FEDERAL AGRICULTURAL MORTGAGE CORP 10-Q

Item 1. Financial Statements FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) As of September 30, 2020 December 31, 2019 (in thousands) Assets: Cash and cash equivalents $ 910,592 $ 604,381 Investment securities: Available-for-sale, at fair value (amortized cost of $ 3,522,674 and $ 2,961,430 , respectively) 3,532,190 2,959,843 Held-to-maturity, at amortized cost 45,032 45,032 Total Investment Securities 3,577,222 3,004,875 Farmer Mac Guaranteed Securities: Available-for-sale, at fair value (amortized cost of $ 7,150,606 and $ 7,016,971 , respectively) 7,511,638 7,143,025 Held-to-maturity, at amortized cost 1,200,570 1,447,451 Total Farmer Mac Guaranteed Securities 8,712,208 8,590,476 USDA Securities: Trading, at fair value 6,830 8,913 Held-to-maturity, at amortized cost 2,410,848 2,232,160 Total USDA Securities 2,417,678 2,241,073 Loans: Loans held for sale, at lower of cost or fair value 20,000 — Loans held for investment, at amortized cost 6,825,061 5,390,977 Loans held for investment in consolidated trusts, at amortized cost 1,276,407 1,600,917 Allowance for losses ( 15,821 ) ( 10,454 ) Total loans, net of allowance 8,105,647 6,981,440 Financial derivatives, at fair value 12,837 10,519 Interest receivable (includes $ 11,525 and $ 20,568 , respectively, related to consolidated trusts) 153,170 199,195 Guarantee and commitment fees receivable 36,664 38,442 Deferred tax asset, net 29,288 16,510 Prepaid expenses and other assets 43,531 22,463 Total Assets $ 23,998,837 $ 21,709,374 Liabilities and Equity: Liabilities: Notes payable 21,589,285 19,098,648 Debt securities of consolidated trusts held by third parties 1,292,416 1,616,504 Financial derivatives, at fair value 37,357 27,042 Accrued interest payable (includes $ 9,353 and $ 18,018 , respectively, related to consolidated trusts) 92,648 106,959 Guarantee and commitment obligation 35,140 36,700 Accounts payable and accrued expenses 18,078 22,081 Reserve for losses 3,568 2,164 Total Liabilities 23,068,492 20,910,098 Commitments and Contingencies (Note 6) Equity: Preferred stock: Series A, par value $ 25 per share, 2,400,000 shares authorized, issued and outstanding as of December 31, 2019 (redemption value $ 60,000,000 ) — 58,333 Series C, par value $ 25 per share, 3,000,000 shares authorized, issued and outstanding 73,382 73,382 Series D, par value $ 25 per share, 4,000,000 shares authorized, issued and outstanding 96,659 96,659 Series E, par value $ 25 per share, 3,180,000 shares authorized, issued and outstanding 77,003 — Series F, par value $ 25 per share, 4,800,000 shares authorized, issued and outstanding 116,160 — Common stock: Class A Voting, $ 1 par value, no maximum authorization, 1,030,780 shares outstanding 1,031 1,031 Class B Voting, $ 1 par value, no maximum authorization, 500,301 shares outstanding 500 500 Class C Non-Voting, $ 1 par value, no maximum authorization, 9,204,724 shares and 9,180,744 shares outstanding, respectively 9,205 9,181 Additional paid-in capital 121,525 119,304 Accumulated other comprehensive loss, net of tax ( 53,837 ) ( 16,161 ) Retained earnings 488,717 457,047 Total Equity 930,345 799,276 Total Liabilities and Equity $ 23,998,837 $ 21,709,374 The accompanying notes are an integral part of these consolidated financial statements. 4 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Three Months Ended For the Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 (in thousands, except per share amounts) Interest income: Investments and cash equivalents $ 7,096 $ 22,855 $ 35,236 $ 61,718 Farmer Mac Guaranteed Securities and USDA Securities 45,335 81,649 178,644 252,629 Loans 56,204 56,992 172,230 167,792 Total interest income 108,635 161,496 386,110 482,139 Total interest expense 63,974 121,384 251,789 358,374 Net interest income 44,661 40,112 134,321 123,765 Provision for losses ( 653 ) ( 760 ) ( 4,542 ) ( 1,074 ) Net interest income after provision for losses 44,008 39,352 129,779 122,691 Non-interest income/(expense): Guarantee and commitment fees 3,159 3,349 9,495 10,265 (Losses)/gains on financial derivatives ( 564 ) ( 7,360 ) ( 3,339 ) 1,193 (Losses)/gains on trading securities ( 258 ) 49 ( 173 ) 154 Gains on sale of real estate owned — — 485 — (Provision)/release of reserve for losses ( 547 ) 137 ( 540 ) 424 Other income 594 530 2,639 1,378 Non-interest income/(expense) 2,384 ( 3,295 ) 8,567 13,414 Operating expenses: Compensation and employee benefits 8,791 7,654 27,005 22,030 General and administrative 5,044 5,253 15,702 14,538 Regulatory fees 725 688 2,175 2,063 Real estate owned operating costs, net — — — 64 Operating expenses 14,560 13,595 44,882 38,695 Income before income taxes 31,832 22,462 93,464 97,410 Income tax expense 6,340 4,629 19,516 20,362 Net income 25,492 17,833 73,948 77,048 Preferred stock dividends ( 5,166 ) ( 3,427 ) ( 12,536 ) ( 10,508 ) Loss on retirement of preferred stock ( 1,667 ) — ( 1,667 ) ( 1,956 ) Net income attributable to common stockholders $ 18,659 $ 14,406 $ 59,745 $ 64,584 Earnings per common share: Basic earnings per common share $ 1.74 $ 1.34 $ 5.57 $ 6.04 Diluted earnings per common share $ 1.73 $ 1.33 $ 5.54 $ 5.99 The accompanying notes are an integral part of these consolidated financial statements. 5 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) For the Three Months Ended For the Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 (in thousands) Net income $ 25,492 $ 17,833 $ 73,948 $ 77,048 Other comprehensive income/(loss) before taxes: Net unrealized gains/(losses) on available-for-sale securities 47,235 ( 24,925 ) ( 9,554 ) ( 50,272 ) Net changes in held-to-maturity securities ( 2,523 ) ( 6,543 ) ( 10,707 ) ( 13,406 ) Net unrealized gains/(losses) on cash flow hedges 2,959 ( 6,736 ) ( 27,429 ) ( 22,373 ) Other comprehensive income/(loss) before tax 47,671 ( 38,204 ) ( 47,690 ) ( 86,051 ) Income tax (expense)/benefit related to other comprehensive income/(loss) ( 10,011 ) 8,023 10,014 18,071 Other comprehensive income/(loss) net of tax 37,660 ( 30,181 ) ( 37,676 ) ( 67,980 ) Comprehensive income/(loss) $ 63,152 $ ( 12,348 ) $ 36,272 $ 9,068 The accompanying notes are an integral part of these consolidated financial statements. 6 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (unaudited) Accumulated Additional Other Preferred Stock Common Stock Paid-In Comprehensive Retained Total Shares Amount Shares Amount Capital Income/(Loss) Earnings Equity (in thousands) Balance as of December 31, 2019 9,400 $ 228,374 10,712 $ 10,712 $ 119,304 $ ( 16,161 ) $ 457,047 $ 799,276 Cumulative effect adjustment from adoption of current expected credit loss standard — — — — — — ( 2,099 ) ( 2,099 ) Balance as of January 1, 2020 9,400 $ 228,374 10,712 $ 10,712 $ 119,304 $ ( 16,161 ) $ 454,948 $ 797,177 Net income — — — — — — 12,830 12,830 Other comprehensive loss, net of tax — — — — — ( 105,276 ) — ( 105,276 ) Cash dividends: Preferred stock — — — — — — ( 3,431 ) ( 3,431 ) Common stock (cash dividend of $ 0.80 per share) — — — — — — ( 8,571 ) ( 8,571 ) Issuance of Class C common stock — — 15 15 19 — — 34 Repurchase of Class C Common Stock — — ( 4 ) ( 4 ) — — ( 231 ) ( 235 ) Stock-based compensation cost — — — — 1,293 — 1,293 Other stock-based award activity — — — — ( 204 ) — — ( 204 ) Balance as of March 31, 2020 9,400 $ 228,374 10,723 $ 10,723 $ 120,412 $ ( 121,437 ) $ 455,545 $ 693,617 Net income — — — — — — 35,626 35,626 Other comprehensive income, net of tax — — — — — 29,940 — 29,940 Cash dividends: Preferred stock — — — — — — ( 3,939 ) ( 3,939 ) Common stock (cash dividend of $ 0.80 per share) — — — — — — ( 8,585 ) ( 8,585 ) Issuance of Series E preferred stock 3,180 77,003 — — — — — 77,003 Issuance of Class C common stock — — 10 10 17 — — 27 Stock-based compensation cost — — — — 719 — — 719 Other stock-based award activity — — — — ( 292 ) — — ( 292 ) Balance as of June 30, 2020 12,580 $ 305,377 10,733 $ 10,733 $ 120,856 $ ( 91,497 ) $ 478,647 $ 824,116 Net income — — — — — — 25,492 25,492 Other comprehensive income, net of tax — — — — — 37,660 — 37,660 Cash dividends: Preferred stock — — — — — — ( 5,166 ) ( 5,166 ) Common stock (cash dividend of $ 0.80 per share) — — — — — — ( 8,589 ) ( 8,589 ) Issuance of Series F preferred stock 4,800 116,160 — — — — — 116,160 Redemption of Series A preferred stock ( 2,400 ) ( 58,333 ) — — — — — ( 58,333 ) Loss on retirement of preferred stock — — — — — — ( 1,667 ) ( 1,667 ) Issuance of Class C common stock — — 3 3 8 — — 11 Stock-based compensation cost — — — — 753 — — 753 Other stock-based award activity — — — — ( 92 ) — — ( 92 ) Balance as of September 30, 2020 14,980 $ 363,204 10,736 $ 10,736 $ 121,525 $ ( 53,837 ) $ 488,717 $ 930,345 7 Accumulated Additional Other Preferred Stock Common Stock Paid-In Comprehensive Retained Total Shares Amount Shares Amount Capital Income/(Loss) Earnings Equity (in thousands) Balance as of December 31, 2018 8,400 $ 204,759 10,669 $ 10,669 $ 118,822 $ 24,956 $ 393,351 $ 752,557 Net Income — — — — — — 25,170 25,170 Other comprehensive loss, net of tax — — — — — ( 3,702 ) — ( 3,702 ) Cash dividends: Preferred stock — — — — — — ( 3,296 ) ( 3,296 ) Common stock (cash dividend of $ 0.70 per share) — — — — — — ( 7,470 ) ( 7,470 ) Issuance of Class C Common Stock — — 20 20 3 — — 23 Stock-based compensation cost — — — — 724 — — 724 Other stock-based award activity — — — — ( 708 ) — — ( 708 ) Balance as of March 31, 2019 8,400 $ 204,759 10,689 $ 10,689 $ 118,841 $ 21,254 $ 407,755 $ 763,298 Net income — — — — — — 34,045 34,045 Other comprehensive loss, net of tax — — — — — ( 34,097 ) — ( 34,097 ) Cash dividends: Preferred stock — — — — — — ( 3,785 ) ( 3,785 ) Common stock (cash dividend of $ 0.70 per share) — — — — — — ( 7,490 ) ( 7,490 ) Issuance of Series D Preferred Stock 4,000 96,659 — — — 96,659 Redemption of Series B Preferred Stock ( 3,000 ) ( 73,044 ) — — — — — ( 73,044 ) Loss on retirement of preferred stock — — — — — — ( 1,956 ) ( 1,956 ) Issuance of Class C Common Stock — — 11 11 3 — — 14 Stock-based compensation cost — — — — 533 — — 533 Other stock-based award activity — — — — ( 435 ) — — ( 435 ) Balance as of June 30, 2019 9,400 $ 228,374 10,700 $ 10,700 $ 118,942 $ ( 12,843 ) $ 428,569 $ 773,742 Net Income — — — — — — 17,833 17,833 Other comprehensive loss, net of tax — — — — — ( 30,181 ) — ( 30,181 ) Cash dividends: Preferred stock — — — — — — ( 3,427 ) ( 3,427 ) Common stock (cash dividend of $ 0.70 per share) — — — — — — ( 7,496 ) ( 7,496 ) Issuance of Class C Common Stock — — 10 10 19 — — 29 Stock-based compensation cost — — — — 407 — — 407 Other stock-based award activity — — — — ( 648 ) — — ( 648 ) Balance as of September 30, 2019 9,400 $ 228,374 10,710 $ 10,710 $ 118,720 $ ( 43,024 ) $ 435,479 $ 750,259 The accompanying notes are an integral part of these consolidated financial statements. 8 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the Nine Months Ended September 30, 2020 September 30, 2019 (in thousands) Cash flows from operating activities: Net income $ 73,948 $ 77,048 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization of deferred gains, premiums, and discounts on loans, investments, Farmer Mac Guaranteed Securities, and USDA Securities 3,800 ( 8,032 ) Amortization of debt premiums, discounts, and issuance costs 18,502 37,794 Net change in fair value of trading securities, hedged assets, and financial derivatives ( 342,380 ) ( 326,537 ) Gain on sale of real estate owned ( 485 ) — Total provision for allowance for losses 5,083 650 Excess tax benefits related to stock-based awards ( 421 ) 442 Deferred income taxes ( 2,763 ) 637 Stock-based compensation expense 2,765 1,664 Purchases of loans held for sale ( 59,150 ) — Proceeds from the sale of loans held for sale 15,000 — Proceeds from repayment of loans purchased as held for sale 54,661 44,857 Net change in: Interest receivable 44,706 21,395 Guarantee and commitment fees receivable 218 ( 4 ) Other assets ( 20,169 ) 1,875 Accrued interest payable ( 14,311 ) 7,597 Other liabilities ( 4,412 ) 2,538 Net cash used in operating activities ( 225,408 ) ( 138,076 ) Cash flows from investing activities: Purchases of available-for-sale investment securities ( 2,177,560 ) ( 1,871,957 ) Purchases of Farmer Mac Guaranteed Securities and USDA Securities ( 1,798,028 ) ( 2,167,801 ) Purchases of loans held for investment ( 2,245,958 ) ( 1,528,789 ) Purchases of defaulted loans ( 6,272 ) ( 469 ) Proceeds from repayment of available-for-sale investment securities 1,612,075 991,423 Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities 1,725,500 1,746,948 Proceeds from repayment of loans purchased as held for investment 1,272,603 568,280 Proceeds from sale of Farmer Mac Guaranteed Securities 64,612 199,396 Proceeds from sale of real estate owned 2,191 — Net cash used in investing activities ( 1,550,837 ) ( 2,062,969 ) Cash flows from financing activities: Proceeds from issuance of discount notes 51,936,788 47,036,038 Proceeds from issuance of medium-term notes 10,561,149 7,632,425 Payments to redeem discount notes ( 51,785,666 ) ( 46,502,105 ) Payments to redeem medium-term notes ( 8,293,765 ) ( 5,646,107 ) Payments to third parties on debt securities of consolidated trusts ( 431,093 ) ( 143,491 ) Proceeds from common stock issuance 44 25 Retirement of preferred stock ( 60,000 ) ( 75,000 ) Proceeds from preferred stock issuance, net of stock issuance costs 193,163 96,659 Tax payments related to share-based awards ( 560 ) ( 1,750 ) Purchases of common stock ( 235 ) — Dividends paid on common and preferred stock ( 37,369 ) ( 32,964 ) Net cash provided by financing activities 2,082,456 2,363,730 Net change in cash and cash equivalents 306,211 162,685 Cash and cash equivalents at beginning of period 604,381 425,256 Cash and cash equivalents at end of period $ 910,592 $ 587,941 Non-cash activity: Loans acquired and securitized as Farmer Mac Guaranteed Securities 64,612 199,396 Consolidation of Farmer Mac Guaranteed Securities from off-balance sheet to loans held for investment in consolidated trusts and to debt securities of consolidated trusts held by third parties 64,612 141,543 Reclassification of defaulted loans from loans held for investment in consolidated trusts to loans held for investment 42,393 5,392 Reclassification of loans held for sale to loans held for investment 24,150 — Capitalized interest 937 — Purchases of securities - traded, not yet settled — 8,680 The accompanying notes are an integral part of these consolidated financial statements. 9 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim unaudited consolidated financial statements of the Federal Agricultural Mortgage Corporation ("Farmer Mac") and subsidiaries have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Farmer Mac and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted as permitted by SEC rules and regulations. The December 31, 2019 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2019 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the 2019 consolidated financial statements of Farmer Mac and subsidiaries included in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 25, 2020. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year. Presented below are Farmer Mac's significant accounting policies that contain updated information for the three and nine months ended September 30, 2020. Principles of Consolidation The consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries during the year: (1) Farmer Mac Mortgage Securities Corporation ("FMMSC"), whose principal activities are to facilitate the purchase and issuance of Farmer Mac Guaranteed Securities; and (2) Farmer Mac II LLC, whose principal activity is the operation of substantially all of the business related to the USDA Guarantees line of business – primarily the acquisition of USDA Securities. The consolidated financial statements also include the accounts of Variable Interest Entities ("VIEs") in which Farmer Mac determined itself to be the primary beneficiary. 10 The following tables present, by line of business, details about the consolidation of VIEs: Table 1.1 Consolidation of Variable Interest Entities As of September 30, 2020 Farm & Ranch USDA Guarantees Corporate Total (in thousands) On-Balance Sheet: Consolidated VIEs: Loans held for investment in consolidated trusts, at amortized cost $ 1,276,407 $ — $ — $ 1,276,407 Debt securities of consolidated trusts held by third parties (1) 1,292,416 — — 1,292,416 Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Carrying value (2) — 36,505 — 36,505 Maximum exposure to loss (3) — 36,414 — 36,414 Investment securities: Carrying value (4) — — 1,835,688 1,835,688 Maximum exposure to loss (3) (4) — — 1,829,604 1,829,604 Off-Balance Sheet: Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Maximum exposure to loss (3) (5) 85,767 310,682 — 396,449 (1) Includes borrower remittances of $ 16.0 million. The borrower remittances had not been passed through to third party investors as of September 30, 2020. (2) Includes $ 0.1 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business. (3) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss. (4) Includes auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities. (5) The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party. 11 Consolidation of Variable Interest Entities As of December 31, 2019 Farm & Ranch USDA Guarantees Corporate Total (in thousands) On-Balance Sheet: Consolidated VIEs: Loans held for investment in consolidated trusts, at amortized cost $ 1,600,917 $ — $ — $ 1,600,917 Debt securities of consolidated trusts held by third parties (1) 1,616,504 — — 1,616,504 Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Carrying value (2) — 32,041 — 32,041 Maximum exposure to loss (3) — 31,887 — 31,887 Investment securities: Carrying value (4) — — 1,117,203 1,117,203 Maximum exposure to loss (3) (4) — — 1,120,765 1,120,765 Off-Balance Sheet: Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Maximum exposure to loss (3) (5) 107,322 389,216 — 496,538 (1) Includes borrower remittances of $ 15.6 million. The borrower remittances had not been passed through to third party investors as of December 31, 2019. (2) Includes $ 0.2 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business. (3) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss. (4) Includes auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities. (5) The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party. 12 (a) Earnings Per Common Share Basic earnings per common share ("EPS") is based on the daily weighted-average number of shares of common stock outstanding. Diluted earnings per common share is based on the daily weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive stock appreciation rights ("SARs") and unvested restricted stock awards. The following schedule reconciles basic and diluted EPS for the three and nine months ended September 30, 2020 and 2019: Table 1.2 For the Three Months Ended September 30, 2020 September 30, 2019 Net Income Weighted-Average Shares $ per Share Net Income Weighted-Average Shares $ per Share (in thousands, except per share amounts) Basic EPS Net income attributable to common stockholders $ 18,659 10,734 $ 1.74 $ 14,406 10,706 $ 1.34 Effect of dilutive securities (1) SARs and restricted stock — 51 ( 0.01 ) — 70 ( 0.01 ) Diluted EPS $ 18,659 10,785 $ 1.73 $ 14,406 10,776 $ 1.33 (1) For the three months ended September 30, 2020 and 2019, SARs and restricted stock of 66,445 and 26,768 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the three months ended September 30, 2020 and 2019, contingent shares of unvested restricted stock of 12,680 and 8,414 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met. For the Nine Months Ended September 30, 2020 September 30, 2019 Net Income Weighted-Average Shares $ per Share Net Income Weighted-Average Shares $ per Share (in thousands, except per share amounts) Basic EPS Net income attributable to common stockholders $ 59,745 10,725 $ 5.57 $ 64,584 10,691 $ 6.04 Effect of dilutive securities (1) SARs and restricted stock — 56 ( 0.03 ) — 83 ( 0.05 ) Diluted EPS $ 59,745 10,781 $ 5.54 $ 64,584 10,774 $ 5.99 (1) For the nine months ended September 30, 2020 and 2019, SARs and restricted stock of 78,963 and 48,801 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the nine months ended September 30, 2020 and 2019, contingent shares of unvested restricted stock of 12,680 and 10,994 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met. (b) Comprehensive Income Comprehensive income represents all changes in stockholders' equity except those resulting from investments by or distributions to stockholders, and is comprised of net income and unrealized gains and losses on available-for-sale securities, certain held-to-maturity securities transferred from the available-for-sale classification, and cash flow hedges, net of related taxes. 13 The following table presents the changes in accumulated other comprehensive income ("AOCI"), net of tax, by component for the three and nine months ended September 30, 2020 and 2019: Table 1.3 As of September 30, 2020 As of September 30, 2019 Available-for-Sale Securities Held-to-Maturity Securities Cash Flow Hedges Total Available-for-Sale Securities Held-to-Maturity Securities Cash Flow Hedges Total (in thousands) For the Three Months Ended: Beginning Balance $ ( 88,261 ) $ 26,379 $ ( 29,615 ) $ ( 91,497 ) $ ( 45,384 ) $ 38,021 $ ( 5,480 ) $ ( 12,843 ) Other comprehensive income/(loss) before reclassifications 38,099 — 904 39,003 ( 18,915 ) — ( 5,071 ) ( 23,986 ) Amounts reclassified from AOCI ( 783 ) ( 1,993 ) 1,433 ( 1,343 ) ( 776 ) ( 5,169 ) ( 250 ) ( 6,195 ) Net comprehensive income/(loss) 37,316 ( 1,993 ) 2,337 37,660 ( 19,691 ) ( 5,169 ) ( 5,321 ) ( 30,181 ) Ending Balance $ ( 50,945 ) $ 24,386 $ ( 27,278 ) $ ( 53,837 ) $ ( 65,075 ) $ 32,852 $ ( 10,801 ) $ ( 43,024 ) For the Nine Months Ended: Beginning Balance $ ( 43,397 ) $ 32,845 $ ( 5,609 ) $ ( 16,161 ) $ ( 25,360 ) $ 43,443 $ 6,873 $ 24,956 Other comprehensive loss before reclassifications ( 5,210 ) — ( 24,684 ) ( 29,894 ) ( 37,308 ) — ( 16,679 ) ( 53,987 ) Amounts reclassified from AOCI ( 2,338 ) ( 8,459 ) 3,015 ( 7,782 ) ( 2,407 ) ( 10,591 ) ( 995 ) ( 13,993 ) Net comprehensive loss ( 7,548 ) ( 8,459 ) ( 21,669 ) ( 37,676 ) ( 39,715 ) ( 10,591 ) ( 17,674 ) ( 67,980 ) Ending Balance $ ( 50,945 ) $ 24,386 $ ( 27,278 ) $ ( 53,837 ) $ ( 65,075 ) $ 32,852 $ ( 10,801 ) $ ( 43,024 ) 14 The following table presents other comprehensive income activity, the impact on net income of amounts reclassified from each component of AOCI, and the related tax impact for the three and nine months ended September 30, 2020 and 2019: Table 1.4 For the Three Months Ended September 30, 2020 September 30, 2019 Before Tax Provision (Benefit) After Tax Before Tax Provision (Benefit) After Tax (in thousands) Other comprehensive income: Available-for-sale-securities: Unrealized holding gains/(losses) on available-for-sale securities $ 48,226 $ 10,127 $ 38,099 $ ( 23,943 ) $ ( 5,028 ) $ ( 18,915 ) Less reclassification adjustments included in: Net interest income (1) ( 976 ) ( 205 ) ( 771 ) ( 961 ) ( 202 ) ( 759 ) Other income (2) ( 15 ) ( 3 ) ( 12 ) ( 21 ) ( 4 ) ( 17 ) Total $ 47,235 $ 9,919 $ 37,316 $ ( 24,925 ) $ ( 5,234 ) $ ( 19,691 ) Held-to-maturity securities: Less reclassification adjustments included in: Net interest income (3) ( 2,523 ) ( 530 ) ( 1,993 ) ( 6,543 ) ( 1,374 ) ( 5,169 ) Total $ ( 2,523 ) $ ( 530 ) $ ( 1,993 ) $ ( 6,543 ) $ ( 1,374 ) $ ( 5,169 ) Cash flow hedges Unrealized gains/(losses) on cash flow hedges $ 1,145 $ 241 $ 904 $ ( 6,419 ) $ ( 1,348 ) $ ( 5,071 ) Less reclassification adjustments included in: Net interest income (4) 1,814 381 1,433 ( 317 ) ( 67 ) ( 250 ) Total $ 2,959 $ 622 $ 2,337 $ ( 6,736 ) $ ( 1,415 ) $ ( 5,321 ) Other comprehensive income/(loss) $ 47,671 $ 10,011 $ 37,660 $ ( 38,204 ) $ ( 8,023 ) $ ( 30,181 ) (1) Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting. (2) Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities. (3) Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the remaining life of the security with no impact on future net income. (4) Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI. 15 For the Nine Months Ended September 30, 2020 September 30, 2019 Before Tax Provision (Benefit) After Tax Before Tax Provision (Benefit) After Tax (in thousands) Other comprehensive income: Available-for-sale-securities: Unrealized holding losses on available-for-sale securities $ ( 6,596 ) $ ( 1,386 ) $ ( 5,210 ) $ ( 47,225 ) $ ( 9,917 ) $ ( 37,308 ) Less reclassification adjustments included in: Net interest income (1) ( 2,916 ) ( 612 ) ( 2,304 ) ( 2,870 ) ( 603 ) ( 2,267 ) Other income (2) ( 42 ) ( 8 ) ( 34 ) ( 177 ) ( 37 ) ( 140 ) Total $ ( 9,554 ) $ ( 2,006 ) $ ( 7,548 ) $ ( 50,272 ) $ ( 10,557 ) $ ( 39,715 ) Held-to-maturity securities: Less reclassification adjustments included in: Net interest income (3) ( 10,707 ) ( 2,248 ) ( 8,459 ) ( 13,406 ) ( 2,815 ) ( 10,591 ) Total $ ( 10,707 ) $ ( 2,248 ) $ ( 8,459 ) $ ( 13,406 ) $ ( 2,815 ) $ ( 10,591 ) Cash flow hedges Unrealized losses on cash flow hedges $ ( 31,246 ) $ ( 6,562 ) $ ( 24,684 ) $ ( 21,113 ) $ ( 4,434 ) $ ( 16,679 ) Less reclassification adjustments included in: Net interest income (4) 3,817 802 3,015 ( 1,260 ) ( 265 ) ( 995 ) Total $ ( 27,429 ) $ ( 5,760 ) $ ( 21,669 ) $ ( 22,373 ) $ ( 4,699 ) $ ( 17,674 ) Other comprehensive loss $ ( 47,690 ) $ ( 10,014 ) $ ( 37,676 ) $ ( 86,051 ) $ ( 18,071 ) $ ( 67,980 ) (1) Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting. (2) Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities. (3) Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the remaining life of the security with no impact on future net income. (4) Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI. (c) Allowance for Losses and Reserve for Losses On January 1, 2020, Farmer Mac adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ("CECL"). Under CECL, Farmer Mac's allowance for credit losses represents the difference between the carrying amount of the related financial instruments and the present value of their expected cash flows discounted at their effective interest rates, as of the respective balance sheet date. Under CECL, Farmer Mac's reserve for credit losses represents the difference between the outstanding amount of off-balance sheet credit exposures and the present value of their expected cash flows discounted at their effective interest rates. Farmer Mac maintains an allowance for credit losses to cover current expected credit losses as of the balance sheet date for on-balance sheet investment securities, loans held for investment, and Farmer Mac Guaranteed Securities (collectively referred to as "allowance for losses"). Additionally, Farmer Mac maintains a reserve for credit losses to cover current expected credit losses as of the balance sheet date for off-balance sheet loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities (collectively referred to as "reserve for losses"). Both the allowance for losses and reserve for losses are based on historical information and reasonable and supportable forecasts. 16 Farmer Mac has never experienced a credit loss in its Rural Utilities line of business. Upon the adoption of CECL, Farmer Mac is now required to measure its expected credit losses for the expected life of all financial instruments, including its Rural Utilities loans. To estimate expected credit losses on these loans, Farmer Mac relies upon industry historical credit loss data from ratings agencies and publicly available information as disclosed in the securities filings of other major lenders who serve the utilities industry. The allowance for losses increases through periodic provisions for loan losses that are charged against net interest income and the reserve for losses increases through provisions for losses that are charged to non-interest expense. Both the allowance for losses and reserve for losses are decreased by charge-offs for realized losses, net of recoveries. Releases from the allowance for losses or reserve for losses occur when the estimate of expected credit losses as of the end of a period is less than the estimate at the beginning of the period. The total allowance for losses consists of the allowance for losses and the reserve for losses. Charge-offs Farmer Mac records a charge-off against the allowance for losses principally when a loss has been confirmed through the receipt of assets, generally the underlying collateral, in full satisfaction of the loan. The loss equals the excess of the recorded investment in the loan over the fair value of the collateral less estimated selling costs. Estimation Methodology Farmer Mac bases its methodology for determining its current estimate of expected losses on a statistical model, which incorporates credit loss history and reasonable and supportable forecasts. Farmer Mac's estimation methodology is comprised of the following key components: • An economic model for each portfolio, including Farm & Ranch, Rural Utilities, and Institutional Credit; • A migration matrix for each portfolio that reasonably predicts the movement of each financial asset among various risk categories over the course of each asset's expected life. The migration matrix forms the basis for our estimate of the probability of default of each financial asset; • A loss-given-default ("LGD") model that reasonably predicts the amount of loss that Farmer Mac would incur upon the default of each financial asset; • An economic factor forecast that updates the migration matrix model and the LGD model with current assumptions for the economic indicators that Farmer Mac has determined are most correlated with or relevant to the performance of each portfolio of assets; including Gross Domestic Product ("GDP"), credit spreads, unemployment rates, land values, and commodity prices; and • A discounted cash flow analysis, which relies upon each of the above model outputs, plus the contractual terms of each financial asset, and the effective interest rate of each financial asset. Management evaluates these assumptions by considering many relevant factors, including: • economic conditions; • geographic and agricultural commodity/product concentrations in the portfolio; • the credit profile of the portfolio, including risk ratings and financial metrics; • delinquency trends of the portfolio; • historical charge-off and recovery activities of the portfolio; and 17 • other factors to capture current portfolio trends and characteristics that differ from historical experience. Management believes that its methodology produces a reasonable estimate of expected credit losses, as of the balance sheet date, for the expected life of all of its financial assets. Allowance for Loss on Available-for-Sale (AFS) Securities To measure current expected credit losses on impaired AFS securities, Farmer Mac first considers those impaired securities that: 1) Farmer Mac does not intend to sell, and 2) it is not more likely than not that Farmer Mac will be required to sell before recovering its amortized cost basis. In assessing whether a credit loss exists, Farmer Mac compares the present value, discounted at the security's effective interest rate, of cash flows expected to be collected from an impaired AFS debt security to its amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis of the impaired security, a credit loss exists and Farmer Mac records an allowance for loss for that credit loss. However, the amount of that allowance is limited by the amount that the security’s fair value is less than its amortized cost basis. Accrued interest receivable is recorded separately on the Consolidated Balance Sheet, and the allowance for credit losses excludes uncollectible accrued interest receivable. Collateral Dependent Assets ("CDAs") CDAs are loans, loans underlying LTSPCs, or off-balance sheet credit exposures in which the borrower is either in foreclosure or is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral by Farmer Mac. Farmer Mac estimates the current expected credit loss on CDAs based upon the appraised value of the collateral, the costs to sell it, and any applicable credit protection such as a guarantee. COVID-19 Payment Deferments The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law on March 27, 2020. Section 4013 of the CARES Act titled “Temporary Relief from Troubled Debt Restructurings” provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings (“TDRs”) for a limited period of time to account for the effects of the novel coronavirus disease 2019 ("COVID-19"). On April 10, 2020, Farmer Mac’s prudential regulator, the Office of Secondary Market Oversight (OSMO) within the Farm Credit Administration (FCA), issued guidance to Farmer Mac on loan servicing and reporting TDRs for lines of business affected by the COVID-19 outbreak. This guidance was consistent with the guidance provided by other financial regulatory agencies and the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to the COVID-19 national emergency are not TDRs when the borrower was not past due on loan payments before the March 13, 2020 presidential proclamation declaring the COVID-19 outbreak a national emergency. During second quarter 2020, Farmer Mac implemented the guidance from FCA by granting up to 6-month payment deferments to borrowers who have been economically impacted by COVID-19. Farmer Mac deems loans under a COVID-19 payment deferment not to be past due and continues to accrue interest on those loans. Furthermore, Farmer Mac does not consider a payment deferment on any such loan to be a troubled debt restructuring. For the purpose of estimating expected credit losses on Farm & Ranch loans held for investment, Farmer Mac does consider payment deferments along with other available credit and economic information that pertains to that portfolio. 18 (d) New Accounting Standards Recently Adopted Accounting Guidance Standard Description Date of Adoption Effect on Consolidated Financial Statements ASU 2016-13 , Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments This Update required entities to measure all expected credit losses for financial assets held at amortized cost at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts, as well as requiring entities to use forward-looking information to form their credit loss estimates. January 1, 2020 In first quarter 2020 Farmer Mac adopted the new guidance. The cumulative-effect adjustment to retained earnings as of January 1, 2020 reflected application of the new guidance and did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. For more information on the transition adjustment see Table 1.5 below. ASU 2017-08 , Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium by requiring the premium to be amortized to the earliest call date. There is no required accounting change for securities held at a discount in this Update. January 1, 2020 The adoption of this Update did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. ASU 2018-13 , Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurements, including the consideration of costs and benefits. Certain disclosure requirements were either removed, modified, or added. January 1, 2020 The adoption of this Update did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. The following table presents the impact of adopting CECL on January 1, 2020 on our allowance and retained earnings: Table 1.5 December 31, 2019 Transition Adjustment January 1, 2020 (in thousands) Allowance: Farm & Ranch: Loans $ 10,454 $ ( 3,909 ) $ 6,545 Long-term standby purchase commitments and guarantees 2,164 ( 148 ) 2,016 Rural Utilities: Loans — 5,378 5,378 Long-term standby purchase commitments — 1,011 1,011 Farmer Mac Guaranteed Securities: AgVantage — 315 315 Investment Securities — 9 9 Total Allowance $ 12,618 $ 2,656 $ 15,274 Retained Earnings $ 457,047 $ ( 2,099 ) $ 454,948 19 Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements Standard Description Date of Planned Adoption Effect on Consolidated Financial Statements ASU 2020-04 , Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting The amendments in this Update provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. They provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. Farmer Mac is currently evaluating the impact of the discontinuation of LIBOR on the consolidated financial statements and the applicability of the optional guidance provided by this Update. (e) Reclassifications Certain reclassifications of prior period information were made to conform to the current period presentation. 2. INVESTMENT SECURITIES The following tables set forth information about Farmer Mac's investment securities as of September 30, 2020 and December 31, 2019: Table 2.1 As of September 30, 2020 Amount Outstanding Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,700 $ — $ 19,700 $ ( 37 ) $ — $ ( 591 ) $ 19,072 Floating rate asset-backed securities 9,205 — 9,205 — — ( 4 ) 9,201 Floating rate Government/GSE guaranteed mortgage-backed securities 2,279,737 33 2,279,770 — 9,415 ( 3,152 ) 2,286,033 Fixed rate GSE guaranteed mortgage-backed securities 285 — 285 — 33 — 318 Fixed rate U.S. Treasuries 1,204,308 9,406 1,213,714 — 3,861 ( 9 ) 1,217,566 Total available-for-sale 3,513,235 9,439 3,522,674 ( 37 ) 13,309 ( 3,756 ) 3,532,190 Held-to-maturity: Floating rate Government/GSE guaranteed mortgage-backed securities (3) 45,032 — 45,032 — 1,153 — 46,185 Total investment securities $ 3,558,267 $ 9,439 $ 3,567,706 $ ( 37 ) $ 14,462 $ ( 3,756 ) $ 3,578,375 (1) Amounts presented exclude $ 5.7 million of accrued interest receivable on investment securities as of September 30, 2020. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statement of operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The held-to-maturity investment securities had a weighted average yield of 1.5 % as of September 30, 2020. 20 As of December 31, 2019 Amount Outstanding Unamortized Premium/(Discount) Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,700 $ — $ 19,700 $ — $ ( 788 ) $ 18,912 Floating rate asset-backed securities 11,092 — 11,092 — ( 7 ) 11,085 Floating rate Government/GSE guaranteed mortgage-backed securities 1,633,731 1,174 1,634,905 2,414 ( 4,736 ) 1,632,583 Fixed rate GSE guaranteed mortgage-backed securities 315 — 315 25 — 340 Fixed rate U.S. Treasuries 1,295,210 208 1,295,418 1,520 ( 15 ) 1,296,923 Total available-for-sale 2,960,048 1,382 2,961,430 3,959 ( 5,546 ) 2,959,843 Held-to-maturity: Floating rate Government/GSE guaranteed mortgage-backed securities (1) 45,032 — 45,032 953 — 45,985 Total investment securities $ 3,005,080 $ 1,382 $ 3,006,462 $ 4,912 $ ( 5,546 ) $ 3,005,828 (1) The held-to-maturity investment securities had a weighted average yield of 3.3 % as of December 31, 2019. Farmer Mac did not sell any securities from its available-for-sale investment portfolio during the three and nine months ended September 30, 2020 and 2019. As of September 30, 2020 and December 31, 2019, unrealized losses on available-for-sale investment securities were as follows: Table 2.2 As of September 30, 2020 Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (dollars in thousands) Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,072 $ ( 591 ) Floating rate asset-backed securities — — 6,873 ( 4 ) Floating rate Government/GSE guaranteed mortgage-backed securities 154,452 ( 464 ) 403,469 ( 2,688 ) Fixed rate U.S. Treasuries 50,861 ( 9 ) — — Total $ 205,313 $ ( 473 ) $ 429,414 $ ( 3,283 ) Number of securities in loss position 27 63 21 As of December 31, 2019 Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (dollars in thousands) Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 18,912 $ ( 788 ) Floating rate asset-backed securities 2,583 ( 1 ) 8,502 ( 6 ) Floating rate Government/GSE guaranteed mortgage-backed securities 841,993 ( 2,244 ) 436,621 ( 2,492 ) Fixed rate U.S. Treasuries 35,107 ( 15 ) — — Total $ 879,683 $ ( 2,260 ) $ 464,035 $ ( 3,286 ) Number of securities in loss position 57 62 The unrealized losses presented above are principally due to a general widening of market spreads and changes in the levels of interest rates from the dates of acquisition to September 30, 2020 and December 31, 2019, as applicable. The resulting decrease in fair values reflects an increase in the perceived risk by the financial markets related to those securities. As of both September 30, 2020 and December 31, 2019, all of the investment securities in an unrealized loss position either were backed by the full faith and credit of the U.S. government or had credit ratings of at least "AA+." Securities in unrealized loss positions for 12 months or longer have a fair value as of September 30, 2020 that is, on average, approximately 99.2 % of their amortized cost basis. Farmer Mac believes that all of these unrealized losses are recoverable within a reasonable period of time by way of maturity or changes in credit spreads. The amortized cost, fair value, and weighted-average yield of available-for-sale investment securities by remaining contractual maturity as of September 30, 2020 are set forth below. Asset-backed and mortgage-backed securities are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets. Table 2.3 As of September 30, 2020 Available-for-Sale Securities Amortized Cost Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 1,142,369 $ 1,146,222 2.01 % Due after one year through five years 361,971 362,065 0.76 % Due after five years through ten years 1,129,147 1,134,255 0.67 % Due after ten years 889,187 889,648 0.69 % Total $ 3,522,674 $ 3,532,190 1.12 % 22 3. FARMER MAC GUARANTEED SECURITIES AND USDA SECURITIES The following tables set forth information about on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities as of September 30, 2020 and December 31, 2019: Table 3.1 As of September 30, 2020 Unpaid Principal Balance Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Held-to-maturity: AgVantage $ 1,164,353 $ ( 73 ) $ 1,164,280 $ ( 216 ) $ 25,969 $ ( 99 ) $ 1,189,934 Farmer Mac Guaranteed USDA Securities 36,414 92 36,506 — 1,026 ( 1 ) 37,531 Total Farmer Mac Guaranteed Securities 1,200,767 19 1,200,786 ( 216 ) 26,995 ( 100 ) 1,227,465 USDA Securities 2,381,416 29,432 2,410,848 — 105,721 ( 1,398 ) 2,515,171 Total held-to-maturity $ 3,582,183 $ 29,451 $ 3,611,634 $ ( 216 ) $ 132,716 $ ( 1,498 ) $ 3,742,636 Available-for-sale: AgVantage $ 7,149,082 $ 1,524 $ 7,150,606 $ ( 330 ) $ 394,280 $ ( 32,918 ) $ 7,511,638 Trading: USDA Securities (3) $ 6,617 $ 352 $ 6,969 $ — $ 10 $ ( 149 ) $ 6,830 (1) Amounts presented exclude $ 32.7 million, $ 41.1 million, and $ 0.1 million of accrued interest receivable on available-for-sale, held-to-maturity, and trading securities, respectively, as of September 30, 2020. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the statement of financial operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The trading USDA securities had a weighted average yield of 5.09 % as of September 30, 2020. As of December 31, 2019 Unpaid Principal Balance Unamortized Premium/(Discount) Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Held-to-maturity: AgVantage $ 1,415,584 $ ( 174 ) $ 1,415,410 $ 15,300 $ ( 164 ) $ 1,430,546 Farmer Mac Guaranteed USDA Securities 31,887 154 32,041 839 — 32,880 Total Farmer Mac Guaranteed Securities 1,447,471 ( 20 ) 1,447,451 16,139 ( 164 ) 1,463,426 USDA Securities 2,190,671 41,489 2,232,160 54,356 ( 758 ) 2,285,758 Total held-to-maturity $ 3,638,142 $ 41,469 $ 3,679,611 $ 70,495 $ ( 922 ) $ 3,749,184 Available-for-sale: AgVantage $ 7,017,095 $ ( 124 ) $ 7,016,971 $ 161,316 $ ( 35,262 ) $ 7,143,025 Trading: USDA Securities (1) $ 8,400 $ 479 $ 8,879 $ 61 $ ( 27 ) $ 8,913 (1) The trading USDA securities had a weighted average yield of 5.20 % as of December 31, 2019. 23 As of September 30, 2020 and December 31, 2019, unrealized losses on held-to-maturity and available-for-sale on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities were as follows: Table 3.2 As of September 30, 2020 Held-to-Maturity and Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (in thousands) Held-to-maturity: AgVantage $ 49,901 $ ( 99 ) $ — $ — Farmer Mac Guaranteed USDA Securities 45 ( 1 ) — — USDA Securities $ — $ — $ 21,521 $ ( 1,398 ) Total held-to-maturity $ 49,946 $ ( 100 ) $ 21,521 $ ( 1,398 ) Available-for-sale: AgVantage $ 333,544 $ ( 445 ) $ 972,161 $ ( 32,473 ) As of December 31, 2019 Held-to-Maturity and Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (in thousands) Held-to-maturity: AgVantage $ — $ — $ 301,836 $ ( 164 ) USDA Securities — — 27,089 ( 758 ) Total held-to-maturity $ — $ — $ 328,925 $ ( 922 ) Available-for-sale: AgVantage $ 225,239 $ ( 2,203 ) $ 1,394,802 $ ( 33,059 ) The unrealized losses presented above are principally due to changes in interest rates from the date of acquisition to September 30, 2020 and December 31, 2019, as applicable. The unrealized losses on the held-to-maturity USDA Securities as of both September 30, 2020 and December 31, 2019 reflect their increased cost basis resulting from their transfer to held-to-maturity as of October 1, 2016. The credit exposure related to Farmer Mac's USDA Guarantees line of business is covered by the full faith and credit guarantee of the United States of America. As of September 30, 2020, Farmer Mac had executed COVID-19 payment deferments on loans with unpaid principal balances of $ 83.8 million underlying USDA Securities. The unrealized losses from AgVantage securities were on 12 and 17 available-for-sale securities as of September 30, 2020 and December 31, 2019, respectively. There were 2 and 4 held-to-maturity AgVantage securities with an unrealized loss as of September 30, 2020 and December 31, 2019, 24 respectively. As of September 30, 2020 and December 31, 2019, 7 and 13 available-for-sale AgVantage securities, respectively, had been in a loss position for more than 12 months. During the three and nine months ended September 30, 2020 and 2019, Farmer Mac had no sales of Farmer Mac Guaranteed Securities or USDA Securities and, therefore, Farmer Mac realized no gains or losses. The amortized cost, fair value, and weighted-average yield of available-for-sale and held-to-maturity Farmer Mac Guaranteed Securities and USDA Securities by remaining contractual maturity as of September 30, 2020 are set forth below. The balances presented are based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets. Table 3.3 As of September 30, 2020 Available-for-Sale Securities Amortized Cost (1) Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 1,461,551 $ 1,468,084 1.48 % Due after one year through five years 3,102,003 3,214,595 2.24 % Due after five years through ten years 1,073,248 1,157,450 2.42 % Due after ten years 1,513,804 1,671,509 2.57 % Total $ 7,150,606 $ 7,511,638 2.18 % (1) Amounts presented exclude $ 32.7 million of accrued interest receivable. As of September 30, 2020 Held-to-Maturity Securities Amortized Cost (1) Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 482,593 $ 486,460 2.75 % Due after one year through five years 765,529 790,138 3.15 % Due after five years through ten years 226,396 234,799 2.96 % Due after ten years 2,137,116 2,231,239 3.25 % Total $ 3,611,634 $ 3,742,636 3.11 % (1) Amounts presented exclude $ 41.1 million of accrued interest receivable. 4. FINANCIAL DERIVATIVES Farmer Mac enters into financial derivative transactions to protect against risk from the effects of market price, or interest rate movements, on the value of certain assets, future cash flows, or debt issuance, and not for trading or speculative purposes. For more information about Farmer Mac's financial derivatives, see Note 6 in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 25, 2020. 25 The following tables summarize information related to Farmer Mac's financial derivatives on a gross basis without giving consideration to master netting arrangements as of September 30, 2020 and December 31, 2019: Table 4.1 As of September 30, 2020 Fair Value Weighted- Average Pay Rate Weighted- Average Receive Rate Weighted- Average Forward Price Weighted- Average Remaining Term (in years) Notional Amount Asset (Liability) (dollars in thousands) Fair value hedges: Interest rate swaps: Pay fixed non-callable $ 5,410,407 $ 5,530 $ ( 4,106 ) 2.26 % 0.24 % 12.02 Receive fixed non-callable 2,435,729 — ( 11,532 ) 0.35 % 1.75 % 2.26 Receive fixed callable 343,500 4,460 — 0.18 % 1.78 % 3.41 Cash flow hedges: Interest rate swaps: Pay fixed non-callable 482,000 1,597 ( 10,739 ) 2.02 % 0.56 % 6.17 No hedge designation: Interest rate swaps: Pay fixed non-callable 356,864 — ( 10,879 ) 2.38 % 0.24 % 4.26 Receive fixed non-callable 2,622,182 — — 0.16 % 0.98 % 0.73 Receive fixed callable 200,000 1 ( 5 ) 0.07 % 0.08 % 0.97 Basis swaps 3,268,500 1,242 ( 188 ) 0.22 % 0.25 % 1.29 Treasury futures 4,400 9 — 139.73 Credit valuation adjustment ( 2 ) 92 Total financial derivatives $ 15,123,582 $ 12,837 $ ( 37,357 ) Collateral (held)/pledged ( 600 ) 225,646 Net amount $ 12,237 $ 188,289 26 As of December 31, 2019 Fair Value Weighted- Average Pay Rate Weighted- Average Receive Rate Weighted- Average Forward Price Weighted- Average Remaining Term (in years) Notional Amount Asset (Liability) (dollars in thousands) Fair value hedges: Interest rate swaps: Pay fixed non-callable $ 4,955,686 $ 7,163 $ ( 3,281 ) 2.47 % 1.93 % 11.26 Receive fixed non-callable 1,413,200 76 ( 5,329 ) 1.88 % 2.13 % 1.25 Receive fixed callable 524,000 476 ( 772 ) 1.52 % 1.91 % 2.83 Cash flow hedges: Interest rate swaps: Pay fixed non-callable 428,000 1,882 ( 1,514 ) 2.36 % 2.12 % 5.43 No hedge designation: Interest rate swaps: Pay fixed non-callable 342,745 7 ( 14,046 ) 3.55 % 2.00 % 5.51 Receive fixed non-callable 3,124,148 49 ( 1,637 ) 1.88 % 2.06 % 1.66 Receive fixed callable 525,000 79 ( 80 ) 1.64 % 1.68 % 0.83 Basis swaps 2,670,000 787 ( 395 ) 1.86 % 1.76 % 0.90 Treasury futures 39,400 — ( 51 ) 128.29 Credit valuation adjustment — 63 Total financial derivatives $ 14,022,179 $ 10,519 $ ( 27,042 ) Collateral (held)/pledged ( 2,685 ) 132,129 Net amount $ 7,834 $ 105,087 As of September 30, 2020, Farmer Mac expects to reclassify $ 5.3 million after tax from accumulated other comprehensive income to earnings over the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges after September 30, 2020. During the three and nine months ended September 30, 2020 and 2019, there were no gains or losses from interest rate swaps designated as cash flow hedges reclassified to earnings because it was probable that the originally forecasted transactions would occur. 27 The following table summarizes the net income/(expense) recognized in the consolidated statements of operations related to derivatives for the three and nine months ended September 30, 2020 and 2019: Table 4.2 For the Three Months Ended September 30, 2020 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Losses on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations $ 45,335 $ 56,204 $ ( 63,974 ) $ ( 564 ) $ 37,001 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 20,373 ) ( 6,194 ) 9,605 — ( 16,962 ) Recognized on hedged items 31,439 10,965 ( 12,328 ) — 30,076 Discount amortization recognized on hedged items — — ( 191 ) — ( 191 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 11,066 $ 4,771 $ ( 2,914 ) $ — $ 12,923 (Losses)/gains on fair value hedging relationships: Recognized on derivatives $ 38,363 $ 28,198 $ ( 9,665 ) $ — $ 56,896 Recognized on hedged items ( 41,855 ) ( 29,372 ) 9,284 — ( 61,943 ) (Losses)/gains on fair value hedging relationships $ ( 3,492 ) $ ( 1,174 ) $ ( 381 ) $ — $ ( 5,047 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ ( 1,814 ) $ — $ ( 1,814 ) Recognized on hedged items — — ( 711 ) — ( 711 ) Discount amortization recognized on hedged items — — ( 4 ) — ( 4 ) Expense recognized on cash flow hedges $ — $ — $ ( 2,529 ) $ — $ ( 2,529 ) Losses on financial derivatives not designated in hedging relationships: Losses on interest rate swaps $ — $ — $ — $ ( 4,292 ) $ ( 4,292 ) Interest expense on interest rate swaps — — — 3,800 3,800 Treasury futures — — — ( 72 ) ( 72 ) Losses on financial derivatives not designated in hedge relationships $ — $ — $ — $ ( 564 ) $ ( 564 ) 28 For The Three Months Ended September 30, 2019 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Losses on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations: $ 81,649 $ 56,992 $ ( 121,384 ) $ ( 7,360 ) $ 9,897 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 1,051 ) ( 584 ) ( 961 ) — ( 2,596 ) Recognized on hedged items 31,435 7,321 ( 10,778 ) — 27,978 Discount amortization recognized on hedged items — — ( 146 ) — ( 146 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 30,384 $ 6,737 $ ( 11,885 ) $ — $ 25,236 (Losses)/gains on fair value hedging relationships: Recognized on derivatives $ ( 87,495 ) $ ( 35,597 ) $ 1,979 $ — $ ( 121,113 ) Recognized on hedged items 84,164 33,493 ( 1,034 ) — 116,623 (Losses)/gains on fair value hedging relationships $ ( 3,331 ) $ ( 2,104 ) $ 945 $ — $ ( 4,490 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ 317 $ — $ 317 Recognized on hedged items — — ( 2,726 ) — ( 2,726 ) Discount amortization recognized on hedged items — — ( 1 ) — ( 1 ) Expense recognized on cash flow hedges $ — $ — $ ( 2,410 ) $ — $ ( 2,410 ) Losses on financial derivatives not designated in hedge relationships: Losses on interest rate swaps $ — $ — $ — $ ( 7,402 ) $ ( 7,402 ) Interest expense on interest rate swaps — — — 127 127 Treasury futures — — — ( 85 ) ( 85 ) Losses on financial derivatives not designated in hedge relationships $ — $ — $ — $ ( 7,360 ) $ ( 7,360 ) 29 For the Nine Months Ended September 30, 2020 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Losses on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations $ 178,644 $ 172,230 $ ( 251,789 ) $ ( 3,339 ) $ 95,746 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 38,781 ) ( 12,607 ) 16,671 — ( 34,717 ) Recognized on hedged items 95,366 29,454 ( 39,325 ) — 85,495 Discount amortization recognized on hedged items — — ( 552 ) — ( 552 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 56,585 $ 16,847 $ ( 23,206 ) $ — $ 50,226 (Losses)/gains on fair value hedging relationships: Recognized on derivatives $ ( 264,797 ) $ ( 124,322 ) $ 52,991 $ — $ ( 336,128 ) Recognized on hedged items 257,575 119,072 ( 53,628 ) — 323,019 (Losses)/gains on fair value hedging relationships $ ( 7,222 ) $ ( 5,250 ) $ ( 637 ) $ — $ ( 13,109 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ ( 3,817 ) $ — $ ( 3,817 ) Recognized on hedged items — — ( 3,863 ) — ( 3,863 ) Discount amortization recognized on hedged items — — ( 6 ) — ( 6 ) Expense recognized on cash flow hedges $ — $ — $ ( 7,686 ) $ — $ ( 7,686 ) (Losses)/gains on financial derivatives not designated in hedging relationships: Losses on interest rate swaps $ — $ — $ — $ ( 2,415 ) $ ( 2,415 ) Interest expense on interest rate swaps — — — 1,143 1,143 Treasury futures — — — ( 2,067 ) ( 2,067 ) (Losses)/gains on financial derivatives not designated in hedge relationships $ — $ — $ — $ ( 3,339 ) $ ( 3,339 ) 30 For The Nine Months Ended September 30, 2019 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Gains on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations: $ 252,629 $ 167,792 $ ( 358,374 ) $ 1,193 $ 63,240 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives 1,665 ( 808 ) ( 6,751 ) — ( 5,894 ) Recognized on hedged items 86,628 18,199 ( 32,594 ) — 72,233 Discount amortization recognized on hedged items — — ( 460 ) — ( 460 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 88,293 $ 17,391 $ ( 39,805 ) $ — $ 65,879 Gains/(losses) on fair value hedging relationships: Recognized on derivatives $ ( 262,886 ) $ ( 89,631 ) $ 27,101 $ — $ ( 325,416 ) Recognized on hedged items 258,155 83,524 ( 24,880 ) — 316,799 Gains/(losses) on fair value hedging relationships $ ( 4,731 ) $ ( 6,107 ) $ 2,221 $ — $ ( 8,617 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ 1,260 $ — $ 1,260 Recognized on hedged items — — ( 8,142 ) — ( 8,142 ) Discount amortization recognized on hedged items — — ( 3 ) — ( 3 ) Expense recognized on cash flow hedges $ — $ — $ ( 6,885 ) $ — $ ( 6,885 ) Gains on financial derivatives not designated in hedge relationships: Gains on interest rate swaps $ — $ — $ — $ 5,920 $ 5,920 Interest expense on interest rate swaps — — — ( 3,321 ) ( 3,321 ) Treasury futures — — — ( 1,406 ) ( 1,406 ) Gains on financial derivatives not designated in hedge relationships $ — $ — $ — $ 1,193 $ 1,193 31 The following table shows the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships as of September 30, 2020 and December 31, 2019: Table 4.3 Hedged Items in Fair Value Relationship Carrying Amount of Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustments included in the Carrying Amount of the Hedged Assets/(Liabilities) September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019 (in thousands) Farmer Mac Guaranteed Securities, Available-for-Sale, at fair value (1) $ 4,277,240 $ 4,092,611 $ 437,777 $ 180,215 Loans held for investment, at amortized cost (2)(3) 1,628,241 1,050,335 156,979 37,907 Notes Payable (4) ( 2,838,690 ) ( 2,761,052 ) ( 61,149 ) ( 7,433 ) (1) Includes $ 1.6 million of hedging adjustments on discontinued hedging relationships as of September 30, 2020. (2) Includes $ 1.4 million of hedging adjustments on a discontinued hedging relationship as of September 30, 2020. (3) Includes $ 0.2 million as of September 30, 2020 in fair value adjustment, currently included in "Prepaid expenses and other assets" related to hedge accounting designations of purchase commitments (4) Carrying amount represents amortized cost. The following table shows Farmer Mac's credit exposure to interest rate swap counterparties as of September 30, 2020 and December 31, 2019: Table 4.4 September 30, 2020 Gross Amount Recognized (1) Counterparty Netting Net Amount Presented in the Consolidated Balance Sheet (in thousands) Assets: Derivatives Interest rate swap $ 114,788 $ 114,165 $ 623 Liabilities: Derivatives Interest rate swap $ 718,812 $ 714,470 $ 4,342 (1) Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest. December 31, 2019 Gross Amount Recognized (1) Counterparty Netting Net Amount Presented in the Consolidated Balance Sheet (in thousands) Assets: Derivatives Interest rate swaps $ 56,139 $ 53,771 $ 2,368 Liabilities: Derivatives Interest rate swaps $ 305,584 $ 291,326 $ 14,258 (1) Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest. 32 As of September 30, 2020, Farmer Mac held $ 0.6 million of cash and no investment securities as collateral for its derivatives in net asset positions, compared to $ 2.7 million of cash and no investment securities as collateral for its derivatives in net asset positions as of December 31, 2019. Farmer Mac posted $ 13.6 million cash and $ 212.1 million of investment securities as of September 30, 2020 and posted $ 0.5 million cash and $ 131.7 million investment securities as of December 31, 2019. Farmer Mac records posted cash as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of prepaid expenses and other assets. Any investment securities posted as collateral are included in the investment securities balances on the consolidated balance sheets. If Farmer Mac had breached certain provisions of the derivative contracts as of September 30, 2020 and December 31, 2019, it could have been required to settle its obligations under the agreements, but would not have been required to post additional collateral. As of September 30, 2020 and December 31, 2019, there were no financial derivatives in a net payable position where Farmer Mac was required to pledge collateral which the counterparty had the right to sell or repledge. Of Farmer Mac's $ 15.1 billion notional amount of interest rate swaps outstanding as of September 30, 2020, $ 12.4 billion were cleared through the swap clearinghouse, the Chicago Mercantile Exchange ("CME"). Of Farmer Mac's $ 14.0 billion notional amount of interest rate swaps outstanding as of December 31, 2019, $ 11.0 billion were cleared through the CME. During the first half of 2020 and throughout 2019, Farmer Mac increased its use of non-cleared basis swaps as it began to prepare for the transition away from the use of LIBOR as a reference rate. For more information about interest rate swaps cleared through a clearinghouse, see Note 6 in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 25, 2020. 5. LOANS Farmer Mac classifies loans as either held for investment or held for sale. Loans held for investment are recorded at the unpaid principal balance, net of unamortized premium or discount and other cost basis adjustments. Loans held for sale are reported at the lower of cost or fair value determined on a pooled basis. During the three months ended September 30, 2020, Farmer Mac acquired $ 59.2 million in loans held for sale, of which it sold $ 15.0 million during the quarter, and reclassified $ 24.2 million as loans held for investment. As of September 30, 2020 and December 31, 2019, Farmer Mac had $ 20.0 million and no loans held for sale, respectively. 33 The following table includes loans held for investment and loans held for sale and displays the composition of the loan balances as of September 30, 2020 and December 31, 2019: Table 5.1 As of September 30, 2020 (1) As of December 31, 2019 (2) Unsecuritized In Consolidated Trusts Total Unsecuritized In Consolidated Trusts Total (in thousands) Farm & Ranch $ 4,580,917 $ 1,276,407 $ 5,857,324 $ 3,675,640 $ 1,600,917 $ 5,276,557 Rural Utilities 2,109,355 — 2,109,355 1,671,293 — 1,671,293 Total unpaid principal balance (3) 6,690,272 1,276,407 7,966,679 5,346,933 1,600,917 6,947,850 Unamortized premiums, discounts, fair value hedge basis adjustment, and other cost basis adjustments 154,789 — 154,789 44,044 — 44,044 Total loans 6,845,061 1,276,407 8,121,468 5,390,977 1,600,917 6,991,894 Allowance for losses ( 14,878 ) ( 943 ) ( 15,821 ) ( 8,853 ) ( 1,601 ) ( 10,454 ) Total loans, net of allowance $ 6,830,183 $ 1,275,464 $ 8,105,647 $ 5,382,124 $ 1,599,316 $ 6,981,440 (1) Allowance for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020. (2) Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020, Farmer Mac maintained an allowance for losses to cover estimated probable incurred losses on loans held. (3) Unpaid principal balance is the basis of presentation in disclosures of outstanding balances for Farmer Mac's lines of business. Allowance for Losses The following table is a summary, by asset type, of the allowance for losses as of September 30, 2020 and December 31, 2019: Table 5.2 September 30, 2020 (1) December 31, 2019 (2) Allowance for Losses Allowance for Losses (in thousands) Loans: Farm & Ranch $ 5,739 $ 10,454 Rural Utilities 10,082 — Total $ 15,821 $ 10,454 (1) Allowance for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020. (2) Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020, Farmer Mac maintained an allowance for loan losses to cover estimated probable incurred losses on loans held. 34 The following is a summary of the changes in the allowance for losses for the three and nine month period ended September 30, 2020 and 2019: Table 5.3 For the Three Months Ended For the Nine Months Ended September 30, 2020 (1) September 30, 2019 (2) September 30, 2020 (1) September 30, 2019 (2) Allowance for Losses Allowance for Losses Allowance for Losses Allowance for Losses (in thousands) Farm & Ranch: Beginning Balance $ 6,039 $ 7,264 $ 10,454 $ 7,017 Cumulative effect adjustment from adoption of current expected credit loss standard — — ( 3,909 ) — Adjusted Beginning Balance 6,039 7,264 6,545 7,017 (Release of)/provision for losses ( 300 ) 760 ( 412 ) 1,074 Charge-offs — — ( 394 ) ( 67 ) Ending Balance (3) $ 5,739 $ 8,024 $ 5,739 $ 8,024 Rural Utilities: Beginning Balance $ 8,900 $ — $ — $ — Cumulative effect adjustment from adoption of current expected credit loss standard — — 5,378 — Adjusted Beginning Balance 8,900 — 5,378 — Provision for losses 1,182 — 4,704 — Charge-offs — — — — Ending Balance (4) $ 10,082 $ — $ 10,082 $ — (1) Allowance for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020. (2) Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020, Farmer Mac maintained an allowance for loan losses to cover estimated probable incurred losses on loans held. (3) Allowance for losses includes $ 1.8 million for collateral dependent assets secured by agricultural real estate. (4) Allowance for losses includes no allowance for collateral dependent assets. The cumulative transition adjustment decrease of $ 3.9 million in the Farm & Ranch portfolio was primarily driven by differences in the way that the two loss models measure the impact of low loan-to-value ratios in that portfolio. Under the previous accounting standard, Farmer Mac's estimated incurred loss model was based on historical weighted-average loss rates from realized losses within commodities and risk ratings. The historical weighted average loss rates were then applied to sub-portfolios, as disaggregated by commodity and risk rating, to calculate the general allowance. Under the CECL accounting standard, Farmer Mac's current expected credit losses are calculated individually based on the expected probability of default and the expected loss-given-default for each loan. The low loan-to-value ratios in the Farm & Ranch portfolio result in low individual losses-given-default. Thus, our expected credit losses as of January 1, 2020 were less than our estimate of incurred losses as of December 31, 2019. The cumulative transition adjustment increase of $ 5.4 million in the Rural Utilities portfolio was primarily driven by the change from measuring incurred probable credit losses to measuring expected credit losses over the expected lives of these loans. Farmer Mac has never experienced a credit loss in its Rural Utilities portfolio. Additionally, these loans have strong credit ratings and performance, which supported Farmer Mac's estimate of no incurred credit losses under the previous accounting standard. Upon the adoption of CECL, Farmer Mac is now required to measure its expected credit losses for the entire expected life of all 35 financial instruments, including its Rural Utilities loans. To estimate expected credit losses on these loans, Farmer Mac relies upon industry data from ratings agencies and publicly available information as disclosed in the securities filings of other major lenders who serve the utilities industry. Under the CECL accounting standard, Farmer Mac's loss allowance model for these loans is primarily impacted by the long-term maturities of the loans and their low probability of prepayment. In addition, the highly-specialized nature of power generation and transmission and other rural infrastructure facilities results in significant expected losses given default even though the probability of default is low. Thus, the long-term expected lives of these loans combined with high losses given default result in an estimate of expected losses although we have never incurred a credit loss in this portfolio. The provision to the allowance for loan losses of $ 0.9 million recorded during third quarter 2020 was primarily due to the impact of net new loan volume in the Rural Utilities portfolio and credit downgrades on existing volume during the quarter. The impact of the Rural Utilities portfolio on the net increase to the provision was partially offset by improving economic factors that uniquely impacted the Farm & Ranch portfolio, specifically continued improvements in commodity prices and continued expectations for stable farm land values. The provision to the allowance for loan losses of $ 4.3 million recorded during the nine months ended September 30, 2020 was primarily due to the impact of net new loan volume in the Rural Utilities portfolio and the impact of economic factor forecasts on the Rural Utilities portfolio, especially continued expected higher unemployment, as a result of the COVID-19 pandemic and the resulting economic volatility. The provision for the allowance for loan losses recorded during three and nine months ended September 30, 2019 was attributable to a decrease in the portfolio credit quality, primarily related to idiosyncratic factors of a few large loans and less related to systemic, macroeconomic factors. The $ 0.1 million charge-off that occurred during the nine months ended September 30, 2019 related to the foreclosure of one part-time farm loan. The following table presents the unpaid principal balances by delinquency status of Farmer Mac's loans and non-performing assets as of September 30, 2020: Table 5.4 As of September 30, 2020 Accruing Current (5) 30-59 Days 60-89 Days 90 Days and Greater (2) Total Past Due Nonaccrual loans (3)(4) Total Loans (in thousands) Loans (1) : Farm & Ranch $ 5,716,834 $ 3,513 $ 637 $ 6,901 $ 11,051 $ 129,439 $ 5,857,324 Rural Utilities 2,109,355 — — — — — 2,109,355 Total $ 7,826,189 $ 3,513 $ 637 $ 6,901 $ 11,051 $ 129,439 $ 7,966,679 (1) Amounts represent unpaid principal balance of risk rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Includes loans in consolidated trusts with beneficial interests owned by third parties that are 90 days or more past due. (3) Includes loans that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. (4) Includes $ 24.8 million of nonaccrual loans for which there was no associated allowance. During the three and nine months ended September 30, 2020, Farmer Mac received $ 1.2 million and $ 3.5 million, respectively, in interest on nonaccrual loans. (5) Includes $ 105.3 million of unpaid principal balance related to Farm & Ranch loans that Farmer Mac has executed a COVID-19 payment deferment. 36 The following tables present the unpaid principal balances of loans held and the related total allowance for losses by impairment method and commodity type as of December 31, 2019: Table 5.5 As of December 31, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) Ending Balance: Collectively evaluated for impairment $ 2,664,362 $ 1,161,900 $ 871,341 $ 356,920 $ 10,360 $ 4,597 $ 5,069,480 Individually evaluated for impairment 108,815 51,256 39,962 7,044 — — 207,077 Total Farm & Ranch loans $ 2,773,177 $ 1,213,156 $ 911,303 $ 363,964 $ 10,360 $ 4,597 $ 5,276,557 Allowance for Losses: Collectively evaluated for impairment $ 1,880 $ 1,362 $ 714 $ 249 $ 47 $ 4 $ 4,256 Individually evaluated for impairment 2,628 1,008 2,447 115 — — 6,198 Total Farm & Ranch loans $ 4,508 $ 2,370 $ 3,161 $ 364 $ 47 $ 4 $ 10,454 37 The following tables present by commodity type the unpaid principal balances, recorded investment, and specific allowance for losses related to impaired loans and the recorded investment in loans on nonaccrual status as of December 31, 2019: Table 5.6 As of December 31, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) Impaired Loans: With no specific allowance: Recorded investment $ 30,846 $ 16,696 $ 3,195 $ 1,398 $ — $ 56 $ 52,191 Unpaid principal balance 30,741 16,638 3,185 1,394 — 56 52,014 With a specific allowance: Recorded investment (1) 84,044 36,852 47,113 6,376 — — 174,385 Unpaid principal balance 83,772 36,732 46,984 6,356 — — 173,844 Associated allowance 2,725 1,051 2,636 129 — — 6,541 Total: Recorded investment 114,890 53,548 50,308 7,774 — 56 226,576 Unpaid principal balance 114,513 53,370 50,169 7,750 — 56 225,858 Associated allowance 2,725 1,051 2,636 129 — — 6,541 Recorded investment of loans on nonaccrual status (2) $ 34,037 $ 22,849 $ 28,441 $ 2,454 $ — $ — $ 87,781 (1) Impairment analysis was performed in the aggregate in consideration of similar risk characteristics of the assets and historical statistics on $ 159.1 million ( 70 %) of impaired loans as of December 31, 2019, which resulted in a specific allowance of $ 3.0 million. (2) Includes $ 30.1 million of loans that are less than 90 days delinquent but which have not met Farmer Mac's performance criteria for returning to accrual status. The following table presents by commodity type the average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2019: Table 5.7 September 30, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) For the Three Months Ended: Average recorded investment in impaired loans $ 106,535 $ 45,197 $ 36,859 $ 8,265 $ — $ 58 $ 196,914 Income recognized on impaired loans 178 166 87 105 — — 536 For the Nine Months Ended: Average recorded investment in impaired loans $ 93,088 $ 41,524 $ 31,189 $ 8,079 $ — $ 63 $ 173,943 Income recognized on impaired loans 879 586 504 227 — — 2,196 Net credit losses and 90-day delinquencies as of and for the periods indicated for loans held are presented in the table below. As of December 31, 2019, there were no delinquencies and no probable losses inherent in Farmer Mac's Rural Utilities loan portfolio and Farmer Mac had not experienced credit losses on any Rural Utilities loans. 38 Table 5.8 90-Day Delinquencies (1) Net Credit Losses As of For the Nine Months Ended December 31, 2019 September 30, 2019 (in thousands) Farm & Ranch loans $ 57,719 $ 131 (1) Includes loans that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. Of the $ 57.7 million of on-balance sheet loans reported as 90-day delinquencies as of December 31, 2019, no loans were subject to "removal-of-account" provisions. Rural Utilities As of December 31, 2019, no allowance for losses had been provided for Farmer Mac's Rural Utilities line of business based on the performance of the loans in this line of business and the credit quality of the collateral supporting these loans, as well as Farmer Mac's counterparty risk analysis. As of December 31, 2019, there were no delinquencies or probable losses inherent in Farmer Mac's Rural Utilities loans held or underlying LTSPCs. 39 Credit Quality Indicators The following tables present credit quality indicators related to Farm & Ranch loans and Rural Utilities loans held as of September 30, 2020, by year of origination: Table 5.9 As of September 30, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch (1) : Internally Assigned Risk Rating: Acceptable $ 1,423,112 $ 765,367 $ 507,218 $ 557,095 $ 499,642 $ 1,157,633 $ 472,209 $ 5,382,276 Special mention (2) 39,607 124,068 27,757 4,633 10,897 22,236 50,395 279,593 Substandard (3) 7,556 5,926 19,682 57,541 36,490 59,330 8,930 195,455 Total $ 1,470,275 $ 895,361 $ 554,657 $ 619,269 $ 547,029 $ 1,239,199 $ 531,534 $ 5,857,324 For the Three Months Ended: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended: Current period charge-offs $ — $ — $ — $ — $ — $ 394 $ — $ 394 Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ 394 $ — $ 394 (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 40 As of September 30, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities (1) : Internally Assigned Risk Rating: Acceptable $ 502,873 $ 819,099 $ 8,260 $ 92,223 $ 31,275 $ 638,281 $ 12,870 $ 2,104,881 Special mention (2) — — — — — — — — Substandard (3) — — — — — 4,474 — 4,474 Total $ 502,873 $ 819,099 $ 8,260 $ 92,223 $ 31,275 $ 642,755 $ 12,870 $ 2,109,355 For the Three Months Ended: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. The following table presents credit quality indicators related to Farm & Ranch loans held as of December 31, 2019: Table 5.10 As of December 31, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) Internally Assigned Risk Rating (1) Acceptable $ 2,556,956 $ 1,050,160 $ 825,234 $ 343,329 $ 10,360 $ 4,597 $ 4,790,636 Special mention (2) 107,406 111,739 46,107 13,591 — — 278,843 Substandard (3) 108,815 51,257 39,962 7,044 — — 207,078 Total $ 2,773,177 $ 1,213,156 $ 911,303 $ 363,964 $ 10,360 $ 4,597 $ 5,276,557 Commodity analysis of past due loans (1) $ 21,167 $ 15,828 $ 19,354 $ 1,370 $ — $ — $ 57,719 (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 41 6. GUARANTEES The following table presents the maximum principal amount of potential undiscounted future payments that Farmer Mac could be required to make under all off-balance sheet Farmer Mac Guaranteed Securities as of September 30, 2020 and December 31, 2019, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans: Table 6.1 Outstanding Balance of Off-Balance Sheet Farmer Mac Guaranteed Securities As of September 30, 2020 As of December 31, 2019 (in thousands) Farm & Ranch: Farmer Mac Guaranteed Securities $ 85,767 $ 107,322 USDA Guarantees: Farmer Mac Guaranteed USDA Securities 310,682 389,216 Institutional Credit: AgVantage Securities 6,068 7,567 Total off-balance sheet Farmer Mac Guaranteed Securities $ 402,517 $ 504,105 Eligible loans and other eligible assets may be placed into trusts that are used as vehicles for the securitization of the transferred assets and the Farmer Mac-guaranteed beneficial interests in the trusts are sold to investors. The following table summarizes the significant cash flows received from and paid to trusts used for Farmer Mac securitizations: Table 6.2 For the Nine Months Ended September 30, 2020 September 30, 2019 (in thousands) Proceeds from new securitizations $ 64,612 $ 199,396 Guarantee fees received 1,136 1,122 Farmer Mac presents a liability for its obligation to stand ready under its guarantee in "Guarantee and commitment obligation" on the consolidated balance sheets. The following table presents the liability and the weighted-average remaining maturity of all loans underlying off-balance sheet Farmer Mac Guaranteed Securities: Table 6.3 As of September 30, 2020 As of December 31, 2019 (dollars in thousands) Guarantee and commitment obligation $ 1,780 $ 2,230 Weighted average remaining maturity: Farmer Mac Guaranteed Securities 9.5 years 9.8 years AgVantage Securities 4.2 years 5.0 years 42 Long-Term Standby Purchase Commitments Farmer Mac has recorded a liability for its obligation to stand ready under the guarantee in the guarantee and commitment obligation on the consolidated balance sheets. The following table presents the liability, the maximum principal amount of potential undiscounted future payments that Farmer Mac could be requested to make under all LTSPCs, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans, as well as the weighted-average remaining maturity of all loans underlying LTSPCs: Table 6.4 As of September 30, 2020 As of December 31, 2019 (dollars in thousands) Guarantee and commitment obligation (1) $ 33,360 $ 34,470 Maximum principal amount 2,882,212 3,002,349 Weighted-average remaining maturity 15.1 years 15.2 years (1) Relates to LTSPCs issued or modified on or after January 1, 2003. 43 Reserve for Losses The following table is a summary, by asset type, of the reserve for losses as of September 30, 2020 and December 31, 2019: Table 6.5 September 30, 2020 (1) December 31, 2019 (2) Reserve for Losses Reserve for Losses (in thousands) Farm & Ranch: LTSPCs and Farmer Mac Guaranteed Securities $ 2,278 $ 2,164 Rural Utilities LTSPCs 1,290 — Total $ 3,568 $ 2,164 (1) Reserve for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020. (2) Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained a reserve for losses to cover estimated probable incurred losses on loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities. The following is a summary of the changes in the reserve for losses for the three and nine month period ended September 30, 2020 and 2019: Table 6.6 For the Three Months Ended For the Nine Months Ended September 30, 2020 (1) September 30, 2019 (2) September 30, 2020 (1) September 30, 2019 (2) Reserve for Losses Reserve for Losses Reserve for Losses Reserve for Losses (in thousands) Farm & Ranch: Beginning Balance $ 1,650 $ 1,880 $ 2,164 $ 2,167 Cumulative effect adjustment from adoption of current expected credit loss standard — — ( 148 ) — Adjusted Beginning Balance 1,650 1,880 2,016 2,167 Provision for/(release of) losses $ 628 $ ( 137 ) $ 262 $ ( 424 ) Ending Balance $ 2,278 $ 1,743 $ 2,278 $ 1,743 Rural Utilities: Beginning Balance $ 1,370 $ — $ — $ — Cumulative effect adjustment from adoption of current expected credit loss standard — — 1,011 — Adjusted Beginning Balance 1,370 — 1,011 — (Release of)/provision for losses $ ( 80 ) $ — $ 279 $ — Ending Balance $ 1,290 $ — $ 1,290 $ — (1) Reserve for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020. (2) Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained a reserve for losses to cover estimated probable incurred losses on loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities. The provision to the reserve for losses recorded during the three and nine months ended September 30, 2020 was primarily due to credit downgrades in the LTSPC portfolio. 44 The release from the reserve for losses recorded during third quarter 2019 was primarily attributable to a net volume decrease in off-balance sheet Farm & Ranch LTSPCs and slight improvements in off-balance sheet portfolio credit quality. The following table presents the unpaid principal balances by delinquency status of Farm & Ranch loans underlying LTSPCs. Farm & Ranch Farmer Mac Guaranteed Securities, Rural Utilities loans underlying LTSPCs, and non-performing assets as of September 30, 2020: Table 6.7 As of September 30, 2020 Current (2) 30-59 Days 60-89 Days 90 Days and Greater (1) Total Past Due Total Loans (in thousands) Farm and Ranch: LTSPCs and Farmer Mac Guaranteed Securities $ 2,352,454 $ 2,934 $ 22,690 $ 13,947 $ 39,571 $ 2,392,025 Rural Utilities: LTSPCs $ 575,954 $ — $ — $ — $ — $ 575,954 (1) Includes loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days of more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. (2) Includes $ 185.4 million of unpaid principal balance related to Farm & Ranch LTSPCs for which the lender has notified Farmer Mac of an executed COVID-19 payment deferment. The following tables present the unpaid principal balances of Farm & Ranch loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and the related reserve for losses by impairment method and commodity type as of December 31, 2019: Table 6.8 As of December 31, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) Ending Balance: Collectively evaluated for impairment: $ 1,151,983 $ 511,991 $ 581,377 $ 167,395 $ 66,106 $ 2,760 $ 2,481,612 Individually evaluated for impairment: 5,698 2,114 10,207 706 — 56 18,781 Total Farm & Ranch $ 1,157,681 $ 514,105 $ 591,584 $ 168,101 $ 66,106 $ 2,816 $ 2,500,393 Allowance for Losses: Collectively evaluated for impairment: $ 599 $ 96 $ 308 $ 50 $ 767 $ 1 $ 1,821 Individually evaluated for impairment: 97 43 189 14 — — 343 Total Farm & Ranch $ 696 $ 139 $ 497 $ 64 $ 767 $ 1 $ 2,164 45 Net credit losses and 90-day delinquencies as of and for the periods indicated for loans underlying off-balance sheet securities representing interests in pools of eligible Farm & Ranch LTSPCs are presented in the table below. As of December 31, 2019, there were no delinquencies and no probable losses inherent in Farmer Mac's Rural Utilities LTSPCs portfolio and Farmer Mac had not experienced credit losses on any Rural Utilities LTSPCs. Table 6.9 90-Day Delinquencies (1) Net Credit Losses/(Recoveries) As of For the Nine Months Ended December 31, 2019 September 30, 2019 (in thousands) Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities $ 3,235 $ — (1) Includes loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. Credit Quality Indicators The following tables present credit quality indicators related to Farm & Ranch loans underlying LTSPCs, Farm & Ranch Farmer Mac Guaranteed Securities, and Rural Utilities loans underlying LTSPCs as of September 30, 2020, by year of origination: Table 6.10 As of September 30, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities: Internally Assigned Risk Rating: Acceptable $ 118,116 $ 207,202 $ 184,421 $ 245,490 $ 216,983 $ 1,021,400 $ 173,617 $ 2,167,229 Special mention (1) — 1,742 1,509 23,200 14,628 47,948 10,040 99,067 Substandard (2) 264 10,821 12,676 15,614 14,401 67,338 4,615 125,729 Total $ 118,380 $ 219,765 $ 198,606 $ 284,304 $ 246,012 $ 1,136,686 $ 188,272 $ 2,392,025 For the Three Months Ended: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. 46 (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. As of September 30, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities LTSPCs: Internally Assigned Risk Rating: Acceptable $ — $ — $ — $ — $ — $ 569,324 $ 6,630 $ 575,954 Special mention (1) — — — — — — — — Substandard (2) — — — — — — — — Total $ — $ — $ — $ — $ — $ 569,324 $ 6,630 $ 575,954 For the Three Months Ended Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. The following table presents credit quality indicators related to Farm & Ranch loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities as of December 31, 2019: Table 6.11 As of December 31, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) Internally Assigned Risk Rating (1) Acceptable $ 1,033,002 $ 484,601 $ 521,341 $ 161,361 $ 66,106 $ 2,594 $ 2,269,005 Special mention (2) 68,372 22,909 35,618 1,612 — — 128,511 Substandard (3) 56,307 6,595 34,625 5,128 — 222 102,877 Total $ 1,157,681 $ 514,105 $ 591,584 $ 168,101 $ 66,106 $ 2,816 $ 2,500,393 Commodity analysis of past due loans (1) $ 1,493 $ 196 $ 1,066 $ 480 $ — $ — $ 3,235 (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 47 7. NOTES PAYABLE Farmer Mac's borrowings consist of discount notes and medium-term notes, both of which are unsecured general obligations of Farmer Mac. Discount notes generally have original maturities of 1.0 year or less, whereas medium-term notes generally have maturities of 0.5 years to 15.0 years. The following tables set forth information related to Farmer Mac's borrowings as of September 30, 2020 and December 31, 2019: Table 7.1 September 30, 2020 Outstanding as of September 30 Average Outstanding During the First Nine Months Amount Weighted- Average Rate Amount Weighted- Average Rate (dollars in thousands) Due within one year: Discount notes $ 2,358,943 0.21 % $ 2,313,477 0.79 % Medium-term notes 2,065,148 0.27 % 1,312,909 0.81 % Current portion of medium-term notes 6,510,992 0.90 % Total due within one year $ 10,935,083 0.63 % Due after one year: Medium-term notes due in: Two years $ 3,277,494 0.96 % Three years 2,326,812 1.44 % Four years 1,056,062 1.73 % Five years 1,242,150 1.35 % Thereafter 2,751,684 2.07 % Total due after one year 10,654,202 1.47 % Total $ 21,589,285 1.05 % 48 December 31, 2019 Outstanding as of December 31 Average Outstanding During the Year Amount Weighted- Average Rate Amount Weighted- Average Rate (dollars in thousands) Due within one year: Discount notes $ 2,194,177 1.72 % $ 1,977,214 2.25 % Medium-term notes 1,152,770 1.98 % 1,780,517 2.33 % Current portion of medium-term notes 6,672,135 1.85 % Total due within one year $ 10,019,082 1.84 % Due after one year: Medium-term notes due in: Two years $ 3,700,835 2.04 % Three years 1,594,709 2.15 % Four years 1,205,276 2.27 % Five years 760,887 2.25 % Thereafter 1,817,859 2.89 % Total due after one year 9,079,566 2.28 % Total $ 19,098,648 2.05 % During the nine months ended September 30, 2020, Farmer Mac increased its use of short-term funding in order to fund the growth of short-term assets in its liquidity portfolio. The maximum amount of Farmer Mac's discount notes outstanding at any month end during the nine months ended September 30, 2020 and 2019 was $ 2.6 billion and $ 2.2 billion, respectively. Callable medium-term notes give Farmer Mac the option to redeem the debt at par value on a specified call date or at any time on or after a specified call date. The following table summarizes by maturity date the amounts and costs for Farmer Mac debt callable in 2020 as of September 30, 2020: Table 7.2 Debt Callable in 2020 as of September 30, 2020, by Maturity Amount Weighted-Average Rate (dollars in thousands) Maturity: 2021 $ 215,949 0.17 % 2022 122,918 0.59 % 2023 127,863 0.47 % 2024 59,941 1.33 % Thereafter 374,144 1.84 % Total $ 900,815 1.04 % The following schedule summarizes the earliest interest rate reset date, or debt maturities, of total borrowings outstanding as of September 30, 2020, including callable and non-callable medium-term notes, assuming callable notes are redeemed at the initial call date: 49 Table 7.3 Earliest Interest Rate Reset Date, or Debt Maturities, of Borrowings Outstanding Amount Weighted-Average Rate (dollars in thousands) Debt with interest rate resets, or debt maturities in: 2020 $ 10,523,446 0.31 % 2021 3,219,231 1.55 % 2022 1,787,566 1.59 % 2023 2,026,445 1.62 % 2024 919,753 1.77 % Thereafter 3,112,844 2.09 % Total $ 21,589,285 1.05 % During the nine months ended September 30, 2020 and 2019, Farmer Mac called $ 2.7 billion and $ 0.7 billion of callable medium-term notes, respectively. The decrease in market interest rates throughout 2019 and continuing into the first half of 2020 led to an increase in called medium-term notes compared to the prior year. Authority to Borrow from the U.S. Treasury Farmer Mac's statutory charter authorizes it, upon satisfying certain conditions, to borrow up to $ 1.5 billion from the U.S. Treasury through the issuance of debt obligations to the U.S. Treasury. Any funds borrowed from the U.S. Treasury may be used solely for the purpose of fulfilling Farmer Mac's guarantee obligations. Any debt obligations issued by Farmer Mac under this authority would bear interest at a rate determined by the U.S. Treasury, taking into consideration the average rate on outstanding marketable obligations of the United States as of the last day of the last calendar month ending before the date of the purchase of the obligations from Farmer Mac. The charter requires Farmer Mac to repurchase any of its debt obligations held by the U.S. Treasury within a reasonable time. As of September 30, 2020, Farmer Mac had not used this borrowing authority. Gains on Repurchase of Outstanding Debt No outstanding debt repurchases were made in the nine months ended September 30, 2020 or 2019. 8. EQUITY Preferred Stock On August 20, 2020, Farmer Mac issued 4.8 million shares of 5.250 % Non-Cumulative Preferred Stock, Series F ("Series F Preferred Stock"), which has a par value and liquidation preference of $ 25.00 per share, or $120.0 million aggregate outstanding. Farmer Mac incurred direct costs of $ 3.8 million related to the issuance of the Series F Preferred Stock. The dividend rate on the Series F Preferred Stock will remain at a non-cumulative, fixed rate of 5.250 % per year, when, as, and if a dividend is declared by the Board of Directors of Farmer Mac, for so long as the Series F Preferred Stock remains outstanding. The Series F Preferred Stock has no maturity date, but Farmer Mac has the option to redeem the Series F Preferred Stock at any time on any dividend payment date on and after October 17, 2025. 50 On September 19, 2020, Farmer Mac used part of the net proceeds from the sale of the Series F Preferred Stock to redeem and repurchase all $ 60.0 million aggregate outstanding of Farmer Mac's 5.875 % Non-Cumulative Preferred Stock, Series A ("Series A Preferred Stock"), plus any declared and unpaid dividends through and including the redemption date. As a result of the retirement of the Series A Preferred Stock, Farmer Mac recognized $ 1.7 million of deferred issuance costs, which is presented as "Loss on retirement of preferred stock" on the consolidated statements of operations. In May 2020, Farmer Mac issued 3.18 million shares of 5.750 % Non-Cumulative Preferred Stock, Series E ("Series E Preferred Stock"), which has a par value and liquidation preference of $ 25.00 per share, or $79.5 million aggregate outstanding. Farmer Mac incurred direct costs of $ 2.5 million related to the issuance of the Series E Preferred Stock. The dividend rate on the Series E Preferred Stock will remain at a non-cumulative, fixed rate of 5.750 % per year, when, as, and if a dividend is declared by the Board of Directors of Farmer Mac, for so long as the Series E Preferred Stock remains outstanding. The Series E Preferred Stock has no maturity date, but Farmer Mac has the option to redeem the preferred stock at any time on any dividend payment date on and after July 17, 2025. Common Stock During each of the first, second, and third quarters in 2020, Farmer Mac paid a quarterly dividend of $ 0.80 per share on all classes of its common stock. For each quarter in 2019, Farmer Mac paid a quarterly dividend of $ 0.70 per share on all classes of its common stock. Farmer Mac's board of directors approved a share repurchase program during third quarter 2015 authorizing Farmer Mac to repurchase up to $ 25.0 million of its outstanding Class C non-voting common stock. The share repurchase program, last modified on March 14, 2019, authorized Farmer Mac to repurchase up to $ 10.0 million of Farmer Mac's outstanding Class C non-voting common stock. During first quarter 2020, Farmer Mac repurchased approximately 4,000 shares of Class C non-voting common stock at a cost of approximately $ 0.2 million. Shortly after these repurchases were completed, Farmer Mac indefinitely suspended its share repurchase program in an effort to preserve capital and liquidity in view of market volatility and uncertainty caused by the COVID-19 pandemic. As of September 30, 2020, Farmer Mac had repurchased approximately 673,000 shares of Class C non-voting common stock at a cost of approximately $ 19.8 million under the share repurchase program since 2015. The program expires at the end of March 2021. Capital Requirements Farmer Mac is required to comply with the higher of the minimum capital requirement and the risk-based capital requirement. As of both September 30, 2020 and December 31, 2019, the minimum capital requirement was greater than the risk-based capital requirement. Farmer Mac's ability to declare and pay dividends could be restricted if it fails to comply with applicable capital requirements. As of September 30, 2020, Farmer Mac's minimum capital requirement was $ 670.0 million and its core capital level was $ 984.2 million, which was $ 314.2 million above the minimum capital requirement as of that date. As of December 31, 2019, Farmer Mac's minimum capital requirement was $ 618.8 million and its core capital level was $ 815.4 million, which was $ 196.6 million above the minimum capital requirement as of that date. 51 In accordance with the Farm Credit Administration's rule on Farmer Mac's capital planning, and as part of Farmer Mac's capital plan, Farmer Mac has adopted a policy for maintaining a sufficient level of Tier 1 capital (consisting of retained earnings, paid-in-capital, common stock, and qualifying preferred stock) and imposing restrictions on Tier 1-eligible dividends and any discretionary bonus payments in the event that this capital falls below specified thresholds. 9. FAIR VALUE DISCLOSURES Fair Value Classification and Transfers The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value: Table 9.1 Assets and Liabilities Measured at Fair Value as of September 30, 2020 Level 1 Level 2 Level 3 (1) Total (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,072 $ 19,072 Floating rate asset-backed securities — 9,201 — 9,201 Floating rate Government/GSE guaranteed mortgage-backed securities — 2,286,033 — 2,286,033 Fixed rate GSE guaranteed mortgage-backed securities — 318 — 318 Fixed rate U.S. Treasuries 1,217,566 — — 1,217,566 Total Investment Securities 1,217,566 2,295,552 19,072 3,532,190 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage — — 7,511,638 7,511,638 Total Farmer Mac Guaranteed Securities — — 7,511,638 7,511,638 USDA Securities: Trading — — 6,830 6,830 Total USDA Securities — — 6,830 6,830 Financial derivatives 9 12,828 — 12,837 Total Assets at fair value $ 1,217,575 $ 2,308,380 $ 7,537,540 $ 11,063,495 Liabilities: Financial derivatives $ — $ 37,357 $ — $ 37,357 Total Liabilities at fair value $ — $ 37,357 $ — $ 37,357 Non-recurring: Assets Loans held for sale $ — $ — $ 22,086 $ 22,086 Total non-recurring assets at fair value $ — $ — $ 22,086 $ 22,086 (1) Level 3 assets represent 32 % of total assets and 68 % of financial instruments measured at fair value. 52 Assets and Liabilities Measured at Fair Value as of December 31, 2019 Level 1 Level 2 Level 3 (1) Total (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 18,912 $ 18,912 Floating rate asset-backed securities — 11,085 — 11,085 Floating rate Government/GSE guaranteed mortgage-backed securities — 1,632,583 — 1,632,583 Fixed rate GSE guaranteed mortgage-backed securities — 340 — 340 Fixed rate U.S. Treasuries 1,296,923 — — 1,296,923 Total available-for-sale 1,296,923 1,644,008 18,912 2,959,843 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage — — 7,143,025 7,143,025 Total Farmer Mac Guaranteed Securities — — 7,143,025 7,143,025 USDA Securities: Trading — — 8,913 8,913 Total USDA Securities — — 8,913 8,913 Financial derivatives — 10,519 — 10,519 Total Assets at fair value $ 1,296,923 $ 1,654,527 $ 7,170,850 $ 10,122,300 Liabilities: Financial derivatives $ 51 $ 26,991 $ — $ 27,042 Total Liabilities at fair value $ 51 $ 26,991 $ — $ 27,042 (1) Level 3 assets represent 33 % of total assets and 71 % of financial instruments measured at fair value. There were no significant assets or liabilities measured at fair value on a non-recurring basis as of September 30, 2020 or December 31, 2019. Transfers in and/or out of the different levels within the fair value hierarchy are based on the fair values of the assets and liabilities as of the beginning of the reporting period. During the first nine months of 2020 and 2019, there were no transfers within the fair value hierarchy for fair value measurements of Farmer Mac's investment securities, Farmer Mac Guaranteed Securities, USDA Securities, and financial derivatives. 53 The following tables present additional information about assets and liabilities measured at fair value on a recurring basis for which Farmer Mac has used significant unobservable inputs to determine fair value. Net transfers in and/or out of Level 3 are based on the fair values of the assets and liabilities as of the beginning of the reporting period. There were no liabilities measured at fair value using significant unobservable inputs during the three and nine months ended September 30, 2020 and 2019. Table 9.2 Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended September 30, 2020 Beginning Balance Purchases Sales Settlements Allowance for losses Realized and unrealized gains/(losses) included in Income Unrealized gains/(losses) included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 18,283 $ — $ — $ — $ 1 $ — $ 788 $ 19,072 Total available-for-sale 18,283 — — — 1 — 788 19,072 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 7,898,387 122,892 — ( 513,864 ) ( 96 ) ( 41,832 ) 46,151 7,511,638 Total available-for-sale 7,898,387 122,892 — ( 513,864 ) ( 96 ) ( 41,832 ) 46,151 7,511,638 USDA Securities: Trading 7,786 — — ( 697 ) — ( 259 ) — 6,830 Total USDA Securities 7,786 — — ( 697 ) ( 259 ) — 6,830 Total Assets at fair value $ 7,924,456 $ 122,892 $ — $ ( 514,561 ) $ ( 95 ) $ ( 42,091 ) $ 46,939 $ 7,537,540 54 Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended September 30, 2019 Beginning Balance Purchases Sales Settlements Realized and unrealized gains/(losses) included in Income Unrealized gains/(losses) included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,208 $ — $ — $ — $ — $ — $ 19,208 Total available-for-sale 19,208 — — — — — 19,208 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 7,035,668 340,148 — ( 254,593 ) 84,164 ( 22,846 ) 7,182,541 Total available-for-sale 7,035,668 340,148 — ( 254,593 ) 84,164 ( 22,846 ) 7,182,541 USDA Securities: Available-for-sale — 9,506 ( 9,506 ) — — — — Trading 9,201 — — ( 307 ) 49 — 8,943 Total USDA Securities 9,201 9,506 ( 9,506 ) ( 307 ) 49 — 8,943 Total Assets at fair value $ 7,064,077 $ 349,654 $ ( 9,506 ) $ ( 254,900 ) $ 84,213 $ ( 22,846 ) $ 7,210,692 Level 3 Assets and Liabilities Measured at Fair Value for the Nine Months Ended September 30, 2020 Beginning Balance Purchases Sales Settlements Allowance for Losses Realized and unrealized gains/(losses) included in Income Unrealized gains/(losses) included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 18,912 $ — $ — $ — $ ( 37 ) $ — $ 197 $ 19,072 Total available-for-sale 18,912 — — — ( 37 ) — 197 19,072 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 7,143,025 958,368 — ( 826,380 ) ( 330 ) 257,597 ( 20,642 ) 7,511,638 Total available-for-sale 7,143,025 958,368 — ( 826,380 ) ( 330 ) 257,597 ( 20,642 ) 7,511,638 USDA Securities: Trading 8,913 — — ( 1,910 ) — ( 173 ) — 6,830 Total USDA Securities 8,913 — — ( 1,910 ) ( 173 ) — 6,830 Total Assets at fair value $ 7,170,850 $ 958,368 $ — $ ( 828,290 ) $ ( 367 ) $ 257,424 $ ( 20,445 ) $ 7,537,540 55 Level 3 Assets and Liabilities Measured at Fair Value for the Nine Months Ended September 30, 2019 Beginning Balance Purchases Sales Settlements Realized and unrealized gains/(losses) included in Income Unrealized gains/(losses) included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 18,715 $ — $ — $ — $ — $ 493 $ 19,208 Total available-for-sale 18,715 — — — — 493 19,208 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 5,974,497 1,730,244 — ( 724,906 ) 258,155 ( 55,449 ) 7,182,541 Total available-for-sale 5,974,497 1,730,244 — ( 724,906 ) 258,155 ( 55,449 ) 7,182,541 USDA Securities: Available-for-sale — 57,853 ( 57,853 ) — — — — Trading 9,999 — — ( 1,210 ) 154 — 8,943 Total USDA Securities 9,999 57,853 ( 57,853 ) ( 1,210 ) 154 — 8,943 Total Assets at fair value $ 6,003,211 $ 1,788,097 $ ( 57,853 ) $ ( 726,116 ) $ 258,309 $ ( 54,956 ) $ 7,210,692 The following tables present additional information about the significant unobservable inputs, such as discount rates and constant prepayment rates ("CPR"), used in the fair value measurements categorized in Level 3 of the fair value hierarchy as of September 30, 2020 and December 31, 2019: Table 9.3 As of September 30, 2020 Financial Instruments Fair Value Valuation Technique Unobservable Input Range (Weighted-Average) (in thousands) Assets: Investment securities: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,072 Indicative bids Range of broker quotes 97.0 % - 97.0 % ( 97.0 %) Farmer Mac Guaranteed Securities: AgVantage $ 7,511,638 Discounted cash flow Discount rate 0.8 % - 2.3 % ( 1.2 %) USDA Securities $ 6,830 Discounted cash flow Discount rate 1.3 % - 3.3 % ( 2.6 %) CPR 23 % - 49 % ( 43 %) 56 As of December 31, 2019 Financial Instruments Fair Value Valuation Technique Unobservable Input Range (Weighted-Average) (in thousands) Assets: Investment securities: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 18,912 Indicative bids Range of broker quotes 96.0 % - 96.0 % ( 96.0 %) Farmer Mac Guaranteed Securities: AgVantage $ 7,143,025 Discounted cash flow Discount rate 2.3 % - 5.5 % ( 2.6 %) USDA Securities $ 8,913 Discounted cash flow Discount rate 2.3 % - 2.6 % ( 2.1 %) CPR 10 % - 21 % ( 19 %) The significant unobservable input used in the fair value measurements of AgVantage Farmer Mac Guaranteed Securities is the discount rate commensurate with the risks involved. Typically, significant increases (decreases) in this input in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease. Prepayment rates are not presented in the table above for AgVantage securities because they generally have fixed maturity dates when the secured general obligations are due and don't prepay. The significant unobservable inputs used in the fair value measurements of USDA Securities are the prepayment rate and discount rate commensurate with the risks involved. Typically, significant increases (decreases) in any of these inputs in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase and would likely expect a corresponding decrease in forecasted prepayment rates. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease and would likely expect a corresponding increase in forecasted prepayment rates. 57 Disclosures on Fair Value of Financial Instruments The following table sets forth the estimated fair values and carrying values for financial assets, liabilities, and guarantees and commitments as of September 30, 2020 and December 31, 2019: Table 9.4 As of September 30, 2020 As of December 31, 2019 Fair Value Carrying Amount Fair Value Carrying Amount (in thousands) Financial assets: Cash and cash equivalents $ 910,592 $ 910,592 $ 604,381 $ 604,381 Investment securities 3,578,375 3,577,222 3,005,828 3,004,875 Farmer Mac Guaranteed Securities 8,739,103 8,712,208 8,606,451 8,590,476 USDA Securities 2,522,001 2,417,678 2,294,671 2,241,073 Loans 8,450,522 8,105,647 7,317,091 6,981,440 Financial derivatives 12,837 12,837 10,519 10,519 Guarantee and commitment fees receivable 34,801 36,664 36,732 38,442 Financial liabilities: Notes payable 21,893,043 21,589,285 19,234,079 19,098,648 Debt securities of consolidated trusts held by third parties 1,337,741 1,292,416 1,663,177 1,616,504 Financial derivatives 37,357 37,357 27,042 27,042 Guarantee and commitment obligations 33,278 35,140 34,990 36,700 The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value and is classified as Level 1. The fair value of investments in U.S. Treasuries are valued based on unadjusted quoted prices in active markets and are classified as Level 1. A significant portion of Farmer Mac's investment portfolio is valued using a reputable nationally recognized third-party pricing service. The prices obtained are non-binding and generally representative of recent market trades and are classified as Level 2. Farmer Mac internally models the fair value of its loan portfolio, including loans held for investment and loans held for investment in consolidated trusts, Farmer Mac Guaranteed Securities, and USDA Securities by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. These fair value measurements do not take into consideration the fair value of the underlying property and are classified as Level 3. Financial derivatives primarily are valued using unadjusted counterparty valuations and are classified as Level 2. The fair value of the guarantee fees receivable/obligation and debt securities of consolidated trusts are estimated based on the present value of expected future cash flows of the underlying mortgage assets using management's best estimate of certain key assumptions, which include prepayments speeds, forward yield curves, and discount rates commensurate with the risks involved and are classified as Level 3. Notes payable are valued by discounting the expected cash flows of these instruments using a yield curve derived from market prices observed for similar agency securities and are also classified as Level 3. Because the cash flows of Farmer Mac's financial instruments may be interest rate path dependent, estimated fair values and projected discount rates for Level 3 financial instruments are derived using a Monte Carlo simulation model. Different market assumptions and estimation methodologies could significantly affect estimated fair value amounts. 58 10. BUSINESS SEGMENT REPORTING The following tables present core earnings for Farmer Mac's operating segments and a reconciliation to consolidated net income for the three and nine months ended September 30, 2020 and 2019: Table 10.1 Core Earnings by Business Segment For the Three Months Ended September 30, 2020 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 18,093 $ 4,747 $ 5,709 $ 14,171 $ 1,941 $ — $ 44,661 Less: reconciling adjustments (1)(2)(3) ( 68 ) 1,118 1,230 4,430 431 ( 7,141 ) — Net effective spread 18,025 5,865 6,939 18,601 2,372 ( 7,141 ) — Guarantee and commitment fees (2) 4,111 213 328 7 — ( 1,500 ) 3,159 Other income/(expense) (3) 443 135 — — ( 125 ) ( 681 ) ( 228 ) Non-interest income/(loss) 4,554 348 328 7 ( 125 ) ( 2,181 ) 2,931 Release of/(provision for) losses 300 — ( 1,182 ) 228 1 — ( 653 ) (Provision for)/release of reserve for losses ( 628 ) — 81 — — — ( 547 ) Other non-interest expense ( 5,381 ) ( 1,643 ) ( 1,438 ) ( 2,160 ) ( 3,938 ) — ( 14,560 ) Non-interest expense (4) ( 6,009 ) ( 1,643 ) ( 1,357 ) ( 2,160 ) ( 3,938 ) — ( 15,107 ) Core earnings before income taxes 16,870 4,570 4,728 16,676 ( 1,690 ) ( 9,322 ) (5) 31,832 Income tax (expense)/benefit ( 3,543 ) ( 960 ) ( 993 ) ( 3,502 ) 701 1,957 ( 6,340 ) Core earnings before preferred stock dividends 13,327 3,610 3,735 13,174 ( 989 ) ( 7,365 ) (5) 25,492 Preferred stock dividends — — — — ( 5,166 ) — ( 5,166 ) Loss on retirement of preferred stock — — — — — ( 1,667 ) ( 1,667 ) Segment core earnings/(losses) $ 13,327 $ 3,610 $ 3,735 $ 13,174 $ ( 6,155 ) $ ( 9,032 ) (5) $ 18,659 Total assets at carrying value $ 5,961,307 $ 2,487,687 $ 2,256,011 $ 8,716,923 $ 4,576,909 $ — $ 23,998,837 Total on- and off-balance sheet program assets at principal balance $ 8,249,349 $ 2,735,128 $ 2,685,309 $ 8,319,502 $ — $ — $ 21,989,288 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 59 Core Earnings by Business Segment For the Three Months Ended September 30, 2019 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 15,345 $ 4,491 $ 2,602 $ 14,853 $ 2,821 $ — $ 40,112 Less: reconciling adjustments (1)(2)(3) ( 2,164 ) ( 177 ) 1,900 2,954 ( 164 ) ( 2,349 ) — Net effective spread 13,181 4,314 4,502 17,807 2,657 ( 2,349 ) — Guarantee and commitment fees (2) 4,523 250 348 87 — ( 1,859 ) 3,349 Other income/(expense) (3) 390 92 17 — ( 110 ) ( 7,170 ) ( 6,781 ) Non-interest income/(loss) 4,913 342 365 87 ( 110 ) ( 9,029 ) ( 3,432 ) Provision for loan losses ( 760 ) — — — — — ( 760 ) Release of reserve for losses 137 — — — — — 137 Other non-interest expense ( 5,062 ) ( 1,506 ) ( 913 ) ( 2,277 ) ( 3,837 ) — ( 13,595 ) Non-interest expense (4) ( 4,925 ) ( 1,506 ) ( 913 ) ( 2,277 ) ( 3,837 ) — ( 13,458 ) Core earnings before income taxes 12,409 3,150 3,954 15,617 ( 1,290 ) ( 11,378 ) (5) 22,462 Income tax (expense)/benefit ( 2,606 ) ( 662 ) ( 830 ) ( 3,280 ) 360 2,389 ( 4,629 ) Core earnings before preferred stock dividends 9,803 2,488 3,124 12,337 ( 930 ) ( 8,989 ) (5) 17,833 Preferred stock dividends — — — — ( 3,427 ) — ( 3,427 ) Segment core earnings/(losses) $ 9,803 $ 2,488 $ 3,124 $ 12,337 $ ( 4,357 ) $ ( 8,989 ) (5) $ 14,406 Total assets at carrying value $ 4,934,887 $ 2,238,558 $ 1,692,835 $ 8,651,264 $ 3,797,690 $ — $ 21,315,234 Total on- and off-balance sheet program assets at principal balance $ 7,393,728 $ 2,567,763 $ 2,232,602 $ 8,738,266 $ — $ — $ 20,932,359 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 60 Core Earnings by Business Segment For the Nine Months Ended September 30, 2020 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 53,768 $ 14,691 $ 12,778 $ 48,059 $ 5,025 $ — $ 134,321 Less: reconciling adjustments (1)(2)(3) ( 4,072 ) 488 4,597 7,026 74 ( 8,113 ) — Net effective spread 49,696 15,179 17,375 55,085 5,099 ( 8,113 ) — Guarantee and commitment fees (2) 12,822 658 995 23 — ( 5,003 ) 9,495 Other income/(expense) (3) 2,197 864 12 — ( 413 ) ( 3,048 ) ( 388 ) Non-interest income/(loss) 15,019 1,522 1,007 23 ( 413 ) ( 8,051 ) 9,107 (Release of)/provision for losses 412 — ( 4,704 ) ( 222 ) ( 28 ) — ( 4,542 ) Provision for reserve for losses ( 262 ) — ( 278 ) — — — ( 540 ) Other non-interest expense ( 16,632 ) ( 5,045 ) ( 4,428 ) ( 6,606 ) ( 12,171 ) — ( 44,882 ) Non-interest expense (4) ( 16,894 ) ( 5,045 ) ( 4,706 ) ( 6,606 ) ( 12,171 ) — ( 45,422 ) Core earnings before income taxes 48,233 11,656 8,972 48,280 ( 7,513 ) ( 16,164 ) (5) 93,464 Income tax (expense)/benefit ( 10,129 ) ( 2,448 ) ( 1,884 ) ( 10,139 ) 1,689 3,395 ( 19,516 ) Core earnings before preferred stock dividends 38,104 9,208 7,088 38,141 ( 5,824 ) ( 12,769 ) (5) 73,948 Preferred stock dividends — — — — ( 12,536 ) — ( 12,536 ) Loss on retirement of preferred stock — — — — — ( 1,667 ) ( 1,667 ) Segment core earnings/(losses) $ 38,104 $ 9,208 $ 7,088 $ 38,141 $ ( 18,360 ) $ ( 14,436 ) (5) $ 59,745 Total assets at carrying value $ 5,961,307 $ 2,487,687 $ 2,256,011 $ 8,716,923 $ 4,576,909 $ — $ 23,998,837 Total on- and off-balance sheet program assets at principal balance $ 8,249,349 $ 2,735,128 $ 2,685,309 $ 8,319,502 $ — $ — $ 21,989,288 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 61 Core Earnings by Business Segment For the Nine Months Ended September 30, 2019 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 46,424 $ 13,045 $ 6,264 $ 49,425 $ 8,607 $ — $ 123,765 Less: reconciling adjustments (1)(2)(3) ( 7,171 ) ( 670 ) 5,467 2,126 ( 900 ) 1,148 — Net effective spread 39,253 12,375 11,731 51,551 7,707 1,148 — Guarantee and commitment fees (2) 13,861 712 1,069 261 — ( 5,638 ) 10,265 Other income/(expense) (3) 1,058 92 31 — 494 1,050 2,725 Non-interest income/(loss) 14,919 804 1,100 261 494 ( 4,588 ) 12,990 Provision for loan losses ( 1,074 ) — — — — — ( 1,074 ) Release of reserve for losses 424 — — — — — 424 Other non-interest expense ( 14,448 ) ( 4,279 ) ( 2,595 ) ( 6,470 ) ( 10,903 ) — ( 38,695 ) Non-interest expense (4) ( 14,024 ) ( 4,279 ) ( 2,595 ) ( 6,470 ) ( 10,903 ) — ( 38,271 ) Core earnings before income taxes 39,074 8,900 10,236 45,342 ( 2,702 ) ( 3,440 ) (5) 97,410 Income tax (expense)/benefit ( 8,206 ) ( 1,870 ) ( 2,149 ) ( 9,522 ) 663 722 ( 20,362 ) Core earnings before preferred stock dividends 30,868 7,030 8,087 35,820 ( 2,039 ) ( 2,718 ) (5) 77,048 Preferred stock dividends — — — — ( 10,508 ) — ( 10,508 ) Loss on retirement of preferred stock — — — — — ( 1,956 ) ( 1,956 ) Segment core earnings/(losses) $ 30,868 $ 7,030 $ 8,087 $ 35,820 $ ( 12,547 ) $ ( 4,674 ) (5) $ 64,584 Total assets at carrying value $ 4,934,887 $ 2,238,558 $ 1,692,835 $ 8,651,264 $ 3,797,690 $ — $ 21,315,234 Total on- and off-balance sheet program assets at principal balance $ 7,393,728 $ 2,567,763 $ 2,232,602 $ 8,738,266 $ — $ — $ 20,932,359 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 62