FEDERAL AGRICULTURAL MORTGAGE CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial information included in this report is consolidated to include the accounts of Farmer Mac and its two subsidiaries – Farmer Mac Mortgage Securities Corporation and Farmer Mac II LLC. This discussion and analysis of financial condition and results of operations should be read together with: (1) the interim unaudited consolidated financial statements and the related notes that appear elsewhere in this report; and (2) Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on February 25, 2020. FORWARD-LOOKING STATEMENTS In this report, the words "Farmer Mac," "we," "our," and "us" refer to the Federal Agricultural Mortgage Corporation unless otherwise stated or unless the context otherwise requires. Some statements made in this report, such as in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section, are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 about management's current expectations for Farmer Mac's future financial results, business prospects, and business developments. Forward-looking statements include, without limitation, any statement, including statements about COVID-19 and the impact of the pandemic on Farmer Mac, that may predict, forecast, indicate, or imply future results, performance, or achievements. These statements typically include terms such as "anticipates," "believes," "continues," "estimates," "expects," "forecasts," "intends," "outlook," "plans," "potential," "project," "target" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will," and "would." This report includes forward-looking statements addressing Farmer Mac's: • prospects for earnings; • prospects for growth in business volume; • assessment of the impact of the COVID-19 pandemic on our business, financial results, financial condition, and business plans and strategies; • trends in net interest income and net effective spread; • trends in portfolio credit quality, delinquencies, substandard assets, credit losses, and provisions for losses; • trends in expenses; • trends in investment securities; • prospects for asset impairments and allowance for losses; • changes in capital position; • future dividend payments; and • other business and financial matters. Management's expectations for Farmer Mac's future necessarily involve assumptions, estimates, and the evaluation of risks and uncertainties. Various factors or events, both known and unknown, could cause Farmer Mac's actual results to differ materially from the expectations as expressed or implied by the forward-looking statements, including the factors discussed under "Risk Factors" in Part I, Item 1A of Farmer Mac's Annual Report on Form 10-K for the fiscal period ended December 31, 2019 filed with the 63 SEC on February 25, 2020, the factors discussed under "Risk Factors" in Part II, Item 1A of this report, and uncertainties about: • the duration, spread, and severity of the COVID-19 pandemic; • the actions taken to address the COVID-19 pandemic, including government actions to mitigate the economic impact of the pandemic, how quickly and to what extent normal economic and operating conditions can resume, the possibility of future disruptions to economic recovery caused by additional outbreaks, regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, and the duration and efficacy of such restrictions; • the effects of the COVID-19 pandemic on the business operations of agricultural and rural borrowers, the capital markets, and Farmer Mac's business operations; • the availability to Farmer Mac of debt and equity financing and, if available, the reasonableness of rates and terms; • legislative or regulatory developments that could affect Farmer Mac, its sources of business, or the agricultural or rural utilities industries; • fluctuations in the fair value of assets held by Farmer Mac and its subsidiaries; • the level of lender interest in Farmer Mac's products and the secondary market provided by Farmer Mac; • the general rate of growth in agricultural mortgage and rural utilities indebtedness; • the effect of economic conditions and geopolitics on agricultural mortgage or rural utilities lending, borrower repayment capacity, or collateral values, including fluctuations in interest rates, changes in U.S. trade policies, fluctuations in export demand for U.S. agricultural products, and volatility in commodity prices; • the degree to which Farmer Mac is exposed to interest rate risk resulting from fluctuations in Farmer Mac's borrowing costs relative to market indexes; • developments in the financial markets, including possible investor, analyst, and rating agency reactions to events involving government-sponsored enterprises, including Farmer Mac; • the effect of any changes in Farmer Mac's executive leadership; and • other factors that could have a negative effect on agricultural mortgage lending or borrower repayment capacity, including the effects of weather and fluctuations in agricultural real estate values. Considering these potential risks and uncertainties, no undue reliance should be placed on any forward-looking statements expressed in this report. Farmer Mac undertakes no obligation to release publicly the results of revisions to any forward-looking statements to reflect new information or any future events or circumstances, except as otherwise required by applicable law. The information in this report is not necessarily indicative of future results. Overview The discussion below of Farmer Mac's financial information includes "non-GAAP measures," which are measures of financial performance that are not presented in accordance with generally accepted accounting principles in the United States ("GAAP"). For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." 64 COVID-19 Update Farmer Mac continues to closely monitor the effect of the COVID-19 pandemic on our financial condition and operations. We have maintained uninterrupted continuity of our operations while operating entirely remotely and our liquidity levels remain well above regulatory requirements, which has enabled us to execute our mission to support rural America during this pandemic. For example: • we have maintained uninterrupted access to the debt capital markets; • we provided a total of $1.3 billion in liquidity and lending capacity to lenders serving rural America during the quarter-ended September 30, 2020; • we are working with our loan servicers and other partners to respond to and facilitate COVID-19-related payment deferment requests from borrowers, and as of September 30, 2020, we had executed COVID-19 payment deferments for $374.5 million of unpaid principal balance related to Farm & Ranch loans, Farm & Ranch LTSPCs, and USDA Securities to provide relief to borrowers; • we are maintaining strong liquidity in our investment portfolio, as evidenced by our quarter-end cash position of $0.9 billion; and • we have built and preserved capital and liquidity by issuing net new preferred stock of $60.0 million in the third quarter, issuing preferred stock of $79.5 million in the second quarter, and indefinitely suspending our common stock repurchase program in the first quarter. The economic impacts of the COVID-19 pandemic caused our total allowance for credit losses to remain elevated in the third quarter. On January 1, 2020, we adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Loss (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL"). Under CECL, our allowances and reserve for credit losses reflect our estimate of expected losses over the lives of our financial instruments based on historical information and reasonable and supportable forecasts. Both the adoption of this new accounting standard and the economic effects from the COVID-19 pandemic combined to increase the amount of our total allowance for losses from December 31, 2019 to September 30, 2020. The economic effects from the COVID-19 pandemic that most affected our estimate of expected credit losses were the effects on credit spreads and expectations for continued elevated levels of unemployment. Of the $5.1 million credit loss provision that we recorded in the first nine months of 2020, $1.9 million was attributable to updated economic factors, predominantly related to COVID-19. For more information about the impact of COVID-19 on Farmer Mac's expected credit losses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans & Guarantees." We continue to observe a heightened level of payment deferment requests from our loan servicers on behalf of borrowers in our Farm & Ranch loan portfolio, as well as from our AgVantage counterparties for loans collateralizing their obligations. For more information about Farm & Ranch payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." For more information about AgVantage loan collateral payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Institutional." 65 Net Income and Core Earnings The following table shows our net income attributable to common stockholders and core earnings for the periods presented. Core earnings and core earnings per share are non-GAAP measures that principally differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value fluctuations as well as the effects of specified infrequent or unusual transactions. Table 1 For the Three Months Ended September 30, 2020 June 30, 2020 September 30, 2019 (in thousands) Net income attributable to common stockholders $ 18,659 $ 31,687 $ 14,406 Core earnings 27,691 26,347 23,395 The $13.0 million sequential decrease in net income attributable to common stockholders was primarily due to a $5.6 million after-tax decrease in the fair value of financial derivatives not designated as hedging instruments in hedge accounting relationships (undesignated financial derivatives) due to fluctuations in long-term interest rates, a $2.9 million after-tax decrease in net interest income, the recognition of $1.7 million in deferred issuance costs related to the redemption of the Series A Preferred Stock, a $1.2 million increase in preferred stock dividends, and a $0.9 million after-tax increase in the total provision for credit losses. The $4.3 million year-over-year increase in net income attributable to common stockholders was primarily due to a $5.4 million after-tax increase in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates and a $3.6 million after-tax increase in net interest income. These increases were partially offset by a $1.7 million increase in preferred stock dividends, the recognition of $1.7 million in deferred issuance costs related to the redemption of the Series A Preferred Stock, and a $0.7 million after-tax increase in operating expenses. The $1.3 million sequential increase in core earnings was primarily due to a $4.2 million after-tax increase in net effective spread, partially offset by a $0.9 million after-tax increase in the total provision for credit losses, a $1.2 million increase in preferred stock dividends, a $0.4 million after-tax increase in operating expenses, and a $0.5 million after-tax decrease in other income. The $4.3 million year-over-year increase in core earnings was primarily due to a $7.4 million after-tax increase in net effective spread. This increase was partially offset by a $1.7 million increase in preferred stock dividends, a $0.8 million after-tax increase in operating expenses, and a $0.5 million after-tax increase in the total provision for credit losses. For more information about net income attributable to common stockholders, the composition of core earnings, and a reconciliation of net income attributable to common stockholders to core earnings, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." 66 Net Interest Income and Net Effective Spread The following table shows our net interest income and net effective spread in both dollars and percentage yield or spread for the periods presented. Farmer Mac uses net effective spread, a non-GAAP measure, as an alternative to net interest income because management believes it is a useful metric that reflects the economics of the net spread between all the assets owned by Farmer Mac and all related funding, including any associated derivatives, some of which may not be included in net interest income. Table 2 For the Three Months Ended September 30, 2020 June 30, 2020 September 30, 2019 (in thousands) Net interest income $ 44,661 $ 48,348 $ 40,112 Net interest yield % 0.78 % 0.87 % 0.78 % Net effective spread 51,802 46,469 42,461 Net effective spread % 0.96 % 0.89 % 0.90 % The $3.7 million sequential decrease in net interest income was primarily due to a $2.7 million decrease in net fair value losses from derivatives designated in fair value hedge accounting relationships (designated financial derivatives) and a $3.0 million increase in funding and liquidity costs. This was partially offset by a $2.3 million increase related to new business volume. In percentage terms, the decrease of 0.09% was primarily attributable to a decrease of 0.05% in net fair value changes from designated financial derivatives, an increase of 0.06% in funding and liquidity costs, and an increase of 0.01% related to new business volume. The $4.5 million year-over-year increase in net interest income was primarily due to net growth across most lines of business, which contributed to a $6.5 million increase in net interest income. This increase was partially offset by a $1.8 million increase in funding and liquidity costs. In percentage terms, net interest income remained at 0.78% in both third quarter 2020 and third quarter 2019. The $5.3 million sequential increase in net effective spread was primarily due to a $2.3 million increase related to new business volume and a $3.1 million decrease in non-GAAP funding costs. In percentage terms, the increase of 0.07% was primarily attributable to the decrease in non-GAAP funding costs of 0.05% and an increase of 0.01% related to new business volume. The $9.3 million year-over-year increase in net effective spread was primarily due to net growth in outstanding business volume, which increased net effective spread by approximately $6.5 million and a $2.2 million decrease in non-GAAP funding costs. In percentage terms, the increase of 0.06% was primarily attributable to an increase of 0.03% related to net volume growth, and a decrease in non-GAAP funding costs of 0.03%. For more information about Farmer Mac's use of net effective spread as a financial measure, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." For a reconciliation of net interest income to net effective spread, see Table 11 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income." 67 Business Volume Our outstanding business volume was $22.0 billion as of September 30, 2020, a net decrease of $52.8 million from June 30, 2020, after taking into account all new business, maturities, and paydowns on existing assets. This net decrease was primarily attributable to net decreases of $335.3 million in the Institutional Credit line of business and $6.3 million in Rural Utilities, which was partially offset by net increases of $231.5 million in Farm & Ranch and $57.3 million in USDA Guarantees. Farmer Mac's net business volume decrease of $52.8 million in third quarter 2020 was primarily attributable to maturities of $547.2 million in our Institutional Credit line of business due to reduced financing demand from those counterparties and tightening spreads in the institutional market. The $231.5 million net increase in our Farm & Ranch line of business was comprised of a $399.5 million net increase in outstanding loan purchase volume, partially offset by net decreases of $159.7 million in loans held in consolidated trusts and $8.3 million in loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities. During third quarter 2020, Farmer Mac syndicated a $15.0 million position of a newly purchased $59.2 million agricultural loan. The transaction represents new activity for Farmer Mac to broaden its relationships across the agricultural lending spectrum. The $6.3 million net decrease in our Rural Utilities line of business was comprised of a $14.1 million net decrease in loans under LTSPCs, partially offset by $7.8 million net increase in outstanding loan purchase volume. During the third quarter, as part of our renewable energy project finance strategic initiative, Farmer Mac purchased a $10.0 million loan in connection with a wind project financing. For more information about Farmer Mac's business volume, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Business Volume." Capital Table 3 As of September 30, 2020 December 31, 2019 (in thousands) Core capital $ 984,182 $ 815,437 Capital in excess of minimum capital level required 314,235 196,669 The increase in capital in excess of the minimum capital level required was primarily due to the Board-authorized issuance of the Series E Preferred Stock and Series F Preferred Stock and the increase in retained earnings, partially offset by growth in our outstanding business volume and the Board-authorized redemption of the Series A Preferred Stock. 68 Current Expected Credit Loss As noted above, Farmer Mac adopted CECL on January 1, 2020. Under CECL, we estimate and recognize expected credit losses over the lives of our financial assets. We base our estimate of expected losses on historical loss information and reasonable and supportable forecasts. In third quarter 2020, our reasonable and supportable forecasts included the impact of the COVID-19 pandemic on economic factors such as credit spreads and unemployment. Thus, our total provision for credit losses during the three months ended September 30, 2020 was affected by the ongoing economic effects of the COVID-19 pandemic. As of September 30, 2020, Farmer Mac's allowance for losses on its on-balance sheet loan portfolio was $15.8 million (0.19% of all loans), compared to $10.5 million (0.15% of all loans) as of December 31, 2019. As of January 1, 2020, Farmer Mac recorded a cumulative transition adjustment of $1.5 million. For the three and nine months ended September 30, 2020, Farmer Mac recorded a provision to its allowance for loan losses of $0.9 million and $4.3 million, respectively. As of September 30, 2020, Farmer Mac's reserve for losses on its off-balance sheet LTSPCs and Guaranteed Securities was $3.6 million (0.11% of all off-balance sheet LTSPCs and Guaranteed Securities), compared to $2.2 million (0.06% of all off-balance sheet LTSPCs and Guaranteed Securities) on December 31, 2019. As of January 1, 2020, Farmer Mac recorded a cumulative transition adjustment of $0.9 million. For both the three and nine months ended September 30, 2020, Farmer Mac recorded a provision to its reserve for its off-balance sheet portfolio of $0.5 million. Credit Quality The following table presents Farm & Ranch substandard assets, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of September 30, 2020, June 30, 2020, and December 31, 2019: Table 4 Farm & Ranch Line of Business On-Balance Sheet Off-Balance Sheet Substandard Assets % of Portfolio Substandard Assets % of Portfolio (dollars in thousands) September 30, 2020 $ 195,455 3.3 % $ 125,729 5.3 % June 30, 2020 209,690 3.7 % 95,174 4.0 % December 31, 2019 207,078 3.9 % 102,877 4.1 % Increase/(decrease) from prior quarter-ending $ (14,235) (0.4) % $ 30,555 1.3 % Increase/(decrease) from prior year-ending $ (11,623) (0.6) % $ 22,852 1.2 % The decrease of $14.2 million in on-balance sheet substandard assets during third quarter 2020 was primarily driven by credit upgrades during the quarter. The overall Farm & Ranch portfolio grew by $239.8 million, which caused substandard assets as a percentage of the total on-balance sheet Farm & Ranch portfolio to decrease. The $30.6 million increase in substandard assets in our off-balance sheet Farm & Ranch portfolio during third quarter 2020 was primarily due to credit downgrades during the quarter. For an analysis of current loan-to-value ratios across substandard and other internally assigned risk ratings, see Table 27 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." 69 The following table presents Farm & Ranch 90-day delinquencies, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of September 30, 2020, June 30, 2020, and December 31, 2019: Table 5 Farm & Ranch Line of Business On-Balance Sheet Off-Balance Sheet 90-Day Delinquencies % of Portfolio 90-Day Delinquencies % of Portfolio (dollars in thousands) September 30, 2020 $ 74,040 1.26 % $ 14,001 0.59 % June 30, 2020 65,866 1.17 % 2,816 0.12 % December 31, 2019 57,719 1.09 % 3,235 0.13 % Increase/(decrease) from prior quarter-ending $ 8,174 0.09 % $ 11,185 0.47 % Increase/(decrease) from prior year-ending $ 16,321 0.17 % $ 10,766 0.46 % The sequential increase in 90-day delinquencies is primarily due to the seasonal payment pattern associated with loans that have annual (January 1st) and semi-annual (January 1st and July 1st) payment terms, which account for most of the loans in the Farm & Ranch portfolio. The sequential increase was primarily driven by two commodity groups – crops and livestock. Other commodity groups experienced small decreases in 90-day delinquencies or remained stable. The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of September 30, 2020. In the Rural Utilities portfolio, one $4.5 million loan was downgraded to substandard in the previous quarter and remained substandard in third quarter 2020. There were no delinquencies in the Rural Utilities portfolio as of September 30, 2020. For more information about Farmer Mac's credit metrics, including 90-day delinquencies, the total allowance for losses, and substandard assets, as well as the effects of the COVID-19 pandemic on loan payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." Use of Non-GAAP Measures In the accompanying analysis of its financial information, Farmer Mac uses "non-GAAP measures," which are measures of financial performance that are not presented in accordance with GAAP. Specifically, Farmer Mac uses the following non-GAAP measures: "core earnings," "core earnings per share," and "net effective spread." Farmer Mac uses these non-GAAP measures to measure corporate economic performance and develop financial plans because, in management's view, they are useful alternative measures in understanding Farmer Mac's economic performance, transaction economics, and business trends. The non-GAAP financial measures that Farmer Mac uses may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of these non-GAAP measures is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP. 70 Core Earnings and Core Earnings Per Share Core earnings and core earnings per share principally differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value fluctuations. These fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is expected. Core earnings and core earnings per share also differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding specified infrequent or unusual transactions that we believe are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. For example, we have excluded from core earnings losses on retirement of preferred stock and, in prior periods, the re-measurement of the deferred tax asset. For a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings and of earnings per common share to core earnings per share, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." Net Effective Spread Farmer Mac uses net effective spread to measure the net spread Farmer Mac earns between its interest-earning assets and the related net funding costs of these assets. Net effective spread differs from net interest income and net interest yield because it excludes: (1) the amortization of premiums and discounts on assets consolidated at fair value that are amortized as adjustments to yield in interest income over the contractual or estimated remaining lives of the underlying assets; (2) interest income and interest expense related to consolidated trusts with beneficial interests owned by third parties, which are presented on Farmer Mac's consolidated balance sheets as "Loans held for investment in consolidated trusts, at amortized cost"; and (3) the fair value changes of financial derivatives and the corresponding assets or liabilities designated in a fair value hedge accounting relationship. Farmer Mac excludes from net effective spread the premiums and discounts on assets consolidated at fair value because they either do not reflect actual cash premiums paid for the assets at acquisition or are not expected to have an economic effect on Farmer Mac's financial performance if the assets are held to maturity, as is expected. Farmer Mac also excludes from net effective spread the interest income and interest expense associated with the consolidated trusts and the average balance of the loans underlying these trusts to reflect management's view that the net interest income Farmer Mac earns on the related Farmer Mac Guaranteed Securities owned by third parties is effectively a guarantee fee. Accordingly, the excluded interest income and interest expense associated with consolidated trusts is reclassified to guarantee and commitment fees in determining Farmer Mac's core earnings. Farmer Mac also excludes from net effective spread the fair value changes of financial derivatives and the corresponding assets or liabilities designated in fair value hedge relationships because they are not expected to have an economic effect on Farmer Mac's financial performance, as we expect to hold the financial derivatives and corresponding hedged items to maturity. Net effective spread also principally differs from net interest income and net interest yield because it includes the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge accounting relationships ("undesignated financial derivatives"). Farmer Mac uses interest rate swaps to manage its interest rate risk exposure by synthetically modifying the 71 interest rate reset or maturity characteristics of certain assets and liabilities. The accrual of the contractual amounts due on interest rate swaps designated in hedge accounting relationships is included as an adjustment to the yield or cost of the hedged item and is included in net interest income. For undesignated financial derivatives, Farmer Mac records the income or expense related to the accrual of the contractual amounts due in "(Losses)/gains on financial derivatives" on the consolidated statements of operations. However, the accrual of the contractual amounts due for undesignated financial derivatives are included in Farmer Mac's calculation of net effective spread. Net effective spread also differs from net interest income and net interest yield because it includes the net effects of terminations or net settlements on financial derivatives, which consist of: (1) the net effects of cash settlements on agency forward contracts on the debt of other GSEs and U.S. Treasury security futures that we use as short-term economic hedges on the issuance of debt; and (2) the net effects of initial cash payments that Farmer Mac receives upon the inception of certain swaps. The inclusion of these items in net effective spread is intended to reflect our view of the complete net spread between an asset and all of its related funding, including any associated derivatives, whether or not they are designated in a hedge accounting relationship. For a reconciliation of net interest income and net interest yield to net effective spread, see Table 11 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income." Results of Operations Reconciliations of Farmer Mac's net income attributable to common stockholders to core earnings and core earnings per share are presented in the following tables along with information about the composition of core earnings: 72 Table 6 Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings For the Three Months Ended September 30, 2020 September 30, 2019 (in thousands, except per share amounts) Net income attributable to common stockholders $ 18,659 $ 14,406 Less reconciling items: Losses on undesignated financial derivatives due to fair value changes (see Table 14) (4,149) (7,117) Losses on hedging activities due to fair value changes (5,245) (4,535) Unrealized (losses)/gains on trading securities (258) 49 Amortization of premiums/discounts and deferred gains on assets consolidated at fair value 97 (7) Net effects of terminations or net settlements on financial derivatives 233 232 Issuance costs on the retirement of preferred stock (1,667) — Income tax effect related to reconciling items 1,957 2,389 Sub-total (9,032) (8,989) Core earnings $ 27,691 $ 23,395 Composition of Core Earnings: Revenues: Net effective spread (1) $ 51,802 $ 42,461 Guarantee and commitment fees (2) 4,659 5,208 Other (3) 453 389 Total revenues 56,914 48,058 Credit related expense (GAAP): Provision for losses 1,200 623 Total credit related expense 1,200 623 Operating expenses (GAAP): Compensation and employee benefits 8,791 7,654 General and administrative 5,044 5,253 Regulatory fees 725 688 Total operating expenses 14,560 13,595 Net earnings 41,154 33,840 Income tax expense (4) 8,297 7,018 Preferred stock dividends (GAAP) 5,166 3,427 Core earnings $ 27,691 $ 23,395 Core earnings per share: Basic $ 2.58 $ 2.19 Diluted 2.57 2.17 Weighted-average shares: Basic 10,734 10,706 Diluted 10,785 10,776 (1) Net effective spread is a non-GAAP measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for an explanation of net effective spread. See Table 11 for a reconciliation of net interest income to net effective spread. (2) Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities. 73 (3) Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities. (4) Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings. 74 Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings For the Nine Months Ended September 30, 2020 September 30, 2019 (in thousands, except per share amounts) Net income attributable to common stockholders $ 59,745 $ 64,584 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (1,933) 5,608 Losses on hedging activities due to fair value changes (13,846) (8,790) Unrealized (losses)/gains on trading securities (173) 154 Amortization of premiums/discounts and deferred gains on assets consolidated at fair value 135 (162) Net effects of terminations or net settlements on financial derivatives (346) (250) Issuance costs on the retirement of preferred stock (1,667) (1,956) Income tax effect related to reconciling items 3,394 722 Sub-total (14,436) (4,674) Core earnings $ 74,181 $ 69,258 Composition of Core Earnings: Revenues: Net effective spread (1) $ 142,434 $ 122,617 Guarantee and commitment fees (2) 14,498 15,903 Other (3) 2,175 1,675 Total revenues 159,107 140,195 Credit related expense (GAAP): Provision for losses 5,082 650 REO operating expenses — 64 Gains on sale of REO (485) — Total credit related expense 4,597 714 Operating expenses (GAAP): Compensation and employee benefits 27,005 22,030 General and administrative 15,702 14,538 Regulatory fees 2,175 2,063 Total operating expenses 44,882 38,631 Net earnings 109,628 100,850 Income tax expense (4) 22,911 21,084 Preferred stock dividends (GAAP) 12,536 10,508 Core earnings $ 74,181 $ 69,258 Core earnings per share: Basic $ 6.92 $ 6.48 Diluted 6.88 6.43 Weighted-average shares: Basic 10,725 10,691 Diluted 10,781 10,774 (1) Net effective spread is a non-GAAP measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for an explanation of net effective spread. See Table 11 for a reconciliation of net interest income to net effective spread. 75 (2) Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities. (3) Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities. (4) Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings. Table 7 Reconciliation of GAAP Basic Earnings Per Share to Core Earnings - Basic Earnings Per Share 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) GAAP - Basic EPS $ 1.74 $ 1.34 $ 5.57 $ 6.04 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.39) (0.66) (0.18) 0.52 Losses on hedging activities due to fair value changes (0.49) (0.42) (1.29) (0.82) Unrealized (losses)/gains on trading securities (0.02) — (0.02) 0.01 Amortization of premiums/discounts and deferred gains on assets consolidated at fair value 0.01 — 0.01 (0.02) Net effects of terminations or net settlements on financial derivatives 0.02 0.02 (0.03) (0.02) Issuance costs on the retirement of preferred stock (0.15) — (0.16) (0.18) Income tax effect related to reconciling items 0.18 0.21 0.32 0.07 Sub-total (0.84) (0.85) (1.35) (0.44) Core Earnings - Basic EPS $ 2.58 $ 2.19 $ 6.92 $ 6.48 Shares used in per share calculation (GAAP and Core Earnings) 10,734 10,706 10,725 10,691 Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings - Diluted Earnings Per Share 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) GAAP - Diluted EPS $ 1.73 $ 1.33 $ 5.54 $ 5.99 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.39) (0.66) (0.18) 0.52 Losses on hedging activities due to fair value changes (0.49) (0.42) (1.28) (0.82) Unrealized (losses)/gains on trading securities (0.02) — (0.02) 0.01 Amortization of premiums/discounts and deferred gains on assets consolidated at fair value 0.01 — 0.01 (0.02) Net effects of terminations or net settlements on financial derivatives 0.02 0.02 (0.03) (0.02) Issuance costs on the retirement of preferred stock (0.15) — (0.15) (0.18) Income tax effect related to reconciling items 0.18 0.22 0.31 0.07 Sub-total (0.84) (0.84) (1.34) (0.44) Core Earnings - Diluted EPS $ 2.57 $ 2.17 $ 6.88 $ 6.43 Shares used in per share calculation (GAAP and Core Earnings) 10,785 10,776 10,781 10,774 76 The non-GAAP reconciling items between net income attributable to common stockholders and core earnings are: 1. Losses on financial derivatives due to fair value changes are presented by two reconciling items in Table 6 above: (a) (Losses)/gains on undesignated financial derivatives due to fair value changes; and (b) Losses on hedging activities due to fair value changes. The table below calculates the non-GAAP reconciling item for losses on hedging activities due to fair value changes: Table 8 Non-GAAP Reconciling Items for (Losses)/Gains on Hedging Activities due to Fair Value Changes For the Three Months Ended For the Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 (in thousands) Losses due to fair value changes (see Table 4.2) $ (5,047) $ (4,490) $ (13,109) $ (8,617) Initial cash payment (received) at inception of swap (198) (45) (737) (173) Losses on hedging activities due to fair value changes $ (5,245) $ (4,535) $ (13,846) $ (8,790) 2. Unrealized gains/(losses) on trading securities. The unrealized gains/(losses) on trading securities are reported on Farmer Mac's consolidated statements of operations, which represent changes during the period in fair values for trading assets remaining on Farmer Mac's balance sheet as of the end of the reporting period. 3. Amortization of premiums/discounts and deferred gains on assets consolidated at fair value. The amount of this non-GAAP reconciling item is the recorded amount of premium, discount, or deferred gain amortization during the reporting period on those assets for which the premium, discount, or deferred gain was based on the application of an accounting principle (e.g., consolidation of variable interest entities) rather than on a cash transaction (e.g., a purchase price premium or discount). 4. The net effects of terminations or net settlements on financial derivatives. These terminations or net settlements relate to: • Forward contracts on the debt of other GSEs and futures contracts on U.S. Treasury securities. These contracts are used as a short-term economic hedge of the issuance of debt. For GAAP purposes, realized gains or losses on settlements of these contracts are reported in the consolidated statements of operations in the period in which they occur. For core earnings purposes, these realized gains or losses are deferred and amortized as net yield adjustments over the term of the related debt, which generally ranges from 3 to 15 years. • Initial cash payments received by Farmer Mac upon the inception of certain swaps. When there is no direct payment arrangement between a swap dealer counterparty and a debt dealer issuing Farmer Mac's medium-term notes for a particular transaction, Farmer Mac may receive an initial cash payment from the swap dealer at the inception of the swap to offset dollar-for-dollar the amount of the discount on the associated hedged debt. For GAAP purposes, changes in fair value of the swaps are recognized in "Gains on financial derivatives," while the economically offsetting discount on the associated hedged debt is amortized over the term of the debt as an adjustment to its yield. For purposes of core earnings, these initial cash payments are deferred and amortized as net yield adjustments over the term of the related debt, which generally ranges from 3 to 15 years. 77 5. The recognition of deferred issuance costs on the retirements of the Series A Preferred Stock and Series B Preferred Stock in third quarter 2020 and second quarter 2019, respectively, has been excluded from core earnings because they are not frequently occurring transactions, nor are they indicative of future operating results. This is consistent with Farmer Mac's previous treatment of deferred issuance costs associated with the retirement of preferred stock. The following sections provide more detail about specific components of Farmer Mac's results of operations. Net Interest Income . The following table provides information about interest-earning assets and funding for the nine months ended September 30, 2020 and 2019. The average balance of non-accruing loans is included in the average balance of loans, Farmer Mac Guaranteed Securities, and USDA Securities presented, though the related income is accounted for on a cash basis. Therefore, as the average balance of non-accruing loans and the income received increases or decreases, the net interest income and yield will fluctuate accordingly. The average balance of loans in consolidated trusts with beneficial interests owned by third parties is disclosed in the net effect of consolidated trusts and is not included in the average balances of interest-earning assets and interest-bearing liabilities. The interest income and expense associated with these trusts are shown in the net effect of consolidated trusts. Table 9 For the Nine Months Ended September 30, 2020 September 30, 2019 Average Balance Income/ Expense Average Rate Average Balance Income/ Expense Average Rate (dollars in thousands) Interest-earning assets: Cash and investments $ 3,965,371 $ 35,236 1.18 % $ 3,118,378 $ 61,718 2.64 % Loans, Farmer Mac Guaranteed Securities and USDA Securities (1) 16,780,558 309,051 2.46 % 15,019,083 374,767 3.33 % Total interest-earning assets 20,745,929 344,287 2.21 % 18,137,461 436,485 3.21 % Funding: Notes payable due within one year 3,626,550 21,654 0.80 % 3,785,429 67,930 2.39 % Notes payable due after one year (2) 16,828,032 193,315 1.53 % 13,760,960 250,428 2.43 % Total interest-bearing liabilities (3) 20,454,582 214,969 1.40 % 17,546,389 318,358 2.42 % Net non-interest-bearing funding 291,347 — 591,072 — Total funding 20,745,929 214,969 1.38 % 18,137,461 318,358 2.34 % Net interest income/yield prior to consolidation of certain trusts 20,745,929 129,318 0.83 % 18,137,461 118,127 0.87 % Net effect of consolidated trusts (4) 1,436,353 5,003 0.46 % 1,546,443 5,638 0.49 % Net interest income/yield $ 22,182,282 $ 134,321 0.81 % $ 19,683,904 $ 123,765 0.84 % (1) Excludes interest income of $41.8 million and $45.7 million, in the first nine months of 2020 and 2019, respectively, related to consolidated trusts with beneficial interests owned by third parties. (2) Includes current portion of long-term notes. (3) Excludes interest expense of $36.8 million and $40.0 million in the first nine months of 2020 and 2019, respectively, related to consolidated trusts with beneficial interests owned by third parties. (4) Includes the effect of consolidated trusts with beneficial interests owned by third parties. 78 The $10.6 million year-over-year increase in net interest income was primarily due to net growth across most lines of business, which contributed $16.6 million towards the increase in net interest income. This increase was partially offset by the decrease of $4.5 million in net fair value changes from fair value hedge accounting relationships as a result of material changes in market interest rates and a $1.8 million increase in funding and liquidity costs. In percentage terms, the decrease of 0.03% was primarily attributable to an increase of 0.04% in funding and liquidity costs and a decrease of 0.03% in net fair value changes from fair value hedge accounting relationships. These decreases were partially offset by an increase of 0.03% related to net volume growth. The following table sets forth information about changes in the components of Farmer Mac's net interest income prior to consolidation of certain trusts for the periods indicated. For each category, information is provided on changes attributable to changes in volume (change in volume multiplied by old rate) and changes in rate (change in rate multiplied by old volume). Combined rate/volume variances, the third element of the calculation, are allocated based on their relative size. Table 10 For the Nine Months Ended September 30, 2020 Compared to Same Period in 2019 Increase/(Decrease) Due to Rate Volume Total (in thousands) Income from interest-earning assets: Cash and investments $ (40,196) $ 13,714 $ (26,482) Loans, Farmer Mac Guaranteed Securities and USDA Securities (106,109) 40,393 (65,716) Total (146,305) 54,107 (92,198) Expense from other interest-bearing liabilities (149,880) 46,491 (103,389) Change in net interest income prior to consolidation of certain trusts (1) $ 3,575 $ 7,616 $ 11,191 (1) Excludes the effect of debt in consolidated trusts with beneficial interests owned by third parties. The following table presents a reconciliation of net interest income and net interest yield to net effective spread. Net effective spread is measured by: including (1) expenses related to undesignated financial derivatives, which consists of income or expense related to contractual amounts due on financial derivatives not designated in hedge relationships (the income or expense related to financial derivatives designated in hedge accounting relationships is already included in net interest income), and (2) the amortization of losses due to terminations or net settlements of financial derivatives; and excluding (3) the amortization of premiums and discounts on assets consolidated at fair value, (4) the net effects of consolidated trusts with beneficial interests owned by third parties, and (5) the fair value changes of financial derivatives and corresponding financial assets or liabilities in fair value hedge relationships. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for more information about net effective spread. 79 Table 11 For the Three Months Ended For the Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Dollars Yield Dollars Yield Dollars Yield Dollars Yield (dollars in thousands) Net interest income/yield $ 44,661 0.78 % $ 40,112 0.78 % $ 134,321 0.80 % $ 123,765 0.84 % Net effects of consolidated trusts (1,500) 0.02 % (1,859) 0.02 % (5,003) 0.03 % (5,638) 0.03 % Expense related to undesignated financial derivatives 3,613 0.07 % (268) — % 9 — % (4,370) (0.03) % Amortization of premiums/discounts on assets consolidated at fair value (81) — % 28 — % (92) — % 341 — % Amortization of losses due to terminations or net settlements on financial derivatives 62 — % (42) — % 90 — % (98) — % Fair value changes on fair value hedge relationships 5,047 0.09 % 4,490 0.10 % 13,109 0.09 % 8,617 0.06 % Net effective spread $ 51,802 0.96 % $ 42,461 0.90 % $ 142,434 0.92 % $ 122,617 0.90 % For the three months ended September 30, 2020 compared to the same period in 2019, the $9.3 million increase in net effective spread in dollars was primarily due to net growth in outstanding business volume, which increased net effective spread by approximately $6.5 million, and a $2.2 million decrease in non-GAAP funding costs. For the first nine months of 2020 compared to the same period in 2019, the $19.8 million increase in net effective spread in dollars was primarily due to net growth in outstanding business volume, which increased net effective spread by approximately $16.6 million, and a $2.8 million decrease in non-GAAP funding costs. See Note 10 to the consolidated financial statements for more information about net interest income and net effective spread from Farmer Mac's individual business segments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Information" for quarterly net effective spread by line of business. 80 Provision for and Release of Allowance for Losses and Reserve for Losses . The following table summarizes the components of Farmer Mac's total allowance for losses for the three and nine months ended September 30, 2020 and 2019: Table 12 As of September 30, 2020 As of September 30, 2019 Allowance for Losses Reserve for Losses Total Allowance for Losses Allowance for Losses Reserve for Losses Total Allowance for Losses (in thousands) For the Three Months Ended: Beginning balance $ 15,758 $ 3,020 $ 18,778 $ 7,264 $ 1,880 $ 9,144 Provision for/(release of) losses 646 548 1,194 760 (137) 623 Ending Balance $ 16,404 $ 3,568 $ 19,972 $ 8,024 $ 1,743 $ 9,767 For the Nine Months Ended: Beginning balance $ 10,454 $ 2,164 $ 12,618 $ 7,017 $ 2,167 $ 9,184 Cumulative effect adjustment from adoption of current expected credit loss standard 1,793 863 2,656 — — — Adjusted beginning balance 12,247 3,027 15,274 7,017 2,167 9,184 Provision for/(release of) losses 4,551 541 5,092 1,074 (424) 650 Charge-offs (394) — (394) (67) — (67) Ending balance $ 16,404 $ 3,568 $ 19,972 $ 8,024 $ 1,743 $ 9,767 The cumulative effect adjustment from the adoption of CECL on January 1, 2020 was $2.7 million and was recorded directly to retained earnings, net of tax. The transition adjustment was the difference between (1) the total allowance for losses on December 31, 2019 that reflected probable incurred losses and (2) the total allowance for losses on January 1, 2020 that reflected expected losses. The cumulative effect adjustment for credit losses on on-balance sheet assets was $1.8 million and was comprised of an increase of $5.4 million to the allowance for losses on Rural Utilities loans and Farmer Mac Guaranteed Securities and a $3.6 million decrease in the allowance for losses on Farm & Ranch loans and Farmer Mac Guaranteed Securities. Although Farmer Mac has never experienced any credit losses in its portfolio of Rural Utilities loans and Farmer Mac Guaranteed Securities, our estimate of expected losses is based upon reasonable and supportable forecasts over the expected lives of these assets. The reduction in the allowance for losses on Farm & Ranch loans and Farmer Mac Guaranteed Securities reflects the expected recovery rate based on loan-to-value ratios in those portfolios. The cumulative effect adjustment for credit losses on LTSPCs was $0.9 million and was comprised of an increase of $1.0 million on Rural Utilities LTSPCs and a decrease of $0.1 million on Farm & Ranch LTSPCs. For third quarter 2020, our forecasts continued to include the effects of the COVID-19 pandemic on economic factors such as land values, gross domestic product, credit spreads, and unemployment. The provision to Farmer Mac's allowance for losses for on-balance sheet assets was $0.6 million and was comprised of $1.2 million for expected losses on Rural Utilities loans and Farmer Mac Guaranteed Securities and a release of $0.5 million on Farm & Ranch loans and Farmer Mac Guaranteed Securities. Our economic factor forecast in the third quarter 2020 improved from our second quarter 2020 forecast. However, the impact of our updated economic factor forecast on our Rural Utilities portfolio was more 81 than offset by net business volume growth. Similarly, updated third quarter economic factors had an impact on our Farm & Ranch portfolio where improving commodity prices and lower expected volatility in land values decreased expected losses for our lowest risk-rated assets. The provision to Farmer Mac's reserve for losses on our off-balance sheet portfolio was $0.5 million, primarily related to Farm & Ranch LTSPCs, and was driven by deteriorated credit quality in that portfolio in the third quarter. Our estimates of expected losses are based on historical information and reasonable and supportable forecasts. Our reasonable and supportable forecasts incorporate economic factor forecasts and are sensitive to changes in those economics factor forecasts. As of September 30, 2020, our estimate of expected credit losses considered the economic volatility from the COVID-19 pandemic. In particular, the continued stabilization of credit spreads and uncertainty in unemployment expectations were the two economic factors that had the most significant impact. These economic factors also had a more significant impact on our estimate of expected losses in Farmer Mac's Rural Utilities portfolio than in the Farm & Ranch portfolio because of stable farm land values and stable credit quality in the Farm & Ranch portfolio during the first, second, and third quarters. See Notes 5 and 6 to the consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." Guarantee and Commitment Fees . The following table presents guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs, for the three and nine months ended September 30, 2020 and 2019: Table 13 For the Three Months Ended For the Nine Months Ended Change Change September 30, 2020 September 30, 2019 $ % September 30, 2020 September 30, 2019 $ % (dollars in thousands) Guarantee and commitment fees $ 3,159 $ 3,349 $ (190) (6) % $ 9,495 $ 10,265 $ (770) (8) % In Farmer Mac's presentation of core earnings, guarantee and commitment fees include interest income and interest expense related to consolidated trusts owned by third parties to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities. The decrease in guarantee and commitment fees for the three and nine months ended September 30, 2020 compared to the same periods in 2019 was primarily due to decreased LTSPC volume. As adjusted for the core earnings presentation, guarantee and commitment fees were $4.7 million and $14.5 million for the three and nine months ended September 30, 2020, respectively, compared to $5.2 million and $15.9 million for the three and nine months ended September 30, 2019, respectively. For more information about net income attributable to common stockholders, the composition of core earnings, and a reconciliation of net income attributable to common stockholders to core earnings, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." 82 (Losses)/gains on financial derivatives . The components of gains and losses on financial derivatives for the three and nine months ended September 30, 2020 and 2019 are summarized in the following table: Table 14 For the Three Months Ended For the Nine Months Ended Change Change September 30, 2020 September 30, 2019 $ % September 30, 2020 September 30, 2019 $ % (dollars in thousands) (Losses)/gains due to fair value changes $ (4,149) $ (7,117) $ 2,968 (42) % $ (1,933) $ 5,608 $ (7,541) (134) % Accrual of contractual payments 3,613 (268) 3,881 (1448) % 10 (4,370) 4,380 (100) % (Losses)/gains due to terminations or net settlements (28) 25 (53) (212) % (1,416) (45) (1,371) 3,047 % (Losses)/gains on financial derivatives $ (564) $ (7,360) $ 6,796 (92) % $ (3,339) $ 1,193 $ (4,532) (380) % These changes in fair value are primarily the result of fluctuations in long-term interest rates. The accrual of periodic cash settlements for interest paid or received from Farmer Mac's interest rate swaps that are undesignated financial derivatives is shown as expense related to financial derivatives. Payments or receipts to terminate undesignated derivative positions or net cash settled forward sales contracts on the debt of other GSEs and undesignated U.S. Treasury security futures and initial cash payments received upon the inception of certain undesignated swaps are included in "(Losses)/gains due to terminations or net settlements" in the table above. For undesignated swaps, when there is no direct payment arrangement between a swap dealer counterparty and a debt dealer issuing Farmer Mac's medium-term notes for a particular transaction, Farmer Mac may receive an initial cash payment from the swap dealer at the inception of the swap to offset dollar-for-dollar the amount of the discount on the associated hedged debt. Changes in the fair value of these swaps are recognized immediately in "(Losses)/gains on financial derivatives," while the offsetting discount on the hedged debt is amortized over the term of the debt as an adjustment to its yield. The amounts of initial cash payments received by Farmer Mac vary depending on the number of the aforementioned type of swaps it executes during a quarter. Other Income . The following table presents other income for the three and nine months ended September 30, 2020 and 2019: Table 15 For the Three Months Ended For the Nine Months Ended Change Change September 30, 2020 September 30, 2019 $ % September 30, 2020 September 30, 2019 $ % (dollars in thousands) Late fees $ 236 $ 360 $ (124) (34) % $ 1,124 $ 929 $ 195 21 % Other 358 170 188 111 % 1,515 449 1,066 237 % Total other income $ 594 $ 530 $ 64 12 % $ 2,639 $ 1,378 $ 1,261 92 % 83 The increase in other fees is primarily due to an increase in the fees received from borrowers to modify their long-term fixed borrowing rate to a new lower rate. Operating Expenses . The components of operating expenses for the three and nine months ended September 30, 2020 and 2019 are summarized in the following table: Table 16 For the Three Months Ended For the Nine Months Ended Change Change September 30, 2020 September 30, 2019 $ % September 30, 2020 September 30, 2019 $ % (dollars in thousands) Compensation and employee benefits $ 8,791 $ 7,654 $ 1,137 15 % $ 27,005 $ 22,030 $ 4,975 23 % General and administrative 5,044 5,253 (209) (4) % 15,702 14,538 1,164 8 % Regulatory fees 725 688 37 5 % 2,175 2,063 112 5 % Total Operating Expenses $ 14,560 $ 13,595 $ 965 7 % $ 44,882 $ 38,631 $ 6,251 16 % a. Compensation and Employee Benefits . The increase in compensation and employee benefits expenses for the three months ended September 30, 2020 compared to the same period in 2019 was primarily due to lower than expected bonus payments in the prior year period and increased headcount in the current period. The increase in compensation and employee benefits expenses for the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to an increase in bonus expense in first quarter 2020 due to 2019 financial performance and the severance payments made to an executive who resigned in first quarter 2020. b. General and Administrative Expenses (G&A) . The decrease in G&A expenses for the three months ended September 30, 2020 compared to the same period in 2019 was primarily due to reduced travel to attend in-person meetings and industry events. The increase in G&A expenses for the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to increased spending on software licenses and information technology consultants to support growth and strategic initiatives. Income Tax Expense. The following table presents income tax expense and the effective income tax rate for the three and nine months ended September 30, 2020 and 2019: Table 17 For the Three Months Ended For the Nine Months Ended Change Change September 30, 2020 September 30, 2019 $ % September 30, 2020 September 30, 2019 $ % (dollars in thousands) Income tax expense $ 6,340 $ 4,629 $ 1,711 37 % $ 19,516 $ 20,362 $ (846) (4) % Effective tax rate 19.9 % 20.6 % (0.7) % 20.9 % 20.9 % — % 84 Business Volume . The following table sets forth the net growth or decrease under Farmer Mac's lines of business for the three and nine months ended September 30, 2020 and 2019: Table 18 Net New Business Volume – Farmer Mac Loan Purchases, Guarantees, LTSPCs, and AgVantage Securities For the Three Months Ended For the Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Net Growth/(Decrease) Net Growth/(Decrease) Net Growth/(Decrease) Net Growth/(Decrease) (in thousands) Farm & Ranch: Loans $ 239,812 $ 82,707 $ 580,768 $ 248,643 LTSPCs (8,313) 19,668 (108,368) (88,888) USDA Guarantees: USDA Securities 76,949 41,027 193,487 15,775 Farmer Mac Guaranteed USDA Securities (19,626) 5,342 (78,533) 36,368 Rural Utilities: Loans 7,786 85,623 438,062 673,930 LTSPCs (14,100) (8,692) (33,326) (33,444) Institutional Credit: AgVantage securities (335,328) (40,051) (120,744) 355,450 Total purchases, guarantees, LTSPCs, and AgVantage securities $ (52,820) $ 185,624 $ 871,346 $ 1,207,834 Our outstanding business volume was $22.0 billion as of September 30, 2020, a net decrease of $52.8 million from June 30, 2020 after taking into account all new business, maturities, and repayments on existing assets. This net decrease consisted of decreases of $335.3 million in Institutional Credit and $6.3 million in Rural Utilities, partially offset by increases of $231.5 million in Farm & Ranch and $57.3 million in USDA Guarantees. The $231.5 million net increase in our Farm & Ranch line of business was comprised of a $399.5 million net increase in outstanding loan purchase volume, partially offset by net decreases of $159.7 million in loans held in consolidated trusts and $8.3 million in loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities. The net growth in third quarter 2020 reflected our ability to retain borrowers in a decreasing interest rate environment by proactively engaging with our customers and adjusting their rates and loan sizes to reflect current market conditions and their specific funding needs. Our net growth of 21.1% in Farm & Ranch loan purchases over the twelve months ended September 30, 2020 is significantly higher than the 3.5% net growth of the overall agricultural mortgage loan market over the twelve months ended June 30, 2020 (based on our analysis of bank and Farm Credit System call report data). During third quarter 2020, Farmer Mac syndicated a $15.0 million position of a newly purchased $59.2 million agricultural loan. This transaction represents new activity for Farmer Mac to broaden its relationships across the agricultural lending spectrum. Our USDA Guarantees line of business grew by $57.3 million in third quarter 2020. The third quarter gross volume of $225.5 million was the highest gross volume that we have ever recorded in any quarter. This growth reflected the positive effect of adjustments that we made to our product structure in the 85 second half of 2019 to more effectively meet customer demands in an increasingly competitive environment and in response to increased loan limits mandated by the 2018 Farm Bill described in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Outlook" in this report. The $335.3 million net decrease in the Institutional Credit line of business during third quarter 2020 was due primarily to three large counterparties who reduced their amount of outstanding credit in connection with scheduled maturities and payments on multiple AgVantage bonds. Changes in quarterly AgVantage securities volume are primarily driven by the generally larger transaction sizes for that product, scheduled maturity amounts for a particular quarter, the liquidity needs of Farmer Mac’s AgVantage counterparties, and changes in the pricing and availability of wholesale funding. The $6.3 million net decrease in our Rural Utilities line of business was comprised of a $14.1 million net decrease in loans under LTSPCs, partially offset by $7.8 million net increase in outstanding loan purchase volume. During the third quarter, as part of our renewable energy project finance strategic initiative, Farmer Mac purchased a $10.0 million loan in connection with a wind project financing. The level and composition of Farmer Mac’s outstanding business volume is based on the relationship between new business, maturities, and repayments on existing assets from quarter to quarter. This relationship in turn depends on a variety of factors both internal and external to Farmer Mac. The external factors include general market forces, competition, and our counterparties’ liquidity needs, access to alternative funding, desired products, and assessment of strategic factors. The internal factors include our assessment of profitability, mission fulfillment, credit risk, and customer relationships. For more information about potential growth opportunities in Farmer Mac's lines of business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Outlook" in this report. The following table sets forth information about the Farmer Mac Guaranteed Securities issued during the periods indicated: Table 19 For the Three Months Ended For the Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 (in thousands) Loans securitized and sold as Farm & Ranch Guaranteed Securities $ 36,562 $ 23,539 $ 64,612 $ 141,543 Farmer Mac Guaranteed USDA Securities — 9,506 — 57,853 AgVantage securities 211,908 402,611 1,202,327 1,887,475 Total Farmer Mac Guaranteed Securities Issuances $ 248,470 $ 435,656 $ 1,266,939 $ 2,086,871 Farmer Mac either retains the loans it purchases or securitizes them and retains or sells Farmer Mac Guaranteed Securities backed by those loans. The weighted-average age of the Farm & Ranch non-delinquent eligible loans purchased and retained (excluding the purchases of defaulted loans) during both third quarter 2020 and 2019 was less than one year. Of those loans, 68% and 57% had principal amortization periods longer than the maturity date, resulting in balloon payments at maturity, with a weighted-average remaining term to maturity of 23.2 years and 15.7 years for each period, respectively. During third quarter 2020 and 2019, Farmer Mac securitized some of the Farm & Ranch loans it had purchased and sold the resulting Farmer Mac Guaranteed Securities, as shown above. During the three 86 and nine months ended September 30, 2020 and 2019, Farmer Mac realized no gains or losses from the sale of Farmer Mac Guaranteed Securities or USDA Securities. Farmer Mac consolidates these loans and presents them as "Loans held for investment in consolidated trusts, at amortized cost" on the consolidated balance sheets. For the three and nine months ended September 30, 2020, no Farmer Mac Guaranteed Securities were sold to a related party to Farmer Mac. For the same periods in 2019, none and $63.1 million, respectively, of Farmer Mac Guaranteed Securities were sold to a related party (related by virtue of its owning more than 10% of Farmer Mac's Class A voting common stock). The following table sets forth information about outstanding volume in each of Farmer Mac's four lines of business as of the dates indicated: Table 20 Lines of Business - Outstanding Business Volume As of September 30, 2020 As of December 31, 2019 (in thousands) Farm & Ranch: Loans $ 4,580,917 $ 3,675,640 Loans held in trusts: Beneficial interests owned by third party investors 1,276,407 1,600,917 LTSPCs 2,306,258 2,393,071 Guaranteed Securities 85,767 107,322 USDA Guarantees: USDA Securities 2,388,033 2,199,072 Farmer Mac Guaranteed USDA Securities 347,095 421,103 Rural Utilities: Loans 2,109,355 1,671,293 LTSPCs (1) 575,954 609,278 Institutional Credit AgVantage Securities 8,319,502 8,440,246 Total $ 21,989,288 $ 21,117,942 (1) As of both September 30, 2020 and December 31, 2019, includes $20.0 million related to one-year loan purchase commitments on which Farmer Mac receives a nominal unused commitment fee. 87 The following table summarizes by maturity date the scheduled principal amortization of loans held, loans underlying off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and LTSPCs, USDA Securities, and Farmer Mac Guaranteed USDA Securities as of September 30, 2020: Table 21 Schedule of Principal Amortization as of September 30, 2020 Loans Held Loans Underlying Off-Balance Sheet Farmer Mac Guaranteed Securities and LTSPCs USDA Securities and Farmer Mac Guaranteed USDA Securities Total (in thousands) 2020 $ 45,391 $ 49,343 $ 28,755 $ 123,489 2021 345,908 284,701 117,967 748,576 2022 329,020 229,875 118,498 677,393 2023 336,023 207,961 122,972 666,956 2024 338,270 180,155 122,258 640,683 Thereafter 6,572,067 2,015,944 2,224,678 10,812,689 Total $ 7,966,679 $ 2,967,979 $ 2,735,128 $ 13,669,786 Of the $22.0 billion outstanding principal balance of volume included in Farmer Mac's four lines of business as of September 30, 2020, $8.3 billion were AgVantage securities included in the Institutional Credit line of business. Unlike business volume in the form of purchased loans, USDA Securities, and loans underlying LTSPCs and non-AgVantage Farmer Mac Guaranteed Securities, most AgVantage securities do not require periodic payments of principal based on amortization schedules and instead have fixed maturity dates when the secured general obligation is due. The following table summarizes by maturity date the outstanding principal amount of both on- and off-balance sheet AgVantage securities as of September 30, 2020: Table 22 AgVantage Balances by Year of Maturity As of September 30, 2020 (in thousands) 2020 $ 633,585 2021 1,830,376 2022 1,585,268 2023 1,012,894 2024 828,108 Thereafter (1) 2,429,271 Total $ 8,319,502 (1) Includes various maturities ranging from 2025 to 2044. The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.7 years as of September 30, 2020. 88 Outlook Farmer Mac continues to provide a stable source of liquidity, capital, and risk management tools as the secondary market that helps meet the financing needs of rural America. The pace of Farmer Mac’s growth will depend on the capital and liquidity needs of the lending institutions in the agricultural and rural financing business as well as the overall health of agriculture and rural borrowers in the sectors we serve. Farmer Mac foresees opportunities for profitable growth across our lines of business driven by several key factors: • As agricultural and rural utilities lenders seek to manage equity capital and return on equity capital requirements or seek to reduce exposure due to lending or concentration limits, Farmer Mac can provide relief for those institutions through loan and portfolio purchases, participations, guarantees, LTSPCs, or wholesale funding. • While overall loan growth within the rural utilities industry appears to be moderate in the near term due to generally flat demand for capital, future growth opportunities may increase in Farmer Mac’s Rural Utilities line of business from deepening business relationships with eligible counterparties, broadband-related capital expenditures, and the exploration of new types of loan products. These opportunities may be limited by sector growth, credit quality, and the competitiveness of Farmer Mac’s products. • As a result of business and product development efforts, and continued interest in the agricultural asset class from institutional investors, Farmer Mac’s customer base and product set continue to expand, which may generate more demand for Farmer Mac’s products from new sources. • Consolidation within the agricultural finance industry, coupled with Farmer Mac’s relationships with larger regional and national lenders, continue to provide opportunities that could influence Farmer Mac’s loan demand and increase the average transaction size within Farmer Mac’s Farm & Ranch line of business. • Expansion and refinancing opportunities for agricultural producers resulting from a decrease in interest rates have increased financing requirements for mergers and acquisitions, consolidation, and vertical integration across many sectors of the agricultural industry, which may also generate demand for Farmer Mac’s loan products. The COVID-19 pandemic and related efforts to contain it continue to create disruptions to the global economy. Government stimulus programs designed to mitigate the economic impacts of the pandemic as well as significant liquidity support by the Federal Reserve to facilitate the functioning of the capital markets has reduced volatility to the economy and the sectors we serve. However, the duration, severity, and continued spread of the pandemic and the ongoing effectiveness of government efforts taken to contain COVID-19 and mitigate public health and economic effects continue to evolve and remain uncertain. For a further discussion of the uncertainties and risks associated with the COVID-19 pandemic on Farmer Mac and its business, see the factors discussed under "Risk Factors" in Part II, Item 1A of this report Farmer Mac’s mission is to support rural America during this pandemic, and the disruptions caused by COVID-19 may present some new and expanded opportunities for Farmer Mac to help meet the financing needs of rural America as well as presenting uncertainties and risks. The pandemic's effect on our growth objectives and outlook will depend on many factors, including: 89 • The potential negative economic impact to rural and agricultural borrowers due to a resurgence and prolonging of the pandemic and recession, the length of time before normal economic and operating conditions can resume, and whether there are lingering effects to the economy after the COVID-19 pandemic is over as a result of the disruption to the global economy, the domestic agricultural economy, and recession. • Increasing borrower payment deferral requests and the duration of approved deferrals, including payments made to holders of Farmer Mac Guaranteed Securities to cover principal and interest shortfalls, could consume some capital which would otherwise have been available for certain planned growth initiatives. For more information about the impact of COVID-19 on Farmer Mac's payment deferral requests received to date, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." • Stress on commodity and agriculture exports as a result of global trade disruptions caused by a resurgence of the COVID-19 pandemic and geopolitical trade disputes, which could create downward pressure on commodity prices and further stress borrowers’ liquidity and negatively impact loan growth opportunities. • The inability of borrowers in the pandemic to close on agricultural or renewable energy loans due to limited access to local or state administrative offices, delays in receiving equipment components, installation inefficiencies caused by social distancing among workers, and difficulties in obtaining inspections and grid interconnection on a timely basis could limit our opportunities to purchase agricultural or renewable energy loans. • Delays and postponements of planned or potential mergers and acquisitions, consolidations, and vertical integrations as a result of the COVID-19 pandemic and, consequently, a potential reduction in the need for Farmer Mac’s products and services until the global economy recovers and the flow of transactions returns to pre-pandemic levels. • Disruptions in the capital markets and the widening of credit spreads could impact Farmer Mac’s funding costs and could result in higher interest rates charged for our products and services, which could adversely affect our competitiveness in the sectors we serve. • If borrowers seek to obtain additional financing and liquidity from lenders to maintain operations and production during this time, or to make up for lost productivity due to shutdowns, delays, and social distancing requirements, these short-term funding requirements could create additional growth opportunities for Farmer Mac as other lenders look to manage lending limits and credit concentrations as short-term financing demands arise. • Financial market volatility, coupled with uncertainty regarding the long-term impacts of the pandemic, is causing some financial institutions to delay or cease capital deployment to many sectors that Farmer Mac serves. While these reductions could reduce our loan purchase opportunities, Farmer Mac could also provide a much-needed source of secondary market liquidity to help stimulate capital deployment during this time of uncertainty. 90 Operating Expense . Farmer Mac continues to expand its investments in human capital, technology, and business infrastructure to increase capacity and efficiency as it seeks to accommodate its growth opportunities and achieve its long-term strategic objectives. Accordingly, Farmer Mac expects continued increases in its operating expenses over the next several years corresponding to business and revenue growth. We expect these efforts to continue and increase over the next 12 - 18 months as we innovate and grow our business. Operations . On March 12, 2020, Farmer Mac activated its business continuity plan and has been operating uninterruptedly since then, with all of its employees working remotely from their homes. Farmer Mac has provided guidance and support to all of its employees to ensure that they have the tools and knowledge needed to effectively work from home, and Farmer Mac’s technology platform and business continuity plan have been functioning as designed in support of all functions of the organization with no material disruption of business. As a secondary market participant in the agricultural and rural utility lending space, Farmer Mac's business model is already based on a remote interface with its customers and vendors. We do not expect Farmer Mac's remote-working environment to have a material effect on our operations either in the near term or for the foreseeable future. Agricultural Industry . The agricultural industry includes many diverse sectors that respond in different ways to changes in economic conditions. Those individual sectors often are affected differently, sometimes positively and sometimes negatively, by prevailing domestic and global economic factors and regional weather conditions. The interconnectedness between sectors typically results in cycles where one or more segments may be under stress while others are not. The COVID-19 pandemic continues to impact the agricultural sector, although economic conditions continued to improve during third quarter 2020. Sudden school and restaurant closures in March and April dramatically altered the supply and demand functions for food. U.S. Census Advance Retail Sales Data indicates that, after dropping 50 percent in April, U.S. consumer spending for food services away from home rebounded to 85 percent of pre-pandemic levels. Much of the decline has been picked up in consumer spending at grocery stores, which was up more than 10 percent in September 2020 compared to the prior year. Farm production and food processing take a higher net margin of the food dollar spent at home, so the shift of consumer spending on food at home could offset some of the losses from sales to restaurants and schools. According to data from the U.S. Energy Information Administration, after dropping nearly 50 percent in April, ethanol production rebounded to over 90 percent of pre-pandemic levels through October as drivers returned to the roads. Ethanol is a primary demand driver for corn. Many agricultural commodity prices, rebounded significantly in September and October on reduced global supplies and increased foreign demand, particularly from China. Farm labor and food processing worker health and availability remain a top industry concern as a resurgence of COVID-19 cases could adversely affect the food processing industry again this year and into 2021. The decline in revenue experienced by many agricultural producers during the first nine months of 2020 had multiple offsets to help support producers’ profitability. First, farm expenses fell for many producers during the first half of 2020. Lower energy prices improved the cost of fuel and fertilizer ahead of the planting season. Lower grain prices in the second quarter led to a temporary decrease in animal feed input costs, and lower replacement animal prices improved the cost structure for many protein producers. Second, USDA issued a final $3.7 billion Market Facilitation Program (MFP) cash payment in April and May 2020 to address market losses from trade disruptions. Third, in response to the COVID-19 pandemic, Congress passed a series of measures, including the CARES Act on March 27, 2020, which provided over $2 trillion in economic stimulus to support various aspects of the U.S. economy. The 91 CARES Act contained a $9.5 billion emergency fund for the USDA aimed toward providing help to livestock, dairy, and produce providers who sell locally. It also included a $14 billion replenishment of the Commodity Credit Corporation ("CCC"), a line of credit at the U.S. Treasury Department that USDA can use to help crop and livestock producers. In April 2020, the USDA announced that it would provide $19 billion of assistance through the Coronavirus Food Assistance Program ("CFAP"). CFAP used the funding and authorities provided in the CARES Act, the Families First Coronavirus Response Act, and other USDA existing authorities to provide $16 billion in direct payments to distribute to producers and $3 billion in food purchases. As of October 25, 2020, the USDA had distributed $10.3 billion in CFAP payments. Farmers and ranchers were also eligible to participate in the Small Business Administration’s Paycheck Protection Program (PPP). Through the close of the PPP application period of August 8, 2020, more than $8.1 billion in PPP loans had been disbursed to businesses involved in agriculture, forestry, fishing, and hunting. Finally, on September 17, 2020, the USDA announced the second round of CFAP funding through the authorities of the CCC for up to $14 billion in direct support for eligible commodities ("CFAP 2"). As of October 25, 2020, the USDA had distributed more than $7.6 billion in payments through CFAP 2. Farmland values have held steady in early 2020 after rising at approximately the rate of inflation for the last two years. Data released in 2020 by the USDA indicates an average increase in farm real estate values of 0.2% in 2020 in Corn Belt states (Illinois, Indiana, Iowa, Missouri, and Ohio), but a decrease of 2.3% in Northern Plains states (Kansas, Nebraska, North Dakota, and South Dakota). In all other regions, farmland value averages are reported to be flat to increasing. The COVID-19 pandemic has slowed public auctions and sales in 2020, but transactions have picked up in the third quarter, and values have been largely level through much of the year. While regional averages for farmland values provide a good barometer for the overall movement in U.S. farmland values, economic forces affecting land markets are highly localized, and some markets may experience greater volatility than state or national averages indicate. Over the past few decades, the U.S. agricultural industry has become increasingly connected to global trade, and agricultural export demand depends significantly on trading relationships in numerous foreign markets, as well as on foreign exchange rates. A prolonged decline in global economic growth or continued tightening in trade policies and agreements could adversely affect the demand for certain U.S. agricultural exports, which may result in downward pressure on commodity prices. Also, the strength of the U.S. dollar relative to trading-partner currencies has been elevated since 2016 (as measured by the U.S. Dollar Index). A strong U.S. dollar decreases the competitiveness of U.S. agricultural exports by raising U.S. prices relative to other countries’ producers. The value of the U.S. dollar weakened in the second and third quarters, providing some relief to export sales. However, the COVID-19 pandemic has the potential to disrupt global demand for U.S. agriculture into 2021 due to lower incomes and reduced economic activity. Many of the primary trading partners and the U.S. maintain good trade relations evidenced by recently-enacted free trade agreements (e.g., Canada, Mexico, and Japan). Agricultural export sales to China are up year-to-date in 2020 compared to 2019, but there exists considerable uncertainty surrounding growth expectations for this market. Weather conditions also play a sizable role in agricultural economic conditions. While growing conditions were generally favorable in the Midwest for much of the year, severe storms can significantly damage crops. An intense derecho thunderstorm in August 2020 affected thousands of acres across Iowa and Illinois, lowering state-specific grain yield expectations. Damage from those types of weather events is generally covered by federal crop insurance policies, and roughly 95 percent of corn and soybean acres in Iowa and Illinois are covered by crop insurance according to USDA data. Wildfires are another weather event that can adversely affect agricultural production. The 2020 California wildfire season has been one 92 of the worst in recent history, and the California Department of Forestry and Fire Protection estimates that over four million acres have burned through October 25, 2020. Much of California agriculture lies in valleys that were not directly affected by active fires. Approximately 1% of Farmer Mac’s Farm & Ranch portfolio is located in Napa or Sonoma Counties, where the Glass Fire caused significant direct and indirect damage to vineyards and wineries. Farmer Mac will continue to monitor exposure to the wildfires, but initial indications show limited exposure. Farmer Mac has experienced higher 90-day delinquencies and substandard asset ratings in recent quarters. The increase is a function of agricultural cycles trending toward tighter industry profitability levels compared to peaks experienced from 2012 to 2015. To date, the fluctuations in 90-day delinquencies and the increase in substandard assets have not yet translated into rising credit losses. Farmer Mac believes that its portfolio is highly diversified, both geographically and by commodity and that its portfolio has been underwritten to high credit quality standards. Therefore, Farmer Mac believes that its portfolio is well-positioned to endure reasonably foreseeable volatility in commodity prices and farmland values. However, the COVID-19 pandemic and a subsequent economic downturn increases the level of uncertainty inherent in the agricultural credit sector and could alter the trajectory of the current agricultural cycle. A prolonged disruption may result in elevated loan delinquencies, and a higher percentage of loans rated substandard as more payments reach 90-days past their July 1 payment due date. Loan deferments approved by Farmer Mac through September 30, 2020 represent 1.7% of our total outstanding business volume, as measured by unpaid principal balance. This amount could fluctuate in future quarters based on loan performance and economic conditions in the coming months, but roughly 80 percent of Farm & Ranch and USDA loans made a payment between April 1 and September 30. For more information about the loan balances, loan-to-value ratios, 90-day delinquencies, and substandard asset rate for the Farm & Ranch loans in Farmer Mac’s portfolio as of September 30, 2020, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." The Agricultural Improvement Act of 2018, also referred to as the "Farm Bill," increased the authorized limit for the amount of new guarantees issued by the USDA under the Consolidated Farm and Rural Development Act (which are eligible for Farmer Mac's USDA Guarantees line of business) from $3.026 billion to $7.0 billion for each government fiscal year through September 2023. Also, the limit for the size of individual loans to which these guarantees are applied was increased from $1.399 million to $1.75 million, which thereby increases the authorized amount of the USDA-guaranteed portion for an individual loan. These higher loan limits contributed to additional growth in the USDA Guarantees purchased by Farmer Mac in 2020. Farmer Mac also continues to monitor state legislation and regulations that could impact U.S. agriculture. For example, groundwater management regulations, including in California, may result in tighter restrictions on groundwater usage that could affect agricultural producers in the future. Farmer Mac will monitor the effects that any changes in legislation or regulation (federal or state) could have on Farmer Mac or its customers. Rural Utilities Industry . The rural energy industry has less cyclicality than the agricultural sector, but does trend with conditions in the general economy. Higher levels of unemployment and adverse credit markets are typically associated with drops in energy demand (i.e., lower commercial, industrial, or residential demand) and increases in industry ratings downgrades. The economic distress caused by the COVID-19 pandemic has led to 93 historic levels of unemployment as well as reduced demand from the commercial and industrial sectors. According to data from the U.S. Energy Information Administration, electricity sales to commercial and industrial consumers dropped 8 percent year-to-date through August 2020 compared to 2019. However, residential sales during the same period were up 3 percent compared to 2019 as residents spent more time at home during state, local, and self-imposed quarantines. Residential power sales are typically significantly more profitable than those for commercial and industrial consumers, thus some of the profitability reduction from the loss of commercial and industrial sales can be offset by the change in sales mix. Sector sales mix varies from utility to utility based on the characteristics of the region served by the utility, so the degree of profitability offset will differ. Some rural electric cooperatives participated in the Paycheck Protection Program (PPP) and received forgivable loans through that program, which are another potential source to offset any profitability reduction. The COVID-19 pandemic has also highlighted the greater need for and interest in access to broadband internet in rural areas, and there was more than $300 million in support authorized in the CARES Act to support healthcare industry telecommunications and rural broadband grants. Farmer Mac expects the heightened level of uncertainty surrounding the economic impacts of COVID-19 to continue throughout 2020, however through mid-2020 Farmer Mac has not observed material degradation in the financial performance of its Rural Utilities portfolio. During the first nine months of 2020, the sudden decrease of interest rates to historic lows drove a significant amount of financing activity on the part of rural electric cooperatives. Prospects for loan growth within the rural utilities industry overall appear to be moderate in the short to medium term as ongoing normal-course capital expenditures related to maintaining and upgrading utility infrastructure continue at typical levels. Farmer Mac's future growth opportunities for lending to the electrical cooperative industry may be affected by the demand for electric power in rural areas, capital expenditures by electric cooperatives driven by regulatory or technological changes, the continuation of a low interest rate environment, and competitive dynamics within the rural utilities cooperative finance industry. However, the Federal Communication Commission’s upcoming Rural Development Opportunity Fund (RDOF) auction for up to $16 billion in broadband-related operating cost subsidies may provide a catalyst for capital demands from rural electric cooperatives who seek to develop and deploy broadband services. The growth in renewable energy generation, deployment of energy storage technologies, expansion of broadband service in rural areas, and the deepening of relationships with new and existing counterparties, all may provide new business opportunities for Farmer Mac. To address some of these trends, Farmer Mac has deployed new financing products tailored to the renewable energy sector, which represents a new market opportunity for Farmer Mac. Under this new program, Farmer Mac purchased solar project participation interests from a new counterparty during first quarter 2020 as well as wind project participation interests from an existing counterparty in third quarter 2020. Farmer Mac anticipates further growth in this area during the remainder of 2020. 94 Balance Sheet Review The following table summarizes the balance sheet as of the periods indicated: Table 23 As of Change September 30, 2020 December 31, 2019 $ % (in thousands) Assets Cash and cash equivalents $ 910,592 $ 604,381 $ 306,211 51 % Investment securities, net of allowance 3,577,222 3,004,875 572,347 19 % Farmer Mac Guaranteed Securities, net of allowance 8,712,208 8,590,476 121,732 1 % USDA Securities 2,417,678 2,241,073 176,605 8 % Loans, net of allowance 8,105,647 6,981,440 1,124,207 16 % Other 275,490 287,129 (11,639) (4) % Total assets $ 23,998,837 23,998,837 $ 21,709,374 $ 2,289,463 11 % Liabilities Notes Payable 21,589,285 19,098,648 2,490,637 13 % Other 1,479,207 1,811,450 (332,243) (18) % Total liabilities $ 23,068,492 $ 20,910,098 $ 2,158,394 2158394 10 % Total equity 930,345 799,276 131,069 16 % Total liabilities and equity $ 23,998,837 $ 21,709,374 $ 2,289,463 11 % Assets . The increase in total assets was primarily attributable to the net growth in our outstanding business volume across most lines of business. The increase in cash and cash equivalents and investment securities was primarily due to a decision to increase our liquidity investment portfolio due to the COVID-19 pandemic and to support our program asset growth. Liabilities . The increase in total liabilities was primarily due to an increase in total notes payable to support our program asset growth. Equity . The increase in total equity was primarily due to the issuance of the Series E Preferred Stock and the Series F Preferred Stock and an increase in net income. These increases were partially offset by the redemption of the Series A Preferred stock and an increase in other comprehensive losses, net of tax, primarily due to decreases in the fair value of available-for-sale securities and financial derivatives designated in cash flow hedge accounting relationships. Off-Balance Sheet Arrangements Farmer Mac offers approved lenders two credit enhancement alternatives to increase their liquidity or lending capacity while retaining the cash flow benefits of their loans: (1) Farmer Mac Guaranteed Securities, which are available through each of the Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit lines of business; and (2) LTSPCs, which are available through the Farm & Ranch and Rural Utilities lines of business. For securitization trusts where Farmer Mac is the primary beneficiary, the trust assets and liabilities are included on Farmer Mac's consolidated balance sheet. For securitization trusts where Farmer Mac is not the primary beneficiary and in the event of de-consolidation, both of these 95 alternatives create off-balance sheet obligations for Farmer Mac. See Note 6 to the consolidated financial statements for more information about consolidation and Farmer Mac's off-balance sheet business activities. Risk Management Credit Risk – Loans and Guarantees . COVID-19 Farmer Mac continues to monitor the effects of the COVID-19 pandemic on Farmer Mac's credit risk related to Farmer Mac's borrower exposures. Since first quarter 2020, Farmer Mac has seen an increase in payment deferment requests from its network of loan servicers on behalf of borrowers in Farmer Mac's Farm & Ranch loan portfolio, although deferment requests have been below our expectations. Our early expectations for payment deferment requests were based on forecasts provided by other GSEs and other Farm Credit System institutions. To address the requests that we have received, Farmer Mac has established criteria for approval of payment deferments for borrowers impacted by the COVID-19 pandemic and have communicated these criteria to key counterparties. Farmer Mac will monitor the criteria as the impact of the pandemic continues to unfold and determine if any changes should be made. Most of the payment deferments Farmer Mac has approved and executed for loans it has purchased or securitized in its Farm & Ranch portfolio have been for up to six months, with the deferred principal and interest payments capitalized into the unpaid principal balance of the loan. The unpaid principal balance is then re-amortized over the remaining term of the loan. Approved and executed payment deferments for loans in LTSPCs have varied from three-month payment deferments for principal and interest to deferred interest-only payments for up to twelve months, depending on the applicable LTSPC lender's deferment policy. As of September 30, 2020, we have executed payment deferments in the Farm & Ranch and USDA Securities portfolios related to an aggregate of $374.5 million of unpaid principal balances, which represents 1.70% of our total outstanding business volume. The period of time covered by the payment deferments is typically in the range of three to six months. At the end of each payment deferment, the principal and interest related to the approved deferments will be capitalized into the outstanding unpaid principal balance and amortized over the remaining life of the loan. As of October 15, 2020, $4.6 million of Farm & Ranch COVID-19 deferments have been repaid in full, and another $153.3 million of Farm & Ranch COVID-19 deferments have ended their deferment periods and none are delinquent. In addition, FCA has issued regulatory guidance encouraging Farmer Mac to work with its lending and servicing partners in approving and executing servicing actions for borrowers impacted by COVID-19. The table below presents a cumulative summary of COVID-19 payment deferments through September 30, 2020 in the Farm & Ranch line of business. Farmer Mac has not received any payment deferment requests in the Rural Utilities line of business. For more information about FCA's regulatory guidance related to the COVID-19 pandemic, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Regulatory Matters." 96 Table 24 Farm & Ranch COVID-19 Deferments Summary As of September 30, 2020 (1) Unpaid Principal Balance Requested, but not yet Approved Approved, but not yet Executed Not Approved Approved and Executed Farm & Ranch: (in thousands) On-balance sheet: Loans held for investment $ 289 $ 34,451 $ 445 $ 72,875 Loans held in consolidated trusts — 4,469 1,153 32,402 On-balance sheet total $ 289 $ 38,920 $ 1,598 $ 105,277 Off-balance sheet: LTSPCs 578 27,956 4,369 185,364 Farm & Ranch Total $ 867 $ — $ 66,876 $ 5,967 $ 290,641 USDA: USDA Securities $ 17,707 $ 816 $ 5,985 $ 78,233 Farmer Mac Guaranteed USDA Securities 333 — 2,129 5,577 USDA Total $ 18,040 $ 816 $ 8,114 $ 83,810 Farm & Ranch and USDA Total Deferments $ 18,907 $ 67,692 $ 14,081 $ 374,451 (1) Loans under a COVID-19 deferment are not considered to be past due. Farm & Ranch Farmer Mac's direct credit exposure to Farm & Ranch loans held and loans underlying Farm & Ranch Guaranteed Securities and LTSPCs as of September 30, 2020 was $8.2 billion across 48 states. For more information about Farmer Mac's underwriting and collateral valuation standards for Farm & Ranch loans, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Underwriting and Collateral Valuation (Appraisal) Standards" 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. Farmer Mac has indirect credit exposure to the Farm & Ranch loans that secure AgVantage securities included in the Institutional Credit line of business. As of September 30, 2020, Farmer Mac had not experienced any credit losses on any AgVantage securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Institutional" for more information about Farmer Mac's credit risk on AgVantage securities. Farmer Mac considers a loan's original loan-to-value ratio as one of many factors in evaluating loss severity. Loan-to-value ratios depend on the market value of a property, as determined in accordance with Farmer Mac's collateral valuation standards. As of September 30, 2020 and December 31, 2019, the average unpaid principal balances for loans outstanding in the Farm & Ranch line of business was $731,000 and $683,000, respectively. Farmer Mac calculates the "original loan-to-value" ratio of a loan by dividing the original loan principal balance by the original appraised property value. This calculation does not reflect any amortization of the original loan balance or any adjustment to the original appraised value to provide a current market value. The original loan-to-value ratio of any cross-collateralized loans is calculated on a combined basis rather than on a loan-by-loan basis. The weighted-average original loan-to-value ratio for Farm & Ranch loans purchased during third quarter 2020 was 43%, compared to 51% for 97 loans purchased during third quarter 2019. The weighted-average original loan-to-value ratio for all Farm & Ranch loans held and all loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 52% and 51% as of September 30, 2020 and December 31, 2019, respectively. The weighted-average original loan-to-value ratio for all 90-day delinquencies was 50% and 53% as of September 30, 2020 and December 31, 2019, respectively. The weighted-average current loan-to-value ratio (the loan to-value ratio based on original appraised value and current outstanding loan amount adjusted to reflect amortization) for Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 45% as of both September 30, 2020 and December 31, 2019. For more information about the credit quality of Farmer Mac's Farm & Ranch portfolio and the associated allowance for losses please refer to Note 5 to the consolidated financial statements. Activity affecting the allowance for loan losses and reserve for losses is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Provision for and Release of Allowance for Loan Losses and Reserve for Losses." Farmer Mac's 90-day delinquency measure includes loans 90 days or more past due, as well as loans in foreclosure and non-performing loans where the borrower is in bankruptcy. As of September 30, 2020, Farmer Mac's 90-day delinquencies were $88.0 million (1.07% of the Farm & Ranch portfolio), compared to $68.7 million (0.86% of the Farm & Ranch portfolio) as of June 30, 2020 and $61.0 million (0.78% of the Farm & Ranch portfolio) as of December 31, 2019. Those 90-day delinquencies were comprised of 62 delinquent loans as of September 30, 2020, compared to 54 delinquent loans as of June 30, 2020 and 57 delinquent loans as of December 31, 2019. The sequential increase in 90-day delinquencies is primarily due to the seasonal payment pattern associated with loans that have annual (January 1st) and semi-annual (January 1st and July 1st) payment terms, which account for most of the loans in the Farm & Ranch portfolio. Farmer Mac's 90-day delinquencies have historically fluctuated from quarter to quarter, both in dollars and as a percentage of the outstanding Farm & Ranch portfolio, with higher levels generally observed at the end of the first and third quarters and lower levels generally observed at the end of the second and fourth quarters of each year as a result of the annual (January 1st) and semi-annual (January 1st and July 1st) payment terms of most Farm & Ranch loans. The sequential increase in 90-day delinquencies was driven by two commodity groups – crops and livestock. The other commodity groups either experienced decreases or remained stable. The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of September 30, 2020. Loans under COVID-19 deferment are not considered past due and are not included in our delinquent loan statistics. Farmer Mac believes that it remains adequately collateralized on its delinquent loans. Our 90-day delinquency rate as of September 30, 2020 exceeded Farmer Mac's historical average. In the near-term, our delinquency rate is expected to exceed our historical average due to the expected impact of the COVID-19 pandemic on the agricultural economy. Farmer Mac's average 90-day delinquency rate as a percentage of its Farm & Ranch portfolio over the last 15 years is approximately 1%. The highest 90-day delinquency rate observed during that period occurred in 2009 at approximately 2%, which coincided with increased delinquencies in loans within Farmer Mac's then-held ethanol loan portfolio that Farmer Mac no longer holds. 98 The following table presents historical information about Farmer Mac's 90-day delinquencies in the Farm & Ranch line of business compared to the unpaid principal balance of all Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs: Table 25 Farm & Ranch Line of Business 90-Day Delinquencies Percentage (dollars in thousands) As of: September 30, 2020 $ 8,249,349 $ 88,041 1.07 % June 30, 2020 8,017,850 68,682 0.86 % March 31, 2020 7,811,594 79,722 1.02 % December 31, 2019 7,776,950 60,954 0.78 % September 30, 2019 7,393,728 59,691 0.81 % June 30, 2019 7,291,352 28,045 0.38 % March 31, 2019 7,215,585 52,366 0.73 % December 31, 2018 7,233,971 26,881 0.37 % September 30, 2018 7,072,018 37,545 0.53 % Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.40% of total outstanding business volume as of September 30, 2020, compared to 0.29% as of December 31, 2019 and 0.29% as of September 30, 2019. The following table presents outstanding Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities and 90-day delinquencies as of September 30, 2020 by year of origination, geographic region, commodity/collateral type, original loan-to-value ratio, and range in the size of borrower exposure: 99 Table 26 Farm & Ranch 90-Day Delinquencies as of September 30, 2020 Distribution of Farm & Ranch Line of Business Farm & Ranch Line of Business 90-Day Delinquencies (1) Percentage (dollars in thousands) By year of origination: 2010 and prior 8 % $ 629,983 $ 6,095 0.97 % 2011 2 % 141,080 921 0.65 % 2012 4 % 345,488 — — % 2013 6 % 495,888 2,548 0.51 % 2014 5 % 415,424 1,383 0.33 % 2015 7 % 579,321 6,600 1.14 % 2016 11 % 917,149 24,209 2.64 % 2017 12 % 985,401 25,327 2.57 % 2018 10 % 867,825 8,604 0.99 % 2019 15 % 1,205,009 10,250 0.85 % 2020 20 % 1,666,781 2,104 0.85 % Total 100 % $ 8,249,349 $ 88,041 1.07 % By geographic region (2) : Northwest 12 % $ 1,015,736 $ 12,122 1.19 % Southwest 34 % 2,802,361 13,036 0.47 % Mid-North 29 % 2,362,710 30,314 1.28 % Mid-South 13 % 1,068,422 17,168 1.61 % Northeast 4 % 357,810 4,013 1.12 % Southeast 8 % 642,310 11,388 1.77 % Total 100 % $ 8,249,349 $ 88,041 1.07 % By commodity/collateral type: Crops 51 % $ 4,200,252 $ 49,766 1.18 % Permanent plantings 23 % 1,922,741 8,388 0.44 % Livestock 19 % 1,513,137 16,823 1.11 % Part-time farm 6 % 485,778 145 0.03 % Ag. Storage and Processing 1 % 109,369 12,865 11.76 % Other — 18,072 54 0.30 % Total 100 % $ 8,249,349 $ 88,041 1.07 % By original loan-to-value ratio: 0.00% to 40.00% 17 % $ 1,433,215 $ 6,627 0.46 % 40.01% to 50.00% 25 % 2,043,177 40,791 2.00 % 50.01% to 60.00% 35 % 2,883,327 38,041 1.32 % 60.01% to 70.00% 19 % 1,574,042 2,472 0.16 % 70.01% to 80.00% (3) 4 % 299,582 — — % 80.01% to 90.00% (3) — % 16,006 110 0.69 % Total 100 % $ 8,249,349 $ 88,041 1.07 % By size of borrower exposure (4) : Less than $1,000,000 29 % $ 2,426,763 $ 12,878 0.53 % $1,000,000 to $4,999,999 35 % 2,868,618 33,358 1.16 % $5,000,000 to $9,999,999 15 % 1,198,942 12,559 1.05 % $10,000,000 to $24,999,999 12 % 968,893 29,246 3.02 % $25,000,000 and greater 9 % 786,133 — — % Total 100 % $ 8,249,349 $ 88,041 1.07 % (1) Includes loans held and 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. (2) Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). (3) Primarily part-time farm loans. Loans with an original loan-to-value ratio of greater than 80% are required to have private mortgage insurance. (4) Includes aggregated loans to single borrowers or borrower-related entities. 100 Another indicator that Farmer Mac considers in analyzing the credit quality of its Farm & Ranch portfolio is the level of internally-rated "substandard" assets, both in dollars and as a percentage of the outstanding Farm & Ranch portfolio. Assets categorized as "substandard" 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, Farmer Mac's substandard assets were $321.2 million (3.9% of the Farm & Ranch portfolio), compared to $304.9 million (3.8% of the Farm & Ranch portfolio) as of June 30, 2020 and $310.0 million (4.0% of the Farm & Ranch portfolio) as of December 31, 2019. Those substandard assets were comprised of 361 loans as of September 30, 2020, 368 loans as of June 30, 2020, and 353 loans as of December 31, 2019. The increase of $16.3 million in substandard assets during third quarter 2020 was primarily driven by credit downgrades in our off-balance sheet portfolio, partially offset by credit upgrades in our on-balance sheet portfolio during the quarter. Substandard assets increased as a percentage of the total on- and off-balance sheet portfolio primarily due to the credit downgrades in our off-balance sheet portfolio. The percentage of substandard assets within the portfolio closely approximates the historical average. Farmer Mac's average substandard assets as a percentage of its Farm & Ranch portfolio over the last 15 years is approximately 4%. Due to the COVID-19 pandemic, we believe that the substandard rate may rise above that historical average in the short-term. The full extent of the impact of the COVID-19 pandemic remains to be seen, and we will continue to monitor its impact on our substandard asset rate. The highest substandard asset rate observed during the last 15 years occurred in 2010 at approximately 8%, which coincided with an increase in substandard loans within Farmer Mac's then-held ethanol portfolio that Farmer Mac no longer holds. If Farmer Mac's substandard asset rate increases from current levels, it is likely that Farmer Mac's provision to the allowance for loan losses and the reserve for losses will also increase. Although some credit losses are inherent to the business of agricultural lending, Farmer Mac believes that losses associated with the current agricultural credit cycle will be moderated by the strength and diversity of its portfolio, which Farmer Mac believes is adequately collateralized. The following table presents the current loan-to-value ratios for the Farm & Ranch portfolio, as disaggregated by internally assigned risk ratings: Table 27 Farm & Ranch current loan-to-value ratio by internally assigned risk rating as of September 30, 2020 Acceptable Special Mention Substandard Total (in thousands) Current loan-to-value ratio (1) : 0.00% to 40.00% $ 2,535,414 $ 91,379 $ 100,905 $ 2,727,698 40.01% to 50.00% 2,004,659 142,067 80,324 2,227,050 50.01% to 60.00% 1,812,255 77,716 85,615 1,975,586 60.01% to 70.00% 974,306 43,893 19,739 1,037,938 70.01% to 80.00% 209,385 18,895 19,019 247,299 80.01% and greater 13,486 4,710 15,582 33,778 Total $ 7,549,505 $ 378,660 $ 321,184 $ 8,249,349 (1) The current loan-to-value ratio is based on original appraised value (or most recently obtained appraisal, if available) and current outstanding loan amount adjusted to reflect loan amortization. 101 The following table presents Farmer Mac's cumulative net credit losses relative to the cumulative original balance for all Farm & Ranch loans purchased and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities as of September 30, 2020 by year of origination, geographic region, and commodity/collateral type. The purpose of this information is to present information about realized losses relative to original Farm & Ranch purchases, guarantees, and commitments. Table 28 Farm & Ranch Credit Losses Relative to Cumulative Original Loans, Guarantees, and LTSPCs as of September 30, 2020 Cumulative Original Loans, Guarantees and LTSPCs Cumulative Net Credit Losses/(Recoveries) Cumulative Loss Rate (dollars in thousands) By year of origination: 2010 and prior $ 15,321,174 $ 30,103 0.20 % 2011 780,955 3,661 0.47 % 2012 1,159,460 — — % 2013 1,451,375 — — % 2014 1,030,669 — — % 2015 1,189,515 (516) (0.04) % 2016 1,487,986 — — % 2017 1,562,656 — — % 2018 1,282,915 — — % 2019 1,468,215 — — % 2020 1,800,179 — % Total $ 28,535,099 $ 33,248 0.12 % By geographic region (1) : Northwest $ 3,706,610 $ 11,191 0.30 % Southwest 10,076,495 8,520 0.08 % Mid-North 7,177,705 12,855 0.18 % Mid-South 3,509,487 (613) (0.02) % Northeast 1,589,015 323 0.02 % Southeast 2,475,787 972 0.04 % Total $ 28,535,099 $ 33,248 0.12 % By commodity/collateral type: Crops $ 13,207,554 $ 2,887 0.02 % Permanent plantings 6,329,212 9,762 0.15 % Livestock 6,414,242 3,836 0.06 % Part-time farm 1,637,536 1,090 0.07 % Ag. Storage and Processing 780,390 15,673 2.01 % Other 166,165 — — % Total $ 28,535,099 $ 33,248 0.12 % (1) Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). 102 Analysis of portfolio performance indicates that commodity type is the primary determinant of Farmer Mac's exposure to loss on a given loan. The following tables present concentrations of Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities by commodity type within geographic region and cumulative credit losses by origination year and commodity type: Table 29 As of September 30, 2020 Farm & Ranch Concentrations by Commodity Type within Geographic Region Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (dollars in thousands) By geographic region (1) : Northwest $ 473,738 $ 178,777 $ 279,427 $ 78,696 $ 5,039 $ 59 $ 1,015,736 5.7 % 2.2 % 3.3 % 1.0 % 0.1 % — % 12.3 % Southwest 676,122 1,447,146 511,801 94,470 57,156 15,666 2,802,361 8.2 % 17.6 % 6.2 % 1.1 % 0.7 % 0.2 % 34.0 % Mid-North 1,992,828 11,235 221,150 117,430 18,064 2,003 2,362,710 24.2 % 0.1 % 2.7 % 1.4 % 0.2 % — % 28.6 % Mid-South 661,234 43,170 301,146 55,875 6,977 20 1,068,422 8.0 % 0.5 % 3.7 % 0.7 % 0.1 % — % 13.0 % Northeast 160,221 59,717 67,891 66,463 3,518 — 357,810 2.0 % 0.7 % 0.8 % 0.8 % — % — % 4.3 % Southeast 236,109 182,696 131,722 72,844 18,615 324 642,310 2.9 % 2.2 % 1.6 % 0.9 % 0.2 % — % 7.8 % Total $ 4,200,252 $ 1,922,741 $ 1,513,137 $ 485,778 $ 109,369 $ 18,072 $ 8,249,349 51.0 % 23.3 % 18.3 % 5.9 % 1.3 % 0.2 % 100.0 % (1) Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). 103 Table 30 As of September 30, 2020 Farm & Ranch Cumulative Credit Losses by Origination Year and Commodity Type Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Total (in thousands) By year of origination: 2010 and prior $ 3,427 $ 9,762 $ 3,836 $ 1,066 $ 12,012 $ 30,103 2011 — — — — 3,661 3,661 2012 — — — — — — 2013 — — — — — — 2014 — — — — — — 2015 (540) — — 24 — (516) 2016 — — — — — — 2017 — — — — — — 2018 — — — — — — 2019 — — — — — — 2020 — — — — — — Total $ 2,887 $ 9,762 $ 3,836 $ 1,090 $ 15,673 $ 33,248 Rural Utilities Farmer Mac's direct credit exposure to Rural Utilities loans held and loans underlying LTSPCs as of September 30, 2020 was $2.7 billion across 45 states. For more information about Farmer Mac's underwriting and collateral valuation standards for Rural Utilities loans, see "Business—Farmer Mac's Lines of Business—Rural Utilities—Underwriting" 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. As of September 30, 2020, there were no delinquencies in Farmer Mac's portfolio of Rural Utilities loans. Farmer Mac has indirect credit exposure to Rural Utilities loans that secure AgVantage securities included in the Institutional Credit line of business. As of September 30, 2020, Farmer Mac had not experienced any credit losses on any AgVantage securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Institutional" for more information about Farmer Mac's credit risk on AgVantage securities. Farmer Mac has never experienced a credit loss in its Rural Utilities line of business. Upon the adoption of the current expected credit loss accounting standard ("CECL") on January 1, 2020, we are now required to forecast and disclose our expected credit losses for the expected life of our Rural Utilities portfolio assets. To do this, Farmer Mac relies upon industry data purchased from ratings agencies as well as publicly available information as disclosed in the securities filings of other major lenders who serve this industry. Activity affecting the allowance for loan losses and reserve for losses is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Provision for and Release of Allowance for Loan Losses and Reserve for Losses." Farmer Mac evaluates credit risk for these assets by reviewing a variety of borrower credit risk characteristics. These characteristics can include (but is not limited to) financial metrics, internal risk ratings, ratings assigned by ratings agencies, types of customers served, sources of power supply, and the regulatory environment. 104 The following table presents Farmer Mac’s portfolio of generation and transmission ("G&T") and distribution cooperative borrowers, as well as renewable energy loans, disaggregated by internally assigned risk ratings. Table 31 Rural Utilities portfolio by internally assigned risk rating as of September 30, 2020 Acceptable Special Mention Substandard Total (in thousands) Distribution Cooperative $ 2,088,027 $ — $ 4,474 $ 2,092,501 G&T Cooperative 573,401 — — 573,401 Renewable Energy 19,407 — — 19,407 Rural Utilities Total $ 2,680,835 $ — $ 4,474 $ 2,685,309 For more information about the credit quality of Farmer Mac's Rural Utilities portfolio and the associated allowance for losses please refer to Notes 5 and 6 of the consolidated financial statements. Other Considerations Regarding Credit Risk Related to Loans and Guarantees The credit exposure on USDA Securities, including those underlying Farmer Mac Guaranteed USDA Securities, is guaranteed by the full faith and credit of the United States. Therefore, Farmer Mac believes that we have little or no credit risk exposure in the USDA Guarantees line of business because of the USDA guarantee. As of September 30, 2020, Farmer Mac had not experienced any credit losses on any securities under the USDA Guarantees line of business and does not expect to incur any such losses in the future. Because we do not expect credit losses on this portfolio, Farmer Mac does not provide an allowance for losses on its portfolio of USDA Guaranteed Securities. 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. Farmer Mac requires most approved lenders to make representations and warranties about the conformity of eligible agricultural mortgage and Rural Utilities loans to Farmer Mac's standards, the accuracy of loan data provided to Farmer Mac, and other requirements related to the loans. Sellers who make these representations and warranties are responsible to Farmer Mac for breaches of those representations and warranties. Farmer Mac has the ability to require a seller to cure, replace, or repurchase a loan sold or transferred to Farmer Mac if any breach of a representation or warranty is discovered that was material to Farmer Mac's decision to purchase the loan or that directly or indirectly causes a default or potential loss on a loan sold or transferred by the seller to Farmer Mac. During the previous three years ended September 30, 2020, there have been no breaches of representations and warranties by sellers that resulted in Farmer Mac requiring a seller to cure, replace, or repurchase a loan. In addition to relying on the representations and warranties of sellers, Farmer Mac also underwrites the agricultural real estate mortgage loans (other than rural housing and part-time farm mortgage loans) and Rural Utilities loans on which it has direct credit exposure. For rural housing and part-time farm mortgage loans, Farmer Mac relies on representations and warranties from the seller that those loans conform to Farmer Mac's specified underwriting criteria without exception. For more information about Farmer Mac's loan eligibility requirements and underwriting standards, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Loan Eligibility," "Business—Farmer Mac's Lines of Business—Farm & Ranch—Underwriting and Collateral Valuation (Appraisal) Standards," "Business—Farmer Mac's Lines of Business—Rural Utilities—Loan Eligibility," and "Business—Farmer Mac's Lines of Business—Rural Utilities—Underwriting" in Farmer Mac’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on February 25, 2020. 105 Under contracts with Farmer Mac and in consideration for servicing fees, Farmer Mac-approved servicers service loans in accordance with Farmer Mac's requirements. Servicers are responsible to Farmer Mac for serious errors in the servicing of those loans. If a servicer materially breaches the terms of its servicing agreement with Farmer Mac, such as failing to forward payments received or releasing collateral without Farmer Mac's consent, or experiences insolvency or bankruptcy, the servicer is responsible for any corresponding damages to Farmer Mac and, in most cases, Farmer Mac has the right to terminate the servicing relationship for a particular loan or the entire portfolio serviced by the servicer. Farmer Mac also can proceed against the servicer in arbitration or exercise any remedies available to it under law. During the previous three years ended September 30, 2020, Farmer Mac had not exercised any remedies or taken any formal action against any servicers. For more information about Farmer Mac's servicing requirements, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Servicing" and "Business—Farmer Mac's Lines of Business—Rural Utilities—Servicing" 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. Credit Risk – Institutional . Farmer Mac is exposed to credit risk arising from its business relationships with other institutions, which include: • issuers of AgVantage securities; • approved lenders and servicers; and • interest rate swap counterparties. Farmer Mac approves AgVantage counterparties and manages institutional credit risk related to those AgVantage counterparties by requiring them to meet Farmer Mac's standards for creditworthiness for the particular counterparty type and transaction. The required collateralization level is established when the AgVantage facility is entered into with the counterparty and does not change during the life of the AgVantage securities issued under the facility without Farmer Mac's consent. In AgVantage transactions, the corporate obligor is typically required to remove from the pool of pledged collateral any loan that becomes more than 30 days delinquent in the payment of principal or interest and to substitute an eligible loan that is current in payment to maintain the minimum required collateralization level. Since the onset of the COVID-19 pandemic, Farmer Mac has approved and expects to continue to approve payment deferments on loans collateralizing AgVantage securities, allowing the AgVantage counterparty to keep these loans in its collateral pool without replacing them. The criteria currently in place for approving payment deferments for these loans is similar to the criteria Farmer Mac has established for loans in its Farm & Ranch portfolio that are affected by the COVID-19 pandemic. In the event of a default on an AgVantage security, Farmer Mac would have recourse to the pledged collateral and have rights to the ongoing borrower payments of principal and interest. For Farm Equity AgVantage counterparties and smaller financial funds or entities, Farmer Mac also requires that the counterparty generally (1) maintain a higher collateralization level through lower loan-to-value ratio thresholds than required for traditional AgVantage securities and (2) comply with specified financial covenants for the life of the related AgVantage security to avoid default. For a more detailed description of AgVantage securities, see "Business—Farmer Mac's Lines of Business—Institutional Credit" 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. The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Farm & Ranch line of business totaled $5.4 billion as of September 30, 2020 and $5.5 billion as of December 31, 2019. The unpaid principal balance of on-balance sheet AgVantage securities 106 secured by loans eligible for the Rural Utilities line of business totaled $2.9 billion as of September 30, 2020 and $2.9 billion as of December 31, 2019. The unpaid principal balance of outstanding off-balance sheet AgVantage securities totaled $6.1 million as of September 30, 2020 and $7.6 million as of December 31, 2019. A $0.3 billion off-balance sheet AgVantage revolving line of credit facility was terminated during fourth quarter 2019. The following table provides information about the issuers of AgVantage securities, as well as the required collateralization levels for those transactions as of September 30, 2020 and December 31, 2019: Table 32 As of September 30, 2020 As of December 31, 2019 Counterparty Balance Credit Rating Required Collateralization Balance Credit Rating Required Collateralization (dollars in thousands) AgVantage: CFC $ 2,919,816 A 100% $ 2,949,500 A 100% MetLife 2,375,000 AA- 103% 2,550,000 AA- 103% Rabo AgriFinance 2,250,000 None 110% 2,225,000 None 110% Other (1) 528,929 None 106% to 125% 436,041 None 106% to 125% Farm Equity AgVantage (2) 245,757 None 110% 279,705 None 110% Total outstanding $ 8,319,502 $ 8,440,246 (1) Consists of AgVantage securities issued by 6 and 5 different issuers as of September 30, 2020 and December 31, 2019, respectively. (2) Consists of AgVantage securities issued by 4 and 5 different issuers as of September 30, 2020 and December 31, 2019, respectively. Farmer Mac manages institutional credit risk related to lenders and servicers by requiring those institutions to meet Farmer Mac's standards for creditworthiness. Farmer Mac monitors the financial condition of those institutions by evaluating financial statements and bank credit rating agency reports. For more information about Farmer Mac's lender eligibility requirements, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Approved Lenders" and "Business—Farmer Mac's Lines of Business—Rural Utilities—Approved Lenders" in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on February 25, 2020. Farmer Mac manages institutional credit risk related to its interest rate swap counterparties through collateralization provisions contained in each of its swap agreements that varies based on the market value of its swap portfolio with each counterparty. Farmer Mac and its interest rate swap counterparties are required to fully collateralize their derivatives positions without any minimum threshold for cleared swap transactions, as well as for non-cleared swap transactions entered into after March 1, 2017. Farmer Mac transacts interest rate swaps with multiple counterparties to reduce counterparty credit exposure concentration. Farmer Mac's usage of cleared derivatives has increased over time as has its exposure to clearinghouses. The usage of cleared swap transactions reduces Farmer Mac's exposure to individual counterparties with the central clearinghouse acting to settle the change in value of contracts on a daily basis. Credit risk related to interest rate swap contracts is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Interest Rate Risk" and Note 4 to the consolidated financial statements. Credit Risk – Other Investments . As of September 30, 2020, Farmer Mac had $0.9 billion of cash and cash equivalents and $3.6 billion of investment securities. The management of the credit risk inherent in these investments is governed by Farmer Mac's internal policies as well as the liquidity and investment regulations for Farmer Mac, which were issued by FCA and which establish criteria for investments that 107 are eligible for Farmer Mac's investment portfolio, including limitations on asset class, dollar amount, issuer concentration, and credit quality. In addition to establishing a portfolio of highly liquid investments as an available source of cash, the goals of Farmer Mac's investment policies are designed to minimize Farmer Mac's exposure to financial market volatility, preserve capital, and support Farmer Mac's access to the debt markets. Farmer Mac's liquidity and investment regulations and internal policies require that investments held in Farmer Mac's investment portfolio meet the following creditworthiness standards: (1) at a minimum, at least one obligor of the investment must have a very strong capacity to meet financial commitments for the life of the investment, even under severely adverse or stressful conditions, and generally present a very low risk of default; (2) if the obligor whose capacity to meet financial commitments is being relied upon to meet the standard set forth in subparagraph (1) is located outside of the United States, the investment must also be fully guaranteed by a U.S. government agency; and (3) the investment must exhibit low credit risk and other risk characteristics consistent with the purpose or purposes for which it is held. Farmer Mac's liquidity and investment regulations and internal policies also establish concentration limits, which are intended to limit exposure to any single entity, issuer, or obligor. Farmer Mac's liquidity and investment regulations limit Farmer Mac's total credit exposure to any single entity, issuer, or obligor of securities to 10% of Farmer Mac's regulatory capital ($100.4 million as of September 30, 2020). However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($50.2 million as of September 30, 2020). These exposure limits do not apply to obligations of U.S. government agencies or GSEs, although Farmer Mac's current policy restricts investing more than 100% of regulatory capital in the senior non-convertible debt securities of any one GSE. Although the Liquidity and Investments Regulations do not establish limits on the maximum amount, expressed as a percentage of Farmer Mac's investment portfolio, that can be invested in each eligible asset class, Farmer Mac's internal policies set forth asset class limits as part of Farmer Mac's overall risk management framework. Interest Rate Risk . Farmer Mac is subject to interest rate risk on all financial assets retained on its balance sheet because of timing differences in the cash flows of the assets and debt together with financial derivatives. This risk is primarily related to loans, loan participation interests, Farmer Mac Guaranteed Securities, and USDA Securities due to the contract right of borrowers to prepay their loans before the scheduled maturities. Cash flow mismatches due to changing interest rates can reduce the earnings of Farmer Mac if assets prepay sooner than expected and the resulting cash flows must be reinvested in lower-yielding investments when Farmer Mac's funding costs cannot be correspondingly reduced. Alternatively, Farmer Mac could see a drop in income if assets repay more slowly than expected in a rising interest rate environment and the associated debt must be replaced by higher-cost debt. Interest Rate Risk Management The goal of interest rate risk management at Farmer Mac is to manage the balance sheet in a manner that generates stable earnings and value across a variety of interest rate environments. Recognizing that interest rate sensitivity may change with the passage of time and as interest rates change, Farmer Mac regularly assesses this exposure and, if necessary, adjusts its portfolio of assets, debt, and financial derivatives. 108 Farmer Mac's objective is to maintain its exposure to interest rate risk within appropriate limits, as approved by Farmer Mac's board of directors. Farmer Mac's management-level Asset and Liability Committee ("ALCO") provides oversight and approves strategies to maintain interest rate risk within the board-established limits. Farmer Mac's primary strategy for managing interest rate risk is to fund asset purchases with debt that together with financial derivatives have similar duration and convexity characteristics so that they will perform in a similar fashion as interest rates change. As part of the debt issuance strategy, Farmer Mac seeks to issue a blend of liabilities across a variety of maturities to approximately align the liability cashflows with the forecasted asset cashflows. Farmer Mac issues discount notes and both callable and non-callable medium-term notes across a spectrum of maturities to execute its liability issuance strategy. Callable debt is issued to mitigate prepayment risk associated with assets held on balance sheet. The interest rate sensitivities of the debt together with financial derivatives tend to increase or decrease as interest rates change in a manner similar to changes in the interest rate sensitivities of the assets. Farmer Mac enters into financial derivatives, primarily interest rate swaps, as another tool to better match the durations of Farmer Mac's assets and liabilities, thereby reducing overall sensitivity to changing interest rates. Taking into consideration the prepayment provisions and the default probabilities associated with its portfolio of retained assets, Farmer Mac incorporates prepayment behavioral models when projecting and valuing cash flows associated with these assets. Because borrowers' behaviors in various interest rate environments may change over time, Farmer Mac periodically evaluates the effectiveness of these models compared to actual prepayment experience and adjusts and refines the models as necessary to improve the precision of future prepayment forecasts. Changes in interest rates may affect loan prepayment rates which may, in turn, impact durations and values of the loans. Declining interest rates generally increase prepayment rates, which shortens the duration of these assets, while rising interest rates tend to slow loan prepayments, thereby extending the duration of the loans. Farmer Mac is subject to interest rate risk on loans that Farmer Mac has committed to acquire but has not yet purchased (other than delinquent loans purchased through LTSPCs or loans designated for securitization under a forward purchase agreement). When Farmer Mac commits to purchase these loans, it is exposed to interest rate risk between the time it commits to purchase the loans and the time it issues debt to fund the purchase of those loans. Farmer Mac manages the interest rate risk related to these loans by using futures contracts involving U.S. Treasury securities and other financial derivatives. Farmer Mac enters into U.S. Treasury futures contracts as a hedge against the level of interest rates. Farmer Mac's $0.9 billion of cash and cash equivalents mature within three months and are generally funded with debt having similar maturities. As of September 30, 2020, $3.5 billion of the $3.6 billion of investment securities (97%) were floating rate securities with rates that adjust within one year or fixed rate securities with original maturities between three months and one year. The floating rate securities are funded with effectively floating rate debt that closely matches the rate adjustment dates of the associated investments. The fixed rate investment securities are generally funded in a manner consistent with Farmer Mac's overall funding strategy that approximates a duration and convexity match. 109 Interest Rate Risk Metrics Farmer Mac regularly stress tests its portfolio for interest rate risk and examines a variety of metrics to quantify and manage its interest rate risk. These metrics include sensitivity to interest rate movements of market value of equity ("MVE") and projected net effective spread ("NES") as well as duration gap analysis. MVE represents management's estimate of the present value of all future cash flows from on- and off-balance sheet assets, liabilities, and financial derivatives, discounted at current interest rates and appropriate spreads. However, MVE is not indicative of the market value of Farmer Mac as a going concern because these market values are theoretical and do not reflect future business activities. MVE sensitivity analysis is used to measure the degree to which the market values of Farmer Mac's assets and liabilities change for a given change in interest rates. Because this analysis evaluates the effect of interest rate movements on the value of all future cash flows, this measure provides an evaluation of Farmer Mac's long-term interest rate risk. Farmer Mac's NES simulation represents the difference between projected income over the next twelve months from interest-earning assets and interest expense produced by the related funding, including associated derivatives. Farmer Mac's NES may be impacted by changes in market interest rates resulting from timing differences between maturities and re-pricing characteristics of assets and liabilities. The direction and magnitude of any such effect depends on the direction and magnitude of the change in interest rates as well as the composition of Farmer Mac's portfolio. The NES forecast represents an estimate of the net effective spread income that Farmer Mac's current portfolio is expected to produce over a twelve-month horizon. As a result, NES sensitivity statistics provide a short-term view of Farmer Mac's sensitivity to interest rates. Duration is a measure of a financial instrument's fair value sensitivity to small changes in interest rates. Duration gap is the net estimated durations of Farmer Mac's assets, debt, and financial derivatives. Because duration is a measure of fair value sensitivity, duration gap summarizes the extent to which estimated fair value sensitivities for assets and liabilities are matched. Duration gap provides a relatively concise measure of the interest rate risk inherent in Farmer Mac's outstanding portfolio. A positive duration gap denotes that the duration of Farmer Mac's assets is greater than the duration of its debt and derivatives. A positive duration gap indicates that the changes to the fair value of Farmer Mac's assets is more sensitive to small interest rate movements than are the changes to fair value of its debt and derivatives. Conversely, a negative duration gap indicates that changes to fair value of Farmer Mac's assets are less sensitive to small interest rate movements than are the changes to fair value of its debt and derivatives. A duration gap of zero indicates that with small changes in interest rate movements the fair value change of Farmer Mac's assets is effectively offset the fair value change of its debt and derivatives. Each of the metrics is produced using asset/liability models and is derived based on management's best estimates of factors such as projected interest rates, interest rate volatility, and asset prepayment speeds. Accordingly, these metrics should be understood as estimates rather than as precise measurements. Actual results may differ to the extent there are material changes to Farmer Mac's portfolio or changes in strategies undertaken to mitigate unfavorable sensitivities to interest rate changes. 110 The following schedule summarizes the results of Farmer Mac's MVE and NES sensitivity analysis as of September 30, 2020 and December 31, 2019 to an immediate and instantaneous uniform or "parallel" shift in the yield curve: Table 33 Percentage Change in MVE from Base Case Interest Rate Scenario (1) As of September 30, 2020 As of December 31, 2019 +100 basis points 6.1 % 2.7 % -100 basis points (0.5) % (8.4) % Percentage Change in NES from Base Case Interest Rate Scenario (1) As of September 30, 2020 As of December 31, 2019 +100 basis points 3.1 % 0.8 % -100 basis points (0.2) % 0.1 % (1) The down 100 basis points shock scenario was replaced with a proportional shock relative to 50% of the 3-month Treasury bill rate, with the approval of the Financial Risk Committee of the Board of Directors. As of September 30, 2020, Farmer Mac's effective duration gap was negative 4.4 months, compared to negative 2.5 months as of December 31, 2019. Interest rates decreased significantly during the first nine months of 2020. This rate movement contributed to reducing the duration of Farmer Mac's assets relative to its liabilities, thereby widening Farmer Mac's duration gap. Furthermore, as of September 30, 2020, Farmer Mac implemented a replacement behavioral prepayment model that also contributed to a widening duration gap. Financial Derivatives Transactions The economic effects of financial derivatives are included in Farmer Mac's MVE, NES, and duration gap analyses. Farmer Mac enters into the following financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of assets, future cash flows, and debt issuance, not for trading or speculative purposes: • "pay-fixed" interest rate swaps, in which Farmer Mac pays fixed rates of interest to, and receives floating rates of interest from, counterparties; • "receive-fixed" interest rate swaps, in which Farmer Mac receives fixed rates of interest from, and pays floating rates of interest to, counterparties; and • "basis swaps," in which Farmer Mac pays variable rates of interest based on one index to, and receives variable rates of interest based on another index from, counterparties. As of September 30, 2020, Farmer Mac had $15.1 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to thirty years, of which $6.2 billion were pay-fixed interest rate swaps, $5.6 billion were receive-fixed interest rate swaps, and $3.3 billion were basis swaps. Farmer Mac enters into interest rate swap contracts to more closely match the cash flow and duration characteristics of its assets with those of its liabilities. Interest rate swaps paired with the issuance of short-term debt effectively can create fixed rate funding that approximately matches duration with the corresponding assets being funded. Farmer Mac evaluates the overall cost of using the swap market in conjunction with debt issuance as a funding alternative to duration-matched debt and enters into interest rate swaps to manage interest rate risks across the balance sheet. 111 Certain financial derivatives are designated as fair value hedges of fixed rate assets classified as available for sale or liabilities to protect against fair value changes in the assets or liabilities related to a benchmark interest rate (e.g., LIBOR and SOFR). Also, certain financial derivatives are designated as cash flow hedges to mitigate the volatility of future interest rate payments on floating rate debt. As discussed in Note 4 to the consolidated financial statements, all financial derivatives are recorded on the balance sheet at fair value as derivative assets or as derivative liabilities. Changes in the fair values of financial derivatives are reported in "(Losses)/gains on financial derivatives" in the consolidated statements of operations. For financial derivatives designated in fair value hedge accounting relationships, changes in the fair values of the hedged items related to the risk being hedged are reported in "Net interest income" in the consolidated statements of operations. Interest accruals on derivatives designated in fair value hedge accounting relationships are also recorded in "Net interest income" in the consolidated statements of operations. For financial derivatives designated in cash flow hedge accounting relationships, the unrealized gain or loss on the derivative is recorded in other comprehensive income. Because the hedging instrument is an interest rate swap and the hedged forecasted transactions are future interest payments on variable rate debt, amounts recorded in accumulated other comprehensive income are reclassified to "Total interest expense" in conjunction with the recognition of interest expense on the debt. All of Farmer Mac's financial derivatives transactions are conducted under standard collateralized agreements that limit Farmer Mac's potential credit exposure to any counterparty. As of September 30, 2020 and December 31, 2019, Farmer Mac had no uncollateralized net exposures. Re-funding and repricing risk In addition to being exposed to the risk of asset and liability cash flow mismatches, Farmer Mac is exposed to the risk related to changes in its cost of funds relative to floating rate market indexes (such as LIBOR and SOFR) on many of the floating rate assets it holds. This exposure is referred to as "re-funding and repricing risk." Re-funding and repricing risk arises from potential changes in funding costs when Farmer Mac funds floating rate, or synthetic floating rate, assets with floating rate liabilities with shorter maturities. Changes in Farmer Mac's funding costs relative to the benchmark rate to which the assets are indexed can cause changes to net interest income from funding those assets. Farmer Mac is subject to re-funding and repricing risk on any floating rate assets that are not funded to contractual maturity. In addition, many of Farmer Mac's floating rate assets may prepay before the contractual maturity date. Farmer Mac is also subject to re-funding and repricing risk on a portion of its fixed rate assets as a result of its use of pay-fixed receive-floating interest rate swaps that effectively convert the required funding needed from fixed rate to floating rate. These fixed rate assets are then effectively synthetically floating rate assets that require floating rate funding. Farmer Mac can meet floating rate funding needs in several ways, including: • issuing short-term discount notes with maturities that match the reset period of the assets; • issuing floating rate medium-term notes with maturities and reset frequencies that match the assets being funded; • issuing non-maturity matched, floating rate medium-term notes with reset frequencies that match the assets being funded; or • issuing non-maturity matched, discount notes or medium-term notes swapped to match the interest rate reset dates of the assets as an alternative source of effectively floating rate funding. 112 To meet floating rate funding needs, Farmer Mac frequently issues shorter-term floating-rate medium-term notes or fixed rate medium-term notes paired with an interest rate swap because these options generally provide a lower cost of funding while generating an effective interest rate match. As funding for these floating rate assets matures, Farmer Mac seeks to refinance the debt associated with these assets in a similar fashion to achieve an appropriate interest rate match in the context of Farmer Mac's overall liability issuance and liquidity management strategies. However, if the funding cost of Farmer Mac’s discount notes or medium-term notes were to deteriorate relative to LIBOR (or a different market index to which the assets are being funded) during the time between when these floating rate assets were first funded and when Farmer Mac refinanced the associated debt, Farmer Mac would be exposed to a commensurate reduction in its net effective spread on the associated assets. Conversely, if the funding cost on Farmer Mac’s discount notes or medium-term notes were to improve relative to LIBOR (or a different market index) during that time, Farmer Mac would benefit from a commensurate increase in its net effective spread on those assets. Farmer Mac's liability issuance strategy targets balancing liquidity risk and re-funding and repricing risk while maintaining an appropriate liability management profile that is consistent with Farmer Mac's risk tolerance. ALCO regularly reviews Farmer Mac's liability issuance strategy to appropriately manage re-funding and repricing risk. As of September 30, 2020, Farmer Mac held $7.0 billion of floating rate assets in its lines of business and its investment portfolio that reset based on floating rate market indexes, primarily one-month and three-month LIBOR. As of the same date, Farmer Mac also had $6.2 billion of interest rate swaps outstanding where Farmer Mac pays a fixed rate of interest and receives a floating rate of interest. Throughout the first nine months of 2020, Farmer Mac's funding relative to LIBOR remained stable with spreads comparable to historical averages. Farmer Mac regularly adjusts its funding strategies to mitigate the effects of spread variability from time to time and seeks to maintain an effective funding cost in the context of its overall liability management and liquidity management strategies. Discontinuation of LIBOR As described in "Risk Factors—Market Risk" 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, Farmer Mac faces risks associated with the reform, replacement, or discontinuation of the LIBOR benchmark interest rate and the transition to an alternative benchmark interest rate. We are currently evaluating the potential effect on our business of the replacement of the LIBOR benchmark interest rate, including the possibility of replacement benchmark interest rates. As of September 30, 2020, Farmer Mac held $5.7 billion of floating rate assets in its lines of business and its investment portfolio, had issued $5.2 billion of floating rate debt, and had entered into $14.9 billion notional amount of interest rate swaps, each of which reset based on LIBOR. In addition, our Non-Cumulative Series C Preferred Stock currently pays a fixed rate of interest until July 17, 2024. It becomes redeemable at our option on July 18, 2024 and thereafter pays interest at a floating rate equal to three-month LIBOR plus 3.260%. The market transition away from LIBOR and towards an alternative benchmark interest rate that may be developed is expected to be complicated and may require the development of term and credit adjustments 113 to accommodate for differences between the benchmark interest rates. The transition may also result in different financial performance for previously booked transactions, require different hedging strategies, or require renegotiation of previously booked transactions. As of September 30, 2020, we had $1.1 billion outstanding in medium-term notes based on the Secured Overnight Financing Rate (SOFR), a potential alternative benchmark interest rate. Liquidity and Capital Resources Farmer Mac's primary sources of funds to meet its liquidity and funding needs are the proceeds of its debt issuances, guarantee and commitment fees, net effective spread, loan repayments, and maturities of AgVantage securities. Farmer Mac regularly accesses the capital markets for funding, and Farmer Mac has maintained access to the capital markets at favorable rates through third quarter 2020. Farmer Mac funds its purchases of eligible loan assets, USDA Securities, Farmer Mac Guaranteed Securities, and investment assets and finances its operations primarily by issuing debt obligations of various maturities in the public capital markets. As of September 30, 2020, Farmer Mac had outstanding discount notes of $2.4 billion, medium-term notes that mature within one year of $8.6 billion, and medium-term notes that mature after one year of $10.7 billion. Assuming continued access to the capital markets, Farmer Mac believes it has sufficient liquidity and capital resources to support its operations for the next 12 months and for the foreseeable future. Farmer Mac also has a contingency funding plan to manage unanticipated disruptions in its access to the capital markets. That plan involves borrowing through repurchase agreement arrangements and the sale of liquid assets. Farmer Mac must maintain a minimum of 90 days of liquidity under its liquidity and investment regulations. Under the methodology for calculating available days of liquidity prescribed by those regulations, Farmer Mac maintained an average of 202 days of liquidity during third quarter 2020 and had 182 days of liquidity as of September 30, 2020. ALCO regularly reviews Farmer Mac's liquidity position and ensures the required minimums are maintained. Farmer Mac maintains cash, cash equivalents (including U.S. Treasury securities and other short-term money market instruments), and other investment securities that can be drawn upon for liquidity needs. Farmer Mac's current policies authorize liquidity investments in: • obligations of or fully guaranteed by the United States or a U.S. government agency; • obligations of or fully guaranteed by GSEs; • municipal securities; • international and multilateral development bank obligations; • money market instruments; • diversified investment funds; • asset-backed securities; • corporate debt securities; and • mortgage-backed securities. 114 The following table presents these assets as of September 30, 2020 and December 31, 2019: Table 34 As of September 30, 2020 As of December 31, 2019 (in thousands) Cash and cash equivalents $ 910,592 $ 604,381 Investment securities: Guaranteed by U.S. Government and its agencies 1,696,538 1,842,640 Guaranteed by GSEs 1,861,611 1,143,323 Asset-backed securities 19,109 18,912 Total $ 4,487,850 $ 3,609,256 The increase in the investment portfolio since December 31, 2019 was to provide a greater level of liquidity in response to the COVID-19 pandemic, to prepare for the possibility of future volatility in the debt capital markets, and to support program asset growth as the overall funding needs for the balance sheet increased. Capital Requirements . Farmer Mac is subject to the following statutory capital requirements – minimum, critical, and risk-based. Farmer Mac must comply with the higher of the minimum capital requirement and the risk-based capital requirement. As of September 30, 2020, Farmer Mac was in compliance with its statutory capital requirements and was classified as within "level I" (the highest compliance level). In accordance with FCA's rule on capital planning, Farmer Mac's board of directors 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). That policy restricts Tier 1-eligible dividends and any discretionary bonus payments if Tier 1 capital falls below specified thresholds. As of September 30, 2020 and December 31, 2019, Farmer Mac's Tier 1 capital ratio was 14.3% and 12.9%, respectively. The increase in our Tier 1 capital ratio was due to the fact that capital growth, which reflects the issuance of the Series E and Series F Preferred Stock, partially offset by the redemption of the Series A Preferred Stock, outpaced the growth in risk-weighted assets during the first nine months of 2020. As of September 30, 2020, Farmer Mac was in compliance with its capital adequacy policy. Farmer Mac does not expect its compliance on an ongoing basis with FCA's rule on capital planning, including Farmer Mac's policy on Tier 1 capital, to materially affect Farmer Mac's operations or financial condition. For more information about the capital requirements applicable to Farmer Mac, its capital adequacy policy, and FCA's rule on capital planning, see "Business—Government Regulation of Farmer Mac—Capital Standards" 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. See Note 8 to the consolidated financial statements for more information about Farmer Mac's capital position. Regulatory Matters In response to the economic effects of the COVID-19 pandemic, FCA has issued regulatory guidance to encourage Farmer Mac to work with its lending and servicing partners in approving servicing actions for borrowers impacted by COVID-19, including working with other Farm Credit System institutions on approvals for loans to which statutory borrower rights are attached (primarily in LTSPCs). FCA also provided guidance about under what circumstances loans with approved servicing actions due exclusively 115 to the economic effects of the COVID-19 pandemic should not be classified as nonaccrual or troubled debt restructurings. Also in response to the COVID-19 pandemic and the related economic effects, Congress passed a series of stimulus measures, including the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which contained a $9.5 billion emergency fund for the USDA aimed toward providing help to livestock, dairy, and produce providers who sell locally. It also included a $14 billion replenishment of the CCC, a line of credit at the U.S. Treasury Department that USDA can use to help crop and livestock producers. On April 17, 2020, USDA announced that it would provide $19 billion of assistance through the Coronavirus Food Assistance Program ("CFAP"). CFAP used the funding and authorities provided in the CARES Act, the Families First Coronavirus Response Act, and other USDA existing authorities to provide $16 billion in direct support to farmers and ranchers based on actual losses from disruptions to prices and market supply chains and for projected impacts to marketing costs resulting from lost demand and short-term oversupply for the 2020 marketing year caused by the coronavirus. As part of CFAP, USDA also announced that it would purchase $3 billion in fresh produce, dairy, and meat. These purchases are aimed at propping up commodity prices while providing commodities to food banks, community and faith based organizations, and other non-profits serving Americans in need. As of October 25, 2020, the USDA had distributed $10.3 billion in CFAP payments. Additionally, on September 17, 2020, the USDA announced the second round of CFAP funding through the authorities of the CCC for up to $14 billion in direct support for eligible commodities ("CFAP 2"). As of October 25, 2020, the USDA had distributed more than $7.6 billion in payments through CFAP 2. Through the end of October, more than $26 billion in economic support has been delivered to farm businesses under the CARES Act through a combination of direct payments and loans. In addition to legislation and stimulus in response to COVID-19, Farmer Mac continues to monitor the establishment and evolution of legislation and regulations that could affect farmers, ranchers, rural lenders, and rural America in general. Other Matters The expected effects of recently issued accounting pronouncements on the consolidated financial statements are presented in Note 1(d) to the consolidated financial statements. 116 Supplemental Information The following tables present quarterly and annual information about new business volume, repayments, and outstanding business volume: Table 35 New Business Volume Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Loans LTSPCs USDA Securities Loans LTSPCs AgVantage Total (in thousands) For the quarter ended: September 30, 2020 $ 740,823 $ 94,495 $ 225,494 $ 62,300 $ — $ 211,908 $ 1,335,020 June 30, 2020 609,284 85,390 224,016 339,366 19,500 430,024 1,707,580 March 31, 2020 401,853 73,674 147,906 152,668 — 560,395 1,336,496 December 31, 2019 602,750 65,614 143,565 102,900 — 371,075 1,285,904 September 30, 2019 309,805 125,022 113,664 117,279 — 402,611 1,068,381 June 30, 2019 248,152 57,321 118,335 105,000 — 659,447 1,188,255 March 31, 2019 203,156 91,215 57,223 546,198 — 825,417 1,723,209 December 31, 2018 285,008 80,840 90,297 3,000 — 585,814 1,044,959 September 30, 2018 192,628 64,100 116,339 — — 1,085,953 1,459,020 For the year ended: December 31, 2019 $ 1,363,863 $ 339,172 $ 432,787 $ 871,377 $ — $ 2,258,550 $ 5,265,749 December 31, 2018 960,848 430,071 460,121 11,645 — 3,310,307 5,172,992 117 Table 36 Repayments of Assets by Line of Business Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Loans Guaranteed Securities LTSPCs USDA Securities Loans LTSPCs AgVantage Total (in thousands) For the quarter ended: Scheduled $ 174,986 $ 2,524 $ 32,276 $ 29,654 $ 54,513 $ 14,100 $ 547,236 $ 855,289 Unscheduled 326,025 1,934 66,074 138,518 — — — 532,551 September 30, 2020 $ 501,011 $ 4,458 $ 98,350 $ 168,172 $ 54,513 $ 14,100 $ 547,236 $ 1,387,840 Scheduled $ 101,264 $ 3,043 $ 39,010 $ 37,879 $ 23,589 $ 25,132 $ 471,295 $ 701,212 Unscheduled 248,890 4,034 92,177 154,536 3,935 — — 503,572 June 30, 2020 $ 350,154 $ 7,077 $ 131,187 $ 192,415 $ 27,524 $ 25,132 $ 471,295 $ 1,204,784 Scheduled $ 128,768 $ 6,132 $ 50,393 $ 43,069 $ 34,235 $ 13,593 $ 304,540 $ 580,730 Unscheduled 191,260 3,888 60,442 78,806 — — — 334,396 March 31, 2020 $ 320,028 $ 10,020 $ 110,835 $ 121,875 $ 34,235 $ 13,593 $ 304,540 $ 915,126 Scheduled $ 57,488 $ 4,737 $ 39,878 $ 25,142 $ 10,317 $ 10,551 $ 656,095 $ 804,208 Unscheduled 105,671 3,247 74,121 66,011 34,063 — 13,000 296,113 December 31, 2019 $ 163,159 $ 7,984 $ 113,999 $ 91,153 $ 44,380 $ 10,551 $ 669,095 $ 1,100,321 Scheduled $ 97,421 $ 3,095 $ 22,713 $ 27,853 $ 31,656 $ 8,692 $ 441,575 $ 633,005 Unscheduled 129,676 2,663 76,883 39,442 — — 1,088 249,752 September 30, 2019 $ 227,097 $ 5,758 $ 99,596 $ 67,295 $ 31,656 $ 8,692 $ 442,663 $ 882,757 Scheduled $ 39,879 $ 3,758 $ 58,779 $ 38,676 $ 6,951 $ 17,092 $ 612,964 $ 778,099 Unscheduled 64,912 3,399 58,979 43,044 — — — 170,334 June 30, 2019 $ 104,791 $ 7,157 $ 117,758 $ 81,720 $ 6,951 $ 17,092 $ 612,964 $ 948,433 Scheduled $ 112,973 $ 5,843 $ 74,054 $ 41,266 $ 31,492 $ 7,660 $ 470,812 $ 744,100 Unscheduled 67,608 1,798 50,482 46,798 24,448 — 5,587 196,721 March 31, 2019 $ 180,581 $ 7,641 $ 124,536 $ 88,064 $ 55,940 $ 7,660 $ 476,399 $ 940,821 Scheduled $ 36,006 $ 8,331 $ 35,682 $ 24,793 $ 6,321 $ 16,062 $ 568,277 $ 695,472 Unscheduled 56,299 9,257 33,319 21,135 20,538 — — 140,548 December 31, 2018 $ 92,305 $ 17,588 $ 69,001 $ 45,928 $ 26,859 $ 16,062 $ 568,277 $ 836,020 Scheduled $ 73,476 $ 5,677 $ 21,742 $ 28,135 $ 25,640 $ 8,286 $ 1,102,798 $ 1,265,754 Unscheduled 77,492 4,562 47,159 35,068 3,476 — 9,760 177,517 September 30, 2018 $ 150,968 $ 10,239 $ 68,901 $ 63,203 $ 29,116 $ 8,286 $ 1,112,558 $ 1,443,271 For the year ended: Scheduled $ 307,761 $ 17,433 $ 195,424 $ 132,937 $ 80,416 $ 43,995 $ 2,181,446 $ 2,959,412 Unscheduled 367,867 11,107 260,465 195,295 58,511 — 19,675 912,920 December 31, 2019 $ 675,628 $ 28,540 $ 455,889 $ 328,232 $ 138,927 $ 43,995 $ 2,201,121 $ 3,872,332 Scheduled $ 253,290 $ 36,484 $ 158,548 $ 130,722 $ 58,821 $ 33,047 $ 2,822,608 $ 3,493,520 Unscheduled 293,719 27,021 231,221 165,993 90,272 120,022 9,760 938,008 December 31, 2018 $ 547,009 $ 63,505 $ 389,769 $ 296,715 $ 149,093 $ 153,069 $ 2,832,368 $ 4,431,528 118 Table 37 Lines of Business - Outstanding Business Volume Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Loans Guaranteed Securities LTSPCs USDA Securities Loans LTSPCs AgVantage Total (in thousands) As of: September 30, 2020 $ 5,857,324 $ 85,767 $ 2,306,258 $ 2,735,129 $ 2,109,355 $ 575,953 $ 8,319,502 $ 21,989,288 June 30, 2020 5,617,512 90,225 2,310,113 2,677,807 2,101,568 590,053 8,654,830 22,042,108 March 31, 2020 5,358,382 97,302 2,355,910 2,646,206 1,789,726 595,685 8,696,101 21,539,312 December 31, 2019 5,276,557 107,322 2,393,071 2,620,175 1,671,293 609,278 8,440,246 21,117,942 September 30, 2019 4,836,966 115,306 2,441,456 2,567,763 1,612,773 619,829 8,738,266 20,932,359 June 30, 2019 4,754,258 121,064 2,416,030 2,521,394 1,527,150 628,521 8,778,318 20,746,735 March 31, 2019 4,610,897 128,221 2,476,467 2,484,779 1,429,101 645,613 8,731,835 20,506,913 December 31, 2018 4,588,322 135,862 2,509,787 2,515,620 938,843 653,273 8,382,817 19,724,524 September 30, 2018 4,420,619 287,594 2,363,805 2,471,251 962,702 669,335 8,365,280 19,540,586 Table 38 On-Balance Sheet Outstanding Business Volume Fixed Rate 5- to 10-Year ARMs & Resets 1-Month to 3-Year ARMs Total Held in Portfolio (in thousands) As of: September 30, 2020 $ 10,879,372 $ 2,811,547 $ 5,013,640 $ 18,704,559 June 30, 2020 10,793,629 2,845,266 5,076,445 18,715,340 March 31, 2020 10,296,598 2,818,869 4,996,478 18,111,945 December 31, 2019 10,045,712 2,863,199 4,702,577 17,611,488 September 30, 2019 9,642,802 2,850,000 4,549,689 17,042,491 June 30, 2019 9,446,117 2,825,151 4,601,917 16,873,185 March 31, 2019 9,206,082 2,720,639 4,643,506 16,570,227 December 31, 2018 8,325,347 2,717,505 4,705,169 15,748,021 September 30, 2018 7,945,007 2,629,612 4,986,987 15,561,606 119 The following table presents the quarterly net effective spread (a non-GAAP measure) by segment: Table 39 Net Effective Spread by Line of Business Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Net Effective Spread Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield (dollars in thousands) For the quarter ended: September 30, 2020 (1) $ 18,025 1.67 % $ 5,865 0.97 % $ 6,939 1.32 % $ 18,601 0.87 % $ 2,372 0.23 % $ 51,802 0.96 % June 30, 2020 16,733 1.71 % 4,689 0.81 % 5,516 1.15 % 18,782 0.86 % 749 0.08 % 46,469 0.89 % March 31, 2020 14,938 1.64 % 4,625 0.81 % 4,920 1.14 % 17,702 0.84 % 1,978 0.21 % 44,163 0.89 % December 31, 2019 16,374 1.90 % 4,363 0.78 % 4,871 1.17 % 18,008 0.85 % 2,375 0.27 % 45,991 0.95 % September 30, 2019 (1) 13,181 1.66 % 4,314 0.79 % 4,502 1.16 % 17,807 0.84 % 2,657 0.30 % 42,461 0.90 % June 30, 2019 13,335 1.72 % 4,097 0.76 % 3,996 1.10 % 17,371 0.82 % 2,556 0.34 % 41,355 0.91 % March 31, 2019 12,737 1.70 % 3,964 0.74 % 3,233 1.12 % 16,373 0.79 % 2,494 0.35 % 38,801 0.89 % December 31, 2018 13,288 1.79 % 4,630 0.85 % 2,833 1.19 % 15,751 0.80 % 2,353 0.36 % 38,855 0.93 % September 30, 2018 13,887 1.91 % 4,627 0.86 % 2,877 1.18 % 15,642 0.78 % 2,044 0.30 % 39,077 0.93 % (1) See Note 10 to the consolidated financial statements for a reconciliation of GAAP net interest income by line of business to net effective spread by line of business for the three months ended September 30, 2020 and 2019. 120 The following table presents quarterly core earnings (a non-GAAP measure) reconciled to net income attributable to common stockholders: Table 40 Core Earnings by Quarter End September 2020 June 2020 March 2020 December 2019 September 2019 June 2019 March 2019 December 2018 September 2018 (in thousands) Revenues: Net effective spread $ 51,802 $ 46,469 $ 44,163 $ 45,991 $ 42,461 $ 41,355 $ 38,801 $ 38,855 $ 39,077 Guarantee and commitment fees 4,659 4,943 4,896 5,432 5,208 5,276 5,419 5,309 5,170 Other 453 1,048 674 100 389 777 509 (129) 110 Total revenues 56,914 52,460 49,733 51,523 48,058 47,408 44,729 44,035 44,357 Credit related expense/(income): Provision for/(release of) losses 1,200 51 3,831 2,851 623 420 (393) 166 (3) REO operating expenses — — — — — 64 — — — (Gains)/losses on sale of REO — — (485) — — — — — 41 Total credit related expense/(income) 1,200 51 3,346 2,851 623 484 (393) 166 38 Operating expenses: Compensation and employee benefits 8,791 8,087 10,127 6,732 7,654 6,770 7,606 7,167 6,777 General and administrative 5,044 5,295 5,363 5,773 5,253 4,689 4,596 5,829 4,350 Regulatory fees 725 725 725 725 688 687 688 687 625 Total operating expenses 14,560 14,107 16,215 13,230 13,595 12,146 12,890 13,683 11,752 Net earnings 41,154 38,302 30,172 35,442 33,840 34,778 32,232 30,186 32,567 Income tax expense 8,297 8,016 6,598 7,526 7,018 7,351 6,715 6,431 6,891 Preferred stock dividends 5,166 3,939 3,431 3,432 3,427 3,785 3,296 3,296 3,295 Core earnings $ 27,691 $ 26,347 $ 20,143 $ 24,484 $ 23,395 $ 23,642 $ 22,221 $ 20,459 $ 22,381 Reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (4,149) 8,700 (6,484) 4,469 (7,117) 10,485 2,240 (96) 3,625 (Losses)/gains on hedging activities due to fair value changes (5,245) (2,676) (5,925) (220) (4,535) (1,438) (2,817) (853) 1,051 Unrealized (losses)/gains on trading assets (258) (20) 106 172 49 61 44 57 (3) Amortization of premiums/discounts and deferred gains on assets consolidated at fair value 97 35 3 40 (7) (139) (16) 67 (38) Net effects of terminations or net settlements on financial derivatives 233 720 (1,300) 1,339 232 (592) 110 (312) 546 Issuance costs on the retirement of preferred stock (1,667) — — — — (1,956) — — — Income tax effect related to reconciling items 1,957 (1,419) 2,856 (1,218) 2,389 (1,759) 92 238 (1,088) Net income attributable to common stockholders $ 18,659 $ 31,687 $ 9,399 $ 29,066 $ 14,406 $ 28,304 $ 21,874 $ 19,560 $ 26,474 121