Credit and Risk Management

Corny GallagherAgribusiness Executive

Bank of America

Cal-Med Workshop Sonoma, California October 26, 2007

FARM ASSETS / DEBT

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

• ROE 4.7% 3.9% 4.4%

FARM SHORT TERM DEBT $98 BILLION

Farm Service Agency

3%

Commercial banks 53%

Farm Credit System

28%

Individuals and others 16%

FARM RE DEBT $109 BILLION

Farm Credit System

41%

Farm Service Agency

2%

Commercial banks 37%

Life insurance companies

10%

Individuals and others 10%

FARM INCOME

U.S. ($billions) 2005 2006 2007• Crops 116 120 136• Livestock 125 119 140• Cash Receipts 241 239 276• Cash Expenses 196 205 222 • Gov’t. Payments 24 16 14 • Net Farm Income $77 $68 $87

USDA

FOCUS ON CASH FLOW

• The primary source of repayment of short term production loans is from the cash flow of the current years crops and livestock sales.

• The primary source of repayment of long term RE loans is the net income from the property pledged.

• Acres farmed times expected yields times forecasted prices determines income forecast.

• Less expected cost to produce the revenue determines the net income available to service debt.

BUSINESS SUCCESS CHARACTERISTICS NEEDED TO

MANAGE RISK

• Financial Management• Equity Capital• Diversification• Vertical Integration• Productivity and Technology• Marketing• Succession plan - Sustainabliity

SUSTAINABILITY

• The Code is conceived around the three “E”’s

Driving Economic Forces in California Agriculture

• People

• Land

• Air

• Water

• Global Competitiveness

California at Night

We’re not the only ones growing ... competing for natural resources

• 36 million (550-600,000/year)

• 55 million by 2050

• Need: 7 million homes;

10 million jobs; 12 million

more motor vehicles

FARMING IN AN URBAN STATE

Almonds: 100% Pistachios: 100% Walnuts: 100% Processing Tomatoes: 95% Figs, Dates, Olives, Kiwi: 100% Apricots: 95% Plums/Prunes: 97% Grapes: 87% Vegetables: Very high percentage

CALIFORNIA DOMINATES U.S. PRODUCTION OF SPECIALTY

CROPS

Figure I.7 - California Harvested Cropland by Crop, 1964, 1982, 2002

-

500

1,000

1,500

2,000

2,500

3,000

3,500

Orchards andVineyards

Hay Vegetablesand Melons

Cotton Rice Wheat Other Crops

1,00

0 A

cres

1964

1982

2002

Source: Table I.3

FARMER MAC

• Farmer Mac is America's secondary market for first mortgage agricultural real estate loans.

• Farmer Mac was created by Congress to improve the availability of long-term credit at stable interest rates to America's farmers, ranchers and rural homeowners, businesses and communities.

• Farmer Mac accomplishes its public policy mission primarily by purchasing, or committing to purchase, qualified loans from agricultural mortgage lenders, thereby replenishing their source of funds to make new loans.

FARMER MAC CREDIT STANDARDS AND GUIDELINES

• The borrower’s pro forma debt-to-asset ratio should be 50% or less, on a market-value basis.

• Debt coverage ratio on the loan from pledged assets must be 1 to 1 or better.

• The borrower’s pro forma overall total debt service coverage ratio should not be less than 1.25 to 1, including net income from farm and non-farm sources;

• Pro forma current ratio should not be less than 1 to 1.

FARMER MAC CREDIT STANDARDS AND GUIDELINES

• The loan-to-appraised value (“LTV”) shall not exceed 70%, although Farmer Mac has established a maximum LTV of 75% in the case of qualified facility loans.

UNIVERSITY OF CALIFORNIA COOPERATIVE EXTENSION

2006SAMPLE COSTS TO ESTABLISHAN ORCHARD AND PRODUCE

ALMONDS

SAN JOAQUIN VALLEY NORTHMICRO SPRINKLER IRRIGATION

COST TO ESTABLISH ALMONDSPER ACRE

• 3 YEAR INPUTS $4,400 $6,000

• LAND $7,000 $15,000

• TOTAL $11,400 $21,000

• 2006 SALES $10,000 $25,000

• CURRENT NON AG $30,000+

FORECASTED CASH FLOW

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

FORECASTED DEBT SERVICEPER ACRE- RATE 8 % -20 YEARS

• DRIVERS LOW HIGH AVE

• COST $10,000 $30,000 $15,000

• DEBT $5,000 $15,000 $10,500

• NET INC NEG$5,000 $1,283• PAYMENT $509 $1,527 $ 1,070• COVERAGE RATIO 1.2 TO 1

• MAX LOAN AT 1 TO 1 $12,500 PAY $1273

SMALL AMOUNT OF CAL-MED LAND IN THE WORLD

HIGH DENSITY OF PEOPLE IN CAL-MED REGIONS

• More than $15 billion in commitments to the industry sector.

• Clients value our industry knowledge and expertise as well as our ability to provide a complete range of financial products and services.

• We provide long term RE loans with flexible terms.

Bank of America is one of the largest commercial bank providers of financial services to the food products industries in the United States.