Buildinl! Relationships That Last Generations

Yankee Farm Credit would like to thank all the longtime customers we've known through the years. We look forward to working with future generations. One relationship that spans four generations is Monument Farms Dairy in Weybridge, Vermont. Started in 1930 by Richard and Marjory James, the operation now has three generations working together.

Top: Millicent (James) Rooney preparing for milk delivery.

Middle: Steve James and sons Bob and Peter

Bottom: The three generations

2009 Annual Report

+ Yankee Farm Credit

YANKEE FARM CREDIT, ACA 2009 ANNUAL REPORT

Contents

Chairperson and CEO’s Message...... 2

Five Year Summary of Selected Financial Data...... 3

Management’s Discussion and Analysis ...... 4

Directors and Senior Officers...... 10

Report of Independent Auditors ...... 16

Consolidated Financial Statements...... 17

Notes to Consolidated Financial Statements ...... 21

Shareholder Disclosure Information...... 34

Certification Statement...... 35

Borrower Privacy Statement...... 36

Office Locations ...... 36

Young, Beginning and Small Farmers ...... 37

Relationship with CoBank, ACB ...... 38

Information about the Farm Credit System ...... 39

Employees ...... 40

Directors ...... 41

1 Message from the Chairperson and CEO

In 2009 we celebrated the 75th anniversary of the formation of Production Credit Associations. Parts of the Farm Credit System trace their roots back to the Federal Farm Loan Act of 1916, but PCAs were established by the Farm Credit Act of 1933. The charter that Yankee Farm Credit holds today traces directly back to the three PCAs that were chartered in Vermont in 1934.

Highlights of your Association' s financial results in 2009: • Net income was $5.1 million, up $0.5 million (12%) from 2008. • Loans held by the Association increased by $30 million (9%) to $356 million. • Loan quality deteriorated slightly, as expected, but remains satisfactory. Acceptable loan volume decreased from 97.8% to 95.0%, while high risk assets increased from 0.5% to 1.1% of total loan volume. • Permanent capital decreased from 19.2% to 17.4%, due to loan growth.

Many Yankee borrowers experienced financial stress in 2009. It was perhaps the worst year in the dairy industry, our largest industry concentration, since the Great Depression. Much of the increase in loan volume was to finance dairy farm operating losses. Conditions in the timber industry, our second largest industry concentration, remained weak due to the recession which began in December 2007. We recorded a provision for loan losses of $1.8 million in 2009, more than double the previous largest amount.

Because of the deterioration in credit quality and the decrease in our capital ratios, the 2009 patronage refund was reduced. Although we traditionally pay 1.00% or more of member average loan volume as a patronage refund, the 2009 patronage refund will be 0.80%. The total refund will be nearly $2.6 million, which is 51 % of net income. It will be paid 100% in cash on or about March 25, 2010.

While there have been many changes to the Farm Credit System in the last 75 years, the goal has always been to provide farmers with a reliable source of dependable credit. Yankee is proud of our heritage and we look forward to the future. Thank you once again for your continuing patronage and support. We look forward to visiting with you at our upcoming regional annual meetings. £/c~~ Paul E. Gingue George S. Putnam Chairperson President and CEO

2 YANKEE FARM CREDIT, ACA FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA (in thousands)

2009 2008 2007 2006 2005 CONSOLIDATED BALANCE SHEET Loans $ 355,742 $ 325,761 $ 302,019 $ 296,207 $ 275,354 Less allowance for loan losses 3,569 1,758 960 801 646 Net loans 352,173 324,003 301,059 295,406 274,708 Cash 77 1,770 2,075 1,420 1,352 Investment in CoBank, ACB 12,810 11,779 11,504 11,224 11,018 Other assets 5,509 5,952 6,159 6,239 5,443 Total assets $ 370,569 $ 343,504 $ 320,797 $ 314,289 $ 292,521

Note payable to CoBank, ACB $ 296,058 $ 271,461 $ 248,997 $ 245,629 $ 225,246 Other liabilities 4,593 4,561 5,417 5,161 5,738 Total liabilities 300,651 276,022 254,414 250,790 230,984

Stock and participation certificates 992 939 906 935 951 Allocated surplus - - - - 2,220 Unallocated surplus 70,104 67,613 65,852 62,792 59,027 Accum. other comprehensive (loss) (1,178) (1,070) (375) ( 228) (661) Total members' equity 69,918 67,482 66,383 63,499 61,537 Total liabilities and members' equity $ 370,569 $ 343,504 $ 320,797 $ 314,289 $ 292,521

CONSOLIDATED STATEMENT OF INCOME Net interest income $ 10,822 $ 9,031 $ 9,663 $ 8,593 $ 8,278 Provision (reversal of provision) for loan losses 1,812 781 131 155 (511) Non-interest income 2,536 2,193 2,560 3,014 2,212 Non-interest expense 6,481 5,900 5,698 5,323 4,706 Provision for (benefit from) income taxes 1 2 2 ( 666) 227 Net income $ 5,064 $ 4,541 $ 6,392 $ 6,795 $ 6,068

KEY FINANCIAL RATIOS Return on average assets 1.4% 1.5% 2.1% 2.3% 2.1% Return on average members' equity 7.3% 6.6% 9.6% 10.7% 9.7% Net interest margin 3.3% 3.1% 3.3% 3.1% 3.1% Members' equity to assets 18.9% 19.6% 20.7% 20.2% 21.0% Debt to members' equity 4.3:1 4.1:1 3.8:1 4.0:1 3.8:1 Net charge-offs (recoveries) to avg. loans 0.00% (0.01%) (0.01%) 0.00% (0.01%) Allowance for loan losses to loans and accrued interest receivable 1.0% 0.5% 0.3% 0.3% 0.2% Permanent capital ratio 17.4% 19.2% 19.4% 18.4% 19.8% Total surplus ratio 17.1% 18.9% 19.1% 18.1% 19.5% Core surplus ratio 16.9% 18.7% 18.7% 17.6% 18.1%

Net income distributed as patronage in the following year: Cash $ 2,573 $ 2,790 $ 3,332 $ 3,031 $ 2,624

3 YANKEE FARM CREDIT, ACA

Management’s Discussion and Analysis of Financial Condition and Results of Operations

For the Years Ended December 31, 2009, 2008 and 2007 (Dollars in thousands, except as noted)

FORWARD LOOKING STATEMENTS Partially offsetting these factors:

This annual report contains forward-looking statements. • The provision for loan losses was $1.031 million These statements are not guarantees of future performance higher in 2009 due to the combination of increased and involve certain risks, uncertainties and assumptions that loan volume and the deterioration in credit quality. are difficult to predict. Words such as “anticipates,” More detail on the provision for loan losses is given “believes,” “could,” “estimates,” “may,” “should,” “will,” below. or other variations of these terms are intended to identify the forward-looking statements. These statements are • Other expenses were $581 thousand higher in 2009. based on assumptions and analyses made in light of This is discussed in more detail below. experience and other historical trends, current conditions, and expected future developments. However, actual results The return on average assets (ROA) was 1.4% in 2009 as and developments may differ materially from our compared to 1.5% in 2008 and 2.1% in 2007. Return on expectations and predictions due to a number of risks and average members’ equity (ROE) was 7.3% in 2009 as uncertainties, many of which are beyond our control. compared to 6.6% in 2008 and 9.6% in 2007. These risks and uncertainties include, but are not limited to: weather-related, disease, and other adverse climatic or The Association declared a patronage distribution of $2.573 biological conditions that periodically occur that impact million based on 2009 earnings, to be distributed 100% in agricultural productivity and income; economic fluctuations cash in March 2010. The patronage distribution for 2008 in the agricultural, rural utility, international, and farm- (distributed in 2009) was $2.790 million, 100% cash, and related business sectors; changes in United States the patronage distribution for 2007 (distributed in 2008) government support of the agricultural industry; political, was $3.332 million, 100% cash. legal, regulatory and economic conditions and developments in the United States and abroad; and actions The major changes in the components of net income are taken by the Federal Reserve System in implementing shown in the following table: monetary policy. Effect on net income RESULTS OF OPERATIONS Increase (decrease) 2009 vs. 2008 2008 vs. 2007 Net interest income $ 1,791 $ (632) Net income in 2009 was $5.064 million, an increase of Provision for loan losses (1,031) (650) $0.523 million (12%) from 2008. Patronage refunds from CoBank 205 (252) Other income, exclusive of patronage refunds from CoBank 138 (115) The most significant factors contributing to increased net Other expense (581) (202) income in 2009 were: Provision for income taxes 1 - Total increase (decrease) in net • Net interest income was $1.791 million more in 2009. income $ 523 $ (1,851) This is discussed in more detail below. Net interest income: In 2009, net interest income before • Patronage refunds from CoBank were $1.616 million the provision for loan losses was $10.822 million, an in 2009, as compared to $1.411 million in 2008, an increase of $1.791 million (19.8%) from 2008. The increase of $205 thousand. This is primarily due to the following table shows the principal components of net increase in our note payable to CoBank. More detail interest income before the provision for loan losses. on this is given below. Interest earning assets consist of accrual loans, and interest bearing liabilities consist of the note payable to CoBank.

4 2009 2008 2007 Patronage refunds from CoBank: Patronage refunds from Interest income on CoBank consisted of the following: interest earning assets $ 13,722 $ 15,852 $ 22,244 Interest expense on 2009 2008 2007 interest bearing liabilities 3,546 7,044 12,494 Patronage refunds on Subtotal 10,176 8,808 9,750 the Association’s note Interest income on payable to CoBank $ 1,252 $ 1,071 $ 1,103 nonaccrual loans 95 20 155 Patronage refunds on Interest rate swap participation loans sold income (expense) 531 203 (242) to CoBank 364 340 560 Net interest income before the Total $ 1,616 $ 1,411 $ 1,663 provision for loan losses $ 10,802 $ 9,031 $ 9,663

See Note 4 to the Consolidated Financial Statements, The “subtotal” above can be analyzed in terms of changes “Investment in CoBank, ACB,” for additional information in volumes and rates on interest earning assets and interest about the patronage relationship between the Association bearing liabilities. The following table summarizes the and CoBank. applicable volumes and rates. All numbers are averages for the year. Other income, exclusive of patronage refunds from CoBank: In 2009, this category increased by $138 2009 2008 2007 thousand (18%) as compared to the prior year. The Volumes: increase is primarily due to an increase in fees received for Interest earning assets $ 331,215 $ 293,650 $ 290,909 Interest bearing liabilities 277,237 239,212 238,564 financial services (taxes, records and crop insurance). Loanable equity $ 53,978 $ 54,438 $ 52,345 These financial services saw an increase of $94 thousand (14%) in 2009. Rates: Interest earning assets 4.14% 5.40% 7.65% Other expense: In 2009, this category increased by $581 Interest bearing liabilities 1.28% 2.94% 5.24% thousand (10%), primarily due to two items: Interest rate spread 2.86% 2.46% 2.41% • Salaries and employee benefits increased by $425 The following table shows the effects of the above changes thousand (14%) as a result of an increase in number of in volumes and rates on net interest income: employees in 2009. While most of these employees were hired in the last half of 2008, the full impact on Effect on net interest income* salaries and benefits was felt in 2009. increase (decrease) 2009 vs. 2008 2008 vs. 2007 Due to changes in volumes $ 989 $ 153 • The Farm Credit Insurance Fund premium increased by Due to changes in interest rates 379 (1,095) Total increase (decrease) in net $174 thousand. This increase is due to the increase in interest income* $ 1,368 $ ( 942) our note payable to CoBank, which is the main *considering interest earning assets & interest bearing liabilities component in the premium calculation. only Provision for (benefit from) income taxes: The provision Net interest margin (net interest income as a percent of for (benefit from) income taxes consisted of the following: average earning assets) was 3.3% in 2009, as compared to 3.1% in 2008 and 3.3% in 2007. 2009 2008 2007 Provision for (benefit from) income taxes $ 1 $ 2 $ 2 Provision for loan losses: There was a net provision for loan losses of $1.812 million in 2009, as compared to a net See Note 8 to the Consolidated Financial Statements, provision of $781 thousand in 2008 and a net provision of “Income Taxes,” for more detail. $131 thousand in 2007. The increase in 2009 was due to increased loan volume along with a general deterioration in credit quality, as discussed below under “Allowance for Loan Losses.”

5 LOAN PORTFOLIO The dairy industry experienced much lower prices in 2009 following high prices in 2008 and 2007. The outlook for Year-end 2009 loan volume was $355.7 million, which was 2010 is for increasing prices. $30.0 million (9.2%) higher than at year-end 2008. Average loan volume in 2009 was $335.2 million, which Avg. Price Change From Avg. Price Change From was $41.0 million (13.9%) higher than in 2008. In 2008, Year w/o premium Prior Year with premium Prior Year year-end loan volume increased by $23.7 million (7.9%) 2009 $12.92 (32%) $14.07 (27%) from year-end 2007, while average loan volume for the 2008 19.16 -- 19.16 (1%) 2007 19.25 42% 19.30 36% year increased by $2.9 million (1.0%). 2006 13.56 (14%) 14.14 (10%) 2005 15.77 (3%) 15.78 (5%) The loan portfolio continues to be primarily concentrated in 2004 16.32 27% 16.54 18% the dairy industry, with 60% of loans invested in dairy 2003 12.81 -- 14.02 1% businesses at December 31, 2009. The second largest 2002 12.76 (19%) 13.91 (12%) concentration is timber, with 14% of the loan portfolio. Loans to farm related businesses represent 5% of the loan (Prices quoted are the Federal Order 1 statistical uniform portfolio, while livestock, maple and crops each represent price for milk delivered to Boston, in $/cwt. Average 3% of the loan portfolio. The remaining 12% of the loan prices for the year are the December-November prices, portfolio includes rural homeowners and a variety of other reflecting payments received by farmers in January- miscellaneous agricultural operations, as well as most of December. The “premium” referenced above is the Milk the purchased participation loans, with no single category Income Loss Contract, which presently applies to only the comprising more than 3% of the loan portfolio. first 2.985 million pounds of milk produced annually.)

The lower milk prices have been accompanied by a Loans by Industry decrease in the cost of farm inputs, particularly purchased 3%3% 3% 12% 12/31/09 feed. The composite Feed Index published by the USDA 5% was 186 for 2009, down 4% from 194 in 2008 (revised). Dairy 14% Timber Our loan portfolio is geographically diversified throughout Farm Related Business our assigned territory, which consists of all of Vermont, Livestock four counties in western New Hampshire, and two counties Maple in northeastern New York. As of December 31, 2009, Crop approximately 70% of our loans were in Vermont, 15% in 60% Other New Hampshire, and 10% in New York.

Included in loans are purchased participation loans of $13.2 million (3.7% of the portfolio). These loans are primarily Loans by State categorized as marketing and processing ($5.8 million), 10% 12/31/09 which is included in the 12% “other” category in the chart 15% 5% above, and timber ($5.3 million). The remaining $2.1 Vermont million of purchased participation loans is either dairy, or New Hampshire farm related business volume, and is included in the New York corresponding categories listed above. Other

At December 31, 2008, the two most significant industry concentrations were dairy (58%) and timber (14%). Loans 70% to farm-related business and livestock each represented 4% of the loan portfolio, while fruit growers and part-time There are several ways to examine the quality of the farmers each represented 3% of the loan portfolio. Association's loan portfolio. One measure of loan quality is

to consider the level of “high risk assets.” High risk assets See Note 3 to the Consolidated Financial Statements, include the following: “Loans and Allowance for Loan Losses,” for additional information about the Association’s loan portfolio, • Nonaccrual loans. These are loans for which it is including the volume of loans to each of the above- probable that all principal and interest will not be mentioned industries. collected according to the contractual terms. The

Association does not record interest income on these

6 loans on an accrual basis. Delinquent loans will December 31, generally be classified as nonaccrual when they Credit Classification: 2009 2008 2007 become 90 days past due. Acceptable 87.5% 94.4% 93.0% OAEM* 7.5% 3.4% 3.8% • Accrual loans 90 days or more past due. These are Substandard 5.0% 2.2% 3.2% Doubtful 0.0% 0.0% 0.0% loans on which the Association is recording interest on Loss 0.0% 0.0% 0.0% an accrual basis, even though they are severely past Total loans 100.0% 100.0% 100.0% due. Such loans are adequately secured and in the Percentages based on volume. process of collection. *Other Assets Especially Mentioned

• Accrual restructured loans. These are loans on which Two additional measures of loan quality are the the Association is recording interest on an accrual delinquency rate and loan charge-offs. The average basis, but the Association has made a monetary delinquency rate for the year increased during 2009, but concession to the borrower, such as a below-market remained at a low level and well within our internal goals. interest rate or a reduction in principal or interest Additionally, there were no loan charge-offs in 2009. owed. Such loans are usually former nonaccrual loans on which the contractual terms have been modified, 2009 2008 2007 and which are now performing under the new contractual terms. Accrual loans 30 days or more past due (as % of total accrual loans) At December 31 0.4% 0.5% 0.1% • Other property owned (OPO). This is property Average for the year 0.6% 0.4% 0.3% formerly owned by a borrower and typically offered as security for a loan, but now owned by the Association Net loan (recoveries) charge-offs Amount $ - $ (17) $ (28) as the result of a default on the loan. Other property As % of average loans 0.0% (0.01)% (0.01)% owned is usually acquired by the Association through a Percentages based on volume. foreclosure action, a deed in lieu of foreclosure, or other legal action. Taking all of these measures together, loan quality deteriorated slightly in 2009. However, overall loan quality All loans that do not fall into one of these categories are at December 31, 2009 was at a satisfactory level and met all considered performing loans. internal goals established by the Association.

The following table shows loans plus other property ALLOWANCE FOR LOAN LOSSES owned, classified according to the above categories. By this measure, loan quality deteriorated slightly in 2009. Weakened market conditions in the dairy and timber industries continued through 2009. The resulting December 31, deterioration in credit quality, along with increased loan 2009 2008 2007 volume, some of which occurred as we met the needs of Performing loans 98.9% 99.5% 99.8% our dairy and timber members, contributed to an increase in High risk assets the allowance for loan losses. Nonaccrual loans 1.0% 0.4% 0.1% Loans 90+ days past due 0.0% 0.0% 0.0% The allowance for loan losses at year end was $3.569 Restructured loans 0.1% 0.1% 0.1% OPO 0.0% 0.0% 0.0% million as compared to $1.758 million in 2008, and $0.960 Total high risk assets 1.1% 0.5% 0.3% million in 2007. Total loans + OPO 100.0% 100.0% 100.0% Percentages based on volume. See Note 3 to the Consolidated Financial Statements, “Loans and Allowance for Loan Losses,” for additional Another measure of loan quality is to consider the information about the allowance for loan losses, including a classification of loans according to the Uniform summary of activity in the account. Classification System. By this measure, loan quality deteriorated in 2009. The following table includes all loans (including nonaccrual loans), but not other property owned.

7 FUNDING SOURCES, LIQUIDITY AND INTEREST interest (the pay rate and the receive rate) to a specified RATE RISK amount called the notional value. The counterparty to the Association’s swaps is CoBank. The Association obtains funds by borrowing from CoBank on a revolving line of credit. The funding relationship with The purpose of this interest rate swap strategy is to reduce CoBank is governed by a General Financing Agreement the volatility of net interest income. As noted above, (GFA). The amount borrowed is expected to remain below because the Association’s equity is used to fund loans, net 90% of the “borrowing base amount” as defined in the interest income will be higher when interest rates are GFA. If this ratio should equal or exceed 92%, CoBank is higher, and lower when interest rates are lower, all other allowed under the GFA to take certain actions against the factors being equal. On the other hand, income from Association. At December 31, 2009, this ratio was 84.2%, receive fixed swaps will increase when interest rates as compared to 83.5% and 82.7% at December 31, 2008 decrease, and decrease when interest rates increase, all and 2007, respectively. Because the funding relationship other factors being equal. These two factors will tend to with CoBank provides sufficient liquidity, the Association offset each other. does not maintain large balances in cash or other liquid investments. In accordance with this strategy, it is the Association’s intent to have the total notional value of its interest rate The Association attempts to limit interest rate risk by swaps not exceed accrual loans less the note payable to matching the interest rate characteristics of its debt with the CoBank. The Association intends to enter into swaps with interest rate characteristics of its loans. The Association terms not exceeding three years. offers both variable and fixed rate loans. At the end of 2009, the accrual loan portfolio consisted of approximately This strategy has the additional benefit that on average, 86% variable rate loans and 14% fixed rate loans. The over long periods of time, it should increase net interest interest rate charged to the Association on debt used to fund income. This is because the pay rate is a three month rate the fixed rate loans is itself a fixed rate, which limits while the receive rate is a longer term rate, up to three interest rate risk on that portion of the portfolio. The years. Historically, long term interest rates have on average interest rate charged to the Association on the remaining been higher than short term interest rates. Nevertheless, it debt is a variable rate, but the Association has the ability to is possible to experience several consecutive years of change the variable rate charged to borrowers as needed. negative impact on net interest income from this strategy.

The Association funds approximately 84% of its loans with In light of an expected unfavorable pay/receive price debt as described above. The remaining 16% is funded relationship, we have suspended further participation in the with equity. This has the effect of making the Association swap program. sensitive to interest rates as follows: if interest rates rise and all other factors remain equal, the Association’s net interest In 2009, the effect of these interest rate swaps on the income will increase; and, conversely, if interest rates fall consolidated statement of income was a decrease in interest and all other factors remain equal, the Association’s net expense in the amount of $492 thousand. In 2008, the interest income will decrease. effect was a decrease in interest expense of $203 thousand, and in 2007, the effect was an increase in interest expense At December 31, 2009, the weighted average rate of of $242 thousand. interest charged to the Association by CoBank was 1.17%. See Note 15 to the Consolidated Financial Statements, INTEREST RATE SWAPS “Derivative Instruments,” for additional information about the Association’s interest rate swaps. The Association enters into derivative financial instruments known as “receive fixed” interest rate swaps. In a receive fixed swap, the Association pays to a counterparty a variable rate of interest and receives from the counterparty a fixed rate of interest. The variable “pay rate” is a three month rate which resets quarterly. The fixed “receive rate” is determined at the time the swap is initiated and remains fixed for the term of the swap. The swaps entered into by the Association have terms ranging up to three years. Each quarter a net cash settlement between the Association and the counterparty is calculated by applying both rates of

8 MISSION RELATED INVESTMENTS CAPITAL RESOURCES

The Farm Credit Act states that the mission of the Farm Members’ equity was 18.9% of assets at December 31, Credit System is “to provide for an adequate and flexible 2009, as compared to 19.6% and 20.7% at the end of 2008 flow of money into rural areas.” Congress also recognized and 2007, respectively. the “growing need for credit in rural areas” and declared that the System be designed to accomplish the objective of The primary measure of capital adequacy is the permanent improving the income and well being of America’s farmers capital ratio as defined by the FCA. At December 31, and ranchers. To further the System’s mission to serve 2009, the Association's permanent capital ratio was 17.4% rural America, the System has initiated mission related as compared to 19.2% at December 31, 2008 and 19.4% at programs and other mission related investments approved December 31, 2007. The Association continues to exceed by the FCA. all capital requirements of both FCA and ACB. Additionally, the Association sets internal goals for all The Association has initiated a mission related investment capital requirements. We did not meet the permanent program approved by the FCA, whereby the Association capital ratio goal as of December 31, 2009. This was due may make investments that further our commitment to to the increase in loan volume, not a deterioration of serve the needs of the rural community. At December 31, capital. 2009, the Association’s net investment in this program was $456 thousand. See Note 7 to the Consolidated Financial Statements, “Members’ Equity,” for additional information about the ACCUMULATED OTHER COMPREHENSIVE Association’s capitalization policies, equities, and INCOME regulatory capitalization requirements.

Accumulated other comprehensive income consists of three components: the fair value of swaps less ineffectiveness and the effect the Financial Accounting Standard Board (FASB) guidance on pensions and post retirement health care. The largest component is the effect of FASB guidance which was implemented December 31, 2007. The guidance requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and recognize changes in that funded status in the year in which the changes occur through other comprehensive income. The components of accumulated other comprehensive income are detailed below:

December 31, 2009 2008 2007 Swaps $ 353 $ 629 $ 152 Pension (1,499) (1,657) (491) Post-Retirement Healthcare (32) (42) (36) Total Accumulated Other Comprehensive Income $ (1,178) $ (1,070) $ (375)

9 YANKEE FARM CREDIT, ACA DIRECTORS AND SENIOR OFFICERS

DIRECTORS Plattsburgh and Malone, New York. From 1985 to 1986 he was President of the New York Equipment Dealers The Association has a Board of 11 directors. Nine directors Association. Mr. Giroux is a board member for Clinton (the “elected directors”) are elected by and from the voting County’s One Work Force. He is also on the board of members of the Association. Two directors (the “outside Trustees at the William H. Miner Agricultural Research directors”) are elected by the other directors. None of the Institute in Chazy, New York. In addition, Mr. Giroux is a directors may be an employee of the Association. The outside fire commissioner for Beekmantown Fire Department in directors may not be members of the Association. Plattsburgh, where he resides with his wife Chris. He and Chris enjoyed raising their five children and now enjoy being The nine elected directors are elected by region: grandparents to their nine grandchildren. No. of Region Directors Territory Alan J. Bourbeau (Region 1) 1 3 NY: Clinton, Essex Alan J. Bourbeau, age 50, has served as a director since 2007. VT: Chittenden, Franklin, Grand Isle His current term expires in 2010. Mr. Bourbeau owns and 2 3 NH: Coos, Grafton operates a third generation farm that is located on the Pond VT: Caledonia, Essex, Lamoille, Road in Swanton, Vermont. Mr. Bourbeau and his wife Orange, Orleans, Washington Kimberly have been married for twenty-nine years and have 3 3 NH: Cheshire, Sullivan three children: Nicole, Justin and Eric; and one grandchild, VT: Addison, Bennington, Rutland, Evony. Mr. Bourbeau, along with his two sons, operates Windham, Windsor Bourbeau & Sons, Inc. which has a 220 cow milking herd and raises all its own replacement livestock. For the past four Paul E. Gingue, Chairperson (Region 2) years, Mr. Bourbeau and his family have sold sap to a nearby Paul E. Gingue, age 55, has served as a director since 2000. sugarhouse. In 2007, Mr. Bourbeau and his family built a His current term expires in 2012. Mr. Gingue and his wife sugarhouse and expanded the sugar woods, which yields Rosemary have four sons. Together with the two younger 12,000 taps, to make their own syrup from the maple trees on sons, Jeff and James, Mr. Gingue owns and operates a 230 their farmland. Along with managing Bourbeau & Sons, Inc., cow registered Holstein farm in Waterford, Vermont. In 2008 Bourbeau Farm LLP, and Greens Corners Maple Products, Mr. Gingue and his two older sons, Dan and Shawn, started Mr. Bourbeau has served his community the following ways: another dairy operation in Fairfax, VT. The new operation, nine years with the Swanton Planning Commission, seven Gingue Brothers Dairy LLC is milking 400 Holsteins. Also in years as Chairman; eighteen years as Franklin County Field January 2009 Mr. Gingue and his wife Rosemary purchased Days Director, Vice-Chairman for the past four years; six Begin Realty Associates where Rosemary has been a Sales years as a Young Cooperator Member for the St. Albans Associate and Broker for the past 15 years. Mrs. Gingue took Cooperative; nine years as a member and officer of the St. over operations of the business as of January 1, 2009. Mr. Albans Elks Lodge #1566, Exalted Ruler for the 2004-2005 Gingue holds a degree in Dairy Herd Management from year; and seven years as the President of the formerly known Vermont Technical College and serves as Director for Select Sheldon Jack O’Lopes snowmobile club. Sire Power, Inc. New York/New England district. He is also a

member of the Caledonia County Farm Bureau, The Holstein Rupert C. Chamberlin (Region 2) Association of America, Northeast Kingdom Chamber of Rupert C. Chamberlin, age 75, has served as a director since Commerce and the Brother Knights of Columbus. He is a past 1993. His current term expires in 2010. He and his wife, member of the Lyndonville Savings Bank Advisory Board and Muriel, own and operate Wonder View Farm in Barton, the Caledonia/Essex Farm Service Agency County Vermont, consisting of 175 acres of land. The cattle were Committee. sold in 2001, but they still maintain ownership of a few registered Jerseys, which are boarded out. The tillable land Rocklyn A. Giroux, Vice Chairperson (Region 1) Rocklyn A. Giroux, age 64, has served as director since 2003. and barn are currently rented to a young farmer. The wood His current term expires in 2012. He co-owns Adirondack land consisting of a small maple orchard and timber is still Farms LLC in Peru, New York, with Jon Rulfs and Jake being operated by Rupert. He is a graduate of the Vermont Swyers. The dairy farm has 1,400 milking cows and raises all School of Agriculture (VTC), class of 1953. Among other of their crops on 2,600 acres of land. From 1972 to 1995, Mr. activities, Mr. Chamberlin is presently serving as a selectman Giroux operated Giroux Bros. Inc., a John Deere dealership in for the town of Barton. He is a past president of the Orleans County Fair and Vermont Farm Bureau, served as a director

10 of Farm Family Insurance, and served for many years on the Walter M. Gladstone (Region 2) local Barton school board. He has been active in Jersey Breed Walter M. Gladstone, age 48, has served as director since activities. He has served as president of the VT Jersey Breed 2008. His current term expires in 2011. Walt lives in Association and the New England Jersey Breed Association. Bradford, VT with his wife, Margaret. Walt and Margaret He and Muriel were awarded the Outstanding Young own and operate Newmont Farm, LLC and have three sons, Dairyman Award by the American Jersey Breed Association. Will, John and Matt. Over the years, Newmont Farm has He has also served on the Orleans County Soil Conservation grown from 80 cows in 1988 to currently milking over 900 District Committee, and served as Chairman during his tenure. cows. The Gladstone’s also grow over 150 acres of pumpkins that are wholesaled locally and in the New England area. Dr. Rocki-Lee DeWitt (Outside Director) Will, the oldest son, graduated from VTC and is currently the Dr. Rocki-Lee DeWitt, age 53, has served as a director since herdsman and helps with the day to day operations. John 2004. Her current term expires in 2010. She received her works with the mechanics on the dairy and will be attending Ph.D. from Columbia University in strategic management and Paul Smith’s College in the fall. Matt works for the local an M.S. in Agricultural Economics from the Ohio State custom harvester, cropping locally and for Newmont Farm. University. Dr. DeWitt is a Professor of Management at the Walt is presently is serving as President of the New England University Of Vermont School Of Business Administration. Family Dairy Farms Cooperative. She conducts research on strategies for sustaining businesses in periods of adversity and has served as a business advisor to Celeste Kane-Stebbins (Region 1) multiple family businesses. Her professional affiliations Celeste Kane-Stebbins, age 54, is a native of Sheldon, include the Academy of Management and the Strategic Vermont. She has served as director since 2008. Celeste and Management Society. She is a member of the Board of her husband, Gregory Stebbins, became Farm Credit Directors of the Greater Burlington Industrial Council. Dr. customers in 1976 when they purchased their first dairy farm DeWitt has been previously employed as Dean of School of with a loan from the Federal Land Bank of Springfield. Over Business Administration at the University of Vermont, the past 30-plus years they’ve expanded their business Associate Dean of Professional Master’s Programs at the through the purchase of Celeste’s parents’ Sheldon farm in Pennsylvania State University and as agricultural parts sales 1993, and a neighboring farm in 2003. Stebbinshire Farms, manager with Case-IH. Raised on a dairy farm in Accord, Inc. now is a 450-head dairy enterprise. Along with their NY, Dr. DeWitt was a 4-H member for 10 years. Dr. DeWitt sons, they milk approximately 275 cows and raise all and her life partner, Josephine Herrera, reside in Charlotte, replacement livestock. Two nearby farms are leased for crop Vermont. land. In addition to the dairy operation, Celeste and Greg harvest and sell maple syrup, lumber, and firewood. The farm Paul E. Doton (Region 3) employs three full-time workers, and four part-time Paul E. Doton, age 60, has served as a director since 1998. employees. Celeste’s primary responsibilities are His current term expires in 2011. He and his wife, Sherry, bookkeeping, payroll, and tax preparation. and son Bryan, own and operate Doton Farm, LLC in Barnard, Vermont. The Doton Farm consists of 200 acres In addition to her farm jobs, Celeste is an RN and works full- owned and 200 acres rented. The Dotons have 110 head of time as the Emergency Department Clinical Resource Nurse at Holstein cattle, and a diversified operation offering Northwestern Medical Center in St. Albans. Celeste earned a vegetables, snow plowing and maple syrup. Mr. Doton is a BS from the University of Vermont and a MS from the member of the Vermont Maple Producers Association, University of Phoenix, and is a member of Sigma Theta Tau Windsor County Maple Producers Association and Vermont International, the Honor Society of Nursing. She is the Farm Bureau. He is currently a director of Agri-Mark, the mother of four children: Emily, Michael, and twins, Matthew New England Dairy Promotion Board and the New England and Sean. Dairy and Food Council, the United Dairy Industry Association National promotion Board, as well as a member Celeste currently serves on the Sheldon School Board, the of the Windsor/Orange County FSA Committee and the VT Franklin County Farm Bureau Board of Directors, and the Milk Commission. In his hometown, he is currently the town Cold Hollow Career Center Health Advisory Board. moderator, and a Justice of the Peace. He is a former Barnard Elementary School director, member of the Barnard zoning board of adjustment, Woodstock Union High School director, Paul F. Saenger (Region 3) Vermont DHIA director, Vermont Dairy Promotion Council Paul F. Saenger, age 54, has served as director since 2007. member, Agri-Mark representative and Agri-Mark His current term expires in 2010. Mr. Saenger left a career as Resolutions Committee member. an assistant professor at UVM in 1987 to pursue a lifetime goal of farming. He and his wife Rene own and operate Cream Hill Farm in Shoreham, Vermont. They finish 2,200

11 head of beef steers and heifers on purchased concentrates and BOARD COMMITTEES forages grown on 1,600 acres of owned land. Mr. Saenger earned a Bachelor’s and Master’s from the University of The Board of Directors has established four standing Illinois, and a Ph.D. from Purdue University in animal committees. Each committee is governed by a formal charter. nutrition and management. Since graduating and moving to The directors serving on each committee as of December 31, Addison County in 1982, Farm Credit has been his only 2009 are indicated on page 41. lender. After 26 years, Mr. Saenger felt it was time to give back to the organization that facilitated Cream Hill Farm’s Audit Committee success. Mr. Saenger served as Shoreham Town Auditor and is currently Selectboard Chair. He has also served on the The purpose of this committee is to assist the Board in Otter Creek Conservation District and the Governor’s fulfilling its fiduciary and oversight responsibilities for the Commission on Groundwater. Mr. and Mrs. Saenger recently financial reporting process, the systems of internal controls, purchased the stone house at Larrabee’s Point as well as the the audit process, and the Association’s process for M/V Carillon, a 60’ cruise vessel offering tours and charters monitoring compliance with laws, regulations, policies, on Lake Champlain. They have two children in college. standards of conduct, and public responsibilities.

Dr. Charles J. Sniffen (Outside Director) This committee consists of five directors, including both Dr. Charles J. Sniffen, age 72, has served as a director since outside directors. This committee met six times in 2009, four 1992. His current term expires in 2012. He received his times in person and two by conference call. The chairperson Ph.D. from the University of Kentucky in ruminant nutrition. of this committee is Dr. DeWitt, one of the outside directors. Dr. Sniffen is president of Fencrest, a consulting firm for the No member of this committee also serves on the Executive dairy industry. Prior to his present employment, Dr. Sniffen Committee. was President of Miner Agricultural Research Institute, Professor, and Meadows Endowed Chair in Dairy Compensation Committee Management, at Michigan State University, Professor at Cornell University and Professor at the University of Maine. The purpose of this committee is to review the performance of He and his wife, Judy, reside in Holderness, New Hampshire. the President/CEO and recommend to the full Board They have two daughters, Sarah and Kathy and four appropriate compensation for the President/CEO. The grandchildren. Dr. Sniffen is a member of the American Committee also approves the overall compensation plan for Society of Animal Science, the American Dairy Science senior officers. This committee consists of five directors, and Association, and the Northeast Ag and Feed Alliance. met twice in 2009. The chairperson of this committee is Ms. Kane-Stebbins. Stephen H. Taylor (Region 3) Stephen H. Taylor, age 70, has served as director since 2009. Executive Committee His current term expires in 2012. Steve lives in the Meriden Village section of Plainfield, NH, where he farms with his The purpose of this committee is to approve or deny credit in wife Gretchen and their three sons, Jim, Bill and Rob. Their specific situations. The committee is further charged with farm, begun in 1970, currently includes a 60-cow dairy herd making decisions on non-credit issues as directed by the and a 7,000-tap maple operation. From 1982 until 2007 Mr. Board. This committee consists of five directors, and met 21 Taylor served as New Hampshire’s commissioner of times in 2010, mostly by conference call. The chairperson of agriculture, prior to that he worked many years as a daily this committee is Mr. Gingue. No member of this committee newspaper reporter and editor and as a freelance writer for also serves on the Audit Committee. agricultural, forestry and other publications, in addition to developing the family farm enterprise. Membership/Governance Committee

Mr. Taylor has served on many community and state-level The purpose of this committee is to oversee the Board boards and committees, and currently he is a director of the nomination and election process, as well as Board conduct, Cornish Fair Association, trustee of the Society for Protection compensation, credit quality, performance, and governance of New Hampshire Forests and moderator of the Town of practices. Additionally, this committee considers membership Plainfield. He is a 4-H Club leader and grandfather of seven. issues, including member/applicant appeals of adverse credit decisions. This committee consists of five directors, and met two times in 2009. The chairperson of this committee is Mr. Giroux.

12 SENIOR OFFICERS and Regional Manager of the Northern Region which includes Newport, St. Albans and Chazy, New York. Prior to working George S. Putnam (President and CEO) for the Association, Mr. Buzzell worked for the Farmers George S. Putnam, age 54, has been employed by the Home Administration. Mr. Buzzell holds a degree in Association (or one of its predecessors) since 1984. He was agriculture from the University of Vermont. hired as a loan officer, and assumed the position of controller in 1986. In 1995, with the formation of Yankee, he became John S. Peters (Vice President/Operations) Chief Financial Officer. He was named Executive Vice John S. Peters, age 58, has been employed by the Association President and Chief Operating Officer in 2003. Mr. Putnam (or one of its predecessors) since 1973. He was hired as a assumed his present position in 2006. Prior to working for the loan officer, working primarily in the Middlebury and Rutland Association, Mr. Putnam served as controller of the Richmond offices. From 1974 until 1986 he served as Branch Manager Cooperative Association of Richmond, Vermont. Mr. Putnam of the Middlebury Office. He then transferred to the Williston holds a degree in agricultural engineering from the University office. After serving in Williston he transferred to St. Albans, of Maine and an MBA from the University of Chicago. In again as Branch Manager. In 1994 he obtained his Certified 1993, he graduated from the American Bankers Association’s General Appraiser's license and served as an Association Stonier Graduate School of Banking. appraiser. In 1995, with the formation of Yankee, he became the Association's Director of Quality Control, in charge of William C. Heath, Jr. (Senior Vice President/CCO) Credit and Collateral Review and Internal Audit. In 2005 he William C Heath, age 54, has been employed by the was named an Association Vice President. In 2006 he Association (or one of its predecessors) since 1985. Previous assumed the position of Vice President/Operations and was to that he served one year with the Watertown NY, Federal appointed Corporate Secretary. Mr. Peters holds a degree in Land Bank and PCA. Mr. Heath started in the Newport, agriculture from the University of Vermont. Vermont office in 1985 as a loan officer and obtained his Certified General Appraisers license in 1993. In 1995, with Pamela A. Simek (Controller) the formation of Yankee, he became Branch Manager and Pamela A. Simek, age 51, has been employed by the Vice President in the White River Junction office. During Association since 1995 when she was hired as an 2006 Mr. Heath assumed his present position as Senior Vice administrative assistant in the Williston, Vermont office. In President/Chief Credit Officer covering all of Yankee's 1997 she became Assistant Treasurer and Personnel territory. Prior to working for Farm Credit, Mr. Heath Coordinator. In 2003 Ms. Simek assumed the position of operated an 80 cow registered Holstein dairy in Coventry, VT Controller and moved to the Middlebury, Vermont office. in partnership with his brother-in-law for 6 years. Mr. Heath She was appointed Corporate Treasurer in 2006. Prior to holds a degree in business administration from the University working for the Association, Ms. Simek worked as a legal of Vermont. office administrator in Burlington, Vermont. Ms. Simek holds degrees in both accounting and history from Trinity College. Kenneth R. Button (Senior Vice President) Kenneth R. Button, age 56, has been employed by the Association (or one of its predecessors) since 1978. He was hired as a loan officer in the Middlebury, Vermont office, and became the office manager in 1986. In August of 2006 he became Senior Vice President and Regional Manager of the Southern Region which includes the Middlebury and White River Jct. offices. Prior to working for the Association, Mr. Button worked for the Farmers Home Administration. Mr. Button holds a degree in agriculture from the University of Vermont.

Kenneth H. Buzzell (Senior Vice President) Kenneth H. Buzzell, age 58, has been employed by the Association (or one of its predecessors) since 1981. He was hired as a loan officer in the White River Junction, Vermont office. In 1984 he became the manager of the St. Johnsbury, Vermont office, and Vice President of that office in 1990. When the St. Johnsbury, Vermont office closed in 1992 he became the Vice President/manager of the Newport, Vermont office. In August of 2005 he became a Senior Vice President

13 2009 2008 2007 COMPENSATION OF DIRECTORS AND SENIOR CEO George S. George S. George S. OFFICERS Putnam Putnam Putnam Salary $190,000 $200,000 $185,000 A. Director Compensation Bonus - - 1,200 Deferred/perquisites - - Directors are compensated at a flat daily rate for attendance at Other 5,605 5,644 5,437 Board meetings and other activities authorized by the Board. Total $195,605 $205,644 $191,637 Effective June 26, 2008, the rate was $450 per day ($500 per day for the Chairperson at meetings at which he or she 2009 2008 2007 presided, and $500 per day for the Chairperson of the Audit Number in group Six* Six* Six* Committee at meetings where he or she presided). Directors Salary $611,840 $591,942 $569,851 also receive an annual retainer of $3,000 ($4,000 for the Bonus - 982 7,200 Chairperson) and are paid for participating in telephone Deferred/perquisites - - - conference calls. There were seven Board meetings held Other 23,809 24,999 22,602 during 2009. Other activities attended by Directors included, Total $635,649 $618,083 $599,653 but were not limited to, Association committee meetings, national directors’ meetings, and national training sessions. *Does not include CEO information from the table above.

Compensation paid to directors in 2009 was: Senior officers are paid under the same salary administration

program as all other employees. Generally, each employee is Days Served paid in accordance with the responsibilities of his or her Board Other position, and the performance of the employee in that Director Meetings Activities Compensation position. Each employee’s salary level is generally reviewed Alan J. Bourbeau 7 27 12,600 annually. There are no special incentive or bonus programs Rupert C. Chamberlin 7 27 12,400 for senior officers, nor are senior officers covered by Rocki-Lee DeWitt 7 10.5 10,050 employment agreements, except as described below. Paul E. Doton 7 39.5 18,450 * Alfred A. Dunklee 1 5 1,275 The amounts listed in the Other categories above is the value Paul E. Gingue 7 59.5 27,150 of the personal usage of the assigned company cars, as Rocklyn A. Giroux 7 27.5 14,825 described below. Walter M. Gladstone 6 16 11,375 Celeste Kane Stebbins 7 13.5 12,100 Mr. Putnam is employed as President and CEO under terms of Paul F. Saenger 7 12.5 10,650 an employment agreement through December 31, 2010. If Charles J. Sniffen 7 12.5 11,150 ** Mr. Putnam is terminated before the end of the contract for Stephen H. Taylor 4 11 9,125 other than cause, which is defined, he will be entitled to Total 74 261.5 $151,150 severance benefits. *Term expired in 2009 **Elected in 2009 C. Travel, Subsistence and Other Related Expenses B. Senior Officer Compensation The Association’s travel policy provides that directors and The following tables show the total compensation paid by the employees will be reimbursed for reasonable out-of-pocket Association in each of the last three years to the CEO and to expenses while traveling on official Association business. the top salaried employees and senior officers, excluding the Business use of a personal automobile is reimbursed at the CEO, as a group. Disclosure of the total compensation paid IRS standard mileage rate. Some employees are assigned a during the last fiscal year to any senior officer or any other company car. A copy of the Association’s travel policy is officer included in the aggregate is available to shareholders available to shareholders on request. The total amount of on request. reimbursement for travel, subsistence and related expenses for all directors as a group was $55,369, $51,752 and $50,165 in 2009, 2008 and 2007 respectively.

14 TRANSACTIONS AND LOANS WITH DIRECTORS AND SENIOR OFFICERS

The Association abides by all policies and procedures of CoBank, ACB and the Farm Credit Administration pursuant to transactions and loans with directors and senior officers of the Association.

A. Transactions Other Than Loans

The Association had no transactions other than loans with any directors or senior officers, their immediate family members, or any organizations with which they are affiliated, which are required to be disclosed in this section.

B. Lo ans

Loans to directors and senior officers, their immediate family members, or any organizations with which directors and senior officers are affiliated, were made in the ordinary course of business and on the same terms, including interest rate, amortization schedule, and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

There were no matters which came to the attention of management or the Board of Directors regarding involvement of current directors or senior officers in specified legal proceedings which are required to be disclosed in this section.

RELATIONSHIP WITH QUALIFIED PUBLIC ACCOUNTANTS

There were no material disagreements with our qualified public accountants, PricewaterhouseCoopers, LLP (PwC) on any matter of accounting principles or financial statement disclosures during this period. In 2009, the Association paid PwC a fee of $21,200 for audit services and a fee of $11,500 for tax services.

15 PricewaterhouseCoopers LLP Suite 1800 2001 Ross Ave. Dallas TX 75201-2997 Telephone (214) 999 1400 Facsimile (214) 754 7991 www.pwc.com

Report of Independent Auditors

To Board of Directors and Stockholders of Yankee Farm Credit, ACA:

We have audited the accompanying consolidated balance sheets of Yankee Farm Credit, ACA (the "Association") and its subsidiaries as of December 31, 2009, 2008 and 2007, and the related consolidated statements of income, changes in members’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Yankee Farm Credit, ACA and its subsidiaries at December 31, 2009, 2008 and 2007, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

March 5, 2010 YANKEE FARM CREDIT, ACA CONSOLIDATED BALANCE SHEET

December 31, 2009 2008 2007 (in thousands) ASSETS Loans originated by the Association $ 370,285 $ 354,583 $ 335,257 Plus loans purchased 13,195 14,671 13,378 Less participations sold 27,738 43,493 46,616 Loans held by the Association 355,742 325,761 302,019 Less allowance for loan losses 3,569 1,758 960 Net loans 352,173 324,003 301,059

Cash 77 1,770 2,075 Accrued interest receivable 664 1,007 1,117 Patronage refunds due from CoBank, ACB 1,607 1,411 1,624 Investment in CoBank, ACB 12,810 11,779 11,504 Mission related investment 456 401 360 Premises and equipment, less accumulated depreciation 1,025 1,070 1,108 Other assets 1,757 2,063 1,950 Total assets $ 370,569 $ 343,504 $ 320,797

LIABILITIES Note payable to CoBank, ACB $ 296,058 $ 271,461 $ 248,997 Patronage distribution payable 2,573 2,790 3,332 Other liabilities 2,020 1,771 2,085 Total liabilities 300,651 276,022 254,414

MEMBERS' EQUITY Capital stock and participation certificates 992 939 906 Unallocated surplus 70,104 67,613 65,852 Accumulated other comprehensive (loss) (1,178) (1,070) (375) Total members' equity 69,918 67,482 66,383 Total liabilities and members' equity $ 370,569 $ 343,504 $ 320,797

The accompanying notes are an integral part of these financial statements.

17 YANKEE FARM CREDIT, ACA CONSOLIDATED STATEMENT OF INCOME

Year ended December 31, 2009 2008 2007 (in thousands) INTEREST INCOME Loans $ 13,836 $ 15,872 $ 22,399 Total interest income 13,836 15,872 22,399

INTEREST EXPENSE Note payable to CoBank, ACB 3,014 6,841 12,736 Total interest expense 3,014 6,841 12,736

Net interest income 10,822 9,031 9,663 Provision for loan losses 1,812 781 131 Net interest income after provision for loan losses 9,010 8,250 9,532

OTHER INCOME Patronage refunds from CoBank, ACB 1,616 1,411 1,663 Fees for financial services 768 674 708 Loan fees and other income 152 108 189 Total other income 2,536 2,193 2,560

OTHER EXPENSE Salaries and employee benefits 3,498 3,073 2,895 Occupancy and equipment 317 291 289 Farm Credit Insurance Fund premium 527 353 416 Fees paid to Farm Credit Financial Partners, Inc. 922 965 884 Other expenses 1,217 1,218 1,214 Total other expense 6,481 5,900 5,698

Income before income taxes 5,065 4,543 6,394 Provision for income taxes 1 2 2 Net income $ 5,064 $ 4,541 $ 6,392

The accompanying notes are an integral part of these financial statements.

18 YANKEE FARM CREDIT, ACA CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY Accumulated Capital Stock Other Total and Participation Unallocated Comprehensive Members' Certificates Surplus Income (Loss) Equity (in thousands) Balance at December 31, 2006 $ 935 $ 62,792 $ (228) $ 63,499 Comprehensive income Net income - 6,392 - 6,392 Other comprehensive income Net unrealized gains on interest rate swaps - - 380 380 Total comprehensive income 6,772 Adjustment for new pension accounting principle: Pension - - (491) (491) Post Retirement Healthcare - - (36) (36) Capital stock/PCs issued 146 - - 146 Capital stock/PCs retired (175) - - (175) Patronage distributions in cash - (3,332) (3,332) Balance at December 31, 2007 906 65,852 (375) 66,383 Adjustment to beginning balance due to pension accounting change - 10 - 10 Balance at January 1, 2008 906 65,862 (375) 66,393 Comprehensive income Net income - 4,541 - 4,541 Other comprehensive income Net unrealized gains on interest rate swaps - - 477 477 Adjustment for pension accounting Pension - - (1,166) (1,166) Post Retirement Healthcare - - (6) (6) Total comprehensive income 3,846 Capital stock/PCs issued 160 - - 160 Capital stock/PCs retired (127) - - (127) Patronage distributions in cash - (2,790) - (2,790) Balance at December 31, 2008 939 67,613 (1,070) 67,482 Comprehensive income Net income - 5,064 - 5,064 Other comprehensive income Net unrealized (losses) on interest rate swaps - - (277) (277) Adjustment for pension accounting Pension - - 158 158 Post Retirement Healthcare - - 10 10 Total comprehensive income 4,955 Capital stock/PCs issued 158 - - 158 Capital stock/PCs retired (105) - - (105) Patronage distributions in cash - (2,573) - (2,573) Adjustment for rounding - 1 1 Balance at December 31, 2009 $ 992 $ 70,104 $ (1,178) $ 69,918

The accompanying notes are an integral part of these financial statements.

19 YANKEE FARM CREDIT, ACA CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended December 31, 2009 2008 2007 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,064 $ 4,541 $ 6,392 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 203 199 192 Provision for loan losses 1,812 781 131 Noncash increase in investment in CoBank, ACB (121) (275) (280) Decrease in accrued interest receivable 305 101 125 Increase (decrease) in other liabilities 141 (999) (192) Decrease (increase) in other assets 251 (154) 46 (Gain) from sales of premises and equipment (26) (12) (21) Total adjustments 2,565 (359) 1 Net cash provided by operating activities 7,629 4,182 6,393

CASH FLOWS FROM INVESTING ACTIVITIES Increase in loans, net (29,944) (23,716) (5,738) Expenditures for premises and equipment (177) (188) (241) Proceeds from sales of premises and equipment 45 39 64 (Increase) decrease in distribution of Cobank, ACB earnings receivable (196) 213 (131) Increase in investment in CoBank, ACB (910) - - Net cash (used in) investing activities (31,182) (23,652) (6,046)

CASH FLOWS FROM FINANCING ACTIVITIES Advances on note payable under financing agreement with CoBank, ACB 239,742 498,354 298,692 Repayment of note payable to CoBank, ACB (215,145) (475,890) (295,324) Capital stock and participation certificates issued 158 160 146 Capital stock and participation certificates retired (105) (127) (175) Patronage distribution paid (2,790) (3,332) (3,031) Net cash provided by financing activities 21,860 19,165 308

Net (decrease) increase in cash (1,693) (305) 655 Cash at beginning of year 1,770 2,075 1,420 Cash at end of year $ 77 $ 1,770 $ 2,075

Supplemental schedule of non-cash investing and financing activities Patronage distribution declared 2,573 2,790 3,332 Accrued interest receivable transferred to loans 38 9 46

The accompanying notes are an integral part of these financial statements.

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except as noted)

NOTE 1 - ORGANIZATION AND OPERATIONS The Association’s financial condition may be impacted by factors which affect CoBank. CoBank’s Annual Report to Yankee Farm Credit, ACA (the Association) is one of the Stockholders discusses material aspects of its financial associations of the Farm Credit System. condition, changes in financial condition, and results of operations. In addition, CoBank’s Annual Report discusses A. The Farm Credit System the impacts of the Insurance Corporation and other forms of intra-System financial assistance. Information on obtaining a The Farm Credit System (System) is a nationwide system of copy of CoBank’s annual and quarterly financial statements is cooperatively owned banks and associations established by provided on page 39 of this report. Acts of Congress to provide credit and other financial services to farmers and other eligible borrowers. The System is Farm Credit Financial Partners, Inc. (FPI) is an entity that subject to the provisions of the Farm Credit Act of 1971, as provides important services to the Association. FPI is owned amended (the Farm Credit Act). by eight associations (including the Association) and CoBank. FPI, which is headquartered near Springfield, Massachusetts, Within the System are five banks and approximately 88 provides accounting services, information technology, and associations. Each association is affiliated with one of the other services to these eight associations, CoBank and other banks. The banks lend funds to the associations, supervise the customers. activities of the associations, provide other services to the associations, and may engage in activities not related to the C. Operations associations. The banks obtain funds principally by jointly selling Systemwide debt obligations to the public. The Association makes short-term and intermediate-term loans for agricultural production or operating purposes, and The Farm Credit Administration (FCA) is an agency in the long-term real estate mortgage loans. The Association also executive branch of the Federal government, delegated offers credit-related financial services, including: credit life authority by Congress to regulate all System institutions. The insurance and crop insurance (the Association acts as agent, FCA examines the activities of the Association and certain not principal); bookkeeping; farm accounting software; tax actions by the Association are subject to the prior approval of return preparation and tax planning; fee appraisals; and the FCA. (See www.fca.gov) leasing.

The Agricultural Credit Act of 1987 established the Farm The Farm Credit Act sets forth the types of authorized lending Credit System Insurance Corporation (Insurance Corporation) activity, persons eligible to borrow from, and financial to administer the Farm Credit Insurance Fund (Insurance services which can be offered by the Association. Eligible Fund). The primary purpose of the Insurance Fund is to borrowers include farmers, ranchers, producers or harvesters ensure the timely payment of principal and interest on of aquatic products, rural residents and farm-related Systemwide debt obligations. The Insurance Fund is funded businesses. by assessments on System banks. (See www.fcsic.gov) D. Subsidiaries B. The Association, CoBank and FPI The Association (which is an agricultural credit association or The Association is a member-owned cooperative which ACA) has two wholly owned subsidiaries. Yankee Farm provides credit and credit-related services to eligible Credit, PCA (a production credit association) and Yankee borrowers/members for qualified agricultural purposes within Farm Credit, FLCA (a federal land credit association). The its chartered territory, which consists of: the State of Vermont; PCA is presently dormant. The FLCA holds certain assets, Cheshire, Coos, Grafton and Sullivan counties in the State of primarily long-term real estate loans, and related liabilities. New Hampshire; and Clinton and Essex counties in the State All other assets and liabilities are held by the ACA. The of New York. FLCA is exempt from federal and state income tax. The ACA and PCA are taxable. This annual report presents the The Association is affiliated with CoBank, ACB, one of the Association and its subsidiaries on a consolidated basis. five banks in the System. CoBank, headquartered near Denver, Colorado, is the Association’s source of funds.

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E. Types of System Banks and Associations existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not For the purpose of reading this report, it may be helpful to included in the Codification became non-authoritative. This know the various types of banks and associations in the Statement was effective for financial statements issued for System, and their principal authorities: interim and annual periods ending after September 15, 2009. The adoption of this accounting pronouncement did not have a Banks material impact on the financial statements. FCB – Farm Credit Bank – Authorized to provide funds and other services to Farm Credit associations. In May 2009, the FASB issued guidance on "Subsequent ACB – Agricultural Credit Bank – Authorized to provide Events," which sets forth general standards of accounting for funds and other services to Farm Credit associations and to and disclosure of events that occur after the balance sheet date farmers’ cooperatives. but before financial statements are issued or are available to be issued. Recognized subsequent events should be Associations recognized in the financial statements since the conditions PCA – Production Credit Association – Authorized to provide existed at the date of the balance sheet. Nonrecognized short and intermediate term loans to eligible borrowers. subsequent events are not recognized in the financial FLCA – Federal Land Credit Association – Authorized to statements since the conditions arose after the balance sheet provide long-term real estate mortgage loans to eligible date but before the financial statements are issued or are borrowers. available to be issued. This guidance, which includes a ACA – Agricultural Credit Association – Authorized to required disclosure of the date through which an entity has provide both short/intermediate term loans and long-term real evaluated subsequent events, was effective for interim or estate mortgage loans to eligible borrowers. ACAs may have annual periods ending after June 15, 2009. See Note 16 for PCAs and/or FLCAs as wholly-owned subsidiaries. the required disclosures.

In addition, in April 2009, the FASB issued guidance on NOTE 2 - SUMMARY OF SIGNIFICANT “Interim Disclosures about Fair Value of Financial ACCOUNTING POLICIES Instruments.” This requires disclosures about fair value of financial instruments for interim reporting periods of publicly The accounting and reporting policies of the Association traded companies as well as in annual financial statements. conform with accounting principles generally accepted in the The guidance was effective for interim periods ending after United States of America (GAAP) and prevailing practices June 15, 2009. within the banking industry. The preparation of financial statements in conformity with GAAP requires management to In December 2008, the FASB issued new guidance that make estimates and assumptions that affect the amounts expands the disclosures required in an employer’s financial reported in the financial statements and accompanying notes. statements about pension and other postretirement benefits Significant estimates are discussed in these footnotes, as plan assets. The disclosures include more details about the applicable. Actual results may differ from these estimates. categories of plan assets and information regarding fair value measurements. The guidance was effective for fiscal years Certain amounts in prior years’ financial statements have been ending after December 15, 2009. See Note 9 for the required reclassified to conform to current financial statement disclosures. presentation. B. Loans and Allowance for Loan Losses A. Recently Issued or Adopted Accounting Pronouncements Long-term real estate mortgage loans generally have maturities ranging up to 33 years. Substantially all short-term In June 2009, the Financial Accounting Standards Board and intermediate-term loans for agricultural production or (FASB) issued “The FASB Accounting Standards operating purposes have maturities of 10 years or less. Codification and the Hierarchy of Generally Accepted Accounting Principles.” This Codification became the source Loans are carried at their principal amount outstanding. of authoritative U.S. generally accepted accounting principles Loans are generally placed in nonaccrual status when recognized by the FASB. Rules and interpretive releases of principal or interest is delinquent for 90 days or more (unless the Securities and Exchange Commission (SEC) under adequately secured and in the process of collection) or authority of federal securities laws are also sources of circumstances indicate that collection of principal and/or authoritative GAAP for SEC registrants. On the effective date interest is in doubt. When a loan is placed in nonaccrual of this Statement, the Codification superseded all then- status, accrued interest deemed uncollectible is either reversed

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(if accrued in the current year) or charged against the environmental factors. When adjusting the historical charge- allowance for loan losses (if accrued in prior years). off experience, the Association considers changes in credit risk classifications, collateral values, risk concentrations, When loans are in nonaccrual status, payments are generally weather related conditions and economic conditions. applied against the recorded investment in the loan asset. Interest income is generally recognized only to the extent that The allowance for loan losses is increased through loan payments are received once the recorded investment is recoveries and provisions for loan losses and is decreased reduced to zero. Nonaccrual loans may be reinstated to through loan charge-offs and reversals of provisions for loan accrual status when principal and interest are current, any losses. prior charge-offs have been recovered, the ability of the borrower to fulfill the contractual repayment terms is fully C. Cash expected, and the loan is not classified as “doubtful” or “loss.” Cash represents cash on hand and on deposit at banks. When a nonaccrual loan is reinstated to accrual status, interest that would have accrued if the loan had been in accrual status D. Investment in CoBank, ACB is recognized in income only as principal payments are received following reinstatement. The Association’s investment in CoBank is carried at cost plus face or par value of allocated equities. In cases where a borrower experiences financial difficulties and the Association makes certain monetary concessions to E. Mission Related Investment the borrower through modifications to the contractual terms of the loan, the loan is classified as a restructured loan. If the The Association may hold investments in accordance with borrower’s ability to meet the revised payment schedule is mission related investment programs approved by the FCA. uncertain, the loan is classified as a nonaccrual loan. These programs allow the Association to make investments that further the System’s mission to serve rural America. The The allowance for loan losses is maintained at a level investment is reported at fair value with realized gains or considered adequate by management to provide for probable losses recognized in current operations. and estimable losses inherent in the loan portfolio. The allowance is based on a periodic evaluation of the loan F. Other Property Owned portfolio by management in which numerous factors are considered, including economic conditions, loan portfolio Other property owned, consisting of real and personal characteristics, quality, and composition, current production property acquired through a collection action, is recorded at conditions and prior loan loss experience. It is based on fair value less estimated selling costs. Revised estimates to estimates, appraisals and evaluations of loans which, by their the fair value less cost to sell are reported as adjustments to nature, contain elements of uncertainty and imprecision. The the carrying amount of the asset, provided that such adjusted possibility exists that changes in the economy and its impact value is not in excess of the carrying amount at acquisition. on borrower repayment capacity will cause these estimates, Income and expenses from operations and carrying value appraisals and evaluations to change. adjustments are included in (gains) losses on other property owned. The allowance for loan losses is a valuation account used to reasonably estimate loan losses as of the financial statement date. Determining the appropriate allowance balance involves significant judgment about when a loss has been incurred and the amount of that loss. The determination of the allowance for loan losses is based on management’s current judgments about the credit quality of its loan portfolio. A specific allowance may be established for impaired loans under appropriate FASB guidance. Impairment of these loans is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or as practically expedient, at the loan’s observable market price or fair value of the collateral if the loan is collateral dependent.

The level of allowance for loan losses is generally based on recent charge-off experience adjusted for relevant

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G. Premises and Equipment Deferred income taxes have not been provided by the Association on patronage distributions from the Farm Credit Premises and equipment are carried at cost less accumulated Bank of Springfield (FCB) prior to January 1, 1993, the depreciation. Land is carried at cost. Depreciation is adoption date of the FASB guidance on income taxes. computed principally using the straight-line method over the Management’s intent is to permanently invest these and other estimated useful lives of ten to forty years for buildings and undistributed earnings in CoBank, thereby indefinitely improvements, three to seven years for furniture and postponing their conversion to cash. (CoBank is the successor equipment, and five years for automobiles. Gains and losses to the FCB.) Additionally, deferred income taxes have not on dispositions are reflected in current operations. been provided on CoBank’s unallocated earnings because Maintenance and repairs are charged to operating expense, CoBank currently has no plans to distribute unallocated and improvements are capitalized. earnings and does not contemplate circumstances that, if distributions were made, would result in taxes being paid at H. Employee Benefit Plans the Association level.

Employees are eligible to participate in a deferred J. Patronage Refund from CoBank compensation plan. A certain percentage of employee contributions is matched by the Association. Costs for this The Association records patronage refunds from CoBank on plan are expensed as funded. the accrual basis.

The Association also provides a non-contributory defined K. Derivative Instruments contribution retirement plan for employees. Costs for this plan are expensed as funded. The Association is party to derivative financial instruments, consisting of interest rate swaps. These derivatives are Certain former employees of the Association (retirees and accounted for in accordance with FASB guidance. vested former employees) participate in a defined benefit Accordingly, these derivatives are recorded on the retirement plan. The “Projected Unit Credit” actuarial method consolidated balance sheet in other assets and other liabilities, is used for financial reporting purposes and the “Entry-Age measured at fair value. Normal Cost” method is used for funding purposes. All of the Association’s derivatives are designated as cash I. Income Taxes flow hedges, used to manage interest rate risk on variable rate loans. The Association measures the effectiveness of the As previously described, the Association operates through two hedge quarterly. If the hedge is effective, changes in fair wholly-owned subsidiaries. The FLCA subsidiary is exempt value are recorded in other comprehensive income. If the from federal and other income taxes as provided in the Farm hedge is not effective, changes in fair value are recorded in the Credit Act. consolidated statement of income as an adjustment to interest expense. Cash flows resulting from periodic settlements are The Association, and the PCA subsidiary, are subject to recorded on the consolidated statement of income as an certain income taxes. The Association is eligible to operate as adjustment to interest expense. a cooperative that qualifies for tax treatment under Subchapter T of the Internal Revenue Code. Accordingly, under specified L. Fair Value Measurement conditions, the Association can exclude from taxable income amounts distributed as qualified patronage refunds in the form The FASB guidance defines fair value, establishes a of cash, stock or allocated surplus. Provisions for income framework for measuring fair value and expands disclosures taxes are made only on those earnings that will not be about fair value measurements. It describes three levels of distributed as qualified patronage refunds. The Association inputs that may be used to measure fair value: distributes patronage on the basis of book income. Deferred taxes are recorded on the tax effect of all temporary Level 1 — Quoted prices in active markets for identical assets differences based on the assumption that such temporary or liabilities that the reporting entity has the ability to access at differences are retained by the institution and will therefore the measurement date. Level 1 asset and liabilities include impact future tax payments. A valuation allowance is debt and equity securities and derivative contracts that are provided against deferred tax assets to the extent that it is traded in an active exchange market, as well as certain more likely than not (over 50 percent probability), based on U.S. Treasury, other U.S. Government and agency mortgage- management’s estimate, that they will not be realized. backed debt securities that are highly liquid and are actively traded in over-the-counter markets. The Association does not have any Level 1 financial instruments.

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Level 2 — Observable inputs other than quoted prices estimate of the Association’s credit risk exposure is included within Level 1 that are observable for the asset or considered in the determination of the allowance for loan liability either directly or indirectly. Level 2 inputs include the losses. following: (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets December 31, or liabilities in markets that are not active so that they are 2009 2008 2007 traded less frequently than exchange-traded instruments, the Commodity Amount % Amount % Amount % prices are not current or principal market information is not Dairy $ 211,878 60% $ 187,798 58% $ 174,120 58% released publicly; (c) inputs other than quoted prices that are Timber 50,680 14% 46,753 14% 42,659 14% observable such as interest rates and yield curves, prepayment FRB* 16,966 5% 14,236 4% 13,056 4% Livestock 12,038 3% 12,496 4% 10,747 4% speeds, credit risks and default rates and (d) inputs derived Maple 11,556 3% 9,867 3% 8,305 3% principally from or corroborated by observable market data by Crops 9,627 3% 8,099 3% 5,480 2% correlation or other means. This category generally includes Other 42,997 12% 46,512 14% 47,652 15% interest rate swap contracts. Total $ 355,742 100% $ 325,761 100% $ 302,019 100% *Farm Related Business Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of The amount of collateral obtained, if deemed necessary upon the assets or liabilities are considered Level 3. These extension of credit, is based on management’s credit unobservable inputs reflect the reporting entity’s own evaluation of the borrower. Collateral held varies, but assumptions about assumptions that market participants would typically includes farmland and income-producing property, use in pricing the asset or liability. Level 3 assets and such as crops and livestock, as well as equipment and liabilities include financial instruments whose value is receivables. Long-term real estate loans are secured by first determined using pricing models, discounted cash flow liens on the underlying real property. Federal regulations state methodologies, or similar techniques, as well as instruments that long-term real estate loans are not to exceed 85% (97% if for which the determination of fair value requires significant guaranteed by a government agency) of the property’s management judgment or estimation. This category generally appraised value. However, a decline in a property’s market includes nonaccrual loans and other property owned. value subsequent to loan origination or advances, or other actions necessary to protect the financial interest of the The fair value disclosures are disclosed in Note 11. Association in the collateral, may result in loan to value ratios in excess of the regulatory maximum.

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN Impaired loans include nonaccrual loans plus restructured LOSSES accrual loans. The following table presents information relating to impaired loans: A summary of loans follows: December 31, December 31, 2009 2008 2007 2009 2008 2007 Nonaccrual loans: Long-term farm mortgage $ 126,798 $ 124,148 $ 133,174 Current $ 3,234 $ 170 $ 96 Country home 2,093 2,126 1,862 Past due 266 1,152 262 Farm related business 21,744 17,771 15,934 Total nonaccrual loans 3,500 1,322 358 Production and intermediate term 219,652 210,538 184,287 Restructured accrual loans 264 271 225 Total loans originated by the Association 370,287 354,583 335,257 Total impaired loans $ 3,764 $ 1,593 $ 583 Plus participations purchased 13,193 14,671 13,378 Less participations sold 27,738 43,493 46,616 There were no material commitments to lend additional funds Loans held by the Association $ 355,742 $ 325,761 $ 302,019 to debtors whose loans were classified as impaired at December 31, 2009. The Association’s concentration of credit risk in various agricultural commodities is shown in the following table. There were no loans that were 90 days or more past due but While the amounts represent the Association’s maximum still classified as accrual at December 31, 2009, 2008 and potential credit risk as it relates to recorded loan principal, a 2007. substantial portion of the Association’s lending activities is collateralized and the Association’s exposure to credit loss associated with lending activities is reduced accordingly. An

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The following table presents information relating to interest The following table presents information concerning the income on nonaccrual loans: portion of the allowance for loan losses related to impaired loans. Year ended December 31, 2009 2008 2007 Year ended December 31, Interest income that would 2009 2008 2007 have been recognized under Allowance on impaired loans: the original loan terms $ 217 $ 82 $ 57 Nonaccrual $ 322 $ 140 $ 6 Less: interest recognized (90) (16) (150) Restructured accrual 12 13 5 Interest not recognized Total $ 334 $ 153 $ 11 (recognized) $ 127 $ 66 $ ( 93)

If a nonaccrual loan is reinstated to accrual status, previously NOTE 4 - INVESTMENT IN COBANK, ACB unrecognized interest is recognized when and to the extent that principal payments are received. The following table sets The Association’s investment in CoBank, ACB is in the form forth this type of interest income: of Class A stock. The Association is required to invest in CoBank for two purposes. Year ended December 31, 2009 2008 2007 First, the Association is required to invest in CoBank to Previously unrecognized capitalize the Association’s loan from CoBank. The interest income, recognized capitalization requirement for this purpose is 4% of the subsequent to reinstatement $ 5 $ 5 $ 6 average borrowings for the current year. In December, the

Association purchased an additional $910 thousand of stock to The following table presents information relating to interest comply with this requirement. For 2009, the required income on all impaired loans: investment in CoBank for this purpose was $11.085 million

Year ended December 31, and the actual investment, after the December purchase, was 2009 2008 2007 $11.085 million. When the Association’s investment is more Interest income recognized on than the required amount (as ours was for most of 2009), impaired loans: CoBank adjusts the interest rate to the Association to Nonaccrual $ 90 $ 16 $ 150 compensate for any capital in excess of the required amount. Restructured accrual 16 17 20 In 2009, this adjustment reduced the interest rate charged by Total $ 106 $ 33 $ 170 CoBank by 1 basis point.

The following table presents information on average balances Second, the Association is required to invest in CoBank to of impaired loans: capitalize any participation loans sold to CoBank. In 2009, the capitalization requirement for this purpose was 9% of the Year ended December 31, previous ten years’ average participations sold. For 2009, the 2009 2008 2007 required investment in CoBank for this purpose was $3.020 Average balance of impaired million and the actual investment was $1.725 million. When loans: the Association’s investment is less than the required amount, Nonaccrual $ 3,946 $ 552 $ 423 CoBank pays patronage refunds to the Association 65% in Restructured accrual 267 270 317 cash and 35% in stock. Total $ 4,213 $ 822 $ 740 The Association owned 1.0% of the issued stock of CoBank A summary of changes in the allowance for loan losses on December 31, 2009. As of that date, CoBank’s assets follows: totaled $58.2 billion and members’ equity totaled $4.1 billion. CoBank earned net income of $565 million during 2009. Year ended December 31, 2009 2008 2007 Balance at beginning of year $ 1,758 $ 960 $ 801 Provision for loan losses 1,811 781 131 Loans charged-off - - - Recoveries - 17 28 Balance at end of year $ 3,569 $ 1,758 $ 960

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NOTE 5 – PREMISES AND EQUIPMENT made, in Class B stock for agricultural loans or Class B participation certificates for country home and farm-related Premises and equipment consisted of the following: business loans. The required amount of stock or participation certificates is 2.0% of the loan, with a cap of $1 thousand per December 31, customer, which is the legal minimum requirement. 2009 2008 2007 Land $ 165 $ 165 $ 165 The borrower acquires ownership of the capital stock or Buildings and improvements 927 924 916 participation certificates at the time the loan is made, but Furniture and equipment 687 651 611 usually does not make a cash investment. The aggregate par Automobiles 510 473 425 value is added to the principal amount of the related loan 2,289 2,213 2,117 obligation. The Association retains a first lien on the stock or Less accumulated depreciation 1,264 1,143 1,009 participation certificates owned by borrowers. Retirement of Total net premises and equipment $ 1,025 $ 1,070 $ 1,108 such equities will generally be at the lower of par or book value, and repayment of a loan does not automatically result in

retirement of the corresponding stock or participation certificates. All stock and participation certificates are retired at the discretion of the Association’s Board of Directors after NOTE 6 - NOTE PAYABLE TO COBANK, ACB considering the Capitalization Plan as well as regulatory and

other requirements. The Association’s indebtedness to CoBank represents borrowings by the Association to fund its loan portfolio. This Each owner or joint owners of Class B stock is entitled to a indebtedness is collateralized by a pledge of substantially all single vote, while Class B participation certificates provide no of the Association’s assets, and is governed by a General voting rights to their owners. Voting stock may not be Financing Agreement. The interest rate is periodically transferred to another person unless such person is eligible to adjusted by CoBank. The average interest rate was 1.17% at hold voting stock. December 31, 2009. The average interest rate at December

31, 2008 was 1.69%. The average interest rate at December At December 31, 2009, the Association had 178,488 shares of 31, 2007 was 4.66%. Class B stock outstanding at a par value of $5 per share, and

19,979 shares of Class B participation certificates outstanding CoBank, consistent with FCA regulations, has established at a par value of $5 per share. limitations on the Association’s ability to borrow funds based on specified factors or formulas relating primarily to credit B. Patronage Distributions and Allocated Surplus quality and financial condition. At December 31, 2009 the

Association’s note payable is within the specified limitations. Subject to the Farm Credit Act, and the Association’s Bylaws and Capitalization Plan, the Association’s Board of Directors may authorize the distribution of Association earnings in the NOTE 7 - MEMBERS’ EQUITY form of a patronage distribution. Patronage distributions are made in the following year and may be made in cash or The Association’s capitalization policies are specified in the allocated surplus or any combination, as long as the cash Bylaws (Article VIII) and the Capitalization Plan. The portion is at least 20%. Beginning in 2002, patronage Capitalization Plan is subject to change by the Board of distributions have been 100% in cash. Earnings not Directors at any time, and is normally updated annually. distributed are retained as unallocated surplus. Copies of the Association’s Bylaws and Capitalization Plan are available to members upon request. The Association had no allocated surplus as of December 31, 2009. A more detailed description of the Association’s capitalization policies, equities, and regulatory capitalization requirements C. Risks Associated With Members’ Equity and restrictions is provided below.

Ownership of stock, participation certificates and allocated A. Capital Stock and Participation Certificates surplus is subject to certain risks that could result in a partial or complete loss. These risks include excessive levels of loan In accordance with the Farm Credit Act, each borrower is losses experienced by the Association, losses resulting from required to invest in the Association as a condition of contractual and statutory obligations, impairment of ACB borrowing. The Association’s Bylaws and Capitalization Plan stock owned by the Association, losses resulting from adverse specify that each borrower shall invest, at the time the loan is judicial decisions or other losses that may arise in the course

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of business. In the event of such impairment, borrowers NOTE 8 - INCOME TAXES would remain liable for the full amount of their loans. The provision for income taxes follows: Any losses which result in impairment of capital stock and participation certificates would be allocated to such purchased Year Ended December 31, capital on a pro rata basis. In the case of liquidation or 2009 2008 2007 dissolution of the Association, capital stock, participation Current: Federal $ - $ - $ - certificates and allocated surplus would be utilized as State 1 2 2 necessary to satisfy any remaining obligations in excess of the Deferred: amounts realized on the sale or liquidation of assets. Federal - - - State - - - D. Regulatory Capitalization Requirements Total provision for income taxes $ 1 $ 2 $ 2 FCA’s capital adequacy regulations require the Association to maintain specified minimum amounts of core surplus, total The FLCA subsidiary, which contains primarily long-term surplus and permanent capital. Failure to meet these capital real estate mortgage loans, is exempt from income tax. requirements can initiate certain mandatory and possibly additional discretionary actions by FCA that, if undertaken, The following table quantifies the differences between the could have a direct material effect on the Association’s provision for income taxes and the amount of income tax financial statements. The Association is prohibited from determined by applying the applicable U.S. statutory federal retiring stock or making certain other distributions to income tax rate to pretax income of the Association. shareholders unless these capital standards are met. Year Ended December 31, The Association’s regulatory capital ratios were: 2009 2008 2007

Value at Regulatory Federal tax at statutory rate $ 1,722 $ 1,544 $ 2,174 December 31, 2009 Minimum State tax, net of federal Core surplus 16.9% 3.5% income tax effect 2 2 2 Total surplus 17.1% 7.0% Effect of tax exempt FLCA (1,247) (1,158) (1,586) Permanent capital 17.4% 7.0% Patronage distributions (875) (948) (1,133) Change in valuation allowance 473 613 629 Additionally, the Association’s internal permanent capital goal Other (74) (51) (84) for 2009 was 18.3%, which was not met, as shown by the Total provision for table above. The reason this goal was not met is due to income taxes $ 1 $ 2 $ 2 increased loan volume, which is a major component of the denominator in the permanent capital calculation. It was not Deferred Tax Assets and Liabilities; Valuation Allowance due to a deterioration of capital. Based on the Association’s strategic financial plan, primarily expected future patronage programs and the tax benefits of the The Association knows of no reason why it might be under FLCA subsidiary, management believes that as of the end of any regulatory restrictions to retire stock or distribute earnings 2009, none of the Association’s net deferred tax asset will be during the fiscal year subsequent to the fiscal year just ended. realizable in future periods. Accordingly, a valuation An FCA regulation empowers it to direct a transfer of funds or allowance is provided against net deferred tax assets since it equities by one or more System institutions to another System has been determined that it is more likely than not (over 50 institution under specified circumstances. The Association percent probability), based on management’s estimate, that had not been called upon to initiate any transfers and is not they will not be realized.. aware of any proposed action under this regulation. The Association adopted the accounting guidance for the tax treatment of defined benefit and postretirement plan accounting on December 31, 2007. The adoption of this guidance decreased deferred tax assets, and the related net deferred tax assets valuation allowance, by $68 thousand in 2009 and increased these same accounts by $474 thousand in 2008, and by $213 thousand in 2007.

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Deferred tax assets and liabilities in accordance with service. Employer contributions charged to expense were accounting guidance are comprised of: $172 thousand, $160 thousand and $153 thousand in 2009, 2008 and 2007, respectively. December 31, 2009 2008 2007 Defined Benefit Plan Allowance for loan losses $ 749 $ 231 $ 167 Prior to 1998, the Association offered the CoBank, ACB Deferred compensation and Retirement Plan, a non-contributory multiple employer other postretirement benefits 1,073 1,127 628 defined benefit retirement plan (Defined Benefit Plan). No Net operating loss 2,369 2,242 1,692 current employees of the Association participate in this plan. Other 79 65 22 The Association continues to participate in this plan only to Deferred tax asset 4,270 3,665 2,509 the extent that it has retirees and vested former employees in Bank stock patronage after the plan. The Defined Benefit Plan serves the same seven December 31, 1992 81 81 81 Farm Credit System employers as the Employee Savings Plan. Retirement benefits 570 460 338 Benefits are based on years of service and compensation CoBank, ACB patronage 491 389 430 during the highest four consecutive years of employment. Depreciation 12 24 36 Deferred tax liability 1,154 954 885 In September 2006 the FASB issued guidance which required the recognition of the overfunded or underfunded status of Subtotal 3,116 2,711 1,624 pension and other postretirement benefit plans on the balance Less valuation allowance 3,116 2,711 1,624 sheet. The guidance also required that employers measure the

benefit obligation and plan assets as of the fiscal year end for Net deferred tax asset $ - $ - $ - fiscal years ending after December 15, 2008. In fiscal year 2007 and earlier, the System used a September 30 The Association recognized interest and penalties related to measurement date for pension and other postretirement unrecognized tax benefits as an adjustment to income tax benefits plans. The guidance provided two approaches for an expense. The Association did not have any positions for employer to transition to a fiscal year end measurement date. which it is reasonably possible that the total amounts of The System has applied the second approach, which allows unrecognized tax benefits will significantly increase or for the use of the measurements determined for the prior year decrease within the next 12 months. No uncertain tax end. positions were taken by the Association during 2009, 2008 or 2007. The tax years that remain open for federal and major Under this alternative, pension and postretirement benefit state income tax jurisdictions are 2006 and forward. income measured for the three month period October 1, 2007 to December 31, 2007 (determined using the September 2007 measurement date) was recorded as an adjustment to NOTE 9 - EMPLOYEE RETIREMENT PLANS beginning 2008 unallocated surplus. As a result, the Association increased unallocated surplus by $10 thousand. Employee Savings Plan The Association participates in the CoBank, ACB Employee December 31, Savings Plan (“Employee Savings Plan”). The Employee 2009 2008 2007 Savings Plan serves seven employers in the Farm Credit Change in Benefit Obligation System, including the Association and CoBank. All active Benefit obligation at employees of the Association participate in the Employee beginning of year $ 2,593 $ 2,520 $ 2,677 Savings Plan. The Employee Savings Plan has two Service cost -- - components: Interest Cost 154 188 151 Plan amendments - 97 - Schedule A – Employer Matching Contributions Actuarial (gain)/loss, net 164 186 36 Benefits Paid (328) (398) (343) Under this part of the plan, the Association matches 100% of Benefit obligation at employee contributions up to a maximum employee end of year $ 2,583 $ 2,593 $ 2,521 contribution of 6% of salary. Employer contributions charged to expense were $143 thousand, $134 thousand and $126 thousand in 2009, 2008 and 2007, respectively.

Schedule B – Employer Contributions Under this part of the plan, the Association contributes a percentage of each employee’s salary, based on years of

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December 31, Other 2009 2008 2007 The following table sets forth information about the Change in Plan Assets Association’s post retirement health care benefit plan funding Fair value of plan assets at status and assumptions used to determine benefits obligations. beginning of year $ 2,074 $ 2,866 $ 2,893 Actual return on plan assets 477 (644) 316 December 31, Employer contributions 270 250 - 2009 2008 2007 Benefits Paid (328) (398) (343) Benefit obligations $ 55 $ 61 $ 58 Fair value of plan assets at Net liability recognized 55 61 58 end of year $ 2,493 $ 2,074 $ 2,866

Net periodic (income) expense $ (5) $ (4) $ 2 Funded status $ (90) $ (519) $ 345 Fourth quarter employer Discount rate used to measure contributions and other - - - net periodic (income) Net amount recognized expense 5.70% 6.35% 6.35% at end of year $ (90) $ (519) $ 345 For measurement purposes, an 8.0% annual rate of increase in December 31, the cost of covered health care benefits was assumed for 2009. 2009 2008 2007 The rate is assumed to decrease gradually to 5.00% for 2015 Weighted average assumptions and remain level thereafter. Discount rate 5.70% 6.35% 6.35% Expected return on plan assets 8.00% 8.00% 8.00%

NOTE 10 - RELATED PARTY TRANSACTIONS The following tables show the impact of this plan on the financial statements: In the ordinary course of business, the Association enters into

loan transactions with officers and directors of the December 31, Association, their immediate families, and other organizations 2009 2008 2007 Balance sheet: with which such persons may be associated. Such loans are Intangible asset subject to special approval requirements contained in FCA (included in other assets) - - 345 regulations and are made on the same terms, including interest Pension liability rates and collateral, as those prevailing at the time for (included in other liabilities) 90 519 - comparable transactions with unrelated borrowers. Accumulated other comprehensive income (1,499) (1,657) (491) Total loans outstanding to such persons at December 31, 2009 amounted to $10.687 million. During 2009, $8.997 million of Year Ended December 31, new loans were made and repayments totaled $6.287 million. 2009 2008 2007 Additionally, other decreases to the related party loan balance Statement of income: totaling $1.895 million represent changes in the composition (Benefit) recognized in salaries of Association officers and/or board members during 2009. In and employee benefits $ - $ (42) $ (43) the opinion of management, none of these loans outstanding at

December 31, 2009 involved more than a normal risk of The fair values of the Association’s pension plan assets at collectibility. December 31, 2009 by asset category are as follows:

Level 1 Level 2 Total At December 31, 2009, the Association owned a 6.3% interest Cash $ 33 $ - $ 33 in FPI. FPI and the nature of the Association’s relationship Domestic Equity: with it are more fully described in Note 1 to the Consolidated Large-cap growth funds 543 405 948 Financial Statements, “Organization and Operations.” Fees Small-cap growth funds - 130 130 paid to FPI are separately disclosed in the consolidated International Equity: statement of income. International fund 232 - 232 Fixed Income: Total return fund 1,086 - 1,086 High yield bond fund - 64 64 Fair value of plan assets at end of year $ 1,894 $ 599 $ 2,493

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NOTE 11 – FAIR VALUE MEASUREMENTS Loans For nonaccrual loans, the fair value was based upon the Accounting guidance from FASB defines fair value as the underlying collateral. The fair value measurement process exchange price that would be received for an asset or paid to uses appraisals and other market-based information, but in transfer a liability in an orderly transaction between market many cases it also requires significant input based on participants in the principal or most advantageous market for management’s knowledge of and judgment about current the asset or liability. See Note 2K for additional information. market conditions, specific issues related to the collateral and other matters. As a result, these fair value measurements fall Assets measured at fair value on a recurring basis at within Level 3 of the hierarchy. When the value of the December 31, 2009 for each of the fair value hierarchy values collateral, less estimated costs to sell, is less than the principal are summarized as follows: balance of the loan, a specific reserve is established.

Fair Value Measurement Using Level 1 Level 2 Level 3 NOTE 12 - COMMITMENTS AND CONTINGENCES Assets: Interest Rate Swaps $ - $ 428 $ - The Association has various commitments outstanding and Total assets $ - $ 428 $ - contingent liabilities as discussed elsewhere in these Notes to Consolidated Financial Statements. Assets measured at fair value on a non-recurring basis at December 31, 2009 for each of the fair value hierarchy values There are no actions pending against the Association in which are summarized as follows: claims of money damages are asserted.

Fair Value Measurement Using Level 1 Level 2 Level 3 NOTE 13 - COMMITMENTS TO EXTEND CREDIT Assets: Nonaccrual Loans $ - $ - $ 3,500 AND STANDBY LETTERS OF CREDIT

Total liabilities $ - $ - $ 3,500 In the normal course of business, the Association makes

commitments to extend credit and issues or participates in There were no liabilities measured at fair value on a recurring standby letters of credit. At December 31, 2009, $55.778 or non-recurring basis at December 31, 2009. million of commitments to extend credit were outstanding. Of

this amount $222 thousand were standby letters of credit. As more fully discussed in Note 2K, FASB guidance establishes a fair value hierarchy, which requires an entity to Since many of these commitments are expected to expire maximize the use of observable inputs and minimize the use without being drawn upon, the total commitments do not of unobservable inputs when measuring fair value. The necessarily represent future cash requirements. However, following represent a brief summary of the valuation these credit-related financial instruments have off-balance- techniques used by the Association for asset and liabilities: sheet credit risk, because their amounts are not reflected on

the balance sheet until funded or drawn upon. The credit risk Derivatives associated with issuing commitments to extend credit and Exchange-traded derivatives valued using quoted prices standby letters of credit is substantially the same as that would be classified with Level 1 of the valuation hierarchy. involved in extending loans to borrowers and the same credit However, few classes of derivative contracts are listed on an policies are applied by management. exchange; thus, the majority of the derivative positions are valued using internally developed models that use as their basis readily observable market parameters and are classified within Level 2 of the valuation hierarchy. Level 2 includes NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF derivatives such as basic interest rate swaps. Derivatives that FINANCIAL INSTRUMENTS are valued based upon models with significant unobservable The following tables present the carrying amounts and fair market parameters and that are normally traded less actively values of the Association’s financial instruments at or have trade activity that is one way are classified within December 31, 2009, 2008 and 2007. Level 3 of the valuation hierarchy. The Association’s interest rate swaps meet the definition of Level 2 financial Quoted market prices are generally not available for certain instruments. Association financial instruments, as described below. Accordingly, fair values are based on judgments regarding future expected loss experience, current economic conditions,

31

risk characteristics of various financial instruments, and other similar loans would be made to borrowers with similar credit factors. These estimates involve uncertainties and matters of risk. As the discount rates are based on the Association’s loan judgment, and therefore cannot be determined with precision. rates as well as management estimates, management has no Changes in assumptions could significantly affect the basis to determine whether the fair values presented would be estimates. indicative of the value negotiated in an actual sale.

The estimated fair values of the Association’s financial B. Ca sh instruments are as follows: The carrying value is a reasonable estimate of the fair value. December 31, 2009 Carrying Fair C. Investment in CoBank, ACB Amount Value Financial assets: Estimating the fair value of the Association’s investment in Loans, net $ 352,173 $ 355,596 CoBank is not practicable because the stock is not traded. As Cash 77 77 described in Note 4, the investment is a requirement of Investment in CoBank, ACB 12,810 n/a Interest rate swaps 428 428 borrowing from CoBank and is carried at cost plus allocated equities on the consolidated balance sheet. Financial liabilities: Note payable to CoBank, ACB $ 296,058 $ 297,667 D. Interest Rate Swaps Interest rate swaps - - Interest rate swaps are carried at their estimated fair value, December 31, 2008 calculated as the present value of estimated future cash flows. Carrying Fair Depending on the position of the swap, the fair value may Amount Value either be an asset or a liability. Financial assets: Loans, net $ 324,003 $ 325,384 E. Note Payable to CoBank, ACB Cash 1,770 1,770

Investment in CoBank, ACB 11,779 n/a Interest rate swaps 666 666 The note payable is segregated into pricing pools according to the types and terms of the loans (or other assets) which it Financial liabilities: funds. Fair value of the note payable is estimated by Note payable to CoBank, ACB $ 271,461 $ 269,312 discounting the anticipated cash flows of each pricing pool Interest rate swaps - - using the current rate that would be charged for additional borrowings. For purposes of this estimate it is assumed the December 31, 2007 cash flow on the note is equal to the principal payments on the Carrying Fair Association’s loan receivables plus accrued interest on the Amount Value note payable. This assumption implies that earnings on the Financial assets: Association’s interest margin are used to fund operating Loans, net $ 301,059 $ 304,777 expenses and capital expenditures. Cash 2,075 2,075 Investment in CoBank, ACB 11,504 n/a Interest rate swaps 184 184 NOTE 15 – DERIVATIVE INSTRUMENTS Financial liabilities: Note payable to CoBank, ACB $ 248,997 $ 249,924 The Association enters into derivative financial instruments Interest rate swaps 12 12 known as “receive fixed” interest rate swaps. In a receive fixed swap, the Association pays to a counterparty a variable A description of the methods and assumptions used to rate of interest and receives from the counterparty a fixed rate estimate the fair value of each class of the Association’s of interest. The variable “pay rate” is a three month rate, financial instruments for which it is practicable to estimate which resets quarterly. The fixed “receive rate” is determined that value follows: at the time the swap is initiated and remains fixed for the term of the swap. The swaps entered into by the Association have A. L oans terms ranging up to three years. Each quarter a net cash settlement between the Association and the counterparty is Because no active market exists for the Association’s loans, calculated by applying both rates of interest (the pay rate and fair value is estimated by discounting the expected future cash the receive rate) to a specified amount called the notional flows using the Association’s current interest rates at which

32

value. The counterparty to the Association’s swaps is CoBank.

At December 31, 2009, the derivatives held by the Association consisted of the following:

Maturing In 2010 2011 2012 Total Notional value $ 5,000 $ 8,000 $ 3,000 $ 16,000 Fair value $ 115 $ 273 $ 40 $ 428 Avg. receive rate 4.77% 3.27% 2.13% 3.53% Avg. pay rate 0.25% 0.25% 0.25% 0.25%

The following tables show the impact of these derivatives on the financial statements:

December 31, 2009 2008 2007 Balance sheet: Accrued interest receivable $ 26 $ 19 $ - Accrued interest payable (included in other liabilities) - - (4) Positive fair values (included in other assets) 428 666 183 Negative fair values (included in other liabilities) - - (12) Accumulated other comprehensive income 353 629 152

Year Ended December 31, 2009 2008 2007 Statement of income: (Decreased) increased interest expense $ (531) $ (203) $ 242

Other comprehensive income: Net unrealized (losses) gains on interest rate swaps $ (277) $ 477 $ 380

NOTE 16 – SUBSEQUENT EVENTS

The Association has evaluated events through March 8, 2010, which is the date the financial statement were issued or available to be issued.

33

SHAREHOLDER DISCLOSURE INFORMATION

The following information is required to be disclosed to shareholders:

Description of Business

Please refer to Note 1 to the Consolidated Financial Statements, “Organization and Operations,” for information concerning the organization and operations of the Association.

Description of Property

At year-end the Association owned the following offices:

Location Description Middlebury, Vermont Office condominium (3000 sq. ft.) Newport, Vermont Office building (1400 sq. ft.) on 0.5 A land St. Albans, Vermont Office building (4300 sq. ft.) on 3.2 A land White River Jct., Vermont Office building (4300 sq. ft.) on leased land

Legal Proceedings and Enforcement Actions

Please refer to Note 12 to the Consolidated Financial Statements, “Commitments and Contingencies,” for information concerning any legal proceedings against the Association. There are no enforcement actions in effect against the Association by its regulator, the Farm Credit Administration.

Description of Capital Structure

Please refer to Note 7 to the Consolidated Financial Statements, “Members’ Equity,” for information concerning the capital structure of the Association.

Description of Liabilities

Please refer to Note 6 to the Consolidated Financial Statements, “Note Payable to CoBank, ACB,” for a description of debt outstanding. The description of contingent liabilities is outlined in Note 12 to the Consolidated Financial Statements, “Commitments and Contingencies.”

Association Quarterly Reports

The Association’s quarterly reports are available without charge from any of our offices, listed on page 36. Quarterly reports as of March 31, June 30 and September 30 are available 40 days after quarter-end.

34 YANKEE FARM CREDIT, ACA

CERTIFICATION STATEMENT FOR 2009 ANNUAL REPORT

The Board of Directors and management are responsible for the consolidated financial statements and other information in this Annual Report. This responsibility includes the preparation of the consolidated statements in accordance with accounting principles generally accepted in the United States of America, appropriate with the circumstances and consistently applied. This responsibility also includes the fairness of the estimates and judgments required, and the reliability of the underlying data.

The steps taken to meet this responsibility include maintaining a system of internal controls, providing for the training of personnel, promulgating written policies and procedures and, in general, seeking to create an atmosphere conducive to proper reporting and ethical behavior.

The Audit Committee of the Board of Directors is assigned the task of assisting the Board in fulfilling its oversight responsibilities. The Audit Committee is comprised ofRocki-Lee DeWitt, Walter Gladstone, Paul Saenger, Charles Sniffen and Stephen Taylor. None of the committee members is an officer or employee of the Association. The Audit Committee meets periodically with the internal auditor and the independent auditors, both with and without management present. These consolidated financial statements were prepared under the oversight of the Audit Committee.

On the basis of the above-mentioned and other controls, policies, and independent reviews, the Board and management believe that the responsibility described in the first paragraph has been fulfilled in all material respects.

The Audit Committee has reviewed and discussed these audited financial statements with both management and the independent auditors. The Audit Committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 114, "The Auditor's Communication with Those Charged with Governance." The Audit Committee has received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees." The Audit Committee has discussed, and confirmed, with those same auditors their independent status.

The signatories have reviewed this report and certify that it has been prepared in accordance with all applicable statutory or regulatory requirements and that the information contained herein is true, accurate, and complete to the best of his or her knowledge and belief, and that the consolidated financial statements in the opinion of the Board of Directors and management fairly present the consolidatedptk:c~ financial condition of the institution except as otherwise noted. Chairperson, Board of Directors President and CEO Q. ,_.Q::::,,.~ ~ Rocki-Lee DeWitt Pamela A. Simek Chairperson, Audit Committee Controller

March 8, 2010

35

YANKEE FARM CREDIT, ACA BORROWER PRIVACY STATEMENT

Your privacy is important to us. We do not sell or trade our borrowers’ personal information to marketing companies or information brokers. Since 1972, Farm Credit Administration regulations have governed the disclosure of borrower information. In accordance with those regulations, we may disclose your information to others only in the following circumstances:

 Examiners, auditors and reviewers may review loan files.  We may provide information in certain types of legal or law enforcement proceedings.  We may share your information with other Farm Credit institutions that you do business with.  We may be a credit reference for you with other lenders and provide information to a credit bureau or other consumer reporting agency.  If one of our employees applies to become a licensed real estate appraiser, we may give copies of real estate appraisal reports to the State agency that licenses appraisers when required. We will first remove as much personal information from the appraisal report as possible.  We may share your information in other circumstances if you consent in writing.

As a member/owner of this Association, your privacy and the security of your personal information are vital to our continued ability to serve your ongoing credit needs.

YANKEE FARM CREDIT, ACA OFFICE LOCATIONS

Yankee Farm Credit, ACA Yankee Farm Credit, ACA Yankee Farm Credit, ACA 9784 Route 9 1436 Exchange Street 41 Highland Avenue P.O. Box 507 P.O. Box 350 P.O. Box 537 Chazy, NY 12921 Middlebury, VT 05753 Newport, VT 05855 (800) 545-8374 (800) 545-1169 (800) 370-2738 (518) 846-7330 (802) 388-2692 (802) 334-8050

Yankee Farm Credit, ACA Yankee Farm Credit, ACA Yankee Farm Credit, ACA 130 Upper Welden Street 52 Farmvu Drive 289 Hurricane Lane, Suite 102 P.O. Box 240 P.O. Box 1009 P.O. Box 467 St. Albans, VT 05478 White River Jct., VT 05001 Williston, VT 05495 (800) 545-1097 (800) 370-3276 (800) 639-3053 (802) 524-2938 (802) 295-3670 (802) 879-4700

World wide web address: www.YankeeACA.com

36

YANKEE FARM CREDIT, ACA YOUNG, BEGINNING AND SMALL FARMERS

Mission Statement: Yankee Farm Credit believes in supporting Young, Beginning and Small (YBS) farmers. They represent the future of farming. The entry of YBS farmers into the industry is critical to the long-term success of agriculture. The Association’s YBS Farmer Board Policy provides a mandate to management to assure this success.

Young, Beginning and Small farmers are defined as:

Young farmer: A farmer, rancher, or producer or harvester of aquatic products who is age 35 or younger as of the loan transaction date.

Beginning farmer: A farmer, rancher, or producer or harvester of aquatic products who has 10 years or less farming, ranching, or aquatic experience as of the loan transaction date.

Small farmer: A farmer, rancher, or producer or harvester of aquatic products who normally generates less than $250,000 in annual gross sales of agricultural or aquatic products.

The 2007 Census of Agriculture (the most recent available) indicates 9,344 farms are located within the Association’s geographic territory (as described on page 6 of the MD&A). The following table provides a comparison of data from the 2007 Census of Agriculture with Association loan numbers and loan volume as of December 31, 2009 for those farms meeting the above Young, Beginning and Small farmer definitions:

2007 Census Data Yankee Data* as of 12/31/2009 # of % of Total # of % of Total Loan Volume** Loan Volume** Farms Farms Loans Loan #s Goal Actual Young 511 5.5% 304 18.7% $67,000,000 $70,245,240 Beginning 2,509 26.9% 449 27.6% $80,000,000 $86,378,841 Small 8,600 92.0% 589 36.2% $49,000,000 $49,812,034 *Yankee Data adjusted to exclude Participations Sold, Country Home and Farm Related Business loans. **Volume refers to outstanding principal balance, net of participations sold.

Quantitative Goals: The Association established loan volume goals for credit to YBS farmers as listed in the table above.

Qualitative Goals: The Association strives to serve as a reliable and consistent provider of sound and constructive credit to YBS farmers. The Association makes every effort to meet the credit needs of YBS farmer applicants. Referrals to and coordination with governmental and private sources such as Farm Service Agency, Vermont Agricultural Credit Corporation, leases and private party financing often plays an important role in serving these customers.

The Association is involved in, and supports, a number of activities and programs designed to benefit YBS farmers. Contributions are made regularly to agriculturally-related organizations such Extension Service, FFA, and 4-H that provide education and experience to our future farmers. The Association awards two or more scholarships each year to family members of customers enrolled in higher education programs, preferentially agricultural programs. Association employees routinely serve in a variety of capacities, e.g., as classroom instructors and mentors, in furtherance of the Association’s efforts to assist YBS farmers.

Methodology: The Association employs various measures to ensure that credit and related services offered to YBS farmers are provided in a safe and sound manner in accordance with the Association’s risk-bearing capacity. The Association’s quality control plan calls for periodic review of certain loans made to YBS farmers.

37

YANKEE FARM CREDIT, ACA RELATIONSHIP WITH COBANK, ACB

CoBank, ACB is the funding bank for the Association. A description of the organizational relationship between CoBank and the Association can be found in Note 1 to the Consolidated Financial Statements, “Organization and Operations.”

The Association borrows funds from CoBank. The Association is not permitted to borrow funds from other sources without the permission of CoBank. Information about the borrowing relationship between the Association and CoBank can be found in Note 6 to the Consolidated Financial Statements, “Note Payable to CoBank, ACB,” and in Management’s Discussion & Analysis (MD&A, the section titled “Funding Sources, Liquidity and Interest Rate Risk”).

In addition to borrowing, the Association also engages in the following transactions with CoBank:

 The Association buys participation loans from CoBank. Participation loans are discussed in Note 3 to the Consolidated Financial Statements, “Loans and Allowance for Loan Losses,” and in the MD&A—the section titled “Loan Portfolio.” (The Association may also buy participation loans from other Farm Credit institutions, in addition to CoBank.)

 The Association sells participation loans to CoBank. Participation loans are discussed in Note 3 to the Consolidated Financial Statements, “Loans and Allowance for Loan Losses,” and in the MD&A—the section titled “Loan Portfolio.” (The Association may also sell participation loans to other Farm Credit institutions, in addition to CoBank.)

 The Association enters into interest rate swaps with CoBank. Interest rate swaps are discussed in Note 15 to the Consolidated Financial Statements, “Derivative Instruments,” and in the MD&A—the section titled “Interest Rate Swaps.” The counterparty for all interest rate swaps is CoBank.

CoBank is a cooperative, and the Association invests in CoBank. Information about the Association’s investment in CoBank can be found in Note 4 to the Consolidated Financial Statements, “Investment in CoBank, ACB.”

CoBank may pay patronage refunds to the Association, based on the business that the Association does with CoBank. Patronage refunds from CoBank are discussed in Note 4 to the Consolidated Financial Statements, “Investment in CoBank, ACB,” and in the MD&A—the section titled “Patronage refunds from CoBank.”

There are no capital preservation, loss sharing, or financial assistance agreements between the Association and CoBank. CoBank does not have access to the Association’s capital. CoBank and the Association are each responsible for their own interest rate risk.

Shareholders’ investments in the Association may be materially affected by the financial condition and results of operations of CoBank. CoBank’s annual and quarterly reports are available without charge from any of our offices (see page 36 for contact information) or directly from CoBank (see page 39 for contact information).

38

YANKEE FARM CREDIT, ACA RELATIONSHIP WITH COBANK, ACB (continued)

Contact information for CoBank, ACB:

Springfield Banking Center Corporate Headquarters mailing CoBank, ACB mailing CoBank, ACB address: 240B South Road address: P.O. Box 5110 Enfield, CT 06082 Denver, CO 80217 physical CoBank, ACB physical CoBank, ACB address: 240B South Road address: 5500 S. Quebec Street Enfield, CT 06082 Greenwood Village, CO 80111 telephone: (860) 814-4043 telephone: (303) 740-4000

World wide web address: www.cobank.com

INFORMATION ABOUT THE FARM CREDIT SYSTEM

A brief description of the Farm Credit System is contained in Note 1 to the Consolidated Financial Statements, “Organization and Operations.” Additional information about the Farm Credit System can be obtained from any of our offices, listed below, or from the Federal Farm Credit Banks Funding Corporation:

Federal Farm Credit Banks Funding Corporation 10 Exchange Place, Suite 1401 Jersey City, NJ 07302-3913

telephone: (201) 200-8000 World wide web address: www.farmcredit-ffcb.com

39 YANKEE FARM CREDIT, ACA EMPLOYEES

Chazy, New York White River Junction, Vermont (800) 545-8374 (800) 370-3276 (518) 846-7330 (802) 295-3670

Geoffrey C. Yates, VP/Director-Appraisal Services William C. Heath, Sr. Vice President & CCO Marie A. Guay, Sr. Loan Officer Jeffrey A. Temple, Vice President Robert A. Guay, Appraiser Trainee Kenneth F. Nelson, Sr. Loan Officer Christopher A. Bessette, Sr. Loan Officer/Part. Spec. Middlebury, Vermont Jean Conklin, Loan Officer/Farm Tax Specialist (800) 545-1169 Morgan Greenwood Rilling, Loan Officer (802) 388-2692 Elizabeth L. Bayne, Appraiser/Sr. Records & Tax Specialist Michael J. Moloney, Sr. Records & Tax Specialist Kenneth R. Button, Sr. Vice President April S. Smith, Office Assistant/Credit Analyst Susan K. Kelley, Sr. Loan Officer Desiree M. Gauthier, Office Assistant Heather L. Curler, Credit Analyst Kendra A. Burroughs, Financial Services Assistant Kristi L. Quesnel, Credit Analyst Tina J. Guerrero, Financial Services Representative Cheryl A. Heath, Records & Tax Specialist Donna L. Barnum, Office Assistant Williston, Vermont Pamela A. Simek, Controller (800) 639-3053 (802) 879-4700 Newport, Vermont (800) 370-2738 George S. Putnam, President & CEO (802) 334-8050 John S. Peters, VP/Operations Ruchel D. St. Hilaire, Executive Assistant Kenneth H. Buzzell, Sr. Vice President Lisa M. Young, Records & Tax Specialist Kelly E. Langmaid, Loan Officer Lisa S. Wener, Sr. Accounting Assistant Peggy S. Reed, Credit Analyst/Office Assistant Dena F. Verdin, Accounting Assistant Suzie J. Wheeler, Tax Specialist/Office Assistant

St. Albans, Vermont (800) 545-1097 (802) 524-2938

Michael K. Farmer, Vice President Loren E. Petzoldt, Sr. Loan Officer Chuck J. Custeau, Loan Officer Thomas A. St. Pierre, Loan Officer Shantel M. Thomas, Crop Insurance Agent Suzanne L. Petig, Credit Analyst Sharron L. Hancock, Office Assistant Alicia M. Kinney, Office Assistant George Birkett, Financial Services Representative

See page 36 for physical and mailing addresses for the offices.

40 YANKEE FARM CREDIT, ACA DIRECTORS

Paul E. Gingue, Chairperson Walter M. Gladstone 1800 Higgins Hill Rd. 161 Mallary Rd. Waterford, VT 05819 Bradford, VT 05033 (802) 748-8843 (802) 222-9232 Region 2 – Committee 3 Region 2 – Committees 1, 4 Term Expires 2012 Term Expires 2011

Rocklyn A. Giroux, Vice Chairperson Celeste Kane-Stebbins 8096 Route 9 9437 VT Route 105 Plattsburgh, NY 12901 Enosburg Falls, VT 05450 (518) 561-2537 (802) 933-4975 Region 1 – Committees 3, 4 Region 1 – Committees 2, 4 Term Expires 2012 Term Expires 2011

Alan J. Bourbeau Paul F. Saenger 30 Pond Rd P.O. Box 205 Sheldon, VT 05483 Shoreham, VT 05770 (802) 524-2768 (802) 897-2101 Region 1 – Committees 3, 4 Region 3 – Committees 1, 2 Term Expires 2010 Term Expires 2010

Rupert C. Chamberlin Charles J. Sniffen 1552 Chamberlin Rd. P.O. Box 153 Barton, VT 05822 Holderness, NH 03245 (802) 525-3981 (603) 968-7417 Region 2 – Committees 2, 3 Outside Director – Committees 1, 4 Term Expires 2010 Term Expires 2012

Rocki-Lee DeWitt Stephen H. Taylor 6181 Greenbush Rd. 166 Main Street Charlotte, VT 05445 Meriden, NH 03770 (802) 656-0501 (603) 469-3375 Outside Director – Committees 1, 2 Region 3 – Committee 1 Term Expires 2010 Term expires 2012

Paul E. Doton 202 Lakota Rd Committees as of 12/31/2009 Woodstock, VT 05091 1 – Audit Committee (802) 457-2230 2 – Compensation Committee Region 3 – Committees 2, 3 3 – Executive Committee Term Expires 2011 4 – Membership/Governance Committee

41 NOTES

42 NOTES

43 NOTES

44 Yankee Farm Credit, ACA P.O. Box 467 PRSRT STD Williston, VT 05495 U.S. Postage PAID Permit No. 478 Burlington, VT