2012 Annual Report

Farm Credit Made for you. Owned by you. Here for you. | 2012 Annual Report

mafc.com

Live. Laugh. Farm.

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2012 scholarship winners

table of contents

Christian J. Becker

President’s Message

Elizabethtown PA

Katharine J. Dallam Bel Air MD

Skyler S. Golt Preston MD

John D. Gordy Snow Hill MD

Jake G. Jones Milford DE

Julia M. Kehoe

3-9

Report of Management

10

Report on Internal Control Over Financial Reporting

11

Consolidated Five-Year Summary of Selected Financial Data

12

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

13-25

Disclosure Required by Farm Credit Administration Regulations 26-31

White Hall MD

Report of the Audit Committee

32

Jessie A. Kull New Market VA

Report of Independent Certified Public Accountants

33

Tyler M. Payne

Consolidated Financial Statements

34-37

Notes to the Consolidated Financial Statements

38-64

Board of Directors and Management Team

64-65

Clearbrook VA

Benjamin R. Snapp Winchester VA

Jane E. Sussman Westminster MD

Kimberly R. Weaver Morgantown PA

Hannah R. Wentworth Quarryville PA

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“Why do farmers farm, given their economic adversities on top of the many frustrations and difficulties normal to farming? And always the answer is: “Love. They must do it for love.” Farmers farm for the love of farming. They love to watch and nurture the growth of plants. They love to live in the presence of animals. They love to work outdoors. They love the weather, maybe even when it is making them miserable. They love to live where they work and to work where they live. If the scale of their farming is small enough, they like to work in the company of their children and with the help of their children. They love the measure of independence that farm life can still provide. I have an idea that a lot of farmers have gone to a lot of trouble merely to be self-employed to live at least a part of their lives without a boss.”

Wendell Berry, Bringing it to the Table: Writings on Farming and Food

ugh. Farm.

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Charles and Susan Zimmerman Zimmerman Farm Lebanon, Pennsylvania

Charles Zimmerman is the third generation to operate his dairy farm. He’s teaching the fourth generation — his seven children—what it means to work for the good of the farm and family . “Everybody works on the farm — a work ethic is an important part of farm life,” says Charles. His kids all help in the barn, in the house, and in the garden, and his father helps out with the fieldwork. “Life is about working together,” says Charles. “It’s not as much like work when you’re doing it as a family .”

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president’s message

LIVE. LAUGH. FARM. There are lots of reasons to go into agriculture; here are just a few: •

A farm is a great place to raise a family. There’s fresh air for the kids, room to run around, and enough chores to teach responsibility and a work ethic.

•

A rural community is a great place to live—safe, friendly, and beautiful.

•

While most farm families work hard, they often play hard too: the sound of laughter is a familiar one on the farms I visit…just as familiar as the mooing of cows, the clucking of chicks, and the roar of a tractor starting up.

It’s hard to explain why agriculture calls so many of us—but we know it is more than just a paycheck. We know that it’s all the little things we love. That’s why this year, we’ve chosen to focus on the emotions that make us do what we do—our theme for this year’s annual report is Live. Laugh. Farm.

Many of our employees live on farms. When they finish in the office, they go home and put on workboots.

They hop on tractors, feed chickens, and ride horses.

They milk cows, do fieldwork, buy crop insurance.

They understand why you do what you do— because they do it too.

That rural work ethic definitely flows through to our work environment. We have a staff of about 200 people—and everyone is dedicated to meeting

Bob Frazee, CEO

MidAtlantic Farm Credit, ACA

That’s how we like to live.

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Dan and Becky Vanderwende Little Wagon Produce Greenwood, Delaware

2008 2009 2010 2011 2012

36%

36%

39%

$51.7

$50.3

$45.2

$32.3

$38.8

(in millions)

34%

Net Income

45%

Operating Expenses as a Percentage of Net Interest and Noninterest Income

2008 2009 2010 2011 2012

“Farming is in my blood,” says Dan. “I just love it.” Becky says that their produce stand is successful because as much as they love to farm, their employees love to help their customers. “Good customer service matters,” says Becky.

“Our stand employees talk with their customers. They carry purchases to buyers’ cars. They assist customers in every way. It’s important.”

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s

president’s message

94.7%

94.4%

93.0%

95.5%

93.3%

Acceptable Credit Quality

e

2008 2009 2010 2011 2012

the Farm Credit mission, which is to provide financial services to agriculture and rural America.

I’m very proud of our staff. We’re an efficient staff; we don’t add new employees without strong business reasons, and our employees don’t spend your money without careful strategic thought. That kind of attention to the bottom line—and to our mission of serving our members—has made us one of the most efficient associations in the Farm Credit System.

Each year, we benchmark ourselves against other associations throughout the System. One of the figures we like to look at is what we call our “costs per hundred”, which is an indication of how much we spend for every $100 of volume.

This year, our cost per hundred was $1.01, which ranked us as one of the most efficient organizations within our district.

That figure is one indicator of the very profitable year that we’ve had. In fact, in 2012, we’ve had our most profitable year ever. In a cooperative environment, that means good things for our stockholders. In December, our board of directors voted to return over $28 million in patronage payments to our stockholders, more than $10 million of which will be distributed at the end of March 2013.

That’s something to love. like most other financial institutions—have not seen growth in our portfolio this year. This past year was one of strong commodity prices (for the most part, anyway), with some areas of our territory seeing the best harvests in decades. Many of our

MidAtlantic Farm Credit, ACA

While our financial performance has been exceptional, we—

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Patronage Distribution

Al Spoler Television and Radio Personality Host of “ The Maryland Harvest”

$28.5

$25.6

$25.8 $17.7

$24.5

(in millions)

2008 2009 2010 2011 2012

“We wanted to show farms and farmers as they are to highlight the passion that they have for their work.

[The producers] are so very passionate about the local food movement and protecting the land and the bay.”

Producer Brooke McDonald added: “I marvel at what farmers do. It’s such a tough profession and it’s important for the general public to understand farming, and cherish it and those who commit their lives to providing us with food.”

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president’s message

Largest Commodity Concentration

25%

22% Cash Grain/Crops

Cash Grain/Crops

21%

20%

Cash Grain/Crops

Cash Grain/Crops

21%

(in percent)

Poultry

2008 2009 2010 2011 2012

customers are taking advantage of their good fortune and paying down their debt.

Although I work for a lender, I don’t think it’s our role to convince people to take on more debt, and I don’t think any of our employees see that as their role either. Our role as a responsible lender—a cooperative lender—is to provide a stable source of credit when it’s needed. I’m glad that the business cycles are such that our members can improve their financial footing, and make decisions that strengthen their businesses in the long term. We all know that an up cycle will eventually lead to a down cycle—and Farm Credit will be there, ready and waiting, for when that occurs.

That said, while we don’t want to create a need for credit, we do want to make sure that when a farmer in our territory needs credit, they call us. That’s why we continue to reach out to new markets, and new prospective customers.

I’ve talked about our Farm Credit EXPRESS program (formerly called Dealer Express) before in my annual report overview, but that’s because I’m very excited about the opportunity that it gives us to reach new borrowers, share the cooperative principles with new marketplaces, and offer a choice to folks looking to buy new or used equipment for their operation.

In 2012, our Farm Credit EXPRESS program continued to grow. Today, we are offering our service in six states, through 155 different dealers. In our territory alone this past year, we added 987 new loans, 405 new members, and a total of $42.8 million to our portfolio. And that’s just the beginning—new customers that we’ve gained through

MidAtlantic Farm Credit, ACA

n

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Net Loans

Joe and Mary Snapp West Oaks Farm W inchester, V irginia

$2,126.4

$2,157.8

$2,261.9

$2,267.3

$2,173.2

(in millions)

2008 2009 2010 2011 2012

2011 2012

Joe is a ninth generation farmer. Twenty-six of the acres on his farm date back to 1755, when Lord Fairfax granted the land to the Snap p family . Joe found out early in life that he had a love for tending the land and working with animals—just like his ancestors did. Today, he hopes to pass that love onto his three children. “It’s up to them if they want to come back to the farm,” says Joe. “I hope that they do: It’s a great life.”

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2

president’s message

Members’ Equity

2011 2012

$450.9

$420.7

$396.5

$370.4

$353.6

(in millions)

2008 2009 2010 2011 2012

Farm Credit EXPRESS are very likely to get additional loans and services from us. In 2012, we saw an additional $18.9 million of new volume from customers who first found us through Farm Credit EXPRESS. This program has been a great way to introduce our services to new people and new markets.

That’s how we reach people who farm.

In a few years, Farm Credit will celebrate its 100th anniversary.

As a System, we have already begun to look at ways to commemorate this landmark, and share the good work that we have done since 1916. Because although many things have changed since Farm Credit was first created, one thing has stayed the same: our reason for choosing this work, and our commitment to meeting our mission of serving agriculture and rural America.

Thank you to our stockholders for supporting us for almost 97 years. Thank you for allowing us to Live. Laugh. Farm.

J. Robert Frazee Chief Executive Officer

MidAtlantic Farm Credit, ACA

March 13, 2013

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Report of Management

March 13, 2013

The accompanying consolidated financial statements and related financial information appearing throughout this Annual Report have been prepared by management of MidAtlantic Farm Credit, ACA, in accordance with generally accepted accounting principles appropriate in the circumstances. Amounts which must be based on estimates represent the best estimates and judgments of management. Management is responsible for the integrity, objectivity, consistency, and fair presentation of the consolidated financial statements and financial information contained in this report.

Management maintains and depends upon an internal accounting control system designed to provide reasonable assurance that transactions are properly authorized and recorded, that the financial records are reliable as the basis for the preparation of all financial statements, and that the assets of the Association are safeguarded. The design and implementation of all systems of internal control are based on judgments required to evaluate the costs of controls in relation to the expected benefits and to determine the appropriate balance between these costs and benefits.

The Association maintains an internal audit program to monitor compliance with the systems of internal accounting control. Audits of the accounting records, accounting systems and internal controls are performed; internal audit reports, including appropriate recommendations for improvement, are submitted to the Board of Directors.

The consolidated financial statements have been examined by independent certified public accountants, whose report appears elsewhere in this Annual Report. The Association is also subject to examination by the Farm Credit Administration.

MidAtlantic Farm Credit, ACA

The consolidated financial statements, in the opinion of management, fairly present the financial condition of the Association. The undersigned certify that we have reviewed the 2012 Annual Report of MidAtlantic Farm Credit, ACA; that the report has been prepared under the oversight of the audit committee of the Board of Directors and in accordance with all applicable statutory or regulatory requirements; and that the information contained herein is true, accurate, and complete to the best of our knowledge and belief.

Fred N. West Chairman of the Board

J. Robert Frazee Chief Executive Officer

John E. Wheeler, Jr. Chief Financial Officer

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Report on Internal Control Over Financial Reporting

March 13, 2013

The Association’s principal executives and principal financial officers, or persons performing similar functions, are responsible for establishing and maintaining adequate internal control over financial reporting for the Association’s Consolidated Financial Statements. For purposes of this report, “internal control over financial reporting” is defined as a process designed by, or under the supervision of the Association’s principal executives and principal financial officers, or persons performing similar functions, and effected by its Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting information and the preparation of the Consolidated Financial Statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Association, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial information in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the Association, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Association’s assets that could have a material effect on its Consolidated Financial Statements.

The Association’s management has completed an assessment of the effectiveness of internal control over financial reporting as of December 31, 2012. In making the assessment, management used the framework in Internal Control — Integrated Framework, promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria.

Based on the assessment performed, the Association’s management concluded that, as of December 31, 2012, the internal control over financial reporting was effective based upon the COSO criteria. Additionally, based on this assessment, the Association determined that there were no material weaknesses in the internal control over financial reporting as of December 31, 2012.

J. Robert Frazee Chief Executive Officer

John E. Wheeler, Jr. Chief Financial Officer

MidAtlantic Farm Credit, ACA

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Consolidated Five-Year Summary of Selected Financial Data

(dollars in thousands) 2012 2011

December 31, 2010

2009 20082

Balance Sheet Data Cash $ 5,984 $ 3,238 $ 5,316 $ 1,651 $ 1,550 Loans 2,144,241 2,168,894 2,279,313 2,288,344 2,190,189 Less: allowance for loan losses 17,853 11,075 17,421 21,020 16,983 Net loans 2,126,388 2,157,819 2,261,892 2,267,324 2,173,206 Investments in other Farm Credit institutions 26,367 34,513 34,916 30,673 29,991 Other property owned 3,009 1,895 1,338 1,008 — Other assets 51,576 54,341 57,508 57,359 55,959 Total assets $2,213,324 $2,251,806 $2,360,970 $2,358,015 $2,260,706 Notes payable to AgFirst Farm Credit Bank¹ $1,714,965 $1,784,988 $1,917,156 $1,944,081 $1,852,726 Accrued interest payable and other liabilities with maturities of less than one year 47,478 46,121 47,296 43,533 54,420 Total liabilities 1,762,443 1,831,109 1,964,452 1,987,614 1,907,146 Capital stock and participation certificates 9,498 9,444 9,273 11,232 11,576 Retained earnings Allocated 239,421 207,881 188,125 167,428 156,869 Unallocated 202,563 203,892 199,534 192,164 185,520 Accumulated other comprehensive income (loss) (601) (520) (414) (423) (405) Total members’ equity 450,881 420,697 396,518 370,401 353,560 Total liabilities and members’ equity $2,213,324 $2,251,806 $2,360,970 $2,358,015 $2,260,706

Statement of Income Data Net interest income Provision for loan losses Noninterest income (expense), net Net income

$

$

67,635 $ 68,799 $ 63,076 $ 57,010 $ 55,131 9,000 14,550 11,600 11,700 6,488 (6,957) (9,078) (1,222) (13,001) (9,875) 51,678 $ 45,171 $ 50,254 $ 32,309 $ 38,768

Key Financial Ratios

MidAtlantic Farm Credit, ACA

Rate of return on average: Total assets 2.32% 1.96% 2.17% 1.40% 1.78% Total members’ equity 11.73% 10.91% 12.90% 8.85% 10.90% Net interest income as a percentage of average earning assets 3.14% 3.07% 2.79% 2.53% 2.61% Net (charge-offs) recoveries to average loans (0.10%) (0.93%) (0.67%) (0.34%) (0.05%) Total members’ equity to total assets 20.37% 18.68% 16.79% 15.71% 15.64% Debt to members’ equity (:1) 3.91 4.35 4.95 5.37 5.39 Allowance for loan losses to loans 0.83% 0.51% 0.76% 0.92% 0.78% Permanent capital ratio 18.12% 16.57% 15.23% 13.96% 14.11% Total surplus ratio 17.73% 16.19% 14.79% 13.50% 13.61% Core surplus ratio 17.57% 16.00% 14.21% 12.93% 11.90%

Net Income Distribution Estimated patronage refunds: Cash Qualified allocated retained earnings Nonqualified allocated retained earnings Nonqualified retained earnings

$

10,500 $ 10,000 $ 10,000 $ 8,000 $ 13,400 2,549 — — 4,110 — 15,474 15,599 15,756 5,577 11,077 22,829 15,034 16,277 7,580 10,490

¹ General financing agreement is renewable on a one-year cycle. The next renewal date is December 31, 2013. ² Amounts reflect the combined accounts and operations of MidAtlantic and Valley Farm Credit.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands, except as noted)

GENERAL OVERVIEW

FORWARD-LOOKING INFORMATION

The following commentary summarizes the financial condition and results of operations of MidAtlantic Farm Credit, ACA, (Association) for the year ended December 31, 2012 with comparisons to the years ended December 31, 2011 and December 31, 2010. This information should be read in conjunction with the Consolidated Financial Statements, Notes to the Consolidated Financial Statements and other sections in this Annual Report. The accompanying consolidated financial statements were prepared under the oversight of the Audit Committee of the Board of Directors. For a list of the Audit Committee members, refer to the “Report of the Audit Committee” contained in this Annual Report. Information in any part of this Annual Report may be incorporated by reference in answer or partial answer to any other item of the Annual Report.

This annual information statement contains 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,” or 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 and other 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:

The Association is a cooperative, which is owned by the members (also referred to throughout this Annual Report as stockholders or shareholders) served. The territory of the Association extends across a diverse agricultural region of Delaware, Maryland, Pennsylvania, Virginia and West Virginia. Refer to Note 1, Organization and Operations, of the Notes to the Consolidated Financial Statements for counties in the Association’s territory. The Association provides credit to farmers, ranchers, rural residents, and agribusinesses. Our success begins with our extensive agricultural experience and knowledge of the market.

The Association obtains funding from AgFirst Farm Credit Bank (AgFirst or Bank). The Association is materially affected and shareholder investment in the Association may be materially affected by the financial condition and results of operations of the Bank. Copies of the Bank’s Annual and Quarterly Reports are on the AgFirst website, www.agfirst.com, or may be obtained at no charge by calling 1.800.845.1745, extension 2832, or writing Susanne Caughman, AgFirst Farm Credit Bank, P.O. Box 1499, Columbia, SC 29202.

Copies of the Association’s Annual and Quarterly Reports are also available upon request free of charge on the Association’s website, www.mafc.com, or by calling 1.800.333.7950, or writing John E. Wheeler, Jr., Chief Financial Officer, MidAtlantic Farm Credit, ACA, 45 Aileron Court, Westminster, MD, 21157. The Association prepares an electronic version of the Annual Report, which is available on the website within 75 days after the end of the fiscal year, and distributes the Annual Reports to shareholders within 90 days after the end of the fiscal year. The Association prepares an electronic version of the Quarterly Report, which is available on the Internet, within 40 days after the end of each fiscal quarter, except that no report needs to be prepared for the fiscal quarter that coincides with the end of the fiscal year of the Association.

• political, legal, regulatory and economic conditions and developments in the United States and abroad; • economic fluctuations in the agricultural, rural utility, international, and farm-related business sectors; • weather-related, disease, and other adverse climatic or biological conditions that periodically occur that impact agricultural productivity and income; • changes in United States government support of the agricultural industry and the Farm Credit System, as a government-sponsored enterprise, as well as investor and rating-agency reactions to events involving other governmentsponsored enterprises and other financial institutions; and • actions taken by the Federal Reserve System in implementing monetary policy.

AGRICULTURAL OUTLOOK The following United States Department of Agriculture (USDA) analysis provides a general understanding of the U.S. agricultural economic outlook. However, this outlook does not take into account all aspects of Association’s business. References to USDA information in this section refer to the U.S. agricultural market data and are not limited to conditions in the Association.

The February 2013 USDA forecast estimates 2012 farmers’ net cash income, which is a measure of the cash income after payment of business expenses, at $135.6 billion, up $900 million from 2011 and up $51.8 billion from its 10-year average of $83.8 billion. The improvement in net cash income in 2012 was primarily due to increases in crop receipts of $11.3 billion, livestock receipts of $5.7 billion, and farm-related income of $5.2 billion, principally offset by a $21.7 billion increase in cash expenses.

The February 2013 USDA forecast for the farm economy, as a whole, forecasts 2013 farmers’ net cash income to decrease to $123.5 billion, a $12.1 billion decrease from 2012, but $39.7 billion above the 10-year average. The forecasted decrease in farmers’ net cash income for 2013 is primarily due to an expected increase in cash expenses of $18.8 billion.

MidAtlantic Farm Credit, ACA

The Association is an institution of the Farm Credit System (System), which was created by Congress in 1916 and has served agricultural producers for over 95 years. The System’s mission is to maintain and improve the income and well-being of American farmers, ranchers, and producers or harvesters of aquatic products and farm-related businesses. The System is the largest agricultural lending organization in the United States. The System is regulated by the Farm Credit Administration (FCA), which is an independent safety and soundness regulator.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands, except as noted)

For 2013, the USDA projects crop receipts will decrease, which would be the first decline since 2009. Crop yields, especially for corn, are anticipated to return to more normal levels as U.S. farmers recover from the 2012 drought. As a result, corn inventory is forecasted to grow significantly, putting downward pressure on prices. Livestock receipts are predicted to increase in 2013 primarily due to price increases.

The following table sets forth the commodity prices per bushel for certain crops and by hundredweight for poultry and milk from December 31, 2009 to December 31, 2012: Commodity 12/31/12 12/31/11 12/31/10 12/31/09

Corn Soybeans Wheat Milk Poultry

$ 6.87 $ 5.86 $ 4.82 $14.30 $11.50 $11.60 $ 8.29 $ 7.19 $ 6.45 $20.90 $19.80 $16.70 $97.94 $89.79 $84.94

$ 3.60 $ 9.80 $ 4.87 $15.92 $81.63

The USDA’s income outlook varies depending on farm size and commodity specialties. The USDA classifies all farms into three primary categories: commercial farms, intermediate farms and rural residential farms. Commercial farms (with more than $250 thousand in gross sales) represent about 10 percent of U.S. farms by number but represent over 80 percent of total U.S. farm production.

Intermediate farms (where the primary occupation is farming and gross sales are between $10 thousand and $250 thousand) represent about 30 percent of U.S. farms by number and account for 18 percent of total production. About 60 percent of U.S. farms are classified as rural residential farms where the primary occupation is not farming and the farms produce less than $10 thousand in sales and only account for 2 percent of total production.

MidAtlantic Farm Credit, ACA

In addition to farmers’ net cash income, off-farm income is an important source of funds for the repayment of farm debt obligations and is less subject to cycles in agriculture but is more subject to general U.S. economic conditions. The USDA measures farm household income, which is defined as earnings from farming activities plus off-farm income. All farm household income for operators of rural residential farms and approximately 90 percent of farm household income for intermediate farms is generated from off-farm sources. Further, USDA data suggests that approximately 24 percent of farm household income for commercial farms is generated from off-farm income.

According to the USDA February 2013 forecast, the values of farm sector assets and farm debt are forecasted to rise in 2013. Farm sector assets are expected to rise from $2.54 trillion for 2012 to $2.73 trillion in 2013 (a 7.5 percent increase) primarily due to an increase in the value of farm real estate. The values of crops stored, machinery/equipment, purchased inputs and financial assets are expected to rise modestly in 2013. Despite the 2011 and 2012 droughts in various parts of the U.S., farmland values are expected to continue to rise, given the continued strength of commodity prices, low interest rates, and expectations of continued favorable net returns. Farm business equity (assets minus debt) is expected to rise from $2.27 trillion in 2012 to $2.46 trillion in 2013 (an 8.4 percent increase).

One measure of the financial health of the agricultural sector used by the USDA is farmers’ utilization of their capacity to repay debt (actual debt as a percentage of maximum debt that can be supported by farmers’ current income). Higher capacity utilization rates indicate tighter cash flow positions and, consequently, higher exposure to financial risk, while lower rates indicate healthier cash flow and financial positions. However, these estimates do not take into account off-farm income sources. Since 1970, debt repayment capacity utilization has ranged from a low of 37 percent in 1973 to a high of 110 percent in 1981, and has remained relatively stable since 1987, averaging about 50 percent.

The forecast for 2013 predicts farmers’ utilization to increase to approximately 41 percent.

As estimated by the USDA in February 2013, the System’s market share of farm business debt (defined as debt incurred by those involved in on-farm agricultural production) grew to 42.8 percent at December 31, 2011 (the latest available data), as compared with 41.4 percent at December 31, 2010. Overall, farm sector debt is estimated to increase from $268.9 billion in 2012 to $277.4 billion in 2013.

In general, agriculture has experienced a sustained period of favorable economic conditions due to stronger commodity prices, higher farm land values; and, to a lesser extent, government support programs. The Association’s financial results remain favorable as a result of these agricultural economic conditions.

Production agriculture, however, remains a cyclical business that is heavily influenced by commodity prices. In an environment of less favorable economic conditions in agriculture and without sufficient government support programs, the Association’s financial performance and credit quality measures would likely be negatively impacted. Conditions in the general economy remain more volatile given the state of the global economy. Certain agriculture sectors, as described more fully in this Management’s Discussion and Analysis, recently have experienced significant financial stress and could continue to experience financial stress in 2013. Any negative impact from these less favorable conditions should be lessened by geographic and commodity diversification and the influence of off-farm income sources supporting agricultural-related debt. However, agricultural borrowers who are more reliant on off-farm income sources may be adversely impacted by the continuing weak general economy.

CRITICAL ACCOUNTING POLICIES The financial statements are reported in conformity with accounting principles generally accepted in the United States of America. Our significant accounting policies are critical to the understanding of our results of operations and financial position because some accounting policies require us to make complex or subjective judgments and estimates that may affect the value of certain assets or liabilities. We consider these policies critical because management must make judgments about matters that are inherently uncertain. For a complete discussion of significant

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• Allowance for loan losses — The allowance for loan losses is maintained at a level considered adequate by management to provide for probable and estimable losses inherent in the loan portfolio. The allowance for loan losses is increased through provisions for loan losses and loan recoveries and is decreased through allowance reversals and loan charge-offs. The allowance for loan losses is determined based on a periodic evaluation of the loan portfolio by management in which numerous factors are considered, including economic and political conditions, loan portfolio composition, credit quality and prior loan loss experience.

Significant individual 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 allowance for loan losses encompasses various judgments, evaluations and appraisals with respect to the loans and their underlying security that, by nature, contains elements of uncertainty and imprecision. Changes in the agricultural economy and their borrower repayment capacity will cause these various judgments, evaluations and appraisals to change over time. Accordingly, actual circumstances could vary from the Association’s expectations and predictions of those circumstances.

Management considers the following factors in determining and supporting the levels of allowance for loan losses: the concentration of lending in agriculture combined with uncertainties in farmland values, commodity prices, exports, government assistance programs, regional economic effects and weather-related influences. Changes in the factors considered by management in the evaluation of losses in the loan portfolios could result in a change in the allowance for loan losses and could have a direct impact on the provision for loan losses and the results of operations.

• Valuation methodologies — Management applies various valuation methodologies to assets and liabilities that often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets for which an observable liquid market exists, such as most investment securities. Management utilizes significant estimates and assumptions to value items for which an observable liquid market does not exist. Examples of these items include impaired loans, other property owned, pension and other postretirement benefit obligations, and certain other financial instruments. These valuations require the use of various assumptions including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, costs of servicing and liquidation values. The use of different assumptions could produce significantly different

results, which could have material positive or negative effects on the Association’s results of operations.

• Pensions — The Bank and its related Associations participate in defined benefit retirement plans. These plans are noncontributory and benefits are based on salary and years of service. In addition, the Bank and its related Associations also participate in defined contribution retirement savings plans. Pension expense for all plans is recorded as part of salaries and employee benefits.

Pension expense for the defined benefit retirement plans is determined by actuarial valuations based on certain assumptions, including expected long-term rate of return on plan assets and discount rate. The expected return on plan assets for the year is calculated based on the composition of assets at the beginning of the year and the expected long-term rate of return on that portfolio of assets. The discount rate is used to determine the present value of our future benefit obligations. We selected the discount rate by reference to AON Hewitt (a global human resources services provider) AA only above median corporate bond index, actuarial analyses and industry norms.

ECONOMIC CONDITIONS During 2012, economic conditions in our region, while generally favorable in comparison to the overall U.S. economy, particularly the rate of unemployment, continued to experience the adverse impact of the below average economic growth. While there has been some recent improvement in new home construction, stockholders connected to the housing industry including timber, wood finishing, and greenhouses have continued to experience decreased product demand. Dairy continued its recovery, which began in 2010; however, higher feed costs are tempering the improvement. Corn and soybean prices were strong in 2012 while production in our region was mixed depending upon weather condition and irrigation capability. With continued demand for grain as an alternative fuel, grain prices are likely to be favorably impacted. The poultry industry has continued to be particularly stressed in our region with the combination of supply exceeding demand, high feed costs and continued increase in environmental related regulations and restrictions. A significant number of our borrowers or family members involved in the farming operation are actively employed in off-farm professions. The Association’s geographic proximity to the Nation’s Capital results in sizable employment in the region supported by federal governmentrelated spending. The recent uncertainty which has surrounded future federal spending has naturally restrained the spending and borrowing of members with some reliance on this sector.

Generally, available credit to farmers and related businesses has been adequate with some commercial banks reentering the market after having exited the agricultural sector following the 2008 financial collapse. The number of active borrowers has increased slightly from 9,682 at the end of 2011 to 9,696 at the end of 2012, an increase of 0.14 percent. A seasoned, knowledgeable lending staff and the inherent value of patronage paid under the

MidAtlantic Farm Credit, ACA

accounting policies, see Note 2, Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements.

The following is a summary of certain critical policies.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands, except as noted)

cooperative structure have positioned the Association to compete effectively for this expanded business opportunity to serve the financing needs for agriculture in the Association’s territory, while retaining current members and their business relationships.

The diversification of the Association loan volume by type for each of the past three years is shown below.

For the year ended December 31, 2012, the credit quality of the loan portfolio continued to be good with some slight positive movements in quality measures compared to the prior year. During 2012, nonperforming loans decreased by over 35 percent from the December 31, 2011 level and the Loan Loss Provision for 2012 also decreased similarly. To the extent there has been any recent credit quality deterioration, that deterioration is largely driven by steady to increased input costs and decreased receipts for production.

The price and volatility of fuel costs have continued to adversely impact all producers. Higher feed costs continue to challenge the livestock and poultry industries. Industries tied to housing such as forestry, sawmills, sod, and landscape nurseries have continued to experience reduced demand and profitability has been somewhat compromised. Over time, the higher inputs are expected to ultimately either be passed on to the consumer or production will be cut to ensure that the supply produced will clear the market at prices that will generate an acceptable profit. The sector of the Association’s portfolio which has some reliance on off-farm income has continued to experience deterioration in conjunction with the global economic challenges. In addition, some of the borrowers classified as loan type rural residential real estate have also been adversely affected by the economy which has put some pressure on this segment of the portfolio. While the credit quality of the Association loan portfolio has significantly improved throughout 2012, there certainly remains the risk of future deterioration by the factors mentioned above.

MidAtlantic Farm Credit, ACA

During 2012, the Association continued to target certain areas of our business with the goal of increasing market share. As in 2011, in 2012 the Association continued its expansion of its farm equipment financing program, which provides an efficient electronic loan application process for farm equipment financing.

The success of this program has been further realized with members who joined the Association with an equipment loan, expanding their borrowing needs with a mortgage or operating loan. Continued efforts are being made to expand services, increase public knowledge of our services and streamline our current delivery of products to enhance our existing portfolio. In addition, the merger at the end of 2008 further diversified the Association’s portfolio and expanded its territory.

LOAN PORTFOLIO

Loan Type 2012

December 31, 2011

2010

(dollars in thousands)

Real estate mortgage

$1,214,156 56.63% $1,153,432 53.18% $1,157,946 50.80%

Production and intermediate term

779,114 36.34

830,302 38.28

894,384 39.24

Processing and marketing

24,709 1.15

44,034 2.03

57,552 2.52

Farm related business

61,567 2.87

72,353 3.34

79,354 3.48

Rural residential real estate

28,922 1.35

29,470 1.36

33,195 1.46

Loans to cooperatives 5,600 .26 22,639 1.04 48,684 2.14 Communication Energy Total

24,748 1.15 5,425 .25

12,321 .57 4,343 .20

8,217 .36 (19) —

$2,144,241 100.00% $2,168,894 100.00% $2,279,313 100.00%

While we make loans and provide financially related services to qualified borrowers in the agricultural and rural sectors and to certain related entities, our loan portfolio is diversified.

The geographic distribution of the loan volume by region for the past three years is as follows:

December 31, Region 2012 2011 2010

Delmarva 39% 38% 36% MidMaryland 26 25 25 Penn 20 21 21 Valley 8 8 7 Corporate 7 8 11 Total 100% 100% 100% Corporate includes the Association’s participation loans purchased as well as all nonaccruing loans.

Commodity and industry categories are based upon the Standard Industrial Classification system published by the federal government.

The system is used to assign commodity or industry categories based upon the largest agricultural commodity of the customer.

The major commodities in the Association loan portfolio are shown on the following page. The predominant commodities are cash grain/ crops, poultry, landlords/lessors of real estate, and dairy, which constitute 64 percent of the entire portfolio.

The Association provides funds to farmers, rural homeowners, and farm-related businesses for financing of short- and intermediateterm loans and long-term real estate mortgage loans through numerous product types.

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Cash Grain/Crops

(dollars in thousands)

$ 535,600

25%

$ 484,202

22%

$ 484,341

21%

Poultry

411,059 19

426,831 20

423,278 19

Landlords/Lessors of Real Estate

221,292

212,359

234,209

11

10

10

Dairy

192,744 9 208,744 10 225,745 10

Equine

176,580 8

187,246 9

198,164 9

Fruits & Vegetables

130,510

130,831

135,954

Livestock/Animal

Specialties

126,429 6

129,259 6

122,594 5

Nurseries/

Greenhouses

122,855 6

134,695 6

140,501 6

46,562 2

76,495 3

89,886 4

Timber/Forestry Other Total

6

6

6

180,610 8 178,232 8 224,641 10 $2,144,241 100% $2,168,894 100% $2,279,313 100%

Repayment ability is closely related to the commodities produced by our borrowers and, increasingly, the off-farm income of borrowers.

The Association’s loan portfolio is well diversified from both a commodity and number of producers perspective. Further, many of the Association’s members are diversified within their enterprise, which also reduces overall risk exposure. Demand for poultry, milk and prices of field grains are some of the factors affecting the price of these commodities. While the Association has experienced an increase in large loans over the past several years, the agricultural enterprise mix of these loans is diversified and similar to that of the overall portfolio. The risk in the portfolio associated with commodity concentration and large loans is reduced by the range of diversity of enterprises in the Association’s territory.

The average daily balance in gross loan volume for the twelve months ended December 31, 2012, continues to be well diversified with no significant industry or producer concentration.

During 2012, the Association continued its activity in the buying and selling of loan participations within the Farm Credit System (FCS) as well as external to the FCS. This program provides an important vehicle to the Association by enabling it to further spread credit risk and enhance portfolio diversification while also affording an opportunity of strengthening its capital position through the generation of interest and fee income. As of December 31, 2012, participation loans purchased from other FCS institutions was $135,657 and $56,011 were purchased from non-FCS institutions, totaling $191,668 of participation loans purchased. Purchases are offset by $119,418 in participation loans which were sold. Total participation loans purchased and sold were $208,325 and $185,724, respectively, as of December 31, 2011 and $217,648 and $211,929, respectively, as of December 31, 2010.

The Association did not have any loans sold with recourse, retained subordinated participation interests in loans sold, or interests in pools of subordinated participation interests for the year ended December 31, 2012.

The Association sells qualified long-term mortgage loans into the secondary market. For the periods ended December 31, 2012, 2011 and 2010, the Association originated loans for resale totaling $83,724, $77,691 and $92,824, respectively, which were sold into the secondary market.

The Association also participates in the Farmer Mac Long Term Stand-By program. Farmer Mac was established by Congress to provide liquidity to agricultural lenders. At December 31, 2012, 2011 and 2010, the Association had loans amounting to $3,822, $4,953 and $6,989, respectively, which were 100 percent guaranteed by Farmer Mac. Prior to the merger with the former Valley Farm Credit, which was effective as of December 31, 2008, as part of their capital management, Valley had sold loans to the Bank as a part of the District Capitalized Participation Pool (DCPP). The DCPP is a capital management tool in which the Association can sell loans to the Bank. The amount of loans outstanding under the DCPP aggregated $7,725, $8,665 and $9,693 at December 31, 2012, 2011, and 2010, respectively.

The Association additionally has loans wherein a certain portion of the loans are guaranteed by various governmental entities for the purpose of reducing risk. At December 31, 2012, the balance of these loans was $74,937.

MISSION-RELATED INVESTMENTS During 2005, the FCA initiated an investment program to stimulate economic growth and development in rural areas. The FCA outlined a program to allow System institutions to hold such investments, subject to approval by the FCA on a case-by-case basis. FCA approved the Rural America Bonds pilot under the mission-related investments umbrella, as described below.

In October 2005, the FCA authorized AgFirst and the Associations to make investments in Rural America Bonds under a three-year pilot period. Rural America Bonds may include debt obligations issued by public and private enterprises, corporations, cooperatives, other financing institutions, or rural lenders where the proceeds would be used to support agriculture, agribusiness, rural housing, or economic development, infrastructure, or community development and revitalization projects in rural areas. Examples include investments that fund value-added food and fiber processors and marketers, agribusinesses, commercial enterprises that create and maintain employment opportunities in rural areas, community services, such as schools, hospitals, and government facilities, and other activities that sustain or revitalize rural communities and their economies. The objective of this pilot program is to help meet the growing and diverse financing needs of agricultural enterprises, agribusinesses, and rural communities by providing a flexible flow of money to rural areas through bond financing. These bonds may be classified as Loans or Investments on the Consolidated Balance Sheets depending on the nature of the investment. As of December 31, 2012, 2011 and 2010, the Association had $0, $388, and $1,244, respectively, in Rural America Bonds; and they are classified as Loans on the Consolidated Balance Sheets.

MidAtlantic Farm Credit, ACA

December 31, Commodity Group 2012 2011 2010

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands, except as noted)

CREDIT RISK MANAGEMENT Credit risk arises from the potential inability of an obligor to meet its repayment obligation. As part of the process to evaluate the success of a loan, the Association continues to review the credit quality of the loan portfolio on an ongoing basis. With the approval of the Association Board of Directors, the Association establishes underwriting standards and lending policies that provide direction to loan officers. Underwriting standards include, among other things, an evaluation of:

We review the credit quality of the loan portfolio on an ongoing basis as part of our risk management practices. Each loan is classified according to the Uniform Classification System, which is used by all Farm Credit System institutions. Below are the classification definitions.

• 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.

• Character – borrower integrity and credit history • Capacity – repayment capacity of the borrower based on cash flows from operations or other sources of income

• Doubtful – Assets exhibit similar weaknesses to substandard assets. However, doubtful assets have additional weaknesses in existing facts, conditions and values that make collection in full highly questionable.

• Collateral – protection for the lender in the event of default and a potential secondary source of repayment • Capital – ability of the operation to survive unanticipated risks • Conditions – intended use of the loan funds and loan terms

MidAtlantic Farm Credit, ACA

The credit risk management process begins with an analysis of the borrower’s credit history, repayment capacity, and financial position. Repayment capacity focuses on the borrower’s ability to repay the loan based upon cash flows from operations or other sources of income, including nonfarm income. Real estate loans must be collateralized by first liens on the real estate (collateral).

As required by FCA regulations, each institution that makes loans on a collateralized basis must have collateral evaluation policies and procedures. Real estate mortgage loans may be made only in amounts up to 85 percent of the original appraised value of the property taken as collateral or up to 97 percent of the appraised value if guaranteed by a state, federal, or other governmental agency. The actual loan to appraised value when loans are made is generally lower than the statutory maximum percentage. Appraisals are required for loans of more than $250,000. In addition, each loan is assigned a credit risk rating based upon the underwriting standards. This credit risk rating process incorporates objective and subjective criteria to identify inherent strengths, weaknesses, and risks in a particular relationship.

• Loss – Assets are considered uncollectible.

The following table presents selected statistics related to the credit quality of loans including accrued interest at December 31.

Credit Quality

2012

Acceptable & OAEM Substandard Doubtful Loss

94.68% 94.42% 93.26% 5.32 5.58 6.74 — — — — — —

Total

2011

2010

100.00% 100.00% 100.00%

Nonperforming Assets The Association’s loan portfolio is divided into performing and high-risk categories. A Special Assets Management Department is responsible for servicing loans classified as high-risk. The high-risk assets, including accrued interest, are detailed below:

High-risk Assets 2012

December 31, 2011

2010

(dollars in thousands)

Nonaccrual loans $44,739 $69,556 $77,965 Restructured loans 16,044 9,246 — Accruing loans 90 days past due — — 230 Total high-risk loans

60,783 78,802 78,195

Other property owned

3,009 1,895 1,338

Total high-risk assets

$63,792 $80,697 $79,533

Ratios Nonaccrual loans to total loans High-risk assets to total assets

2.09% 3.21% 3.42% 2.88% 3.58% 3.37%

Nonaccrual loans represent all loans where there is a reasonable doubt as to the collection of principal and/or future interest accruals under the contractual terms of the loan. In substance, nonaccrual loans reflect loans where the accrual of interest has been suspended.

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Nonaccrual loans decreased $24,817 or 35.68 percent in 2012. The significant decrease occurred principally with settlement on large loans in timber and poultry. Nonaccrual loans are not concentrated in any specific sector of the Association’s portfolio. Of the $44,739 in nonaccrual volume at December 31, 2012, $10,506 or 23.48 percent, compared to 43.15 percent and 50.51 percent at December 31, 2011 and 2010, respectively, was current as to scheduled principal and interest payments; but did not meet all regulatory requirements to be transferred into accrual status.

Loan restructuring is available to financially distressed borrowers.

Restructuring of loans occurs when the Association grants a concession to a borrower based on either a court order or good faith in a borrower’s ability to return to financial viability. The concessions can be in the form of a modification of terms or rates, a compromise of amounts owed, or deed in lieu of foreclosure. Other receipts of assets and/or equity to pay the loan in full or in part are also considered restructured loans. The type of alternative financing structure chosen is based on minimizing the loss incurred by both the Association and the borrower.

Allowance for Loan Losses

Year Ended December 31, Allowance for Loan Losses Activity: 2012 2011 2010 (dollars in thousands)

Balance at end of year Ratio of net (charge-offs) recoveries during the period to average loans outstanding during the period

(1,499)

$ 17,421 $ 21,020 (6,038) (407)

(1,391) (13,239) (14,964) (1,765) (2,172) (63) (156) (69) (109) (4,811) (21,518) (15,543) 197

90

$ 11,075

December 31, 2011

2010

(dollars in thousands)

Real estate mortgage Production and intermediate term Agribusiness Energy Communication Rural residential real estate

$ 4,854

$ 2,300

$ 3,481

11,867 725 31 62 314

7,564 12,351 874 1,375 22 20 15 9 300 185

Total allowance

$17,853

$11,075 $17,421

The allowance for loan losses as a percentage of loans outstanding and as a percentage of certain other credit quality indicators is shown below: December 31, 2011

0.83% 39.90%

2010

0.51% 0.76% 15.92% 22.34%

Please refer to Note 3, Loans and Allowance for Loan Losses, of the Notes to the Consolidated Financial Statements, for further information concerning the allowance for loan losses.

RESULTS OF OPERATIONS Net Interest Income Net interest income was $67,635, $68,799 and $63,076 in 2012, 2011 and 2010, respectively. Net interest income is the difference between interest income and interest expense. Net interest income is the principal source of earnings for the Association and is impacted by volume, yields on assets and cost of debt. The effects of changes in average volume and interest rates on net interest income over the past three years are presented in the following table on the following page:

64

667 521 272 1,713 — 2 12 11 6 2,589 622 344 (2,222) (20,896) (15,199) 9,000 14,550 11,600

$ 17,853

2012

$ 17,421

(0.10%) (0.93%) (0.67%)

MidAtlantic Farm Credit, ACA

Recoveries: Real estate mortgage Production and intermediate term Agribusiness Rural residential real estate Total recoveries Net (charge-offs) recoveries Provision for loan losses

11,075

Allowance for Loan Losses by Type

Total loans Nonaccrual loans

The following table presents the activity in the allowance for loan losses for the most recent three years:

Balance at beginning of year $ Charge-offs: Real estate mortgage Production and intermediate term Agribusiness Rural residential real estate Total charge-offs

The allowance for loan losses by loan type for the most recent three years is as follows:

Allowance for Loan Losses as a Percentage of: 2012

The allowance for loan losses at each period end was considered by Association management to be adequate to absorb probable losses existing in and inherent to its loan portfolio.

The net loan charge-offs in 2012 were primarily associated with timber and wood-finishing operations and poultry related loans.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands, except as noted)

Change in Net Interest Income: Nonaccrual

Volume* Rate Income Total

(dollars in thousands)

12/31/12 - 12/31/11 Interest income $(3,058) $ (4,526) $(1,410) $ (8,994) Interest expense (1,603) (5,298) (929) (7,830) Change in net interest income $(1,455) $ 772 $ (481) $ (1,164) 12/31/11 - 12/31/10 Interest income $(2,039) $ (4,539) $ 1,817 $ (4,761) Interest expense (739) (9,916) 171 (10,484) Change in net interest income $(1,300) $ 5,377 $ 1,646 $ 5,723

Noninterest income in 2012 included the one-time Insurance Fund Refund of $3,813. Other noninterest income (expense) in both 2012 and 2011 includes a $500 accrual for estimated losses on loan commitments. Fees for financially related services are related principally to the crop insurance program and the Association’s income will vary depending upon product usage and commissions earned.

Noninterest Expense Noninterest expense for each of the three years ended December 31 is shown in the following table:

Percentage For the Year Ended Increase/(Decrease)

December 31, 2012/ 2011/ Noninterest Expense 2012 2011 2010 2011 2010

(dollars in thousands)

Salaries and employee benefits $24,202 $23,617 $22,235 2.48% 6.22% *Volume variances can be the result of increased/decreased loan volume or from Occupancy and changes in the percentage composition of assets and liabilities between periods. equipment 2,620 2,552 2,489 2.66 2.53 Insurance Fund Noninterest Income premiums 908 1,174 997 (22.66) 17.75 Noninterest income for each of the three years ended December 31 is Other operating shown in the following table: expenses 6,021 5,782 5,492 4.13 5.28

Percentage Total noninterest For the Year Ended Increase/(Decrease) expense $33,751 $33,125 $31,213 1.89% 6.13%

December 31, 2012/ 2011/ Noninterest Expense

2012

2011

2010

2011

2010

(dollars in thousands)

Loan fees Fees for financially related services

$ 1,496

$ 1,658 $ 2,103

(9.77%) (21.16%)

1,825

1,555

1,924

17.36

(19.18)

Patronage refund from other Farm Credit Institutions

18,890

19,751

20,456

(4.36)

(3.45)

Gains (losses) on other property owned, net

(1,129)

(1,041)

Gains (losses) on sales of rural home loans, net 1,716 Gains (losses) on sales of premises and equipment, net Insurance Fund refund

MidAtlantic Farm Credit, ACA

Other noninterest income (expense) Total noninterest income

1,479

124

163

3,813

—

188

(55)

(269) 1,419

(8.45) (286.99) 16.02

4.23

125 (23.93)

30.40

3,753 100.00 (100.00)

Noninterest expense increased $626 or 1.89 percent for the year ended December 31, 2012, as compared to the same period in 2011 and increased $1,912 or 6.13 percent in 2011 compared to the 2010 year.

Salaries and employee benefits increased $585 or 2.48 percent in 2012 as compared to 2011. This increase is primarily attributable to 2012 salary adjustments and related employee benefit increases. See Note 10, Employee Benefit Plans, of the Notes to the Consolidated Financial Statements, for further information.

The Insurance Fund premium decreased $266 or 22.66 percent in 2012 as compared to 2011. The decrease resulted from the Farm Credit System Insurance Corporation announcement in January 2012 to decrease the insurance premium for 2012 effective January 1, 2012.

For 2012, the insurance premium was .05 percent of loans (5 basis points) as compared to 6 basis points for 2011.

404 441.82 (113.61)

$26,923 $23,510 $29,915 14.52% (21.41%)

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Income Taxes The Association recorded a provision for income taxes of $129 for the year ended December 31, 2012, as compared to a benefit of $537 for 2011 and a benefit of $76 for 2010. Refer to Note 2, Summary of Significant Accounting Policies, Income Taxes, and Note 9, Income Taxes, of the Notes to the Consolidated Financial Statements, for more information concerning Association income taxes.

Key Results of Operations Comparisons Key results of operations comparisons for each of the twelve months ended December 31 are shown in the following table: Key Results of For the 12 Months Ended Operations Comparisons 12/31/12 12/31/11 12/31/10

Return on average assets

2.32% 1.96% 2.17%

Return on average members’ equity 11.73% 10.91% 12.90% Net interest income as a percentage of average earning assets 3.14% 3.07% 2.79% Net (charge-offs) recoveries to average loans (0.10%) (0.93%) (0.67%) A key factor in maintaining and growing the net income for future years will be an increase in Acceptable loan volume, continued improvement in net interest income and controlling loan losses, while effectively managing noninterest income and noninterest expense.

The current economic recession continues to impact certain sectors of the Association’s portfolio and could continue to adversely impact the Association until economic stability in the country is restored. In 2012, the Association recorded a provision for loan losses of $9,000 and charge-offs (net of recoveries) of $2,222. This was a significant decrease compared to 2011 and 2010 when the provision for loan losses totaled $14,550 and $11,600, respectively, and charge-offs (net of recoveries) aggregated $20,896 and $15,199, respectively. The past three years have been favorably impacted by the receipt of Special Patronage distributions from AgFirst Farm Credit Bank, which totaled $4,730, $4,799, and $4,759 in 2012, 2011 and 2010, respectively. The

Association does not forecast continued receipt of these distributions.

The Association’s pension plans have also been negatively impacted, which increased the financial accounting required impact on 2012 and 2011 employee benefits expense. The fiscal stability of the Association enables it, during these turbulent times, to continue to emphasize its goals to: consistently meet the needs of our membership by providing quality loan products, generate earnings which are sufficient to fund operations, ensure the adequate capitalization of the Association, and achieve an acceptable rate of return for stockholders. To meet these goals, the Association will continue its efforts of attracting and retaining high quality, competitively priced loan volume while effectively managing credit risk in the entire loan portfolio. With the assistance of outside consultants, the Association is currently in the process of implementing an Enterprise Risk Management (ERM) process which is expected to further aid the Association in its management of both short- and long-term risks. The Association will continue to actively evaluate new or modified products, including recommendations and initiatives offered in conjunction with System projects.

LIQUIDITY AND FUNDING SOURCES Liquidity and Funding The principal source of funds for the Association is the borrowing relationship established with the Bank through a General Financing Agreement (GFA). The GFA utilizes the Association’s credit and fiscal performance as criteria for establishing a line of credit on which the Association may draw funds. The Bank advances the funds to the Association, creating notes payable (or direct loans) to the Bank. The Bank manages interest rate risk through direct loan pricing and asset/ liability management. The notes payable are segmented into variable rate and fixed rate components. The variable rate note is utilized by the Association to fund variable rate loan advances and operating funds requirements. The fixed rate note is used specifically to fund fixed rate loan advances made by the Association. Association capital levels effectively create a borrowing margin between the amount of loans outstanding and the amount of notes payable outstanding. This margin is commonly referred to as “Loanable Funds”.

Total notes payable to the Bank at December 31, 2012, was $1,714,965 as compared to $1,784,988 at December 31, 2011 and $1,917,156 at December 31, 2010. The decrease of 3.92 percent compared to December 31, 2011 was attributable to: (a) loan paydowns which were not offset by new loans as potential borrowers remained extremely cautious reflective of the lingering economic recession, (b) successful settlement of several nonaccruing loan accounts and (c) the Association’s increase in member’s equity attributable to net income. Since the beginning of 2010, loans have decreased $144,103 or 6.30 percent while Member’s Equity has increased $80,480 or 21.73 percent. The average volume of outstanding notes payable to the Bank was $1,751,906 and $1,863,401 for the years ended December 31, 2012 and 2011, respectively. Refer to Note 7, Notes Payable to AgFirst Farm Credit Bank, of the Notes to the Consolidated Financial Statements, for weighted average interest rates and maturities and additional information concerning the Association’s notes payable.

MidAtlantic Farm Credit, ACA

Occupancy and equipment and Other operating expenses increased a total of $307 or 3.68 percent primarily attributable to an increase in purchased services, furniture and equipment, advertising, travel, and communication expenses. The Association’s efficiency ratio, which is calculated as Operating Expenses as a percentage of Net interest income plus Total noninterest income continues to be among the lowest in the AgFirst District and significantly below the average efficiency ratio for the District. If the Association’s Operating Expenses averaged the District average, then Operating Expenses would be approximately $6.3 million higher, which would result in a decrease of the same amount to Income before income taxes; and, accordingly, would adversely impact the patronage distribution which the Association makes to stockholders.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands, except as noted)

Liquidity management is the process whereby funds are made available to meet all financial commitments including the extension of credit, payment of operating expenses and payment of debt obligations. The Association receives access to funds through its borrowing relationship with the Bank and from income generated by operations. The liquidity policy of the Association is to manage cash balances to maximize debt reduction and to increase loan volume. As borrower payments are received, they are applied to the Association’s note payable to the Bank. The Association’s participation in the Farmer Mac agreements and other secondary market programs provides additional liquidity. Sufficient liquid funds have been available to meet all financial obligations. There are no known trends likely to result in a liquidity deficiency for the Association.

The Association has a net settlement agreement with CoBank, ACB, to settle transactions between the two institutions daily to an aggregate line of credit of $30 million. The Association had no other lines of credit from third party financial institutions as of December 31, 2012.

Funds Management The Bank and the Association manage assets and liabilities to provide a broad range of loan products and funding options, which are designed to allow the Association to be competitive in all interest rate environments. The primary objective of the asset/liability management process is to provide stable and rising earnings, while maintaining adequate capital levels by managing exposure to credit and interest rate risks.

Demand for loan types is a driving force in establishing a funds management strategy. The Association offers fixed, adjustable and variable rate loan products that are marginally priced according to financial market rates. Variable rate loans may be indexed to market indices such as the Prime Rate or the 90-day London Interbank Offered Rate (LIBOR). Adjustable rate mortgages are indexed to U.S. Treasury Rates. Fixed rate loans are priced based on the current cost of System debt of similar terms to maturity.

The majority of the interest rate risk in the Association’s Consolidated Balance Sheets is transferred to the Bank through the notes payable structure. The Bank, in turn, actively utilizes funds management techniques to identify, quantify and control risk associated with the loan portfolio.

MidAtlantic Farm Credit, ACA

Relationship with the Bank The Association’s statutory obligation to borrow only from the Bank is discussed in Note 7, Notes Payable to AgFirst Farm Credit Bank, of the Notes to the Consolidated Financial Statements in this Annual Report.

The Bank’s ability to access capital of the Association is discussed in Note 4, Investments in Other Farm Credit Institutions, of the Notes to the Consolidated Financial Statements.

The Bank’s role in mitigating the Association’s exposure to interest rate risk is described in the “Liquidity and Funding” section of this Management’s Discussion and Analysis and in Note 7, Notes Payable to AgFirst Farm Credit Bank, included in this Annual Report.

CAPITAL RESOURCES Capital serves to support asset growth and provide protection against unexpected credit and interest rate risk and operating losses. Capital is also needed for future growth and investment in new products and services.

The Association Board of Directors establishes, adopts, and maintains a formal written capital adequacy plan to ensure that adequate capital is maintained for continued financial viability, to provide for growth necessary to meet the needs of members/borrowers, and to ensure that all stockholders are treated equitably. There were no material changes to the capital plan for 2012 that would affect minimum stock purchases or would have an effect on the Association’s ability to retire stock and distribute earnings. During 2011, the Association completed its plan to address certain differences in member capital requirements in connection with the Valley merger.

Total members’ equity at December 31, 2012, increased 7.17 percent to $450,881 from the December 31, 2011, total of $420,697.

At December 31, 2011, total members’ equity increased 6.10 percent from the December 31, 2010 total of $396,518. The 2012 increase was primarily attributed to net income net of various patronage related distributions and the net impact of capital stock/participation certificates issued/retired. See statement “Consolidated Statements of Changes in Members’ Equity” in this Annual Report for further details.

FCA sets minimum regulatory capital requirements for System banks and associations. Capital adequacy is evaluated using a number of regulatory ratios. According to the FCA regulations, each institution’s permanent capital ratio is calculated by dividing permanent capital by a risk-adjusted asset base. Risk-adjusted assets mean the total dollar amount of the institution’s assets adjusted by an appropriate credit conversion factor as defined by regulation.

For all periods represented, the Association exceeded the minimum regulatory standard for all of the ratios.

The Association’s capital ratios as of December 31 and the FCA minimum requirements follow: Regulatory

2012 2011 2010 Minimum

Permanent capital ratio Total surplus ratio Core surplus ratio

18.12% 16.57% 15.23% 7.00% 17.73% 16.19% 14.79% 7.00% 17.57% 16.00% 14.21% 3.50%

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See Note 8, Members’ Equity, of the Consolidated Financial Statements, for further information concerning capital resources.

PATRONAGE PROGRAM Prior to the beginning of any fiscal year, the Association’s Board of Directors, by adoption of a resolution, may establish a Patronage Allocation Program to distribute its available consolidated net earnings. This resolution provides for the application of net earnings in the manner described in the Association’s Bylaws. This includes the setting aside of funds to increase surplus to meet minimum capital adequacy standards established by FCA Regulations, to increase surplus to meet Association capital adequacy standards to a level necessary to support competitive pricing at targeted earnings levels, and for reasonable reserves for necessary purposes of the Association. After excluding net earnings attributable to: (a) the portion of loans participated to another institution, and (b) participation loans purchased, remaining consolidated net earnings are eligible for allocation to borrowers. Refer to Note 8, Members’ Equity, of the Notes to the Consolidated Financial Statements, for more information concerning the patronage distributions. The Association declared patronage distributions of $28,523 in 2012, $25,599 in 2011, and $25,756 in 2010.

YOUNG, BEGINNING AND SMALL (YBS) FARMERS AND RANCHERS PROGRAM The Association’s mission is to provide financial services to agriculture and the rural community, which includes providing credit to Young*, Beginning** and Small*** farmers. Because of the unique needs of these individuals, and their importance to the future growth of the Association, the Association has established annual marketing goals to serve the financing needs of YBS farmers.

Specific marketing plans have been developed to target these groups, and resources have been designated to help ensure YBS borrowers access to a stable source of credit.

The following table outlines the number of borrowers, the number of YBS loans in the portfolio, and the loan volume outstanding (shown in thousands) for the past two years.

As of December 31, 2012

(dollars in thousands)

Number of Number of Amount of Borrowers Loans Loans

Young Beginning Small

1,961 2,953 $ 292,371 3,017 4,272 567,432 6,514 9,669 929,393

As of December 31, 2011

(dollars in thousands)

Number of Number of Amount of Borrowers Loans Loans

Young Beginning Small

1,910 3,126 $279,184 3,014 4,626 584,008 6,664 10,345 959,653

For 2012, the Association’s quantitative goals were to book 900 new business relationships, of which 50 percent or more shall meet one or more of the established criteria for designation as Young, Beginning, or Small, and to maintain or increase its overall levels of lending to Young, Beginning and Small business relationships as represented by overall percentages of the 2007 USDA Census numbers (the most recent numbers available) in MidAtlantic’s territory.

The goal for booking new business relationships (BEs) was achieved as evidenced by the following table: New BEs Young BEs Beginning BEs Small BEs

1,066 313 or 29.4% of the total 430 or 40.3% of the total 703 or 66.0% of the total

The overall goal of 50 percent or greater of the new BEs being designated either Y, B or S was achieved as 783 or slightly over 73 percent qualified as Y, B or S. Furthermore, while not specifically the goal, the S category exceeded 50 percent.

The Association experienced a small decrease in the overall number of farmers served within its territory; however, there was an increase in the Y and B categories (comparisons are against USDA data for each category).

MAFC MAFC

Total Farmers Young Beginning Small

USDA MAFC as % MAFC as % 2007 % YBS Territory USDA Territory USDA Census USDA 12/31/11 12/31/11 12/31/12 12/31/12

32,999 100.0% 8,594 26.0% 8,520 25.8% 2,770 8.4% 1,735 62.6% 1,803 65.1% 8,949 27.1% 2,716 30.4% 2,762 30.9% 27,952 84.7% 6,027 21.6% 5,942 21.3%

The working definitions of Young and Beginning include a criteria of borrower age and years farming while Small is defined by the level of agricultural sales. With the passage of time, existing borrowers will move out of these two categories regardless of any operational changes or lending activities.

MidAtlantic Farm Credit, ACA

The increase in the Association’s permanent capital, total surplus and core surplus at December 31, 2012 was attributed to net income, net of patronage distributions, decreased investment in AgFirst stock, an increase in the Association’s capital stock and participation certificates outstanding, and a reduction in loan volume outstanding. There are no trends, commitments, contingencies, or events that are likely to affect the Association’s ability to meet regulatory minimum capital standards and capital adequacy requirements.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands, except as noted)

The Association successfully implemented a new program in 2008, StartRight that focuses on the needs of Young, Beginning, Small and Minority farmers. Since implementation, over $125.6 million of “Start Right” loans have been booked, with over $44 million outstanding as of year-end 2012.

The StartRight program includes several outreach efforts to Young, Beginning, Small and Minority (YBSM) farmers. This outreach includes a resource center for YBSM farmers, found at www.mafc. com. It also includes a mentoring partnership program, which pairs new agricultural operators with more experienced farmers as well as various educational offerrings to this group. During 2012, the Continuing Education Module of StartRight offered an online educational program called AgBiz Masters focusing on everything from macroeconomics to marketing to the importance of creating a business plan. You can read more about StartRight on the Association’s website, www.mafc.com.

In addition to our StartRight program, MidAtlantic also supports a Trade Credit program, “Farm Credit EXPRESS.” This program, supported through local equipment dealers within our territory, has further enhanced the YBS service of the Association. The Farm Credit EXPRESS program has also helped to increase sales by local equipment dealers, which promotes economic growth in the rural communities.

The Association has the goal of serving YBS through extensive outreach programs that include activities in marketing, education, training, and financial support. The Association continues previously sponsored outreach/sponsorship activities in which the Association participated for the purpose of promoting and supporting YBS efforts, as well as incorporated new outreach/ sponsorships to continue building the Association’s commitment to YBS. The Association’s website, www.mafc.com, contains an entire section of information and resources specifically applicable to YBS visitors to the site.

MidAtlantic Farm Credit, ACA

The Association continues its participation in specific credit programs and partnerships that we have developed to help small farmers, young farmers and farmers just starting out. It includes programs offered by the Farm Service Agency (FSA), such as guaranteed and direct loans to qualifying borrowers. The Association has earned the distinction of a “preferred lender”, the highest status designated by FSA.

In addition to FSA guaranteed loans, the Association is also a Guaranteed Participating Lender for the Small Business Administration (SBA), which offers lending programs specifically for small borrowers and also participates in a number of State lending programs that promote the agriculture industry and environmental stewardship. The Association also offers flexible financing options in-house for qualifying borrowers.

The Association remains fully committed to serving the financing needs of YBS borrowers and will continue to evaluate its programs and efforts in order that they will be even more effective in 2013.

The Association includes YBS goals in the annual strategic plan, and reports on those goals and achievements to the Board of Directors on a quarterly basis.

The Association is committed to the future success of young, beginning and small farmers. * Young farmers are defined as those farmers, ranchers, producers or harvesters of aquatic products who are age 35 or younger as of the date the loan is originally made. ** Beginning farmers are defined as those farmers, ranchers, producers or harvesters of aquatic products who have 10 years or less farming or ranching experience as of the date the loan is originally made. *** Small farmers are defined as those farmers, ranchers, producers or harvesters of aquatic products who normally generate less than $250,000 in annual gross sales of agricultural or aquatic products at the date the loan is originally made.

REGULATORY MATTERS For the twelve months ended December 31, 2012, the FCA took no enforcement action against the Association.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law on July 21, 2010. While the Dodd-Frank Act represents a significant overhaul of many aspects of the regulation of the financial services industry, many of the statutory provisions of the Dodd-Frank Act are not applicable to the Farm Credit System. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations and to prepare numerous studies and reports for Congress.

The federal agencies are given significant discretion in drafting the implementing rules and regulations and, consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many more months or years.

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The Dodd-Frank Act creates new regulators and expands the authority of the Federal Reserve Board over nonbank financial companies previously not subject to its or other bank regulators’ direct jurisdiction, particularly those that are considered systemically important to the U.S. financial system. The legislation created the Financial Oversight Council, a coordinating body of financial regulators, which is designed to monitor and pinpoint systemic risks across the financial spectrum. Nevertheless, the Dodd-Frank Act largely preserves the authority of the Farm Credit Administration as the System’s independent federal regulator by excluding System institutions from being considered nonbank financial companies and providing other exemptions and exclusions from certain of the law’s provisions. Also, the rules prohibiting banking entities from engaging in proprietary trading under the so-called Volcker Rule do not apply to the debt securities issued by the System.

Farm Bill

The provisions of the Dodd-Frank Act pertaining to the regulation of derivatives transactions will require more of these transactions to be cleared through a third-party central clearinghouse and traded on regulated exchanges or otherwise, and margin or cash collateral will be required for these transactions. Also, derivative transactions that will not be subject to mandatory trading and clearing requirements may also be subject to minimum margin and capital requirements. The Dodd-Frank Act requires the Commodity Futures Trading Commission (CFTC) to consider whether to exempt System institutions from certain of these new requirements. These new requirements, whether or not System institutions are required to abide by them, have the potential of making derivative transactions more costly and less attractive as risk management tools for System institutions, and, thus, may impact the System’s funding and hedging strategies.

The federally-supported multiperil crop insurance program is governed by separate stand-alone law that did not expire with the 2008 Farm Bill and currently does not contain a sunset date in its authorization.

While a new Farm Bill may make changes to federal crop insurance law, the Farm Bill typically has not been the vehicle for doing so.

The Dodd-Frank Act also created a new federal agency called the Consumer Financial Protection Bureau (CFPB). The CFPB has the responsibility to regulate the offering of consumer financial products or services under federal consumer financial laws. The Farm Credit Administration retains the responsibility to oversee and enforce compliance by System institutions with relevant rules adopted by the CFPB.

The “Farm Bill” is an omnibus, multiyear piece of Congressional legislation that governs an array of federal farm and food programs, including commodity price and support payments, farm credit, agricultural conservation, research, rural development, and foreign and domestic food programs. Normally, the Farm Bill governs most federal agriculture and related programs for five years.

The last Farm Bill enacted into law was the 2008 Farm Bill, which expired on September 30, 2012. The American Taxpayer Relief Act of 2012, signed into law on January 2, 2013, extends certain provisions of the 2008 Farm Bill for one year to September 30, 2013. In general, the extension of the 2008 Farm Bill maintains the programs authorized by that law, including commodity price and support payments, with certain exceptions.

As Congress begins to address the issues deferred by the American Taxpayer Relief Act, there will be continued pressure to address the U.S. budget deficit. Left unchanged, automatic spending cuts may impact certain agricultural programs. Moreover, even if the U.S. Congress passes a measure to offset the automatic spending cuts, it is possible that an offset measure, or other budget reduction efforts, could impact funding available for the 2008 Farm Bill when its renewal is considered.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Please refer to Note 2, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements, for recently issued accounting pronouncements.

MidAtlantic Farm Credit, ACA

In light of the foregoing, it is difficult to predict at this time the extent to which the Dodd-Frank Act or the forthcoming implementing rules and regulations will have an impact on the System. However, it is possible they could affect funding and hedging strategies and increase funding and hedging costs.

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Disclosure Required by Farm Credit Administration Regulations

Description of Business

Legal Proceedings

Descriptions of the territory served, persons eligible to borrow, types of lending activities engaged in, financial services offered and related Farm Credit organizations are incorporated herein by reference to Note 1, Organization and Operations, of the Consolidated Financial Statements included in this Annual Report to shareholders.

Information, if any, to be disclosed in this section is incorporated herein by reference to Note 12, Commitments and Contingencies, of the Consolidated Financial Statements included in this Annual Report to shareholders.

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 the business; seasonal characteristics; and concentrations of assets, if any, is incorporated in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report to shareholders.

Description of Property

MidAtlantic Farm Credit, ACA

The following table sets forth certain information regarding the properties of the reporting entity as of December 31, 2012:

Description of Capital Structure Information to be disclosed in this section is incorporated herein by reference to Note 8, Members’ Equity, of the Consolidated Financial Statements included in this Annual Report to shareholders.

Description of Liabilities The description of liabilities, contingent liabilities and obligations to be disclosed in this section is incorporated herein by reference to Notes 2, 7 and 12 of the Consolidated Financial Statements included in this Annual Report to shareholders

Form of Location Description Ownership

Form of Location Description Ownership

1614 Churchville Road Suite 102 Bel Air, MD 21015

112 East Liberty Street Charles Town, WV 25414

102 Morgnec Road Chestertown, MD 21620

379 Deep Shore Road Denton, MD 21629

1410 South State Street Dover, DE 19901

105 Railroad Avenue East New Market, MD 21631

925 North East Street Frederick, MD 21701

20816 DuPont Boulevard Georgetown, DE 19947

1260 Maryland Avenue Suite 109 Hagerstown, MD 21740

411 West Roseville Road Lancaster, PA 17601

158 Crimson Circle Martinsburg, WV 25403

1035 Ocean Highway Pocomoke, MD 21851

680 Robert Fulton Highway Quarryville, PA 17566

6546 Mid Atlantic Lane Salisbury, MD 21804

Branch Operations

Rented

Satellite Office

Rented

Branch Operations

Owned

Branch Operations

Owned

Branch Operations

Owned

Satellite Office

Owned

Branch Operations

Owned

Branch Operations

Owned

Branch Operations

Rented

Branch Operations

Owned

1513 Main Street Shoemakersville, PA 19555

45 Aileron Court Westminster, MD 21157

700 Corporate Center Court Suite L Westminster, MD 21157

125 Prosperity Drive Winchester, VA 22602

1031 South Main Street Woodstock, VA 22664

South Main Street Woodstock, VA 22664

Branch Operations

Owned

Branch Operations

Owned

Branch Operations

Owned

Branch Operations

Owned

Branch Operations

Owned

Administrative Headquarters

Owned

Branch Operations

Rented

Branch Operations

Owned

Branch Operations

Owned

Unimproved 1 acre lot

Owned

Rented facilities are leased by the Association at prevailing market rates from independent third parties for periods not currently exceeding five years. The Association leases approximately 5,000 square feet of its Winchester location comprising three suites. Two of the three suites are rented to Association Alliances: A New Century Realty and Farm Bureau. These alliances were formed to create opportunities for the Association membership to have real estate and insurance services available in one building. In addition, approximately 1,800 square feet at the Martinsburg location is leased. All of the Association’s leases to third parties are at prevailing market rates and expire not later than May 31, 2014.

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

Senior Officers

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which appears in this Annual Report to shareholders and is to be disclosed in this section, is incorporated herein by reference.

The following represents certain information regarding the senior officers of the Association and their business experience for the past five years.

Senior Officer

Position

J. Robert Frazee

President & Chief Executive Officer since January 2000. He serves as a board member of the Maryland Agricultural and Resource-Based Industry Development Corporation (MARBIDCO) (an economic development agency and financial intermediary).

Carl E. Naugle

Sr. Vice President & Chief Credit Officer since January 2000. He serves as a board member of the Farm Financial Standards Council (a nonprofit which promotes uniformity and integrity in agriculture-related financial reporting and analysis).

John E. Wheeler, Jr.

Sr. Vice President & Chief Financial Officer since September 2004. He serves on the Board of St. Agnes HealthCare (healthcare, nonprofit), board member of the Accounting Advisory Board—Sellinger School of Business and Management at Loyola University Maryland (education, nonprofit), and Trinity School, Inc. (education, nonprofit).

Thomas J. Marshall

Sr. Vice President & Director of Audit and Review since January 2004.

Linda K. Stum

Sr. Vice President & Human Resources Officer since January 2000.

Sandra L. Wieber

Sr. Vice President & Marketing Officer since September 2000.

Tammy L. Price

Sr. Vice President & Chief Information Officer since March 2009. Previously served the Association in various positions in the Information Technology Department since 2000.

James D. Aird

Sr. Vice President & Regional Lending Manager since July 2000.

Jeffrey M. Tyson

Sr. Vice President & Regional Lending Manager since July 2000.

Lloyd R. Webb

Sr. Vice President & Regional Lending Manager since July 2000. Retired March 2012.

Kenneth M. Bounds

Sr. Vice President & Regional Lending Manager since March 2012. Previously served the Association in various positions since January 2000.

Sonia C. Arteaga

Sr. Vice President & Chief Risk Officer since August 2012. Employed by the Association in August 2010 as Special Assets Manager. Previously served in various credit-related functions with Farm Credit of Puerto Rico since 1988.

Laura E. Bailey

Vice President, Administrative Services and Corporate Secretary since December 2005.

The total amount of compensation earned by the CEO and by all senior officers as a group during the years ended December 31, 2012, 2011 and 2010, is as follows: Name of Individual or Number in Group Year Salary Bonus

Deferred/ Perquisites

J. Robert Frazee 2012 $ 396,015 $142,608

$ 46,216

$ 584,839

J. Robert Frazee 2011 $ 382,515 $185,777

—

$ 568,292

J. Robert Frazee 2010 $ 368,014 $163,568

—

$ 531,582

Total

13

2012 $1,744,489 $533,722

$173,771

$2,451,982

11

2011 $1,584,251 $518,982

$ 17,987

$2,121,220

11

2010 $1,517,330 $401,976

$ 19,514

$1,938,820

The compensation amounts included in the table for 2012 include the compensation for: (a) one senior officer for the first quarter of 2012 when the officer retired, and (b) one senior officer from March 2012 and one senior officer from August 2012 when the individuals were promoted to a senior officer position. Amounts in the table classified as Deferred/Perquisites are comprised primarily of deferred compensation and life insurance. Beginning in 2012, at least 10 percent of senior officers’ bonus must be deferred for three years.

In addition to base compensation, the Association offers an incentive plan to all employees. For all employees, credit quality goals, the payment of patronage distributions to the Association’s membership, and Association profit goals established in the incentive plan must be met before any incentive is paid. Total compensation paid under the plan ranges from 0 to 50 percent of base pay at the end of the plan

MidAtlantic Farm Credit, ACA

Thomas H. Truitt, Jr. Sr. Vice President & Regional Lending Manager since January 2009. Previously served as Sr. Vice President & Chief Information Officer since January 2000.

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Disclosure Required by Farm Credit Administration Regulations

year for senior officers depending upon the level of responsibility, and for all other employees, cannot exceed 20 percent of an employee’s base salary in effect at the end of the plan year. Established targets are measured at December 31, 2012 so that bonuses can be accrued in the plan year. Payment of accrued bonuses is made by March 15 following the close of the plan year.

Also, all employees are eligible to receive awards: (a) based on years of service on five year, or multiples of five year, anniversaries, and (b) based on special or exemplary performance as defined in the plan.

A copy of these plans is available to stockholders upon request.

Disclosure of information on the total compensation paid during 2012 to any senior officer, or to any other individual included in the total, is available to shareholders upon request.

Directors Directors and senior officers are reimbursed on an actual cost basis for all expenses incurred in the performance of official duties. Such expenses may include transportation, lodging, meals, tips, tolls, parking of cars, laundry, registration fees, and other expenses associated with travel on official business. A copy of the policy is available to shareholders of the Association upon request.

The aggregate amount of reimbursement for travel, subsistence and other related expenses for all directors as a group was $334,638 for 2012, $301,568 for 2011 and $300,607 for 2010. The Association provides computers and Internet access to the directors to provide for an electronic means of communication. Internet access is reimbursed at the rate of $50 per month. Expenses for the computers are accounted for in accordance with the Association’s equipment policy.

Subject to approval by the board, directors are compensated for meeting attendance and special assignments. As of December 31, 2012, an honorarium of $450 per day is paid for meetings, committee meetings (reduced to $200 if occurring on the same day as daily honorarium) and special assignments. $100 is paid for telephone conference meetings. Committee chairs receive an additional $100 for each meeting of the Committee.

MidAtlantic Farm Credit, ACA

In addition to the honoraria, as of December 31, 2012, directors are paid a quarterly retainer fee of $1,250 and the chair and vicechair are paid an additional $650 and $300, respectively. Directors are compensated at a per hour rate of $20 for travel time to Board meetings in excess of one hour. Total compensation paid to directors as a group was $335,780 for 2012.

The following represents certain information regarding Association Directors and their principal occupations during the past five years: Fred N. West, Chairman, owns 180 acres with a 40,000-capacity poultry operation. He also co-owns Fred West Farms LLC, a 2,400acre grain operation and F & F Farms LLC, an 80,000 capacity poultry operation with his son. He serves on the Sussex County Farm Bureau Board. He served as Vice-Chairman of the Board until May, 2012 and has since served as Chairman of the Board and on the Executive Committee. During 2012, Mr. West served 11 days at Association Board meetings and 39 days in other official activities including various Board committees and was paid $26,085. His term of office is 2010 to 2014.

M. Wayne Lambertson, Vice Chairman, farming with his son, has a 1,650-acre cash grain operation (630 acres owned) producing soybeans, corn, and wheat. He also has a broiler operation of 54,000 replacement pullets. He is owner/president of Amen Corner LLC (poultry), president of Twin Oak Farms, Inc. (grain), a partner and vice-president of JWL Enterprises (construction), and a partner in Don’s Seafood Restaurant.

During 2012, Mr. Lambertson served 11 days at Association Board meetings and 14 days in other official activities including the Executive Committee, and the Communications Advocacy Program Committee and was paid $15,160. His term of office is 2011 to 2015.

Mr. Lambertson also served until 12/31/12 as Board Chairman on the AgFirst Farm Credit Bank Board, and he continues to serve on that Board. In addition, he serves on the AgFirst District Farm Credit Council Board and on the National Farm Credit Council Board. Days of service disclosed for Mr. Lambertson as a member of the MidAtlantic Board do not reflect activities in his capacity as an AgFirst board member or Farm Credit Council board member. For further information related to specific duties, compensation, and days served in those positions, please see the AgFirst Farm Credit Bank 2012 Annual Report at www.agfirst.com.

Paul D. Baumgardner owns Baumgardner’s Hay and Straw and Baumgardner Farms Landscaping. He is also a beef farmer and farms a total of 650 acres (150 acres owned). Within the past five years, he also owned Winchester Feed and Seed in Winchester, VA. During 2012, he served 11 days at Association Board meetings and 30 days in other official activities, including the Board Executive Committee and the Audit & Review Committee (Chair), and was paid $20,745. His term of office is 2011 to 2016.

Deborah A. Benner, along with her husband, owns and operates Yippee Farms, consisting of three dairy facilities with over 900 cows and 900 heifers, and cultivating 700 acres of corn, alfalfa, rye and other grains. She serves as CEO of Yippee LLC, a holding company and of Murgolo Books, a publishing subsidiary of the LLC. She also serves on the boards of the Lancaster County Board of the Pennsylvania Farm Bureau as President and on the Advisory Board and Finance Committee of PTL India Partners. During 2012, she served 9 days at Association Board meetings and 18 days in other official activities, including the Governance Committee and was paid $16,255. Her term of office is 2012 to 2016.

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Brian L. Boyd is employed as feed mill manager for Mark Hershey Farms. He also owns and operates Boyd’s Custom Planting, custom planting soybeans and small grains, operates a family farm on 14 acres, producing 80,000 chickens (480,000 per year), and is President of Boyd Boys LLC (a poultry operation). He serves on the Board of Lebanon County Extension. During 2012, he served 11 days at Association Board meetings and 24 days in other official activities, including the Human Resources Committee and was paid $18,025. His term of office is 2010 to 2014.

T. Jeffery Jennings operates a farm consisting of 100-head beef cows, poultry facilities with capacity for 13,000 breeder hens, and cultivates 500 acres of corn, soybeans, hay, alfalfa, pasture, and timber. He serves on the Board of the Culpeper Farmers’ Cooperative, and on the Board of Page County Grown, a “buy local” organization.

During 2012, Mr. Jennings served 9 days at Association Board meetings and 27 days in other official activities including the Audit & Review Committee and Communications Advocacy Program Committee, and was paid $18,955. His term of office is 2011 to 2015.

Gary L. Grossnickle is a dairy and crop farmer. His farm operation, Grossnickle Farms, Inc., consists of 1,300 acres (600 owned) in cultivation of corn, beans, wheat, barley, and grass hay and 260 cows and 200 replacement heifers. He is also involved in Grossnickle Limited Partnership, a real estate enterprise. He serves on the Board of Frederick-Woodsboro Southern States. He served as Chairman of MidAtlantic’s Board until May, 2012. He currently serves on the Executive and on the Audit & Review Committee. During 2012, he served 11 days at Association Board meetings and 29 days in other official activities including various Board committees, and was paid $20,475. His term of office is 2011 to 2015.

Christopher J. Kurtzman serves as one of the Board’s outside directors and its designated financial expert. He retired from McCormick & Company, Inc., in 2008 after 32 years of service.

His most recent positions included VP for Operations Services in Europe, the Middle East, and Africa; VP of Supply Chain and Growth Optimization—Consumer Products Division; and Vice President & Treasurer. He is a Certified Public Accountant (inactive) and holds a BBA degree in Accounting from the University of Notre Dame. During 2012, he served 11 days at Association Board meetings and 31 days in other official activities including the Audit & Review Committee and was paid $20,160. His term of office is 2010 to 2014.

Dale R. Hershey is senior partner in Hershey Brothers Dairy Farm, cultivating 650 acres of corn, alfalfa, soybeans, rye and barley.

During 2012, he served 11 days at Association Board meetings and 19 days in other official activities, including the Human Resources Committee and the Communications Advocacy Program Committee and was paid $15,765. His term of office is 2011 to 2015. He also serves on the AgFirst Farm Credit Bank Board of Directors (elected Vice-Chairman effective January 2013), including that Board’s Compensation Committee, and the AgFirst District Farm Credit Council Board (elected Vice-Chairman effective January 2013). Days of service disclosed for Mr. Hershey as a member of the MidAtlantic Board do not reflect activities in his capacity as an AgFirst board member. For further information related to specific duties, compensation, and days served in those positions, please see the AgFirst Farm Credit Bank 2012 Annual Report at www.agfirst.com.

Fred R. Moore, Jr. owns and operates Fred R. Moore & Son, Inc., and Collins Wharf Sod, consisting of a 600-acre turf production and grain operation. In addition, he is a partner in a rental management firm.

He also serves on the boards of the Wicomico County Farm Bureau, the Wicomico County Soil Conservation District and the Wicomico Farm Bureau. During 2012, Mr. Moore served 11 days at Association Board meetings and 34 days in other official activities, including the Audit & Review Committee, and was paid $22,530. His term of office is 2010 to 2013.

MidAtlantic Farm Credit, ACA

Walter C. Hopkins and his son operate a dairy and grain farm consisting of 570 milk cows, 500 replacement heifers, and 1,000 acres of corn, alfalfa, grass and small grain. During 2012, Mr. Hopkins served 11 days at Association Board meetings and 31 days in other official activities including the Human Resources Committee, and was paid $21,635. His term of office is 2010 to 2013. During 2012, Mr. Hopkins also served on the AgFirst Farm Credit Bank District Advisory Committee and Plan Sponsor Committee. Days of service disclosed for Mr. Hopkins as a member of the MidAtlantic Board do not reflect activities in his capacity as a member of those committees.

Mr. Hopkins was recently elected to the AgFirst Farm Credit Bank Board of Directors, and his term commenced effective January 1, 2013.

Dale J. Ockels, along with his two brothers, operates a family farming corporation. The operation includes tilling 4,400 acres of corn, soybeans, and wheat (1,000 acres owned) and a 60,000 capacity poultry operation. He serves as President of Ockels’ Farms, Inc. He also serves on the boards of the Sussex County Farm Bureau, Sussex County Soil Conservation District, Sussex County Land Trust, and on the Delaware Governor’s Council on Agriculture. During 2012, he served 11 days at Association Board meetings and 26 days in other official activities including the Executive Committee, the Governance Committee (Chair), and the Communications Advocacy Program Committee and was paid $19,330. His term of office is 2011 to 2015.

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Disclosure Required by Farm Credit Administration Regulations

Jennifer L. Rhodes owns and operates Deerfield Farms LLC, a 110acre poultry and grain operation, with her two sons. The operation consists of a four-house poultry farm producing 440,000 broilers annually and a grain farm producing corn, wheat and soybeans.

She is also employed as the Extension Educator for Agriculture and Natural Resources, University of MD Extension, Queen Anne’s County, Maryland. She holds leadership positions in the following organizations: County Board Member and State Committee Chair (poultry and eggs) for the Farm Bureau; Board member for Queen Anne’s Soil Conservation District; Board member for the nonprofit Foundation for Community Partnership; President of the nonprofit Delmarva Poultry Industry, Inc., and serves as the Governor’s appointee to represent Farm Credit on the Maryland Agricultural Commission. During 2012, she served 11 days at Association Board meetings and 29 days in other official activities including the Executive Committee and the Human Resources Committee (Chair) and was paid $20,725. Her term of office is 2012 to 2016.

Ralph L. Robertson, Jr. is co-owner with his wife of a 400-acre crop farm (240 acres are owned). The operation also includes contract dairy heifers, research cattle, and a cow-calf operation. He is also employed as a preservation manager with Carroll County, Maryland.

He was previously a dairy farmer. He also serves on the boards of the Southern States Carroll Petroleum Cooperative and the New Windsor Progressive Farmers (Vice-President). During 2012, he served 11 days at Association Board meetings and 27 days in other official activities including the Governance Committee and was paid $19,675. His term of office is 2010 to 2014.

Christopher R. Stiles operates a farm cultivating corn on 170 acres, and also operates a business which includes the treatment and land application of septic and sludge materials. He is also manager of Riggs and Stiles, Inc., a dairy and grain operation consisting of 250 cows and cultivating 1,500 acres of leased land. During 2012, he served 11 days at Association Board meetings and 20 days in other official activities including the Governance Committee and the Communications Advocacy Program Committee, and was paid $16,525.

His term of office is 2011 to 2013.

Rodger L. Wagner and his sons operate a dairy and grain farm consisting of 200 milk cows, 200 replacement heifers, and 750 acres of corn, alfalfa, and soybeans. During 2012, he served 2 days at Association Board meetings and 9 days in other official activities including the Governance Committee and was paid $6,415. He retired from the Board in 2012.

Transactions with Senior Officers and Directors The reporting entity’s policies on loans to and transactions with its officers and directors, to be disclosed in this section are incorporated herein by reference to Note 11, Related Party Transactions, of the Consolidated Financial Statements included in this Annual Report to shareholders. There have been no transactions between the Association and senior officers or directors which require reporting per FCA regulations.

Involvement in Certain Legal Proceedings There were no matters which came to the attention of management or the board of directors regarding involvement of current directors or senior officers in specified legal proceedings which should be disclosed in this section. No directors or senior officers have been involved in any legal proceedings during the last five years which require reporting per FCA regulations.

MidAtlantic Farm Credit, ACA

Paul J. Rock is one of the Board’s outside directors. He is a Certified Public Accountant and an adjunct professor at McDaniel College in Westminster, MD. Within the last five years he was CFO of IOCC, an international humanitarian aid organization, and he is retired from McCormick and Company. He serves on the Board and on the Finance Committee of the Maryland 4-H Foundation and on the Board and as Treasurer for The Mission of Mercy (medical services non-profit).

He holds memberships in the Maryland Association of CPAs, and the American Institute of Certified Public Accountants. During 2012, Mr. Rock served 11 days at Association Board meetings and 26 days in other official activities including the Human Resources Committee and was paid $18,525. His term of office is January 1, 2010 through December 31, 2014. Mr. Rock also serves on the AgFirst Farm Credit Bank District Plan Sponsor Committee. Days of service disclosed for Mr. Rock as a member of the MidAtlantic Board do not reflect activities in his capacity as a member of this committee.

Lingan T. Spicer is a grain and timber farmer. The grain portion of his business consists of 900 acres producing row crops (500 acres owned). The timber operation consists of 1,000 acres. He serves on the Dorchester County Forestry Board and on the Dorchester County Economic Development Advisory Committee. During 2012, Mr. Spicer served 11 days at Association Board meetings and 23 days in other official activities including the Audit & Review Committee and was paid $18,795. His term of office is 2011 to 2014.

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

For the year ended December 31, 2012, the Association paid fees and expenses of $72,211 for audit services rendered by its independent certified public accountants, PricewaterhouseCoopers LLP.

Consolidated Financial Statements

Since 1972, Farm Credit Administration (FCA) regulations have required that borrower information be held in strict confidence

by Farm Credit System (FCS) institutions, their directors, officers and employees. These regulations provide Farm Credit institutions clear guidelines for protecting their borrowers’ nonpublic personal information.

On November 10, 1999, the FCA Board adopted a policy that requires FCS institutions to formally inform new borrowers at loan closing of the FCA regulations on releasing borrower information and to address this information in the Annual Report to shareholders. The implementation of these measures ensures that new and existing borrowers are aware of the privacy protections afforded them through FCA regulations and Farm Credit System institution efforts.

Credit and Services to Young, Beginning, and Small Farmers and Ranchers and Producers or Harvesters of Aquatic Products Information to be disclosed in this section is incorporated herein by reference to the similarly named section in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section included in this Annual Report to shareholders.

Shareholder Investment Shareholder investment in the Association may be materially affected by the financial condition and results of operations of AgFirst Farm Credit Bank (Bank or AgFirst). Copies of the Bank’s Annual and Quarterly Reports are available upon request free of charge by calling 1.800.845.1745, ext. 2832, or writing Susanne Caughman, AgFirst Farm Credit Bank, P. O. Box 1499, Columbia, SC 29202. Information concerning AgFirst Farm Credit Bank can also be obtained by going to AgFirst’s website at www.agfirst.com. The Bank prepares an electronic version of the Annual Report, which is available on the website, within 75 days after the end of the fiscal year and distributes the Annual Report to shareholders within 90 days after the end of the fiscal year. The Bank prepares an electronic version of the Quarterly Report within 40 days after the end of each fiscal quarter, except that no report needs to be prepared for the fiscal quarter that coincides with the end of the fiscal year of the Bank.

MidAtlantic Farm Credit, ACA

The consolidated financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated March 13, 2013 and the report of management, which appear in this Annual Report to shareholders are incorporated herein by reference. Copies of the Association’s Annual and Quarterly Reports are available upon request free of charge by calling 1.800.333.7950 or writing John E. Wheeler, Jr., MidAtlantic Farm Credit, ACA, 45 Aileron Court, Westminster, Maryland 21157-3022, or accessing the website, www.mafc.com. The Association prepares an electronic version of the Annual Report which is available on the Association’s website within 75 days after the end of the fiscal year and distributes the Annual Report to shareholders within 90 days after the end of the fiscal year. The Association prepares an electronic version of the Quarterly Report within 40 days after the end of each fiscal quarter, except that no report need be prepared for the fiscal quarter that coincides with the end of the fiscal year of the institution.

Borrower Information Regulations

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Report of the Audit Committee

March 13, 2013 The Audit Committee of the Board of Directors (Committee) is comprised of the directors named below. None of the directors who serve on the Committee is an employee of MidAtlantic Farm Credit (Association) and, in the opinion of the Board of Directors, each is free of any relationship with the Association or management that would interfere with the director’s independent judgment on the Committee.

The Committee has adopted a written charter that has been approved by the Board of Directors. The Committee has reviewed and discussed the Association’s audited financial statements with management, which has primary responsibility for the financial statements.

PricewaterhouseCoopers LLP (PwC), the Association’s independent certified public accountants for 2012, is responsible for expressing an opinion on the conformity of the Association’s audited financial statements with accounting principles generally accepted in the United States of America. The Committee has discussed with PwC the matters that are required to be discussed by Statement on Auditing Standards No. 114 (The Auditor’s Communication With Those Charged With Governance). PwC has provided to the Committee the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Committee has discussed with PwC that firm’s independence.

The Committee has also concluded that PwC’s provision of nonaudit services, if any, to the Association is compatible with PwC’s independence.

MidAtlantic Farm Credit, ACA

Based on the considerations referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Association’s Annual Report for 2012. The foregoing report is provided by the following independent directors, who constitute the Committee.

Paul D. Baumgardner Chairman of the Audit Committee

Members of Audit Committee

Gary L. Grossnickle

T. Jeffery Jennings

Fred R. Moore, Jr.

Christopher J. Kurtzman

Lingan T. Spicer

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Report of Independent Certified Public Accountants

Report of Independent Certified Public Accountants

To the Board of Directors and Members of MidAtlantic Farm Credit, ACA We have audited the accompanying consolidated financial statements of MidAtlantic Farm Credit, ACA and its subsidiaries (the Association), which comprise the consolidated balance sheets as of December 31, 2012, 2011 and 2010, and the related consolidated statements of income, of comprehensive income, of changes in members’ equity and of 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

March 13, 2013

PricewaterhouseCoopers LLP, 401 E. Las Olas Blvd, Suite 1800, Fort Lauderdale, FL 33301 T: (954)764-7111, F: (954)525-4453, www.pwc.com/us

MidAtlantic Farm Credit, ACA

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MidAtlantic Farm Credit, ACA and its subsidiaries at December 31, 2012, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

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Consolidated Balance Sheets

(dollars in thousands)

December 31, December 31, December 31, 2012 2011 2010

Assets Cash Loans Less: allowance for loan losses Net loans

$

5,984

3,238

$

5,316

2,144,241 2,168,894 2,279,313 17,853 11,075 17,421 2,126,388 2,157,819 2,261,892

Accrued interest receivable Investments in other Farm Credit institutions Premises and equipment, net Other property owned Due from AgFirst Farm Credit Bank Other assets Total assets

$

11,772 12,593 12,978 26,367 34,513 34,916 12,648 13,436 13,792 3,009 1,895 1,338 17,481 18,225 18,751 9,675 10,087 11,987 $2,213,324 $2,251,806 $2,360,970

Liabilities Notes payable to AgFirst Farm Credit Bank Accrued interest payable Patronage refunds payable Allocated surplus payable Other liabilities Total liabilities

$1,714,965 $1,784,988 $1,917,156 3,427 3,986 4,568 10,642 10,142 10,172 9,678 8,819 11,005 23,731 23,174 21,551 1,762,443 1,831,109 1,964,452

Commitments and contingencies

Members’ Equity Capital stock and participation certificates Retained earnings Allocated Unallocated Accumulated other comprehensive income (loss)

239,421 207,881 188,125 202,563 203,892 199,534 (601) (520) (414)

450,881 420,697 396,518

Total members’ equity

9,498 9,444 9,273

MidAtlantic Farm Credit, ACA

Total liabilities and members’ equity $2,213,324 $2,251,806 $2,360,970

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

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Consolidated Statements of Income

For the year ended December 31, (dollars in thousands) 2012 2011 2010

Interest Income Loans

$111,692 $120,685 $125,446

Interest Expense Notes payable to AgFirst Farm Credit Bank

44,057 51,886 62,370

Net interest income Provision for loan losses

67,635 68,799 63,076 9,000 14,550 11,600

Net interest income after provision for loan losses 58,635 54,249 51,476

Noninterest Income Loan fees Fees for financially related services Patronage refunds from other Farm Credit institutions Gains (losses) on other property owned, net Gains (losses) on sales of rural home loans, net Gains (losses) on sales of premises and equipment, net Insurance Fund refunds Other noninterest income (expense)

1,496 1,658 2,103 1,825 1,555 1,924 18,890 19,751 20,456 (1,129) (1,041) (269) 1,716 1,479 1,419 124 163 125 3,813 — 3,753 188 (55) 404

26,923

23,510

29,915

Salaries and employee benefits Occupancy and equipment Insurance Fund premiums Other operating expenses

24,202 2,620 908 6,021

23,617 2,552 1,174 5,782

22,235 2,489 997 5,492

33,751

33,125

31,213

51,807 129

44,634 (537)

50,178 (76)

$ 51,678

$ 45,171

$ 50,254

Total noninterest income

Noninterest Expense

Total noninterest expense

Income before income taxes Provision (benefit) for income taxes Net income

Consolidated Statements of Comprehensive Income

Net income

$ 51,678

$ 45,171

$ 50,254

Other Comprehensive Income Net of Tax

Employee benefit plans adjustments (Note 10)

Compehensive income

(81) (106) 9 $ 51,597

$ 45,065

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

$ 50,263

MidAtlantic Farm Credit, ACA

For the year ended December 31, (dollars in thousands) 2012 2011 2010

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Consolidated Statements of Changes in Members’ Equity

(dollars in thousands)

Balance at December 31, 2009

Capital Stock and Retained Earnings Participation Certificates Allocated Unallocated

$11,232

$167,428

$192,164

Accumulated Other Total Comprehensive Members’ Income (Loss) Equity

$(423)

$370,401

Comprehensive income 50,254 9 Capital stock/participation certificates issued/(retired), net (1,959) Patronage distribution Cash (10,000) Nonqualified allocated retained earnings 15,756 (15,756) Nonqualified retained earnings 16,277 (16,277) Retained earnings retired (11,973) Patronage distribution adjustment 637 (851)

(10,000) — — (11,973) (214)

Balance at December 31, 2010

396,518

9,273

188,125

199,534

(414)

50,254 (1,959)

Comprehensive income 45,171 (106) 45,065 Capital stock/participation certificates issued/(retired), net 171 171 Patronage distribution Cash (10,000) (10,000) Nonqualified allocated retained earnings 15,599 (15,599) — Nonqualified retained earnings 15,034 (15,034) — Retained earnings retired (11,286) 701 (10,585) Patronage distribution adjustment 409 (881) (472) Balance at December 31, 2011 9,444

207,881

203,892

(520)

420,697

Comprehensive income 51,678 (81) 51,597 Capital stock/participation certificates issued/(retired), net 54 54 Patronage distribution Cash (10,500) (10,500) Qualified allocated retained earnings 2,549 (2,549) — Nonqualified allocated retained earnings 15,474 (15,474) — Nonqualified retained earnings 22,829 (22,829) — Retained earnings retired (11,066) 304 (10,762) Patronage distribution adjustment 1,754 (1,959) (205)

MidAtlantic Farm Credit, ACA

Balance at December 31, 2012

$ 9,498

$239,421

$202,563

$(601)

$450,881

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

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Consolidated Statements of Cash Flows

For the year ended December 31, (dollars in thousands) 2012 2011 2010

Cash flows from operating activities: Net income $ 51,678 $ 45,171 $ 50,254 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation on premises and equipment 1,255 1,253 1,231 Amortization (accretion) of net deferred loan origination costs (fees) (385) (393) (485) Provision for loan losses 9,000 14,550 11,600 (Gains) losses on other property owned 902 967 197 (Gains) losses on sales of premises and equipment, net (124) (163) (125) Changes in operating assets and liabilities: (Increase) decrease in accrued interest receivable 821 385 747 (Increase) decrease in due from AgFirst Farm Credit Bank 744 526 (1,309) (Increase) decrease in other assets 412 1,900 (140) Increase (decrease) in accrued interest payable (559) (582) (923) Increase (decrease) in other liabilities 476 1,517 (1,451) Total adjustments 12,542 19,960 9,342 Net cash provided by operating activities 64,220 65,131 59,596

Cash flows from investing activities: Net (increase) decrease in loans (Increase) decrease in investment in other Farm Credit institutions Purchases of premises and equipment Proceeds from sales of premises and equipment Proceeds from sales of other property owned Net cash provided by (used in) investing activities

19,561 85,016 (8,842) 8,146 403 (4,243) (473) (906) (684) 130 172 131 1,239 3,376 2,632 28,603 88,061 (11,006)

Cash flows from financing activities: Advances on (repayment of) notes payable to AgFirst Farm Credit Bank, net Increase (decrease) in allocated surplus payable Capital stock and participation certificates issued/(retired), net Patronage refunds and dividends paid Retained earnings retired Net cash provided by (used in) financing activities Net increase (decrease) in cash Cash, beginning of period Cash, end of period

(70,023) (132,168) (26,925) 859 (2,186) 4,090 54 171 (1,959) (10,205) (10,502) (8,158) (10,762) (10,585) (11,973) (90,077) (155,270) (44,925) 2,746 (2,078) 3,665 3,238 5,316 1,651 $ 5,984 $ 3,238 $ 5,316

Supplemental schedule of noncash activities: $

230 5,130 10,000 106

$

69 3,228 10,000 (9)

Supplemental information:

MidAtlantic Farm Credit, ACA

Financed sales of other property owned $ 843 Receipt of property in settlement of loans 4,098 Estimated cash dividends or patronage distributions declared or payable 10,500 Employee benefit plans adjustments (Note 10) 81 Interest paid Taxes (refunded) paid, net

$ 44,616 $ 52,468 $ 63,293 (512) (164) 151

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

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

Note 1 — Organization and Operations A. Organization: MidAtlantic Farm Credit, ACA, (Association) is a member-owned cooperative which provides credit and credit-related services to or for the benefit of eligible borrowers/stockholders for qualified purposes in the counties of Kent, New Castle and Sussex in the state of Delaware; counties of Baltimore, Caroline, Carroll, Cecil, Dorchester, Frederick, Harford, Howard, Kent, Montgomery, Queen Anne’s, Somerset, Talbot, Washington, Wicomico and Worcester in the state of Maryland; counties of Berks, Bucks, Carbon, Chester, Dauphin, Delaware, Lancaster, Lebanon, Lehigh, Monroe, Montgomery, Northampton, Philadelphia, Pike and Schuylkill in the state of Pennsylvania; and the counties of Accomack, Clarke, Frederick, Northampton, Page, Shenandoah and Warren, in the state of Virginia; and the counties of Berkeley, Jefferson and Morgan in the state of West Virginia.

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). The most recent significant amendment to the Farm Credit Act was the Agricultural Credit Act of 1987. At December 31, 2012, the System was comprised of three Farm Credit Banks, one Agricultural Credit Bank and eighty-two associations.

AgFirst Farm Credit Bank (Bank) and its related 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 Association, as well as the other associations operating within the District. The District consists of the Bank and nineteen Agricultural Credit Associations (ACAs), all of which are structured as ACA parent-companies, which have two wholly owned subsidiaries, a Federal Land Credit Association (FLCA), and a Production Credit Association (PCA). FLCAs are tax-exempt while ACAs and PCAs are taxable.

MidAtlantic Farm Credit, ACA

ACA parent-companies provide financing and related services through its FLCA and PCA subsidiaries; the PCA is currently inactive.

The FLCA makes collateralized long-term agricultural real estate and rural home mortgage loans. The ACA makes short- and intermediateterm loans for agricultural production or operating purposes.

The Farm Credit Administration (FCA) is delegated authority by Congress to regulate the System banks and associations. The FCA examines the activities of the associations and certain actions by the associations are subject to the prior approval of the FCA and the supervising bank.

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 Association, into the Insurance Fund, based on its annual average adjusted outstanding insured debt until the assets in the Insurance Fund reach the “secure base amount”. The secure base amount is defined in the Farm Credit Act as 2.0 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, but it still must ensure that reduced premiums are sufficient to maintain the level of the Insurance Fund at the secure base amount.

B. Operations: The Farm Credit Act sets forth the types of authorized lending activity, persons eligible to borrow, and financial services which can be offered by the Association. The Association is authorized to provide, either directly or in participation with other lenders, credit, credit commitments 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 may sell to any System borrowing member, on an optional basis, credit or term life insurance appropriate to protect the loan commitment in the event of death of the debtor(s). The sale of other insurance necessary to protect a member’s farm or aquatic unit is permitted, but limited to hail and multiperil crop insurance and insurance necessary to protect the facilities and equipment of aquatic borrowers.

Note 2 — Summary of Significant Accounting Policies The accounting and reporting policies of the Association conform with 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.

Certain amounts in prior years’ financial statements may have been reclassified to conform to the current year’s presentation. Such reclassifications had no effect on net income or total members’ equity of prior years. The Consolidated Financial Statements include the accounts of the FLCA and the PCA. All significant intercompany transactions have been eliminated in consolidation.

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

B. Loans and Allowance for Loan Losses: Long-term real estate mortgage loans generally have original maturities ranging from five

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Loans are generally placed in nonaccrual status when principal or interest is delinquent for 90 days (unless adequately collateralized and in the process of collection) or circumstances indicate that collection of principal and/or interest is in doubt. When a loan is placed in nonaccrual status, accrued interest deemed uncollectible is reversed (if accrued in the current year) or charged against the allowance for loan losses (if accrued in the prior year).

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, prior charge-offs have been recovered, the ability of the borrower to fulfill the contractual repayment terms is fully expected, and the loan is not classified “doubtful” or “loss”. Loans are charged-off, wholly or partially as appropriate, at the time they are determined to be uncollectible.

In cases where a borrower experiences financial difficulties and the Association makes certain monetary concessions to the borrower through modifications to the contractual terms of the loan, the loan is classified as a restructured loan. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan is classified as a nonaccrual loan.

Loan origination fees and direct loan origination costs are deferred as part of the carrying amount of the loan and the net fee or cost is amortized over the life of the related loan as an adjustment to interest income using the effective interest method.

The allowance for loan losses is a valuation account used to reasonably estimate loan and lease losses existing as of the financial statement date. Determining the appropriate allowance for loan losses balance involves significant judgment about when a loss has been incurred and the amount of that loss.

The Association uses 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 lossgiven 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 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 allowance for loan losses evaluation, and is generally incorporated into the institution’s loan underwriting standards and internal lending limit. The allowance for loan losses is based on a periodic evaluation of the loan portfolio by management in which numerous factors are considered, including current production and economic conditions, loan portfolio composition, collateral value, portfolio quality, and prior loan loss experience. It is based on estimates, appraisals and evaluations of loans which, by their nature, contain elements of uncertainty and imprecision. The possibility exists that changes in the economy and its impact on borrower repayment capacity will cause these estimates, appraisals and evaluations to change.

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

The Association considers the following factors when adjusting the historical charge-offs experience: • • • • •

Changes in credit risk classifications, Changes in collateral values, Changes in risk concentrations, Changes in weather-related conditions, and Changes in economic conditions.

Impaired loans are loans for which it is probable that not all principal and interest will be collected according to the contractual terms of the loan. Impaired loans include nonaccrual loans, restructured loans, and could include loans past due 90 days or more and 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.

A specific allowance may be established for impaired loans under Financial Accounting Standards Board (FASB) guidance on accounting by creditors for impairment of a loan. Impairment of these loans is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as practically expedient, at the loan’s observable market price or fair value of the collateral if the loan is collateral dependent.

A general allowance may also be established under FASB guidance on accounting for contingencies, to reflect estimated probable credit losses inherent in the remainder of the loan portfolio which excludes impaired loans considered under the specific allowance

MidAtlantic Farm Credit, ACA

to 40 years. Substantially all short- 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 and deferred loan fees or costs.

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

discussed above. A general allowance can be evaluated on a pool basis for those loans with similar characteristics. The level of the general allowance may be based on management’s best estimate of the likelihood of default adjusted for other relevant factors reflecting the current environment.

The allowance for loan losses is maintained at a level considered adequate by management to provide for probable and estimable losses inherent in the loan portfolio. The allowance for loan losses is increased through provisions for loan losses and loan recoveries and is decreased through allowance for loan losses reversals and loan charge-offs.

C. Loans Held for Sale: Certain rural home mortgage loans originated by the Association are sold on a servicing-released basis primarily to the Bank or into the secondary market to unrelated third parties. Gains or losses on sales of rural home mortgage loans are recognized based on the difference between the selling price and the carrying value of the related rural home mortgage loans sold.

D. Investment in Other Farm Credit Institutions: Investments in other Farm Credit System institutions are generally nonmarketable investments consisting of stock and participation certificates, allocated surplus, and reciprocal investments in other institutions regulated by the FCA. The Association is required to maintain ownership in the Bank in the form of Class C stock. Accounting for this investment is on the cost plus allocated equities basis.

E. Other Property Owned: Other property owned, consisting of real and personal property acquired through a collection action, is recorded upon acquisition at fair value less estimated selling costs.

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, expenses, and carrying value adjustments related to other property owned are included in Gains (losses) on other property owned, net.

MidAtlantic Farm Credit, ACA

F. Premises and Equipment: Premises and equipment are carried at cost less accumulated depreciation. Land is carried at cost.

Depreciation is provided on the straight-line method over the estimated useful lives of the assets. Gains and losses on dispositions are reflected in current earnings. Maintenance and repairs are charged to expense and improvements are capitalized.

G. Advanced Conditional Payments: 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 advanced conditional payments are netted against the borrower’s related loan balance. Advanced conditional payments are not insured. Interest is generally paid by the Association on such accounts.

H. Employee Benefit Plans: Substantially all employees of the Association may participate in either the AgFirst Farm Credit Final Average Pay Retirement Plan or the AgFirst Farm Credit Cash Balance Plan (collectively referred to as the “Plans”), which are defined benefit plans and considered multi-employer plans.

These two Plans are noncontributory and include eligible District

employees. The “Projected Unit Credit” actuarial method is used for financial reporting purposes. The actuarially-determined costs of these Plans are allocated to each participating entity, including the Association, by multiplying the Plans’ net pension expense by each institution’s eligible service cost and accumulated benefit obligation as a percentage of the total eligible service cost and total accumulated benefit obligation for all Plans’ participants.

The Association may provide certain health care and life insurance benefits to eligible retired employees (other postretirement benefits) through a District multi-employer plan. Substantially all employees may become eligible for these benefits if they reach early retirement age while working for the Association. Early retirement age is defined as a minimum of age 55 and 10 years of service. Employees hired after December 31, 2002 are required to pay the full cost of their retiree health insurance coverage.

Authoritative accounting guidance requires the accrual of the expected cost of providing these benefits to an employee and an employee’s beneficiaries and covered dependents during the years that the employee renders service necessary to become eligible for these benefits. Additional financial information for the plan may be found in Note 10 and in the Notes to the Combined Financial Statements of AgFirst Farm Credit Bank and District Associations’ 2012 Annual Report.

The Association also sponsors single employer supplemental retirement and deferred compensation plans for certain key employees. The plans are nonqualified; therefore, the associated liabilities are included in the Association’s Consolidated Balance Sheets in Other liabilities. See Note 10 for the impact of FASB guidance on employers’ accounting for defined benefit pension and other postretirement plans for the current period for the defined benefit supplemental retirement plan.

Substantially all employees of the Association may also be eligible to participate in a defined contribution District-wide 401(k) plan, which qualifies as a 401(k) plan as defined by the Internal Revenue Code. For employees hired on or prior to December 31, 2002, the Association contributes $.50 for each $1.00 of the maximum employee contribution of 6 percent of total compensation. For employees hired on or after January 1, 2003, the Association contributes $1.00 for each $1.00 of the maximum employee contribution of 6 percent of total compensation. Employee deferrals are not to exceed the maximum deferral as adjusted by the Internal Revenue Service. 401(k) plan costs are expensed as funded.

I. Income Taxes: The Association is generally subject to Federal and certain other income taxes. As previously described, the ACA holding company has two wholly owned subsidiaries, a PCA, and an FLCA. The FLCA subsidiary is exempt from federal and state income taxes as provided in the Farm Credit Act. The ACA holding company and the PCA subsidiary are subject to federal, state and certain other income taxes.

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

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The Association accounts for income taxes under the asset and liability method, recognizing deferred tax assets and liabilities for the expected future tax consequences of the temporary differences between the carrying amounts and tax basis of assets and liabilities.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled.

The Association records a valuation allowance at the balance sheet dates against that portion of the Association’s deferred tax assets that, based on management’s best estimates of future events and circumstances, more likely than not (a likelihood of more than 50 percent) will not be realized. The consideration of valuation allowances involves various estimates and assumptions as to future taxable earnings, including the effects of our expected patronage program, which reduces taxable earnings.

J. Due from AgFirst Farm Credit Bank: The Association records patronage refunds from the Bank on an accrual basis. The receivable for such patronage refunds is classified as Due from AgFirst Farm Credit Bank.

K. Fair Value Measurement: FASB guidance defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. The 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. This guidance also 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. It describes three levels of inputs that may be used to measure fair value as discussed in Note 13.

L. Recently Issued Accounting Pronouncements: In February 2013, the FASB issued Accounting Standards Update (ASU) 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. The update is intended to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety

to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. For nonpublic entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted.

In January 2013, the FASB issued ASU 2013-01 “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” The Update clarifies that ordinary trade receivables and receivables are not in the scope of ASU 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” Specifically, ASU 2011-11 applies only to derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria or subject to a master netting arrangement or similar agreement. The effective date is the same as that for ASU 2011-11.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 220) - Disclosures about Offsetting Assets and Liabilities.”

The guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those 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 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 will not impact the Association’s financial condition or its results of operations, but will result in additional disclosures.

In September 2011, the FASB issued ASU 2011-09, “Compensation (Topic 715): Retirement Benefits – Multiemployer Plans”. The amendment is intended to provide for more information about an employer’s financial obligations to multiemployer pension and other postretirement benefit plans, which should help financial statement users better understand the financial health of significant plans in which the employer participates. The additional disclosures include the following: (1) a description of the nature of plan benefits; (2) a qualitative description of the extent to which the employer could be responsible for the obligations of the plan, including benefits earned by employees during employment with another employer; and (3) other quantitative information to help users understand the financial information about the plan. The amendments are effective for annual periods for fiscal years ending after December 15, 2011 for public entities. The amendments should be applied retrospectively for all prior periods presented. The adoption did not impact the Association’s financial condition or results of operations but did result in additional disclosures (see Note 10).

MidAtlantic Farm Credit, ACA

refunds in the form of cash, stock or allocated surplus. Provisions for income taxes are made only on those taxable earnings that will not be distributed as qualified patronage refunds. The Association distributes patronage on the basis of book income.

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

MidAtlantic Farm Credit, ACA

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”.

This amendment is intended to increase the prominence of other comprehensive income in financial statements. The current option that permits the presentation of other comprehensive income in the statement of changes in equity has been eliminated. The main provisions of the guidance provides that an entity that reports items of other comprehensive income has the option to present comprehensive income in either one or two consecutive financial statements: (1) A single statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income; (2) In a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. With either approach, an entity is required to present reclassification adjustments for items reclassified from other comprehensive income to net income in the statement(s). This guidance is to be applied retrospectively. For public entities, it is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance did not impact the Association’s financial condition or results of operations, but resulted in changes to the presentation of comprehensive income. In December 2011, the FASB issued guidance (ASU 2011-12; Topic 220) to defer the new requirement to present components of accumulated other comprehensive income reclassified as components of net income on the face of the financial statements. All other requirements in the guidance for comprehensive income are required to be adopted as set forth in the June 2011 guidance. The deferral is effective at the same time the new standard on comprehensive income is adopted.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs.” The amendments change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments include the following: (1) Application of the highest and best use and valuation premise is only relevant when measuring the fair value of nonfinancial assets (does not apply to financial assets and liabilities); (2) Aligns the fair value measurement of instruments classified within an entity’s shareholders’ equity with the guidance for liabilities. As a result, an entity should measure the fair value of its own equity instruments from the perspective of a market participant that holds the instruments as assets; (3) Clarifies that a reporting entity should disclose quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy; (4) An exception to the requirement for measuring fair value when a reporting entity manages its financial instruments on the basis of its net exposure, rather than its gross exposure, to those risks;

(5) Clarifies that the application of premiums and discounts in a fair value measurement is related to the unit of account for the asset or liability being measured at fair value. Premiums or discounts related to size as a characteristic of the entity’s holding (that is, a blockage factor) instead of as a characteristic of the asset or liability (for example, a control premium), are not permitted. A fair value measurement that is not a Level 1 measurement may include premiums or discounts other than blockage factors when market participants would incorporate the premium or discount into the measurement at the level of the unit of account specified in other guidance; (6) Expansion of the disclosures about fair value measurements. The most significant change will require entities, for their recurring Level 3 fair value measurements, to disclose quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements.

New disclosures are required about the use of a nonfinancial asset measured or disclosed at fair value if its use differs from its highest and best use. In addition, entities must report the level in the fair value hierarchy of assets and liabilities not recorded at fair value but where fair value is disclosed. The amendments are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. Early application is not permitted. The adoption of this guidance did not impact the Association’s financial condition or results of operations, but resulted in additional disclosures.

In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”, which provides for clarification on whether a restructuring constitutes a troubled debt restructuring (TDR). In evaluating whether a restructuring is a TDR, a creditor must separately conclude that both of the following exists: (1) the restructuring constitutes a concession, and (2) the debtor is experiencing financial difficulties. The guidance is effective for nonpublic entities, including the Association, for annual periods ending on or after December 15, 2012, including interim periods within those annual periods. The guidance should be applied retrospectively to the beginning of the annual period of adoption.

The new disclosures about TDR activity required by the guidance on “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”, as discussed below, are effective for annual reporting periods ending after December 15, 2011.

In January 2011, the FASB issued ASU 2011-01, “Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings.” This amendment temporarily delayed the effective date of the disclosures about TDRs required by the guidance previously issued on “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The effective date of the new disclosures about TDRs coincides with the guidance for determining what constitutes a TDR as described above. The adoption of this guidance had no material impact on the Association’s financial condition and results of operations but resulted in significant additional disclosures (see Note 3).

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Note 3 — Loans and Allowance for Loan Losses A summary of loans follows:

December 31,

2012 2011 2010

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

$1,214,157 $1,153,432 $1,157,946 779,114 830,302 894,384

Total loans

$2,144,241 $2,168,894 $2,279,313

5,600 22,639 48,684 24,709 44,034 57,552 61,566 72,353 79,354 91,875 139,026 185,590 24,748 12,321 8,217 5,425 4,343 (19) 28,922 29,470 33,195

The Association may purchase or sell participation interests with other parties in order to diversify risk, manage loan volume, and comply with Farm Credit Administration regulations. The following tables present participations purchased and sold balances at December 31, 2012, 2011, and 2010:

Within AgFirst District

Participations Purchased

Real estate mortgage Production and intermediate term Agribusiness

$

—

Participations Sold

$ 4,402

Within Farm Credit System Participations Participations Purchased Sold

$

—

$

—

Outside Farm Credit System Participations Purchased

$

—

Participations Sold

$

50,655 87,735 13,104 27,281 52,789

—

Total Participations Participations Purchased Sold

$

—

$ 4,402

— 116,548 115,016

Loans to cooperatives

3,703 — 1,902 — — — 5,605 —

Processing and marketing

Farm-related business

4,170 — 1,706 — — — 5,876 — 801 — 29,401 — 3,222 — 33,424 —

Total agribusiness Communication Energy Total

8,674 — 33,009 — 3,222 — 44,905 — — — 24,802 — — — 24,802 — — — 5,413 — — — 5,413 — $59,329 $ 92,137 $76,328 $27,281 $56,011 $ — $191,668 $119,418

Within AgFirst District Participations Purchased

Participations Sold

December 31, 2011

Within Farm Credit System Participations Participations Purchased Sold

Outside Farm Credit System Participations Purchased

Participations Sold

Total Participations Participations Purchased Sold

Real estate mortgage $ — $ 5,582 $ — $ — $ — $ — $ — $ 5,582 Production and

intermediate term 59,715 129,014 1,977 43,742 52,954 — 114,646 172,756 Agribusiness Loans to cooperatives 17,689 — 5,257 — — — 22,946 —

Processing and marketing 18,101 — — — 5,556 — 23,657 —

Farm-related business 1,306 — 25,643 7,386 3,392 — 30,341 7,386 Total agribusiness 37,096 — 30,900 7,386 8,948 — 76,944 7,386 Communication — — 12,367 — — — 12,367 — Energy — — 4,368 — — — 4,368 — Total $96,811 $134,596 $49,612 $51,128 $61,902 $ — $208,325 $185,724

MidAtlantic Farm Credit, ACA

December 31, 2012

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

Within AgFirst District

Participations Purchased

Participations Sold

December 31, 2010

Within Farm Credit System Participations Participations Purchased Sold

Outside Farm Credit System Participations Purchased

Participations Sold

Real estate mortgage $ — $ 3,947 $ — $ — $ — $ Production and

intermediate term 65,580 137,328 8,963 45,423 27,150 Agribusiness Loans to cooperatives 12,776 — 31,231 — — Processing and marketing 31,766 8,231 — 12,284 —

Farm-related business 1,759 624 26,624 4,092 3,536 Total agribusiness 46,301 8,855 57,855 16,376 3,536 Communication — — 8,263 — — Total $111,881 $150,130 $75,081 $61,799 $30,686 $

—

Total Participations Participations Purchased Sold

$

—

$ 3,947

— 101,693 182,751 — 44,007 — — 31,766 20,515 — 31,919 4,716 — 107,692 25,231 — 8,263 — — $217,648 $211,929

A significant source of liquidity for the Association is the repayments and maturities of loans. The following table presents the contractual maturity distribution of loans by loan type at December 31, 2012 and indicates that approximately 15.87 percent of loans had maturities of less than one year:

Real estate mortgage Production and intermediate term Agribusiness Loans to cooperatives Processing and marketing Farm-related business

Due 1 Through 5 Years

Due After 5 Years

Total

$ 38,075

$433,789

$742,293

$1,214,157

239,222 356,467 183,425 779,114 4,292 1,308 — 5,600 13,202 9,292 2,215 24,709 15,467 35,273 10,826 61,566 32,961 45,873 13,041 91,875 24,529 240 (21) 24,748 1,600 (9) 3,834 5,425 3,935 12,831 12,156 28,922 $340,322 $849,191 $954,728 $2,144,241

MidAtlantic Farm Credit, ACA

Total agribusiness Communication Energy Rural residential real estate Total Loans

Due Less Than 1 Year

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The following table shows loans and related accrued interest classified under the Farm Credit Administration Uniform Loan Classification System as a percentage of total loans and related accrued interest receivable by loan type as of December 31, 2012, 2011, and 2010:

2012 2011 2010

2012 2011 2010

Real estate mortgage: Acceptable 91.73% 90.95% 91.27% OAEM 4.70 4.90 4.55 Substandard/doubtful/loss 3.57 4.15 4.18

100.00% 100.00% 100.00%

Total agribusiness: Acceptable 84.51% 75.91% 79.51% OAEM 3.28 14.41 12.09 Substandard/doubtful/loss 12.21 9.68 8.40

100.00% 100.00% 100.00%

Production and intermediate-term: Acceptable 87.82% 86.43% 84.27% OAEM 4.90 6.78 6.00 Substandard/doubtful/loss 7.28 6.79 9.73

100.00% 100.00% 100.00%

Energy and water/ waste disposal: Acceptable 99.45% 100.00% 100.00% OAEM 0.55 0.00 0.00 Substandard/doubtful/loss — 0.00 0.00

100.00% 100.00% 0.00%

Agribusiness: Loans to cooperatives: Acceptable 88.22% 55.08% 57.82% OAEM 11.78 44.92 42.18 Substandard/doubtful/loss 0.00 0.00 0.00

100.00% 100.00% 100.00%

Communication: Acceptable 100.00% 100.00% 100.00% OAEM — 0.00 0.00 Substandard/doubtful/loss — 0.00 0.00

100.00% 100.00% 0.00% Rural residential real estate: Acceptable 86.24% 84.14% 85.63% OAEM 3.93 4.58 6.10 Substandard/doubtful/loss 9.83 11.28 8.27

100.00% 100.00% 100.00%

Farm-related business: Acceptable 97.82% 96.37% 95.62% OAEM 1.94 2.17 2.40 Substandard/doubtful/loss 0.24 1.46 1.98

100.00% 100.00% 100.00%

Total Loans: Acceptable 90.04% 88.23% 87.52% OAEM 4.64 6.19 5.74 Substandard/doubtful/loss 5.32 5.58 6.74

100.00% 100.00% 100.00%

MidAtlantic Farm Credit, ACA

Processing and marketing: Acceptable 50.30% 52.82% 75.64% OAEM 4.72 18.92 0.00 Substandard/doubtful/loss 44.98 28.26 24.36

100.00% 100.00% 100.00%

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

The following tables provide an aging analysis of past due loans and related accrued interest as of December 31, 2012, 2011, and 2010: December 31, 2012

Recorded Investment

Not Past Due or 90 Days or More

30 Through 89 90 Days or More Total Less Than Past Due and

Days Past Due Past Due Past Due 30 Days Past Due Total Loans Accruing Interest

Real estate mortgage $ 7,123 $11,644 $18,767 $1,202,214 $1,220,981 $— Production and intermediate-term 3,583 7,858 11,441 771,993 783,434 — Agribusiness Loans to cooperatives — — — 5,610 5,610 — Processing and marketing 320 10,807 11,127 13,610 24,737 — Farm-related business 83 8 91 61,914 62,005 — Total agribusiness 403 10,815 11,218 81,134 92,352 — Communication — — — 24,753 24,753 — Energy and water/waste disposal — — — 5,467 5,467 — Rural residential real estate 869 421 1,290 27,736 29,026 — Total $11,978 $30,738 $42,716 $2,113,297 $2,156,013 $— December 31, 2011

Recorded Investment

Not Past Due or 90 Days or More

30 Through 89 90 Days or More Total Less Than Past Due and

Days Past Due Past Due Past Due 30 Days Past Due Total Loans Accruing Interest

Real estate mortgage $ 8,309 $17,516 $25,825 $1,134,600 $1,160,425 $— Production and intermediate-term 3,379 18,720 22,099 813,006 835,105 — Agribusiness Loans to cooperatives — — — 22,714 22,714 — Processing and marketing — — — 44,078 44,078 — Farm-related business 310 445 755 72,134 72,889 — Total agribusiness 310 445 755 138,926 139,681 — Communication — — — 12,326 12,326 — Energy and water/waste disposal — — — 4,359 4,359 — Rural residential real estate 787 598 1,385 28,206 29,591 — Total $12,785 $37,279 $50,064 $2,131,423 $2,181,487 $—

MidAtlantic Farm Credit, ACA

December 31, 2010

Recorded Investment

Not Past Due or 90 Days or More

30 Through 89 90 Days or More Total Less Than Past Due and

Days Past Due Past Due Past Due 30 Days Past Due Total Loans Accruing Interest

Real estate mortgage $11,409 $20,009 $31,418 $1,133,512 $1,164,930 $— Production and intermediate-term 11,107 14,135 25,242 874,155 899,397 — Agribusiness Loans to cooperatives — — — 48,807 48,807 — Processing and marketing — — — 58,009 58,009 — Farm-related business 259 463 722 78,910 79,632 — Total agribusiness 259 463 722 185,726 186,448 — Communication — — — 8,222 8,222 — Energy and water/waste disposal — — — (19) (19) — Rural residential real estate 1,395 776 2,171 31,142 33,313 — Total $24,170 $35,383 $59,553 $2,232,738 $2,292,291 $— The recorded investment in the receivable is the face amount increased or decreased by applicable accrued interest and unamortized premium, discount, finance charges, or acquisition costs and may also reflect a previous direct write-down of the investment.

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Nonperforming assets (including related accrued interest) and related credit quality statistics are as follows:

December 31,

2012 2011 2010

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

$18,922 13,468

$25,572 $29,220 29,414 46,861

— 11,127 8 11,135 1,214 $44,739

— — 12,458 — 428 447 12,886 447 1,684 1,437 $69,556 $77,965

Accruing restructured loans: Real estate mortgage Production and intermediate-term Rural residential real estate Total accruing restructured loans

$ 7,904 8,137 3 $16,044

$ 3,636 $ — 5,610 — — — $ 9,246 $ —

$

$

Accruing loans 90 days or more past due: Real estate mortgage Production and intermediate-term Rural residential real estate Total accruing loans 90 days or more past due

$

Total nonperforming loans Other property owned Total nonperforming assets

$60,783 3,009 $63,792

Nonaccrual loans as a percentage of total loans Nonperforming assets as a percentage of total loans and other property owned Nonperforming assets as a percentage of capital

— — — —

$

— $ 48 — 38 — 144 — $ 230

$78,802 $78,195 1,895 1,338 $80,697 $79,533

2.09%

3.21% 3.42%

2.97% 14.15%

3.72% 3.49% 19.18% 20.06%

The following table presents information relating to impaired loans (including accrued interest) as defined in Note 2:

December 31,

2012 2011 2010

$10,506 34,233 44,739

$30,010 39,546 69,556

$39,378 38,587 77,965

16,044 9,246 230 16,044 9,246 230 $60,783 $78,802 $78,195

MidAtlantic Farm Credit, ACA

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

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

Additional impaired loan information is as follows:

December 31, 2012 Year Ended December 31, 2012

Unpaid Interest Income

Recorded Principal Related Average Recognized on

Investment Balance Allowance Impaired Loans Impaired Loans

Impaired loans with a related allowance for credit losses: Real estate mortgage Production and intermediate-term Agribusiness Processing and marketing Farm-related business Total Agribusiness Rural residential real estate Total

$ 6,531 $ 7,616 $ 651 4,377 4,886 1,662

$ 7,759 5,200

$ 154 103

— — — — — 8 20 2 10 — 8 20 2 10 — 530 641 95 629 12 $11,446 $13,163 $2,410 $13,598 $ 269

Impaired loans with no related allowance for credit losses: Real estate mortgage $20,295 $24,206 $ — $24,112 $ 476 Production and intermediate-term 17,228 22,279 — 20,468 405 Agribusiness Processing and marketing 11,127 14,679 — 13,220 261 Farm-related business — 4 — (1) —

Total Agribusiness 11,127 14,683 — 13,219 261 Rural residential real estate 687 924 — 817 17 Total $49,337 $62,092 $ — $58,616 $1,159 $26,826 $31,822 $ 651 21,605 27,165 1,662

$31,871 25,668

$ 630 508

11,127 14,679 — 13,220 261 8 24 2 9 — 11,135 14,703 2 13,229 261 1,217 1,565 95 1,446 29 $60,783 $75,255 $2,410 $72,214 $1,428

MidAtlantic Farm Credit, ACA

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

Total Agribusiness Rural residential real estate Total

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December 31, 2011 Year Ended December 31, 2011

Unpaid Interest Income

Recorded Principal Related Average Recognized on

Investment Balance Allowance Impaired Loans Impaired Loans

Impaired loans with a related allowance for credit losses: Real estate mortgage Production and intermediate-term Agribusiness Processing and marketing Farm-related business Total Agribusiness Rural residential real estate Total

$ 5,119 5,012

$ 5,722 6,876

$ 546 1,735

$ 6,152 6,023

$ 183 180

1,405 332 1,737 950 $12,818

1,416 367 1,783 1,048 $ 15,429

— 24 24 167 $2,472

1,688 399 2,087 1,142 $15,404

50 12 62 34 $ 459

Impaired loans with no related allowance for credit losses: Real estate mortgage $24,089 $ 31,257 $ — $28,948 Production and intermediate-term 30,012 59,453 — 36,067 Agribusiness Processing and marketing 11,053 13,252 — 13,283 Farm-related business 96 212 — 115

Total Agribusiness 11,149 13,464 — 13,398 Rural residential real estate 734 1,099 — 882 Total $65,984 $105,273 $ — $79,295 Total impaired loans: Real estate mortgage Production and intermediate-term Agribusiness Processing and marketing Farm-related business

Total Agribusiness Rural residential real estate Total

$29,208 35,024

$ 36,979 66,329

$ 546 1,735

12,458 14,668 — 428 579 24 12,886 15,247 24 1,684 2,147 167 $78,802 $120,702 $2,472

$ 862 1,074 396 3 399 26 $2,361

$35,100 42,090

$1,045 1,254

14,971 514 15,485 2,024 $94,699

446 15 461 60 $2,820

Impaired loans with a related allowance for credit losses: Real estate mortgage Production and intermediate-term Agribusiness Farm-related business Rural residential real estate Total

$10,500 29,195

$ 11,615 44,447

$1,851 6,364

$10,101 28,087

$ 152 426

20 436 $40,151

23 452 $ 56,537

1 30 $8,246

20 419 $38,627

— 6 $ 584

Impaired loans with no related allowance for credit losses: Real estate mortgage $18,768 $ 21,343 $ — $18,057 Production and intermediate-term 17,704 22,961 — 17,033 Agribusiness Farm-related business 427 476 — 411 Rural residential real estate 1,145 1,517 — 1,101 Total $38,044 $ 46,297 $ — $36,602 Total impaired loans: Real estate mortgage Production and intermediate-term Agribusiness Farm-related business Rural residential real estate Total

$29,268 46,899

$ 32,958 67,408

$1,851 6,364

447 499 1 1,581 1,969 30 $78,195 $102,834 $8,246

$ 274 257 7 17 $ 555

$28,158 45,120

$ 426 683

431 1,520 $75,229

7 23 $1,139

MidAtlantic Farm Credit, ACA

December 31, 2010 Year Ended December 31, 2010

Unpaid Interest Income

Recorded Principal Related Average Recognized on

Investment Balance Allowance Impaired Loans Impaired Loans

49

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

Unpaid principal balance represents the contractual principal balance of the loan.

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

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

Year Ended December 31,

2012 2011 2010

Interest income which would have been recognized under the original loan terms

$4,494

Less: interest income recognized Foregone interest income

$7,890

$5,506

1,428

2,795

978

$3,066

$5,095

$4,528

A summary of changes in the allowance for loan losses and period end recorded investment in loans is as follows:

December 31, 2012

Energy and

Real Estate Production and Water/Waste

Mortgage Intermediate-term Agribusiness Communication Disposal

Allowance for credit losses: Balance at December 31, 2011 Charge-offs Recoveries Provision for loan losses Balance at December 31, 2012

$

$

December 31, 2012 allowance ending balance: Loans individually evaluated for impairment $ Loans collectively evaluated for impairment $

2,300 $ 7,564 $ 874 $ (1,499) (1,391) (1,765) 197 667 1,713 3,856 5,027 (97) 4,854 $ 11,867 $ 725 $

651 4,203

$

Rural Residential Real Estate

Total

15 $ — — 47 62 $

22 $ 300 $ 11,075 — (156) (4,811) — 12 2,589 9 158 9,000 31 $ 314 $ 17,853

1,662

$

2

$

—

$

—

$

95 $

2,410

$ 10,205

$

723

$

62

$

31

$

219 $

15,443

Recorded investment in loans outstanding: Ending Balance at December 31, 2012

$

18,922

$ 13,468

$11,135

$

—

$

—

$ 1,214 $

44,739

$1,202,059 $769,966 $81,217 $24,753 $5,467 $27,812 $2,111,274

MidAtlantic Farm Credit, ACA

December 31, 2012 recorded investment ending balance: Loans individually evaluated for impairment Loans collectively evaluated for impairment

$1,220,981 $783,434 $92,352 $24,753 $5,467 $29,026 $2,156,013

50

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December 31, 2011

Energy and Rural

Real Estate Production and Water/Waste Residential

Mortgage Intermediate-term Agribusiness Communication Disposal Real Estate

December 31, 2011 allowance ending balance: Loans individually evaluated for impairment Loans collectively evaluated for impairment Recorded investment in loans outstanding: Ending Balance at December 31, 2011 December 31, 2011 recorded investment ending balance: Loans individually evaluated for impairment Loans collectively evaluated for impairment

$

$

3,481 $ 12,351 $ 1,375 $ 9 $ 20 $ (6,038) (13,239) (2,172) — — 90 521 — — — 4,767 7,931 1,671 6 2 2,300 $ 7,564 $ 874 $ 15 $ 22 $

$

546

$

1,735

$

24

$

—

$

—

$

167 $

2,472

$

1,754

$

5,829

$

850

$

15

$

22

$

133 $

8,603

$1,160,425

$ 835,105

$139,681

$12,326

$4,359

$29,591 $2,181,487

$

$ 29,414

$ 12,886

$

$

$ 1,684 $

$ 805,691

$126,795 $12,326

25,572

$1,134,853

—

—

$4,359

69,556

$27,907 $2,111,931

December 31, 2010

Energy and

Real Estate Production and Water/Waste

Mortgage Intermediate-term Agribusiness Communication Disposal

Allowance for credit losses: Balance at December 31, 2009 Charge-offs Recoveries Provision for loan losses Balance at December 31, 2010

185 $ 17,421 (69) (21,518) 11 622 173 14,550 300 $ 11,075

$

Rural Residential Real Estate

Total

$

4,321 $ 15,340 $ 1,203 $ — $ — $ 156 $ 21,020 (407) (14,964) (63) — — (109) (15,543) 64 272 2 — — 6 344 (497) 11,703 233 9 20 132 11,600 3,481 $ 12,351 $ 1,375 $ 9 $ 20 $ 185 $ 17,421

December 31, 2010 allowance ending balance: Loans individually evaluated for impairment Loans collectively evaluated for impairment

$

1,829

$

6,386

$

1

$

—

$

—

$

30 $

8,246

$

1,652

$

5,965

$ 1,374

$

9

$

20

$

155 $

9,175

Recorded investment in loans outstanding: Ending Balance at December 31, 2010

$1,164,930

$899,397

$186,448

$ 8,222

$ (19)

$33,313 $2,292,291

$

29,220

$ 46,861

$

$

$

$ 1,437 $

$1,135,710

$852,536

$186,001

December 31, 2010 recorded investment ending balance: Loans individually evaluated for impairment Loans collectively evaluated for impairment

447

—

$ 8,222

—

$ (19)

77,965

$31,876 $2,214,326

MidAtlantic Farm Credit, ACA

Allowance for credit losses: Balance at December 31, 2010 Charge-offs Recoveries Provision for loan losses Balance at December 31, 2011

Total

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

To mitigate risk of loan losses, the Association has entered into Long-Term Standby Commitments to Purchase agreements with the Federal Agricultural Mortgage Corporation (Farmer Mac). The agreements, which are effectively credit guarantees that will remain in place until the loans are paid in full, give the Association the right to sell the loans identified in the agreements to Farmer Mac in the event of default (typically four months past due), subject to certain conditions. The balance of loans under Long-Term Standby Commitments to Purchase held by the Association was $3.1 million, $5.0 million, and $7.0 million at December 31, 2012, 2011, and 2010, respectively. Fees paid to Farmer Mac for such commitments totaled $25 thousand, $35 thousand, and $52 thousand for 2012, 2011, and 2010, respectively.

A restructuring of a debt constitutes a troubled debt restructuring (TDR) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The following tables present additional information regarding troubled debt restructurings as of the restructuring date that occurred during the years ended December 31, 2012 and 2011.

Year Ended December 31, 2012 Pre-modification Outstanding Recorded Investment

Interest Principal Other Concessions Concessions Concessions

Troubled debt restructurings: Real estate mortgage

$1,018

Production and intermediate-term

$ 592

2,207 15,826

Rural residential real estate

$ 6,256

— 18,033

4 382 — 386

Total

$ 4,646

Total

$3,229

$20,854

$ 592

$24,675

Year Ended December 31, 2012 Post-modification Outstanding Recorded Investment

Effects of Modification

Interest Concessions

Principal Concessions

Other Concessions

Total

Provisions

$1,024

$ 4,670

$607

$ 6,301

$ —

Charge-offs

Troubled debt restructurings: Real estate mortgage Production and intermediate-term Rural residential real estate Total

1,414 15,986 $2,442 $21,038

MidAtlantic Farm Credit, ACA

Troubled debt restructurings: Real estate mortgage Production and intermediate-term Agribusiness Processing and marketing Total agribusiness Rural residential real estate Total

— 17,400

449

4 382 — 386 $607 $24,087

10 $459

$— — — $—

Year Ended December 31, 2011

Pre-modification Outstanding Recorded Investment Interest Principal Other Concessions Concessions Concessions

$ 177 — — — — $ 177

$ 7,298 32,358 8,996 8,996 249 $48,901

$

— 7,587 — — —

$7,587

Total

$ 7,475 39,945 8,996 8,996 249 $56,665

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December 31, 2011 Post-modification Outstanding Recorded Investment

Troubled debt restructurings: Real estate mortgage Production and intermediate-term Agribusiness Processing and marketing Total agribusiness Rural residential real estate Total

Other Concessions

Effects of Modification

Interest Concessions

Principal Concessions

$176 —

$ 7,325 32,359

$

— 5,297

$ 7,501 37,656

$1,756 4,843

$ (1,756) (8,635)

— — — $176

8,996 8,996 249 $48,929

— — — $5,297

8,996 8,996 249 $54,402

1,134 1,134 — $7,733

(1,134) (1,134) — $(11,525)

Total

Provisions

Charge-offs

Interest concessions may include interest forgiveness and interest deferment. Principal concessions may include principal forgiveness, principal deferment, and maturity extensions. Other concessions may include additional compensation received which might be in the form of cash or other assets.

The following tables present outstanding recorded investment for TDRs that occurred during the previous twelve months and for which there was a subsequent payment default during the period. Payment default is defined as a payment that was thirty days or more past due.

Year Ended December 31,

2012 2011

Defaulted troubled debt restructurings: Real estate mortgage Production and intermediate-term Rural residential real estate Total

$ 520

$ 170

674

4,425

3

—

$1,197 $4,595

TDRs outstanding at December 31, 2012 totaled $29,287 million, of which $13,243 million were in nonaccrual status.

Note 4 — Investment in Other Farm Credit Institutions

Note 6 — Other Property Owned Net gains (losses) on other property owned consist of the following:

Note 5 — Premises and Equipment

December 31,

2012 2011 2010

Less: accumulated depreciation Total

94212.indd 53

Gains (losses) on sale, net $ (88) $ (208) Carrying value unrealized gains (losses) (814) (759) Operating income (expense), net (227) (74) Gains (losses) on other property owned, net $(1,129) $(1,041)

$ (71) (126) (72) $ (269)

Note 7 — Notes Payable to AgFirst Farm Credit Bank

Premises and equipment consists of the following:

Land Buildings and improvements Furniture and equipment

December 31,

2012 2011 2010

$ 2,489 $ 2,489 $ 2,475 13,980 13,951 13,931 6,539 6,543 6,454 23,008 10,360

22,983 9,547

22,860 9,068

$12,648

$13,436

$13,792

The Association’s indebtedness to the Bank 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 the terms of the revolving lines of credit are governed by a General Financing Agreement (GFA). Interest rates on both variable and fixed rate notes payable are generally established loanby-loan based on the Bank’s marginal cost of funds, capital position,

MidAtlantic Farm Credit, ACA

Investments in other Farm Credit System institutions are generally nonmarketable investments consisting of stock and participation certificates, allocated surplus, and reciprocal investments in other institutions regulated by the FCA. The Association is required to maintain ownership in the Bank in the form of Class C stock.

Accounting for this investment is on the cost plus allocated equities basis. The Association’s investment in the Bank totaled $25,494 for 2012, $33,795 for 2011 and $34,393 for 2010.

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

operating costs and return objectives. In the event of prepayment of any portion of a fixed rate advance, the Association may incur a prepayment penalty in accordance with the terms of the GFA and which will be included in interest expense. The interest rate is periodically adjusted by the Bank based upon agreement between the Bank and the Association. The weighted average interest rates on the variable rate notes were 1.51 percent for LIBOR-based loans and 1.58 percent for Prime-based loans, and the weighted average remaining maturities were 2.9 years and 5.4 years, respectively, at December 31, 2012. The weighted average interest rate on the fixed rate and adjustable rate mortgage (ARM) notes which are match funded by the Bank was 2.53 percent and the weighted average remaining maturity was 6.7 years at December 31, 2012.

The weighted average interest rate on all interest-bearing notes payable was 2.40 percent and the weighted average remaining maturity was 6.3 years at December 31, 2012.

Variable rate and fixed rate notes payable represent approximately 1.97 percent and 98.03 percent, respectively, of total notes payable at December 31, 2012.

Under the Farm Credit Act, the Association is obligated to borrow only from the Bank, unless the Bank approves borrowing from other funding sources. The Bank, 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, 2012, the Association’s notes payable were within the specified limitations.

The Association has a net settlement Agreement with CoBank, ACB, to settle transactions between the two institutions daily to an aggregate line of credit of $30 million.

Note 8 — Members’ Equity

MidAtlantic Farm Credit, ACA

A description of the Association’s capitalization requirements, protection mechanisms, regulatory capitalization requirements and restrictions, and equities are provided below.

The borrower acquires ownership of the capital stock or participation certificates at the time the loan is made, usually as part of the loan proceeds and not as a cash investment. The aggregate par value is generally 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.

B. Regulatory Capitalization Requirements and Restrictions The FCA’s capital adequacy regulations require all System institutions to achieve permanent capital of 7.00 percent of riskadjusted assets and off-balance-sheet commitments. Failure to meet the 7.00 percent capital requirement can initiate certain mandatory and possibly additional discretionary actions by FCA that, if undertaken, could have a direct material effect on the Association’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 as defined by FCA regulations. These required ratios are total surplus as a percentage of risk-adjusted assets of 7.00 percent and of core surplus as a percentage of risk-adjusted assets of 3.50 percent.

The Association’s permanent capital, total surplus and core surplus ratios at December 31, 2012 were 18.12 percent, 17.73 percent and 17.57 percent, respectively.

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.

A. Capital Stock and Participation Certificates

C. Description of Equities

In accordance with the Farm Credit Act and the Association’s capitalization bylaws, each borrower is required to invest in Class C stock for agricultural loans, or Class C participation certificates in the case of rural home and farm-related business loans, as a condition of borrowing. The initial borrower investment, through either purchase or transfer, must equal two percent of the loan amount or one thousand dollars, whichever is less.

The Association’s Board of Directors may increase the amount of investment if necessary to meet the Association’s capital needs.

Loans designated for sale or sold into the Secondary Market on or after April 16, 1996 have no voting stock or participation certificate purchase requirement if sold within 180 days following the date of designation.

The Association is authorized to issue or have outstanding Classes A, C, D and E Common Stock; Class C Participation Certificates and such other classes of equity as may be provided for in amendments to the bylaws in such amounts as may be necessary to conduct the Association’s business. All stock and participation certificates have a par or face value of five dollars ($5.00) per share.

The Association had the following shares outstanding at December 31, 2012:

Shares Outstanding Aggregate Class Protected Number Par Value

C Common/Voting No 1,763,382 $8,817 C Participation Certificates/ Nonvoting No 136,136 681 Total Capital Stock and Participation Certificates 1,899,518 $9,498

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Retained Earnings The Association maintains unallocated and allocated retained earnings accounts. The minimum aggregate amount of these two accounts is determined by the Association’s Board of Directors.

At the end of any fiscal year, if the retained earnings accounts would be less than the minimum amount deemed necessary to maintain adequate capital reserves to meet the commitments of the Association, earnings for the year shall be applied to the unallocated retained earnings account in such amounts deemed necessary by the Association’s Board of Directors. Unallocated retained earnings are maintained for each borrower to permit liquidation on a patronage basis.

The Association maintains an allocated retained earnings account consisting of earnings held and allocated to borrowers on a patronage basis. In the event of a net loss for any fiscal year, such allocated retained earnings account will be subject to full impairment in the order specified in the bylaws beginning with the most recent allocation.

The Association has a first lien and security interest on all surplus account allocations owned by any borrowers, and all distributions thereof, as additional collateral for their indebtedness to the Association. When the debt of a borrower is in default or is in the process of final liquidation by payment or otherwise, the Association, upon approval of the Board of Directors, may order any and all surplus account allocations owned by such borrower to be applied against the indebtedness.

Allocated equities shall be retired solely at the discretion of the Board of Directors, provided that minimum capital standards established by the FCA and the Board are met. Nonqualified retained equity is considered to be permanently invested in the Association and there is no plan to revolve or retire this surplus. All nonqualified distributions are tax deductible only when redeemed.

At December 31, 2012, allocated members’ equity consisted of $7,996 of qualified surplus; $108,146 of nonqualified allocated surplus; and $123,279 of nonqualified retained surplus.

Dividends The Association may declare noncumulative dividends on its capital stock and participation certificates provided the dividend rate does not exceed eight percent (8%) of the par value of the respective capital stock and participation certificates.

The rate of dividends paid on Classes A, C, D and E Common Stock and Class C Participation Certificates shall be at the same rate per share.

Dividends may not be declared if, after recording the liability, the Association would not meet its capital adequacy standards.

Patronage Distributions Prior to the beginning of any fiscal year, the Board of Directors, by adoption of a resolution, may obligate the Association to distribute to borrowers on a patronage basis all or any portion of available net earnings for each fiscal year. Patronage distributions are based on the proportion of the borrower’s interest to the amount of interest earned by the Association on its total loans unless another proportionate patronage basis is approved by the Board.

If the Association meets its capital adequacy standards after making the patronage distributions, the patronage distributions may be in cash, authorized stock of the Association, allocations of earnings retained in an allocated members’ equity account, or any one or more of such forms of distribution. Patronage distributions of the Association’s earnings may be paid on either a qualified or nonqualified basis, or a combination of both, as determined by the Board of Directors. A minimum of 20 percent of the total qualified patronage distribution to any borrower for any fiscal year shall always be paid in cash.

Transfer Classes A, C, D and E Common Stocks, and Class C Participation Certificates may be transferred to persons or entities eligible to purchase or hold such equities.

Impairment Any net losses recorded by the Association shall first be applied against unallocated members’ equity. To the extent that such losses would exceed unallocated members’ equity, such losses would be applied consistent with the Association’s bylaws and shall be borne ratably by each share of Class A, C, D and E Common Stock and Class C Participation Certificates outstanding.

Impaired stock and participation certificates shall be restored in the reverse of the impairment sequence until each share of stock and participation certificates has a book value equal to its par or face value, respectively.

Liquidation In the event of liquidation or dissolution of the Association, any assets of the Association remaining after payment or retirement of all liabilities and payment of all accrued but unpaid dividends shall be distributed to the holders of the outstanding stock and participation certificates in the following order of priority: First, to the holders of Class A Common, Class C Common, Class D Common Stock, Class E Common Stock, Participation Certificates pro rata in proportion to the number of shares or units of each such class of stock or participation certificates then issued and outstanding, until an amount equal to the aggregate par value or face amount of all such shares or units has been distributed to such holders; Second, to the holders of allocated surplus evidenced by qualified written notices of allocation, in the order of year of issuance and pro rata by year of issuance, until the total amount of such allocated surplus has been distributed;

MidAtlantic Farm Credit, ACA

At-risk common stock and participation certificates are retired at the sole discretion of the Association’s Board of Directors at book value not to exceed par or face amounts, provided the minimum capital adequacy standards established by the Board are met.

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

Third, to the holders of allocated surplus evidenced by nonqualified written notices of allocation, in the order of year of issuance and pro rata by year of issuance, until the total amount of such allocated surplus has been distributed; and

Deferred tax assets and liabilities are comprised of the following at:

December 31,

2012 2011 2010

Fourth, insofar as is practicable, any remaining assets shall be distributed to past and present Patrons on a patronage basis in a fair and equitable manner determined by the Board or receiver.

D. Other Comprehensive Income (Loss) The Association reports other comprehensive income (loss) (OCI) in its Consolidated Statements of Comprehensive Income (Loss).

The Association reported OCI of $(81), $(106), and $9 in 2012, 2011, and 2010, respectively, due to FASB guidance on employers’ accounting for defined benefit pension and other postretirement plans (see Note 10 for further information).

Deferred income tax assets: Allowance for loan losses $ 4,762 $ 3,118 $ 4,580 Net operating loss – carryforward 130 653 128 Nonaccrual loan interest 949 1,500 2,260

Other 326 275 216 Gross deferred tax assets 6,167 5,546 7,184 Less: valuation allowance (3,176) (2,535) (3,850) Gross deferred tax assets, net of valuation allowance 2,991 3,011 3,334

Note 9 — Income Taxes

Deferred income tax liabilities: Bank patronage allocation Loan fees

Other

(2,626) (2,750) (3,178) (365) (262) (154) — 1 (2)

The provision (benefit) for income taxes follows:

Gross deferred tax liability

(2,991)

Year Ended December 31,

2012 2011 2010

Current: Federal State

$

118 11

$ (537) —

$

(69) (7)

Net deferred tax asset

$

—

(3,011) $

—

(3,334) $

—

At December 31, 2012, deferred income taxes have not been provided by the Association on approximately $17.8 million of patronage refunds received from the Bank prior to January 1, 1993. Such refunds, distributed in the form of stock, are subject to tax only upon conversion to cash. The tax liability related to future conversions is not expected to be material.

129 (537) (76) The Association recorded a valuation allowance of $3,176; $2,535 and Deferred: $3,850 during 2012, 2011 and 2010, respectively. The Association will Federal — — — continue to evaluate the realizability of these deferred tax assets and State — — — adjust the valuation allowance accordingly.

— — — There were no uncertain tax positions identified related to the Total provision (benefit) for current year; and the Association has no unrecognized tax benefits income taxes $ 129 $ (537) $ (76) at December 31, 2012 for which liabilities have been established.

The provision (benefit) for income tax differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as follows:

The Association recognizes interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. The tax years that remain open for federal and major state income tax jurisdictions are 2009 and forward.

December 31,

2012 2011 2010

Note 10 — Employee Benefit Plans

Federal tax at statutory rate State tax, net

MidAtlantic Farm Credit, ACA

Patronage distributions Tax-exempt FLCA earnings Change in deferred tax asset valuation allowance

$ 17,614 7

$ 15,176 —

$ 17,060 (5)

(4,442)

(2,419) (4,193)

(14,524)

(11,917) (13,622)

621

(1,316) 706

Other 853 (61) (22) Provision (benefit) for

income taxes $ 129 $ (537) $ (76)

The Association participates in four District sponsored benefit plans.

These plans include two multiemployer defined benefit pension plans; the AgFirst Farm Credit Retirement Plan, which is a final average pay plan (FAP); and the AgFirst Farm Credit Cash Balance Retirement Plan, which is a cash balance plan (CB). In addition, the Association participates in a multiemployer defined benefit other postretirement benefits plan (OPEB); the Farm Credit Benefits Alliance Retiree and Disabled Medical and Dental Plan; and a defined contribution 401(k) plan. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects: a) Assets contributed to multiemployer plans by one employer may be used to provide benefits to employees of other participating employers.

56

94212.indd 56

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b) If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

c) If the Association chooses to stop participating in some of its multiemployer plans, the Association may be required to contribute to eliminate the underfunded status of the plan.

The Association’s participation in the multiemployer defined benefit plans for the annual period ended December 31, 2012, 2011 and 2010 is outlined in the table below. The “Percentage Funded to Projected Benefit Obligation” or “Percentage Funded to Accumulated Postretirement Benefit Obligation” represents the funded amount for the entire plan and the “Contributions” and “Percentage of Total Contributions” columns represent the Association’s respective amounts.

AgFirst Farm Credit Retirement Plan AgFirst Farm Credit Cash Balance Retirement Plan Other Postretirement Benefit Plans

Farm Credit Benefits Alliance Retiree and Disabled Medical and Dental Plans

Percentage Funded to Percentage of Projected Benefit Obligation Contributions Total Contributions 2012 2011 2010 2012 2011 2010 2012 2011 2010

77.35% 74.82% 75.75% $4,871 $4,161 $4,101 10.70% 10.49% 9.95% 86.01%

81.77%

115.95%

$

96

$

57

$

33

7.06%

6.86%

7.09%

Percentage Funded to Accumulated Percentage of Postretirement Benefit Obligation Contributions Total Contributions 2012 2011 2010 2012 2011 2010 2012 2011 2010

0.00%

0.00%

0.00%

The District’s multiemployer plans are not subject to ERISA and no Form 5500 is required. As such, the following information is neither available for nor applicable to the plans: 1. The Employee Identification Number (EIN) and three-digit Pension Plan Number.

2. The most recent Pension Protection Act (PPA) zone status.

Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded.

3. The “FIP/RP Status” indicating whether a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented.

4. The expiration date(s) of collective-bargaining agreement(s).

Substantially all employees of the Association are eligible to participate in either the FAP Plan or the CB Plan. These two Plans are noncontributory and include eligible Association and other District employees. For participants hired prior to January 1, 2003, benefits are provided under the FAP Plan and are based on eligible compensation and years of service. For participants hired on or after January 1, 2003, benefits are provided under the CB Plan and are determined using a percent of eligible compensation formula. The employer contribution into the CB Plan is based on a formula of 3.00-5.00 percent of eligible compensation (depending on years of service) and interest credits as allocated to an employee’s theoretical account balance. The actuariallydetermined costs of these plans are allocated to each participating entity, including the Association, by multiplying the plans’ net pension expense by each institution’s eligible service cost and accumulated

$ 421

$ 419

$ 424

6.79%

7.03%

7.22%

benefit obligation as a percentage of the total eligible service cost and total accumulated benefit obligation for all plan participants.

Plan expenses included in employee benefit costs were $5,601 for 2012, $5,461 for 2011, and $4,973 for 2010. The cumulative excess of amounts funded by the Association over the cost allocated to the Association is reflected as prepaid retirement expense, a component of Other Assets in the Consolidated Balance Sheets.

In addition to providing pension benefits, the Association provides certain medical and dental benefits for eligible retired employees through the OPEB Plan. Substantially all of the Association employees may become eligible for the benefits if they reach early retirement age while working for the Association. Early retirement age is defined as a minimum of age 55 and 10 years of service. Employees hired after December 31, 2002, and employees who separate from service between age 50 and age 55, are required to pay the full cost of their retiree health insurance coverage. Employees who retire subsequent to December 1, 2007 are no longer provided retiree life insurance benefits. Certain Association charges related to this plan are an allocation of District charges based on the Association’s proportional share of the plan liability. This plan is unfunded with expenses paid as incurred. Postretirement benefits other than pensions included in employee benefit costs were $750 for 2012, $911 for 2011, and $764 for 2010. The cumulative excess of cost allocated to the Association over the amounts funded by the Association is reflected as postretirement benefits other than pensions, a component of other liabilities in the Association’s Consolidated Balance Sheets.

The Association also participates in the defined contribution Farm Credit Benefit Alliance (FCBA) 401(k) Plan (401(k) Plan), which qualifies as a 401(k) plan as defined by the Internal Revenue Code. For employees hired on or prior to December 31, 2002, the

MidAtlantic Farm Credit, ACA

Pension Plan

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

Association contributes $0.50 for each $1.00 of the employee’s first 6.00 percent of contribution (based on total compensation) up to the maximum employer contribution of 3.00 percent of total compensation. For employees hired on or after January 1, 2003, the Association contributes $1.00 for each $1.00 of the employee’s first 6.00 percent of contribution up to the maximum employer contribution of 6.00 percent of total compensation. Employee deferrals are not to exceed the maximum deferral as determined and adjusted by the Internal Revenue Service. The 401(k) Plan costs are expensed as funded. Employer contributions to this plan included in salaries and employee benefit costs were $539, $511, and $493 for the years ended December 31, 2012, 2011, and 2010, respectively.

FASB guidance further requires the determination of the fair value of plan assets and recognition of actuarial gains and losses, prior service costs or credits, and transition assets or obligations as a component of AOCI. Under the guidance, these amounts are subsequently recognized as components of net periodic benefit costs over time. For 2012, 2011, and 2010, $(81), $(106) and $9, respectively, has been recognized as net debits, and a net credit, respectively, to AOCI to reflect these elements.

The supplemental retirement plan is unfunded and had a projected benefit obligation of $1,337 and a net under-funded status of $1,337 at December 31, 2012. Net periodic pension cost was $165, $124, and $116 for 2012, 2011, and 2010, respectively. Assumptions used to determine the projected benefit obligation as of December 31, 2012 included a discount rate of 4.20 percent and a rate of compensation increase of 4.50 percent.

Additional financial information for the four District sponsored multiemployer plans may be found in the Notes to the Combined Financial Statements of AgFirst Farm Credit Bank and District Associations’ 2012 Annual Report.

Note 11 — Related Party Transactions

MidAtlantic Farm Credit, ACA

In the ordinary course of business, the Association enters into loan transactions with 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, amortization schedule, and collateral, as those prevailing at the time for comparable transactions with unaffiliated borrowers.

Total loans to such persons at December 31, 2012 amounted to $17,836. During 2012, $6,745 of new loans were made and repayments totaled $11,305. In the opinion of management, none of these loans outstanding at December 31, 2012 involved more than a normal risk of collectibility.

Note 12 — Commitments and Contingencies The Association has various commitments outstanding and contingent liabilities.

The Association may participate in financial instruments with offbalance-sheet risk to satisfy the financing needs of its borrowers and to manage their exposure to interest-rate risk. These financial instruments include commitments to extend credit and/or 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, 2012, $424,785 commitments to extend credit and $30 of commercial letters of credit were outstanding.

Since many of these commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. However, these credit-related financial instruments have off-balance-sheet credit risk because their amounts are not reflected on the Consolidated Balance Sheets 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.

The Association also participates in standby letters of credit to satisfy the financing needs of its borrowers. These letters of credit are irrevocable agreements to guarantee payments of specified financial obligations. At December 31, 2012, the Association had outstanding $6,142 of standby letters of credit, with expiration dates ranging from December 31, 2012 to May 31, 2014. The maximum potential amount of future payments the Association may be required to make under these existing guarantees is $6,142.

A guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the guarantee commitment. The Association has determined the fair value of the guarantee commitment based upon the fees to be earned over the life of the guarantee. The fair value is updated periodically to reflect changes in individual guarantee amounts and the remaining life to maturity of the individual guarantees in the Association’s inventory. At December 31, 2012, the Association’s inventory of standby letters of credit had a fair value of $162 that was included in other liabilities.

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Fair value is defined 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.

Accounting guidance establishes a fair value hierarchy for disclosure of fair value measurements to maximize the use of observable inputs, that is, inputs that reflect the assumptions market participants would use in pricing an asset or liability based on market data obtained from sources independent of the reporting entity. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Estimating the fair value of the Association’s investment in the Bank and Other Farm Credit Institutions is not practicable because the stock is not traded. The net investment is a requirement of borrowing from the Bank and is carried at cost plus allocated equities in the accompanying Consolidated Balance Sheets. The Association owns 9.14 percent of the issued stock of the Bank as of September 30, 2012 net of any reciprocal investment. As of that date, the Bank’s assets totaled $28.9 billion and shareholders’ equity totaled $2.3 billion. The Bank’s earnings were $469 million at December 31, 2012. In addition, the Association has an investment of $872 related to other Farm Credit institutions.

The classifications of the Association’s financial instruments within the fair value hierarchy are as follows: Level 1 Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. The Association’s Level 1 assets at December 31, 2012 consist of assets held in trust funds related to deferred compensation and supplemental retirement plans. The trust funds include investments in securities that are actively traded and have quoted net asset value prices that are directly observable in the marketplace. For cash, the carrying value is primarily utilized as a reasonable estimate of fair value.

Level 2 Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets; quoted prices in markets that are not active; and inputs that are observable, or can be corroborated, for substantially the full term of the asset or liability.

The Association has no Level 2 assets or liabilities measured at fair value on a recurring basis at December 31, 2012.

Level 3 Level 3 inputs to the valuation methodology are unobservable and supported by little or no market activity. Valuation is determined using pricing models, discounted cash flow methodologies, or similar techniques, and could include significant management judgment or estimation. Level 3 assets and liabilities also could include

instruments whose price has been adjusted based on dealer quoted pricing that is different than the third-party valuation or internal model pricing.

Because no active market exists for the Association’s accruing loans, fair value is estimated by discounting the expected future cash flows using the Association’s current interest rates at which similar loans currently would be made to borrowers with similar credit risk. The loan portfolio is segregated into pools of loans with homogeneous characteristics based upon repricing and credit risk. Expected future cash flows and interest rates reflecting appropriate credit risk are separately determined for each individual pool.

Fair values of loans in a nonaccrual status are estimated to be the carrying amount of the loan less specific reserves. Level 3 assets include impaired loans which represent the fair value of certain loans that were evaluated for impairment under FASB guidance. The fair value was based upon the underlying collateral since these were collateral-dependent. 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. The fair value measurement process uses independent appraisals and other market-based information, but 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.

The notes payable are segregated into pricing pools according to the types and terms of the loans (or other assets) which they fund. Fair value of the notes 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 is equal to the principal payments on the Association’s loan receivables. This assumption implies that earnings on the Association’s interest margin are used to fund operating expenses and capital expenditures.

Other property owned is classified as a Level 3 asset. The fair value is generally determined using formal appraisals of each individual property. These assets are held for sale. Costs to sell represent transaction costs and are not included as a component of the fair value of other property owned. Other property owned consists of real and personal property acquired through foreclosure or deed in lieu of foreclosure and is carried as an asset held for sale, which is generally not its highest and best use. These properties are part of the Association’s credit risk mitigation efforts, not its ongoing business.

In addition, FCA regulations require that these types of property be disposed of within a reasonable period of time.

For commitments to extend credit, the estimated market value of off-balance-sheet commitments is minimal since the committed rate approximates current rates offered for commitments with similar rate and maturity characteristics; therefore, the related credit risk is not significant.

MidAtlantic Farm Credit, ACA

Note 13 — Fair Value Measurement

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the periods presented. The Association had no transfers of assets or liabilities into or out of Level 1 or Level 2 during the periods presented.

Standby

Letters Of Credit

INFORMATION ABOUT SENSITIVITY TO CHANGES IN SIGNIFICANT UNOBSERVABLE INPUTS Discounted cash flow or similar modeling techniques are generally used to determine the recurring fair value measurements for Level 3 assets and liabilities. Use of these techniques requires determination of relevant inputs and assumptions, some of which represent significant unobservable inputs as indicated in the tables that follow.

Accordingly, changes in these unobservable inputs may have a significant impact on fair value.

Balance at January 1, 2012 $ 99 Total gains or (losses) realized/unrealized: Included in earnings — Certain of these unobservable inputs will (in isolation) have a directionally consistent impact on the fair value of the instrument Included in other comprehensive income — for a given change in that input. Alternatively, the fair value of the Purchases — instrument may move in an opposite direction for a given change in Sales — another input. Where multiple inputs are used within the valuation Issuances 63 technique of an asset or liability, a change in one input in a certain Settlements — direction may be offset by an opposite change in another input Transfers in and/or out of Level 3 — having a potentially muted impact to the overall fair value of that Balance at December 31, 2012 $ 162 particular instrument. Additionally, a change in one unobservable input may result in a change to another unobservable input (that is, changes in certain inputs are interrelated with one another), which Standby may counteract or magnify the fair value impact.

Letters Of Credit Balance at January 1, 2011 $ 206 Total gains or (losses) realized/unrealized: Included in earnings — Included in other comprehensive income — Purchases — Sales — Issuances — Settlements (107) Transfers in and/or out of Level 3 — Balance at December 31, 2011 $ 99

MidAtlantic Farm Credit, ACA

Standby

Letters Of Credit

Balance at January 1, 2010 $ 322 Total gains or (losses) realized/unrealized: Included in earnings — Included in other comprehensive income — Purchases — Sales — Issuances — Settlements (116) Transfers in and/or out of Level 3 — Balance at December 31, 2010 $ 206

Other Property Owned/Impaired Loans Other property owned and impaired loans are valued using appraisals, market comparable sales, replacement costs and income and expense (cash flow) techniques. Certain unobservable inputs are used within these techniques to determine the Level 3 fair value of these properties. The significant unobservable inputs are primarily sensitive only to industry, geographic and overall economic conditions, and/or specific attributes of each property.

Inputs to Valuation Techniques Management determines the Association’s valuation policies and procedures. The Bank performs the majority of the Association’s valuations, and its valuation processes are calibrated annually by an independent consultant. The fair value measurements are analyzed on a quarterly basis. For other valuations, documentation is obtained for third party information, such as pricing, and periodically evaluated alongside internal information and pricing that is available.

Quoted market prices are generally not available for certain System financial instruments, as described below. Accordingly, fair values are based on judgments regarding anticipated cash flows, 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.

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Quantitative Information About Recurring and Nonrecurring Level 3 Fair Value Measurements Fair Value Valuation Technique(s) Unobservable Input Range

Impaired loans and other property owned $61,739 Appraisal

Income and expense Comparable sales Replacement costs Comparability adjustments

* * * *

*Ranges for this type of input are not useful because each collateral property is unique.

Information About Other Financial Instrument Fair Value Measurements Valuation Technique(s) Input

Cash

Carrying Value

Par/Principal and appropriate interest yield

Loans Discounted cash flow

Prepayment rates Probability of default Loss severity Annualized volatility

Notes payable to Discounted cash flow AgFirst Farm Credit Bank

Prepayment rates Probability of default Loss severity Annualized volatility

The following table presents the carrying amounts and fair values of assets and liabilities that are measured at fair value on a recurring and nonrecurring basis, as well as those financial instruments not measured at fair value, for each of the hierarchy levels at the period ended:

Recurring Measurements Assets: Assets held in trust funds Recurring Assets

$ $

1,049 1,049

Liabilities: Standby letters of credit Recurring Liabilities

$ $

$

Nonrecurring Measurements Assets: Impaired loans Other property owned Nonrecurring Assets Other Financial Instruments Assets: Cash Loans Other Assets

$

$1,049 $1,049

$ $

— —

$ $

— —

$ $

1,049 1,049

162 162

$ $

— —

$ $

— —

$ $

162 162

$ $

162 162

58,373 3,009 61,382

$

— — —

$

— — —

$

58,373 3,366 61,739

$

58,373 3,366 61,739

$ — 2,077,497 $2,077,497

$ 5,984 2,077,497 $2,083,481

$

$

$

$

$

$

5,984 2,068,015 $2,073,999

$5,984 — $5,984

$

— — —

Liabilities: Notes payable to AgFirst Farm Credit Bank

$1,714,965

$

—

$

—

$1,721,140

$1,721,140

Other Liabilities

$1,714,965

$

—

$

—

$1,721,140

$1,721,140

Fair Value Effects On Earnings

$(2,161) (902) $(3,063)

MidAtlantic Farm Credit, ACA

December 31, 2012

Total Total

Carrying Amount Level 1 Level 2 Level 3 Fair Value

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

The following tables present the assets and liabilities that are measured at fair value on a recurring basis at December 31, 2011 and 2010 for each of the fair value hierarchy levels:

December 31, 2011 Total

Level 1 Level 2 Level 3 Fair Value

Assets: Assets held in trust funds Total Assets

$ $

808 808

$ $

— —

$ $

— —

$ $

808 808

Liabilities: Standby letters of credit Total Liabilities

$ $

— —

$ $

— —

$ $

99 99

$ $

99 99

December 31, 2010 Total

Level 1 Level 2 Level 3 Fair Value

Assets: Assets held in trust funds Total Assets

$ $

683 683

$ $

— —

$ $

— —

$ $

683 683

Liabilities: Standby letters of credit Total Liabilities

$ $

— —

$ $

— —

$ $

206 206

$ $

206 206

Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2011 and 2010 for each of the fair value hierarchy values are summarized below:

December 31, 2011

Level 1 Level 2 Level 3 Total Fair Value

Assets: Impaired loans Other property owned

$ $

— —

$ $

— —

$11,073 $ 2,023

$11,073 $ 2,023

December 31, 2010

Level 1 Level 2 Level 3 Total Fair Value

$ $

— —

$ $

— —

$31,917 $ 1,207

$31,917 $ 1,207

$(15,122) $ (967)

YTD Total Gains (Losses)

$(14,414) $ (197)

MidAtlantic Farm Credit, ACA

Assets: Impaired loans Other property owned

YTD Total Gains (Losses)

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The estimated fair values of the Association’s financial instruments at December 31, 2011 and 2010 are as follows:

December 31, 2011

December 31, 2010

Carrying Amount

Estimated Fair Value

Carrying Amount

Estimated Fair Value

Financial Assets: Cash Loans, net of allowance Assets held in trust funds

$ 3,238 $2,157,819 $ 808

$ 3,238 $2,182,808 $ 808

$ 5,316 $2,261,892 $ 683

$ 5,316 $2,267,222 $ 683

Financial Liabilities: Notes payable to AgFirst Farm Credit Bank

$1,784,988

$1,801,123

$1,917,156

$1,920,484

Note 14 — Accumulated Other Comprehensive Income Cumulative balances:

Employee Benefit Plans

Balance at December 31, 2011 Other comprehensive income

$

(520) (81)

Balance at December 31, 2012

$

(601)

Balance at December 31, 2010 Other comprehensive income

$

(414) (106)

Balance at December 31, 2011

$

(520)

Balance at December 31, 2009 Other comprehensive income

$

(423) 9

Balance at December 31, 2010

$

(414)

Changes in components of Accumulated Other Comprehensive Income are as follows:

For the twelve months ended December 31,

2012 2011

2010

Other Comprehensive Income and Reclassification Amounts: $

Net gain (loss) during period Defined benefit post retirement plans, net

74

$

(155) $

(81)

46

$

(152) $

(106)

44 (35)

$

9

MidAtlantic Farm Credit, ACA

Amounts reclassified to net periodic pension costs

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Notes to the Consolidated Financial Statements (dollars in thousands, except as noted)

Note 15 — Quarterly Financial Information (Unaudited)

M

Quarterly results of operations for the years ended December 31, 2012, 2011 and 2010 follow:

(le Pr Ta

2012

First Second Third Fourth Total

Net interest income Provision for (reversal of allowance for) loan losses Noninterest income (expense), net Net income

$ 16,810 1,750 (4,325) $ 10,735

$ 16,613 1,750 925 $ 15,788

$ 17,108 2,000 (3,286) $ 11,822

$17,104 3,500 (271) $13,333

$ 67,635 9,000 (6,957) $ 51,678

2011

First Second Third Fourth Total

Net interest income Provision for (reversal of allowance for) loan losses Noninterest income (expense), net Net income

$ 16,792 2,000 (3,967) $ 10,825

$ 16,666 4,000 (2,367) $ 10,299

$ 17,660 6,000 (2,827) $ 8,833

$17,681 2,550 83 $15,214

$ 68,799 14,550 (9,078) $ 45,171

2010

First Second Third Fourth Total

Net interest income Provision for (reversal of allowance for) loan losses Noninterest income (expense), net Net income

$ 15,236 2,000

$ 15,356 3,200

$ 15,779 1,000

$16,705 5,400

$ 63,076 11,600

521 (1,250) (1,830) 1,337 (1,222) $ 13,757

$ 10,906

$ 12,949

$12,642

$ 50,254

Note 16 – Subsequent Events The Association has evaluated subsequent events and has determined there are none requiring disclosure through March 13, 2013, which is the date the financial statements were issued.

MidAtlantic Farm Credit’s Board of Directors

MidAtlantic Farm Credit, ACA

(below, left to right): Paul D. Baumgardner; T. Jeffery Jennings; Dale J. Ockels; Christopher J. Kurtzman; Ralph L. Robertson; Fred R. Moore, Jr.; Lingan T. Spicer; Brian L. Boyd; Deborah A. Benner; Dale R. Hershey; Gary L. Grossnickle; Fred N. West, Chairman; M. Wayne Lambertson, Vice Chairman; Christopher R. Stiles; Rodger L. Wagner (retired May 2012); Paul J. Rock; Jennifer L. Rhodes; Walter C. Hopkins.

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MidAtlantic Farm Credit’s Senior Management Team

MidAtlantic Farm Credit, ACA

(left to right): Lloyd R. Webb (retired March 2012); Jeffrey M. Tyson; John E. Wheeler, Jr.; Linda K. Stum; J. Robert Frazee, President and CEO; Sandra L. Wieber; Carl E. Naugle; Laura E. Bailey; Thomas J. Marshall; Thomas H. Truitt; James D. Aird; Tammy L. Price; Kenneth Bounds; and Sonia Arteaga (not shown).

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MidAtlantic Farm Credit, ACA 45 Aileron Court Westminster, MD 21157-3022

PRSRT STD U.S. POSTAGE

PAID

BALTIMORE, MD PERMIT NO. 7175

MidAtlantic Farm Credit is customer owned and customer focused. We work every day to: • Give our customers best-in-class solutions for their financial needs.

• Manage their association efficiently, safely and soundly.

• Be dependable, in good times and bad, for this and future generations.

• Embrace a performance-oriented culture that is diverse, inclusive, and reflective of our marketplace.

888.339.3334 mafc.com

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