81,420 120,876 85,918UnallocatedTotal liabilities and members' equity $ 1,038,94965,927$ 924,65356,992$ 822,43148,466$ 742,14934,410$ 710,68637,736Accumulated other comprehensive income (loss) — — — (7,412) (8,028)StatementTotalofmembers'Income Dataequity 158,288 145,170 134,626 113,277 120,876Net interest income $ 35,793 $ 28,691 $ 23,906 $ 22,892 $ 21,730ProvisionTotalforliabilities(reversalandof allowancemembers'for)equityloan losses 1,038,949(4,091) 924,653(382) 822,431(9,028) 742,149— 710,686162Noninterest Statement of income Income (expense), Data net (7,745) (5,023) (5,336) (8,069) (6,926)Net interest Net income income $ 32,139 35,793$ 28,691 24,050$ 23,906 27,598$ 22,892 14,823$ 21,730 14,642Provision for (reversal of allowance for) loan losses (4,091) (382) (9,028) — 162Noninterest Key Financial income Ratios (expense), net (7,745) (5,023) (5,336) (8,069) (6,926)Rate of return on average:TotalNetassetsincome $ 32,1393.26%$ 24,0502.73%$ 27,5983.52%$ 14,8232.03%$ 14,6422.13%Key Total Financial members' Ratios equityRate Net interest of return income on average: as a percentage ofaverage Total assets earning assets20.68%3.83% 3.26%17.13%3.45% 2.73%23.55%3.16% 3.52%12.65%3.21% 2.03%11.22%3.25% 2.13%Net Total chargeoffs members' (recoveries) equity to average loans 20.68% 0.02% 17.13% — (0.02)% 23.55% (0.05)% 12.65% 11.22% 0.48%Net Total interest members' income equity as a to percentage total assetsofDebt average to members' earning assets equity (:1)15.24%3.83% 5.5615.70%3.45% 5.3716.37%3.16% 5.1115.26%3.21% 5.5517.01%3.25% 4.88Net Allowance chargeoffs for loan (recoveries) losses to to loans average loans 0.78% 0.02% 1.36% — (0.02)% 1.56% (0.05)% 2.91% 0.48% 3.00%Total Permanent members' capital equity ratio to total assets 15.04% 15.24% 14.64% 15.70% 14.54% 16.37% 15.39% 15.26% 17.05% 17.01%Debt Total to surplus members' ratioequity (:1) 14.66% 5.56 14.19% 5.37 14.04% 5.11 14.85% 5.55 16.48% 4.88Allowance Core surplus for ratio loan losses to loans 10.60% 0.78% 9.60% 1.36% 9.56% 1.56% 10.57% 2.91% 11.18% 3.00%Permanent Net Income capital Distribution ratio 15.04% 14.64% 14.54% 15.39% 17.05%Total Estimated surplus patronage ratio refunds:14.66% 14.19% 14.04% 14.85% 16.48%Core Cashsurplus ratio $ 10.60% 6,721 $ 4,697 9.60% $ 4,263 9.56% $ 10.57% 5,120 $ 11.18% 4,201Net Qualified Income allocated Distribution retained earningsEstimated Nonqualified patronage allocated refunds: retained earningsCash $13,2312,4516,721 $8,1672,7944,697 $9,948—4,263 $11,947—5,120 $9,737—4,201Qualified allocated retained earnings 13,231 8,167 9,948 11,947 9,737Nonqualified allocated retained earnings 2,451 2,794 — — —* General financing agreement is renewable on two-year cycles. The next renewal date is December 31, 2008.* General financing agreement is renewable on two-year AgGeorgia.36.Winter cycles. The next 5 renewal date 2007 is December 31, 2008.2006 Annual Report

AgGeorgia Farm Credit, ACAManagement’s Management’s Discussion Discussion & Analysis & Analysis of Financialof FinancialConditionCondition& Results& Resultsof of Operations(dollars in in thousands, except as as noted)GENERAL OVERVIEWThe following commentary summarizes the financial conditionand results of operations of AgGeorgia Farm Credit, ACA(Association) for the year ended December 31, 2006 withcomparisons to the years ended December 31, 2005 andDecember 31, 2004. This information should be read inconjunction with the Consolidated Financial Statements, Notesto the Consolidated Financial Statements and other sections inthis Annual Report. The accompanying consolidated financialstatements were prepared under the oversight of the AuditCommittee of the Board of Directors. For a list of the AuditCommittee members, refer to the “Report of the AuditCommittee” reflected in this Annual Report. Information in anypart of this Annual Report may be incorporated by reference inanswer or partial answer to any other item of the Annual Report.The Association is an institution of the Farm Credit System(System), which was created by Congress in 1916 and hasserved agricultural producers for almost 90 years. TheSystem’s mission is to maintain and improve the income andwell-being of American farmers, ranchers, and producers orharvesters of aquatic products and farm-related businesses.The System is the largest agricultural lending organization inthe United States. The System is regulated by the Farm CreditAdministration, (FCA), which is an independent safety andsoundness regulator.The Association is a cooperative, which is owned by themembers (also referred to throughout this Annual Report asstockholders or shareholders) served. The territory of theAssociation extends across a diverse agricultural region ofGeorgia. Refer to Note 1, “Organization and Operations,” ofthe Notes to the Consolidated Financial Statements for countiesin the Association’s territory. The Association provides creditto farmers, ranchers, rural residents, and agribusinesses. Oursuccess begins with our extensive agricultural experience andknowledge of the market.The Association obtains funding from AgFirst Farm CreditBank (AgFirst or Bank). The Association is materially affectedand shareholder investment in the Association could beaffected by the financial condition and results of operations ofthe Bank. Copies of the Bank’s Annual and Quarterly Reportsare on the AgFirst website, www.agfirst.com, or may beobtained at no charge by calling 1-800-845-1745, extension316, or writing Wanda Martin, AgFirst Farm Credit Bank, P.O. Box 1499, Columbia, SC 29202.Copies of the Association’s Annual and Quarterly reports arealso on the Association’s website, www.AgGeorgia.com, ormay be obtained upon request free of charge by calling1-478-272-4603, extension 2023 or writing Chris Scott orCarrie McCall, AgGeorgia Farm Credit, P.O. Box 1548,Dublin GA 31040-1548. The Association prepares a quarterlyreport within 45 days after the end of each fiscal quarter,except that no report needs to be prepared for the fiscal quarterthat coincides with the end of the fiscal year of the Association.CRITICAL ACCOUNTING POLICIESThe financial statements are reported in conformity withaccounting principles generally accepted in the United States ofAmerica. Our significant accounting policies are critical to theunderstanding of our results of operations and financialposition because some accounting policies require us to makecomplex or subjective judgments and estimates that may affectthe value of certain assets or liabilities. We consider thesepolicies critical because management must make judgmentsabout matters that are inherently uncertain. For a completediscussion of significant accounting policies, see Note 2,“Summary of Significant Accounting Policies,” of the Notes tothe Consolidated Financial Statements. The following is asummary of certain critical policies. Allowance for loan losses — The allowance for loan lossesis management’s best estimate of the amount of probablelosses existing in and inherent in our loan portfolio. Theallowance for loan losses is increased through provisions forloan losses and loan recoveries and is decreased throughallowance reversals and loan charge-offs. The allowance forloan losses is determined based on a periodic evaluation ofthe loan portfolio, which generally considers relevanthistorical charge-off experience adjusted for relevant factors.These factors include types of loans, credit quality, specificindustry conditions, general economic and politicalconditions, and changes in the character, composition, andperformance of the portfolio, among other factors.Significant individual loans are evaluated based on theborrower’s overall financial condition, resources, andpayment record, the prospects for support from anyfinancially responsible guarantor, and, if appropriate, theestimated net realizable value of any collateral. Theallowance for loan losses attributable to these loans isestablished by a process that estimates the probable lossinherent in the loans, taking into account various historicaland projected factors, internal risk ratings, regulatoryoversight, and geographic, industry and other factors.Changes in the factors considered by management in theevaluation of losses in the loan portfolios could result in achange in the allowance for loan losses and could have adirect impact on the provision for loan losses and the resultsof operations.AgGeorgia.37.Winter 200762006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACA Valuation methodologies — Management applies variousvaluation methodologies to assets and liabilities that ofteninvolve a significant degree of judgment, particularly whenliquid markets do not exist for the particular items beingvalued. Quoted market prices are referred to when estimatingfair values for certain assets for which an observable liquidmarket exists, such as most investment securities.Management utilizes significant estimates and assumptions tovalue items for which an observable liquid market does notexist. Examples of these items include impaired loans,pension and other postretirement benefit obligations, andcertain other financial instruments. These valuations requirethe use of various assumptions, including, among others,discount rates, rates of return on assets, repayment rates, cashflows, default rates, costs of servicing and liquidation values.The use of different assumptions could produce significantlydifferent results, which could have material positive ornegative effects on the Association’s results of operations.For additional information, refer to the Recently IssuedAccounting Pronouncements disclosed in this Annual Report. Pensions — The Bank and its related Associations participatein defined benefit retirement plans. These plans arenoncontributory and benefits are based on salary and years ofservice. In addition, the Bank and its related Associations alsoparticipate in defined contribution retirement savings plans.Pension expense for all plans is recorded as part of salariesand employee benefits. Pension expense is determined byactuarial valuations based on certain assumptions, includingexpected long-term rate of return on plan assets and discountrate. The expected return on plan assets for the year iscalculated based on the composition of assets at the beginningof the year and the expected long-term rate of return on thatportfolio of assets. The discount rate is used to determine thepresent value of our future benefit obligations. We selectedthe discount rate by reference to Moody’s Investors ServiceAa long-term corporate bond index, actuarial analyses andindustry norms. For additional information, refer to theRecently Issued Accounting Pronouncements disclosed in thisAnnual Report.ECONOMIC CONDITIONSDuring 2006, economic conditions in our region were generallyfavorable for farmers and ranchers, though rising interest ratesand energy prices increased their cost of production. During2006, the Association targeted certain segments of our businesswith the intention of increasing market share. Continued effortsare being made to expand services, increase public knowledgeof our services and streamline our current delivery of productsto enhance our existing portfolio.TOBACCO BUYOUT PROGRAMOn October 22, 2004, Congress enacted the “Fair and EquitableTobacco Reform Act of 2004” (Tobacco Act) as part of the“American Jobs Creation Act of 2004.” The Tobacco Actrepealed the Federal tobacco price support and quota programs,provided for payments to tobacco “quota owners” and producersfor the elimination of the quota and included an assessmentmechanism for tobacco manufacturers and importers to pay forthe buyout. Tobacco quota holders and producers will receiveequal annual payments under a contract with the Secretary ofAgriculture. The Tobacco Act also includes a provision thatallows the quota holders and producers to assign to a “financialinstitution” the right to receive the contract payments(Successor-in-Interest Contracts (SIIC)) so that they may obtaina lump sum or other payment. On April 4, 2005, the UnitedStates Department of Agriculture (USDA) issued a Final Ruleimplementing the “Tobacco Transition Payment Program”(Tobacco Buyout).The FCA recognized that the Tobacco Buyout has significantimplications for some System institutions and the tobaccoquota holders and producers they serve. The FCA determinedthat System institutions are “financial institutions” within themeaning of the Tobacco Act and are therefore eligible toparticipate in the Tobacco Buyout. The goal of this program isto provide quota holders and producers with the option toimmediately receive Tobacco Buyout contract payments andreinvest them in future business opportunities.On December 31, 2006, the Association had loans outstandingcollateralized by assignments of contract payments in theamount of $638 that are included in Loans on the ConsolidatedBalance Sheets and no SIIC’s.LOAN PORTFOLIOThe Association provides funds to farmers, rural homeowners,and farm-related businesses for financing of short andintermediate-term loans and long-term real estate mortgageloans through numerous product types.The gross loan volume of the Association as of December 31,2006, was $979,983, an increase of $101,755 or 11.59 percentas compared to $878,228 at December 31, 2005 and anincrease of $191,154 or 24.23 percent as compared to $788,829at December 31, 2004. Net loans outstanding (gross loans netof the allowance for loan losses) on December 31, 2006, were$972,338 as compared to $866,269 at December 31, 2005 and$776,515 at December 31, 2004. Net loans accounted for93.59 percent of total assets on December 31, 2006 ascompared to 93.69 percent of total assets at December 31, 2005and 94.42 percent of total assets at December 31, 2004.The diversification of the Association loan volume by type foreach of the past three years is shown below. See Note 4,“Loans and Allowance for Loan Losses,” of the Notes to theConsolidated Financial Statements for the loans outstandingamounts.Loan Type 12/31/06 12/31/05 12/31/04Real estate mortgage 37.14% 38.67% 38.88%Production and intermediate term 57.68 55.49 54.82Agribusiness:Processing and marketing 1.99 2.54 2.39Farm related business 1.43 1.21 1.36Rural residential real estate 1.76 2.09 2.55Total 100.00% 100.00% 100.00%AgGeorgia.38.Winter 200772006 Annual Report

AgGeorgia Farm Credit, ACAThe following table presents the contractual maturitydistribution of loans at December 31, 2006:Due afterDue in 1 year Due1 year through afterLoan Type or less 5 years 5 years Total(dollars in thousands)Production agriculture:Real estate mortgage $ 41,407 $ 94,834 $ 227,732 $ 363,973Production and intermediate term 179,780 257,979 127,510 565,269Agribusiness:Processing and marketing 10,996 3,053 5,476 19,525Farm related business 7,695 2,740 3,529 13,964Rural residential real estate 1,255 2,656 13,341 17,252Total $ 241,133 $ 361,262 $ 377,588 $ 979,983While we make loans and provide financially related servicesto qualified borrowers in the agricultural and rural sectors andto certain related entities, our loan portfolio is diversified. Thefollowing tables reflect the commodities financed and thegeographic locations served.The geographic distribution of the loans by branch/state for thepast three years is as follows:Branch 12/31/06 12/31/05 12/31/04Cartersville 5.51% 5.60% 5.88%Clarkesville 4.88 4.64 4.81Cordele 5.35 5.42 5.27Dalton 5.74 5.55 5.28Dublin 3.84 3.70 4.01Gainesville 7.18 8.08 8.38Moultrie 4.09 4.67 3.64Nashville 2.94 3.01 2.04Ocilla 1.90 1.77 2.11Perry 8.96 8.01 9.50Quitman 2.73 2.29 2.42Royston 15.97 16.19 16.80Sandersville 6.02 6.06 6.40Sylvester 2.64 2.83 2.22Tifton 7.40 6.87 7.80Washington 4.22 4.42 4.11Waynesboro 3.92 2.79 2.99Participations Purchased * 5.53 5.36 3.59Special Assets 1.18 2.74 2.75Total 100.00% 100.00% 100.00%* Excludes loans purchased, then sold under agency agreementwith the BankCommodity and industry categories are based upon theStandard Industrial Classification system published by thefederal government. The system is used to assign commodityor industry categories based upon the largest agriculturalcommodity of the customer.The major commodities in the Association loan portfolio areshown below. The predominant commodities are poultry,forestry, livestock, and cotton, which constitute over 77 percentof the entire portfolio.Percent of PortfolioCommodity Group 2006 2005 2004Poultry 41% 39% 33%Forestry 16 14 18Livestock 11 12 12Cotton 9 10 11Horticulture 7 9 10Landlords 4 4 5Row Crops 3 3 2Dairy 2 2 2Peanuts 2 2 2Rural Home 2 2 2Other 3 3 3Total 100% 100% 100%Repayment ability is closely related to the commoditiesproduced by our borrowers, and increasingly, the off-farmincome of borrowers. The Association’s loan portfoliocontains a concentration of poultry producers. Although alarge percentage of the loan portfolio is concentrated in theseenterprises, many of these operations have diversified incomesources that reduce overall risk exposure. Demand for poultryproducts, prices of feed, energy and other inputs andinternational trade are some of the factors affecting the incomeproducing capacity in the poultry industry. The risk in theportfolio associated with commodity concentration is reducedby the range of diversity of enterprises in the Association’sterritory.The increase in gross loan volume for the twelve months endedDecember 31, 2006, is primarily attributed to expansion in thepoultry industry in Georgia as well as enhanced marketing andsales efforts by our staff. The Association has attracted somelarge real estate loans from the sale of timber tracts in additionto normal business. An improvement in the processing time forsmall and moderate size credits has led to high customersatisfaction and increased operational efficiency.The short-term portfolio, which is heavily influenced byoperating-type loans, normally reaches a peak balance inOctober and rapidly declines in the winter months ascommodities such as cotton and peanuts are marketed andproceeds are applied to repay operating loans.During 2006, the Association increased activity in the buyingand selling of loan participations within and outside of theSystem. This provides a means for the Association to spreadcredit concentration risk and realize non-patronage sourcedinterest and fee income, which may strengthen its capitalposition.Loan Participations 2006 2005 2004(dollars in thousands)Participations Purchased– FCS Institutions $ 96,459 $ 72,642 $ 28,277Participations Purchased– Non-FCS Institutions 5,991 455 18Participations Sold (77,113) (63,359) (29,830)Total $ 25,337 $ 9,738 $ (1,535)AgGeorgia.39.Winter 200782006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACAThe Association sells qualified long-term mortgage loans intothe secondary market. For the period ended December 31, 2006,the Association originated loans for resale totaling $9,939, whichwere sold into the secondary market, compared to $12,129 atDecember 31, 2005 and $11,771 at December 31, 2004.RISK EXPOSURECredit risk arises from the potential inability of an obligor tomeet its repayment obligation. As part of the process toevaluate the success of a loan, the Association continues toreview the credit quality of the loan portfolio on an ongoingbasis. With the approval of the Association Board of Directors,the Association establishes underwriting standards and lendingpolicies that provide direction to loan officers. Underwritingstandards include, among other things, an evaluation of:Character – borrower integrity and credit historyCapacity – repayment capacity of the borrower based oncash flows from operations or other sources of incomeCollateral – protection for the lender in the event ofdefault and a potential secondary source of repaymentCapital – ability of the operation to survive unanticipatedrisksConditions – intended use of the loan fundsThe credit risk management process begins with an analysis ofthe borrower’s credit history, repayment capacity, and financialposition. Repayment capacity focuses on the borrower’s abilityto repay the loan based upon cash flows from operations orother sources of income, including non-farm income. Realestate loans must be collateralized by first liens on the realestate (collateral). As required by FCA regulations, eachinstitution that makes loans on a collateralized basis must havecollateral evaluation policies and procedures. Real estatemortgage loans may be made only in amounts up to 85 percentof the original appraised value of the property taken as collateralor up to 97 percent of the appraised value if guaranteed by astate, federal, or other governmental agency. In addition, eachloan is assigned a credit risk weighting based upon theunderwriting standards. This credit risk rating processincorporates objective and subjective criteria to identify inherentstrengths, weaknesses, and risks in a particular relationship.The Association’s loan portfolio is divided into performing andhigh-risk categories. A Special Assets ManagementDepartment is responsible for servicing loans classified ashigh-risk. The high-risk assets, including accrued interest, aredetailed below:12/31/06 12/31/05 12/31/04(dollars in thousands)High-risk AssetsNonaccrual loans $ 10,848 $ 20,767 $ 17,889Restructured loans 502 579 705Accruing loans 90 days past due – – 85Total high-risk loans 11,350 21,346 18,679Other property owned 85 1,218 –Total high-risk assets $ 11,435 $ 22,564 $ 18,679RatiosNonaccrual loans to total loans 1.11% 2.36% 2.27%High-risk assets to total assets 1.10% 2.44% 2.27%Nonaccrual loans represent all loans where there is areasonable doubt as to the collection of principal and/or futureinterest accruals, under the contractual terms of the loan. Insubstance, nonaccrual loans reflect loans where the accrual ofinterest has been suspended. Nonaccrual loans decreased$9,919, or 47.76 percent in 2006. This decrease resulted fromliquidations, reinstatements and other payments onnonaccrual loans exceeding loan volume transferred intononaccrual status. Of the $10,848 in nonaccrual volume atDecember 31, 2006, $2,031 or 18.72 percent, compared to92.14 percent and 89.43 percent at December 31, 2005 and2004, respectively, was current as to scheduled principal andinterest payments, but did not meet all regulatoryrequirements to be transferred into accrual status.Loan restructuring is available to financially distressedborrowers. Restructuring of loans occurs when the Associationgrants a concession to a borrower based on either a court orderor good faith in a borrower’s ability to return to financialviability. The concessions can be in the form of a modificationof terms or rates, a compromise of amounts owed, or deed inlieu of foreclosure. Other receipts of assets and/or equity to paythe loan in full or in part are also considered restructured loans.The type of alternative financing structure chosen is based onminimizing the loss incurred by both the Association and theborrower.CREDIT QUALITYWe review the credit quality of the loan portfolio on anongoing basis as part of our risk management practices. Eachloan is classified according to the Uniform ClassificationSystem, which is used by all Farm Credit System institutions.Below are the classification definitions.Acceptable – Assets are expected to be fully collectibleand represent the highest quality.Other Assets Especially Mentioned (OAEM) – Assets arecurrently collectible but exhibit some potentialweakness.Substandard – Assets exhibit some serious weakness inrepayment capacity, equity, and/or collateral pledged onthe loan.Doubtful – Assets exhibit similar weaknesses tosubstandard assets. However, doubtful assets haveadditional weaknesses in existing facts, conditions andvalues that make collection in full highly questionable.Loss – Assets are considered uncollectible.The following table presents selected statistics related to thecredit quality of loans including accrued interest at December 31.Credit Quality 2006 2005 2004Acceptable & OAEM 98.13% 96.65% 96.97%Substandard 1.87 2.07 1.45Doubtful – 1.28 1.58Loss – – –Total 100.00% 100.00% 100.00%AgGeorgia.40.Winter 200792006 Annual Report

AgGeorgia Farm Credit, ACAALLOWANCE FOR LOAN LOSSESDuring 2004, the Association completed its study to furtherrefine the allowance for loan losses methodology, taking intoaccount guidance issued by FCA, as well as the Securities andExchange Commission (SEC) and Federal FinancialInstitutions Examination Council. As a result of this study andresulting refinements in methodology, during the fourth quarterof 2004, the Association recorded a reversal of the allowancefor loan losses of $9,028.Previously, the Association’s allowance for loan lossesmethodology had been based upon criteria developed in thelate 1980s and reflected the credit losses experienced in themid-to-late 1980s, which was a period of unusually adverseeconomic conditions in American agriculture. Given the longcyclical nature of the agricultural economy, loss factors utilizedto determine the allowance for loan losses subsequent to 1989continued to reflect, to some extent, the loss history of the midto-late1980s, which resulted in conservative estimates of theallowance for loan losses. The Association’s allowance forloan losses methodology utilized throughout the period was inaccordance with generally accepted accounting principles andwas consistently applied.While conservative in estimating the allowance for loan losses,the methodology used resulted in annual provisions for loanlosses over the periods that reflected changes in credit qualityand loss experience. Accordingly, the reserves provided in themid-to-late 1980s had, in effect, remained part of the allowancefor loan losses. The Association’s allowance for loan lossmethodology has consistently adhered to proper accountingpolicies, under the regulatory supervision of the FCA in its roleas a “safety and soundness” regulator. It was the FCA’s viewthat the allowance for loan losses should include, amongothers, an assessment of probable losses, historical lossexperience and economic conditions.In April 2004, the FCA issued an Informational Memorandumto System institutions regarding the criteria and methodologiesthat would be used in evaluating the adequacy of a Systeminstitution’s allowance for loan losses. The FCA endorsed thedirection provided by other bank regulators and the SEC andindicated that the conceptual framework addressed in theirguidelines would be included as part of their examinationprocess.The refinement in methodology resulted in a calculatedallowance for loan losses that was significantly less than thepreviously recorded balance due to revised loss factors that aremore indicative of actual loss experience in recent years andcurrent borrower analysis. The factors considered indetermining the revised level of allowance for loan losses aregenerally based on recent historical charge-off experienceadjusted for relevant environmental factors. The Associationconsiders the following when adjusting the historical chargeoffexperience:changes in credit risk classifications,changes in collateral values,changes in risk concentrations,changes in weather related conditions andchanges in economic conditions.While the reversal had a significant impact on 2004 results ofoperations and the previously recorded allowance for loanlosses, the refinement in methodology is not expected to have asignificant impact on comparative results of operations infuture periods. Additionally, the refinement in methodologydid not have a significant impact on the level of risk bearingcapacity of the Association, generally referred to as “riskfunds” (capital plus the allowance for loan losses), whichtotaled $165,933 at December 31, 2006 (16.93 percent ofAssociation loans), as compared with $157,129 atDecember 31, 2005 (17.89 percent of Association loans) and$146,940 at December 31, 2004 (18.63 of Association loans).The allowance for loan losses at each period end is considered byAssociation management to be adequate to absorb probable lossesexisting in and inherent to its loan portfolio. The allowance for loanlosses was $7,645 at December 31, 2006, as compared with $11,959and $12,314 at December 31, 2005 and 2004, respectively.Net loan charge-offs of $223, ($27) and ($126) were recordedin 2006, 2005 and 2004, respectively. Net loan charge-offs as apercentage of average loans remained at low levels of 0.02percent, 0.00 percent, and (0.02) percent for 2006, 2005 and2004, respectively.The following table presents the activity in the allowance forloan losses for the most recent three years:Allowance for Loan Losses Activity: 2006 2005 2004(dollars in thousands)Balance at beginning of year $ 11,959 $ 12,314 $ 21,216Charge-offs:Production and intermediate term $ (265) $ (56) $ (26)Other – – (1)Total charge-offs (265) (56) (27)Recoveries:Production and intermediate term $ 42 $ 65 $ 100Other – 18 53Total recoveries 42 83 153Net (charge-offs) recoveries (223) 27 126Provision for (reversal of allowancefor) loan losses $ (4,091) $ (382) $ –Nonrecurring allowance forloan losses reversal* – – (9,028)(4,091) (382) (9,028)Balance at end of year $ 7,645 $ 11,959 $ 12,314Ratio of net (charge-offs) recoveriesduring the period to average loansoutstanding during the period (0.02)% 0.00% 0.02%* Represents the amount of allowance reversal due to the refinementin methodology.The allowance for loan losses by loan type for the most recentthree years is as follows:Allowance for Loan December 31,Losses by Type 2006 2005 2004(dollars in thousands)Real estate mortgage $ 1,874 $ 1,753 $ 1,211Production and intermediate term 5,583 10,029 10,944Agribusiness 155 140 128Rural residential real estate 33 37 31Total loans $ 7,645 $ 11,959 $ 12,314AgGeorgia.41.Winter 2007102006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACAThe allowance for loan losses as a percentage of loansoutstanding and as a percentage of certain other credit qualityindicators is shown below:Allowance for Loan Losses December 31,as a Percentage of: 2006 2005 2004Total loans 0.78% 1.36% 1.56%Nonperforming loans 67.36% 56.03% 65.92%Nonaccrual loans 70.47% 57.59% 68.84%The financial positions of our borrowers have generallystrengthened during the past decade as farmers’ net cash incomehas been at a favorable level due, in part, to direct federalgovernment payments and steady increases in land values overthe period. With borrowers’ strengthened financial positions andthe continued emphasis on sound underwriting standards, thecredit quality of our loan portfolio has remained healthy. Pleaserefer to Note 4, “Loans and Allowance for Loan Losses,” of theNotes to the Consolidated Financial Statements, for furtherinformation concerning the allowance for loan losses.EMPLOYEE RETIREMENT PLANSFor the years ended December 31, 2006, 2005 and 2004, theAssociation contributed $0, $1,563 and $7,061, respectively, tothe District-wide defined benefit retirement plan. The fundingbrought the retirement plan’s assets to an amount exceeding theaccumulated benefit obligation as of the Plan’s measurementdate, eliminating the minimum pension liability and the chargeto accumulated other comprehensive income. For additionalinformation, see Note 10, “Employee Benefit Plans,” and referto the Recently Issued Accounting Pronouncements disclosed inthe Notes to the Consolidated Financial Statements.RESULTS OF OPERATIONSNet income for the year ended December 31, 2006, totaled$32,139, an increase of $8,089 or 33.63 percent, as comparedto $24,050 for the same period of 2005 and an increase of$4,541 or 16.45 percent, as compared to $27,598 for the sameperiod of 2004. Interest income for the year endedDecember 31, 2006, was $80,577, an increase of $18,588 or29.99 percent as compared to $61,989 for the same period of2005. Interest income increased by $13,067 for the periodended December 31, 2005, compared to December 31, 2004.Major components of the change in net income for the past twoyears are outlined in the following table.Change in Net Income: 2006-2005 2005-2004(dollars in thousands)Net income (prior year) $ 24,050 $ 27,598Increase (decrease) in net income due to:Interest income 18,588 13,067Interest expense (11,486) (8,282)Net interest income 7,102 4,785Provision for loan losses 3,709 (8,646)Noninterest income (1,485) 757Noninterest expense (1,279) (460)Provision for income taxes 42 16Total changes in income 8,089 (3,548)Net income $ 32,139 $ 24,050Net Interest IncomeNet interest income increased by $7,102 or 24.75 percent in2006 and increased by $4,785, or 20.02 percent in 2005compared with 2004. Interest income on nonaccrual loans for2006 totaled $3,544, an increase of $1,540 compared to $2,004for 2005, and the 2005 amount represents an increase of $430compared to $1,574 for 2004. The Association’s net interestincome as a percentage of average earning assets was 3.83percent on December 31, 2006, compared to 3.45 percent onDecember 31, 2005 and 3.16 percent on December 31, 2004.The sources of change in net interest income are summarized,as follows:Change in Net Interest Income:Volume* RateNonaccrualIncome Total(dollars in thousands)12/31/06 - 12/31/05Interest income $ 7,400 $ 9,648 $ 1,540 $18,588Interest expense 4,125 7,361 – 11,486Change in net interest income $ 3,275 $ 2,287 $ 1,540 $ 7,10212/31/05 - 12/31/04Interest income $ 4,733 $ 7,904 $ 430 $13,067Interest expense 2,846 5,436 – 8,282Change in net interest income $ 1,887 $ 2,468 $ 430 $ 4,785Volume variances can be the result of increased/decreased loan volume orfrom changes in the percentage composition of assets and liabilities betweenperiods.Please refer to the Consolidated Five-Year Summary ofSelected Financial Data in this Annual Report to review keyfinancial ratios pertaining to earnings and net interest income.Noninterest IncomeNoninterest income for each of the three years endedDecember 31 are shown in the following table:PercentageFor the Year Ended Increase/(Decrease)December 31, 2006/ 2005/Noninterest Income 2006 2005 2004 2005 2004(dollars in thousands)Loan fees $ 1,345 $ 1,380 $ 1,320 (2.54)% 4.55 %Fees for financiallyrelated services 129 168 108 (23.21) 55.56Patronage refund from otherFarm Credit Institutions 7,926 8,656 7,673 (8.43) 12.81Gains (losses) onother property owned (707) (9) 18 (7,755) (150)Other noninterest income 140 123 442 13.82 (72.17)Total noninterest income $ 8,833 $ 10,318 $ 9,561 (14.39)% 7.92 %The Association received $6,683 in patronage refunds fromother Farm Credit institutions (including the Bank) and $1,243in a special distribution from the Bank for the year endedDecember 31, 2006, compared to $6,230 and $2,426 for 2005,and $5,295 and $2,378 for 2004, respectively.AgGeorgia.42.Winter 2007112006 Annual Report

AgGeorgia Farm Credit, ACANoninterest ExpenseNoninterest expense for each of the three years endedDecember 31 is shown in the following table:PercentageFor the Year Ended Increase/(Decrease)December 31, 2006/ 2005/Noninterest Expense 2006 2005 2004 2005 2004(dollars in thousands)Salaries and employee benefits $ 10,637 $ 10,721 $ 10,536 (0.78)% 1.76%Occupancy andequipment expense 1,176 1,141 1,092 3.07 4.49Insurance Fund premium 1,384 443 414 212.42 7.00Other operating expense 3,380 2,993 2,796 12.93 7.05Total noninterest expense $ 16,577 $ 15,298 $ 14,838 8.36% 3.10%Noninterest expense increased $1,279 or 8.36 percent forDecember 31, 2006, as compared to the same period of 2005and increased $1,739 or 11.72 percent compared toDecember 31, 2004. The primary area of increase in noninterestexpense is the premium paid to the Farm Credit SystemInsurance Corporation due to a tripling of the premium rate onaccrual loans to 15 basis points and increased Association loanvolume.The Association recorded a provision for income taxes of $1for the year ended December 31, 2006, as compared to aprovision of $43 for 2005 and a provision of $59 for 2004.Key Results of Operations ComparisonsKey results of operations comparisons for each of the twelvemonths ended December 31 are shown in the following table:For the For the For the12 Months 12 Months 12 MonthsKey Results of Ended Ended EndedOperations Comparisons 12/31/06 12/31/05 12/31/04Return on average assets 3.26% 2.73% 3.52%Return on average members’ equity 20.68% 17.13% 23.55%Net interest income as a percentageof average earning assets 3.83% 3.45% 3.16%Net (chargeoffs) recoveriesto average loans (0.02)% 0.00% 0.02%A key factor in the growth of net income for future years willbe continued improvement in net interest and noninterestincome. Our goal is to generate earnings sufficient to fundoperations, adequately capitalize the Association, and achievean adequate rate of return for our members. To meet this goal,the agricultural economy must continue the improvementshown in recent years and the Association must meet certainobjectives. These objectives are to attract and maintain highquality loan volume priced at competitive rates and to managecredit risk in our entire portfolio, while efficiently meeting thecredit needs of our members.LIQUIDITY AND FUNDING SOURCESLiquidityLiquidity management is the process whereby funds are madeavailable to meet all financial commitments including theextension of credit, payment of operating expenses andpayment of debt obligations. The Association receives accessto funds through its borrowing relationship with the Bank andfrom income generated by operations. The Association’sparticipation in secondary market programs provides additionalliquidity. Sufficient liquid funds have been available to meetall financial obligations.Funding SourcesThe principal source of funds for the Association is theborrowing relationship established with the Bank through aGeneral Financing Agreement (GFA). The GFA utilizes theAssociation’s credit and fiscal performance as criteria forestablishing a line of credit on which the Association may drawfunds. The Bank advances the funds to the Association,creating notes payable to the Bank. The notes payable aresegmented into variable rate and fixed rate components. Thevariable rate note is utilized by the Association to fund variablerate loan advances and operating funds requirements. Thefixed rate note is used specifically to fund fixed rate loanadvances made by the Association.Total notes payable to the Bank at December 31, 2006, was$851,538 as compared to $755,584 at December 31, 2005 and$668,125 at December 31, 2004. The increase of 12.70 percentcompared to December 31, 2005 and the increase of 13.09percent compared to December 31, 2004, is attributable to theincrease in loan volume, mentioned earlier. The averagevolume of outstanding notes payable to the Bank was $815,057and $725,218 for the years ended December 31, 2006 and2005, respectively. Refer to Note 7, “Notes Payable to AgFirstFarm Credit Bank,” of the Notes to the Consolidated FinancialStatements, for additional information concerning theAssociation’s debt.The Association had no lines of credit outstanding or availablefrom third party financial institutions as of December 31, 2006.Funds ManagementThe Bank and the Association manage assets and liabilities toprovide a broad range of loan products and funding options,which are designed to allow the Association to be competitivein all interest rate environments. The primary objective of theasset/liability management process is to provide stable andrising earnings, while maintaining adequate capital levels bymanaging exposure to credit and interest rate risks.Demand for loan types is a driving force in establishing a fundsmanagement strategy. The Association offers fixed, adjustableand variable rate loan products that are marginally pricedaccording to financial market rates. Variable rate loans may beindexed to either the Prime Rate or the 90-day LondonInterbank Offered Rate (LIBOR). Adjustable rate mortgagesare indexed to U.S. Treasury Rates. Fixed rate loans are pricedbased on the current cost of System debt of similar terms tomaturity.AgGeorgia.43.Winter 2007122006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACAThe majority of the interest rate risk in the Association’sConsolidated Balance Sheets is transferred to the Bank throughthe notes payable structure. The Bank, in turn, actively utilizesfunds management techniques to identify, quantify and controlrisk associated with the loan portfolio.CAPITAL RESOURCESTotal members’ equity at December 31, 2006, increased 9.04percent to $158,288 from the December 31, 2005, total of$145,170 and increased 17.58 percent from the December 31,2004 total of $134,626. The increase for 2005 and 2006 wasprimarily attributed to the Association’s retention of a portion ofcurrent year net income to unallocated retained earnings asneeded to support growth in total assets.Total capital stock and participation certificates were $4,175 onDecember 31, 2006, compared to $4,649 on December 31,2005 and $4,722 on December 31, 2004. The decrease wasattributed to the retirement of protected stock and participationcertificates in the normal course of business, and at-risk stockas loans are liquidated.The Association Board of Directors establishes, adopts, andmaintains a formal written capital adequacy plan. There wereno material changes to the capital plan for 2006 that wouldaffect minimum stock purchases or would have an effect on theAssociation’s ability to retire stock and distribute earnings.The Association’s capital ratios as of December 31 and theFCA minimum requirements follow:Regulatory2006 2005 2004 MinimumPermanent Capital 15.04% 14.64% 14.54% 7.00%Total Surplus 14.66% 14.19% 14.04% 7.00%Core Surplus 10.60% 9.60% 9.56% 3.50%At December 31, 2006, the Association’s permanent capitalratio, (average at-risk capital divided by average risk adjustedassets), calculated in accordance with FCA regulations,exceeded the regulatory minimum of 7.00 percent. In additionto these regulatory requirements, the Association hasestablished a permanent capital ratio goal in excess of the 7.00percent FCA minimum requirement. As of December 31,2006, the Association exceeds this minimum of 13.00 percent.The increase in the Association’s permanent capital, totalsurplus, and core surplus for December 31, 2006 andDecember 31, 2005 was attributed to the Association’sretention of a portion of net income to unallocated surplus.See Note 8, “Members’ Equity,” of the Notes to theConsolidated Financial Statements, for further informationconcerning capital resources.PATRONAGE PROGRAMPrior to the beginning of any fiscal year, the Association’sBoard of Directors, by adoption of a resolution, may establish aPatronage Allocation Program to distribute its availableconsolidated net earnings. This resolution provides for theapplication of net earnings in the manner described in theAssociation’s Bylaws. This includes the setting aside of fundsto increase surplus to meet minimum capital adequacystandards established by FCA Regulations, to increase surplusto meet Association capital adequacy standards to a levelnecessary to support competitive pricing at targeted earningslevels, and for reasonable reserves for necessary purposes ofthe Association. After excluding net earnings attributable tonon-patronage sources and the setting aside of funds toincrease surplus, remaining consolidated net earnings areeligible for allocation to borrowers. Refer to Note 8,“Members’ Equity,” of the Notes to the ConsolidatedFinancial Statements, for more information concerning thepatronage distributions. The Association declared patronagedistributions (current estimates) of $22,403 in 2006, $15,658in 2005, and $14,211 in 2004.YOUNG, BEGINNING AND SMALL (YBS) FARMERSAND RANCHERS PROGRAMThe Association’s mission is to provide financial services toagriculture and the rural community, which includes providingcredit to young*, beginning** and small*** farmers. Becauseof the unique needs of these individuals, and their importanceto the future growth of the Association, the Association hasestablished annual marketing goals to increase our marketshare of loans to YBS farmers. Specific marketing plans havebeen developed to target these groups, and resources have beendesignated to help ensure YBS borrowers have access to astable source of credit.The following table outlines the loan volume and number ofYBS loans in the loan portfolio for the Association.As of December 31, 2006Number ofLoansAmount ofLoansYoung 1,119 $ 151,930Beginning 1,949 300,395Small 4,546 399,936Note: For purposes of the above table, a loan could be classified inmore than one category, depending upon the characteristics of theunderlying borrower.’The 2002 USDA (2002 is the latest USDA Ag census dataavailable; next census will be available in 2008.) Ag censusdata has been used as a benchmark to measure penetration ofthe Association’s marketing efforts. The census data indicatedthat within the Association’s chartered territory (counties) therewere 27,695 reported farmers of which by definition 1,360 or 4percent were Young, 8,316 or 24 percent were Beginning, and24,855 or 72 percent were Small. Comparatively, as ofDecember 31, 2006, the demographics of the Association’sagricultural portfolio contained 6,984 farmers, of which bydefinition 1,119 or 16 percent were Young, 1,949 or 28 percentwere Beginning and 4,546 or 65 percent were Small.In addition to our marketing strategies, in 2006 the Association,through marketing, outreach and financial support programs,created a three-pronged program to help young, beginning andsmall farmers.The YBS program consists of three focus areas: education,events, and financial support. Education is at the heart of theprogram, and includes seminars, speaking opportunities andtraining sessions, which are conducted throughout the year.AgGeorgia.44.Winter 2007132006 Annual Report

AgGeorgia Farm Credit, ACAThese educational opportunities are both in-house, in the form ofevents held by the Association, and external, in which case, theAssociation provides a speaker or provides educational materials.The Association website, www.AgGeorgia.com, includes anentire section of information and resources for YBS visitors tothe site.The second focus area of the program includes those activitiesin which the Association sponsors local events (such as 4-Hand FFA fairs), or events where the Association is an exhibitor(such as industry or trade shows).The third prong of the YBS program, financial support, addressesthe specific credit programs and partnerships that we’vedeveloped to help small farmers, young farmers, and farmers juststarting out. It comprises programs such as those offered by theFarm Service Agency (FSA), which includes guaranteed anddirect loans to qualifying borrowers. The Association is a“preferred lender,” the highest status designated by FSA.The Association is also a Guaranteed Participating Lender forthe Small Business Administration (SBA), which offers lendingprograms specifically for small borrowers. Additionally, theAssociation offers flexible financing options in-house forqualifying borrowers.The Director of Marketing oversees the YBS program.Additional staff members in each of the Association’s regionshave been designated as the YBS Program Coordinator fortheir specific territories. The Association includes YBS goalsin the annual strategic plan, and reports on those goals andachievements to the Board of Directors on a quarterly basis.The Association is committed to the future success of young,beginning and small farmers.* Young farmers are defined as those farmers, ranchers,producers or harvesters of aquatic products who are age35 or younger as of the date the loan is originally made.** Beginning farmers are defined as those farmers, ranchers,producers or harvesters of aquatic products who have 10years or less farming or ranching experience as of the datethe loan is originally made.*** Small farmers are defined as those farmers, ranchers,producers or harvesters of aquatic products who normallygenerate less than $250 in annual gross sales ofagricultural or aquatic products at the date the loan isoriginally made.RECENTLY ISSUED ACCOUNTINGPRONOUNCEMENTSAccounting for Uncertainty in Income TaxesIn June 2006, the Financial Accounting Standards Board(FASB) released Interpretation No. 48, “Accounting forUncertainty in Income Taxes” (FIN 48). This interpretationclarifies the accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements in accordancewith FASB Statement No. 109, “Accounting for Income Taxes.”FIN 48 prescribes a recognition threshold and measurementattribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in atax return. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006. Adoption of FIN 48 is not expected tohave a material impact on the Association’s ConsolidatedBalance Sheet or Consolidated Statement of Income.Accounting for Defined Benefit Pension and OtherPostretirement PlansOn September 29, 2006, the FASB issued Statement ofFinancial Accounting Standards No. 158, “Employers’Accounting for Defined Benefit Pension and OtherPostretirement Plans” (FAS 158). FAS 158 requires anemployer to recognize the overfunded or underfunded status ofa defined benefit postretirement plan as an asset or liability inits statement of financial position and recognize throughcomprehensive income changes in that funded status in theyear in which the changes occur. FAS 158 also providesguidance relating to the discount rate, which may require theBank and its related associations to adjust their basis forselecting the discount rate for their pension and non-pensionpostretirement benefit plans. The Bank and its relatedassociations will be required to implement FAS 158 for theyear ended December 31, 2007. In addition, FAS 158 requiresthat the funded status of a plan be measured as of the date ofthe year-end financial statements. Currently, the Bank and itsrelated associations use a measurement date of September 30th.The requirement to measure the funded status as of the fiscalyear-end is effective for fiscal years ending after December 15,2008. The Bank and its related associations are currentlyevaluating the impact of implementing FAS 158.FORWARD LOOKING INFORMATIONCertain information included in this discussion constitutesforward-looking statements and information that are basedupon management’s belief as well as certain assumptions madeby and information currently available to management. Whenused in this discussion, the words “anticipate,” “project,”“expect,” “believe,” and similar expressions are intended toidentify forward-looking statements. Although management ofthe Association believes that the expectations reflected in suchforward-looking statements are reasonable, it can give noassurance that such expectations and projections will prove tohave been correct. Such forward-looking statements aresubject to certain risks, uncertainties and assumptions. Shouldone or more of these risks materialize, or should suchunderlying assumptions prove to be incorrect, actual resultsmay vary materially from those anticipated, projected, orexpected. Among key factors that may have a direct bearingon the Association’s operating results are fluctuations in theeconomy, the relative strengths and weaknesses in theagricultural credit sectors and in the real estate market, theactions taken by the Federal Reserve for the purpose ofmanaging the economy, and the continued growth of theagricultural market consistent with recent historical experience.AgGeorgia.45.Winter 2007142006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACADisclosure Required byDisclosure Required byFarm Credit Administration RegulationsFarm Credit Administration RegulationsDescription of BusinessDescriptions of the territory served, persons eligible to borrow,types of lending activities engaged in, financial services offeredand related Farm Credit organizations are incorporated herein byreference to Note 1 to the consolidated financial statements,“Organization and Operations,” included in this annual report toshareholders.The description of significant developments that had or could havea material impact on earnings or interest rates to borrowers,acquisitions or dispositions of material assets, material changes inthe manner of conducting the business, seasonal characteristics,and concentrations of assets, if any, is incorporated in“Management’s Discussion and Analysis of Financial Conditionand Results of Operations” included in this annual report toshareholders.Description of PropertyThe following table sets forth certain information regarding theproperties of the reporting entity, all of which are located inGeorgia:Location1300 East Main StreetCartersville 30120102 Blacksnake RoadClarkesville/Mt. Airy 305631207 South Greer StreetCordele 310151583 E. Walnut AvenueDalton 30722826 Bellevue AvenueDublin 31021501 Broad StreetGainesville 30501318 South Duke StreetLafayette 30728108 East Railroad StreetMontezuma22 5th Avenue, SEMoultrie 31768707 North Davis StreetNashville 31639302 South Cherry StreetOcilla 317741219 Macon RoadPerry 31069504 East Screven StreetQuitman 31643701 East Second AvenueRome 30162DescriptionBranchBranchBranchBranchCorporate Office& BranchAdministrativeOffice & BranchOutpost ofDalton BranchOutpost of PerryBranchBranchBranchBranchBranchBranchOutpost ofCartersville BranchForm ofOwnershipOwnedOwnedOwnedOwnedOwnedOwnedLeased*Leased**OwnedOwnedOwnedOwnedOwnedLeased***Location675 Church StreetRoyston 30662775 Sparta RoadSandersville 31082102 Dexter Wilson Blvd.Sylvester 317911807 King RoadTifton 31793U.S. 78, 311 North BypassWashington 30673176 Highway 80 WestWaynesboro 30830North Perry Pwy.Perry 31069DescriptionBranchBranchBranchAdministrativeOffice & BranchBranchBranchVacant LotForm ofOwnershipOwnedOwnedOwnedOwnedOwnedOwnedOwned* Lease expires 1/1/2008 ($350/month); cancelable with 90 days notice.** Lease expired 12/31/2006 and was not renewed. Location closed.*** Lease expires 07/01/2011 ($1800/month); cancelable with 90 days notice.Legal ProceedingsInformation, if any, to be disclosed in this section is incorporatedherein by reference to Note 13 to the consolidated financialstatements, “Commitments and Contingencies,” included in thisannual report to shareholders.Description of Capital StructureInformation to be disclosed in this section is incorporated hereinby reference to Note 8 to the consolidated financial statements,“Members’ Equity,” included in this annual report toshareholders.Description of LiabilitiesThe description of liabilities, contingent liabilities and intrasystemfinancial assistance rights and obligations to be disclosed in thissection is incorporated herein by reference to Notes 2, 7, 11 and 13to the consolidated financial statements included in this annualreport to shareholders.Management’s Discussion and Analysis of FinancialCondition and Results of Operations“Management’s Discussion and Analysis of Financial Conditionand Results of Operations,” which appears in this annual report toshareholders and is to be disclosed in this section, is incorporatedherein by reference.AgGeorgia.46.Winter 200715

AgGeorgia Farm Credit, ACASenior OfficersThe following represents certain information regarding the seniorofficers of the Association and their business experience for the pastfive years:Senior OfficerPositionWilliam H. Newberry, Jr. President/Chief Executive Officer sinceMay 2001.Jack C. Drew, Jr.EVP/Chief Operating Officer since June2005 and had previously served as DivisionPresident.Ernest L. GheeEVP/Commercial Lending President sinceJune 2005 and had previously served asCommercial Lending Manager.Thomas E. Kight, Jr. EVP/Director of Marketing since February1997.John P. Lowry III EVP/Information Systems Manager sinceJanuary 2000.Christopher H. Scott EVP/Treasurer/Chief Financial Officersince January 1998.Michael A. Sheppard EVP/Chief Appraiser since April 2000.Patricia G. Thomas EVP/Director of Risk Management sinceAugust 2005 and had previously served asChief Reviewer.Alton ThorntonEVP/Retail Lending President since June2005 and had previously served as DivisionPresident.The total amount of compensation earned by the Chief ExecutiveOfficer alone, and the most highly compensated senior officers as agroup during the years ended December 31, 2006, 2005 and 2004, isas follows:AggregateAnnualNumber ofDeferred/-Senior Officers Year Salary Bonus Perquisites Other TotalWilliam H. Newberry, Jr. 2006* $235,009 $ 51,700 – – $ 286,709William H. Newberry, Jr. 2005 $219,539 $ 37,320 – – $ 256,859William H. Newberry, Jr. 2004 $210,137 $ 31,520 – – $ 241,6578 2006* $861,850 $157,335 – – $1,019,1855 2005 $725,209 $120,705 – – $ 845,9145 2004 $710,356 $101,448 – – $ 811,804* Note: Beginning with year-end 2006, CEO compensation must bedisclosed as a separate line item and is not included in theaggregate amount. The CEO salary is included in the aggregateamount for 2004 and 2005.Regulatory reporting changes have affected the content of thecompensation reported for 2006 and those changes may not bereflected in the 2004 and 2005 amounts.In addition to base salary, all employees except the CEO have theopportunity to earn additional compensation under an incentive plan.The Association incentive plan is designed to motivate employees toexceed certain goals during the fiscal year. The goals are primarily inthe areas of profitability, credit quality and credit administration. TheCEO bonus amount, if any, is established at the discretion of the Boardof Directors. Total incentive compensation earned by employees in2006 was $1,075,969, or 3.35 percent of final net income, of which$765,951 was paid during 2006, and the remainder paid in January2007.Disclosure of information on the total compensation paid during2006 to any senior officer, or to any other individual included inthe total, is available to shareholders upon request.DirectorsDirectors and senior officers are reimbursed on an actual cost basisfor all expenses incurred in the performance of official duties. Suchexpenses may include transportation, lodging, meals, tips, tolls,parking of cars, registration fees, and other expenses associated withtravel on official business.A copy of the policy is available to shareholders of the Associationupon request.The aggregate amount of reimbursement for travel, subsistence andother related expenses for all directors as a group was $230,742 for2006, $209,548 for 2005, and $135,455 for 2004.Subject to approval by the board, the Association may allow directorshonoraria of $300 for attendance at meetings, committee meetings, orspecial assignments, $100 for participation in conference calls plus aretainer fee of $500 per quarter. Total compensation paid to directorsas a group was $274,100 for 2006, $287,900 for 2005, and $223,900for 2004.The following represents certain information regarding the directorsof the Association:Edward M. Beckham, II, Chairman, is a general row crop farmer andinvolved in real estate development. His term began January 1, 2005and ends December 31, 2007. He also serves on the following boardsthat involve banking: Security Bank of Houston County and SecurityBank Bancshares (Vice Chairman). During 2006, he served 9 days atAssociation board meetings and 31 days in other official activities andwas paid $13,600 including retainer. His principal occupation andemployment for the past 5 years has been as a general row crop farmerand oil jobber.Franklin B. Wright, Vice Chairman, is a dairy and poultry farmer.His term of office began January 1, 2005 and ends December 31,2007. He also serves on the following boards and committees,which involve insurance, government programs, farm supply andmarketing, and trade associations: Gilmer County Farm Bureau,Georgia Milk Producers, Southeast United Dairy IndustryAssociation and American Dairy Association of Georgia(President). During 2006, he served 9 days at Association boardmeetings and 34 days in other official activities and was paid$14,500 including retainer. His principal occupation andemployment for the past 5 years has been as a dairy and poultryfarmer.Gerald D. Andrews, Outside Director, is a retired County ExtensionDirector. The Board of Directors appointed Mr. Andrews to a threeyear term beginning January 1, 2005 and ending December 31, 2007.He also serves on the following boards that involve insurance sales,farm commodities and agricultural promotion through development offairs: Washington County Farm Bureau (President) and GeorgiaAssociation of Agricultural Fairs. During 2006, he served 9 days atAssociation board meetings and 25 days in other official activities andwas paid $12,200 including retainer. He has been retired from hisprincipal occupation and employment for the past 5 years.John W. Bagwell, Jr. is a dairy farmer. His term began January 1,2005 and ends December 31, 2007. He also serves on the followingboards that involve trade association, promotion and insurance:Southeast United Dairy Industry Association (Secretary); GeorgiaACC for Milk, American Dairy Association of Georgia and the FloydCounty Farm Bureau. During 2006, he served 9 days at Associationboard meetings and 31 days in other official activities and was paid$14,000 including retainer. His principal occupation and employmentfor the past 5 years has been as a dairy farmer.AgGeorgia.47.Winter 2007162006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACATuttle W. Barksdale is a general row crop farmer and isowner/operator of a retail merchandising facility. His term beganJanuary 1, 2006 and ends December 31, 2008. He also serves as aWashington County Commissioner, which involves countygovernment. During 2006, he served 9 days at Association boardmeetings and 30 days in other official activities and was paid $13,300including retainer. His principal occupation and employment for thepast 5 years has been as a general row crop farmer and retailmerchandise sales.Jack W. Bentley, Jr., is a dairy farmer. His term of office beganJanuary 1, 2004 and ended December 31, 2006. He was re-electedat the 2006 Annual Stockholders Meeting for a three year termending December 31, 2009. He also serves on the following boardsthat involve trade association, insurance and government services:American Dairy Association of Georgia, Wilkes County FarmBureau and Wilkes-Lincoln FSA (Chairman). During 2006, heserved 9 days at Association board meetings and 34 days in otherofficial activities and was paid $14,700 including retainer. Hisprincipal occupation and employment for the past 5 years has beenas a dairy farmer.William L. Brown is a general row crop and peach farmer. Histerm of office began January 1, 2006 and ends December 31, 2008.He also serves on the following boards that involve banking,electricity distribution and fresh vegetable processing and sales:Wachovia Bank (Advisory Board); Flint EMC; Americus Bean Co.(President) and Fresh Plants. During 2006, he served 9 days atAssociation board meetings and 8 days in other official activitiesand was paid $7,100 including retainer. His principal occupationand employment for the past 5 years has been as a general row cropfarmer.James B. Carlton is a breeder hen farmer. His term of office beganJanuary 1, 2006 and ends December 31, 2008. During 2006, heserved 9 days at Association board meetings and 31 days in otherofficial activities and was paid $13,600 including retainer. Hisprincipal occupation and employment for the past 5 years has beenas a dairy and breeder hen farmer.Carroll C. Castleberry is a poultry, cattle, hay and small grainfarmer. His term of office began January 1, 2005 and endsDecember 31, 2007. He also serves on the following boards andcommittees of businesses which involve insurance, localgovernment, farm supply and trade association: Forsyth CountyFarm Bureau (President), Forsyth County Tax Study Committee andTax Equalization Board, Georgia Cattlemen’s Association, NorthGeorgia Cattlemen’s Association, Forsyth County FSA Committeeand Forsyth County Broiler Committee. During 2006, he served 8days at Association board meetings and 28 days in other officialactivities and was paid $12,800 including retainer. His principaloccupation and employment for the past 5 years has been a poultry,cattle, hay and small grain farmer.Billy J. Clary is a general row crop farmer. His term of officebegan January 1, 2005 and ends December 31, 2007. During 2006,he served 9 days at Association board meetings and 12 days in otherofficial activities and was paid $8,300 including retainer. Hisprincipal occupation and employment for the past 5 years has beenas a general row crop farmer.Dan N. Crumpton is a tree farmer and a Consulting Forester. Histerm of office began January 1, 2006 and ends December 31, 2008.He also serves on the board of Warren County Soil & WaterDistributors (District Supervisor), which involves conservation ofnatural resources. During 2006, he served 9 days at Associationboard meetings and 22 days in other official activities and was paid$11,300 including retainer. His principal occupation andemployment for the past 5 years has been as a tree farmer andconsulting forester.Guy A. Daughtrey is an Energy Services Consultant with theSouthern Company and a tree farmer. His term of office beganJanuary 1, 2005 and ends December 31, 2007. He also serves on thefollowing boards that involve community services, financialdevelopment and oversight of comprehensive planning and land use:Cook County Department of Family and Children Services(Chairman); State American Red Cross and Cook County Zoning-Planning Commission. During 2006, he served 8 days at Associationboard meetings and 37 days in other official activities and was paid$15,500 including retainer. His principal occupation andemployment for the past 5 years has been as an energy servicesconsultant with the Southern Company.J. E. “Bud” Jones is a retired farmer. His term began January 1,2004 and ends December 31, 2006. He was re-elected at the 2006Annual Stockholders Meeting for a three year term ending December31, 2009. During 2006, he served 8 days at Association boardmeetings and 11 days in other official activities and was paid $7,700including retainer. He has been retired from his principal occupationand employment for the past 5 years.Howard Lawson is a row crop and peach farmer. His term beganJanuary 1, 2004 and ends December 31, 2006. He was re-elected atthe 2006 Annual Stockholders Meeting for a three year term endingDecember 31, 2009. He also serves on the following boards thatinvolve community services, banking, cotton ginning/sales andfertilizer sales: Citizens Community Bank (Advisory Board), BCTGin, Brooks County Farm Bureau and Brooks CountyCommissioners. During 2006, he served 9 days at Association boardmeetings and 30 days in other official activities and was paid $13,300including retainer. His principal occupation and employment for thepast 5 years has been as a row crop and peach farmer.Ronney S. Ledford is a general row crop farmer and owns/operates acotton ginning facility. His term of office began January 1, 2006 andends December 31, 2008. He also serves on the following boardswhich involve health care, cotton ginning, selling and warehousing,peanut production and purchasing: Crisp Regional Hospital; FindleyGin; Vienna Cotton Co., and State Bank & Trust. During 2006, heserved 9 days at Association board meetings and 17 days in otherofficial activities and was paid $9,800 including retainer. Hisprincipal occupation and employment for the past 5 years has been asa row crop farmer and operation of a cotton gin.Joseph Marion Meeks is a general row crop and beef cattle farmer.His term of office began January 1, 2006 and ends December 31,2008. During 2006, he served 9 days at Association board meetingsand 21 days in other official activities and was paid $11,000including retainer. His principal occupation and employment for thepast 5 years has been as a row crop farmer and equipment salesman.Robert G. “Bobby” Miller is a poultry and cattle farmer. His term ofoffice began January 1, 2006 and ends December 31, 2008. He alsoserves on the following boards which involve retail services andrental property: Lula Pharmacy & Gift Shop, Inc. (VicePresident/Secretary); RGM Foothills Property, LLC and H R MillerLLC. During 2006, he served 9 days at Association board meetingsand 30 days in other official activities and was paid $13,300including retainer. His principal occupation and employment for thepast 5 years has been as a cattle and poultry farmer.Richard David “Dave” Neff is an appointed Outside Director. Heworks in the production and exportation of fertile broiler hatchingeggs. The Board of Directors appointed Mr. Neff to a three-year termbeginning January 1, 2005 and ending December 31, 2007. DuringAgGeorgia.48.Winter 2007172006 Annual Report

AgGeorgia Farm Credit, ACA2006, he served 9 days at Association board meetings and 35 daysin other official activities and was paid $14,800 includingconference call and retainer. His principal occupation andemployment for the past 5 years has been with D & D Poultry, Inc.& Morris Hatchery, Inc.J. Dan Raines, Jr. is a cattle farmer. His term of office beganJanuary 1, 2005 and ends December 31, 2007. He also serves onthe following boards, which involve agricultural lending: AgFirstFarm Credit Bank and Federal Agricultural Mortgage Corp.(Farmer Mac). During 2006, he served 8 days at Associationboard meetings and 14 days in other official activities and waspaid $8,600 including retainer. His principal occupation andemployment for the past 5 years has been as a vegetable and beefcattle farmer.George R. Reeves is a general row crop farmer. His term beganJanuary 1, 2004 and ends December 31, 2006. He was re-electedat the 2006 Annual Stockholders Meeting for a three year termending December 31, 2009. During 2006, he served 9 days atAssociation board meetings and 30 days in other official activitiesand was paid $13,700 including retainer. His principal occupationand employment for the past 5 years has been as a general rowcrop farmer.Anne G. Sisk is a broiler grower and operates a cow-calfoperation. Her term of office began January 1, 2006 and endsDecember 31, 2008. During 2006, she served 9 days atAssociation board meetings and 30 days in other official activitiesand was paid $13,700 including retainer. Her principal occupationand employment for the past 5 years has been as a broiler growerand operating a cow-calf operation.David H. Smith is a cotton producer and operates a cotton gin andwarehouse. His term of office began January 1, 2005 and endsDecember 31, 2007. During 2006, he served 7 days at Associationboard meetings and 12 days in other official activities and waspaid $7,700 including retainer. His principal occupation andemployment for the past 5 years has been as a cotton producer andoperator of a cotton gin and warehouse.J. T. Woodard, Sr. is a row crop farmer. His term of office beganJanuary 1, 2005 and ends December 31, 2007. During 2006, heserved 9 days at Association board meetings and 13 days in otherofficial activities and was paid $8,600 including retainer. Hisprincipal occupation and employment for the past 5 years has beenas a general row crop farmer.Ira T. Paulk, Jr., was a general row crop farmer whose termexpired December 31, 2006. He was unable to attend any boardmeetings in 2006 due to illness. He was paid $1,000 in retainerfees.Relationship with Independent Public AccountantsThere were no material disagreements with our independent publicaccountants on any matter of accounting principles or financialstatement disclosure during this period.Consolidated Financial StatementsThe consolidated financial statements, together with the reportthereon of PricewaterhouseCoopers LLP dated February 28, 2007and the report of management, which appear in this annual reportto shareholders are incorporated herein by reference.Copies of the Association’s quarterly reports are available uponrequest free of charge by calling 770-536-3660, or writingChristopher H. Scott, Chief Financial Officer, AgGeorgia FarmCredit, P.O. Box 2536, Gainesville GA 30503, or accessing thewebsite, www.aggeorgia.com. The Association prepares aquarterly report within 45 days after the end of each fiscal quarter,except that no report need be prepared for the fiscal quarter thatcoincides with the end of the fiscal year of the institution.Borrower Information RegulationsSince 1972, Farm Credit Administration (FCA) regulations haverequired that borrower information be held in strict confidence byFarm Credit System (FCS) institutions, their directors, officers andemployees. These regulations provide Farm Credit institutionsclear guidelines for protecting their borrowers’ nonpublic personalinformation.On November 10, 1999, the FCA Board adopted a policy thatrequires FCS institutions to formally inform new borrowers at loanclosing of the FCA regulations on releasing borrower informationand to address this information in the annual report toshareholders. The implementation of these measures ensures thatnew and existing borrowers are aware of the privacy protectionsafforded them through FCA regulations and Farm Credit Systeminstitution efforts.Shareholder InvestmentShareholder investment in the Association could be affected by thefinancial condition and results of operations of AgFirst Farm CreditBank. Copies of the District annual and quarterly reports areavailable upon request free of charge by calling 1-800-845-1745,ext. 316, or writing Wanda Martin, AgFirst Farm Credit Bank, P. O.Box 1499, Columbia, SC 29202. Information concerning AgFirstFarm Credit Bank can also be obtained by going to AgFirst’swebsite at www.agfirst.com.Transactions with Senior Officers and DirectorsThe reporting entity’s policies on loans to and transactions with itsofficers and directors, to be disclosed in this section areincorporated herein by reference to Note 12 to the consolidatedfinancial statements, “Related Party Transactions,” included in thisannual report to shareholders.Involvement in Certain Legal ProceedingsThere were no matters which came to the attention of managementor the board of directors regarding involvement of current directorsor senior officers in specified legal proceedings which should bedisclosed in this section.AgGeorgia.49.Winter 2007182006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACAReport of the Audit CommitteeReport of the Audit CommitteeThe Audit Committee of the Board of Directors (Committee) is comprised of the directorsnamed below. None of the directors who serve on the Committee is an employee of AgGeorgiaFarm Credit (Association) and in the opinion of the Board of Directors, each is free of anyrelationship with the Association or management that would interfere with the director’sindependent judgment on the Committee.The Committee has adopted a written charter that has been approved by the Board of Directors.The Committee has reviewed and discussed the Association’s audited financial statements withmanagement, which has primary responsibility for the financial statements.PricewaterhouseCoopers LLP (PwC), the Association’s independent auditor for 2006, isresponsible for expressing an opinion on the conformity of the Association’s audited financialstatements with accounting principles generally accepted in the United States of America. TheCommittee has discussed with PwC the matters that are required to be discussed by Statement onAuditing Standards No. 61 (Communication With Audit Committees). PwC has provided to theCommittee the written disclosures and the letter required by Independence Standards BoardStandard No. 1 (Independence Discussions with Audit Committees), and the Committee hasdiscussed with PwC that firm’s independence.The Committee has also concluded that PwC’s provision of non-audit services, if any, to theAssociation is compatible with PwC’s independence.Based on the considerations referred to above, the Committee recommended to the Board ofDirectors that the audited financial statements be included in the Association’s Annual Reportfor 2006. The foregoing report is provided by the following independent directors, whoconstitute the Committee:Robert G. MillerChairman of the Audit CommitteeMembers of Audit CommitteeTuttle W. BarksdaleEdward M. Beckham IIJack W. Bentley, Jr.James B. CarltonHoward LawsonR. David NeffFranklin B. WrightAgGeorgia.50.Winter 2007192006 Annual Report

AgGeorgia Farm Credit, ACAReport of Independent AuditorsReport of Independent AuditorsPricewaterhouseCoopers LLP10 Tenth Street, Suite 1400Atlanta, GA 30309Telephone (678) 419 1000Report of Independent AuditorsTo the Board of Directors and Membersof AgGeorgia Farm Credit, ACAIn our opinion, the accompanying consolidated balance sheets and the relatedconsolidated statements of income, of changes in members’ equity and of cash flowspresent fairly, in all material respects, the financial position of AgGeorgia Farm Credit,ACA (the Association) and its subsidiaries at December 31, 2006, 2005 and 2004, andthe results of their operations and their cash flows for each of the three years in theperiod ended December 31, 2006 in conformity with accounting principles generallyaccepted in the United States of America. These financial statements are theresponsibility of the Association’s management. Our responsibility is to express anopinion on these financial statements based on our audits. We conducted our audits ofthese statements in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overallfinancial statement presentation. We believe that our audits provide a reasonable basisfor our opinion.February 28, 2007AgGeorgia.51.Winter 200720

Annual ReportAg Georgia Farm Credit, ACAConsolidated Balance SheetsAg Georgia Farm Credit, ACADecember 31, December 31, December 31,(dollars in thousands) 2006 2005 2004Consolidated Balance SheetsConsolidated Balance SheetsAssetsCash $ 10,100$ 8,256$ 3,806December 31, December 31, December 31,(dollarsLoansin thousands) 2006979,9832005878,2282004788,829Less: allowance for loan losses 7,645 11,959 12,314Net loans 972,338 866,269 776,515Assets Accrued interest receivable 19,403 14,353 9,602Cash Investment in other Farm Credit institutions $ 10,100 14,434 $ 10,185 8,256$ 9,555 3,806Premises and equipment, net 4,943 5,066 5,195Loans 979,983 878,228 788,829Other property owned 85 1,218 —Less: allowance for loan losses 7,645 11,959 12,314Prepaid retirement expense 8,605 9,733 9,304Due Net from loans AgFirst Farm Credit Bank 972,338 7,724 866,269 8,330 776,515 7,423Other assets 1,317 1,243 1,031Accrued interest receivable 19,403 14,353 9,602Investment in other Farm Credit institutions 14,434 10,185 9,555Total assets $ 1,038,949$ 924,653$ 822,431Premises and equipment, net 4,943 5,066 5,195Other property owned 85 1,218 —Prepaid retirement expense 8,605 9,733 9,304LiabilitiesDue from AgFirst Farm Credit Bank 7,724 8,330 7,423Notes payable to AgFirst Farm Credit Bank $ 851,538$ 755,584$ 668,125Other assets 1,317 1,243 1,031Accrued interest payable 4,104 3,243 2,310PatronageTotalrefundassetspayable$ 1,038,9496,837$ 924,6534,767$ 822,4314,425Postretirement benefits other than pensions 6,747 6,323 5,550Other liabilities 11,435 9,566 7,395LiabilitiesTotal liabilities 880,661 779,483 687,805Notes payable to AgFirst Farm Credit Bank $ 851,538$ 755,584$ 668,125Accrued interest payable 4,104 3,243 2,310Commitments and contingenciesPatronage refund payable 6,837 4,767 4,425Postretirement benefits other than pensions 6,747 6,323 5,550Members' EquityOther liabilities 11,435 9,566 7,395Protected borrower stock 482 644 840Capital stock and participation certificates 3,693 4,005 3,882Total liabilities 880,661 779,483 687,805Retained earningsAllocated 88,186 83,529 81,438Commitments and contingenciesUnallocated 65,927 56,992 48,466Members' EquityTotal members' equity 158,288 145,170 134,626Protected borrower stock 482 644 840Capital stock and participation certificates 3,693 4,005 3,882Total liabilities and members' equity $ 1,038,949$ 924,653$ 822,431Retained earningsAllocated 88,186 83,529 81,438Unallocated 65,927 56,992 48,466Total members' equity 158,288 145,170 134,626Total liabilities and members' equity $ 1,038,949$ 924,653$ 822,431The accompanying notes are an integral part of these financial statements.212006 Annual ReportAgGeorgia.52.Winter 2007

The accompanying notes are an integral part of these financial statements.For the year ended December 31,(dollars in thousands) 2006 2005 2004Interest IncomeLoans $ 80,577Ag Georgia Farm Credit, ACA$ 61,989 $ 48,922Consolidated Statements of IncomeInterest ExpenseNotes payable to AgFirst Farm Credit Bank 44,784 33,298 25,016Consolidated Statements of IncomeNet interest income 35,793 28,691 23,906Provision for (reversal of allowance for) loan losses (4,091) (382) (9,028)Net interest income after provision forFor the year ended December 31,(dollars (reversal in of thousands) allowance for) loan losses 2006 39,884 2005 29,073 2004 32,934Noninterest IncomeInterestLoan feesIncome1,345 1,380 1,320LoansFees for financially related services$ 80,577129$ 61,989168$ 48,922108Patronage refund from other Farm Credit institutions 7,926 8,656 7,673InterestGains (losses)Expenseon other property owned, net (707) (9) 18NotesGainspayable(losses) onto AgFirstsales ofFarmpremisesCreditandBankequipment, net44,7841433,2981625,016402Other noninterest incomeNet interest income12635,79310728,6914023,906Provision for (reversal of allowance for) loan lossesTotal noninterest income(4,091)8,833(382)10,318(9,028)9,561Net interest income after provision forNoninterest (reversal of allowance Expense for) loan losses 39,884 29,073 32,934Salaries and employee benefits 10,637 10,721 10,536Noninterest Occupancy and Income equipmentLoan Insurance fees Fund premiums1,1761,345 1,3841,1411,380 4431,0921,320 414Fees Other for operating financially expenses related services 3,380 129 2,993 168 2,796 108Patronage refund from other Farm Credit institutions 7,926 8,656 7,673Gains Total (losses) noninterest other expense property owned, net 16,577 (707) 15,298 (9) 14,838 18Gains (losses) on sales of premises and equipment, net 14 16 402Other Income noninterest before income income taxes 32,140 126 24,093 107 27,657 40Provision (benefit) for income taxes 1 43 59Total noninterest income 8,833 10,318 9,561Net income $ 32,139 $ 24,050 $ 27,598Noninterest ExpenseSalaries and employee benefits 10,637 10,721 10,536Occupancy and equipment 1,176 1,141 1,092Insurance Fund premiums 1,384 443 414Other operating expenses 3,380 2,993 2,796Total noninterest expense 16,577 15,298 14,838Income before income taxes 32,140 24,093 27,657Provision (benefit) for income taxes 1 43 59Net income $ 32,139 $ 24,050 $ 27,598The accompanying notes are an integral part of these financial statements.222006 Annual ReportAgGeorgia.53.Winter 2007

Annual ReportAg Georgia Farm Credit, ACAConsolidated Statements of Changes inMembers' EquityAg Georgia FarmConsolidated Capital Credit, ACAStatements ofRetained EarningsChanges in Member’s EquityAccumulatedProtected Stock and Other TotalBorrower Participation Comprehensive Members'(dollars in thousands) Stock Certificates Allocated Unallocated Income EquityBalance at December 31, 2003 1,097$ $ (7,412) $ 113,277Consolidated Statements of Changes in$ $ 3,762 $ 81,420 34,410Members' EquityComprehensive incomeNet income 27,598 27,598Minimum pension liability adjustment CapitalAccumulated 7,412 7,412Protected Stock and Retained Earnings Other TotalTotal comprehensive income 35,010Borrower Participation Comprehensive Members'(dollars Protected in thousands) borrower stock retired Stock (257) Certificates Allocated Unallocated Income Equity (257)Capital stock/participation certificates issued 379 379Balance at December 31, 2003 $ 1,097 $ 3,762 $ 81,420 $ 34,410 $ (7,412) $ 113,277Capital stock/participation certificates retired (259) (259)Comprehensive Patronage distribution incomeNet Cash income 27,598 (4,263) 27,598 (4,263)Minimum Qualified pension allocated liability retained adjustment earnings 9,948 (9,948) 7,412 7,412 —Retained Total earnings comprehensive retired income (9,457) 35,010 (9,457)Protected Distribution borrower adjustment stock retired (257) (473) 669 (257) 196CapitalBalancestock/participationat December 31, 2004certificates issued840 3,88237981,438 48,466 — 134,626379Capital stock/participation certificates retired (259) (259)NetPatronageincomedistribution24,050 24,050ProtectedCashborrower stock retired (196)(4,263) (4,263)(196)CapitalQualifiedstock/participationallocated retainedcertificatesearningsissued 4249,948 (9,948)424—CapitalRetainedstock/participationearnings retiredcertificates retired (301)(9,457) (9,457)(301)Distribution Patronage distribution adjustment (473) 669 196Cash (4,697) (4,697)BalanceQualifiedat Decemberallocated31,retained2004earnings840 3,882 81,4388,16748,466(8,167)— 134,626—Net Nonqualified income allocated retained earnings 2,794 24,050 (2,794) 24,050 —Protected Retained earnings borrower retired stock retired (196) (8,770) (8,770) (196)Capital Distribution stock/participation adjustment certificates issued 424 (100) 134 424 34CapitalBalancestock/participationat December 31, 2005certificates retired644 4,005(301)83,529 56,992 — 145,170(301)Patronage distributionNet income 32,139 32,139Cash (4,697) (4,697)Protected Qualified borrower allocated stock retained retired earnings (162) 8,167 (8,167) (162) —Capital Nonqualified stock/participation allocated retained certificates earnings issued 401 2,794 (2,794) 401 —Capital Retained stock/participation earnings retired certificates retired (713) (8,770) (8,770) (713)Distribution Patronage distribution adjustment (100) 134 34Cash (6,721) (6,721)Balance at December 31, 2005 644 4,005 83,529 56,992 — 145,170Qualified allocated retained earnings 13,231 (13,231) —Net Nonqualified income allocated retained earnings 2,451 32,139 (2,451) 32,139 —Protected Retained earnings borrower retired stock retired (162) (11,596) (11,596) (162)Capital Distribution stock/participation adjustment certificates issued 401 571 (801) (230) 401Capital stock/participation certificates retired (713) (713)PatronageBalance atdistributionDecember 31, 2006 $ 482 $ 3,693 $ 88,186 $ 65,927 $ — $ 158,288Cash (6,721) (6,721)Qualified allocated retained earnings 13,231 (13,231) —Nonqualified allocated retained earnings 2,451 (2,451) —Retained earnings retired (11,596) (11,596)Distribution adjustment 571 (801) (230)Balance at December 31, 2006 $ 482 $ 3,693 $ 88,186 $ 65,927 $ — $ 158,288The accompanying notes are an integral part of these financial statements.232006 Annual ReportAgGeorgia.54.Winter 2007The accompanying notes are an integral part of these financial statements.

Ag Georgia Farm Credit, ACAAg Georgia Farm Credit, ACAConsolidated Statements of Cash FlowsConsolidated Statements of of Cash FlowsFor the year ended December 31,(dollars in thousands) 2006For the year ended 2005December 31, 2004(dollars Cash flows in thousands) from operating activities:2006 2005 2004Cash Net income flows from operating activities:$ 32,139 $ 24,050 $ 27,598Net Adjustments income to reconcile net income to net cash$ 32,139 $ 24,050 $ 27,598Adjustments provided by (used to reconcile in) operating net income activities: to net cashprovided Depreciation by (used on premises in) operating and equipment activities:578 594 575Provision Depreciation for on (reversal premises of allowance and equipment for) loan losses (4,091) 578 (382) 594 (9,028) 575Provision (Gains) losses for (reversal on other of property allowance owned, for) net loan losses (4,091) 707 (382) — (9,028) (18)(Gains) losses on from other sales property of premises owned, and net equipment, net 707 (14) (16) — (402) (18)(Gains) Changes losses in operating from sales assets of and premises liabilities: and equipment, net (14) (16) (402)Changes (Increase) in operating decrease in assets accrued and interest liabilities: receivable (5,050) (4,751) (1,353)(Increase) decrease in prepaid accrued retirement interest receivable expense (5,050) 1,128 (4,751) (429) (9,078) (1,353)(Increase) decrease in prepaid due from retirement AgFirst Farm expense Credit Bank 1,128 606 (429) (907) (9,078) (2,161)(Increase) decrease in due other from assets AgFirst Farm Credit Bank 606 (74) (907) (212) (2,161) 6,856(Increase) (decrease) in accrued other assets interest payable 861 (74) (212) 933 6,856 345Increase (decrease) in postretirement accrued interest benefits payableother than pensions 424 861 773 933 978 345Increase (decrease) in minimum postretirement pension benefits liability other than pensions 424 — 773 — (3,851) 978Increase (decrease) in minimum other liabilities pension liability 1,869 — 2,171 — (3,851) (4,158)Total Increase adjustments (decrease) in other liabilities (3,056) 1,869 (2,226) 2,171 (21,295) (4,158)Total Net cash adjustments provided by (used in) operating activities 29,083 (3,056) 21,824 (2,226) (21,295) 6,303Cash Net flows cash from provided investing by (used activities: in) operating activities 29,083 21,824 6,303Cash Net (increase) flows from decrease investing loans activities:(102,088) (90,590) (60,526)Net (Increase) (increase) decrease decrease in investment loans in other Farm Credit institutions (102,088) (4,249) (90,590) (630) (60,526) (110)Purchases (Increase) decrease of premises in investment and equipment in other Farm Credit institutions (4,249) (473) (449) (630) (1,329) (110)Proceeds Purchases from of premises sales of and premises equipment and equipment, net (473) 32 (449) — (1,329) 472Proceeds from sales of premises other property and equipment, owned net 536 32 — 4728Proceeds Net cash from provided sales of by other (used property in) investing owned activities (106,242) 536 (91,669) — (61,485) 8Cash Net flows cash from provided financing by (used activities: in) investing activities (106,242) (91,669) (61,485)Cash Advances flows on from (repayment financing of) activities: notes payable to AgFirst Farm Credit Bank, net 95,954 87,459 66,488Protected Advances borrower on (repayment stock of) retired notes payable to AgFirst Farm Credit Bank, net 95,954 (162) 87,459 (196) 66,488 (257)Capital Protected stock borrower and participation stock retired certificates issued (162) 401 (196) 424 (257) 379Capital stock and participation certificates retired issued (713) 401 (301) 424 (259) 379Capital Patronage stock refunds and participation paid certificates retired (4,881) (713) (4,321) (301) (4,919) (259)Retained Patronage earnings refunds retired paid (11,596) (4,881) (8,770) (4,321) (9,457) (4,919)Retained Net cash earnings provided retired by (used in) financing activities (11,596) 79,003 74,295 (8,770) 51,975 (9,457)Net increase Net cash (decrease) provided by in cash (used in) financing activities 79,003 1,844 74,295 4,450 51,975 (3,207)Cash, Net increase beginning (decrease) of period in cash 8,256 1,844 3,806 4,450 (3,207) 7,013Cash, end beginning of period of period $ 10,100 8,256 $ 8,256 3,806 $ 3,806 7,013Cash, end of periodSupplemental schedule of non-cash activities:$ 10,100 $ 8,256 $ 3,806Supplemental Financed sales schedule of other property of non-cash owned activities:$ 254 $ — $ —Financed Loans transferred sales of other to other property owned owned $ 254 364 $ 1,218 — $ —Loans Cash dividends transferred or to patronage other property distributions owneddeclared or payable 6,721 364 1,218 4,697 4,263 —Decrease Cash dividends (increase) or patronage in accumulated distributions other comprehensive declared or payable income related 6,721 4,697 4,263Decrease to minimum (increase) pension in liability accumulated other comprehensive income related— — 7,412Supplemental to minimum pension information: liability — — 7,412Supplemental Interest paid information:$ 43,923 $ 32,365 $ 24,671Taxes Interest paid, net $ 43,923 17 $ 32,365 (228) $ 24,671 446Taxes paid, net 17 (228) 446The accompanying notes are an integral part of these financial statements.The accompanying notes are an integral part of these financial statements.24AgGeorgia.55.Winter 2006 Annual 24 Report 20072006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACANotes to the Consolidated Financial StatementsNotes to the Consolidated Financial Statements(dollars in thousands, except as noted)(dollars in thousands, except as noted)Note 1 — Organization and OperationsA. Organization: AgGeorgia Farm Credit, ACA (Associationor AgGeorgia) is a member-owned cooperative whichprovides credit and credit-related services to or for the benefitof eligible borrowers/stockholders for qualified purposes inthe counties of Baldwin, Banks, Barrow, Bartow, Ben Hill,Berrien, Bibb, Bleckley, Brooks, Burke, Catoosa, Chattooga,Cherokee, Clarke, Cobb, Colquitt, Columbia, Cook,Crawford, Crisp, Dade, Dawson, Dodge, Dooly, Echols,Elbert, Fannin, Floyd, Forsyth, Franklin, Gilmer, Glascock,Gordon, Habersham, Hall, Hancock, Hart, Houston, Irwin,Jackson, Jefferson, Johnson, Jones, Lanier, Laurens, Lincoln,Lowndes, Lumpkin, Macon, Madison, McDuffie, Murray,Oglethorpe, Paulding, Peach, Pickens, Polk, Pulaski, Rabun,Richmond, Stephens, Taliaferro, Taylor, Telfair, Tift, Towns,Treutlen, Turner, Twiggs, Union, Walker, Warren,Washington, White, Whitfield, Wilcox, Wilkes, Wilkinsonand Worth in the state of Georgia.The Association is a lending institution of the Farm CreditSystem (System), a nationwide system of cooperativelyowned banks and associations, which was established byActs of Congress to meet the credit needs of Americanagriculture and is subject to the provisions of the FarmCredit Act of 1971, as amended (Farm Credit Act). Themost recent significant amendment to the Farm Credit Actwas the Agricultural Credit Act of 1987. At December 31,2006, the System was comprised of four Farm Credit Banks,one Agricultural Credit Bank and ninety-six Associations.AgFirst Farm Credit Bank (Bank) and its related Associationsare collectively referred to as the “District.” The Bankprovides funding to all associations within the District and isresponsible for supervising certain activities of theAssociation, as well as the other Associations operatingwithin the District. The District consists of the Bank andtwenty-three Agricultural Credit Associations (ACAs), all ofwhich have reorganized as ACA parent-companies, whichhave two wholly owned subsidiaries, a Federal Land CreditAssociation (FLCA) and a Production Credit Association(PCA). FLCAs are tax-exempt while ACAs and PCAs aretaxable.Effective January 1, 2005, pursuant to a plan of restructuringapproved by the Farm Credit Administration (FCA) andAssociation shareholders, the Association reorganized itsexisting organizational structure. Prior to the restructuring,the ACA was subject to federal and state income tax.Pursuant to this restructuring, a FLCA and a PCA wereformed as wholly owned subsidiaries of the Association. Theformation of these subsidiaries enables the Association totake advantage of the tax-exempt status of net income fromlong-term mortgage operations of the FLCA. Thisrestructuring was accounted for as a reorganization of entitiesunder common control similar to a pooling of interests.The ACA parent company holds a charter for the twowholly-owned subsidiaries. The FLCA makes securedcollateralized long-term agricultural real estate and ruralhome mortgage loans. The PCA is authorized to makeshort- and intermediate-term loans for agriculturalproduction or operating purposes; however, the Associationis operating its short- and intermediate-term businessthrough the ACA instead of the PCA.The Farm Credit Administration (FCA) is delegatedauthority by Congress to regulate the System banks andassociations. The FCA examines the activities of theassociations and certain actions by the associations aresubject to the prior approval of the FCA and the supervisingBank.The Farm Credit Act established the Farm Credit SystemInsurance Corporation (Insurance Corporation) to administerthe Farm Credit Insurance Fund (Insurance Fund). TheInsurance Fund is required to be used (1) to ensure thetimely payment of principal and interest on Systemwidedebt obligations (Insured debt), (2) to ensure the retirementof protected borrower capital at par or stated value, and (3)for other specified purposes. The Insurance Fund is alsoavailable for discretionary uses by the InsuranceCorporation to provide assistance to certain troubled Systeminstitutions and to cover the operating expenses of theInsurance Corporation. Each System bank is required to paypremiums, which may be passed on to the Association, intothe Insurance Fund, based on its annual average loanprincipal outstanding until the monies in the Insurance Fundreach the “secure base amount.” The secure base amount isdefined in the Farm Credit Act as 2.0 percent of theaggregate insured obligations (Systemwide debt obligations)or such other percentage of the aggregate obligations as theInsurance Corporation in its sole discretion determines to beactuarially sound. When the amount in the Insurance Fundexceeds the secure base amount, the Insurance Corporationis required to reduce premiums, but it still must ensure thatreduced premiums are sufficient to maintain the level of theInsurance Fund at the secure base amount.B. Operations: The Farm Credit Act sets forth the types ofauthorized lending activity, persons eligible to borrow, andfinancial services which can be offered by the Association.The Association is authorized to provide, either directly orin participation with other lenders, credit, creditcommitments and related services to eligible borrowers.Eligible borrowers include farmers, ranchers, producers orharvesters of aquatic products, rural residents, and farmrelatedbusinesses.AgGeorgia.56.Winter 2007252006 Annual Report

AgGeorgia Farm Credit, ACAThe Association may sell to any System borrowing member,on an optional basis, credit or term life insuranceappropriate to protect the loan commitment in the event ofdeath of the debtor(s). The sale of other insurancenecessary to protect a member’s farm or aquatic unit ispermitted, but limited to hail and multi-peril crop insurance,and insurance necessary to protect the facilities andequipment of aquatic borrowers.The AgFirst Annual Report to Shareholders, the AgFirstDistrict Annual Report to Shareholders, and the AgFirstDistrict’s quarterly reports are available on its web site,www.agfirst.com. Upon request, shareholders of theAssociation will be provided with copies of these reports atno charge by calling 1-800-845-1745, Ext. 316. TheAssociation’s financial condition may be impacted byfactors that affect the Bank. The Bank’s Annual Reportdiscusses the material aspects of the District’s financialcondition, changes in financial condition, and results ofoperations. In addition, the District’s Annual Reportidentifies favorable and unfavorable trends, significantevents, uncertainties and the impact of activities of theInsurance Corporation.The lending and financial services offered by the Bank aredescribed in Note 1 of the AgFirst Annual Report toShareholders.Note 2 — Summary of Significant Accounting PoliciesThe accounting and reporting policies of the Associationconform with accounting principles generally accepted in theUnited States of America (GAAP) and prevailing practiceswithin the banking industry. The preparation of financialstatements in conformity with GAAP requires management tomake estimates and assumptions that affect the amountsreported in the consolidated financial statements andaccompanying notes. Significant estimates are discussed inthese footnotes, as applicable. Actual results may differ fromthese estimates.Certain amounts in prior years’ financial statements have beenreclassified to conform to current consolidated financialstatement presentation. Such reclassifications had no effect onnet income or total members’ equity of prior years. Theconsolidated financial statements include the accounts of theFLCA and the PCA. All significant inter-company transactionshave been eliminated in consolidation.A. Cash: Cash, as included in the statements of cash flows,represents cash on hand and on deposit at banks.B. Loans and Allowance for Loan Losses: Long-term realestate mortgage loans generally have original maturitiesranging from 5 to 30 years. Substantially all short- andintermediate-term loans for agricultural production oroperating purposes have maturities of 10 years or less.Loans are carried at their principal amount outstanding lessunearned income. Interest on loans is accrued and creditedto interest income based upon the daily principal amountoutstanding.Loans are generally placed in nonaccrual status whenprincipal or interest is delinquent for 90 days (unlessadequately collateralized and in the process of collection) orcircumstances indicate that collection of principal and/orinterest is in doubt. When a loan is placed in nonaccrualstatus, accrued interest deemed uncollectible is reversed (ifaccrued in the current year) or charged against theallowance for loan losses (if accrued in the prior year).When loans are in nonaccrual status, the interest portion ofpayments received in cash is recognized as interest incomeif collection of the recorded investment in the loan is fullyexpected and the loan does not have a remainingunrecovered prior charge-off associated with it. Otherwise,loan payments are applied against the recorded investmentin the loan. Nonaccrual loans may be returned to accrualstatus when principal and interest are current, prior chargeoffshave been recovered, the ability of the borrower tofulfill the contractual repayment terms is fully expected andthe loan is not classified “doubtful” or “loss.”Loans are charged-off, wholly or partially, as appropriate, atthe time they are determined to be uncollectible.In cases where a borrower experiences financial difficultiesand the Association makes certain monetary concessions tothe borrower through modifications to the contractual termsof the loan, the loan is classified as a restructured loan. Ifthe borrower’s ability to meet the revised payment scheduleis uncertain, the loan is classified as a nonaccrual loan.Loan origination fees and direct loan origination costs aredeferred as part of the carrying amount of the loan and thenet fee or cost is amortized over the life of the related loanas an adjustment to interest income.The allowance for loan losses is a valuation account used toreasonably estimate loan and lease losses existing as of thefinancial statement date. Determining the appropriateallowance for loan losses balance involves significantjudgment about when a loss has been incurred and the amountof that loss.The allowance is based on a periodic evaluation of the loanportfolio by management in which numerous factors areconsidered, including economic conditions, loan portfoliocomposition and prior loan loss experience. It is based onestimates, appraisals and evaluations of loans which, by theirnature, contain elements of uncertainty and imprecision. Thepossibility exists that changes in the economy and its impacton borrower repayment capacity will cause these estimates,appraisals and evaluations to change.The level of allowance for loan losses is generally based onrecent charge-off experience adjusted for relevantenvironmental factors. The Association considers thefollowing factors when adjusting the historical charge-offsexperience: Changes in credit risk classifications, Changes in collateral values, Changes in risk concentrations, Changes in weather related conditions, and Changes in economic conditions.AgGeorgia.57.Winter 2007262006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACAImpaired loans are loans for which it is probable that not allprincipal and interest will be collected according to thecontractual terms of the loan. Impaired loans includenonaccrual loans, restructured loans, and loans past due 90days or more and still accruing interest. A loan is consideredcontractually past due when any principal repayment orinterest payment required by the loan instrument is notreceived on or before the due date. A loan shall remaincontractually past due until it is formally restructured or untilthe entire amount past due, including principal, accruedinterest, and penalty interest incurred as the result of past duestatus, is collected or otherwise discharged in full.A specific allowance may be established for impaired loansunder Statement of Financial Accounting Standards No. 114.Impairment of these loans is measured based on the presentvalue of expected future cash flows discounted at the loan’seffective interest rate or, as practically expedient, at the loan’sobservable market price or fair value of the collateral if theloan is collateral dependent. See Note 3 for a discussion onthe refinement of the allowance for loan losses methodology.The allowance for loan losses is maintained at a levelconsidered adequate by management to provide for probableand estimable losses inherent in the loan portfolio. Theallowance is increased through provisions for loan losses andloan recoveries and is decreased through allowance reversalsand loan charge-offs.C. Investment in AgFirst Farm Credit Bank and Other FarmCredit Institutions: The Association is required to maintainownership in the Bank in the form of Class B and Class Cstock. Accounting for this investment is on the cost plusallocated equities basis. Patronage refunds from the Bank areaccrued as earned. The receivable for such patronage refundsis classified as due from AgFirst Farm Credit Bank.D. Other Property Owned: Other property owned, consistingof real and personal property acquired through a collectionaction, is recorded upon acquisition at fair value lessestimated selling costs. Revised estimates to the fair valueless cost to sell are reported as adjustments to the carryingamount of the asset, provided that such adjusted value is notin excess of the carrying amount at acquisition. Income andexpenses from operations and carrying value adjustmentsare included in gains (losses) on other property owned, net.E. Premises and Equipment: Premises and equipment arecarried at cost less accumulated depreciation. Land iscarried at cost. Depreciation is provided on the straight-linemethod over the estimated useful lives of the assets. Gainsand losses on dispositions are reflected in currentoperations. Maintenance and repairs are charged tooperating expense and improvements are capitalized.F. Advanced Conditional Payments: The Association isauthorized under the Farm Credit Act to accept advancepayments from borrowers. To the extent the borrower’saccess to such advance payments is restricted, the advancedconditional payments are netted against the borrower’srelated loan balance. Amounts in excess of the related loanbalance and amounts to which the borrower has unrestrictedaccess are presented as interest-bearing liabilities in theaccompanying consolidated balance sheets. Advancedconditional payments are not insured. Interest is generallypaid by the Association on such accounts.G. Employee Benefit Plans: Substantially all employees ofthe Association may participate in the retirement plan (Plan)of the AgFirst District, which is a defined benefit plan. TheDistrict utilizes the “Projected Unit Credit” actuarial methodfor financial reporting purposes and for funding purposes.As a result of the funded status at the Plan’s measurementdate (September 30) of the underlying Plan, the Associationmay record a minimum liability, an intangible asset relatingto unrecognized prior service cost and other comprehensiveincome (loss). The adjustment to other comprehensiveincome (loss) would be net of deferred taxes, if significant.For participants hired before January 1, 2003, benefits aredetermined based on a final average pay formula. For thoseparticipants hired on or after January 1, 2003, benefits aredetermined using a cash balance formula.Substantially all employees of the Association may also beeligible to participate in the District’s thrift plan (ThriftPlan), which qualifies as a 401(k) plan as defined by theInternal Revenue Code. For employees hired on or prior toDecember 31, 2002, the Association contributes $.50 foreach $1.00 of the maximum employee contribution of 6percent of total compensation. For employees hired on orafter January 1, 2003, the Association contributes $1.00 foreach $1.00 of the maximum employee contribution of 6percent of total compensation. Employee deferrals are notto exceed the maximum deferral as adjusted by the InternalRevenue Service. Thrift Plan costs are expensed as funded.Effective January 1, 2006 the Districtwide 401(k) Planknown as the AgFirst Farm Credit Employee Thrift Planmerged with the Farm Credit Bank of Texas Thrift PlusPlan. The new plan is known as the AgFirst/FCBT 401(k)Employee Benefit Plan.The Association may provide certain health care and lifeinsurance benefits to eligible retired employees.Substantially all employees may become eligible for thesebenefits if they reach early retirement age while working forthe Association.H. Income Taxes: Effective January 1, 2005, the Associationformed a tax exempt subsidiary as described in Note 1. TheAssociation is generally subject to Federal and certain otherincome taxes. As previously described, the ACA holdingcompany has two wholly-owned subsidiaries, a PCA and aFLCA. The FLCA subsidiary is exempt from federal andstate income taxes as provided in the Farm Credit Act. TheACA holding company and the PCA subsidiary are subjectto federal, state and certain other income taxes.The Association is eligible to operate as a cooperative thatqualifies for tax treatment under Subchapter T of theInternal Revenue Code. Accordingly, under specifiedconditions, the Association can exclude from taxable incomeamounts distributed as qualified patronage refunds in theform of cash, stock or allocated surplus. Provisions forincome taxes are made only on those taxable earnings thatwill not be distributed as qualified patronage refunds. TheAssociation distributes patronage on the basis of bookincome.AgGeorgia.58.Winter 2007272006 Annual Report

AgGeorgia Farm Credit, ACAThe Association accounts for income taxes under the assetand liability method, recognizing deferred tax assets andliabilities for the expected future tax consequences of thetemporary differences between the carrying amounts andtax bases of assets and liabilities. Deferred tax assets andliabilities are measured using enacted tax rates expected toapply to taxable income in the years in which thosetemporary differences are expected to be realized orsettled.The Association records a valuation allowance at thebalance sheet dates against that portion of the Association’sdeferred tax assets that, based on management’s bestestimates of future events and circumstances, more likelythan not (a likelihood of more than 50 percent) will not berealized. The consideration of valuation allowancesinvolves various estimates and assumptions as to futuretaxable earnings, including the effects of our expectedpatronage program, which reduces taxable earnings.I. Patronage Refund from AgFirst and Other FinancialInstitutions: The Association records patronage refundsfrom the Bank and certain District Associations on anaccrual basis.J. Recently Issued Accounting Pronouncements: In June2006, the Financial Accounting Standards Board (FASB)released Interpretation No. 48, Accounting for Uncertaintyin Income Taxes (FIN 48). FIN 48 clarifies the accountingfor uncertainty in income taxes recognized in an enterprise’sfinancial statements in accordance with FASB StatementNo. 109, Accounting for Income Taxes. FIN 48 prescribes arecognition threshold and measurement attribute for thefinancial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. FIN48 is effective for fiscal years beginning after December 15,2006. Adoption of FIN 48 is not expected to have a materialimpact on the Association’s Consolidated Balance Sheet orConsolidated Statement of Income.On September 30, 2006, the FASB issued Statement ofFinancial Accounting Standards No. 158, Employers’Accounting for Defined Benefit Pension and OtherPostretirement Plans (FAS 158). FAS 158 requires anemployer to recognize the overfunded or underfunded statusof a defined benefit postretirement plan as an asset orliability in its statement of financial position and recognizethrough comprehensive income changes in that funded statusin the year in which the changes occur. The Bank and itsrelated Associations will be required to implement FAS 158for the year ended December 31, 2007. In addition, FAS158 requires that the funded status of a plan be measured asof the date of the year-end financial statements. Currently,the Bank and its related Associations use a measurementdate of September 30th. The requirement to measure thefunded status as of the fiscal year-end is effective for fiscalyears ending after December 15, 2008. The Bank and itsrelated Associations are currently evaluating the impact ofimplementing FAS 158.Note 3 — Refinement of the Allowance for Loan LossesMethodologyDuring 2004, the Association conducted a study to further refineits allowance for loan losses methodology taking into accountrecently issued guidance by FCA, as well as the Securities andExchange Commission (SEC) and Federal Financial InstitutionsExamination Council guidelines.Previously, the Association’s allowance for loan lossesmethodology had been based upon criteria developed in the late1980s and reflected the credit losses experienced in the mid-tolate1980s, which was a period of unusually adverse economicconditions in American agriculture. Given the long cyclicalnature of the agricultural economy, loss factors utilized todetermine the allowance for loan losses subsequent to 1989continued to reflect, to some extent, the loss history of the midto-late1980s, which resulted in conservative estimates of theallowance for loan losses. The Association’s allowance for loanlosses methodology utilized throughout the period was inaccordance with generally accepted accounting principles andwas consistently applied.While conservative in estimating the allowance for loan losses,the methodology used resulted in annual provisions for loanlosses over the periods that reflected changes in credit quality andloss experience. Accordingly, the reserves provided in the midto-late1980s have, in effect, remained part of the allowance forloan losses. The Association’s allowance for loan lossesmethodology has consistently adhered to proper accountingpolicies, under the regulatory supervision of FCA in its role as a“safety and soundness” regulator. It was FCA’s view that theallowance for loan losses should include among others, anassessment of probable losses, historical loss experience andeconomic conditions.In April 2004, FCA issued an "Informational Memorandum" toSystem institutions regarding the criteria and methodologies thatwould be used in evaluating the adequacy of a Systeminstitution’s allowance for loan losses. FCA endorsed thedirection provided by other bank regulators and the SEC andindicated the conceptual framework addressed in their guidancewould be included as part of their examination process.During the fourth quarter of 2004, the Association completed itsstudy and refined its methodology to be in compliance with theguidance discussed in the previous paragraph. The refinement inmethodology resulted in a calculated allowance for loan lossesthat was significantly less than the previously recorded balancedue to revised loss factors that are more indicative of actual lossexperience in recent years and current borrower analysis.While the $9,028 reversal had a significant impact on 2004results of operations and the previously recorded allowance forloan losses, the refinement in methodology did not have asignificant impact on 2006 comparative results of operations andis not expected to have a significant impact in future periods.Additionally, the refinement in methodology did not have asignificant impact on the level of the risk bearing capacity of theAssociation, generally referred to as “risk funds” (capital plus theallowance for loan losses), which totaled $165,933 atDecember 31, 2006 (16.93 percent of Association loans), ascompared with $157,129 at December 31, 2005 (17.89 percent ofAssociation loans), and $146,940 at December 31, 2004 (18.63percent of Association loans).AgGeorgia.59.Winter 2007282006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACANote 4 — Loans and Allowance for Loan LossesA summary of loans follows:December 31,2006 2005 2004Real estate mortgage $ 363,973 $ 339,602 $ 306,678Production and intermediate term 565,269 487,333 432,446Agribusiness:Processing and marketing 19,525 22,326 18,887Farm related business 13,964 10,630 10,724Rural residential real estate 17,252 18,337 20,094Total loans $ 979,983 $ 878,228 $ 788,829The Association’s concentration of credit risk in variousagricultural commodities is shown in the following table.While the amounts represent the Association’s maximumpotential credit risk as it relates to recorded loan principal, asubstantial portion of the Association’s lending activities iscollateralized and the Association’s exposure to credit lossassociated with lending activities is reduced accordingly. Anestimate of the Association’s credit risk exposure is consideredin the determination of the allowance for loan losses.Total loans at December 31, 2006, 2005 and 2004 consisted ofthe following commodity types:December 31,Commodity Type 2006 2005 2004Poultry 41 % 39 % 33 %Forestry 16 14 18Livestock 11 12 12Cotton 9 10 11Horticulture 7 9 10Landlords 4 4 5Row Crops 3 3 2Dairy 2 2 2Peanuts 2 2 2Rural Home 2 2 2Other 3 3 3Total 100 % 100 % 100 %The amount of collateral obtained, if deemed necessary uponextension of credit, is based on management’s creditevaluation of the borrower. Collateral held varies, buttypically includes farmland and income-producing property,such as crops and livestock, as well as receivables. Long-termreal estate loans are collateralized by the first liens on theunderlying real property. Federal regulations state that longtermreal estate loans are not to exceed 85 percent (97 percentif guaranteed by a government agency) of the property’sappraised value. However, a decline in a property’s marketvalue subsequent to loan origination or advances, or otheractions necessary to protect the financial interest of theAssociation in the collateral, may result in the loan to valueratios in excess of the regulatory maximum.The following table presents information relating to impairedloans.December 31,2006 2005 2004Nonaccrual loans:Current as to principal and interest $ 2,032 $ 19,133 $15,999Past due 8,816 1,634 1,890Total nonaccrual loans 10,848 20,767 17,889Impaired accrual loans:Restructured accrual loans 502 579 705Accrual loans 90 daysor more past due – – 85Total impaired accrual loans 502 579 790Total impaired loans $ 11,350 $ 21,346 $18,679There were no material commitments to lend additional fundsto debtors whose loans were classified as impaired atDecember 31, 2006.Interest income is recognized and cash payments are appliedon nonaccrual impaired loans as described in Note 2. Thefollowing table presents interest income recognized onimpaired loans.Year Ended December 31,2006 2005 2004Interest income recognized onnonaccrual loans $ 3,544 $ 2,004 $ 1,574Interest income on impaired accrual loans 179 32 195Interest income recognized onimpaired loans $ 3,723 $ 2,036 $ 1,769The following table presents information concerning impairedloans as of December 31,2006 2005 2004Impaired loans with related allowance $ 1,910 $11,460 $11,798Impaired loans with no related allowance 9,440 9,886 6,881Total impaired loans $ 11,350 $21,346 $18,679Allowance on impaired loans $ 1,304 $ 6,454 $ 7,682The following table summarizes impaired loan information forthe year ended December 31,2006 2005 2004Average impaired loans $ 13,058 $18,123 $21,663Impaired loans are loans for which it is probable that not allprincipal and interest will be collected according to thecontractual terms.AgGeorgia.60.Winter 2007292006 Annual Report

AgGeorgia Farm Credit, ACAThe following table summarizes interest income on nonaccrualand accruing restructured loans that would have beenrecognized under the original terms of the loans:Year Ended December 31,2006 2005 2004Interest income which would have beenrecognized under the original loan terms $ 4,191 $ 3,348 $ 2,638Less: interest income recognized 3,544 2,004 1,574Foregone interest income $ 647 $ 1,344 $ 1,064The changes in the allowance for loan losses are as follows:Year Ended December 31,2006 2005 2004Balance at beginning of year $ 11,959 $ 12,314 $ 21,216Charge-offs:Production and intermediate term $ (265) $ (56) $ (26)Other – – (1)Total charge-offs (265) (56) (27)Recoveries:Production and intermediate term $ 42 $ 65 $ 100Other – 18 53Total recoveries 42 83 153Net (charge-offs) recoveries (223) 27 126Provision for (reversal of allowancefor) loan losses $ (4,091) $ (382) $ –Nonrecurring allowance forloan losses reversal – – (9,028)(4,091) (382) (9,028)Balance at end of year $ 7,645 $ 11,959 $ 12,314Ratio of net (charge-offs) recoveriesduring the period to average loansoutstanding during the period (0.02)% 0.00% 0.02%As previously discussed in Note 3, the nonrecurring allowancefor loan losses reversal resulted from the refinement of theAssociation’s allowance for loan losses methodology.In addition, the following is a breakdown of the allowance forloan losses for the end of the last three fiscal years:December 31, 2006 December 31, 2005Amount % Amount %Real estate mortgage $ 1,874 25% $ 1,753 15%Production and intermediate term 5,582 73 10,029 84Agribusiness 156 2 140 1Rural residential real estate 33 – 37 –Total $ 7,645 100% $ 11,959 100 %December 31, 2004Amount %Real estate mortgage $ 1,211 10 %Production and intermediate term 10,944 89Agribusiness 128 1Rural residential real estate 31 –Total $ 12,314 100 %Note 5 — Investment in AgFirst Farm Credit BankThe Association is required to maintain ownership in the Bankof Class B and Class C stock as determined by the Bank. TheBank may require additional capital contributions to maintainits capital requirements.Note 6 — Premises and EquipmentPremises and equipment consisted of the following:December 31,2006 2005 2004Land $ 1,441 $ 1,442 $ 1,410Buildings and improvements 4,466 4,422 4,298Furniture and equipment 3,095 2,935 2,8979,002 8,799 8,605Less: accumulated depreciation 4,059 3,733 3,410Total $ 4,943 $ 5,066 $ 5,195Note 7 — Notes Payable to AgFirst Farm Credit BankThe Association’s indebtedness to the Bank representsborrowings by the Association to fund its loan portfolio. Thisindebtedness is collateralized by a pledge of substantially all ofthe Association’s assets and the terms of the revolving lines ofcredit are governed by a general financing agreement. Interestrates on both variable and fixed rate notes payable are generallyestablished loan-by-loan based on the Bank’s marginal cost offunds, capital position, operating costs and return objectives.The interest rate is periodically adjusted by the Bank based uponagreement between the Bank and Association. The weightedaverage interest rates on the variable rate notes were 6.25percent for LIBOR-based loans, 6.47 percent for Prime-basedloans, and the weighted average remaining maturities were 3.0years and 3.2 years, respectively, at December 31, 2006. Theweighted average interest rate on the fixed rate and adjustablerate mortgage (ARM) notes payable which are match funded bythe Bank was 5.59 percent and the weighted average remainingmaturity was 6.6 years at December 31, 2006. The weightedaverage interest rate on all interest-bearing notes payable was5.83 percent and the weighted average remaining maturity was5.6 years at December 31, 2006.Variable rate and fixed rate notes payable representapproximately 19.59 percent and 80.41 percent, respectively, oftotal notes payable at December 31, 2006.Under the Farm Credit Act, the Association is obligated toborrow only from the Bank, unless the Bank approvesborrowing from other funding sources. The Bank, consistentwith FCA regulations, has established limitations on theAssociation’s ability to borrow funds based on specified factorsor formulas relating primarily to credit quality and financialcondition. At December 31, 2006, the Association’s notespayable were within the specified limitations.AgGeorgia.61.Winter 2007302006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACANote 8 — Members’ EquityA description of the Association’s capitalization requirements,protection mechanisms, regulatory capitalization requirementsand restrictions, and equities are provided below.A. Protected Borrower StockProtection of certain borrower stock is provided under theFarm Credit Act, which requires the Association, whenretiring protected borrower stock, to retire such stock at paror stated value regardless of its book value. Protectedborrower stock includes capital stock and participationcertificates, which were outstanding as of January 6, 1988,or were issued or allocated prior to October 6, 1988. If anAssociation is unable to retire protected borrower stock atpar value or stated value, amounts required to retire thisequity would be obtained from the Insurance Fund.B. Capital Stock and Participation CertificatesIn accordance with the Farm Credit Act and theAssociation’s capitalization bylaws, each borrower isrequired to invest in Class C stock for agricultural loans, orparticipation certificates in the case of rural home and farmrelated business loans, as a condition of borrowing. Theinitial borrower investment, through either purchase ortransfer, must be in an amount equal to two percent or $1thousand, whichever is less. The Board of Directors mayincrease the amount of investment if necessary to meet theAssociation’s capital needs. Loans designated for sale orsold into the Secondary Market on or after April 16, 1996will have no voting stock or participation certificatepurchase requirement if sold within 180 days following thedate of designation.The borrower acquires ownership of the capital stock orparticipation certificates at the time the loan is made, butusually does not make a cash investment. The aggregate parvalue is generally added to the principal amount of therelated loan obligation. The Association retains a first lienon the stock or participation certificates owned byborrowers. Retirement of such equities will generally be atthe lower of par or book value, and repayment of a loan doesnot automatically result in retirement of the correspondingstock or participation certificates.C. Regulatory Capitalization Requirements andRestrictionsThe FCA’s capital adequacy regulations require theAssociation to achieve permanent capital of seven percent ofrisk-adjusted assets and off-balance-sheet commitments.Failure to meet the seven percent capital requirement caninitiate certain mandatory and possibly additionaldiscretionary actions by the FCA that, if undertaken, couldhave a direct material effect on the Association’s financialstatements. The Association is prohibited from reducingpermanent capital by retiring stock or making certain otherdistributions to shareholders unless prescribed capitalstandards are met. The FCA regulations also require thatadditional minimum standards for capital be achieved.These standards require all System institutions to achieveand maintain ratios as defined by FCA regulations. Theserequired ratios are total surplus as a percentage of riskadjustedassets of seven percent and of core surplus as apercentage of risk-adjusted assets of three and one-halfpercent. The Association’s permanent capital, total surplusand core surplus ratios at December 31, 2006 were 15.04percent, 14.66 percent and 10.60 percent, respectively.An FCA regulation empowers it to direct a transfer of fundsor equities by one or more System institutions to anotherSystem institution under specified circumstances. TheAssociation has not been called upon to initiate anytransfers and is not aware of any proposed action under thisregulation.D. Description of EquitiesThe Association is authorized to issue or have outstandingClasses A and D Preferred Stock, Classes A, B, and CCommon Stock, Classes B and C Participation Certificatesand such other classes of equity as may be provided for inamendments to the bylaws in such amounts as may benecessary to conduct the Association’s business. All stockand participation certificates have a par or face value of fivedollars ($5.00) per share.The Association had the following shares outstanding atDecember 31, 2006:Shares OutstandingAggregateClass Protected Number Par ValueA Preferred/Nonvoting No 1 $ –B Common/Nonvoting Yes 85,178 426C Common/Voting No 686,006 3,430B Participation Certificates/Nonvoting Yes 11,144 56C Participation Certificates/Nonvoting No 52,690 263Total Capital Stockand Participation Certificates 835,019 $ 4,175Protected common stock and participation certificates areretired at par or face value in the normal course of business.At-risk common stock and participation certificates areretired at the sole discretion of the Board at book value notto exceed par or face amounts, provided the minimumcapital adequacy standards established by the Board aremet.Retained EarningsThe Association maintains an unallocated retained earningsaccount and an allocated retained earnings account. Theminimum aggregate amount of these two accounts isdetermined by the Board. At the end of any fiscal year, ifthe retained earnings accounts otherwise would be less thanthe minimum amount determined by the Board as necessaryto maintain adequate capital reserves to meet thecommitments of the Association, the Association shall applyearnings for the year to the unallocated retained earningsaccount in such amounts as may be determined necessary bythe Board. Unallocated retained earnings are maintained foreach borrower to permit liquidation on a patronage basis.AgGeorgia.62.Winter 2007312006 Annual Report

AgGeorgia Farm Credit, ACAThe Association maintains an allocated retained earningsaccount consisting of earnings held and allocated toborrowers on a patronage basis. In the event of a net lossfor any fiscal year, such allocated retained earningsaccount will be subject to full impairment in the orderspecified in the bylaws beginning with the most recentallocation.The Association has a first lien and security interest on allretained earnings account allocations owned by anyborrowers, and all distributions thereof, as additionalcollateral for their indebtedness to the Association. Whenthe debt of a borrower is in default or is in the process offinal liquidation by payment or otherwise, the Association,upon approval of the Board, may order any and allretained earnings account allocations owned by suchborrower to be applied on the indebtedness.Allocated equities shall be retired solely at the discretionof the Board; provided, however, that minimum capitalstandards established by the FCA and the Board are met.DividendsThe Association may declare non-cumulative dividends onits capital stock and participation certificates provided thedividend rate does not exceed 8 percent of the par value ofthe respective capital stock and participation certificates.Such dividends may be paid solely on Classes A and DPreferred Stock, or on all classes of stock and participationcertificates.The rate of dividends paid on Class A Preferred Stock forany fiscal year may not be less than the rate of dividendspaid on Classes A, B, or C Common Stock or participationcertificates for such year. The rate of dividends on ClassesA, B, and C Common Stock and participation certificatesshall be at the same rate per share.Dividends may not be declared if, after recording theliability, the Association would not meet its capitaladequacy standards. No dividends were declared by theAssociation for any of the periods included in thesefinancial statements.At December 31, 2006, allocated members’ equity consistedof $82,001 of qualified and $6,185 of nonqualifieddistributions. Nonqualified distributions are tax deductibleonly when redeemed.Patronage DistributionsPrior to the beginning of any fiscal year, the Board, byadoption of a resolution, may obligate the Association todistribute to borrowers on a patronage basis all or anyportion of available net earnings for such fiscal year or forthat and subsequent fiscal years. Patronage distributions arebased on the proportion of the borrower’s interest to theamount of interest earned by the Association on its totalloans unless another proportionate patronage basis isapproved by the Board.If the Association meets its capital adequacy standards aftermaking the patronage distributions, the patronagedistributions may be in cash, authorized stock of theAssociation, allocations of earnings retained in an allocatedmembers’ equity account, or any one or more of such formsof distribution. Patronage distributions of the Association’searnings may be paid on either a qualified or nonqualifiedbasis, or a combination of both, as determined by the Board.A minimum of 20 percent of the total qualified patronagedistribution to any borrower for any fiscal year shall alwaysbe paid in cash.TransferClasses A and D Preferred, Classes A, B, and C CommonStocks, and Classes B and C Participation Certificates may betransferred to persons or entities eligible to purchase or holdsuch equities.ImpairmentAny net losses recorded by the Association shall first beapplied against unallocated members’ equity. To the extentthat such losses would exceed unallocated members’ equity,such losses would be applied consistent with the Association’sbylaws and distributed pro rata to each share and/or unitoutstanding in the class, in the following order:a) First, Assistance Preferred Stock issued andoutstanding;b) Second, allocated surplus in its entirety, withapplication to most recent allocation first and then inreverse order until all allocated surplus has beenexhausted;c) Third, Class C Common Stock and Class CParticipation Certificates issued and outstanding, prorata until such stock is fully impaired;d) Fourth, Class A Common and Class B Common Stockand Class B Participation Certificates issued andoutstanding, pro rata until such stock is fully impaired;ande) Fifth, Class A Preferred and Class D Preferred Stockissued and outstanding, if any.Impairments shall be considered as being applied pro rata toeach share and/or unit outstanding in the class.LiquidationIn the event of liquidation or dissolution of the Association,any assets of the Association remaining after payment orretirement of all liabilities should be distributed to theholders of the outstanding stock and participationcertificates in the following order:a) First, to the holders of Class A Preferred and Class DPreferred Stock until an amount equal to the aggregatepar value of all shares of said stock then issued andoutstanding has been distributed to such holders;AgGeorgia.63.Winter 2007322006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACAb) Second, to the holders of Class A Common, Class BCommon and Class B Participation Certificates, pro ratain proportion to the number of shares or units of eachsuch class of stock or participation certificates thenissued and outstanding, until an amount equal to theaggregate par value or face amount of all such shares orunits has been distributed to such holders;c) Third, pro rata to the holders of Class C Common Stockand Class C Participation Certificates, until an amountequal to the aggregate par value or face amount of allsuch shares or units then issued and outstanding hasbeen distributed to such holders;d) Fourth, to the holders of allocated surplus pro rata, onthe basis of oldest allocations first, until an amountequal to the total account has been distributed to theholders;e) Fifth, all unallocated surplus issued after May 4, 1995(the effective date of this bylaw amendment) shall bedistributed to the holders of Class C Stock and Class CParticipation Certificates on a patronage basis; andf) Sixth, any remaining assets of the Association after suchdistribution shall be distributed ratably to the holders ofall classes of stock and participation certificates.All distributions to the holders of any class of stock and/orparticipation certificate holders shall be made pro rata inproportion to the number of shares or units of such class ofstock or participation certificates held by such holders.E. Other Comprehensive Income (Loss)The Association reports other comprehensive income (loss)in its Consolidated Statements of Changes in Members’Equity. During 2004, the District Associations funded thepension plans sufficiently to eliminate the pension-relatedcharge to other comprehensive income (loss) atDecember 31, 2004. See Note 10 for further information.The provision (benefit) for income tax differs from the amountof income tax determined by applying the applicable U.S.statutory federal income tax rate to pretax income as follows:December 31,2006 2005 2004Federal tax at statutory rate $ 10,928 $ 8,192 $ 9,403State tax, net 1 4 6Effect of non-taxable FLCA subsidiary (3,123) (3,774) –Patronage distributions (6,784) (4,374) (6,173)Allowance for loan loss adjustment – – (3,070)Change in valuation allowance (1,857) – –Other 836 (5) (107)Provision (benefit) for income taxes $ 1 $ 43 $ 59Deferred tax assets and liabilities result from the following at:December 31,2006 2005 2004Deferred income tax assets:Allowance for loan losses $ 2,178 $ 4,051 $ –Loan origination fees (reclassified) 328 – –Annual leave 284 275 7Nonaccrual loan interest 215 1,324 –Postretirement benefits otherthan pensions 1,872 1,621 36Gross deferred tax assets 4,877 7,271 45Less: valuation allowance (2,574) (4,431) –Gross deferred tax assets, net ofvaluation allowance 2,303 2,840 45Deferred income tax liabilities:Future Bank equity redemption – – (16)Loan origination fees – (221) –Pensions (2,286) (2,557) (13)Depreciation (12) (61) –Gross deferred tax liability (2,298) (2,839) (29)Net deferred tax asset (liability) $ 5 $ 1 $ 16Note 9 — Income TaxesThe provision (benefit) for income taxes follows:Year Ended December 31,2006 2005 2004Current:Federal $ 4 $ 24 $ 38State 1 4 65 28 44Deferred:Federal (3) 13 12State (1) 2 3(4) 15 15Total provision (benefit) forincome taxes $ 1 $ 43 $ 59At December 31, 2006, deferred income taxes have not beenprovided by the Association on approximately $6.0 million ofpatronage refunds received from the Bank prior to January 1,1993. Such refunds, distributed in the form of stock, are subjectto tax only upon conversion to cash. The tax liability related tofuture conversions is not expected to be material.The Association recorded a valuation allowance of $2,574 and$4,431 during 2006 and 2005, respectively. The Associationwill continue to evaluate the realizability of these deferred taxassets and adjust the valuation allowance accordingly.AgGeorgia.64.Winter 2007332006 Annual Report

AgGeorgia Farm Credit, ACANote 10 — Employee Benefit PlansThe employees of the Association may participate in aDistrictwide defined benefit retirement plan. This plan isnoncontributory and covers substantially all Associationemployees. Benefits are based on salary and years of service.The assets, liabilities and costs of the plan are not segregated byparticipating entities but are allocated among the participatingentities. Pension costs are allocated by multiplying the District’snet pension expense times the Association’s salary expense as apercentage of the District’s salary expense.In addition, supplemental retirement benefits are provided tocertain key employees under a supplemental defined benefitexecutive plan. Assets have been allocated and separatelyinvested for this plan but are not isolated from the generalcreditors of the Association.The Association participates in a Districtwide Thrift Plan. Foremployees hired on or prior to December 31, 2002, theAssociation will contribute $.50 for each $1.00 of the maximumemployee contribution of 6 percent of total compensation. Foremployees hired on or after January 1, 2003, the Association willcontribute $1.00 for each $1.00 of the maximum employeecontribution of 6 percent of total compensation. Employeedeferrals are not to exceed the maximum deferral as adjusted bythe Internal Revenue Service.The District sponsors a plan providing certain benefits (primarilyhealth care) to its retirees. Certain Association charges related tothis plan are an allocation of District charges based on theAssociation’s proportional share of the plan liability.On December 8, 2003, the Medicare Prescription Drug,Improvement and Modernization Act of 2003 (Medicare Act) wassigned into law. This act introduces a prescription drug benefitunder Medicare (Medicare Part D) as well as a federal subsidy tosponsors of retiree health care benefit plans that provide a benefitthat is at least actuarially equivalent to Medicare Part D. In May2004, the FASB issued FASB Staff Position (FSP) 106-2,Accounting and Disclosure Requirements Related to theMedicare Prescription Drug, Improvement and ModernizationAct of 2003” (the Act). This Staff Position provides guidance onthe accounting for the effects of the Act for employers thatsponsor postretirement health care plans that provide prescriptiondrug benefits. The District sponsored plan adopted FSP 106-2effective July 1, 2004 (measured as of March 31, 2004). Thebenefit obligation valuation as of December 31, 2004 reflects theimpact of the Medicare Act.In determining the benefit obligation as of December 31, 2004,the expected per capita claims cost were estimated to be reducedby 12 percent beginning in 2006, for Medicare-eligibleparticipants receiving actuarially equivalent drug benefits, due toa government reimbursement of a portion of prescription drugbenefits. The District reduced its accumulated postretirementbenefit obligation (APBO) for the subsidy related to benefitsattributed to past service. The effect of the subsidy on themeasurement of net periodic postretirement cost for 2005 was areduction of 2005 expense. The effect included loweramortization of actuarial losses, lower service costs and lowerinterest costs on the APBO.The Retiree and Disabled Medical Plan was amended effectiveJanuary 1, 2006 to change the medical and prescription drugcoverage for Medicare-eligible retirees and/or eligible spouses65 years and older. Beginning in 2006, the AgFirst/FCBTRetiree and Disabled Medical Plan will provide medical andprescription drug coverage to Medicare-eligible retirees and/oreligible spouses 65 years and older through fully-insuredAARP endorsed Medicare Supplement policies and subsidizedbasic Medicare D coverage through a selected PrescriptionDrug Plan. Dental coverage was not changed. Certain otherretirees who are grandfathered under insured arrangementswere not impacted by the change. The benefit obligationvaluation as of December 31, 2005 reflects the impact of thisplan amendment.In determining the benefit obligation as of December 31, 2005,there was no impact due to government reimbursement ofprescription drug benefits. After the plan amendment, the planno longer provides prescription drug benefits directly forretirees and/or eligible spouses 65 years and older. Instead,the District subsidizes the cost of coverage obtained under theMedicare D program through the selected Prescription DrugProvider.For further information on postretirement costs, see“Postretirement Benefits” section in the Notes to the AgFirstFarm Credit District Consolidated Financial Statements.The following is a table of retirement and postretirementbenefits expenses (credits):2006 2005 2004Pension $1,146 $1,178 $1,392Thrift/deferred compensation 222 188 194Other postretirement benefits 724 1,125 1,267Total $2,092 $2,491 $2,853For the years ended December 31, 2006, 2005 and 2004, theAssociation had contributed $0, $1,563 and $7,061,respectively, to the Districtwide defined benefit retirement plan,which was sufficient to meet its accumulated benefit obligation.For 2004, the contributions eliminated the minimum pensionliability and the pension-related charge to accumulated othercomprehensive income (OCI) in shareholders' equity. As aresult of the fundings and the reclassification of the OCI, theAssociation ended 2006, 2005 and 2004 with $8,605, $9,733and $9,304, respectively, in Prepaid retirement expense on theConsolidated Balance Sheets.Note 11 — Intra-System Financial AssistanceThe Farm Credit Act provided for capital assistance to Systeminstitutions experiencing severe financial stress through theissuance, prior to October 1, 1992, by the Financial AssistanceCorporation of U.S. Treasury-guaranteed 15-year bonds, ofwhich $1.261 billion in principal amount was originallyissued. The last remaining Financial Assistance Corporationbonds matured and were repaid on June 10, 2005.AgGeorgia.65.Winter 2007342006 Annual Report

Annual ReportAgGeorgia Farm Credit, ACAPursuant to the Farm Credit Act, the U.S. Treasury paid $440million, on behalf of the System, in interest costs on $844million of the Financial Assistance Corporation bonds issuedfor purposes other than funding Capital PreservationAgreement accruals. The Banks had irrevocably set asidefunds, including interest earned, that totaled the $440 millionneeded to repay the interest advanced by the U.S. Treasury.On June 10, 2005, the Banks repaid the U.S. Treasury theinterest advanced. The Farm Credit Act provided that theFinancial Assistance Corporation would continue in existenceno longer than two years following the maturity of the debt inJune 2005. The Financial Assistance Corporation wasdissolved effective as of December 31, 2006.Note 12 — Related Party TransactionsIn the ordinary course of business, the Association enters intoloan transactions with officers and directors of the Association,their immediate families and other organizations with whichsuch persons may be associated. Such loans are subject tospecial approval requirements contained in the FCAregulations and are made on the same terms, including interestrates and collateral, as those prevailing at the time forcomparable transactions with unrelated borrowers.Total loans to such persons at December 31, 2006 amounted to$9,263. During 2006, $8,979 of new loans were made andrepayments totaled $9,946. In the opinion of management,none of these loans outstanding at December 31, 2006involved more than a normal risk of collectibility.Note 13 — Commitments and ContingenciesThe Association has various commitments outstanding andcontingent liabilities.The Association may participate in financial instruments withoff-balance-sheet risk to satisfy the financing needs of itsborrowers and to manage their exposure to interest-rate risk.These financial instruments include commitments to extendcredit and/or commercial letters of credit. The instrumentsinvolve, to varying degrees, elements of credit risk in excess ofthe amount recognized in the financial statements.Commitments to extend credit are agreements to lend to aborrower as long as there is not a violation of any conditionestablished in the contract. Commercial letters of credit areagreements to pay a beneficiary under conditions specified inthe letter of credit. Commitments and letters of credit generallyhave fixed expiration dates or other termination clauses andmay require payment of a fee. At December 31, 2006,$123,605 of commitments to extend credit were outstanding.No commercial letters of credit were outstanding.Since many of these commitments are expected to expirewithout being drawn upon, the total commitments do notnecessarily represent future cash requirements. However, thesecredit-related financial instruments have off-balance-sheet creditrisk because their amounts are not reflected on the consolidatedbalance sheets until funded or drawn upon. The credit riskassociated with issuing commitments and letters of credit issubstantially the same as that involved in extending loans toborrowers and management applies the same credit policies tothese commitments. Upon fully funding a commitment, thecredit risk amounts are equal to the contract amounts, assumingthat borrowers fail completely to meet their obligations and thecollateral or other security is of no value. The amount ofcollateral obtained, if deemed necessary upon extension ofcredit, is based on management’s credit evaluation of theborrower.The Association also participates in standby letters of credit tosatisfy the financing needs of its borrowers. These letters ofcredit are irrevocable agreements to guarantee payments ofspecified financial obligations. Outstanding standby letters ofcredit have expiration dates ranging from April 30, 2007 toOctober 29, 2010. The maximum potential amount of futurepayments the Association is required to make under theguarantees is $1,806.Derivative action is pending against the Association, certainunnamed employees, officers, and the board of directors, alongwith an additional third-party defendant in the Superior Courtof Hall County, Georgia, seeking injunctive relief and attorneyfees. Matter was filed on October 11, 2006, by anAssociation stockholder who has alleged that the Associationimproperly disposed of property acquired through foreclosure.Plaintiff is claiming that the actions of the Association resultedin a breach of fiduciary duty and a waste of corporate assetsbased on the assertion that he would have paid a higher pricefor the property. Action seeks to set aside the prior sale.However, on the basis of recent information, management andlegal counsel are of the opinion that the ultimate liability, if any,resulting therefrom, would not be material in relation to theoverall financial position of the Association.Note 14 — Disclosures About Fair Value of FinancialInstrumentsThe following table presents the carrying amounts and fairvalues of the Association’s financial instruments atDecember 31, 2006, 2005 and 2004. The fair value of afinancial instrument is generally defined as the amount at whichthe instrument could be exchanged in a current transactionbetween willing parties, other than in a forced or liquidationsale.Quoted market prices are generally not available for certainSystem financial instruments, as described below.Accordingly fair values are based on judgments regardinganticipated cash flows, future expected loss experience, currenteconomic conditions, risk characteristics of various financialinstruments, and other factors. These estimates involveuncertainties and matters of judgment, and therefore cannot bedetermined with precision. Changes in assumptions couldsignificantly affect the estimates.AgGeorgia.66.Winter 2007352006 Annual Report

AgGeorgia Farm Credit, ACAThe estimated fair values of the Association’s financialinstruments are as follows:December 31, 2006 December 31, 2005CarryingAmountEstimatedFair ValueCarryingAmountEstimatedFair ValueFinancial assets:Cash $ 10,100 $ 10,100 $ 8,256 $ 8,256Loans $ 979,983 $ 1,006,444 $ 878,228 $ 887,642Allowance for loan losses 7,645 – 11,959 –Loans, net $ 972,338 $ 1,006,444 $ 866,269 $ 887,642Financial liabilities:Notes payable to AgFirstFarm Credit Bank $ 851,538 $ 853,810 $ 755,584 $ 749,927December 31, 2004CarryingAmountEstimatedFair ValueFinancial assets:Cash $ 3,806 $ 3,806Loans $ 788,829 $ 800,205Allowance for loan losses 12,314 –Loans, net $ 776,515 $ 800,205Financial liabilities:Notes payable to AgFirstFarm Credit Bank $ 668,125 $ 667,590A description of the methods and assumptions used to estimatethe fair value of each class of the Association’s financialinstruments for which it is practicable to estimate that valuefollows:A. Cash: The carrying value is a reasonable estimate of fairvalue.B. Loans: Because no active market exists for theAssociation’s loans, fair value is estimated by discountingthe expected future cash flows using the Association’scurrent interest rates at which similar loans would be madeto borrowers with similar credit risk. As the discount ratesare based on the Bank’s loan rates, as well as managementestimates, management has no basis to determine whetherthe fair values presented would be indicative of the valuenegotiated in an actual sale.For purposes of determining fair value of accruing loans,the loan portfolio is segregated into pools of loans withhomogeneous characteristics based upon repricing andcredit risk. Expected future cash flows and interest ratesreflecting appropriate credit risk are separately determinedfor each individual pool.Fair value of loans in a nonaccrual status is estimated to bethe carrying amount less specific reserves.The carrying value of accrued interest approximates its fairvalue.C. Investment in AgFirst Farm Credit Bank and OtherFarm Credit Institutions: Estimating the fair value of theAssociation’s investment in the Bank and Other FarmCredit Institutions is not practicable because the stocks arenot traded. As described in Note 5, the net investment is arequirement of borrowing from the Bank and is carried atcost plus allocated equities in the accompanyingConsolidated Balance Sheets. The Association owns 5.37percent of the issued stock of the Bank as of December 31,2006. As of that date, the Bank’s assets totaled $24.4billion and shareholders’ equity totaled $1,181 million.The Bank’s earnings were $190 million during 2006.In addition, the Association has an investment of $603related to other Farm Credit institutions.D. Notes Payable to AgFirst Farm Credit Bank: The notespayable are segregated into pricing pools according to thetypes and terms of the loans (or other assets) which theyfund. Fair value of the notes payable is estimated bydiscounting the anticipated cash flows of each pricing poolusing the current rate that would be charged for additionalborrowings. For purposes of this estimate it is assumed thecash flow on the notes is equal to the principal paymentson the Association’s loan receivables plus accrued intereston the notes payable. This assumption implies thatearnings on the Association’s interest margin are used tofund operating expenses and capital expenditures.E. Commitments to Extend Credit and Standby Letters ofCredit: The estimated market value of off-balance-sheetcommitments is minimal since the committed rateapproximates current rates offered for commitments withsimilar rate and maturity characteristics and since therelated credit risk is not significant.Note 15 — Quarterly Financial Information (Unaudited)Quarterly results of operations for the years ended December 31,2006, 2005 and 2004 follow:2006First Second Third Fourth TotalNet interest income $ 7,984 $ 8,630 $ 10,697 $ 8,482 $ 35,793Provision for (reversal ofallowance for) loan losses 460 (5,540) 349 640 (4,091)Noninterest income(expense), net (1,915) (2,830) (1,972) (1,028) (7,745)Net income $ 5,609 $ 11,340 $ 8,376 $ 6,814 $ 32,1392005First Second Third Fourth TotalNet interest income $ 6,296 $ 6,982 $ 7,563 $ 7,850 $ 28,691Provision for (reversal ofallowance for) loan losses (214) 292 (176) (284) (382)Noninterest income(expense), net (1,752) (1,789) (1,828) 346 (5,023)Net income $ 4,758 $ 4,901 $ 5,911 $ 8,480 $ 24,0502004First Second Third Fourth TotalNet interest income $ 5,576 $ 5,676 $ 6,104 $ 6,550 $ 23,906Provision for (reversal ofallowance for) loan losses – – – (9,028) (9,028)Noninterest income(expense), net (1,897) (2,205) (1,735) 501 (5,336)Net income $ 3,679 $ 3,471 $ 4,369 $ 16,079 $ 27,598AgGeorgia.67.Winter 2007362006 Annual Report

Office LocationsCartersville1300 East Main StreetCartersville, GA 30120(770) 382-3637Fax: (770) 387-1175Clarkesville102 Blacksnake RoadMt. Airy, GA 30563(706) 754-4158Fax: (706) 754-3307Cordele1207 South Greer StreetCordele, GA 31010(229) 273-3927Fax: (229) 273-3960Dalton1583 E. Walnut AvenueDalton, GA 30722(706) 278-8721Fax: (706) 278-1976Dublin826 Bellevue AvenueDublin, GA 31021(478) 272-3255Fax: (478) 272-4933Gainesville501 Broad StreetGainesville, GA 30501(770) 534-5395Fax: (770) 534-6491LaFayette318 S. Duke StreetLaFayette, GA 30728(706) 638-1940Fax: (706) 638-1946Moultrie22 5th Avenue, SEMoultrie, GA 31768(229) 985-3893Fax: (229) 985-0409Nashville707 N. Davis StreetNashville, GA 31639(229) 686-5081Fax: (229) 686-7085Ocilla302 S. Cherry StreetOcilla, GA 31774(229) 468-5900Fax: (229) 468-7506Perry1219 Macon RoadPerry, GA 31069(478) 987-1434Fax: (478) 987-6322Quitman504 E. Screven StreetQuitman, GA 31643(229) 263-7551Fax: (229) 263-7553Rome701 East 2nd AvenueRome, GA 30162(706) 291-6340Fax: (706) 291-7535Royston675 Church StreetRoyston, GA 30662(706) 245-6142Fax: (706) 245-5117Sandersville775 Sparta RoadSandersville, GA 31082(478) 552-6922Fax: (478) 552-8717Sylvester105 Dexter WilsonBoulevardSylvester, GA 31791(229) 776-5599Fax: (229) 776-0260Tifton1807 King RoadTifton, GA 31794(229) 382-4300Fax: (229) 386-8671WashingtonU.S. 78, 311 North BypassWashington, GA 30673(706) 678-7088Fax: (706) 678-2241Waynesboro176 Hwy. 80 WestWaynesboro, GA 30830(706) 554-2107Fax: (706) 554-1059AgGeorgia Farm CreditP.O. Box 1548Dublin, GA 31040PRSRT STDU.S. POSTAGEPAIDCOLUMBIA SCPERMIT 785