2013 Farm Credit of Maine Annual Report

annual

report

To Our Members and Friends: Farm Credit of Maine had another good year in 2013. This annual report to stockholders provides the details behind that strong performance and overall financial condition. Once again, we were one of the few financial institutions in New England to experience continued loan growth over the past several years. We believe this steady growth is largely a reflection of the many changes occurring in New England’s agricultural, forest products, and commercial fishing industries and our customers’ courage and resourcefulness to make solid investments in the future.

In past letters and annual reports, we have referred to our capacity to serve a wide and varied range of food and fiber businesses in Maine – and in particular the importance of our partnerships with other Farm Credit institutions. Over the past several years, the Board and executive team took a closer look at these partnerships with an eye toward making sure our capacity to serve these ever-changing industries was adequate well into the future. During this strategic planning process, we identified several options related to ensuring we continued to increase our capacity and that we also could maximize the economic value of Farm Credit to our customers and provide continued career challenges for our talented employees.

We concluded that the best option in all respects was to consolidate our cooperative with another successful Farm Credit cooperative in the region. After much deliberation, which was followed by communication with our stockholders, our employees, our funding bank partner, our technology partners, and others, we completed a merger with Farm Credit East which was effective January 1, 2014. The Board and the staff have already successfully blended and integrated their efforts as part of this merger of two strong Farm Credit organizations. We fully expect that the performance of the new Farm Credit East, now serving seven states in the Northeast region, will exceed our expectations in all respects, and hopefully yours.

Our Denver-based funding bank partner CoBank, which remains the same with the merger, has been an excellent national banking partner for associations in the Northeast region, several Plains states, the Southwest, West Coast, and Northwest. CoBank continues to produce solid and stable financial results, not only for its customer-owners within the Farm Credit System, but also for its agribusiness and rural utility customers throughout the U.S. The national Farm Credit System, whose statutes provide the framework in which all Farm Credit associations operate throughout the nation, also remains very strong financially. This ensures both the capacity to meet the capital needs of rural America and steady access to financing for customer-owners who depend on Farm Credit.

Once again in 2013, we provided new loans to large, economically important agricultural businesses and to a growing number of smaller food and fiber producers throughout Maine. We believe our rural communities and our rural economy depend on a diversity of production, distribution, and processing and marketing businesses – large and small. Farm Credit works hard to ensure we provide the right financing tools and selected related services so all of Maine’s agricultural industries can continue to grow and prosper. We believe the new Farm Credit East will further strengthen our ability to deliver on our mission.

On behalf of our Board and staff, thank you again for selecting Farm Credit as your partner.

Hank E. McPherson Board of Directors, Chair

Raymond J. Nowak President and Chief Executive Officer

1 | Farm Credit of Maine

Five-Year Summary of Selected Consolidated Financial Data (dollars in thousands)

2013

2012

December 31, 2011

2010

2009

Loans originated Plus loans purchased Less loans sold Total Less allowance for credit losses Net loans Cash Investment in CoBank, ACB Other property owned Other assets Total assets

$ 585,896 2,356 290,199 298,053 5,869 292,184 2,552 15,867 0 12,021 $ 322,624

$ 573,765 1,901 280,334 295,332 5,343 289,989 2,070 14,826 14 11,199 $ 318,098

$ 479,884 1,800 216,557 265,127 4,853 260,274 974 13,444 14 9,651 $ 284,357

$ 460,001 3,922 213,476 250,447 4,709 245,738 382 12,912 14 9,180 $ 268,226

$ 396,127 10,453 160,955 245,625 3,205 242,420 634 12,507 100 8,551 $ 264,212

Obligations with maturities of one year or less Obligations with maturities greater than one year Reserve for unfunded commitments Total liabilities

$

$

$

$

$

Capital stock and participation certificates Allocated surplus Unallocated surplus Accumulated other comprehensive income (loss) Total members' equity Total liabilities and members' equity

767 6,852 57,389 (447) 64,561 $ 322,624

773 6,432 53,112 (504) 59,813 $ 318,098

758 6,082 48,389 (421) 54,808 $ 284,357

737 5,734 45,314 (170) 51,615 $ 268,226

732 5,438 42,025 (21) 48,174 $ 264,212

$

$

$

$

$

Consolidated Balance Sheet Data

3,113 253,593 1,357 258,063

3,404 253,615 1,266 258,285

2,689 225,549 1,311 229,549

2,486 214,125 0 216,611

2,722 213,316 0 216,038

Consolidated Statement of Income Data Net interest income Provision for credit losses Noninterest expenses, net Provision for income taxes Net income

$

11,400 615 3,577 431 6,777

$

10,964 471 2,794 676 7,023

$

10,413 1,504 3,437 296 5,176

$

10,126 1,570 3,000 267 5,289

$

9,790 1,936 3,454 53 4,347

Key Financial Ratios Return on average assets Return on average members' equity Net interest income as a percentage of average earning assets Members' equity as a percentage of total assets Debt to total members' equity Net charge-offs as a percent of average loans Reserve for credit exposure as a percentage of loans and accrued interest receivable Permanent capital ratio Core surplus ratio Total surplus ratio Net income distribution Patronage dividends: Cash Allocated surplus Unallocated surplus

$ $ $

2.1% 10.8%

2.3% 12.2%

1.9% 9.6%

2.0% 10.5%

1.7% 9.2%

3.9% 20.0% 4.0:1 0.01%

3.9% 18.8% 4.3:1 0.01%

4.1% 19.3% 4.2:1 0.02%

4.1% 19.2% 4.2:1 0.03%

4.0% 18.2% 4.5:1 0.04%

2.4% 17.5% 17.2% 17.2%

2.2% 16.6% 16.3% 16.3%

2.3% 16.9% 16.6% 16.6%

1.9% 16.5% 16.1% 16.1%

1.3% 15.5% 15.2% 15.2%

1,250 1,250 4,277

$ $ $

1,150 1,150 4,723

2 | Farm Credit of Maine

$ $ $

1,050 1,050 3,076

$ $ $

1,000 1,000 3,289

$ $ $

850 850 2,647

Management’s Discussion and Analysis Nature of Business Farm Credit of Maine (the Association or Cooperative) is an Agricultural Credit Association (ACA) serving the diverse agricultural, commercial fishing, and forest products industries, and rural communities in the state of Maine. Part of the national cooperative Farm Credit System (System), the Association originates and services loans to its members. The Association is a duly organized and chartered federal instrumentality under the provisions of the Farm Credit Act of 1971, as amended (Farm Credit Act).

In addition to loans, the Association offers leasing, appraisal, credit life insurance, and crop insurance services. An ongoing strategic focus for the Association is the use of partnerships and alliances to maintain efficiency and competitiveness in its services and core lending business. The Association’s partnerships include CoBank, a Farm Credit System national cooperative bank (funding, loan participation, and human resource service center and employee benefits); Farm Credit Financial Partners, Inc. (technology, data security, and operations services); Minnesota Mutual (credit life insurance); and several Farm Credit associations (crop insurance, business consulting services, loan participation, and online banking).

The Cooperative’s customers are primarily private, familyowned businesses that produce, harvest, process, market, and transport logs, wood chips, lumber, potatoes, broccoli, milk and milk products, barley, oats, corn, apples, blueberries, strawberries, cranberries, maple syrup, lobster, fish, shrimp, scallops, nursery stock, and related products. They are widely dispersed throughout Maine. Some of the Association’s larger customers conduct operations outside Maine and the U.S., while some of the Association’s smaller customers operate

farming enterprises on a full-time or part-time basis in local areas. It is the goal of the Association to serve all types of agricultural, forestry, commercial fishing, and related businesses in Maine and to meet their total credit needs for any purpose at any location. Delivery of services is focused on the customer’s primary place of business. Loan officers, credit analysts, and loan assistants located in two regional lending offices, Auburn and Presque Isle, work in teams to serve customers.

The Federal Farm Credit Banks Funding Corporation sells Farm Credit System debt securities to investors in the national and international money markets, providing funds to finance the Association’s loans to its members. These System debt securities are rated Aaa from Moody’s Investors Service, AAA from Fitch Ratings, and AA+ from Standard & Poor’s Rating Services. The Association secures these funds through CoBank, serving selected Farm Credit associations, agribusiness cooperatives, and rural utilities in the United States.

CoBank is headquartered in Denver, Colorado. The Association’s own capital, along with its wholesale borrowings from CoBank, is used to fund loans to its members. The Association also maintains an active relationship with CoBank in the sale and purchase of loan participations.

The following commentary is a review of the consolidated financial condition and results of operations of Farm Credit of Maine, ACA and subsidiaries for the period ended December 31, 2013. These comments should be read in conjunction with the accompanying consolidated financial statements and related notes to the consolidated financial statements included in this report.

Forward-Looking Statements Certain sections of this annual report contain forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Words such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” and other variations of these terms are intended to identify the forward-looking statements. These statements are based on assumptions and analyses made in light of experience, historical trends, current conditions, and expected future developments. However, actual results and developments may differ materially from our expectations and

predictions due to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties include, but are not limited to, political, legal, regulatory, and financial markets; economic conditions and developments in the United States and abroad; economic fluctuations in agricultural and farm-related business sectors; weather-related disease and other adverse conditions that periodically impact agricultural productivity and income; changes in United States government support of the agricultural industry; and implementation of monetary policy by the Federal Reserve System.

3 | Farm Credit of Maine

Loan Portfolio Portfolio Composition. The Association’s loan portfolio is well diversified among Maine’s traditional resource-based industries. At year-end 2013, the net loan portfolio was comprised of: 20 percent timberland; 21 percent potatoes (seed, tablestock, and processing); 15 percent logging; 12 percent food and fiber value added; 12 percent dairy; 9 percent fishing (lobster, shrimp, scallops, and groundfish); and 11 percent other industries and services such as blueberries, cranberries, apples, broccoli, nurseries, cash crops, and country living loans.

Weather continues to be an ongoing challenge for the natural resource based industries within the state of Maine. The 2013 year could easily be summed up as both warmer and wetter than usual, but variability around the state in terms of the weather was prevalent. The 2013 winter weather was warmer than average, with relatively light snowfall. This negatively impacted overall forestry operations around the state, especially with the on-set of an early spring. Many farmers benefited by the early warm and dry weather that was prevalent in late April and early May, with the National Agricultural Statistics Service (NASS) reporting that 47 percent of New England tillage being short, and 2 percent surplus on moisture for the week ending May 5. However, those conditions changed rapidly, with NASS reporting, for the week ending May 26, of only 1 percent of New England tillage short, and 50 percent surplus on moisture.

The excess moisture continued for much of the summer, impacting yields and quality of many vegetable and fruit growers. Strawberry growers lost much of their crop to mold.

Improved weather conditions in late summer and into the fall did salvage much of the crops, with overall yield and quality, although variable around the state, being average to below average.

Timberland Challenging 2013 winter harvesting conditions, an early mud season, and a relatively wet summer (especially in northern Maine), impacted overall harvested volumes. On the positive side, improved housing starts, and light inventories at many of the regions mills, kept prices firm, and for some wood species, moving up. Improved weather conditions in the fall and early winter have elevated harvest levels with many landowners.

Several new plants, from bio-mass fired electrical generation, pellet mill expansions and a new sawmill in northern Maine, add to the existing plethora of markets. This offsets, to some extent, the announced temporary shutdown of one Maine paper mill and the reduced volumes at several others. Maine timberland owners are keeping a keen eye on the approaching Spruce Budworm, which is currently impacting timber stands in northern Quebec.

Potatoes The weather issues, as discussed above, had a material impact on the Northern Maine potato crop. Overall yields were at or

below average, and many experienced various levels of quality problems, from “hollow heart” to not meeting quality specifications for the processors. Crop insurance will help to mitigate losses for those growers with the most severe quality issues. Many growers will experience a decline in overall revenues due to the overall yield and quality problems.

Tablestock prices are up strongly for those with good quality, and seed growers should have a solid year.

Logging Weather conditions through summer, as discussed within the Timberland update, challenged many logging operators. Higher fuel costs have constrained operating margins, and increasing equipment costs have lengthened out replacement cycles for many, elevating repair bills. Many operators have benefitted from the improved operating conditions of late summer into year-end, and with the strong demand for all types of wood fiber, they have been able to operate at full capacity. Overall logging capacity in the Northeast continues to decline, and without improved margins, it will unlikely see any increased capital spending in 2014.

Food and Fiber Value Added The Association provides financing to a number of businesses that have value added processing or marketing operations.

Most of the businesses in this sector are impacted over the long term by changing consumer preferences and general economic conditions. The forest products industry has benefitted from the improving housing demand, with overall housing starts in 2013 amounting to 930,000 units as compared with 780,000 in 2012. With overall sawmill capacity much reduced from the pre-recession levels, lumber prices for all softwood and hardwood species were much improved in 2013. It is expected that this trend will continue with the overall projected improvement in the housing sector.

Dairy The Maine dairy industry continues to be challenged by volatile milk and grain prices. Milk prices for 2013 were improved over the 2012 levels, and operating margins for many dairy farmers saw some improvement. Weather conditions, although challenging for early hay production, appear to have been more favorable for silage corn, with many farmers harvesting adequate levels of feed, with average to above average quality.

Maine dairy farmers appear to be well positioned as they generally produce all of their own forages, which have mitigated some of the feed cost increases.

Fishing The groundfish industry continues its adjustment to the sector style management of the fishing stocks. Continued concern over low stock inventory for certain species, such as cod, will keep pressure on increasing quotas of healthy species such as haddock. Recent stock assessments on Gulf of Maine shrimp

4 | Farm Credit of Maine

Lobster catch was on par with the 2012 season but met with some improved prices. In many cases, increased fuel and bait costs will leave little increase in overall operating margins.

Many lobstermen continued to adjust to the lower net margins they have dealt with since 2008. Improving processing markets in the region are helping, but the industry is still adjusting to the elevated catches of 2010 to 2013.

Lending risk in large loans is minimized by the lending limit imposed by Association Board policy. All loans in excess of $5.0 million are shared or participated with CoBank, Farm Credit associations, or other financial institutions. This lending limit represents 7.7 percent of the Association’s total capital at year-end. The Association also participates in some loans that are less than $5.0 million. Participation sold volume at December 31, 2013 was $290.2 million, compared to $280.3 million and $216.6 million at December 31, 2012 and 2011, respectively. Loan volume net of participations sold was $298.1 million at December 31, 2013.

Portfolio Risk Management. The Association has grown its portfolio in partnership with CoBank. Together, these institutions are actively engaged in commercial loan relationships with a diverse mix of large and small businesses throughout Maine. In 2013, the portfolio of loans managed by the Association’s lending staff grew 2.2 percent to $588.3 million. Total loans outstanding have grown an average of 9.6 percent for the past five years and 6.9 percent for the past 10 years.

As another risk management tool, the Association continues to use federal and state loan guarantee programs for credit enhancement when it is in the best interest of the borrower and the Association. Guaranteed loans represented 10.8 percent of the Association’s net loan portfolio as of December 31, 2013.

Guaranteed loans, which are heavily concentrated in the Aroostook Region, work to complement the Association’s broad geographic and industry diversification within its territory and provide for good risk distribution and stability.

Together, the Association, CoBank, and the entire Farm Credit System have the capacity and ability to serve the everchanging credit needs of qualified agricultural, agribusiness, forest products, commercial fishing, and related businesses in Maine.

Asset Quality. The Association uses five categories of credit classes when measuring asset quality. At year-end 2013, 98.0 percent of Association loans were classified as Acceptable or Other Assets Especially Mentioned.

have resulted in a full closure of the fishery for the 2013-2014 season. This will have a negative impact on a large number of large and small fishing operators.

The following table shows a three-year trend of loan asset quality in the net loan assets of the Association.

2013 Acceptable and other assets especially mentioned Substandard Doubtful Loss Total

December 31, 2012

98.0% 2.0% 0.0% 0.0% 100.0%

2011

97.6% 2.4% 0.0% 0.0% 100.0%

98.5% 1.5% 0.0% 0.0% 100.0%

At December 31, 2013, the Association’s high risk assets totaled $2,522,318. This was an increase of $385,060 from December 31, 2012 due primarily to a small number of customers experiencing challenging business and economic environments during the year. A three-year trend in high-risk assets is shown in the following table.

2013 Nonaccrual loans Accruing loans 90 days or more past due Formally restructured accruing loans Total high risk loans Other property owned Total high risk assets

$

$

2,288,609 148,549 85,160 2,522,318 0 2,522,318

December 31, 2012 $

$

5 | Farm Credit of Maine

413,100 1,624,981 85,635 2,123,716 13,542 2,137,258

2011 $

$

751,173 0 0 751,173 13,542 764,715

Reserve for Credit Exposure relevant factors. These factors include types of loans; credit quality; specific industry conditions; general economic and political conditions; and changes in the character, composition, and performance of the portfolio, among other factors. High risk loans are evaluated based on the borrower’s overall financial condition, resources, and payment record; the prospects for support from any financially responsible guarantor; and if appropriate, the estimated net realizable value of any collateral. The reserve for credit exposure attributable to these loans is established by a process that estimates the probable loss inherent in the loans, taking into account various historical and projected factors; internal probability of default ratings; regulatory oversight; and geographic, industry, and other factors. Management also considers a variety of other general factors, such as overall industry and economic conditions.

The Association’s methodology to reserve for potential credit losses in its loan portfolio includes an allowance for credit losses component, which is management’s best estimate of the amount of probable losses existing and inherent in its net loan portfolio and a reserve for unfunded commitments component, which reflects the risk exposure associated with undisbursed commitments that could be immediately drawn down by our customers under certain circumstances. Some unfunded commitments are with larger borrowers whose loans are shared with other institutions. In these cases, the Association’s risk is represented by the portion of unfunded commitments drawn upon that would be held by the Association as a net loan balance.

The allowance for credit losses is recorded as a reduction to assets, while the reserve for unfunded commitments is reported as a liability on the Association’s balance sheet.

During 2013, the Association recorded a provision for credit losses in the amount of $615,293. It takes into account guidance issued by the Financial Accounting Standards Board (FASB), Farm Credit Administration (the System’s regulator), the Securities and Exchange Commission (SEC), and the Federal Financial Institutions Examination Council.

The reserve for credit exposure is increased through provisions for credit losses and loan recoveries. It is decreased through loan loss reversals and loan charge-offs.

The reserve for credit exposure is determined based on a periodic evaluation of the loan portfolio, which generally considers recent historical charge-off experience adjusted for

Results of Operations earning assets of 6.1 percent during the year. This was offset by slightly narrower margins along with lower interest income associated with the interest rate swap.

Net interest income for 2013 was $11,399,993, an increase of $435,970 or 4.0 percent from 2012. The increase was primarily due to strong loan growth resulting in higher average

The following table shows a summary of the components of net interest income.

Average interest earning assets Interest income on interest earning assets Average yield Average interest bearing liabilities Interest expense on interest bearing liabilities Average yield Interest rate spread Net interest income before nonaccrual loans and interest rate swap income Interest income on nonaccrual loans Interest rate swap income Net interest income before provision for credit losses

2013

December 31, 2012

2011

$ 295,837,693 13,623,301 4.60%

$ 278,858,427 13,164,108 4.72%

$ 253,638,173 12,456,728 4.91%

251,462,425 2,450,941 0.97%

236,288,944 2,528,990 1.07%

215,503,744 2,496,699 1.16%

3.63%

3.65%

3.75%

11,172,360 65,089 162,544 $ 11,399,993

10,635,118 50,150 278,755 $ 10,964,023

9,960,029 107,898 344,608 $ 10,412,535

6 | Farm Credit of Maine

The following table shows the year-to-year changes in net interest income, before nonaccrual loans and interest rate swap income.

Due to changes in volume Due to changes in interest rates Total increase in net interest income before nonaccrual loans and interest rate swap income

2013 vs 2012

2012 vs 2011

2011 vs 2010

$

636,573 (99,330)

$

982,965 (307,875)

$

374,037 122,921

$

537,243

$

675,090

$

496,958

The interest rate swap increased net interest income by $162,544 in 2013 compared to an increase of $278,755 in 2012, and an increase of $344,608 in 2011. This positive impact on net interest income was not unexpected, given the interest rate environment in 2013. Management and the Board believe that the long-term goals of this interest rate swap (hedge) are being met. See further discussion under Interest Rate Swaps.

Crop insurance continues to be an important risk management tool for eligible farmers. The Association will continue to aggressively pursue fee income opportunities where Farm Credit can bring added value to the Maine marketplace and where the expertise and resources are in line with its core competencies. The Association will continue to explore offering services to customers in partnership with other businesses.

As indicated previously, a provision of $615,293 was recorded to the reserve for credit exposure in 2013. This compares to a provision of $470,629 in 2012 and a provision of $1,503,552 in 2011. The methodology used to calculate the reserve for credit exposure reflects credit losses in the financial reporting period. This continues to make earnings subject to greater fluctuations when losses do occur or when the reserve for credit exposure is adjusted.

Expenses associated with salaries and benefits totaled $4,967,052 in 2013 compared to $4,617,162 in 2012, and $4,187,362 in 2011. Higher expenses in 2013 are due primarily to normal merit increases and employee bonus awards.

Total patronage distribution from CoBank in 2013 was $3,310,897 compared to $3,022,148 in 2012, and $2,360,287 in 2011. This includes patronage on the Association’s wholesale loan business with CoBank and patronage paid to the Association based on its participation loan volume sold to CoBank. Patronage on loans participated with CoBank continues to grow due to the Association’s overall loan growth over the past several years. The Association also received patronage income from loan participations with other partners totaling $233,279 in 2013, which compares to $326,286 in 2012, and $180,710 in 2011.

Loan fee income was $512,123, $445,278, and $435,437 for 2013, 2012, and 2011 respectively. This component of income includes fees primarily associated with new loan applications, construction lending, letters of credit, and loan servicing. New loan originations and ongoing servicing requests are the primary factors associated with the increase in 2013.

Fees for financial services were $636,250, $577,488, and $460,134 for 2013, 2012, and 2011 respectively. These amounts include fees from credit life insurance, crop insurance, leasing, and appraisals. The increase in fee income in 2013 was attributed to higher income in our appraisal and crop insurance services. Appraisal service has been a growing source of revenue for the Association. It is an important element of our credit collateral evaluation and a valuable service for Maine’s specialized and economically important natural resource-based industries.

The Farm Credit Insurance Fund premium of $221,000, $105,000, and $111,000 for 2013, 2012, and 2011 respectively, represents the Association’s cost of insurance protection to Farm Credit bond investors. This national insurance premium is assessed to individual Farm Credit institutions based on average daily loan volume. Insurance costs were higher in 2013 due to System loan growth and the Insurance Fund being below the targeted funded level. See Note 1 to the consolidated financial statements for a more detailed description.

Operating expenses paid to Financial Partners, Inc. (FPI) for technology and related services were $923,416 in 2013 compared to $975,588 in 2012 and $948,707 in 2011. The Association is an owner of this technology and service provider, along with several other northeastern, midwestern, and western Farm Credit associations.

Net income was $6,777,289 in 2013 compared to $7,022,799 in 2012, and $5,175,614 in 2011.

Provision for income taxes includes normal tax expense on the Association’s income net of the overall change in deferred tax assets and liabilities. Income tax expense for 2013 was $431,385 compared to $676,313 in 2012 and $296,308 in 2011.

See Note 8 to the consolidated financial statements for a more detailed description.

Earnings in 2013 produced a 2.1 percent return on average assets (ROA) as compared to 2.3 percent in 2012 and 1.9 percent in 2011. The return on average total members’ equity was 10.8 percent in 2013 as compared to 12.2 percent in 2012 and 9.6 percent in 2011.

7 | Farm Credit of Maine

Patronage distributions, a way to share earnings with our customers-owners, assist in lowering the Cooperative’s effective tax rate. For 2013, the seventeenth consecutive year, the Board declared a distribution, 50 percent of which will be distributed in cash to members in the spring of 2014 and 50 percent of which will be distributed in allocated surplus to be paid at a future date. The 2013 patronage distribution of $2,500,000 compares to $2,300,000 and $2,100,000 in 2012 and 2011, respectively. Payment of patronage is part of the Association’s

capital plan, which also includes a stock requirement, described in more detail in Note 7 to the consolidated financial statements.

In summary, total net earnings of $6,777,289 for 2013 are being distributed as follows: $1,250,000 in cash to members, $1,250,000 in allocated surplus, and $4,277,289 to unallocated surplus.

Liquidity, Funding Sources, and Interest Rate Risk The Association, in cooperation with CoBank, maintains a level of liquidity adequate to meet its needs and provide uninterrupted funding to its customers during a crisis period in the global or U.S. capital markets. The Association maintained a revolving line of credit with CoBank in 2013 for lending purposes and to pay operating expenses. The terms and conditions of this line of credit, including a borrowing base provision, are detailed in a General Financing Agreement (GFA). The principal amount outstanding on the Association’s line of credit cannot exceed the borrowing base of 97 percent of the Association’s unguaranteed loan volume classified as fully acceptable, 90 percent other assets especially mentioned, and 75 percent of adversely classified loan volume.

As of December 31, 2013, the margin on the line of credit with CoBank was deemed adequate to cover Association requirements. In addition, the GFA states that the Association is obligated to borrow only from CoBank and not obtain funds from other lenders without the approval of CoBank. The Association was in compliance with all terms and conditions of the GFA, including the borrowing base provision.

The Association has an Asset Liability Management Policy and equity positioning strategy designed to moderate the impact of

changes in interest rates on its net interest margin. As part of the strategy, the Association has entered into interest rate swap transactions with CoBank, as described elsewhere in this report.

The purpose of the equity positioning strategy is to stabilize and enhance net interest income over the long term.

The Association offers variable, fixed, and indexed rates to its members. Differential rates in all of the rate plans are assigned to individual loans based on the level of risk, the cost of servicing, and the competitive business environment; and they are consistent with established criteria defined by Board policy.

Loans priced in various rate plans are funded with debt instruments that have, to the extent possible, characteristics similar to the loans they are funding. This minimizes interest rate risk and stabilizes earnings for the Cooperative. It is the intent and philosophy of both the Board and management to charge highly competitive rates while providing earnings adequate to achieve the Association’s long-term financial objectives. Financial objectives are established at levels that meet or exceed the terms of the GFA. Meeting and exceeding its objectives will ensure that the Association maintains its ability to borrow funds at the lowest possible cost.

Interest Rate Swaps Beginning in the first quarter of 2002, the Association, in cooperation with CoBank, initiated a disciplined equity positioning strategy for the purposes of stabilizing and enhancing its net interest income over the long term. The derivative financial instruments consist of receive fixed interest rate swaps. In a receive fixed swap, the Association receives from a counterparty a fixed rate of interest. The variable pay rate is a three-month rate that resets quarterly. The 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 interest (the pay rate and the receive rate) to a specified amount called the

notional value. As noted above, the counterparty to the Association’s swap transactions is CoBank.

Interest rate swap transactions are reported under Accounting Standards Codification 815 “Derivatives and Hedging.” As of December 31, 2013, the Association has entered into 12 individual swap transactions in the notional amount of $36,000,000. This amount represents approximately 85 percent of the available equity to use in these transactions. The net market value of these transactions as of December 31, 2013 was $70,958 and is included in other liabilities, other assets, and other comprehensive income on the balance sheet.

As noted above, because the Association’s own equity is used to fund loans, net interest income will be higher when interest rates are higher and net interest income will be lower when

8 | Farm Credit of Maine

interest rates are lower, all other factors being equal. On the other hand, income from derivative transactions will generally increase when interest rates decrease, and generally decrease when interest rates increase, all other factors being equal.

These two factors will tend to offset each other.

In accordance with this strategy, it is the Association’s intent to have the total notional value of its interest rate swaps not exceed accrual loans less the note payable to CoBank. This strategy has the additional benefit that on average, over long periods of time, net interest income should increase. This is because the pay rate is a three-month rate while the receive rate is a longer-term rate, up to three years. Historically, long-term

interest rates have, on average, been higher than short-term interest rates. Nevertheless, it is possible to experience several consecutive quarters, or even years, of negative impact on net interest income from this strategy.

In 2013, the effect of these interest rate swaps on the consolidated statement of income was recorded as a decrease in interest expense of $162,544 compared to a decrease of $278,755 in 2012 and a decrease in expense of $344,608 in 2011. Additional information about the swaps outstanding at December 31, 2013 may be found in Note 13 to the consolidated financial statements.

Capital Resources The objective of the Association’s capital plan is to maintain adequate levels of capital in anticipation of customers' future growth needs and to offset credit risk in the cyclical industries we finance and increasing concentrations in large loan relationships.

Unallocated surplus has increased over the three-year period 2011 through 2013 due to net income from operations. Total members’ equity of $64.6 million was 20.0 percent of total

assets at year-end 2013 compared to $59.8 million or 18.8 percent for 2012 and $54.8 million or 19.3 percent for 2011. Capital ratios at year-end were well above regulatory minimums.

Borrower stock requirements are equal to the regulatory minimum of 2 percent of the loan or a maximum of $1,000.

The stock investment is not interest-bearing to the borrower.

Lending to Young, Beginning, and Small Borrowers Farm Credit of Maine believes that the availability of credit for young, beginning, and small (YBS) farmers, producers, and fishermen is essential for the long-term well-being of the Association, Maine’s traditional resource-based industries, and rural America. The Association actively assists producers that face barriers due to their young age, small size, or start-up nature of their business. On a regular basis, the Board of Directors and management discuss ways that the Association can enhance these efforts within the overall credit risk parameters of the Cooperative. As part of its strategic business plan, the Association has established specific goals to increase its business in Maine’s part-time, small farmer, and

non-traditional market segments. Regulatory definitions used in this program are: a young borrower is a farmer, rancher, or producer or harvester of aquatic products who is age 35 or younger as of the loan transaction date; a beginning borrower is 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; and a small borrower is 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 service area for the Association includes all counties in the state of Maine.

The following table shows a comparison of the 2007 United States Department of Agriculture census data for young, beginning, and small farms as a percentage of all farms in Maine and as a percentage of these loans in the Association’s portfolio.

Young Beginning Small

All Maine Farms 2007 Census

All Loans December 31, 2013

4.9% 29.7% 95.0%

19.2% 20.4% 30.5%

9 | Farm Credit of Maine

traditional agriculture, while the Association data also includes forestry and fishing businesses. Also, the census data is based upon the number of farms, while the Association’s data is based upon the number of loans. Additionally, a loan could be counted in more than one category.

When comparing the Association’s percent of agricultural loan numbers to the 2007 agriculture census for each group, the Association is higher in the young category, is lower in the beginning category, and is lower in the small category. It should be noted that the census data shown is only for

The following table shows the number and percent of young and beginning loans in the Association’s portfolio as of December 31, 2013.

Loans to young borrowers: Number Percent of total

195 19.2%

Loans to beginning borrowers: Number Percent of total

207 20.4%

The following table shows the number and percent of total new loan commitments made to young and beginning borrowers during 2013.

New loans to young borrowers: Number Percent of total Volume (in thousands) Percent of total

$

New commitments to beginning borrowers: Number Percent of total Volume (in thousands) Percent of total

$

40 21.3% 16,014 15.7%

30 16.0% 10,526 10.3%

The following table shows a detailed breakdown of small borrower loans.

December 31, 2013

Loans to small borrowers: Number Percent of total Volume (in thousands) Percent of total

$0 $50,000

$50,001 $100,000

$100,001 $250,000

$250,001 and greater

144 53.5% $ 3,479 55.1%

80 46.2% $ 5,956 44.9%

60 24.6% $ 9,461 23.8%

25 7.6% $ 18,350 5.0%

10 | Farm Credit of Maine

The following table shows a breakdown of total new loan business by loan size to small borrowers. These totals include amounts participated with other lenders.

December 31, 2013

New loans to small borrowers: Number Percent of total Volume (in thousands) Percent of total

$0 $50,000

$50,001 $100,000

$100,001 $250,000

22 59.5% $ 604 60.8%

12 38.7% $ 984 38.8%

9 20.0% $ 1,349 18.1%

$250,001 and greater

$

2 2.7% 3,626 4.0%

The following table shows the Association’s quantifiable goals and actual results.

December 31, 2013 Total Loans Number of loans: Young Beginning Small Loan commitments (in millions): Young Beginning Small

$ $ $

New Loans

Goal

Actual

Goal

Actual

215 220 340

195 207 309

45 45 60

40 30 45

64.2 67.2 41.9

$ $ $

The Association utilizes and supports a wide variety of state and federal programs that are intended to complement private commercial credit for borrowers who may not otherwise qualify for certain types of loans. Some programs actually subsidize interest costs to young borrowers. Members of the lending staff serve on oversight committees that make credit decisions and continuously modify these statewide financial assistance programs to best fulfill their public policy objectives. The Association uses federal and state loan guarantees as a form of credit enhancement and risk management when appropriate. The Association also supports a variety of programs designed to enhance rural business opportunities for both new and current farmers and related businesses. In addition to state and federal programs,

62.3 61.9 37.3

$ $ $

10.0 12.0 7.0

$ $ $

16.0 10.5 6.6

the Association makes regular financial contributions to a variety of Maine organizations and associations that have as their primary mission, the enhancement of trade and economic opportunities for young businessmen and women working in small and large businesses in agriculture, forestry, and commercial fishing in Maine.

Finally, the Association actively participates in education and training programs by providing leadership and direct teaching resources for young and beginning farmers desiring to hone their financial and business planning skills. The Association has a long-term commitment to provide financing to credit-worthy enterprises throughout rural Maine regardless of their size or the age and expertise of their principal owners.

11 | Farm Credit of Maine

Directors Farm Credit of Maine’s Board of Directors is comprised of seven members – six elected by the Association’s memberowners and one outside director appointed by the Board.

Terms for all directors are three years, with no term limits.

Candidates are identified and qualified by the Association’s Nominating Committee, which is elected by the membership and is comprised of members from each major industry and region served by the Association. Board members do not serve on the Nominating Committee. The governance practices of the Association are of the highest integrity and either meet or exceed the known best practices within the industry.

The Association’s Board of Directors completes an annual self-evaluation to measure the consistency and effectiveness of their strategic focus on the business. This information is utilized to identify potential differences and formulate goals and expectations in this regard. In 2013, due the proposed merger and assuming a positive stockholder vote, the Board

decided not to conduct a self-evaluation for 2013. All directors continue to recognize that they remain highly in-sync with each other and that they have the same strategic focus and consistent views on business items of high importance for the Association.

As outlined in the Association Bylaws, it is the responsibility of the Board of Directors to periodically evaluate the proportionate and equitable representation of the Association’s voting stockholders by region and types of agriculture throughout Maine. During its composition evaluation in 2005, the Board recognized that it did not reflect the proportionate share of voting members by region. Therefore, the Board requested that the 2006 Nominating Committee reapportion the share of directors by region in a two-step process that would bring the Board composition into alignment with Association Bylaws. In the 2006 election, the At-Large position became a Southern Region position. In the 2007 election, an Aroostook Region position became the At-Large position.

Following is a summary of the current directors’ profiles, other affiliations, and training and related activities through the end of 2013.

Henry E. (Hank) McPherson

Chair (since 2007) Vice Chair (2004-2007) Year Service Began: 1998 Term Expires: 2016 Age: 72

Profile

Owner: McPherson Timberlands, Inc., conducts forest operations supervised by professional foresters and markets forest products with the ultimate goal of complete utilization of all products; pursues timberland acquisitions for its own purposes and for that of investor clients, Hermon, Maine Education: Attended Husson University Other Affiliations

Member: Association’s Board Executive Committee

Member: Association’s Board Loan Committee Training and Related Activities

Leadership Institute for Directors and Governance Retreat, sponsored by Farm Credit Council Services National Directors Conference, sponsored by Farm Credit Council Farm Credit Council Annual Meeting, sponsored by Farm Credit Council CoBank Customer Meeting, sponsored by CoBank CoBank Agri-business Board Leaders Conference, sponsored

by CoBank CoBank Board & ACA Meeting, sponsored by CoBank Washington, D.C. Hill Visits with Maine Congressional Representatives

12 | Farm Credit of Maine

Daniel J. Corey

Vice Chair (since 2007) Year Service Began: 1999 Term Expires: 2014 Age: 53

Profile

Owner/Operator: Daniel Corey Farms and Nu-Seed Corporation, producing 800 acres of early generation seed potatoes, 1,100 acres of grain, and 100,000 Christmas trees; NuSeed Corp.-Grain Division owns and operates a grain elevator, Monticello, Maine.

Owner/Operator: Seed Pro, Inc. a tissue culture facility and greenhouses for nuclear seed production, 250 acres of early generation seed, and 850 acres of grain, Crystal, Maine.

Owner/President: Corey Equipment, Inc., Monticello, Maine Education: University of Maine, Bachelor’s degree in Environmental Studies, Certified Professional Agronomist Other Affiliations

Member: Association’s Board Compensation Committee Member: Association’s Board Executive Committee Member: Association’s Board Loan Committee Former Chair: Association’s Board Audit Committee Member: CoBank Nominating Committee

Bryan W. Bell

Year Service Began: 2001 Term Expires: 2016 Age: 56

Profile

Owner/Operator: Bell Brothers, a fifth-generation potato farming business. Together with his two sons Karter and Kramer, they produce 150 acres of processing potatoes and 150 acres for tablestock/seed potatoes; 300 acres of barley; and 150 acres of cover crop, Mars Hill, Maine Director: WFST, local non-profit radio station, Caribou, Maine Other Affiliations

Member: Association’s Board Audit Committee Member: Association’s Board Executive Committee, alternate

Member: New Brunswick Institute of Agrologists, Fredericton, New Brunswick Member: Executive Seed Council, Maine Potato Board Member: Research Committee of the Maine Potato Board, Presque Isle, Maine Training and Related Activities

Audit Committee Training, sponsored by Farm Credit Council Services The Effective Audit Committee, sponsored by Farm Credit Council Services Leadership Institute for Directors, presenter and panel member, sponsored by Farm Credit Council Services Director Leadership Conference, presenter and panel member, sponsored by Farm Credit Council Services Farm Credit Council Annual Meeting, sponsored by Farm Credit Council CoBank Customer Meeting, sponsored by CoBank CoBank Agri-business Board Leaders Conference, sponsored by CoBank Farm Credit Services – Steering Committee member for Director Leadership Annual Meeting

Member: Association’s Board Loan Committee, alternate Training and Related Activities

Audit Committee Training, sponsored by Farm Credit Council Services Leadership Institute for Directors and Governance Retreat, sponsored by Farm Credit Council Services Leadership Institute for Directors – Power of Two (Leadership and Audit Training), sponsored by Farm Credit Council Services Director Leadership Conference, sponsored by Farm Credit Council Farm Credit Council Annual Meeting, sponsored by Farm Credit Council CoBank Customer Meeting, sponsored by CoBank

13 | Farm Credit of Maine

Travis E. Fogler

Year Service Began: 2009 Term Expires: 2015 Age: 36

Profile

Associated with Stonyvale, Inc., a family-owned and managed dairy farm; active on agricultural committees and boards at the state and regional levels, Exeter, Maine Education: Cornell University, Bachelor’s degree in Animal Science; SUNY Cobleskill, Associate in Applied Science degree in Dairy Science Other Affiliations

Member: Member: Member: Member:

Association’s Board Audit Committee Associations Board Executive Committee, alternate Association’s Board Loan Committee, alternate National DFA Board

Robert B. Kuhn

Board Appointed Director Year Service Began: 2002 Term Expires: 2014 Age:71

Profile

Associate Professor, School of Business, Husson University, Bangor, Maine Previously held management positions: Director of Human Resources: Howard Hughes Medical Institute, Washington, D.C. Vice President/General Counsel: Purina Mills, Inc., St. Louis, Missouri Vice President of Employee Relations: Hoover Universal, Ann Arbor, Michigan Employee Relations Counsel: UOP, Inc., Arlington Heights, Illinois Labor Counsel: Ralston Purina Company, St. Louis, Missouri Education: Washington University, Masters of Law, Juris Doctor degree in Law, Master’s degree in International Affairs; Southern Illinois University, Master’s degree in Finance; Ohio State University, Bachelor’s degree in History Other Affiliations

Member: Association’s Board Executive Committee, alternate Member: Association’s Board Loan Committee, alternate

Director: Exeter Agri-Energy, LLC Association’s Legislative Officer Association’s Representative: CoBank District Farm Credit Council Training and Related Activities

Leadership Institute for Directors, sponsored by Farm Credit Council Services System Orientation for Directors, sponsored by Farm Credit Council Services CoBank Customer Meeting, sponsored by CoBank Leadership Institute for Directors – Power of Two (Leadership and Audit Training), sponsored by Farm Credit Council Services Washington, D.C. Hill Visits with Maine Congressional Representatives

Former Member: Association’s Board Audit Committee Former Member: Association’s Board Compensation Committee Former Legislative Officer for the Association Member: Missouri and Illinois Bar Associations Director: International Assembly of Collegiate Business Education Training and Related Activities

Audit Committee Program, sponsored by Farm Credit Council Services Leadership Institute for Directors and Governance Retreat, sponsored by Farm Credit Council Services National Directors Conference, sponsored by Farm Credit Council National Directors Conference – Power of Two (Leadership and Audit Training), sponsored by Farm Credit Council Services Farm Credit Council Annual Meeting, sponsored by Farm Credit Council CoBank Customer Meeting, sponsored by CoBank Washington, D.C. Hill Visits with Maine Congressional Representatives

14 | Farm Credit of Maine

Robert M. Tetrault

Chair (1995-2007) Year Service Began: 1988 Term Expires: 2015 Age: 61

Profile

Owner: T/R Fish, Inc., a consulting and vessel management company, Portland, Maine Owner: One stern trawler for harvesting groundfish and shrimp, Portland, Maine Commercial lobsterman Director/Owner: Vessel Services, Inc., Portland, Maine Co-owner: Marine Trade Center Education: Maine Maritime Academy, Bachelor’s degree in Nautical Science; Harvard School of Business, Audit Committees in a New Era of Governance; other training modules on audit, finance, and governance Other Affiliations

Chair: Association’s Board Compensation Committee Member: Association’s Board Executive Committee, alternate Member: Association’s Board Loan Committee, alternate Former Legislative Officer for the Association Member: Farm Credit System Audit Committee Former Director: Farm Credit Council

Donald P. White

Year Service Began: 2005 Term Expires: 2014 Age: 61

Profile

Board Member/Shareholder: Prentiss & Carlisle, a full-service forest products company providing services in timberland and woodlot management, consulting, and contract logging, Bangor, Maine Education: Husson University, Bachelor’s degree in Accounting Other Affiliations

Chair: Association’s Board Audit Committee Member: Association’s Board Compensation Committee Member: Association’s Board Executive Committee, alternate Member: Association’s Board Loan Committee, alternate Former Chair: Association’s Board Compensation Committee

Former Member: Farm Credit Council Trust Committee Former Director: Farm Credit Council Services Former Director: CoBank, ACB Former Member: CoBank Executive Committee Former CoBank Representative: Northeast Regional Council Former CoBank Representative: Public Policy Committee Member: Working Waterfront Access Review Panel Training and Related Activities

National Directors Conference, sponsored by Farm Credit Council Leadership Institute for Directors, sponsored by Farm Credit Council Services Farm Credit Council Annual Meeting, sponsored by Farm Credit Council CoBank Customer Meeting, sponsored by CoBank Audit Committee Training, sponsored by PricewaterhouseCoopers Director Development Program: Investing in the Future, sponsored by Farm Credit Bank Texas and SW Graduate School of Banking Foundation Washington, D.C. Hill Visits with Maine Congressional Representatives

Executive Committee and Past President: Maine Forest Products Council, Augusta, Maine Treasurer: Maine Forest Legacy PAC, Augusta, Maine Board Member: North Maine Woods, Ashland, Maine Member: Friends of the Allagash Training and Related Activities

Leadership Institute for Directors and Governance Retreat, sponsored by Farm Credit Council Farm Credit Council Annual Meeting, sponsored by Farm Credit Council Audit Committee Training, sponsored by PricewaterhouseCoopers Audit Committee Training, sponsored by Farm Credit Council Services CoBank Customer Meeting, sponsored by CoBank

15 | Farm Credit of Maine

Senior Officers, Managers, and Coordinators The Association’s management structure uses its experienced staff to either manage directly or coordinate the ongoing operating functions of its business, organized into two sections. The Customer Service and Lending Group focuses on customer service and related objectives to fulfill the Association’s mission and maintain a strong competitive position in the marketplace we serve. The Corporate Support Services Group focuses on the objectives necessary to ensure that our risk management, financial, corporate communications, contributions, governance, human resource, technology, and administrative functions are in alignment with our customer service and new business development strategies. The President and Chief Executive Officer, through Board delegated authorities, is responsible

for the overall performance of the Association and the execution of ethical, safe, and sound business practices in all of these areas. He is also responsible for cultivating an array of key strategic partnerships and for ensuring the long-term strategic positioning of the Association in concert with the Board of Directors. The Association’s partnerships with Maine-based institutions, as well as regional and national Farm Credit System institutions, are a very important component to its management process, financial strength, data security, and long-term stability. Most noteworthy are the partnerships with FPI and CoBank, which are discussed elsewhere in this report.

The following individual reports directly to the seven-member Board of Directors.

Raymond J. Nowak

President Chief Executive Officer

Mr. Nowak joined cooperative Farm Credit in 1983. Prior to assuming the role of chief executive in 1994, Mr. Nowak held various lending and financial service management positions in the Northeast serving the region’s farmers, fishermen, loggers, and their rural communities. Mr. Nowak remains an active member of various committees and boards in Maine. He currently serves as a director and Board Chair at the Finance

Authority of Maine. He has served on various committees within the national Farm Credit System, including organizations that provide technology and data security services, oversee audit functions, manage retirement plans, coordinate health insurance plans, and guide growth and outreach strategies for Farm Credit organizations. Mr. Nowak is 58 years old and holds a Bachelor’s degree from Miami University in Oxford, Ohio where he also worked for various agricultural enterprises, and he holds a Master’s degree in Agricultural Economics from the University of Maine.

Three senior officers, with direct management responsibility for one of the primary operating functions, report directly to the Chief Executive Officer.

Frederick H. Morton, Jr.

Executive Vice President Chief Lending Officer

Mr. Morton, based in Auburn, is responsible for all customer service and lending operations of the business. He is a member of the Association’s Management Executive Committee and Chair of the Association’s Executive Loan Committee. Mr. Morton has been employed by Farm Credit for 34 years. He graduated from the Springfield District’s Management Development Program in 1995. Prior to assuming his current position in 2007, he was responsible for

the Association’s corporate loan portfolio in the prior management structure. He is the Board of Trustees Chair of the Sixth Street Congregational Church in Auburn, a past director and current advisory board member of the Maine Forest Products Council, a past director and current member of the Finance Committee of the Forest Society of Maine, treasurer and member of the Finance Committee of the Maine TREE Foundation, and a member of the Farms for Maine’s Future review panel. Mr. Morton is 56 years old and holds a Bachelor’s degree in Agricultural and Resource Economics from the University of Maine.

16 | Farm Credit of Maine

Richard D. Robertson

Executive Vice President Chief Credit and Risk Management Officer

Mr. Robertson, based in Auburn, is responsible for internal credit and collateral reviews, external examinations, oversight of credit policies and directives, appraisal services, and the Association’s crop insurance services. He is a member of the Association’s Management Executive Committee. Mr. Robertson has been employed by Farm Credit for 40 years.

Andrew N. Grant

Senior Vice President Chief Financial Officer and Treasurer

Mr. Grant, based in Auburn, is responsible for the financial, treasury, and asset-liability management operations of the Association. He is a member of the Association’s Management Executive Committee and the Executive Loan Committee. Mr. Grant has been employed by Farm Credit for 17 years.

He graduated from the Springfield District’s Management Development Program in 1994. Prior to assuming his current position in 2007, he was responsible for the lending and customer service functions. He serves as secretary on the Maine Forest products Council Board of Directors and its Executive Committee. He is the treasurer of the Monmouth Water Association, President of the Monmouth Academy Board of Trustees, and is a member of the Masonic Lodge No. 110 A.F. & A.M. Mr. Robertson is 67 years old and holds a Bachelor’s degree in Agricultural and Resource Economics from the University of Maine.

He graduated from the Farm Credit Council Services Leadership Development Program Level 1 in 2006. Prior to assuming his current position in 2006, he was responsible for the audit and risk management functions of the Association.

Also, he was previously employed with the accounting firm Deloitte, LLP. Mr. Grant is 44 years old and holds both a Bachelor’s degree in Management Accounting and a Master’s degree in Business from Husson University in Bangor, Maine.

Following are other senior executives who have management responsibility for a group of employees and provide strategic direction within a primary operating function.

Scott G. Kenney

Senior Vice President Regional Portfolio Manager

Mr. Kenney, based in Auburn, has responsibility for the Association’s portfolio and customer base in northern and eastern Maine. He supervises employees based in Presque Isle and Auburn, is a member of the Association’s Management Executive Committee and the Executive Loan Committee.

Matthew S. Senter

Senior Vice President Regional Portfolio Manager

Mr. Senter, based in Auburn, has responsibility for the Association’s portfolio and customer base in southern and western Maine. He supervises employees based in Auburn, and is a member of the Association’s Management Executive Committee and the Executive Loan Committee. Mr. Senter has been employed by Farm Credit for 18 years. He graduated

Mr. Kenney has been employed by Farm Credit for 15 years. He graduated from Farm Credit Council Services Leadership Development Program Level 1 in 2007. He is treasurer of Gray Little League and Secretary of the Gray/New Gloucester Youth Basketball Association. Mr. Kenney is 38 years old and holds both a Bachelor’s and Master’s degree in Agricultural Economics from the University of Maine.

from Farm Credit Council Services Leadership Development Program Level 1 in 2007 and the Stonier National School of Banking in 2010. He is a current board member of the Maine Wood Products Association. Mr. Senter is 41 years old and holds a Bachelor’s degree in Economics from St. Lawrence University in Canton, New York, and a Master’s degree in Business from Thomas College in Waterville, Maine.

17 | Farm Credit of Maine

Other staff members who either have responsibilities for a group of employees or who report directly to the Chief Executive Officer and have coordination responsibilities for a key operating function are: Peter Hallowell, Vice President and Commercial Loan Officer, handles the day-to-day management responsibilities of the Association’s Presque Isle office; Pauline Dionne, Assistant Vice President, Human Resource and Systems Coordinator, who reports to the Chief Executive Officer and coordinates all salary administration and benefit

programs for the Association in close cooperation with the human resource center at CoBank as well as coordinating hardware and network setup and maintenance in close cooperation with FPI; and Jill Eyre, Assistant Vice President, Public Relations and Governance Coordinator, reports to the Chief Executive Officer, coordinates external public relations and Board activities. Also reporting directly to the Chief Executive Officer is Executive Assistant Tammy Couturier.

Compensation of Directors and Senior Officers Association directors are compensated for attendance at Board meetings, Board committee meetings (unless waived), and special assignments, which might include director training and other meetings. Directors receive a per diem of $625 for each meeting. The Board Chair receives a per diem of $725 for each meeting, while the Vice Chair receives $675. In addition, the Board Chair receives an annual retainer of $7,500, the Vice Chair receives an annual retainer of $6,500, and directors receive an annual retainer of $5,500. An additional annual retainer of $1,500 is also paid to the Audit Committee Chair. Total compensation paid to all directors, as a group, during 2013 was $139,563.

The Association’s policies provide for reimbursement of reasonable out-of-pocket travel, subsistence, and other related expenses incurred by directors, senior officers, and employees while traveling on official Association business. A copy of these policies is available to shareholders of the Association upon written request. The aggregate amount paid to all directors as a group for out-of-pocket travel subsistence, training, and other related expenses was $87,759, $74,048, and $90,673, for 2013, 2012, and 2011 respectively. All directors have participated in some type of formal director training, usually in cooperation with affiliated Farm Credit institutions.

The Board has been aggressive in this area and views these activities as critical to its oversight role in the everchanging marketplace where governance practices play an increasing role in the overall credit rating of financial institutions.

There were seven Board meetings during the year. Please note that Mr. McPherson, Board Chair, and Mr. Corey, Board Vice Chair, comprised the Executive Committee with no required meetings. Mr. McPherson, Mr. Corey; Mr. Bell, Mr. Fogler, and Mr. White all served on the Loan Committee for at least one meeting as Committee members or alternates. Mr. White, Committee Chair; Mr. Bell, and Mr. Fogler served on the Audit Committee. Mr. Tetrault, Committee Chair; Mr. Corey, and Mr. White comprised the Compensation Committee with no required meetings.

Compensation items related to the merger were conducted by the Board Chairs of Farm Credit of Maine and Farm Credit East. Mr. Fogler served as the Association’s Legislative Officer; the Association’s representative to the CoBank District Farm Credit Council, and the Board’s representative to the AgEnhancement Project Committee.

Days served and related compensation within the Other category primarily includes attendance at Farm Credit System business meetings and director training programs.

18 | Farm Credit of Maine

The following table shows a summary of the days served by all Directors for Farm Credit of Maine business and their compensation during 2013.

Days 1

2

Director Hank E. McPherson

Meeting Board Loan Committee Other

Served 11 5 19

Daniel J. Corey

Board Loan Committee Other

8.5 5 7

12,163 3,325 4,675

Bryan W. Bell

Board Loan Committee Audit Committee Other

10.5 1 3 8.5

11,988 625 1,800 5,113

Travis E. Fogler

Board Loan Committee Audit Committee Other

7 1 3 2.5

9,825 600 1,825 1,513

Robert B. Kuhn

Board Other

9 6

11,075 3,550

Robert M. Tetrault

Board Other

9 7

11,075 4,175

Donald P. White

Board Loan Committee Audit Committee Other

9.5 0.5 3 15 151

11,438 0 3,250 9,100 139,565

Total

Compensation $ 15,425 3,550 13,475

$

1

Depending on the time commitment and travel requirement for individual meetings, Directors may not request reimbursment for all time served.

2

Compensation for Board meetings includes annual retainers. The retainer for the Audit Committee Chair is included in Audit Committee compensation.

19 | Farm Credit of Maine

The Board of Director’s philosophy is to attract and retain executives with the ability to accomplish the Association’s strategic business objectives. This philosophy includes a commitment to maintain a highly competitive market-based compensation and benefits plan for all employees that provides appropriate incentives for achieving these objectives.

The Chief Executive Officer’s compensation is set by the Board, which bases its decision on periodic consultation with outside experts, external market data, and an annual performance review. The Board evaluates Mr. Nowak’s performance against six major accountabilities as they reflect the overall achievement and reputation of the institution.

Based on this evaluation and any market information obtained by the Compensation Committee, the Board determines, in its sole discretion, the amount of variable pay or bonus that is to be paid to Mr. Nowak.

Other senior officers and executives are paid under the same salary administration program as all other employees. Each employee’s performance and salary is reviewed at least annually, and any change in salary is directly related to performance, level of responsibility, and accountability associated with each position.

Working with the Chief Executive Officer, the Board also maintains a philosophy regarding the sharing of profits with all employees, based primarily on the overall financial performance of the Association as measured by net income after taxes. Based on this philosophy, it has been the practice of the Association to pay a company-wide employee profitsharing bonus in years when its net income after taxes exceeds the Board approved business plan target. These bonuses are contingent upon meeting the short-term criteria as noted above, but also several other criteria that include meeting member patronage targets and the long-term capital needs of the Association. Mr. Nowak does not participate in this employee profit-sharing plan.

The Board and the Chief Executive Officer maintain an ongoing strategic initiative of ensuring management and leadership succession for the Association. Utilizing information and expert advice obtained from independent professionals, the Board has agreed to pay additional bonuses to Mr. Nowak and selected executives over the next several years. These additional bonuses are subject to meeting specific criteria and are intended as incentives for those individuals to remain in their roles at Farm Credit of Maine.

The bonus amounts shown in the tables below include these additional bonuses, plus any variable pay or bonus paid to Mr. Nowak, and any employee profit-sharing bonuses paid to other executives.

Mr. Nowak was employed as the Chief Executive Officer of the Association through December 31, 2013. Mr. Nowak was employed under the terms of an employment agreement effective December 2007. As a result of the merger with Farm Credit East, Mr. Nowak was entitled to certain compensation due to the termination of his employment

agreement and his position as chief executive as jointly agreed upon by Mr. Nowak and the Board of Directors of both Farm Credit of Maine and Farm Credit East.

Additional compensation associated with this employment agreement is included in the annual compensation table below. Mr. Nowak remains employed with the merged entity as President of Rural Investments, LLC, and Senior Consultant for Farm Credit East.

As approved by the Board, Mr. Nowak and selected executives are able to participate in a Non-Qualified Supplemental Savings and Deferred Compensation Plan, enabling them to receive the full benefit, irrespective of IRS limitations, of the Association’s Employee Savings Plan as described elsewhere in this report. CoBank provides the administrative support for this plan.

The perquisite amounts shown for the Chief Executive Officer and the aggregate group of executives represents the taxable benefit of the personal use of company assigned vehicles and company paid group term life insurance. This information is in keeping with Farm Credit Administration regulations on the appropriate disclosure of senior officer compensation. Information on the total compensation paid during the last fiscal year to any executive included in the aggregate is available and will be disclosed to shareholders of the Association upon written request.

On October 3, 2012, FCA adopted a regulation that requires all System institutions to hold advisory votes on the compensation for all senior officers and/or the CEO when the compensation of either the CEO or the senior officer group increases by 15 percent or more from the previous reporting period. In addition, the regulation requires associations to hold an advisory vote on CEO and/or senior officer compensation when 5 percent of the voting stockholders petition for the vote and to disclose the petition authority in the annual report to shareholders. The regulation became effective December 17, 2012, and the base year for determining whether there is a 15 percent or greater increase was 2013. No association has held an advisory vote based on a stockholder petition in 2013.

On January 17, 2014, the President signed into law the Consolidated Appropriations Act which includes language prohibiting the FCA from using any funds available to “to implement or enforce” the regulation.

In addition, on February 7, 2014, the President signed into law the Agricultural Act of 2014. The law directs FCA to within 60 days of enactment of the law “review its rules to reflect the Congressional intent that a primary responsibility of boards of directors of Farm Credit System institutions, as elected representatives of their stockholders, is to oversee compensation practices.”

FCA has not yet taken any action with respect to their regulation in response to these actions.

20 | Farm Credit of Maine

The following table shows the annual compensation of the Chief Executive Officer.

December 31, 2012

2013 Raymond J. Nowak: Salary Bonus Perquisites Total

$

274,688 538,475 6,384 819,547

$

$

$

262,013 234,408 6,815 503,236

2011 $

$

252,083 200,833 7,137 460,053

The following table shows the aggregate amount of compensation of any senior officer shown in this report plus any other executive whose annual compensation is among the five highest amounts paid by the Association.

December 31, 2012

2013 Other Executives: Number in group Salary Bonus Perquisites Total

$

$

Five 741,258 284,583 23,165 1,049,006

$

$

Five 714,039 205,417 22,195 941,651

2011

$

$

Five 685,636 134,000 22,406 842,042

Transactions with Senior Officers and Directors Information required for disclosure in this section is incorporated herein by reference from Note 10 to the consolidated financial statements, included in this Annual Report to Stockholders.

Board Committees Audit Committee. The Audit Committee is a standing committee of the Board of Directors. The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the work of the independent auditor (including resolution of disagreements between management and the outside auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review, or attest services for the Association. Such public accounting firms report directly to the Audit Committee. The Audit Committee at December 31, 2013 was comprised of the following members: Donald White, Chair; Bryan Bell, and Travis Fogler.

The consolidated financial statements were prepared under the oversight of the Audit Committee. The Audit Committee reviewed and discussed the audited consolidated financial

statements in the Annual Report for the year ended December 31, 2013 with management and the Association’s independent public accountants. The Audit Committee and the independent auditors reviewed the results of the 2013 audit and all other matters required by the Statement on Auditing Standards No. 114, “The Auditor’s Communication with Those Charged with Governance.” In addition, the Audit Committee received, reviewed, and discussed the written disclosures from the independent public accountants required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees.” Based on the preceding review and discussions contained in this paragraph, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Association’s Annual Report for the year ended December 31, 2013 for filing with the Farm Credit Administration.

21 | Farm Credit of Maine

The following table contains a description of the fees incurred by the Association for services rendered by its independent public accountants.

December 31, 2012

2013 Audit fees Tax fees Total

$ $

Executive Committee. The Executive Committee has the authority to act on matters on behalf of the Board. All actions of the Executive Committee are reported to and ratified by the full Board at its next meeting. The Committee is normally comprised of the Chair and Vice Chair. For special purposes, and as deemed necessary by the Board Chair and the Chief Executive Officer, the Eecutive Committee may be expanded to ensure the best expertise is available for certain discussions or actions.

Loan Committee. The Loan Committee approves loans on behalf of the full Board as needed. The Board retains approval authorities for official (director) loans and for loans in excess of the Chief Executive Officer’s delegated lending authority. The Committee is comprised of directors who

32,618 15,000 47,618

$ $

27,713 11,050 38,763

2011 $ $

30,910 11,000 41,910

have the expertise to assess the general risk on these loans.

Normally, the Association’s Chief Lending Officer handles all administrative duties associated with these loan discussions and actions.

Compensation Committee. The Compensation Committee’s primary role is to maintain oversight of and make recommendations to the Board regarding the performance review and compensation strategy for the Chief Executive Officer. The Committee also reviews the compensation and benefits for senior officers and employees and approves the compensation for senior officers. The Compensation Committee, at December 31, 2013 was comprised of the following members: Robert Tetrault, Chair; Daniel Corey, and Donald White.

Relationship with Independent Public Accountants There were no material disagreements with our independent public accountants on any matter of accounting principles or financial statement disclosure during this period.

Other Matters Effective January 1, 2014, Farm Credit of Maine merged with Farm Credit East, headquartered in Enfield, Connecticut. The merged association operates under the name of Farm Credit East, ACA. For additional information see Note 15 “Business Combinations” to the consolidated financial statements.

22 | Farm Credit of Maine

Report of Independent Auditors

Independent Auditor's Report

To the Board of Directors and Stockholders of Farm Credit of Maine, ACA: We have audited the accompanying consolidated financial statements of Farm Credit of Maine, ACA and its subsidiaries (the "Association"), which comprise the consolidated balance sheets as of December 31, 2013, 2012, and 2011, and the related consolidated statements of income, statements of comprehensive income, changes in members' equity and cash flows for the years then ended.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on the consolidated 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 consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Association's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Association's internal control. Accordingly, we express no such opinion.

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Farm Credit of Maine, ACA and its subsidiaries at December 31, 2013, 2012, and 2011, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

March 3, 2014

PricewaterhouseCoopers LLP, 185 Asylum Street, Suite 2400, Hartford, CT 06103 T: (860) 241 7000, F: (860) 241 7590, www.pwc.com/us

23 | Farm Credit of Maine

Consolidated Balance Sheets

2013

December 31, 2012

2011

Assets Loans originated Plus loans purchased Less loans sold Total Less allowance for credit losses Net loans

$

Cash Accrued interest receivable Investment in CoBank, ACB Other property owned Premises and equipment, net Other assets Total assets

$

585,896,219 2,356,305 290,199,084 298,053,440 5,869,561 292,183,879 2,552,135 1,766,424 15,867,278 0 3,054,697 7,199,285 322,623,698

$

$

573,765,131 1,900,557 280,334,026 295,331,662 5,342,726 289,988,936 2,070,267 1,665,817 14,825,923 13,542 2,831,069 6,702,741 318,098,295

$

$

479,884,300 1,800,385 216,557,305 265,127,380 4,852,707 260,274,673 973,584 1,517,478 13,443,986 13,542 2,687,457 5,446,140 284,356,860

Liabilities Notes payable to CoBank, ACB Future payment funds Patronage distribution payable Reserve for unfunded commitments Other liabilities Total liabilities

$

253,592,388 0 1,250,000 1,357,181 1,863,246 258,062,815

$

253,614,596 30,009 1,150,000 1,266,170 2,223,834 258,284,609

$

225,548,771 0 1,050,000 1,311,339 1,638,870 229,548,980

Members' Equity Capital stock and participation certificates Allocated surplus Unallocated surplus Accumulated other comprehensive income (loss) Total members' equity Total liabilities and members' equity

$

767,112 6,851,799 57,389,183 (447,211) 64,560,883 322,623,698

$

773,500 6,432,319 53,111,894 (504,027) 59,813,686 318,098,295

$

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

24 | Farm Credit of Maine

758,345 6,081,700 48,389,095 (421,260) 54,807,880 284,356,860

Consolidated Statements of Income

2013

Year Ended December 31, 2012

2011

Interest Income Loans originated Plus loans purchased Less loans sold Other Total interest income

$

23,972,827 166,455 10,461,561 10,669 13,688,390

$

23,945,318 201,094 10,942,708 10,554 13,214,258

$

22,167,563 336,446 9,955,488 16,105 12,564,626

Interest Expense Notes payable to CoBank, ACB Total interest expense

2,288,397 2,288,397

2,250,235 2,250,235

2,152,091 2,152,091

11,399,993 615,293

10,964,023 470,629

10,412,535 1,503,552

10,784,700

10,493,394

8,908,983

3,544,176 512,123 636,250 120,466 4,813,015

3,348,434 445,278 577,448 469,909 4,841,069

2,540,997 435,437 460,134 51,254 3,487,822

Salaries and employee benefits Premises and equipment Insurance fund premium Technology services Other expenses Total noninterest expenses

4,967,052 557,634 221,000 923,416 1,719,939 8,389,041

4,617,162 455,978 105,000 975,588 1,481,623 7,635,351

4,187,362 393,914 111,000 948,707 1,283,900 6,924,883

Income before income taxes Provision for income taxes Net income

7,208,674 431,385 6,777,289

7,699,112 676,313 7,022,799

5,471,922 296,308 5,175,614

Net interest income Provision for credit losses Net interest income after provision for credit losses

Noninterest Income Patronage dividends Loan fees Fees for financial services Miscellaneous Total noninterest income

Noninterest Expense

$

$

$

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

25 | Farm Credit of Maine

Consolidated Statements of Comprehensive Income

2013

Year Ended December 31, 2012

2011

Other Comprehensive Income, Net of Tax Net income Net change in unrealized losses on cash flow hedges Net change in minimum pension liability Other comprehensive income (loss) Comprehensive income

$

$

6,777,289 (87,998) 144,814 56,816 6,834,105

$

$

7,022,799 (68,929) (13,838) (82,767) 6,940,032

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

26 | Farm Credit of Maine

$

$

5,175,614 (131,071) (119,709) (250,780) 4,924,834

Consolidated Statements of Changes in Members’ Equity

2013

December 31, 2012

2011

Capital Stock and Participation Certificates Balance at January 1 Issued Retired Balance at end of year

$

$

773,500 53,052 (59,440) 767,112

$

6,432,319 1,250,000 (830,523) 6,851,796

$

53,111,894 6,777,289

$

$

758,345 67,450 (52,295) 773,500

$

6,081,700 1,150,000 (799,381) 6,432,319

$

48,389,095 7,022,799

$

$

737,295 66,720 (45,670) 758,345

Allocated Surplus Balance at January 1 Issued Retired Balance at end of year

$

$

$

$

5,734,309 1,050,000 (702,609) 6,081,700

Unallocated Surplus Balance at January 1 Net income Patronage distribution declared Cash Allocated surplus Balance at end of year

$

$

(1,250,000) (1,250,000) 57,389,183

$

(1,150,000) (1,150,000) 53,111,894

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

27 | Farm Credit of Maine

$

45,313,481 5,175,614 (1,050,000) (1,050,000) 48,389,095

Consolidated Statements of Cash Flows 2013 Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Non-cash patronage received from CoBank, ACB Provision for credit losses Increase in net deferred income tax asset Increase in accrued interest receivable (Decrease) increase in other liabilities Decrease (increase) in other assets Gain from sales of premises and equipment Loss from sales of other property owned

$

6,777,289

Cash flows from investing activities: Increase in loans, net Increase in investment in CoBank, ACB Purchases of premises and equipment Proceeds from sales of premises and equipment Proceeds from sales of other property owned Net cash used in investing activities Cash flows from financing activities: Advances on notes payable under financing agreement with CoBank, ACB Repayment of notes payable to CoBank, ACB Capital stock and participation certificates issued Capital stock and participation certificates retired Patronage distribution paid Net cash used by financing activities

Cash at end of year Supplemental schedule of non-cash investing and financing activities: Accrued interest receivable transferred to loans Decrease in accumulated other comprehensive income Patronage distribution declared

7,022,799

$

5,175,614

265,365 (487,937) 470,629 (23,306) (223,598) 587,037 (1,233,296) (122,421) 0

(524,855)

(767,527)

1,989,023

6,252,434

6,255,272

7,164,637

(2,728,524) (552,000) (575,550) 184,367 10,257

(30,109,633) (894,000) (447,831) 161,276 0

(15,949,192) (112,000) (264,472) 60,926 0

(3,661,450)

(31,290,188)

(16,264,738)

312,075,898 (312,098,106) 53,052 (59,440) (2,080,520)

419,035,125 (390,969,300) 67,450 (52,295) (1,949,381)

283,402,361 (271,978,913) 66,720 (45,670) (1,752,609)

(2,109,116)

26,131,599

9,691,889

481,868

1,096,683

591,788

2,070,267

973,584

381,796

Net increase in cash Cash at beginning of year

$

2011

267,198 (489,355) 615,293 (47,605) (182,319) (142,770) (448,939) (99,642) 3,284

Total adjustments Net cash provided by operating activities

Year Ended December 31, 2012

275,116 (420,463) 1,503,552 (539,870) (253,939) 1,263,346 197,926 (36,645) 0

$

2,552,135

$

2,070,267

$

973,584

$

81,711 56,816 2,500,000

$

75,259 (82,767) 2,300,000

$

91,394 (250,780) 2,100,000

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

28 | Farm Credit of Maine

Notes to Consolidated Financial Statements NOTE 1 – Organization and Operations Organization Farm Credit of Maine, ACA, an Agricultural Credit Association (ACA) and its subsidiaries, Farm Credit of Maine, FLCA, a Federal Land Credit Association (FLCA), and Farm Credit of Maine, PCA, a Production Credit Association (PCA) – collectively called the Association or Cooperative – is a member-owned cooperative that provides credit and financially related services to or for the benefit of eligible customers for qualified agricultural purposes in all the counties in the state of Maine.

The Association is a lending institution of the Farm Credit System (System), a nationwide system of cooperatively owned banks and associations, which was established by acts of Congress to meet the credit needs of American agriculture and is subject to the provisions of the Farm Credit Act of 1971, as amended (Farm Credit Act).

At December 31, 2013 the System was comprised of three Farm Credit Banks (FCBs) and one Agricultural Credit Bank (ACB) and 82 affiliated associations.

CoBank, ACB (Bank) and its affiliated associations are collectively referred to as the District. The Bank provides funding to associations within the District and is responsible for supervising certain activities of the District associations.

The District consists of the Bank and 29 ACA parent companies, which have two wholly owned subsidiaries, a Federal Land Credit Association (FLCA) and a Production Credit Association (PCA).

ACA parent companies provide financing and related services through their FLCA and PCA subsidiaries. The FLCA makes secured long-term agricultural real estate and rural home mortgage loans. The PCA makes short-term and intermediate-term loans for agricultural production or operating purposes.

The Association works within its strategic partnership with Financial Partners, Inc., a service company owned by associations on the East and West coasts that provides operations and technology support.

The Farm Credit Administration (FCA) is delegated authority

by Congress to regulate the System banks and associations.

The FCA examines the activities of the System associations to ensure their compliance with the Farm Credit Act, FCA regulations, and safe and sound business practices.

The Farm Credit Act established the Farm Credit System Insurance Corporation (Insurance Corporation) to administer the Farm Credit Insurance Fund (Insurance Fund). The Insurance Fund is required to be used 1) to ensure the timely payment of principal and interest on System-wide debt obligations (insured debt), 2) to ensure the retirement of protected borrower capital at par or stated value, and 3) for other specified purposes. The Insurance Fund is also available for discretionary uses by the Insurance Corporation to provide assistance to certain troubled System institutions and to cover the operating expenses of the Insurance Corporation. Each System bank has been required to pay premiums, which may be passed on to the related associations, into the Insurance Fund, based on its annual average adjusted outstanding insured debt until the monies in the Insurance Fund reach the secure base amount, which is defined in the Farm Credit Act as 2 percent of the aggregate insured obligations (adjusted to reflect the reduced risk on loans or investments guaranteed by federal or state governments) or such other percentage of the aggregate obligations as the Insurance Corporation in its sole discretion determines to be actuarially sound. When the amount in the Insurance Fund exceeds the secure base amount, the Insurance Corporation is required to reduce premiums as necessary to maintain the Insurance Fund at the 2 percent level. As required by the Farm Credit Act, the Insurance Corporation may return excess funds above the secure base amount to System institutions.

Operations The Farm Credit Act sets forth the types of authorized lending activity, persons eligible to borrow, and financial services that can be offered by the Association. The Association is authorized to provide, either directly or in participation with other lenders, credit, credit commitments, leasing, and related services to eligible borrowers. Eligible borrowers include farmers, ranchers, producers, or harvesters of aquatic products, rural residents, and farm-related businesses. The Association is also authorized to participate with other banks in similar entity loans.

The Association also offers fee appraisal services, providing professional assessments of real estate and other property values.

This has been a growing source of revenue for the Association and is an important element of credit collateral evaluation and a valuable service for Maine’s specialized and economically important natural resource-based industries.

29 | Farm Credit of Maine

During 2013, the Association maintained its investment in its crop insurance service partnership. In 2004, the Association entered into a formal partnership with Crop Growers Insurance, Inc., a wholly owned subsidiary of Farm Credit East, headquartered in Enfield, Connecticut.

The Association offers credit life insurance, as an agent, to its borrowers. The Cooperative also makes referral arrangements with other financial, consulting, and insurance service providers when it is in the best interest of the customers and the Association.

Upon request, stockholders of the Association will be provided with CoBank’s Annual Report to Stockholders, which includes the combined financial statements of the Bank

and its related associations. The Association’s financial condition may be impacted by factors that affect CoBank.

CoBank’s Annual Report to Stockholders discusses the material aspects of the District’s financial condition, changes in financial condition, and results of operations. In addition, CoBank’s Annual Report identifies favorable and unfavorable trends, significant events, uncertainties, and the impact of activities of the Insurance Corporation.

Information on obtaining a copy of CoBank’s annual and quarterly financial statements is provided in the Financial Information section of this report. The lending and financial services offered by CoBank are described in Note 1 of CoBank’s Annual Report to Stockholders.

NOTE 2 – Summary of Significant Accounting Policies The accounting and reporting policies of the Association conform to accounting principles generally accepted in the United States of America (GAAP) and prevailing practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates are discussed in these footnotes, as applicable. Actual results may differ from these estimates. The consolidated financial statements include the accounts of Farm Credit of Maine, ACA; Farm Credit of Maine, FLCA; and Farm Credit of Maine, PCA. All significant intercompany transactions have been eliminated in consolidation.

Recently Issued or Adopted Accounting Pronouncements In December 2011, the financial Accounting Standards Board (FASB) issued guidance entitled, “Balance Sheet – Disclosure about Offsetting Assets and Liabilities.” The guidance requires an entity to disclose information about offsetting and related arrangements on its financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities. The requirements apply to recognized financial instruments and derivative

instruments that are offset in accordance with the rights of offset set forth in accounting guidance and for those recognized financial instruments and derivative instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset or not. This guidance is to be applied retrospectively for all comparative periods and is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this guidance did not impact the financial condition or results of operations, but resulted in additional disclosures.

In February 2013, the FASB issued guidance “Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.” The guidance requires entities to present either parenthetically on the face of the financial statements or in the notes to the financial statements, significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification. The guidance is effective for public entities for annual periods beginning after December 15, 2012 and for non-public entities for annual periods beginning after December 15, 2013. The adoption of this guidance did not impact the financial condition or results of operation, but resulted in additional disclosures.

30 | Farm Credit of Maine

Cash Cash, as included in the statement of cash flows, represents cash on hand and on deposit at banks.

Loans and Reserve for Credit Exposure Long-term real estate mortgage loans generally have original maturities ranging from 5 to 40 years. Substantially all shortterm and intermediate-term loans for agricultural production or operating purposes have maturities of 10 years or less. Loans are carried at their principal amount outstanding, adjusted for charge-offs.

Impaired loans are loans for which it is probable that not all principal and interest will be collected according to the contractual term of the loan and are generally considered substandard or doubtful, which is in accordance with the loan rating model as described below. Impaired loans include nonaccrual loans, restructured loans, and loans past due 90 days or more that are still accruing interest. A loan is considered contractually past due when any principal repayment or interest payment required by the loan instrument is not received on or before the due date. A loan shall remain contractually past due until it is formally restructured or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in full.

Impaired loans are generally placed in nonaccrual status when principal or interest is delinquent for 90 days (unless adequately secured and in the process of collection) or circumstances indicate that collection of principal and/or interest is in doubt.

Additionally, all loans over 180 days past due are placed in nonaccrual status. When a loan is placed in nonaccrual status, accrued interest deemed uncollectible is either reversed (if accrued in the current year) and/or charged against the allowance for credit losses (if accrued in the prior year). Loans are charged-off at the time they are determined to be uncollectible.

A restructured loan constitutes a troubled debt restructuring, if for economic or legal reasons related to the debtor’s financial difficulties, CoBank or the Association grants a concession to the debtor that it would not otherwise consider.

When loans are in nonaccrual status, the interest portion of payments received in cash is recognized as interest income if collection of the recorded investment in the loan is fully expected and the loan does not have a remaining unrecovered prior charge-off associated with it. Otherwise, loan payments are applied against the recorded investment in the loan.

Nonaccrual loans may be returned to accrual status when principal and interest are current, the borrower has demonstrated payment performance, there are no unrecovered prior charge-offs, and collection of future payments is no longer in doubt. If previously unrecognized interest income exists at the time the loan is transferred to accrual status, cash received at the time of or, subsequent to, the transfer is first

recorded as interest income until such time as the recorded balance equals the contractual indebtedness of the borrower.

The Bank and related associations use a two-dimensional loan rating model based on an internally generated combined system risk rating guidance that incorporates a 14-point risk rating scale to identify and track the probability of borrower default and a separate scale addressing loss given default over a period of time. Probability of default is the probability that a borrower will experience a default within 12 months from the date of the determination of the risk rating. A default is considered to have occurred if the lender believes the borrower will not be able to pay its obligation in full or the borrower is past due more than 90 days. The loss given default is management’s estimate as to the anticipated economic loss on a specific loan assuming default has occurred or is expected to occur within the next 12 months.

Each of the probability of default categories carries a distinct percentage of default probability. The 14-point risk rating scale provides for granularity of the probability of default, especially in the acceptable ratings. There are nine acceptable categories that range from a borrower of the highest quality to a borrower of minimally acceptable quality. The probability of default on loans rated between 1 and 9 is very narrow and would reflect almost no default to a minimal default percentage. The probability of default grows more rapidly as a loan moves from a 9 to other assets especially mentioned and grows significantly as a loan moves to a substandard (viable) level. A substandard (non-viable) rating indicates that the probability of default is almost certain.

The credit risk rating methodology is a key component of the Association’s reserve for credit exposure evaluation, and is generally incorporated into its loan underwriting standards and internal lending limit. The reserve for credit exposure includes an allowance for credit losses component, which is management’s best estimate of the amount of probable losses existing and inherent in its net loan portfolio and a reserve for unfunded commitments, which reflects the risk exposure associated with undisbursed commitments that could be immediately drawn down by our customers under current circumstances. The allowance for credit losses is recorded as a reduction to assets, while the reserve for unfunded commitments is reported as a liability on the Association’s balance sheet.

The reserve is based on a periodic evaluation of the loan portfolio by management in which numerous factors are considered, including economic conditions, loan portfolio composition, collateral value, portfolio quality, current production conditions, and prior credit loss experience. The reserve for credit exposure encompasses various judgments, evaluations and appraisals with respect to the loans and their underlying security that, by their nature, contain elements of uncertainty and imprecision. Changes in the agricultural economy and their impact on borrower repayment capacity will

31 | Farm Credit of Maine

cause these various judgments, evaluations, and appraisals to change over time. Accordingly, actual circumstances could vary significantly from the institutions’ expectations and predictions of those circumstances. Management considers the following factors in determining and supporting the level of reserve for credit exposure: the concentration of lending in agriculture combined with uncertainties associated with farmland values, commodity prices, exports, government assistance programs, regional economic effects, and weatherrelated influences.

Premises and Equipment

The reserve for credit exposure includes components for loans individually evaluated for impairment, loans collectively evaluated for impairment, and loans acquired with deteriorated credit quality. Generally, for loans individually evaluated the reserve for credit exposure represents the difference between the recorded investment in the loan and the present value of the cash flows expected to be collected discounted at the loan’s effective interest rate, or at the fair value of the collateral, if the loan is collateral dependent. For those loans collectively evaluated for impairment, the reserve for credit exposure is determined using the risk rating model.

The reserve for credit exposure is increased through provisions for credit losses and loan recoveries and is decreased through loan loss reversals and loan charge-offs on the statement of income. Management applies the same loss factors to existing loan balances when determining the allowance for credit losses and undisbursed commitments when determining the reserve for unfunded commitments.

During 2013, the Association recorded a provision for credit losses in the amount of $615,293.

The Association, in cooperation with CoBank and other northeast associations, provides a non-contributory CoBank, ACB Defined Contribution Retirement Plan for employees.

Costs for this plan are expensed as funded.

Premises and equipment are carried at cost less accumulated depreciation. Land is carried at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Gains and losses on dispositions are reflected in current operations. Maintenance and repairs are charged to operating expense, and improvements are capitalized.

Employee Benefit Plans

The employees of the Association are also eligible to participate in CoBank’s Employee Savings Plan (Savings Plan). The Association matches a certain percentage of employee contributions. Savings Plan costs are expensed as funded.

The Association may provide certain health care and life insurance benefits to eligible retired employees. Substantially all employees may become eligible for these benefits if they reach normal retirement age while working for the Association.

Future Payment Funds

The Association’s investment in CoBank is in the form of Class E stock. Accounting for this investment is on the cost plus allocated equities basis.

The Association is authorized under the Farm Credit Act to accept advance payments from borrowers. To the extent the borrower’s access to such advance payments is restricted, the future payment funds are netted against the borrower’s related loan balance. Amounts in excess of the related loan balance and amounts to which the borrower has unrestricted access are presented as interest-bearing liabilities in the accompanying balance sheets. Future payment funds are not insured. Interest is generally paid by the Association on such accounts.

Other Property Owned

Income Taxes

Other property owned, consisting of real and personal property acquired through foreclosure or deed in lieu of foreclosure, is recorded at fair value less estimated selling costs upon acquisition and is included in other property owned in the balance sheet. Any initial reduction in the carrying amount of a loan to the fair value of the collateral received is charged to the allowance for credit losses. On at least an annual basis, revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Income and expenses from operations and carrying value adjustments are included in other expenses in the statement of income. One other property owned was sold during 2013 resulting in a minimal loss on the sale of $3,284.

There were no other items to report in 2013.

The Association is generally subject to federal and certain other income taxes, with the exception that income earned by the FLCA is not taxable, as provided in the Farm Credit Act. The Association is eligible to operate as a cooperative that qualifies for tax treatment under Subchapter T of the Internal Revenue Code. Accordingly, under specified conditions, the Association can exclude from taxable income amounts distributed as qualified patronage in the form of cash, stock, or allocated surplus. Provisions for income taxes are made only on those earnings that will not be distributed as qualified patronage. The Association distributes patronage on the basis of book income. Deferred taxes are recorded on the tax effect of all temporary differences.

Investment in CoBank, ACB

32 | Farm Credit of Maine

A valuation allowance is provided against net deferred tax assets to the extent that it is more likely than not (over 50 percent probability), based on management’s estimate, that they will not be realized. The consideration of valuation allowances involves various estimates and assumptions as the future taxable earnings, including the effects of the expected patronage program that reduce taxable earnings.

Deferred income taxes have not been provided by the Association on patronage stock distributions from the Farm Credit Bank of Springfield (FCB) prior to January 1, 1993, the adoption date of the FASB guidance on income taxes.

Management’s intent is 1) to permanently invest these and other undistributed earnings in the FCB, thereby indefinitely postponing their conversion to cash or 2) to pass through any distribution related to pre-1993 earnings to Association borrowers through qualified patronage allocations. CoBank is the successor to the FCB. The Association has not provided deferred income taxes on amounts allocated to the Association which relate to the FCB’s and CoBank’s post-1992 earnings to the extent that such earnings will be passed through to Association borrowers through qualified patronage allocations. Additionally, deferred income taxes have not been provided on the FCB’s and CoBank’s post-1992 unallocated earnings. CoBank currently has no plans to distribute unallocated Bank earnings and does not contemplate circumstances that, if distributions were made, would result in taxes being paid at the Association level.

Patronage Dividends The Association records patronage dividends from CoBank and other System entities on the accrual basis.

Derivative Instruments and Hedging Activity The Association is party with CoBank to derivative financial instruments, primarily interest rate swaps, which are principally used to manage interest rate risk on assets, liabilities, and anticipated transactions. Derivatives are recorded on the balance sheet as assets and liabilities at fair value.

Changes in the fair value of a derivative are recorded in current period earnings or accumulated other comprehensive income (loss) depending on the use of the derivative and whether it qualifies for hedge accounting.

For cash flow hedge transactions, which hedge the variability of future cash flows related to a variable rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative will generally be deferred and reported in accumulated other comprehensive income (loss). The gains and losses on the derivative that are deferred and reported in accumulated other comprehensive income (loss) will be reclassified as earnings in the periods

in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges is recorded in current period earnings. For derivatives not designated as a hedging instrument, the related change in fair value is recorded in current period earnings.

The Association formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value or cash flow hedges to 1) specific assets or liabilities on the balance sheet or 2) firm commitments or forecasted transactions. The Association also formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. The Association uses regression analysis (or other statistical analysis) to assess the effectiveness of its hedges. The Association discontinues hedge accounting prospectively when the Association determines that 1) a derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; 2) the derivative expires or is sold, terminated, or exercised; 3) it is no longer probable that the forecasted transaction will occur; 4) a hedged firm commitment no longer meets the definition of a firm commitment; or 5) management determines that designating the derivative as a hedging instrument is no longer appropriate.

FASB guidance, as amended, provides for various remedies in the event that hedge accounting is discontinued. Due to the structure of the current hedge transactions, management has no reason to believe these hedge accounting standards will not be met and believes transactions will continue to be recorded in the manner described in Note 13 of these consolidated financial statements.

Fair Value Measurement The FASB guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. It describes three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury and other U.S. government and agency mortgagebacked debt securities that are highly liquid and are actively traded in over-the-counter markets.

33 | Farm Credit of Maine

Level 2 – Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly are considered Level 2. Level 2 inputs include: 1) quoted prices for similar assets or liabilities in active markets; 2) quoted prices for identical or similar assets or liabilities in markets that are not active so that they are traded less frequently than exchange-traded instruments, the prices are not current or principal market information is not released publicly; 3) inputs other than quoted prices that are observable such as interest rates and yield curves, prepayment speeds, credit risks, and default rates; and 4) inputs derived principally from or corroborated by observable market data by correlation or other means. This category generally includes certain U.S. government and agency mortgage-backed debt securities, corporate debt securities, and derivative contracts.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities are considered Level 3. These unobservable inputs reflect the reporting entity’s own assumptions about assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow

methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes nonaccrual loans and other property owned.

The fair value disclosures are presented in Note 11.

Off-Balance-Sheet Credit Exposures Commitments to extend credit are agreements to lend to customers generally having fixed expiration dates or other termination clauses that may require payment of a fee.

Commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These letters of credit are issued to facilitate commerce and typically result in the commitment being funded when the underlying transaction is consummated between the customer and third party. The credit risk associated with commitments to extend credit and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness.

NOTE 3 – Loans and Reserve for Credit Exposure The following table shows a summary of net loans by Farm Credit loan type.

Production and intermediate-term Real estate mortgage Loans to cooperatives Processing and marketing Farm-related business Rural residential real estate Total loans

2013

December 31, 2012

2011

$ 177,334,146 75,298,596 428,334 27,295,335 17,156,293 540,736 $ 298,053,440

$ 192,181,181 71,905,591 692,500 14,069,230 16,020,051 463,109 $ 295,331,662

$ 183,093,012 58,106,409 562,500 9,593,389 13,585,413 186,657 $ 265,127,380

The Association may purchase participation interests in loans originated by other lending institutions as a component of its growth strategy. This enables the Association to diversify its industry and geographic credit risk. When participating in loans originated by others, the Association provides its valuable expertise with respect to certain industries and types of loans. The Association also sells loans, or portions of loans, to other institutions in order to manage its credit risk with respect to large loans and industry concentrations.

CoBank is the primary partner in this activity, which enables

the Association to take full advantage of the broad array of credit and capital market services provided by CoBank. The Association has utilized a combination of buying and selling loans, as described above, in order to diversify risk, manage loan volume, comply with FCA regulations, and meet the changing needs of its customer base. Participation loans purchased include interests in loans to both in-state and out-ofstate companies. Participation loans purchased also include interests in loans serviced either by Farm Credit of Maine or other lenders with whom the Association does business.

34 | Farm Credit of Maine

The following table shows information regarding participations purchased and sold by Farm Credit loan type.

December 31, 2013 Non-Farm Credit Institutions Participations Participations Purchased Sold

Other Farm Credit Institutions Participations Participations Purchased Sold Production and intermediate-term Real estate mortgage Loans to cooperatives Processing and marketing Farm Related Business Total loans

$

$

0 133,307 1,237,816 962,025 23,157 2,356,305

$

$

67,641,169 81,993,503 0 137,756,451 1,349,661 288,740,784

$

0 0 0 0 0 0

$

$

$

0 1,458,300 0 0 0 1,458,300

Total Participations Purchased $

$

0 133,307 1,237,816 962,025 23,157 2,356,305

Participations Sold $

$

67,641,169 83,451,803 0 137,756,451 1,349,661 290,199,084

risk as it relates to recorded loan principal, a 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 estimate of the Association’s credit risk exposure is considered in the determination of the reserve for credit exposure.

The Association’s concentration of credit risk in the various agricultural commodities is shown in the following table. The Association’s 10 largest customers represent 12 percent of net loan volume; however, the loss of any one customer would not have a material impact on the Association. While the amounts represent the Association’s maximum potential credit

The following table shows the concentration of credit risk in the Association’s net loan portfolio by industry sector.

December 31, 2012

2013 Timberland Potato Logging Food and fiber value added Dairy Fishing Other - farming Other - services Total loans

$

58,455,892 61,968,960 46,170,636 35,614,081 36,331,725 26,078,134 25,388,741 8,045,270 $ 298,053,439

19.7% 20.8% 15.5% 11.9% 12.2% 8.7% 8.5% 2.7% 100.0%

The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but typically includes farmland and income producing property, such as crops and livestock, as well as equipment, inventory, and receivables. Long-term real estate loans are secured by the first liens on the underlying real property. Federal regulations state that long-term real estate loans are not to exceed 85 percent (97 percent if guaranteed by a government

$

58,452,366 60,083,595 43,325,733 40,456,110 36,427,225 27,515,473 22,801,678 6,269,482 $ 295,331,662

19.8% 20.3% 14.7% 13.7% 12.3% 9.3% 7.7% 2.2% 100.0%

2011 $

54,304,664 53,165,964 43,418,599 32,947,420 30,943,540 25,201,892 21,814,782 3,330,519 $ 265,127,380

20.5% 20.1% 16.4% 12.4% 11.7% 9.5% 8.2% 1.2% 100.0%

agency) of the property’s appraised value. However, a decline in a property’s market value subsequent to loan origination or advances, or other actions necessary to protect the financial interest of the Association in the collateral, may result in the loan to value ratios in excess of the regulatory maximum.

Impaired loans are loans for which it is probable that all principal and interest will not be collected according to the contractual terms.

35 | Farm Credit of Maine

The following table shows information relating to impaired loans.

2013 Nonaccrual loans: Current as to principal and interest Past due Total nonaccrual Impaired accrual loans: Accrual loans 90 days or more past due Total impaired loans

$

$

569,446 1,719,163 2,288,609 148,549 2,437,158

December 31, 2012 $

$

73,551 339,549 413,100 1,624,981 2,038,081

2011 $

$

167,335 583,838 751,173 0 751,173

The following table shows nonperforming assets (including related accrued interest) and related credit quality statistics by Farm Credit loan type.

December 31, 2013 2012 2011 Nonaccrual loans: Production and intermediate-term $ 2,226,113 $ 413,100 $ 695,180 Real estate mortgage 62,497 0 55,993 Farm-related business 0 0 0 Total nonaccrual loans 2,288,610 413,100 751,173 Accruing loans 90 days or more past due: Production and intermediate-term 152,284 1,654,536 0 Total accruing loans 90 days or more past due 152,284 1,654,536 0 Total nonperforming loans 2,440,894 2,067,636 751,173 Other property owned 0 13,542 13,542 Total nonperforming assets $ 2,440,894 $ 2,081,178 $ 764,715

One credit quality indicator utilized by the Bank and the Association is the Farm Credit Administration Uniform Loan Classification System that categorizes loans into the following five categories. The categories are defined as follows: Acceptable – assets are expected to be fully collectible and represent the highest quality Other assets especially mentioned (OAEM) – assets are currently collectible but exhibit some potential weakness Substandard – assets exhibit some serious weakness in repayment capacity, equity, and/or collateral pledged on the loan Doubtful – assets exhibit similar weaknesses to substandard assets; however, doubtful assets have additional weaknesses in existing factors, conditions, and values that make collection in full highly questionable Loss – assets are considered uncollectible

36 | Farm Credit of Maine

The following table shows loans and related accrued interest classified under the Farm Credit Administration’s Uniform Loan Classification System as a percentage of net loans and related accrued interest receivable by Farm Credit loan type.

December 31, 2012

2013 Production and intermediate-term: Acceptable OAEM Substandard/doubtful Real estate mortgage: Acceptable OAEM Substandard/doubtful Loans to cooperatives: Acceptable OAEM Substandard/doubtful Processing and marketing: Acceptable OAEM Substandard/doubtful Farm-related business: Acceptable OAEM Substandard/doubtful Rural residential real estate: Acceptable OAEM Substandard/doubtful

2011

94.3% 3.6% 2.1% 100.0%

97.2% 0.8% 2.0% 100.0%

97.1% 1.4% 1.5% 100.0%

96.6% 0.4% 3.0% 100.0%

92.7% 2.9% 4.4% 100.0%

91.9% 6.0% 2.1% 100.0%

100.0% 0.0% 0.0% 100.0%

100.0% 0.0% 0.0% 100.0%

100.0% 0.0% 0.0% 100.0%

100.0% 0.0% 0.0% 100.0%

100.0% 0.0% 0.0% 100.0%

93.4% 6.6% 0.0% 100.0%

99.8% 0.0% 0.2% 100.0%

99.8% 0.0% 0.2% 100.0%

99.6% 0.0% 0.4% 100.0%

100.0% 0.0% 0.0% 100.0%

100.0% 0.0% 0.0% 100.0%

100.0% 0.0% 0.0% 100.0%

The following tables show an age analysis of past due loans (including accrued interest) by Farm Credit loan type.

December 31, 2013 30-89 Days Past Due Production and intermediate-term Real estate mortgage Loans to cooperatives Processing and marketing Farm-related business Rural residential real estate Total loans

$

$

219,292 0 0 0 0 0 219,292

90 Days or More Past Due $

$

1,808,951 62,497 0 0 0 0 1,871,448

Total Past Due $

$

2,028,243 62,497 0 0 0 0 2,090,740

37 | Farm Credit of Maine

Not Past Due or < 30 Days Past Due

$

176,391,743 75,704,530 429,531 27,456,550 17,194,700 542,937 297,719,991

Recorded Investment > 90 Days and Accruing

Total Loans $

$

178,419,986 75,767,027 429,531 27,456,550 17,194,700 542,937 299,810,731

$

$

152,284 0 0 0 0 0 152,284

December 31, 2012 30-89 Days Past Due Production and intermediate-term Real estate mortgage Loans to cooperatives Processing and marketing Farm-related business Rural residential real estate Total loans

$

$

90 Days or More Past Due

308,985 0 0 0 0 62,684 371,669

$

Total Past Due

1,994,085 0 0 0 0 0 1,994,085

$

$

$

Not Past Due or < 30 Days Past Due

2,303,070 0 0 0 0 62,684 2,365,754

$

Recorded Investment > 90 Days and Accruing

Total Loans

190,948,760 72,359,657 693,092 14,177,339 16,041,844 401,074 294,621,766

$

$

193,251,830 72,359,657 693,092 14,177,339 16,041,844 463,758 296,987,520

$

1,654,536 0 0 0 0 0 1,654,536

$

December 31, 2011 30-89 Days Past Due Production and intermediate-term Real estate mortgage Loans to cooperatives Processing and marketing Farm-related business Rural residential real estate Total loans

$

$

90 Days or More Past Due

360,434 0 0 0 0 0 360,434

$

Total Past Due

459,156 55,993 0 0 0 0 515,149

$

$

$

Not Past Due or < 30 Days Past Due

819,590 55,993 0 0 0 0 875,583

$

$

Recorded Investment > 90 Days and Accruing

Total Loans

182,273,422 58,050,416 562,500 9,593,389 13,585,413 186,657 264,251,797

$

$

183,093,012 58,106,409 562,500 9,593,389 13,585,413 186,657 265,127,380

$

0 0 0 0 0 0 0

$

The restructuring of a debt constitutes a troubled debt restructuring (TDR) if the creditor for economic or legal reasons related to the debtorâ&#x20AC;&#x2122;s financial difficulties grants a concession to the debtor that it would not otherwise consider.

The following table shows information regarding troubled debt restructurings that occurred during the years ended December 31, 2013, 2012, and 2011.

Troubled debt restructurings: Production and intermediate-term

December 31, 2013 Pre-Modification Post-Modification Outstanding Outstanding Recorded Recorded Investment* Investm ent*

December 31, 2012 Pre-Modification Post-Modification Outstanding Outstanding Recorded Recorded Investment* Investment*

December 31, 2011 Pre-Modification Post-Modification Outstanding Outstanding Recorded Recorded Investm ent* Investment*

$

$

$

318,040

$

321,918

32,919

$

27,386

0

$

0

There were no troubled debt restructures that occurred within the previous 12 months of that year and for which there was a payment default.

There were no additional commitments to lend to borrowers whose loans have been modified in TDRs at December 31, 2013, 2012, or 2011.

The following table provides information on outstanding loans restructured in troubled debt restructurings that are included as impaired loans in the impaired loan table at period end.

December 31, 2013 Production and intermediate-term Total loans

$ $

408,797 408,797

Loans Modified as TDRs 2012 $ $

112,118 112,118

2011 $ $

101,462 101,462

*Re pre s ents the po rtio n o f lo a ns mo difie d as TDRs (firs t c o lumn) tha t a re in no na cc rual s ta tus

38 | Farm Credit of Maine

2013 $ $

323,290 323,290

TDRs in Nonaccrual Status* 2012 $ $

20,566 20,566

2011 $ $

93,999 93,999

The following tables shows additional impaired loan information by Farm Credit loan type.

December 31, 2013 Recorded Investment

Unpaid Principal Balance**

Related Allowance

Average Impaired Loans

Interest Income Recognized

Impaired loans with a related allowance for credit losses: Production and intermediate-term Total

$ 1,976,883 1,976,883

$ 1,992,011 1,992,011

$ 540,183 540,183

$ 2,141,494 2,141,494

Impaired loans with no related allowance for credit losses: Production and intermediate-term Real estate mortgage Total

249,229 62,497 311,726

287,384 61,177 348,561

0 0 0

275,772 62,353 338,125

41,928 0 41,928

Total impaired loans: Production and intermediate-term Real estate mortgage Total

2,226,112 62,497 $ 2,288,609

2,279,395 61,177 $ 2,340,572

540,183 0 $ 540,183

2,417,266 62,353 $ 2,479,619

41,928 0 41,928

Recorded Investment

Unpaid Principal Balance**

Impaired loans with a related allowance for credit losses: Production and intermediate-term Total

$ 147,537 147,537

$ 176,477 176,477

Impaired loans with no related allowance for credit losses: Production and intermediate-term Real estate mortgage Total

265,563 0 265,563

292,590 0 292,590

0 0 0

296,177 0 296,177

5,700 4,599 10,299

Total impaired loans: Production and intermediate-term Real estate mortgage Total

413,100 0 $ 413,100

469,067 0 $ 469,067

32,933 0 32,933

456,237 0 456,237

5,700 4,599 10,299

$

$

0 0

December 31, 2012 Average Impaired Loans

Related Allowance

$

$

32,933 32,933

39 | Farm Credit of Maine

$

$

160,060 160,060

Interest Income Recognized

$

$

0 0

December 31, 2011 Recorded Investment

Unpaid Principal Balance**

Average Impaired Loans

Impaired loans with a related allowance for credit losses: Production and intermediate-term Total

$ 264,268 264,268

$ 319,208 319,208

Impaired loans with no related allowance for credit losses: Production and intermediate-term Real estate mortgage Farm-related business Total

430,912 55,993 0 486,905

497,633 55,949 0 553,582

0 0 0 0

502,539 61,946 0 564,485

728 264 4,258 5,250

Total impaired loans: Production and intermediate-term Real estate mortgage Farm-related business Total

695,180 55,993 0 $ 751,173

816,841 55,949 0 $ 872,790

85,172 0 0 85,172

826,468 61,946 0 888,414

728 264 4,258 5,250

Related Allowance

$

$

85,172 85,172

$

323,929 323,929

$

Interest Income Recognized

$

$

0 0

** Unpa id P rinc ipa l B a la nc e re pre s e nts the bo rro we r's c o ntra c tua l lo a n ba la nc e .

There were no material commitments to lend additional funds to debtors whose loans were classified as impaired at December 31, 2013, 2012, or 2011.

The following table shows interest income on nonaccrual and accruing restructured loans that would have been recognized under the original terms of the loans.

2013 Gross interest income that would have been recorded under the original loan terms Less: interest income recognized Forgone (recognized) interest income

$ $

209,051 65,089 143,962

December 31, 2012 $ $

40 | Farm Credit of Maine

49,249 50,150 (901)

2011 $ $

69,200 107,898 (38,698)

The following table shows a summary of the changes in the reserve for credit exposure.

Balance at beginning of year Charge-offs: Production and intermediate-term Recoveries: Production and intermediate-term Real estate Farm-related business Provision for credit losses Balance at end of year Ratio of net charge-offs during the period to average loans outstanding

$

$

2013

December 31, 2012

6,608,896

$

6,164,046

2011 $

4,709,474

(7,363)

(39,547)

(51,605)

6,632 3,284 0 615,293 7,226,742

10,791 2,977 0 470,629 6,608,896

1,625 0 1,000 1,503,552 6,164,046

$

0.01%

0.01%

$

0.02%

The average recorded investment in impaired loans during 2013, 2012, and 2011 was $2,283,342, $565,325, and $1,039,511, respectively. Impaired loans of $1,976,883, $147,537, and $264,268, at December 31, 2013, 2012, and 2011, respectively, had a related specific allowance for credit losses totaling $540,183, $32,933, and $85,172, respectively. The remaining impaired loans carried no specific allowance for credit losses; however, such impaired loans were considered in the determination of the general reserve for credit exposure.

NOTE 4 – Investment in CoBank, ACB The investment in CoBank, ACB is a requirement of borrowing from the Bank and is carried at cost plus allocated equities, not fair value, in the accompanying balance sheet.

Estimating the fair value of the Association’s investment in CoBank is not practicable because the stock is not traded.

The Association owns .59 percent of the issued stock of CoBank as of December 31, 2013. As of that date, CoBank’s assets totaled $97.6 billion, members’ equity totaled $6.7 billion, and earnings were $856.5 million.

At December 31, 2013, the Association’s investment in CoBank is in the form of Class E stock. Most of the investment has been accumulated through patronage distributed to the Association in the form of stock. The Association is required to invest in CoBank for two purposes.

First, the Association is required to invest in CoBank to capitalize the Association’s loan from CoBank. The capitalization requirement for this purpose is 4 percent of the average borrowings for the previous year. For 2013, the

required investment in CoBank for this purpose was $10,053,000 and the actual investment was $10,053,000. When the Association’s investment meets or exceeds the required amount, CoBank pays patronage to the Association 100 percent in cash.

If the Association’s investment is less than the required amount, CoBank will issue additional equity through their patronage program until the required amount is reached. In December 2013, the Association purchased $552,000 of additional stock in CoBank to meet required capitalization levels and to continue receiving cash patronage.

Second, the Association is required to invest in CoBank to capitalize participation loans sold to CoBank. The capitalization requirement for this purpose is 8 percent of the previous 10-year average balance of participations sold. For 2013, the required investment in CoBank for this purpose was $9,633,615 and the actual investment was $5,814,278. When the Association’s investment is less than the required amount, CoBank pays patronage to the Association 75 percent in cash and 25 percent in stock.

41 | Farm Credit of Maine

NOTE 5 – Premises and Equipment The following table shows the premises and equipment.

2013 Land Buildings and improvements Furniture and equipment Automobiles Less: accumulated depreciation Total

$

$

42,802 3,748,153 594,018 556,799 4,941,772 1,887,075 3,054,697

December 31, 2012 $

$

42,802 3,566,492 536,206 462,956 4,608,456 1,777,387 2,831,069

2011 $

$

42,802 3,433,964 504,387 392,208 4,373,361 1,685,904 2,687,457

NOTE 6 – Notes Payable to CoBank, ACB The Association’s indebtedness to CoBank represents borrowings by the Association to fund its loan portfolio. This indebtedness is collateralized by a pledge of substantially all of the Association’s assets and is governed by a General Financing Agreement with CoBank, which provides the Association an open-ended revolving line of credit. The interest rate is periodically adjusted by CoBank. The average

interest rate was .97 percent at December 31, 2013. CoBank, consistent with FCA regulations, has established limitations on the Association’s ability to borrow funds based on specified factors or formulas relating primarily to credit quality and financial condition. At December 31, 2013, the Association’s notes payable were within the specified limitations.

NOTE 7 – Members’ Equity A description of the Association’s capitalization requirements, protection mechanisms, regulatory capitalization requirements and restrictions, and equities is provided below.

Capital Stock and Participation Certificates In accordance with the Farm Credit Act and the Association’s Capitalization Bylaws and Capital Plan, each Association borrower, as a condition of borrowing, is required at the time the loan is made to invest in Class B Stock for agricultural loans or Class B Participation Certificates for country home and farm-related business loans.

Subject to the Farm Credit Act and Regulations thereunder and the Association’s Capital Plan, the Association’s Board of Directors may declare a dividend on the Association’s stock and participation certificates and authorize the distribution of Association earnings in the form of patronage. Earnings not distributed are retained as unallocated surplus.

Association borrowers acquire ownership of capital stock or participation certificates at the time the loan is made in the amount of 2 percent of the loan or $1,000, whichever is less.

The investment may be made in the form of cash or the aggregate par value may be added to the principal amount of the related loan obligation. The Association retains a first lien

on the stock or participation certificates owned by borrowers.

Retirement of 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 considering the Capital Plan as well as regulatory and other requirements.

Exceptions to the Capital Plan include certain customers with stock investments less than $1,000 at the time of the final step of the stock reduction plan on April 2, 2007. The stock of these borrowers remains constant until the loan is paid in full or until there is a request for an additional loan advance or loan servicing action. At that time, the stock requirement becomes 2 percent of the loan or $1,000, whichever is less.

Description of Equities Each owner or joint owners of Class B stock are entitled to a single vote, while Class B participation certificates provide no voting rights to their owners. Voting stock may not be transferred to another person unless such person is eligible to hold voting stock. At December 31, 2013, the Association had 147,213 shares of Class B stock outstanding at a par value of $5

42 | Farm Credit of Maine

per share and 6,209 shares of Class B participation certificates outstanding at a par value of $5 per share.

Ownership of stock, participation certificates, or allocated surplus is subject to certain risks that could result in a partial or complete loss. These risks include excessive levels of credit losses experienced by the Association, losses resulting from contractual and statutory obligations, impairment of CoBank stock owned by the Association, losses resulting from adverse judicial decisions, or other losses that may arise in the course of business. In the event of such impairment, borrowers would remain liable for the full amount of their loans.

Any losses that result in impairment of capital stock and participation certificates would be allocated to such purchased capital on a pro rata basis, impairing Class B stock and participation certificates. In the case of liquidation or dissolution of the Association, capital stock, participation certificates, and allocated surplus would be utilized as necessary to satisfy any remaining obligations in excess of the amounts realized on the sale or liquidation of assets.

Regulatory Capitalization Requirements and Restrictions The FCAâ&#x20AC;&#x2122;s capital adequacy regulations require the Association to achieve permanent capital of 7 percent of riskadjusted assets and off-balance-sheet commitments. Failure to meet the 7 percent capital requirement can initiate certain mandatory, and possibly additional discretionary, actions by the FCA that, if undertaken, could have a direct material effect on the Associationâ&#x20AC;&#x2122;s financial statements. The Association is prohibited from reducing permanent capital by retiring stock or making certain other distributions to shareholders unless

prescribed capital standards are met. The FCA regulations also require that additional minimum standards for capital be achieved. These standards require all System institutions to achieve and maintain ratios of total surplus as a percentage of risk adjusted assets of 7 percent and of core surplus (generally unallocated surplus) as a percentage of risk-adjusted assets of 3.5 percent.

The Associationâ&#x20AC;&#x2122;s permanent capital, total surplus, and core surplus ratios at December 31, 2013 were 17.5 percent, 17.2 percent, and 17.2 percent, respectively. With the exception of certain loans purchased from or participated with CoBank or other lenders, Class B stock and Class B participation certificates are issued for all loans closed, in an amount equal to 2 percent of the gross loan amount rounded to the next higher even $5 multiple as a condition of borrowing from the Cooperative. The current maximum required investment is $1,000 per customer.

Subject to the provisions of the Farm Credit Act and within the range approved by the membership in the Bylaws of the Association, the Association may change at any time the required minimum stock purchase in connection with loans by a change in the Capital Plan, subject to the statutory minimum capital of $1,000 or 2 percent of the amount of the loan, whichever is less.

An FCA regulation empowers it to direct a transfer of funds or equities by one or more System institutions to another System institution under specified circumstances. The Association has not been called upon to initiate any transfers and is not aware of any proposed action under this regulation.

Accumulated Other Comprehensive Income An additional component of members equity is accumulated other comprehensive income (loss). The table below reports accumulated other comprehensive income (loss) net of tax.

2013 Unrealized gains on cash flow hedges Pension and other benefit plans Total

$ $

7,167 (454,378) (447,211)

December 31, 2012 $ $

95,165 (599,192) (504,027)

43 | Farm Credit of Maine

2011 $ $

164,094 (585,354) (421,260)

The following tables present the activity in the accumulated other comprehensive income (loss), net of tax by component.

Unrealized losses on cash flow hedges, net Balance at December 31, 2012 Net current period other comprehensive income (loss) Balance at December 31, 2013

$

Pension and other benefit plans

95,165 (87,998) 7,167

$

$ $

Unrealized losses on cash flow hedges, net Balance at December 31, 2011 Net current period other comprehensive income (loss) Balance at December 31, 2012

$

Pension and other benefit plans

164,094 (68,929) 95,165

$

$

$ $

(585,354) (13,838) (599,192)

$

Unrealized losses on cash flow hedges, net Balance at December 31, 2010 Net current period other comprehensive income (loss) Balance at December 31, 2011

(599,192) 144,814 (454,378)

Pension and other benefit plans

295,165 (131,071) 164,094

$

(465,645) (119,709) (585,354)

$

NOTE 8 â&#x20AC;&#x201C; Income Taxes The following table shows the provision for income taxes.

2013 Current: Federal State

$

Deferred: Federal State Provision for income taxes

$

448,496 126,153 574,649 (111,724) (31,540) (143,264) 431,385

December 31, 2012 $

$

44 | Farm Credit of Maine

538,397 152,081 690,478 (11,046) (3,119) (14,165) 676,313

2011 $

$

590,107 166,996 757,103 (361,299) (99,496) (460,795) 296,308

The following table quantifies the differences between the provision for income taxes and the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income of the Association.

2013 Federal tax at statutory rate State tax, net Effect of nontaxable activities Patronage distribution Other Provision for income taxes

$

$

2,450,949 62,445 (1,269,461) (850,000) 37,452 431,385

December 31, 2012 $

$

2,617,698 98,315 (1,229,216) (782,000) (28,484) 676,313

2011 $

$

1,860,453 44,550 (939,931) (714,000) 45,236 296,308

The following table shows the composition of deferred tax assets and liabilities.

2013 Provision for credit losses Nonaccrual loan interest Annual leave Other Gross deferred tax assets CoBank patronage Bank patronage after December 31, 1992 Depreciation Pension Other Gross deferred tax liabilities Net deferred tax assets

$

$

2,213,293 115,732 115,606 96,016 2,540,647 (731,012) (43,754) (147,132) (191,736) (64,167) (1,177,801) 1,362,846

December 31, 2012 $

$

1,987,466 57,691 115,105 126,328 2,286,590 (678,100) (43,754) (84,173) (104,221) (61,101) (971,349) 1,315,241

2011 $

$

1,903,582 58,559 107,546 98,947 2,168,634 (640,330) (43,755) (74,944) (80,220) (37,450) (876,699) 1,291,935

A valuation allowance against the net deferred tax assets was not required at December 31, 2013, 2012, or 2011 due to managementâ&#x20AC;&#x2122;s estimate that it is more likely than not (over 50 percent probability) that they will be realized.

The Association has no unrecognized tax benefits for which liabilities have been established. The Association recognizes interest and penalties related to unrecognized tax benefits as an adjustment to income tax expense. The amount of interest recognized was $0, and the amount of penalties recognized was $0 for 2013. The Association did not have any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months. The tax years that remain open for federal and major state income tax jurisdictions are 2010 and forward.

45 | Farm Credit of Maine

NOTE 9 â&#x20AC;&#x201C; Employee Benefit Plans Defined Benefit Plan

Benefits are based on salary and years of service. Pension costs for the Association under this plan are calculated by the Planâ&#x20AC;&#x2122;s actuary by applying certain actuarial assumptions to adjust the accumulated plan benefits to reflect the time value of money and the probability of payment between the valuation date and the expected date of payment.

Prior to implementation of the Defined Contribution Plan in 1998, the Association offered to employees the CoBank, ACB Retirement Plan, a non-contributory defined benefit retirement plan (Defined Benefit Plan). The Association only participates in this plan to the extent that it has retirees in the plan. No current employees of the Association participate in the Plan.

The following table presents the funded status and the amounts recognized in the statement of condition of the Associationâ&#x20AC;&#x2122;s Defined Benefit Plan.

2013 Change in benefit obligation: Benefit obligation at beginning of year Interest cost Actuarial (gain) loss, net Benefits paid Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Benefits paid Fair value of plan assets at end of year Funded status: Net amount recognized at end of year Amounts recognized in accumulated other comprehensive income consist of: Unrecognized prior service cost (credit) Unrecognized net actuarial loss (gain) Total

$

$

$

1,558,380 59,871 (38,162) (139,305) 1,440,784

$

1,820,375 241,707 (139,305) 1,922,777

$

$ $

December 31, 2012

$

$

$

1,546,377 70,897 81,589 (140,483) 1,558,380

2011

$

$

$

1,748,037 212,821 (140,483) 1,820,375

$

1,817,437 72,269 (141,669) 1,748,037

481,993

$

261,995

$

201,660

55,030 542,791 597,821

$

59,975 740,224 800,199

$

64,920 772,328 837,248

$

46 | Farm Credit of Maine

$

1,488,457 75,826 123,763 (141,669) 1,546,377

$

The following tables show the components of net periodic benefit cost and other amounts recognized on other comprehensive income.

December 31, 2013 2012 2011 Components of net periodic benefit cost: Interest cost $ 59,871 $ 70,897 $ 75,826 Expected return on plan assets (119,819) (128,104) (148,355) Amortization of unrecognized: Prior service cost 4,945 4,945 4,945 Net actuarial loss 37,383 28,976 16,129 Total expense (income) $ (17,620) $ (23,286) $ (51,455) Other changes in plan assets and benefit obligations recognized in other comprehensive income: Net actuarial (gain) loss Amortization of: Prior service credit Net actuarial gain Total recognized in other comprehensive income

$

(160,050)

$

(4,945) (37,383) (202,378)

$

(3,128)

$

(4,945) (28,976) (37,049)

$

199,849

$

(4,945) (16,129) 178,775

The following table shows the weighted average assumptions used to determine benefit obligation.

Discount rate Rate of compensation increase

2013

December 31, 2012

2011

4.85% 4.75%

4.05% 4.75%

4.80% 4.75%

The following table shows the weighted average assumptions used to determine net periodic benefit cost.

Discount rate Expected return on plan assets Rate of compensation increase

We establish the expected rate of return on plan assets based on a review of past and expected future anticipated returns on plan assets. The expected rate of return on plan assets

2013

December 31, 2012

2011

4.05% 7.25% 4.75%

4.80% 7.25% 4.75%

5.35% 8.00% 5.00%

assumption also matches the pension plans long-term interest rate assumption used for funding purposes.

Plan Assets The asset allocation target ranges for the pension plans follow the investment policy adopted by our retirement trust committee. This policy provides for a certain level of trustee flexibility in selecting target allocation percentages by asset

class. The actual allocation percentages reflect the quoted market values at year-end and may vary during the course of the year. Plan assets are generally rebalanced to a level within the target range each year at the direction of the trustees.

47 | Farm Credit of Maine

The following table shows the adopted range for target allocation percentages by asset class along with the actual asset allocations.

Target Allocation Range Asset Category: Domestic equity Domestic fixed income International Emerging markets equity and fixed income Real assets Hedge Funds Total

40-50% 35-50% 0-10% 0-10% 0-5% 0-10%

December 31, 2012

2013

48% 29% 10% 5% 3% 5% 100%

2011

43% 37% 10% 5% 5% 0% 100%

46% 36% 8% 4% 6% 0% 100%

The assets of the pension plans consist primarily of investments in various domestic equity, international equity, and bond funds.

These funds do not contain any significant investments in a single entity, industry, country, or commodity, thereby mitigating concentration risk. No CoBank stock or debt, or that of any other System institution, is included in these investments.

The following tables show major categories of pension plan assets that are measured at fair value for each of the fair value hierarchy levels as defined in Note 2 â&#x20AC;&#x201C; Summary of Significant Accounting Policies.

December 31, 2013 Fair Value Measurement Level 2 Level 3

Level 1 Asset Category: Cash Domestic equity: Large cap growth fund Large cap equity fund Small cap growth fund International equity: International equity fund Fixed income: Bond fund Emerging Market: Equity and fixed income fund Real Assets: Gold fund Absolute Return Total

$

$

8,440

$

0

$

Total Fair Value 0

$

8,440

421,370 0 0

0 365,348 127,982

0 0 0

421,370 365,348 127,982

201,267

0

0

201,267

564,995

0

0

564,995

0

87,163

0

87,163

57,700 0 1,253,772

0 0 580,493

0 88,512 88,512

57,700 88,512 1,922,777

$

48 | Farm Credit of Maine

$

$

December 31, 2012 Fair Value Measurement Level 2 Level 3

Level 1 Asset Category: Cash Domestic equity: Large cap growth fund Large cap equity fund Small cap growth fund International equity: International equity fund Fixed income: Bond fund Emerging Market: Equity and fixed income fund Real Assets: Gold fund Total

$

$

5,567

$

$

$

$

0

$

5,567

378,773 0 0

0 308,519 90,400

0 0 0

378,773 308,519 90,400

187,889

0

0

187,889

664,383

0

0

664,383

0

97,322

0

97,322

87,522 1,324,134

$

0 496,241

$

0 0

December 31, 2011 Fair Value Measurement Level 2 Level 3

Level 1 Asset Category: Cash Domestic equity: Large cap growth fund Large cap equity fund Small cap growth fund International equity: International equity fund Fixed income: Bond fund Emerging Market: Equity and fixed income fund Real Assets: Gold fund Total

0

Total Fair Value

5,448

$

0

$

$

87,522 1,820,375

Total Fair Value 0

$

5,448

403,332 0 0

0 303,978 94,586

0 0 0

403,332 303,978 94,586

135,782

0

0

135,782

626,776

0

0

626,776

0

77,940

0

77,940

100,195 1,271,533

$

Level 1 plan assets are funds with quoted daily net asset values that are directly observable by market participants. The fair value of these funds is the net asset value at close of business on the reporting date. Level 2 plan assets are funds with quoted net asset values that are not directly observable by market participants. A significant portion of the underlying

0 476,504

$

0 0

$

100,195 1,748,037

investments in these funds has individually observable market prices, which are utilized by the planâ&#x20AC;&#x2122;s trustee to determine a net asset value at close of business on the reporting date. Level 3 plan assets are funds with unobservable net asset values and supported by limited or no market activity.

Investment strategy and objectives are described in the pension plansâ&#x20AC;&#x2122; formal investment policy document. The basic strategy and objectives as adopted in the investment policy are to: Manage portfolio assets with a long-term time horizon appropriate for the participant demographics and cash flow requirements

49 | Farm Credit of Maine

Optimize long-term funding requirements by generating rates of return sufficient to fund liabilities and exceed the long-term rate of inflation Provide competitive investment returns and reasonable risk levels when measured against appropriate benchmarks The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid.

2014 Payouts 2015 Payouts 2016 Payouts 2017 Payouts 2018 Payouts 2019 Payouts to 2023 Payouts

$ 138,000 133,000 128,000 137,000 190,000 550,000

The Association does not expect to make any contributions to its Defined Benefit Plan in 2014.

Other Post-Retirement Benefits Post-retirement benefits other than pensions are also provided to retirees of the Association. Benefits provided are determined on a graduated scale, based on years of service.

Post-retirement benefits other than pensions (primarily healthcare benefits) included in salaries and employee benefits were $16,819 for 2013, $19,316 for 2012, and $22,095 for 2011.

The following table shows the information related to the Associationâ&#x20AC;&#x2122;s post-retirement welfare benefits.

Accumulated benefit obligation Net liability recognized in the balance sheet Net periodic benefit cost (income) Discount rate

$

2013 (38,549) 118,159 16,082 4.05%

December 31, 2012 $ (21,730) 173,075 10,897 4.80%

$

2011 (2,414) 132,364 12,970 5.35%

Defined Contribution Plan The Association participates in the CoBank, ACB Defined Contribution Plan, a non-contributory multiple employer plan.

Under this plan, the employer contributes a percentage of each employeeâ&#x20AC;&#x2122;s salary, based on years of service to an

account maintained for the employee. Employer contributions charged to expense were $290,979, $227,429, and $194,034 for the years ended December 31, 2013, 2012, and 2011 respectively.

Employee Savings Plan The Association also participates in the CoBank, ACB Employee Savings Plan. The Savings Plan requires the Association to match 100 percent of employee contributions up to a maximum employee contribution of 6 percent of

compensation. Employer contributions charged to expenses were $194,633, $170,022, and $159,599 for the years ended December 31, 2013, 2012, and 2011, respectively.

NOTE 10 â&#x20AC;&#x201C; Related Party Transactions In the ordinary course of business, the Association may enter into loan and lease transactions with senior officers and directors of the Association, their immediate families, and other organizations with which such persons may be associated. Such loans are subject to special approval requirements contained in the FCA regulations and are made on the same terms, including interest rates and collateral, as

those prevailing at the time for comparable transactions with unrelated borrowers.

Total loans and leases to such persons at December 31, 2013, amounted to $19,162,936. During 2013, $4,747,290 of new loans or advances on existing loans were made and repayments totaled $4,905,358. In the

50 | Farm Credit of Maine

interest was 6.31 percent. FPI provides accounting, information technology, and other services to the Association on a fee basis. Fees paid to FPI for the years ended December 31, 2013, 2012, and 2011 were $923,416, $975,588, and $948,707, respectively.

opinion of management, none of these loans outstanding at December 31, 2013 involved more than a normal risk of collectability. All of these transactions were with directors.

The Association owns an interest in Financial Partners, Inc. As of December 31, 2013, the Associationâ&#x20AC;&#x2122;s ownership

NOTE 11 â&#x20AC;&#x201C; Fair Value Measurements Accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. See Note 2 â&#x20AC;&#x201C; Summary of Significant Accounting Policies for additional information.

The following tables show reconciliations of assets and liabilities measured at fair value on a recurring basis.

December 31, 2013 Fair Value Measurement Using Level 1 Level 2 Level 3

Total Fair Value

Assets: Derivative assets Total assets

$ $

0 0

$ $

87,827 87,827

$ $

0 0

$ $

87,827 87,827

Liabilities: Derivative liabilities Total liabilities

$ $

0 0

$ $

16,869 16,869

$ $

0 0

$ $

16,869 16,869

December 31, 2012 Fair Value Measurement Using Level 1 Level 2 Level 3

Total Fair Value

Assets: Derivative assets Total assets

$ $

0 0

$ $

173,665 173,665

$ $

0 0

$ $

173,665 173,665

Liabilities: Derivative liabilities Total liabilities

$ $

0 0

$ $

3,792 3,792

$ $

0 0

$ $

3,792 3,792

December 31, 2011 Fair Value Measurement Using Level 1 Level 2 Level 3

Total Fair Value

Assets: Derivative assets Total assets

$ $

0 0

$ $

191,499 191,499

$ $

0 0

$ $

191,499 191,499

Liabilities: Derivative liabilities Total liabilities

$ $

0 0

$ $

24,270 24,270

$ $

0 0

$ $

24,270 24,270

51 | Farm Credit of Maine

Certain assets and liabilities are measured at fair value on a nonrecurring basis in accordance with generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period, as well as assets that are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

The following tables show the financial instruments carried at fair value on a nonrecurring basis and indicates the fair value hierarchy of the valuation techniques utilized by the Association to determine fair value.

December 31, 2013 Fair Value Measurement Using Level 1 Level 2 Level 3 Assets: Nonaccrual loans Other property owned Total assets

$

0 0 0

$

$

0 0 0

$

$ $

Total Fair Value

2,288,609 0 2,288,609

$ $

December 31, 2012 Fair Value Measurement Using Level 1 Level 2 Level 3 Assets: Nonaccrual loans Other property owned Total assets

$

0 0 0

$

$

0 0 0

$

$ $

Total Fair Value

413,100 10,258 423,358

$ $

December 31, 2011 Fair Value Measurement Using Level 1 Level 2 Level 3 Assets: Nonaccrual loans Other property owned Total assets

$

0 0 0

$

$

0 0 0

$

$ $

2,288,609 0 2,288,609

413,100 10,258 423,358

Total Fair Value

751,173 10,258 761,431

$ $

751,173 10,258 761,431

Quoted market prices are generally not available for certain System financial instruments, as described below. Accordingly, fair values are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates involve uncertainties and matters of judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Financial assets and financial liabilities are measured at carrying amounts and not measured at fair value on the balance sheet.

The following table presents the estimated fair values of the Associationâ&#x20AC;&#x2122;s financial instruments.

December 31, 2013 Total Carrying Amount

Level 1

Financial assets: Loans, net Cash Derivatives

$ 292,183,878 2,552,135 87,827

$

Financial liabilities: Notes payable to CoBank Derivatives

$ 253,592,388 16,869

$

Level 2

0 2,552,135 0

$

0 0

$

2012

Level 3

Total Fair Value

Total Carrying Amount

0 0 87,827

$ 292,498,075 0

$ 292,498,075 2,552,135 87,827

0 16,869

$ 253,239,472 0

$ 253,239,472 16,869

2011 Total Fair Value

Total Carrying Amount

Total Fair Value

$ 289,988,936 2,070,267 173,665

$ 292,766,394 2,070,267 173,665

$ 260,274,673 973,584 191,499

$ 266,971,874 973,584 191,499

$ 253,614,596 3,792

$ 255,380,344 3,792

$ 224,276,479 24,270

$ 226,264,619 24,270

52 | Farm Credit of Maine

Valuation Techniques As more fully discussed in Note 2 – Summary of Significant Accounting Policies – accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following represent a brief summary of the valuation techniques used by the Association for assets and liabilities.

Derivatives (Interest Rate Swaps) The Association’s 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. Such derivatives include basic interest rate swaps and options.

The models used to determine the fair value of derivative assets and liabilities use an income approach based on observable market inputs, primarily the LIBOR swap curve and volatility assumptions about future interest rate movements.

Derivatives are carried at their estimated fair value, calculated as the present value of estimated future cash flows. Depending on the position of the swap, the fair value may either be an asset or a liability.

fair value is based upon the underlying collateral since the loans are collateral dependent loans. The fair value measurement process uses independent appraisals and other market-based information. In many cases it also requires significant input based on management’s knowledge of and judgment about current market conditions, specific issues relating to the collateral and other matters. As a result, these fair value measurements fall within Level 3 of the hierarchy.

When the value of the collateral, less estimated costs to sell, is less than the principal balance of the loan, a specific reserve is established.

Other Property Owned Other property owned is generally classified as Level 3. The process for measuring the fair value of other property owned involves the use of appraisals or other market-based information.

Costs to sell represent transaction costs and are not included as a component of the asset’s fair value. As a result, these fair value measurements fall within Level 3 of the hierarchy.

Cash The carrying value is a reasonable estimate of fair value.

Notes Payable to CoBank

Loans Fair value is estimated by discounting the expected future cash flows using CoBank’s and/or the Association’s current interest at which similar loans would be made to borrowers with similar credit risk. The discount rates are based on the District’s loan origination rates, as well as management estimates of credit risk.

Management has no basis to determine whether the estimated fair values presented would be indicative of assumptions and adjustments that a purchaser of the Association’s loans would seek in an actual sale, which could be less. For certain loans evaluated for impairment under FASB impairment guidance, the

The notes payable are segregated into pricing pools according to the types and terms of the loans (or other assets) that they fund. Fair value of the note payable is estimated by discounting the anticipated cash flows of each pricing pool using the current rate that would be charged for additional borrowings.

For purposes of this estimate, it is assumed the cash flow on the notes payable is equal to the principal payments on the Association’s loan receivables plus accrued interest on the notes payable. This assumption implies that earnings on the Association’s interest margin are used to fund operating expenses and capital expenditures.

NOTE 12 – Commitments and Contingencies The Association has various commitments outstanding and contingent liabilities. The Association may participate in financial instruments with off-balance-sheet risk to satisfy the financing needs of its borrowers. These financial instruments include commitments to extend credit and commercial letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the financial statements. Commitments to extend credit are agreements to lend to a borrower as long as there is not a violation of any condition established in the contract.

Commercial letters of credit are agreements to pay a beneficiary under conditions specified in the letter of credit. Commitments and letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. At December 31, 2013, $242,912,524 of commitments to extend credit and $1,389,775 of commercial letters of credit were outstanding.

53 | Farm Credit of Maine

Since many of these commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. Additionally, a significant portion of the undisbursed commitment to extend credit is held with CoBank and other financial institutions that participate in the loan transaction. However, these credit-related financial instruments have off-balance-sheet credit risk because their amounts are not reflected on the balance sheet until funded or drawn upon. The credit risk associated with issuing commitments and letters of credit is substantially the same as that involved in extending loans to borrowers, and management applies the same credit policies to these commitments. Upon fully funding a commitment, the credit risk amounts are equal to the contract

amounts, assuming that borrowers fail completely to meet their obligations and the collateral or other security is of no value. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower.

In addition, there are actions pending against the Association in which claims for monetary damages are asserted. Based on current information, management and legal counsel are of the opinion that the ultimate liability, if any, resulting there from, would not be material in relation to the financial position of the Association.

NOTE 13 – Derivative Instruments and Hedging Activities The Association maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. The Association’s goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that the net interest margin is not adversely affected by movements in interest rates. As a result of interest rate fluctuations, the interest income and interest expense of hedged variable-rate assets and liabilities, respectively, will increase or decrease. The effect of this variability in earnings is expected to be substantially offset by the Association’s gains and losses on the derivative instruments that are linked to these hedged assets and liabilities. The Association considers its strategic use of derivatives to be a prudent method of managing interest rate sensitivity, because it prevents earnings from being exposed to certain volatility posed by changes in interest rates. The Association enters into derivatives, particularly interest rate swaps, to stabilize net interest income on variable priced loan assets, to the degree they are funded with equity. Under interest rate swap arrangements, the Association agrees with other parties (CoBank) to exchange, at specified intervals, payment streams calculated on a specified notional principal amount, with at least one stream based on a specified floating rate index.

The Association’s interest-earning assets, to the degree they are funded with debt, are matched with similarly priced and termed liabilities. Volatility in net interest income comes from equity funded, variable priced assets. To the degree that variable priced assets are funded with equity, interest rate swaps in which the Association pays the floating rate and receives the fixed rate (receive fixed swaps) are used to reduce the impact of market fluctuations on the Association’s net interest income.

By using derivative instruments, the Association exposes itself to credit and market risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, the Association’s credit risk will equal the fair value gain in a derivative. Generally, when the fair value of a derivative contract is positive, this indicates that the counterparty owes the Association, thus creating a repayment risk for the Association. When the fair value of the derivative contract is negative, the Association owes the counterparty and, therefore, assumes no repayment risk.

The Association minimizes the credit (or repayment) risk by entering into transactions only with CoBank, ACB. The Association has a master agreement with CoBank. The Association’s derivative activities are monitored by senior management and the Board of Directors.

Cash Flow Hedges The Association uses receive fixed/pay variable interest rate swaps to hedge its equity investment in variable rate assets.

These swaps, which qualify for hedge accounting, have a three-year term, with a pay rate indexed to three-month LIBOR. As of December 31, 2013, the Association has executed interest rate swap contracts with CoBank, ACB having a notional amount of $36,000,000. The fair value of the swap contracts at December 31, 2013 is $70,958, which is all reflected in accumulated other comprehensive income due to the highly effective nature of the hedge transaction.

The carrying value of the hedged assets is $87,827, and the carrying value of the hedged liability is $16,869. The Association is exposed to credit loss in the event of nonperformance by other parties to the interest rate swap agreement; however, the Association does not anticipate nonperformance by CoBank, ACB.

54 | Farm Credit of Maine

NOTE 14 – Quarterly Financial Information (Unaudited) The following tables show the quarterly results of operations.

Net interest income Provision for credit losses Noninterest expense, net Net income

Net interest income Provision for credit losses Noninterest expense, net Net income

Net interest income Provision for credit losses Noninterest expense, net Net income

First

Second

2013 Third

Fourth

Total

$ 2,955,286 163,052 964,388 $ 1,827,846

$ 2,640,558 425,401 933,240 $ 1,281,917

$ 2,907,510 11,737 952,020 $ 1,943,753

$ 2,896,639 15,103 1,157,763 $ 1,723,773

$ 11,399,993 615,293 4,007,411 $ 6,777,289

First

Second

2012 Third

Fourth

Total

$ 2,706,366 46,814 955,354 $ 1,704,198

$ 2,605,090 189,537 688,795 $ 1,726,758

$ 2,740,053 121,994 952,812 $ 1,665,247

$ 2,912,514 112,284 873,634 $ 1,926,596

$ 10,964,023 470,629 3,470,595 $ 7,022,799

First

Second

2011 Third

Fourth

Total

$ 2,573,545 0 931,976 $ 1,641,569

$ 2,577,626 297,666 1,044,673 $ 1,235,287

$ 2,651,129 371,146 812,056 $ 1,467,927

$ 2,610,235 834,740 944,664 $ 830,831

$ 10,412,535 1,503,552 3,733,369 $ 5,175,614

NOTE 15 – Business Combinations On July 1, 2013, the Association Board of Directors signed a Statement of Intent Regarding Merger Negotiations with Farm Credit East, headquartered in Enfield, Connecticut. Directors and executives entered into discussions regarding a combination of the two highly successful financial services cooperatives and completed a regulatory required due diligence analysis. On August 26, 2013 the Boards of both Farm Credit East and Farm Credit of Maine submitted an Agreement and Plan of Merger to the Farm Credit Administration (FCA). In October, the FCA granted its preliminary approval of the merger. The stockholders of both Farm Credit East and Farm Credit of Maine voted on November 22, 2013 and overwhelmingly approved the Agreement and Plan of Merger. In December, FCA issued its final approval of the merger which became effective January 1, 2014. The merged association operates under the name of Farm Credit East, ACA.

NOTE 16 – Subsequent Events The Association has evaluated subsequent events through March 3, 2014, which is the date the financial statements were issued or available to be issued. There were no such events to disclose.

55 | Farm Credit of Maine

Certification Statement The signatories have reviewed the 2013 Annual Report to Stockholders 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 the signatoriesâ&#x20AC;&#x2122; knowledge and belief. The consolidated financial statements, in the opinion of the Board of Directors and management, fairly present the financial condition of the Association, except as otherwise noted.

Raymond J. Nowak President and Chief Executive Officer

Andrew N. Grant Senior Vice President Chief Financial Officer and Treasurer

Hank E. McPherson Board of Directors, Chair

Donald P. White Board of Directors Audit Committee, Chair

March 3, 2014

56 | Farm Credit of Maine

Disclosure Information (Required By Farm Credit Administration Regulations)

Description of Business

Description of Liabilities

The description of the territory served, persons eligible to borrow, types of lending activities engaged in and financial services offered, and related Farm Credit organizations required to be disclosed in this section are incorporated herein by reference from Note 1 to the consolidated financial statements, included in this Annual Report to Stockholders.

The description of debt outstanding required to be disclosed in this section is incorporated herein by reference from Note 6 to the consolidated financial statements, included in this Annual Report to Stockholders.

The description of significant developments that had, or could have, a material impact on earnings or interest rates to borrowers, acquisitions or dispositions of material assets, material changes in the manner of conducting business, seasonal characteristics, and concentrations of assets, if any, required to be disclosed in this section is incorporated herein by reference from Management’s Discussion and Analysis in the Results of Operations section included in this Annual Report to Stockholders.

Description of Property Farm Credit of Maine, ACA operates primarily out of two owned facilities in Auburn and Presque Isle, Maine. The Association’s executive office is located at 615 Minot Avenue, Auburn. Both locations operate as regional lending offices.

Office equipment and vehicles operated by Association personnel are owned by the Association.

Legal Proceedings Information required to be disclosed in this section is incorporated herein by reference from Note 12 to the consolidated financial statements, included in this Annual Report to Stockholders.

The description of contingent liabilities required to be disclosed in this section is incorporated herein by reference from Note 12 to the consolidated financial statements, included in this Annual Report to Stockholders.

Investment in CoBank, ACB Association stockholders’ investments in the Association are materially affected by the financial condition and results of operations of CoBank. Copies of CoBank’s annual and quarterly reports are available to members upon request at no charge. Please contact any of the offices listed under the Financial Information section of this report to have a copy mailed.

Financial Information Copies of the Association’s annual and quarterly reports are available to members free of charge by calling the Association’s Auburn office at 800-831-4230 or by accessing the website of the merged entity at farmcrediteast.com. The Association’s annual reports are available 75 days after year end, and quarterly reports are available 40 days after the end of each calendar quarter. Copies of CoBank’s annual and quarterly reports are available to members free of charge by calling 860-814-4043 or by accessing CoBank’s website at cobank.com.

Description of Capital Structure Information required to be disclosed in this section is incorporated herein by reference from Note 7 to the consolidated financial statements, included in this Annual Report to Stockholders.

57 | Farm Credit of Maine

Borrower Privacy The Association holds borrower personal and financial information in strict confidence. The Farm Credit Administration disallows directors and employees of System institutions from disclosing personal borrower information to others without consent of the borrower. The Association does not sell or trade borrower information.

information for certain types of legal or law enforcement proceedings; to FCA examiners reviewing loan files during regular examinations; to state agencies in support of an Association employee applying to become a licensed real estate appraiser, with as much personal information removed from appraisal reports as possible.

FCA rules authorize the Association to disclose borrower information to others only in specific cases such as to other System institutions with which the borrower does business, as a reference to lenders and credit reporting agencies; to provide

Borrower privacy and security of personal information is vital to the Associationâ&#x20AC;&#x2122;s continued ability to provide sound credit and related services.

Board of Directors Hank E. McPherson, Chair Daniel J. Corey, Vice Chair Bryan W. Bell Travis E. Fogler Robert B. Kuhn Robert M. Tetrault Donald P. White

Hampden, Maine Monticello, Maine Mars Hill, Maine Exeter, Maine Bangor, Maine Portland, Maine Ellsworth, Maine

Management Raymond J. Nowak Frederick H. Morton, Jr. Richard D. Robertson Andrew N. Grant Scott G. Kenney Matthew S. Senter

President and Chief Executive Officer Executive Vice President, Chief Lending Officer Executive Vice President, Chief Credit and Risk Management Officer Senior Vice President, Chief Financial Officer and Treasurer Senior Vice President, Regional Portfolio Manager Senior Vice President, Regional Portfolio Manager

Office Locations Executive Office 615 Minot Avenue Auburn, ME 04210 207-784-0193 / 800-831-4230 Regional Lending Offices 615 Minot Avenue Auburn, ME 04210 207-784-0193 / 800-831-4230 26 Rice Street Presque Isle, ME 04769 207-764-6431 / 800-831-4640

58 | Farm Credit of Maine

annual

report

Our focus is clear: financing family businesses in Maineâ&#x20AC;&#x2122;s traditional natural resource industries. As Farm Credit of Maine consolidates with Farm Credit East, this focused mission and purpose will be broadened and strengthened for future Farm Credit customer-owners.

Office locations 615 Minot Avenue Auburn, Maine 04210

26 Rice Street Presque Isle, Maine 04769

207.784.0193 800.831.4230

207.764.6431 800.831.4640