Farm Credit System Reports 2006 Third Quarter and Nine-Month Net Income.

NEW YORK -- The Farm Credit System today reported combined net income of $621 million and $1.782 billion for the three and nine months ended September 30, 2006, as compared with combined net income of $530 million and $1.547 billion for the same periods last year.

"The Farm Credit System achieved another favorable quarter, highlighted by sustained growth in the System's loan portfolio," remarked Jamie B. Stewart, President and CEO of the Federal Farm Credit Banks Funding Corporation. "Despite the competitive market place, System institutions continued to report solid earnings, enabling them to support the growth of their loan portfolios, while maintaining their strong capital positions. The favorable level of credit quality of the System's loan portfolio reflected a continued period of generally healthy agricultural conditions."

Net interest income increased $85 million and $240 million to $910 million and $2.640 billion for the three and nine months ended September 30, 2006, as compared with the same periods of 2005. These increases resulted from higher levels of average earning assets, which grew $19.7 billion and $17.9 billion to $146.7 billion and $141.5 billion for the three and nine months ended September 30, 2006, as compared with the same periods of the prior year, as a result of the continued growth in the System's loan and investment portfolios. Partially offsetting these increases were decreases in the net interest spread of 27 and 28 basis points for the third quarter and first nine months of 2006 to 1.74% and 1.76%, as compared with the same periods in 2005. The decreases in net interest spread were partially due to competitive conditions resulting from a high level of liquidity in bank and debt capital markets and to a higher interest rate environment. Also contributing to the decline in net interest spreads was the change in asset mix (e.g., investments represented a larger proportion of earning assets) that generally reduced the risk profile of earning assets.

Net interest margins decreased 12 and 10 basis points to 2.48% and 2.49% for the three and nine months ended September 30, 2006, as compared with the same periods of the prior year, as the decreases in net interest spread were partially offset by an increase in income earned from higher yields on earning assets funded by capital.

The System recognized a provision for loan losses of $2 million for the third quarter of 2006 and a loan loss reversal of $12 million for the nine-month period ended September 30, 2006, as compared with provisions for loan losses of $8 million and $15 million for the three- and nine-month periods ended September 30, 2005. The nine-month 2006 loan loss reversal consisted of $37 million of loan loss reversals recorded by certain System institutions, partially offset by $25 million of provisions for loan losses recorded by other System institutions. The loan loss reversals recorded by these institutions for 2006 reflected improvements in their credit quality. Included in the nine-month 2005 provisions for loan losses were loan loss reversals of $30 million.

Noninterest income increased $19 million and $43 million to $100 million and $292 million for the three- and nine-month periods ended September 30, 2006, as compared with the same periods of the prior year. The increases were due to increases in earnings from financially related services and gains on certain derivative transactions.

Noninterest expense increased $18 million and $73 million to $368 million and $1.086 billion for the three- and nine-month periods ended September 30, 2006, as compared with the same periods of the prior year. The increases were primarily due to increases in salaries and employee benefit costs resulting from merit and incentive compensation increases and, to a lesser extent, higher staffing levels at certain System institutions.

The provisions for income taxes were $19 million and $76 million for the three and nine months ended September 30, 2006, as compared with $18 million and $74 million for the three and nine months ended September 30, 2005. The effective tax rate decreased from 4.6% for the nine months ended September 30, 2005 to 4.1% for the nine months ended September 30, 2006 due to increased patronage distributions at taxable System institutions.

Cash and investments increased $3.932 billion to $32.359 billion at September 30, 2006, as compared with $28.427 billion at year-end 2005. The System's liquidity position was 165 days at September 30, 2006, as compared with 187 days at December 31, 2005.

Gross loan volume increased $9.599 billion to $115.871 billion at September 30, 2006, as compared with the year-end 2005 loan volume. The growth occurred throughout the System's loan portfolio. The System's accruing loan volume was $115.390 billion at September 30, 2006, as compared with $105.748 billion at December 31, 2005. Nonaccrual loans decreased $43 million from December 31, 2005 to $481 million at September 30, 2006.

Nonperforming loans (which consist of nonaccrual loans, accruing restructured loans, and accruing loans 90 days or more past due) were $580 million at September 30, 2006, as compared with $600 million at December 31, 2005. These loans represented 0.50% and 0.56% of the System's loans at September 30, 2006 and December 31, 2005.

The allowance for loan losses was $734 million at September 30, 2006, as compared with $755 million at December 31, 2005. The System recorded net loan charge-offs of $3 million for the nine months ended September 30, 2006, as compared with net loan charge-offs of $33 million for the nine months ended September 30, 2005. The allowance as a percentage of loans outstanding was 0.63% at September 30, 2006 and 0.71% at December 31, 2005. The allowance for loan losses was 127% of the System's total nonperforming loans and 153% of its nonaccrual loans at September 30, 2006, as compared with 126% and 144% at December 31, 2005.

Total capital increased during the first nine months of 2006 by $1.439 billion to $24.213 billion at September 30, 2006. This increase was the result of an increase of $1.241 billion in surplus (net income earned and retained) to $19.845 billion at September 30, 2006, as compared with $18.604 billion at December 31, 2005. Restricted capital, reflecting assets in the Farm Credit Insurance Fund, increased $181 million to $2.243 billion at September 30, 2006. Capital as a percentage of total assets decreased to 15.7% at September 30, 2006 from 16.3% at December 31, 2005 due principally to the growth in loans and cash and investments. Risk funds (total capital and the allowance for loan losses) totaled $24.947 billion and as a percentage of System loans decreased to 21.5% at September 30, 2006, as compared with $23.529 billion and 22.1% at December 31, 2005.

The Farm Credit System is a nationwide network of federally chartered agricultural and rural lending institutions cooperatively owned by their borrowers.

Copies of this press release, as well as other information regarding the System, including its annual and quarterly information statements, are available on the Federal Farm Credit Banks Funding Corporation's website at www.farmcredit-ffcb.com. For further information, or to request copies of annual and quarterly information statements, contact:

Daniel M. Bienz, Vice President
Financial Analysis and Disclosure
Federal Farm Credit Banks Funding Corporation
10 Exchange Place, Suite 1401
Jersey City, NJ 07302
[phone]
E-mail - [e-mail]

Any forward-looking statements in this press release are based on current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from expectations due to a number of risks and uncertainties. More information about these risks and uncertainties is contained in the System's annual and quarterly information statements.

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