2009 Patronage Refund

The following letter is being mailed to members today:

January 14, 2010

Dear Member,

I am writing to you about the Association’s patronage refund program.

Since 1995 Yankee Farm Credit has paid a patronage refund of at least 1.00% (100 basis points) of member average loan volume. On two occasions, the Association paid more than 1.00% — 1.125% for 2006 and 1.20% for 2007. In both of those years, the Association’s financial ratios were favorable and this allowed a larger patronage refund.

The planned 2009 patronage refund is 0.80% (80 basis points) of member average loan volume. There are two reasons for this reduced patronage refund:

• Credit quality deteriorated in 2009, reflecting the financial difficulties facing many of our borrowers, particularly in the dairy industry. Consequently we recorded a provision for loan losses of $1.8 million, more than double the previous largest amount. This reduced the Association’s net income, which is the source of patronage refunds. Net income was also lower in 2009 than it could have been because we kept interest rates low.



• The Association’s loan volume increased in 2009 by 13% over 2008, primarily due to additional loans to existing customers to finance operating shortfalls. This is the most annual loan growth that Yankee has seen since its inception in 1995. This unusual growth reduced the Association’s capital ratios, and the Association failed to meet all of its capital goals for 2009. Conserving capital by reducing the patronage refund is prudent financial management.

Net income for 2009 (unaudited) was just over $5.0 million, and the planned patronage refund is $2,573,000 or 51% of net income. We plan to pay the 2009 patronage refund on or about March 25, 2010, which is the usual timing. As is true every year, there are two conditions that must be met before we pay patronage refunds to members: successful completion of the Association’s audit and receipt of the Association’s patronage refund from CoBank. We expect both conditions to be met by mid March.

The 2009 patronage refund will be paid 100% in cash, the same as in previous years.

Thank you for your patronage. Best wishes for the New Year.

Sincerely,

George S. Putnam
President and CEO