Generations of Success ANNUAL REPORT 2015 You are the heart of agriculture; part of the generations of hardworking men and women committed to feeding the world and building a better future. You are the grandparents, parents, sons and daughters; the client-stockholders, businesses and communities we Generations of Success serve. You are the families that provide for all families. At AgStar Financial Services, our business is rooted in the tradition of helping you achieve success. For decades we have committed our financial services to the stability, security and growth of families in rural America. Now and forever, you can count on AgStar for generations of success. 2 Generations of Farm Credit 100 YEARS OF SERVING RURAL AMERICA Freedom, diversity, ingenuity, work ethic and entrepreneurship have made America a country of constant change and innovation. Nowhere is that more evident than on farms and rural communities. ROGER AND BEVERLY PETERSON Working with Farm Credit from Day One American farmers today produce yields that would have seemed For Roger and Bev Peterson, The Farm Credit impossible just a generation ago. Farmers have developed System has been a trusted business partner since new techniques and technologies to advance both productivity their first day in operation. Roger’s first loan was and sustainability. Thanks to generations of advances and with their local Production Credit Association, a innovations, today rural America provides the most abundant, predecessor of what AgStar is today. Later they safe and affordable food supply on earth. together obtained loans with Federal Land Bank Association and Farm Credit Services, and today they are with AgStar. The Farm Credit System grew out of the Federal Farm Loan Act, signed into law by President Woodrow Wilson on Both Roger and Bev grew up on dairy farms near July 17, 1916. AgStar is proud to be part of Farm Credit. In 2016 River Falls, Wisconsin. Today their children — we’ll join in celebrating one hundred years of its support for Brad, Michelle and Kevin — farm with them, agriculture, while looking forward to the next century of growth. building another generation of success. Their family farm has more than 300 cows with a herd average of 28,200 lbs. of milk and grows more than 1,700 acres of corn, soybean and alfalfa hay. The family also sells Holstein steers and does custom work for many neighbors. AGSTAR’S MISSION: Enhancing Life in Agriculture and Rural America 3 Helping Farmers Position Their Operations in Challenging Grain Markets AgStar Shares Strategies for Managing Volatility and Compressed Margins Along with financial services, generations of farmers and agribusiness operators have looked to us for expert business advice. So in 2015, when AgStar recognized the signs of an impending down cycle in the grain segment, we used what we learned serving swine, dairy and ethanol clients during similar adverse markets to create tools and resources to share with grain farmers. One of the biggest focuses was maintaining benchmarks for things like cost-per-acre and break-even points to give our clients a frame of reference to evaluate strengths and weaknesses in their own operations. Over the next three years, we will help clients answer four big questions: • Will low margins lead to opportunities for your operation? • Are you well positioned to sustain your operation through compressed margins? • Are you able to preserve equity? • Are you near retirement or unable to remain competitive? In 2015, AgStar held a webinar series called Managing Through Challenging Times and provided opportunities to make our information and expertise accessible to as many farmers as possible. The webinar series is available for playback at AgStar.com. 4 Helping People Make Themselves at Home in Rural America AgStar Mortgages Build Rural Communities In America, home is where the heart is, and for many that’s in the wide open spaces of rural America and small communities. That’s why AgStar has home mortgage services that offer unique long-term, fixed-rate loan options tailored to rural homes and properties. We also offer affordable options for structures common in rural America that traditional lenders are unable to finance. In 2015, Melanie Post discovered just how much AgStar Home Mortgage Services (HMS) supports rural American homeowners when she won AgStar’s Mapping Your Dream Sweepstakes. Melanie will put her $20,000 prize toward improving her home on a farm just south of Lakefield, Minnesota, where she lives with husband, Brian, and three children: Zach, Tanner and Maggie. Photo Credit: Worthington Daily Globe Extending Our Reach in Equipment Financing AgStar Joins AgDirect to Give Equipment Buyers Options within Dealerships Thanks to a new partnership with AgDirect, financing from AgStar is more easily available to a wider group of equipment buyers. AgDirect is a point of purchase equipment finance program led and managed by Farm Credit Services of America. AgDirect offers buyers access to credit from a wide variety of lending sources that now includes AgStar. Clients are able to speak directly to their relationship manager about the great financing options, using a robust technology platform that can move from application to close in minutes. 5 Partnering for the Greater Good AgStar’s Rural Capital Network Builds Small Communities Hospitals and nursing homes are an essential part of the rural communities they serve. They drive community revitalization, specialize in exceptional patient care and offer employment opportunities. By providing both construction and permanent financing — including long-term fixed-rates — AgStar offers rural healthcare and aging services facilities affordable financing options that might not otherwise be possible. With specialized industry expertise, our team works with community and industry leaders, non-profit organizations and local financial institutions to keep rural communities thriving. These highlighted investments completed in 2015 illustrate our commitment to rural America. 6 Mercy Hospital Moose Lake The community of Moose Lake, Minnesota (population about 2,700), has an enhanced critical access hospital thanks in part to a partnership that included AgStar. The $38 million project created a new, two-story addition. The 27-month renovation and addition focused on patient-centered improvements, including enhanced technology, and an expanded capacity that will help ensure that Moose Lake and its surrounding small communities continue to have access to high-quality health care well into the future. Construction funding was provided by AgStar, CoBank and other local partners in the amount of $38 million. AgStar also partnered with CoBank and the U.S. Department of Agriculture (USDA) to provide post-construction long-term financing. Glenhaven Rehabilitation & Skilled Nursing When fire destroyed a nearly completed addition of Glenhaven Rehabilitation & Skilled Nursing in Glenwood City, Wisconsin, there were moments of doubt about the future of the project. But the fire couldn’t burn away the underlying motivations for the addition: to better serve current and future residents. So, with the help of AgStar’s Rural Capital Network, the Glenhaven addition rose again from the ashes. AgStar, along with CoBank and other community financers, worked with Glenhaven on financing from the project’s start. AgStar quickly adjusted Glenhaven’s financing package to accommodate the new post-fire schedule and budget. We also provided guidance along the way based on experience with past projects that endured similar setbacks. AgStar also boosted the recovery capital campaign by contributing $10,000 from the AgStar Fund for Rural America in January 2014. The fire cost the project about a year, but in April 2015, residents were finally able to move into the new addition. 7 AgStar’s Emerging Agribusinesses Off to a Solid Start AgStar’s Emerging Agribusiness Lending Program provides flexible financing options for emerging agricultural producers. It is a comprehensive network tied together by formalized partnerships that leverages our leadership in providing capital for land and other technical resources. We believe that diversity is a core strength of America in general and agriculture in particular. Helping people with diverse backgrounds and interests use their work ethic, innovation and ideas to start agribusinesses strengthens the industry and economy as a whole. It also helps more people tap into the power of agriculture to support themselves and their families. The program’s clients also diversify our overall stockholder profile, making it a stronger company and brand. AgStar clients’ products can be found in markets and restaurants throughout Minnesota. EMERGING AGRIBUSINESS INITIATIVES IN 2015 Invested $19,000 in 13 different Provided $27,000 in Closed 27 loans to Emerging events to expand agricultural funding for five key Agribusiness Lending clients outreach to new immigrant organizations in support totaling $231,000, marking a farmers and broaden of nontraditional agriculture. large increase over previous the set of agricultural products years. Among the recipients available in Minnesota and were Hmong, Somalian, Latino, Wisconsin. Nine of these African American and urban are new events for AgStar. farmer clients. 8 Contributing to the Strength of Our Communities AgStar Gives Back Giving of our time and treasures elevates the quality of life for everyone in the communities we serve. It also helps AgStar team members experience the joy and satisfaction that