strength and stability by chenmeixiu

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									Ag r i b u s i n e s s



wat e r



Power
                           2009




Co m m u n i cat i o n s
                           annual
                                s t r e n g t h a n d s ta b i l i t y
                           report
                                        2009 financial highlights




                                                     loan portfolio


                                                      agribusiness                                 39%

                                                      strategic relationships                      35%

                                                      rural infrastructure                         26%




                         $44.2 billion
                          AT 12/31/09




                                                          For the Year ($ in millions)                        2009         2008         2007

                                                          Net Interest Income                            $     946    $     863    $     645

                                                          Provision (Reversal) for Credit Losses                80           55            (5)

                                                          Net Income                                           565          533          416

                                                          Patronage Distribution                               269          314          245



                                                          At Year End ($ in millions)                         2009         2008         2007

                                                          Agribusiness                                   $   17,469   $ 18,498     $ 19,582
   total assets                    net income
   ($ in billions)                ($ in millions)         Strategic Relationships                            15,271       15,026       12,211

                                                          Rural Infrastructure                               11,434       11,026        8,698

                                                          Total Loans                                        44,174       44,550       40,491

                                                          Reserve for Credit Exposure                          498          483          447

                                                          Total Assets                                       58,161       61,162       52,189

                                                          Total Shareholders’ Equity                          4,058        3,595        3,233




                                                          Financial Ratios for the Year                       2009         2008         2007

                                                          Return on Average Common Equity                    15.96%       17.32%       14.64%

                                                          Return on Average Assets                            0.93         0.91          0.93

                                                          Return on Active Patron Investment                 19.68        25.10         20.89

                                                          Net Interest Margin                                 1.66         1.51          1.45
patronage distribution     permanent capital ratio
     ($ in millions)             (IN PERCENTAGES)         Permanent Capital Ratio                            15.29        14.75         12.14
                    TA B L E 	 O F 	 C O N T E N T S :

	                Message	to	Shareholders	           2

	    Regional	AGRIBUSINESS	banking	group	           8

	   Corporate	AGRIBUSINESS	banking	group		         10

	                 Strategic	relationships	         12

	    	Electric	Distribution	Banking	Group	         14

	          	Energy	&	water	banking	group	          16

	        Communications	banking	group	             20

	                    Industry	portfolios	          22

	                        Financial	Report	         25




                                                         M i s s i o n S tat e m e n t

                                                           C
                                                         	 	 oBank’s	mission		

                                                           is	to	be	the	preferred		

                                                           provider	of	financial		

                                                           solutions	for	its		

                                                           customers	to		

                                                           enhance	their		

                                                           business	success.




                                                         S t r e n g t h a n d s ta b i l i t y   1
Everett dobrinski
Chairman                            To o u r s h a r e h o l d e r s
Robert B. Engel
President and CEO                   The Great Recession and the credit crisis that accompanied it together
                                    claimed a long list of casualties across the American economy over
                                    the past year. Home values, the job market and the U.S. financial
                                    services industry all sustained lasting damage, despite massive
                                    economic intervention by the federal government. The country’s
                                    retail and manufacturing sectors contracted severely, while the
                                    status of the dollar as the globe’s dominant reserve currency was
                                    called into question by economists, investors and policymakers
                                    around the world. Above all, the confidence of ordinary Americans
                                    in the leadership of many of our political and economic institutions
                                    was profoundly shaken.


                                    Against this sobering backdrop, CoBank stood out in 2009 by delivering
                                    another year of superior business performance. Guided by a board of
                                    directors committed to governance best practices, the bank continued
                                    to serve as a stable and highly dependable source of credit for its
                                    customers in vital industries across rural America. At the same time,
                                    CoBank grew even stronger financially, ending the year with record
                                    earnings along with strong levels of capital and liquidity. Indeed, it’s
                                    hard to think of a time when the bank’s value proposition shone more
                                    brightly than it did in 2009 — a year that tested the strength and
                                    reliability of many of the world’s financial institutions.




2 Co b a n k a n n ua l r e p ort
                                                      “ Strength	and	Stabilit y ”
                                                      The theme of this year’s annual report
                                                      is “Strength and Stability,” in recognition
                                                      of the bank’s solid performance in 2009
                                                      and what that performance has meant for
CoBank stood out in                                   customer-owners. CoBank’s net income
                                                      for 2009 was $565 million, up 6 percent
2009 by delivering                                    from $533 million in 2008. Total loan
                                                      volume declined by a modest 1 percent, to

another year of superior                              $44.2 billion at year end. The main reason
                                                      for the decrease was the reduction we saw
                                                      in seasonal agribusiness lending due to the
business performance.                                 substantial drop in prices for grains and farm
                                                      inputs from 2008’s exceptionally high levels.
                                                      Offsetting that decline was growth in other
                                                      parts of the business, including loans to
                                                      energy customers, loans that support
                                                      American agricultural exports, and loans
                                                      to and participations with affiliated
     At this writing, the U.S. economy appears to     associations and other partners across
     have found some stability, but it remains        the Farm Credit System. Our multifaceted
     unclear whether we are truly on the road         growth underscores the resilience of our
     toward a self-sustaining recovery. Consecutive   business model, as well as the benefits that
     quarters of GDP growth, driven in large          the bank derives from the diversity of its
     part by government stimulus, have raised         customer base.
     expectations that the economy is now on
     better footing. Countering those hopes are       CoBank’s net interest income was enhanced
     persistently high unemployment and mounting      throughout the year by actions taken by the
     public indebtedness that many believe pose       world’s central banks to counter the global
     a real threat to the nation’s collective,        economic downturn. Throughout 2009,
     long-term prosperity.                            we continued to maintain a balance sheet
                                                      position that allowed us to benefit from the
     In spite of these uncertainties, CoBank          steepened yield-curve environment that
     will continue to be a trustworthy and            typically emerges in periods of economic
     reliable partner for our customers in all the    stress. That approach was an important
     industries we finance. The ups and downs         contributor to our overall financial
     of the past two years have underscored just      performance during the year.
     how volatile our world really is, and what it
     takes on CoBank’s part to consistently meet      Capital and liquidity levels at the bank
     our customers’ needs. As a cooperatively         remain strong today and well in excess
     owned bank with a mission to serve rural         of regulatory minimums. Over the course
     America, we remain committed to delivering       of 2009 we held higher levels of liquidity
     value to our borrowers today while preserving    due to the impacts of the credit crisis and
     the bank’s financial health and capacity for     concerns about volatile funding costs and
     future generations.                              reduced levels of funding flexibility. Though




                                                                                     S t r e n g t h a n d s ta b i l i t y 3
                 higher liquidity comes with an explicit cost,
                 we believe it was justified in 2009 as a
                 defensive measure to protect the bank and
                 ensure its capacity to serve customers in an    CoBank’s proven
                 unprecedented market environment. More
                 recently, overall debt issuance and market
                                                                 abilit y to consistently
                 capacity have improved, and we anticipate
                 that we will manage our liquidity closer to
                 more normal levels going forward.               gener ate strong earnings

                 T h e 	 I m p o r ta n c e 	 o f	               is an important
                 Strong	Earnings
                 Any cooperative business must constantly        str ategic advantage
                 work to achieve the proper balance between
                 its members’ needs as customers and their       for our customers.
                 interests as shareholders in the financial
                 strength of the enterprise. CoBank is no
                 different. Our customer-owners value
                 patronage and a solid return on their
                 investment in the bank, along with all          Our earnings capacity has also helped shield
                 the other benefits that come from doing         the bank and its customers over the past
                 business with a cooperative. Those              year from the negative impacts the global
                 benefits include dependability and a            recession has had on overall asset quality.
                 commitment to stand by our customers            As we have disclosed over the past several
                 in all kinds of market conditions. CoBank’s     quarters, credit quality in our loan portfolio
                 proven ability to consistently generate         has declined as a result of stresses in a
                 strong earnings is an important strategic       number of industries CoBank serves,
                 advantage for our customers in both regards.    particularly communications, livestock,
                                                                 ethanol and dairy. As a result, we took
                 In March, the bank will pay patronage           provisions for loan losses totaling $80 million
                 of $269 million to customer-owners.             during the year, along with $15 million in
                 For most borrowers, that represents 100         impairment losses on investment securities
                 basis points of average loan volume for         primarily as a result of financial stress related
                 the year — a significant benefit derived        to a bond insurer. But our earnings capacity
                 from their banking relationship with us.        functions as a powerful line of defense when
                 Total patronage for 2009 is somewhat            such challenges arise, buffering the bank’s
                 lower than 2008’s record levels, given the      capital from the credit losses that can be
                 lower level of patronage-eligible borrowings    expected in any economic downturn.
                 stemming from the overall decline in
                 agribusiness lending referenced above.          Earnings are also critical to preserving our
                 But the patronage features of our capital       overall standing with rating agencies and
                 plans remain unchanged, and strong, stable      our ability to raise third-party capital when
                 patronage continues to be a key element of      necessary. In recent years, CoBank has
                 the value proposition that CoBank delivers      issued $1.7 billion in preferred stock and
                 to its customer-owners.                         subordinated debt, and that non-member
                                                                 capital has significantly enhanced the bank’s




4 Co b a n k a n n ua l r e p ort
capacity to serve customers, particularly during the commodity price
run-up of 2007 and 2008. Last year, we accessed the capital markets
once again, enhancing the quality and durability of our capital
structure via a $137 million exchange of preferred stock. The ability to
leverage non-member capital remains an important strategic advantage for
us and our customers, enabling us to supplement our base of member
capital and retained earnings. We will continue to manage our capital
position in order to maximize our strength and flexibility to accommodate
future market conditions, our customers’ borrowing needs, and
forthcoming changes in regulatory capital rules.


Gov e r n a n c e 	a n d 	 B oa r d 	 L e a d e r s h i p
Along with strong financial performance, the past year also saw an
important change in the governance structure at CoBank. Early in the
year, by a wide margin, our former Class E shareholders approved a
proposal to extend voting rights to directly eligible borrowers that
are not organized as cooperatives. As a result, all existing classes
of common equity were converted into one new class of common
equity for the bank, and the total pool of voting customers increased
by approximately 27 percent. Our board believes this decision
creates a stronger governance structure that is in keeping with the
values of fairness and equity so central to cooperative principles.


At the end of the year we also said goodbye to two longtime members
of our board — Sheldon Brown and Rita Brown. Both served the bank
and its shareholders loyally and ably during their many years of service




                                                                            S t r e n g t h a n d s ta b i l i t y 5
                                    as directors, providing management with the benefit of their
                                    insight, knowledge, experience and leadership. Succeeding them
                                    are Scott Markham, elected by shareholders in our eastern region,
                                    and Catherine Moyer, appointed to enhance the knowledge of the
                                    board in the rural communications industry. We welcome both Scott
                                    and Catherine and look forward to their contributions this year and
                                    in the years ahead.


                                    We’re thankful to have a board of talented and committed individuals
                                    who represent a true cross-section of business leadership in rural
                                    America. The entire board continues to work closely with executive
                                    management to serve the long-term interests of our customers and
                                    to guide the bank through the increased complexity and volatility that
                                    characterize our world today.


                                    Co m m i t t e d 	 to 	 Co r p o r at e 	 C i t i z e n s h i p
                                    CoBank has made a concerted effort over the past several years
                                    to create a vibrant and meaningful corporate citizenship program.
                                    We have forged strategic partnerships with the United Way and
                                    several other charities, providing each with financial support as well
                                    as personal involvement from members of our executive team. We
                                    also support a great many local causes throughout the country every
                                    year via contributions directed by members of our board, the CoBank
                                    Rural America Leadership Council and individual CoBank associates.
                                    All told, the organization contributed approximately $1.2 million to
                                    worthy causes throughout the country in 2009.




6 Co b a n k a n n ua l r e p ort
                                                     ways to ensure the trust and confidence
                                                     of our customer-owners and the investors
                                                     who help capitalize CoBank through the
we believe CoBank is                                 purchase of our debt and equity securities.



well-positioned to meet                              We also urge you to read the various
                                                     customer profiles that follow this letter.
                                                     One of CoBank’s greatest assets is the
the needs of our customers                           strength, diversity and innovative spirit of
                                                     its customer base. The companies we’ve
this year and in those                               featured here all enjoy futures bright with
                                                     promise — and each embodies the hard

that lie ahead.                                      work, discipline and sacrifice that are so
                                                     commonly found across rural America.


                                                     Despite an economy and market environment
                                                     that remain challenging, we believe CoBank
                                                     is well-positioned to meet the needs of our
                                                     customers this year and in those that lie
                                                     ahead. We are extremely fortunate to have
    The recession and the hardships it has
                                                     a sound business model; an informed, well
    brought to so many Americans have
                                                     aligned and supportive board; exceptionally
    impressed upon all of us at CoBank just
                                                     strong customer relationships; and a work
    how fortunate we are to be affiliated
                                                     force of engaged, knowledgeable and highly
    with a successful business enterprise
                                                     talented associates. As we move through
    serving customers in rural America’s
                                                     2010, we will continue working to serve
    essential industries. Our board continues
                                                     our customers and to deliver on a value
    to be extremely supportive of our citizenship
                                                     proposition that remains more powerful
    programs, and we’re pleased to be able to
                                                     today than it has ever been.
    give back to the individual communities in
    which we do business every day.
                                                     As always, we are deeply mindful of the
                                                     enormous trust our customers place in
    W e l l- p o s i t i o n e d	 	
                                                     CoBank as their financial partner. We thank
    for	the	Future
                                                     you for your ongoing support and look
    The detailed financial information contained     forward to reporting back to you on our
    in this annual report provides a wealth of       future progress.
    data about all aspects of the bank’s financial
    condition and results of operations, including
    asset quality, capital levels, liquidity and
                                                     Everett dobrinski
    the operating performance of individual          Chairman
    operating segments. We urge all of our
    shareholders to review that information in
    detail, as we are committed to maintaining
    transparency in our financial reporting. We
                                                     Robert B. Engel
    believe that doing so is one of the best         President and CEO




                                                                                    S t r e n g t h a n d s ta b i l i t y 7
AG R I B U S I N E S S




                                                       Alan Hack      D e r r i c k Wa g g o n e r   Bart Krisle
                                        Senior Relationship Manager    Regional Vice President       Chief Executive Officer
                                                             CoBank               CoBank             Tennessee Farmers
                                                                                                     Cooperative
    8 Co b a n k a n n ua l r e p ort
REGIONAL AGRIBUSINESS BANKING GROUP

   T E N N E S S E E FA R M E R S                      S O U T H D A K O TA
   C O O P E R AT I V E                                W H E AT G R O W E R S
   With support from CoBank, Tennessee Farmers         South Dakota Wheat Growers was founded in
   Cooperative — a federated cooperative serving 150   1923 and has been capitalizing on CoBank’s
   retail outlets in 83 of Tennessee’s 95 counties     deep knowledge of agribusiness lending since
   — is taking some of the administrative burden       the 1930s. That relationship is as important
   off its member cooperatives.                        today as it was 80 years ago for the grain and
                                                       agronomy cooperative, which serves about
   In 2009, CoBank provided funding for TFC            5,000 producer-members in the James River
   to launch a program called Co-op Financial          Valley of South and North Dakota.
   Solutions. It allows TFC to buy receivables
   from member co-ops, boosting their individual       “We’ve had a long and strategic relationship
   liquidity positions and freeing members from        with CoBank,” said Dale Locken, chief executive
   having to worry about credit decisions.             officer. “CoBank has been integral in helping us
                                                       access capital for long-term projects as well as
   “Our philosophy is that if our member               daily operating money.”
   cooperatives grow, then TFC will grow,” said
   Bart Krisle, chief executive officer. “With the     South Dakota Wheat Growers markets more
   financial support of CoBank, our co-ops on the      than 150 million bushels of grain annually. With
   local level will be able to focus on customer       38 locations and six rail-loading points, the
   service and sales, and expand their business        cooperative is one of the largest in the Midwest,
   with things such as new product lines or            and it still is growing and expanding.
   infrastructure enhancements.”
                                                       CoBank recently led a syndication with 23
   With a relationship dating back more than 50        other banks that provides South Dakota Wheat
   years, TFC relies on CoBank’s rural focus and       Growers with access to a seasonal line of credit
   capacity to deliver a wide variety of financial     and a term loan. They also utilize CoBank for
   solutions. In recent years, TFC has also used       cash management and leasing services. That
   financing from CoBank to support an expansion       financial support provides South Dakota Wheat
   into new regions, including Kentucky, Georgia,      Growers with much needed flexibility.
   Virginia, Missouri, Arkansas and North Carolina.
                                                       “It provides us with tremendous confidence
   “CoBank is definitely there with capital to help    to have a seasonal line of credit from CoBank
   the business as it grows,” Krisle said. “But        locked in over the next several years,” Locken
   CoBank also provides critical analysis of           said. “Also, since we’re still growing, having
   whether a deal makes sense or not, and I            the operating money in place makes things a
   truly value that.”                                  lot more orderly.”




                                                                                    S t r e n g t h a n d s ta b i l i t y 9
AG R I B U S I N E S S




                                         R o b e r t S . D o n o va n   Hal Nelson
                                             Chief Financial Officer    Lead Relationship Manager
                                            Blue Diamond Growers        CoBank

    10 Co b a n k a n n ua l r e p ort
C O R P O R AT E A G R I B U S I N E S S B A N K I N G G R O U P

                                                        AMERICAN
      B LU E D I A M O N D G R O W E R S                SUGAR HOLDINGS
      Almonds are synonymous with health, and the       Florida Crystals and Sugar Cane Growers
      folks at Blue Diamond Growers — the world’s       Cooperative are two independent Florida sugar
      largest tree nut processing and marketing         producers that have been in business for
      cooperative — have been expanding rapidly to      generations. In the late 1990s, the two
      meet the growing domestic and international       companies decided to link their destinies by
      demand for this versatile crop.                   working together to vertically integrate into
                                                        the sugar refining sector.
      California grows more than 80 percent of the
      world’s almonds, and Sacramento-based Blue        It has proven to be a wise move. Today,
      Diamond Growers has a working relationship        American Sugar Holdings — jointly owned by
      with approximately one-third of California’s      Florida Crystals and Sugar Cane Growers —
      almond growers through its network of 3,000       is the largest sugar refining operation in the
      independent growers.                              country, with facilities in Florida, California,
                                                        Louisiana, New York and Maryland as well as
      The recent boom in the almond market has          Canada and Mexico. The company’s products
      been spurred by studies that tout the health      are household names sold under the Domino,
      benefits of almonds, which have been found to     C&H, Florida Crystals, Redpath and Jack Frost
      lower cholesterol and reduce the risk of heart    brands. CoBank is part of a consortium that
      disease. Today, almonds are enjoyed by            provides American Sugar Holdings with a
      themselves as a tasty snack and used as an        revolving line of credit and term debt.
      ingredient for a wide variety of other products
      both sweet and savory, including cereals,         “CoBank has been a dependable partner from
      crackers, energy bars, baking ingredients,        the very beginning,” said Antonio L. Contreras,
      spreads and more.                                 co-president of American Sugar Holdings and
                                                        a senior vice president at Sugar Cane Growers.
      “Because of the industry’s growth, we needed      “CoBank provided the support that allowed us
      capital to expand our facilities and upgrade      to make the move into vertical integration and
      our equipment,” said Robert S. Donovan, Blue      the refining business. We would not be here if
      Diamond’s chief financial officer. “CoBank has    it were not for CoBank.”
      the financial strength and capacity to meet our
      needs, and we appreciate the added benefit        “CoBank has been our primary financial
      of membership in the form of an annual            partner for over 30 years,” said Luis J. Fernandez,
      patronage payment.”                               co-president of American Sugar Holdings and
                                                        chief financial officer for Florida Crystals.
      In addition to a revolving line of credit         “They have participated in the financing of
      and term loans, Blue Diamond also utilizes        significant acquisitions and internal expansion
      leasing services from CoBank for some             projects for our companies, as well as
      nut processing equipment. “It truly               commodity financings.”
      helps to have a financial institution that
      understands cooperatives and agricultural
      cycles,” Donovan said.




                                                                                      S t r e n g t h a n d s ta b i l i t y 1 1
S t r at e g i c r e l at i o n s h i p s




                                                      Kent Erhardt              Mike Sherman               Dale Griffiths
                                            Senior Relationship Manager   Vice President of Agribusiness   President
                                                                 CoBank      1st Farm Credit Services      Colusa Elevator Company

       12 Co b a n k a n n ua l r e p ort
S T R AT E G I C R E L AT I O N S H I P S

      1 s t Fa r m C r e d i t S e r v i c e s              N o r t h w e s t Fa r m
      & C O L U S A E L E VAT O R                           Credit Services
      C O M PA N Y                                          & JOHN I. HAAS
      In 1944, Dale Griffiths’ family bought a small feed   Water, hops, malt and yeast are the four
      and grain business in Colusa, Illinois, with a goal   ingredients used to make beer. Take one away
      to serve local corn growers and other farmers.        and — well, it’s just not beer.


      From that humble beginning, Colusa Elevator           Washington-based John I. Haas is one of the
      Company has experienced tremendous growth.            world’s leading providers of hops, the flowering
      Today it is a thriving enterprise, operating          vine that gives beer its bite. It receives a range
      in six locations in southeast Iowa and west           of strategic financial services from CoBank
      central Illinois, including three barge terminals     and Northwest Farm Credit Services, one of
      along the Mississippi River.                          CoBank’s affiliated Farm Credit associations.


      CoBank, via its strategic relationship with 1st       John I. Haas maintains about 1,800 acres of
      Farm Credit Services in Normal, Illinois, helps       hop farmland in Washington state, with
      provide family-owned Colusa with debt capital,        primary sales to market-leading brewers in
      including term debt and a revolving line of           North and South America, Australia and
      credit. Additionally, Colusa utilizes CoBank’s        Western Europe. CoBank participates with
      non-credit services, including cash management        NWFCS and other Farm Credit System lenders
      and export letters of credit.                         on term loans and a revolving line of credit
                                                            for John I. Haas. CoBank also provides
      Griffiths, Colusa’s president, says CoBank            support for foreign-exchange transactions.
      and its Farm Credit System partners played
      an important role in helping the organization         John I. Haas closed on a new loan package at
      weather the dramatic run-up in commodity              the height of the financial crisis. “We needed
      prices in 2008. Though grain prices retreated         a credit facility to pay growers and capital to
      in 2009, Griffiths has confidence his financial       expand our facilities,” said Alexander Barth,
      partners will be there in a market where price        executive vice president. “Had we gone with
      volatility is the new normal.                         another bank, it all probably would have
                                                            unraveled because of the extreme problems
      “We’ve been through tough times, and CoBank           that many banks got into. That would have
      was top-notch throughout,” he said. “CoBank           been a disaster for us.”
      understands agriculture and isn’t going to pull
      back in hard times, which is different than           Jeff Fagg, NWFCS vice president of agribusiness,
      some of our previous banking relationships.”          believes the relationship with John I. Haas
                                                            demonstrates the Farm Credit System’s value
      Mike Sherman, vice president for agribusiness         proposition. “The customer appreciates that
      at 1st Farm Credit Services, believes CoBank’s        the Farm Credit System is focused on agriculture
      industry knowledge played an important role           and, through our partnership with CoBank, is
      in meeting Colusa’s overall needs for strategic       able to provide a comprehensive array of
      financial services. “It’s been extremely              financial services that meet their banking
      beneficial for the customer to have the               needs,” he said.
      combined capacity and expertise of CoBank
      and 1st Farm Credit Services,” he said.




                                                                                         S t r e n g t h a n d s ta b i l i t y 1 3
Rur al Infr astructure




                                                   September L . Dau       Seth Hart
                                           Vice President of Finance and   Relationship Manager
                                                       Human Resources     CoBank
                                         Iowa Lakes Electric Cooperative
    14 Co b a n k a n n ua l r e p ort
ELECTRIC DISTRIBUTION BANKING GROUP

   I O WA L A K E S E L E C T R I C                    PEE DEE ELECTRIC
   C O O P E R AT I V E                                C O O P E R AT I V E
   It was a compelling concept for a carbon            When Pee Dee Electric Cooperative saw
   constrained world: Use one source of renewable      business drop off due to the recent economic
   energy (wind) to power another (biofuels).          downturn, the cooperative launched an
                                                       aggressive plan in response.
   In a pioneering business initiative completed
   in 2009, Iowa Lakes Electric Cooperative            Pee Dee, which serves commercial, industrial
   switched on 14 new wind turbines that today         and residential member-owners in six South
   provide power to two ethanol plants in its          Carolina counties, set out to attract new
   service territory.                                  businesses to the region — particularly large
                                                       manufacturers with significant power needs.
   Iowa Lakes is a member-owned electric
   cooperative based in Estherville, Iowa,             “We were significantly affected by the
   serving more than 12,000 farms, homes               economy, but we’ve been very active in
   and businesses. CoBank helped Iowa Lakes            economic development,” said Debi Osterberg,
   finance the wind turbine project through            Pee Dee Electric’s chief financial officer. “It’s
   Clean Renewable Energy Bonds, or CREBs,             been a successful strategy; we have picked
   a financing mechanism created by Congress           up several large customers to offset those
   to provide low-cost financing for renewable         initial losses.”
   energy projects.
                                                       CoBank provides Pee Dee with term loan
   “This ambitious project, the largest wind project   financing. Osterberg contends that financial
   owned by a distribution cooperative, makes          support from CoBank, with its focus on the
   Iowa Lakes a true leader in the renewable           rural electric distribution market, has given
   energy field,” said Terry L. Bruns, Iowa Lakes      the company the financial capacity needed
   president and chief executive officer.              to attract new customers and to continue
                                                       enhancing the services it provides existing
   In some Clean Renewable Energy Bond                 customers in its service territory. Over the last
   financings, the arranger sells the bonds to         few years it has added technologies that give
   third-party investors, something that can           customers more flexibility in the way they pay
   be difficult to execute given today’s market        their bills, including a pre-paid electric service
   realities. In this case, however, CoBank was        that is the first of its kind in South Carolina.
   the arranger and held the bonds, which
   provided financing certainty for Iowa Lakes.        “We are always looking for any new technology
                                                       that improves our customer service, our
   “We appreciate that CoBank has a mission            processes, and makes us more efficient,”
   to serve as an active and dependable lender         Osterberg said. “Our motto is quicker, better
   to America’s rural utilities,” Bruns said. “The     and cheaper, and CoBank has helped us
   financing CoBank provided for this project          achieve that with lower interest payments on
   was critical to its success, and we are             our debt. CoBank’s people are great to work
   proud to be contributing to our nation’s            with, too.”
   energy independence.”




                                                                                     S t r e n g t h a n d s ta b i l i t y 1 5
Rur al infr astructure




                                             D av i d D o r n b i r e r   P h i l i p W. Dy k   B r i a n D. C u l l e n
                                         Lead Relationship Manager               Partner        President
                                                            CoBank          Alinda Capital      PERC Water Corporation

    16 Co b a n k a n n ua l r e p ort
E N E R G Y & WAT E R B A N K I N G G R O U P

     A l i n d a C a p i ta l
     Pa r t n e r s L LC                                  T i d e wat e r U t i l i t i e s
     The City of Santa Paula, California, often called    Despite an economic downturn that hobbled
     the citrus capital of the world, sits in a rich      growth in many regions of the country, Tidewater
     agricultural valley lined with orange, lemon         Utilities still added about 600 customers to its
     and avocado groves. When the city — 65 miles         service territory in 2009. “We grew by about
     north of Los Angeles — needed to replace its         2 percent, which is not a bad number in good
     aging wastewater facility, Alinda Capital            times for your typical water utility,” said Bruce
     Partners LLC and partner PERC Water                  O’Connor, Tidewater’s treasurer.
     Corporation were brought in to design, build,
     operate and finance the project.                     Headquartered in Dover, Delaware, Tidewater
                                                          provides water services to almost 33,000
     Alinda Capital is the nation’s largest manager       customers for domestic, commercial and
     of pension fund assets invested in infrastructure.   fire protection purposes in more than 300
     It specializes in funding the construction,          communities along the state’s Atlantic coast.
     operation and maintenance of infrastructure          The company has successfully managed growth
     assets for communities, businesses and               and maintained high standards, winning
     governments. The company has ownership               numerous awards for both the taste of its
     interests in infrastructure businesses that          water and the quality of its business practices.
     operate in 15 states, all 10 Canadian provinces
     and six European nations.                            Tidewater’s growth strategy has been to work
                                                          directly with developers to make sure they
     When it came time to pick a financing partner        continue to build lasting relationships with
     for the Santa Paula project, Alinda Capital          new customers. And reliable access to debt
     chose CoBank. The bank led a financing               capital is a critical component of that plan.
     package for Alinda Capital that was completed
     successfully despite the severity of the             “Financial support from CoBank allows us

     recent credit crunch. The Santa Paula plant          to finance our growth and has also helped

     is scheduled to be up and running in the             us upgrade our existing system, which is

     summer of 2010.                                      getting close to 50 years old,” O’Connor said.
                                                          In addition to term debt, CoBank also provides
     “From the beginning, CoBank was very                 Tidewater with cash management solutions,
     knowledgeable in terms of the water                  including the CoLink ® online banking platform.
     infrastructure sector, and that’s one of the
     reasons we wanted to work with them,” said           “Going through the loan process with CoBank

     Philip W. Dyk, a partner at Alinda Capital.          is painless and efficient,” O’Connor said. “The

     “We are pleased with the financing and work          accessibility of CoLink ® is also very convenient,

     that CoBank put into helping us with this            because I can get online and pay down or

     investment. We are trying to find another            borrow as my needs arise.”

     project like the one in Santa Paula so we
     can do more business with CoBank.”




                                                                                       S t r e n g t h a n d s ta b i l i t y 1 7
Rur al infr astructure




                                           B a r b a r a H a m p to n     To d d T e l e s z    Mike Smith
                                          Senior Vice President and     Sector Vice President   Chief Executive Officer
                                              Chief Financial Officer          CoBank           Georgia Transmission Corp.
                                         Georgia Transmission Corp.
    18 Co b a n k a n n ua l r e p ort
E N E R G Y & WAT E R B A N K I N G G R O U P

     GEORGIA                                              SOUTH MISSISSIPPI
     TR ANSMISSION                                        ELECTRIC POWER
     C o r p o r at i o n                                 A S S O C I AT I O N
     With a network of nearly 3,000 miles of              The timing couldn’t have been more challenging.
     power lines and nearly 600 substations, Georgia      South Mississippi Electric Power Association
     Transmission Corporation is a critical link          needed to enhance capacity and efficiency at
     between electric generation providers and            two power plants and retrofit a coal-fired plant
     rural distribution co-ops throughout the state.      to meet future clean air requirements during the
                                                          worst credit crunch since the Great Depression.
     Today, Georgia Transmission delivers power to        The price tag: approximately $350 million.
     almost half of Georgia’s homes and businesses,
     and the company is rapidly building new              “These projects were very key to us and were
     infrastructure to meet the continuing growth in      needed to meet the needs of our members,” said
     demand for services. CoBank provides Georgia         Jim Compton, SMEPA general manager and chief
     Transmission with financing to build new power       executive officer. “When the financial markets
     lines, substations and other infrastructure.         began to wobble in 2008, we recognized that
                                                          financing was going to be a challenge.”
     “In order for us to have 400 projects going at
     one time, it takes a lot of liquidity to see those   SMEPA provides electricity to 11 member-owned
     projects through to completion,” said Barbara        power distribution cooperatives that serve more
     Hampton, senior vice president and chief             than 400,000 homes and businesses in 56 rural
     financial officer. “CoBank is very important in      Mississippi counties. Its baseload generating
     that equation, giving us flexibility in how we       assets include a coal-fired plant, a minority
     access the market.”                                  interest in a nuclear facility and several gas-fired
                                                          plants. SMEPA also maintains 1,710 miles of
     When it comes to building state-of-the-art           high-voltage transmission lines.
     infrastructure, Georgia Transmission is on the
     cutting edge. They recently introduced a new         SMEPA sought proposals from several lenders,
     high-voltage tower that requires less right-of-      but ultimately determined that their best solution
     way and is easier to maintain than traditional       was a credit facility led by CoBank that accessed
     high-voltage lines. Additionally, Georgia            the combined capacity of seven other Farm
     Transmission is proactively working with more        Credit System institutions.
     than 200 stakeholders to develop routing
     strategies that reduce the impact on                 “We wanted to achieve as much financing

     environmentally sensitive and historically           certainty as possible,” Compton said. “It was

     significant sites.                                   important that our financial partners could
                                                          live up to their obligations, and clearly we felt
     “We’ve had a long-standing relationship with         that going with CoBank and the Farm Credit
     CoBank,” Hampton said. “They really help us          System was the best choice for that. CoBank
     deliver the most economic and reliable services      truly understands our business and understands
     to our members as possible.”                         our borrowing needs.”




                                                                                        S t r e n g t h a n d s ta b i l i t y 1 9
Rur al infr astructure




                                                      Kevin Oliver      M i c h a e l P. M i l l e r   K e v i n Coy n e
                                          Senior Relationship Manager   Chief Executive Officer        President and
                                                               CoBank          FiberLight              Chief Operating Officer
                                                                                                       FiberLight
    2 0 Co b a n k a n n ua l r e p ort
CO M M U N I C AT I O N S B A N K I N G G R O U P

                                                        M ATA N U S K A
     FIBERLIGHT                                         T E L E P H O N E a s s o c i at i o n
     Since its founding in 1993, Alpharetta,            Palmer, Alaska-based Matanuska Telephone
     Georgia-based FiberLight has installed more        Association has challenges that most
     than 500,000 miles of fiber-optic infrastructure   communications companies will never
     in four states and the District of Columbia.       face, including a 10,000-square-mile service
                                                        territory set in some of the most rugged —
     That’s an impressive number considering that       and beautiful — mountains on the planet.
     FiberLight has served its customers — including    And there’s the matter of Alaska’s notoriously
     telecommunications carriers, Internet service      long, harsh winters.
     providers, Fortune 500 companies, schools,
     municipalities and federal agencies — on a         “Many of our customers are very remote, and
     pay-as-you-go basis, only taking on new            the cost for us to put in infrastructure to serve
     projects if the cash was in the bank to            them is a bit more significant than it is in the
     fund construction.                                 lower 48,” said Wanda Phillips, MTA’s chief
                                                        financial officer. “Plus, we’re frozen solid for
     That’s changed, thanks to a term loan from         six months out of the year.”
     CoBank. Now, FiberLight, though still very
     selective in terms of new projects, is able to     Fortunately, a financing package from CoBank
     consider growth opportunities that were            that includes term debt and a revolving credit
     previously out of reach.                           facility helps ensure that all of MTA’s customers
                                                        have reliable access to a state-of-the-art
     “The availability of capital from CoBank has       communications infrastructure, including
     enabled FiberLight to continue to grow,”           traditional telephone service, wireless service,
     said Kevin Coyne, FiberLight’s president and       broadband Internet and IP television. The
     chief operating officer.                           credit facility was priced to help MTA stay
                                                        competitive with other regional service providers.
     Today, FiberLight is taking on new business in
     a variety of markets, including an important       MTA, which is organized as a cooperative,
     project linking government agencies in             appreciates the benefits of ownership in
     Washington, D.C., to critical government           CoBank, including patronage.
     contractors in northern Virginia via a 136-mile
     network of underground fiber.                      “CoBank financing has been pivotal this year,”
                                                        Phillips said. “MTA’s strong relationship with
     “CoBank understands our industry very well,”       our lender provides us with a competitive
     Coyne said. “There is just a multitude of ways     advantage. We know we can turn on a dime
     that CoBank has made life easier for us.”          and jump on an opportunity if it presents itself.”




                                                                                      S t r e n g t h a n d s ta b i l i t y 2 1
                                      Industry Portfolios
                                      CoBank ended 2009 with total loan volume of $44.2 billion.
                                      In the fourth quarter of the year, the bank re-aligned its
                                      business into three operating segments: Agribusiness,
                                      Strategic Relationships and Rural Infrastructure. Additional
                                      detail about each segment is provided below.


                                      For a detailed discussion and analysis of the bank’s 2009
                                      financial performance, see the financial section of this report
                                      starting on page 25.



                                      AGRIBUSINESS
                                      The Agribusiness segment includes the Regional Agribusiness
                                      Banking Group, Corporate Agribusiness Banking Group and Banking
                                      Services Group. It serves cooperatives and other customers involved
                                      in a wide variety of industries, including grain handling and marketing,
                                      farm supply, food processing, dairy, livestock, fruits, nuts, vegetables,
                                      cotton, biofuels and forest products. Average loan volume in the
                                      Agribusiness portfolio was $18.2 billion in 2009.




                                                 Wood,
                                                 Paper Products 5%   Biofuels 2%
                                               Fish, Livestock,
                                               Poultry 6%                             Farm Supply, Grain &
                                                                                      Marketing 29%
                                               Dairy 6%



                                             Other 9%



                                          Fruits, Nuts,
                                          Vegetables 10%

                                                                                   International 22%
                                            Lease Financing 11%



                                                     year-end	loan	volume	by	industry	




2 2 Co b a n k a n n ua l r e p ort
                    S T R AT E G I C R E L AT I O N S H I P S
                    Through its Strategic Relationships operating segment, CoBank serves as
                    a wholesale provider of funds to our affiliated associations: Northwest
                    Farm Credit Services, Farm Credit East, Yankee Farm Credit and
                    Farm Credit of Maine. CoBank also serves as a partner of choice for
                    a number of other Farm Credit banks and associations, via loan
                    participations and syndications and through providing cash
                    management, treasury products and other non-credit services.
                    Average loan volume in this portfolio was $15.1 billion in 2009.



                                                                                                          Yankee Farm
                                                                                        Farm Credit of    Credit 2%
                                           Sugar, Sweeteners 3%
              Nursery, Greenhouse 5%                                                    Western NY 6% *                   Farm Credit
                                                                                                                          of Maine 1%
                     Grain 8%                             Fish, Livestock,
                                                          Poultry 23%

                                                                             First Pioneer
                                                                             Farm Credit 17% *
Wood, Paper Products 10%
                                                                                                                                Northwest Farm
                                                                                                                                Credit Services 47%


Fruits, Nuts, Vegetables 12%
                                                            Dairy 16%             Other System
                                                                                  Banks &
                                                                                  Associations 27%
                         Other 12%
                                                 Farm Related
                                                 Business Services 11%                                          *
                                                                                                                    Merged to form Farm Credit East
                                                                                                                    effective 1/1/10

                                                year-end	loan	volume	by	industry	and	institution




                    RUR AL INFR ASTRUCTURE
                    The Rural Infrastructure segment includes the Electric Distribution
                    Banking Group, Energy & Water Banking Group and Communications
                    Banking Group. It serves rural utilities and other customers across a
                    wide variety of industries, including electric generation, transmission
                    and distribution cooperatives; water and wastewater companies;
                    and wireline, cable and wireless communications service providers.
                    Average loan volume in CoBank’s Rural Infrastructure portfolio was
                    $11.2 billion in 2009.




                                           Competitive Local
                             Wireless 4%   Exchange Carrier 2%
                           Cable 4%
             Independent Power
             Producers 6%


                 Water 7%                                    Electric
                                                             Distribution 37%



      Local Telephone
      Exchange Carrier 17%




                                              Electric Generation
                                              & Transmission 23%



                         year-end	loan	volume	by	industry	




                                                                                                                                S t r e n g t h a n d s ta b i l i t y 2 3
                                     O u r Va l u e P r o p o s i t i o n
                                     CoBank is a financially strong, dependable, cooperative bank


                                     that provides capital and financial solutions to businesses that


                                     operate in and serve rural America’s vital industries. We are


                                     knowledgeable, responsive and committed to enhancing


                                     our capacity to deliver superior customer service and


                                     competitively priced products in innovative and efficient ways.


                                     We consistently demonstrate our focus on rural America,


                                     repeatedly strive to be a trusted advisor for our customers


                                     and provide a consistent return on their investment and


                                     ownership in CoBank.




24 Co b a n k a n n ua l r e p ort
Co b a n k 2 0 0 9 f i n a n c i a l r e p ort
TA B L E 	 O F 	 C O N T E N T S :


Management’s	Discussion	&	Analysis	           28


Consolidated	Financial	Statements	            58


Notes	to	Consolidated	Financial	Statements	   63


Board	of	Directors	                           99


Leadership	                                   121




                                                    S t r e n g t h a n d s ta b i l i t y 2 5
26 Co b a n k a n n ua l r e p ort
                                       o f f i c e l o c at i o n s
cobank national                             Fargo Banking Center                    Sacramento Banking Center **
office and denver                           Goldmark Office Park                    1478 Stone Point Drive, Suite 450
banking center                              1711 Gold Drive South, Suite 230        Roseville, CA 95661
5500 South Quebec Street                    Fargo, ND 58103                         (916) 380-3524
Greenwood Village, CO 80111                 (701) 277-5007                          (800) 457-0942
P. O. Box 5110                              (866) 280-2892                          FCL: (800) 289-7080
Denver, CO 80217                            Florida Farm Credit Leasing Office *    Spokane Banking Center
(303) 740-4000                              11903 Southern Boulevard, Suite 203     1700 South Assembly Street, Suite 103
(800) 542-8072                              Royal Palm Beach, FL 33411              Spokane, WA 99224-2121
                                            (561) 965-9001                          P.O. Box 2720
farm credit leasing
                                                                                    Spokane, WA 99220-2720
services corpor ation                       Louisville Banking Center **
                                                                                    (509) 363-8700
600 Highway 169 South, Suite 300            1601 UPS Drive, Suite 102
                                                                                    (800) 378-5577
Minneapolis, MN 55426                       Louisville, KY 40223
(952) 417-7800                              (502) 423-5650                          St. Louis Banking Center **
(800) 444-2929                              (800) 262-6599                          1650 Des Peres Road, Suite 120
                                            FCL: (800) 942-3309                     St. Louis, MO 63131
washington, d.c. office                                                             (314) 835-4200
50 F Street, N.W., Suite 900                Lubbock Banking Center
                                                                                    (800) 806-4144
Washington, DC 20001                        5715 West 50th
                                                                                    FCL: (800) 853-5480
(202) 879-0846                              Lubbock, TX 79414
                                            P.O. Box 6770                           Texas Farm Credit Leasing Offices *
u.s. regional offices                       Lubbock, TX 79493                       5701 I40 West
Ames Banking Center                         (806) 788-3700                          Amarillo, TX 79106
2515 University Boulevard, Suite 104        (877) 610-6987                          (806) 352-6310
Ames, IA 50010
(515) 292-8828                              Maryland Farm Credit Leasing Office *   403 N. Sunset Strip, Highway 181
                                            6546 MidAtlantic Lane                   Kenedy, TX 78119
Atlanta Banking Center **                                                           (830) 583-0000
                                            Salisbury, MD 21804
900 Circle 75 Parkway, Suite 1400
                                            (800) 225-8325
Atlanta, GA 30339-5946                                                              Wichita Banking Center **
(770) 618-3200                              Minneapolis Banking Center **           245 North Waco, Suite 230
(800) 255-7429                              600 Highway 169 South, Suite 300        Wichita, KS 67202
FCL: (770) 618-3226                         Minneapolis, MN 55426                   P.O. Box 2940
                                            (952) 417-7900                          Wichita, KS 67201-2940
Austin Banking Center
                                            (800) 282-4150                          (316) 290-2000
4801 Plaza on the Lake Drive
                                            FCL: (800) 444-2929                     (800) 322-3654
Austin, TX 78746
                                            North Carolina Farm Credit              FCL: (800) 322-6558
(512) 483-9273
                                            Leasing Office *
California Farm Credit Leasing Office *     146 Victory Lane                         * Farm Credit Leasing office only
2345 East Earhart Avenue                    Statesville, NC 28625                   ** Farm Credit Leasing office within
Stockton, CA 95206                          (443) 452-8666                             this CoBank location
P.O. Box 31990
                                            Omaha Banking Center **
Stockton, CA 95213
                                            11422 Miracle Hills Drive, Suite 300    international
(209) 944-7478
                                            Omaha, NE 68154-4404                    singapore
Enfield Banking Center **                   (402) 492-2000                          representative office
240B South Road                             (800) 346-5717                          10 Hoe Chiang Road
Enfield, CT 06082-4451
                                            Pennsylvania Farm Credit                #05-01 Keppel Towers
(860) 814-4043
                                            Leasing Office *                        Singapore 089315
(800) 876-3227
                                            900 Bent Creek Boulevard                (65) 6534-5261
FCL: (860) 814-4049
                                            Mechanicsburg, PA 17050
                                            (717) 620-2601




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