FEDERAL AGRICULTURAL MORTGAGE CORP 10-K

agm-20201231 As filed with the Securities and Exchange Commission on February 25, 2021 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31 , 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____. Commission File Number 001-14951 FEDERAL AGRICULTURAL MORTGAGE CORPORATION (Exact name of registrant as specified in its charter) Federally chartered instrumentality of the United States 52-1578738 (State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number) 1999 K Street, N.W. , 4th Floor , Washington, DC 20006 (Address of principal executive offices) (Zip code) (202) 872-7700 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol Exchange on which registered Class A voting common stock AGM.A New York Stock Exchange Class C non-voting common stock AGM New York Stock Exchange 6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C AGM.PRC New York Stock Exchange 5.700% Non-Cumulative Preferred Stock, Series D AGM.PRD New York Stock Exchange 5.750% Non-Cumulative Preferred Stock, Series E AGM.PRE New York Stock Exchange 5.250% Non-Cumulative Preferred Stock, Series F AGM.PRF New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Class B voting common stock Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the Class A voting common stock and Class C non-voting common stock held by non-affiliates of the registrant was $ 588,995,888 as of June 30, 2020, the last business day of the registrant's most recently completed second fiscal quarter, based upon the closing prices for the respective classes on June 30, 2020 reported by the New York Stock Exchange. For purposes of this information, the outstanding shares of Class A voting common stock and Class C non-voting common stock held by directors, executive officers, and significant stockholders of the registrant, as applicable, as of June 30, 2020 were deemed to be held by affiliates. The aggregate market value of the Class B voting common stock is not ascertainable due to the absence of publicly available quotations or prices for the Class B voting common stock as a result of the limited market for, and infrequency of trades in, Class B voting common stock and the fact that any such trades are privately negotiated transactions. As of February 8, 2021, the registrant had outstanding 1,030,780 shares of Class A voting common stock, 500,301 shares of Class B voting common stock, and 9,206,055 shares of Class C non-voting common stock. DOCUMENTS INCORPORATED BY REFERENCE Certain information contained in the registrant's Proxy Statement for the 2021 Annual Meeting of Stockholders is incorporated herein by reference in Part III of this Annual Report on Form 10-K. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant's fiscal year to which this report relates. 1 Table of Contents Forward-Looking Statements 6 PART I 8 Item 1. Business 8 General 8 Farmer Mac's Lines of Business 9 Competition 18 C apital and Cor porate Governance 18 Human Capital 21 A vailable Information 22 F unding of Guarantee and LTSPC Obligations 23 Financing 23 Debt Issuance 23 Equity Issuance 24 Farmer Mac's Authority to Bor row from the U.S. Treasury 27 Government Regulation of Farmer Mac 29 General 29 O ffice o f Secondary Market Over sight 29 C apital Standards 30 Liquidity Requirements 32 Item 1A. R isk Factors 34 I tem 1B. U nresolved Staff Comments 49 Item 2. Properties 49 Item 3. Legal Proceedings 49 Item 4. Mine Safety Disclosures 49 PART II 49 Item 5. M arket for Registrant 's Common Equity, Related Stockholders Matters, and I ssuer Purchases of Equity Securities 50 Item 6. Selected Financial Data 52 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 53 Overview 53 Critical Accounting Policies and Estimates 59 Use of Non-GAAP Measures 63 Results of Operations 65 Outlook 83 Balance Sheet Review 88 Risk Management 88 Liquidity and Capital Resources 106 Regulatory Matters 109 Other Matters 110 Supplemental Information 110 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 114 Item 8. Financial Statements 115 Management's Report on Internal Controls Over Financial Reporting 115 2 R eport of Independent Registered Public Accounting Firm 116 Consolidated Balance Sheets 119 Consolidated Statements of Operations 120 Consolidated Statements of Comprehensive Income 121 Consolidated Statements of Equity 122 Consolidated Statements of Cash Flows 123 Notes to Consolidated Financial Statements 125 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 192 Item 9A. Controls and Procedures 192 Item 9B. Other Information 193 Part III 194 Item 10. Directors, Executive Officers, and Corporate Governance 194 Item 11. Executive Compensation 194 Item 12. Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters 194 Item 13. Certain Relationships and Related Transactions and Director Independence 194 Item 14 . Principal Accountant Fees and Services 194 Part IV 194 Item 15. Exhibits and Financial Statement Schedules 194 Item 16. Form 10-K Summary 197 Signatures 198 3 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 the COVID-19 pandemic and its impact 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 effect 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 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 more outbreaks, regulatory measures or voluntary actions to limit the spread of COVID-19, and the duration and efficacy of those 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; 4 • 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 hinder 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. 5 PART I Item 1. Business GENERAL Farmer Mac is a stockholder-owned, federally chartered corporation that combines private capital and public sponsorship to serve a public purpose. Congress has charged Farmer Mac with the mission of providing a secondary market for a variety of loans made to borrowers in rural America. A secondary market is an economic arrangement in which the owners of financial assets, such as the originators of loans, may sell all or part of those assets or pay a fee to offset some or all of the inherent risks of holding the assets. Farmer Mac's secondary market activities include: • purchasing eligible loans (including participations in eligible loans and revolving lines of credit) directly from lenders; • purchasing general obligation securities that are issued by lenders and guaranteed by Farmer Mac and that are secured by eligible loans, which Farmer Mac refers to as "AgVantage," a registered trademark of Farmer Mac; • issuing securities guaranteed by Farmer Mac that represent interests in, or obligations secured by, pools of eligible loans (together with AgVantage, these securities are referred to as "Farmer Mac Guaranteed Securities"); and • providing long-term standby purchase commitments ("LTSPCs") for eligible loans. Farmer Mac Guaranteed Securities may be retained by the seller of the underlying loans, retained by Farmer Mac, or sold to third-party investors. Farmer Mac was established under federal legislation first enacted in 1988 and amended most recently in 2018 – Title VIII of the Farm Credit Act of 1971 (12 U.S.C. §§ 2279aa et seq.), which is referred to as Farmer Mac's charter. Farmer Mac is a government-sponsored enterprise ("GSE") by virtue of the status conferred by its charter. The charter provides that Farmer Mac has the power to establish, acquire, and maintain affiliates under applicable state law to carry out any activities that Farmer Mac otherwise would perform directly. Farmer Mac established its two existing subsidiaries – Farmer Mac II LLC and Farmer Mac Mortgage Securities Corporation – under that power. Farmer Mac is an institution of the Farm Credit System ("FCS"), which is composed of the banks, associations, and related entities, including Farmer Mac and its subsidiaries, regulated by the Farm Credit Administration ("FCA"), an independent agency in the executive branch of the United States government. Although Farmer Mac is an institution of the FCS, it is not liable for any debt or obligation of any other institution of the FCS. None of FCA, the FCS, or any other individual institution of the FCS is liable for any debt or obligation of Farmer Mac or its subsidiaries. The debts and obligations of Farmer Mac and its subsidiaries are not guaranteed by the full faith and credit of the United States. Farmer Mac's two primary sources of revenue are: • interest income earned on assets held on balance sheet, net of related funding costs and interest payments and receipts on financial derivatives; and • guarantee and commitment fees received for outstanding guaranteed securities and LTSPCs. Farmer Mac funds its purchases of eligible loans and securities primarily by issuing debt obligations of various maturities in the public capital markets. Farmer Mac also uses the proceeds of debt issuance to 6 fund liquidity investments that must comply with policies adopted by Farmer Mac's board of directors and with FCA regulations, which establish limitations on asset class, dollar amount, issuer concentration, and credit quality. Those regulations can be found at 12 C.F.R. §§ 652.1-652.45 ("Liquidity and Investment Regulations"). Farmer Mac's regular debt issuance supports its access to the capital markets, and Farmer Mac's liquidity investments provide an alternative source of funds should market conditions become unfavorable. As of December 31, 2020, Farmer Mac had $1.8 billion of discount notes and $20.0 billion of medium-term notes outstanding. For more information about Farmer Mac's eligible loans, securities, and liquidity investments, as well as its financial performance and sources of capital and liquidity, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." For more information about Farmer Mac's debt issuance, see "Business—Financing—Debt Issuance." Secondary Market Farmer Mac's activities are intended to provide lenders with an efficient and competitive secondary market that enhances these lenders' ability to offer competitively-priced financing solutions to borrowers. This secondary market is designed to increase the availability of credit at competitive interest rates to America's rural communities and agricultural sectors, as well as to provide borrowers with the benefits of capital markets pricing and product innovation. The secondary market provided by Farmer Mac functions as a bridge between the public capital markets and the U.S. agricultural and rural credit markets by attracting additional capital sources for financing rural America and agricultural borrowers. Farmer Mac's purchases of loans and securities and its sale of guaranteed securities to investors increase lenders' liquidity and lending capacity and provide a stable source of funding for lenders that extend credit to the agricultural and rural credit markets. Farmer Mac's issuance of LTSPCs for loans held by lenders and its issuance of guaranteed securities to lenders in exchange for the related securitized loans could result in lower regulatory capital requirements and reduced borrower or commodity concentration exposure for many lenders, thereby expanding their lending capacity. Through providing efficient and competitive financing solutions, Farmer Mac has the potential to increase lending flexibility for rural credit markets, which may result in lower interest rates paid on loans made by lenders to rural and agricultural borrowers. The current economic and regulatory environment presents Farmer Mac with opportunities to market a mix of products to lenders in need of capital, liquidity, portfolio diversification, and access to a wide variety of loan products, including those with long-term fixed rates. As part of its outreach strategy, Farmer Mac engages with current and prospective lenders to identify how the utilization of secondary market capital could further support their origination efforts and drive efficient capital deployment to agriculture communities and rural America. Farmer Mac also provides wholesale funding for institutional investors in agricultural assets that qualify as eligible collateral under Farmer Mac's charter. For these potential issuers, Farmer Mac directs its outreach efforts through its business relationships within the agricultural community and through outreach to institutions whose profile presents opportunity to benefit from wholesale funding. Farmer Mac seeks to maximize the use of technology to support these business development efforts. FARMER MAC'S LINES OF BUSINESS Farmer Mac conducts its secondary market activities through four lines of business – Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit. The loans (and participation interests in those loans) eligible for Farmer Mac's secondary market include: 7 • mortgage loans secured by first liens on agricultural real estate, including part-time farms and rural housing (comprising the assets eligible for the Farm & Ranch line of business); • agricultural and rural development loans guaranteed by the United States Department of Agriculture ("USDA") (comprising the assets eligible for the USDA Guarantees line of business); and • loans by lenders organized as cooperatives to finance electrification and telecommunications systems in rural areas (comprising the assets eligible for the Rural Utilities line of business). Farmer Mac also guarantees and purchases general obligations of lenders that are secured by pools of these three types of eligible loans (comprising the assets eligible for the Institutional Credit line of business). As of December 31, 2020, the total outstanding business volume in all of Farmer Mac's lines of business was $21.9 billion. The following table presents the outstanding balances under Farmer Mac's four lines of business (Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit) as of December 31, 2020 and December 31, 2019: Lines of Business - Outstanding Business Volume As of December 31, 2020 As of December 31, 2019 (in thousands) On-balance sheet: Farm & Ranch: Loans $ 4,889,393 $ 3,675,640 Loans held in trusts: Beneficial interests owned by third party investors 1,287,045 1,600,917 USDA Guarantees: USDA Securities 2,452,964 2,199,072 Farmer Mac Guaranteed USDA Securities 34,456 31,887 Rural Utilities: Loans 2,260,412 1,671,293 Institutional Credit: AgVantage securities 7,734,947 8,432,679 Total on-balance sheet $ 18,659,217 $ 17,611,488 Off-balance sheet: Farm & Ranch: LTSPCs $ 2,325,431 $ 2,393,071 Guaranteed Securities 79,312 107,322 USDA Guarantees: Farmer Mac Guaranteed USDA Securities 299,298 389,216 Rural Utilities: LTSPCs 556,425 609,278 Institutional Credit: AgVantage securities 4,412 7,567 Total off-balance sheet $ 3,264,878 $ 3,506,454 Total $ 21,924,095 $ 21,117,942 8 Farm & Ranch Under the Farm & Ranch line of business, Farmer Mac provides a secondary market for mortgage loans secured by first liens on agricultural real estate (including part-time farms and rural housing) by (1) purchasing and retaining eligible mortgage loans and revolving lines of credit, (2) securitizing eligible mortgage loans and guaranteeing the timely payment of principal and interest on the resulting securities that represent interests in, or obligations secured by, pools of those loans, or (3) issuing LTSPCs for designated eligible mortgage loans, subject to the applicable LTSPC agreement. Farmer Mac is compensated for these activities through net interest income on loans and securities held on balance sheet, guarantee fees earned on securities issued to third parties, and commitment fees earned on loans in LTSPCs. Farmer Mac experiences direct credit exposure to borrowers through its loan purchases, LTSPCs, and Farmer Mac Guaranteed Securities that represent interests in, or obligations secured by, pools of eligible Farm & Ranch loans but that are not AgVantage securities ("Farm & Ranch Guaranteed Securities"). Farmer Mac applies credit underwriting standards and methodologies to help assess exposures to Farm & Ranch loans, which may include collateral valuation, financial metrics, and other appropriate borrower financial and credit information. Loan Eligibility To be eligible for the Farm & Ranch line of business, a loan must: • be secured by a fee simple mortgage or a leasehold mortgage with status as a first lien on agricultural real estate (including part-time farms and rural housing) located within the United States; • be an obligation of a citizen or national of the United States, an alien lawfully admitted for permanent residence in the United States, or a private corporation or partnership that is majority-owned by U.S. citizens, nationals, or legal resident aliens; • be an obligation of a person, corporation, or partnership having training or farming experience that is sufficient to ensure a reasonable likelihood that the loan will be repaid according to its terms; and • meet the credit underwriting, collateral valuation, documentation, and other specified standards for the Farm & Ranch line of business. See "—Underwriting and Collateral Standards" and "— Lenders" for a description of these standards. Eligible agricultural real estate consists of one or more parcels of land, which may be improved by permanently affixed buildings or other structures, that: • is used for the production of one or more agricultural commodities or products; and • either consists of a minimum of five acres or generates minimum annual receipts of $5,000. This variety in the types of permitted collateral to include buildings and structures used in agriculture production means that eligible Farm & Ranch loans may include loans to agribusinesses that support agriculture production, food and fiber processing, and other supply chain production, as well as loans to direct growers and producers of agricultural commodities. Farmer Mac's charter authorizes a maximum loan size (adjusted annually for inflation) for an eligible Farm & Ranch loan secured by more than 2,000 acres of agricultural real estate. That maximum loan size 9 was $13.2 million as of December 31, 2020. The charter does not prescribe a maximum loan size or a total borrower exposure for an eligible Farm & Ranch loan secured by 2,000 acres or less of agricultural real estate. However, an internal policy approved by Farmer Mac's board of directors limits the cumulative direct credit exposure to any one borrower or group of related borrowers on loans secured by 2,000 acres or less of agricultural real estate to 10% of Farmer Mac's Tier 1 capital ($100.6 million as of December 31, 2020). Guarantees and Commitments Farmer Mac offers two credit enhancement alternatives to direct loan purchases through the Farm & Ranch line of business that allow approved lenders the ability to retain the cash flow benefits of their loans and increase their liquidity and lending capacity: (1) LTSPCs and (2) Farm & Ranch Guaranteed Securities. In LTSPCs and Farm & Ranch Guaranteed Securities, the lender effectively transfers the credit risk on their eligible loans because, through Farmer Mac's commitment to purchase the loan (in the case of LTSPCs) or Farmer Mac's guarantee (in the case of Farm & Ranch Guaranteed Securities), Farmer Mac assumes the ultimate credit risk of borrower defaults on the related loans. An LTSPC permits the lender to retain loans in its portfolio until such time, if ever, as the lender elects to deliver some or all of the loans covered by the LTSPC to Farmer Mac for purchase. Loans subject to an LTSPC must meet Farmer Mac's standards for eligible loans at the commencement of the LTSPC when Farmer Mac assumes the credit risk on the loans. As consideration for its assumption of the credit risk on loans covered by an LTSPC, Farmer Mac receives commitment fees payable monthly in arrears. Some LTSPCs contain risk sharing arrangements for pools of loans that provide for the counterparty to absorb up to a specified amount (typically between one and five percent of the original principal balance of the loan pool) of any losses incurred on the loans in the pool. At a lender's request, Farmer Mac purchases loans subject to an LTSPC at: • par if the loans become delinquent for either 90 days or 120 days (depending on the agreement) or are in material non-monetary default, with accrued and unpaid interest on the defaulted loans payable out of any future loan payments or liquidation proceeds; or • fair value or in exchange for cash or Farm & Ranch Guaranteed Securities (if the loans are not delinquent), in accordance with the applicable agreement. In Farm & Ranch Guaranteed Securities transactions, Farmer Mac guarantees securities representing interests in eligible Farm & Ranch loans or participation interests in those loans held by a trust or other entity. Farmer Mac either retains or sells these securities and guarantees the timely payment of principal and interest on the securities in the event of a payment shortfall due to default. As consideration for its assumption of the credit risk on the assets underlying the Farm & Ranch Guaranteed Securities, Farmer Mac receives guarantee fees based on the outstanding principal balance of the related securities. Farmer Mac is obligated under its guarantee on the securities to make timely payments to investors of principal (including balloon payments) and interest based on the scheduled payments on the underlying loans, regardless of whether Farmer Mac or the related trust has actually received those scheduled payments. Farmer Mac's guarantee fees typically are collected out of installment payments made on the underlying loans until those loans have been repaid, purchased out of the trust, or otherwise liquidated (generally as a result of default). The aggregate amount of guarantee fees received on Farm & Ranch Guaranteed Securities depends on the amount of those securities outstanding and on the applicable guarantee fee rate, which Farmer Mac's charter caps at 50 basis points (0.50%) per year. The amount of 10 Farm & Ranch Guaranteed Securities outstanding is influenced by the repayment rates on the underlying loans and by the rate at which Farmer Mac issues new Farm & Ranch Guaranteed Securities. In general, when the level of interest rates declines significantly below the interest rates on loans underlying Farm & Ranch Guaranteed Securities, the rate of prepayments is likely to increase. Conversely, when interest rates rise above the interest rates on the loans underlying Farm & Ranch Guaranteed Securities, the rate of prepayments is likely to decrease. In addition to changes in interest rates, the timing of principal payments on Farm & Ranch Guaranteed Securities also is influenced by a variety of economic, demographic, and other considerations. Farmer Mac's guarantee does not cover prepayments on the loans underlying the related Farm & Ranch Guaranteed Securities. Underwriting and Collateral Standards As required by Farmer Mac's charter, Farmer Mac has established underwriting, security appraisal, and repayment standards for eligible loans that consider the nature, risk profile, and other differences between different categories of eligible loans. The charter prescribes that the following minimum standards must be applied to agricultural real estate mortgage loans in the Farm & Ranch line of business: • provide that no loan with a loan-to-value ratio ("LTV") more than 80% may be eligible; • require each borrower to demonstrate sufficient cash flow to adequately service the loan; • require sufficient documentation standards; • protect the integrity of the appraisal process for any loan; and • confirm that the borrower is or will be actively engaged in agricultural production. In addition to these minimum standards, eligible loans in Farmer Mac's Farm & Ranch line of business are also typically required to meet more specific underwriting criteria established by Farmer Mac or demonstrate compensating strength in one or more other underwriting criteria. For larger loan exposures to agriculture production and agribusinesses that support agriculture production, food and fiber processing, and other supply chain production, which may have different risk profiles, Farmer Mac has implemented methodologies and parameters that help assess credit risk based on the appropriate sector, borrower construct, and transaction complexity. Farmer Mac relies on the combined expertise of experienced internal agricultural credit underwriters and loan servicers, along with external agricultural loan servicing and collateral valuation contractors, to perform the necessary underwriting, servicing, and collateral valuation functions on Farm & Ranch loans. Lenders Farmer Mac approves lenders into its network of loan sellers based on an assessment of the lender's credit profile, which may include factors such as the institution's credit rating, origination history, or financial profile. Most lenders that participate in the Farm & Ranch line of business meet prescribed criteria that Farmer Mac establishes for loan-selling counterparties, which typically include the requirement to: • own a requisite amount of Farmer Mac common stock according to a schedule prescribed for the size and type of institution; • have, in the judgment of Farmer Mac, the ability and experience to make or purchase and sell loans eligible for Farmer Mac's Farm & Ranch line of business and service those loans in accordance with Farmer Mac's requirements either through the lender's own staff or through contractors and originators, as well as have appropriate internal controls, policies, and procedures; • maintain a minimum amount of net liquidity; and 11 • enter into a Seller/Servicer Agreement, which requires compliance with the terms of Farmer Mac's Seller/Servicer Guide, including providing representations and warranties about the eligibility of the loans and accuracy of loan data provided to Farmer Mac. Loan Servicing Farmer Mac generally does not directly service the loans in the Farm & Ranch line of business, although in some cases Farmer Mac may assume direct servicing for defaulted loans. Farmer Mac contracts with other institutions to undertake most of the servicing responsibilities for its loans in accordance with Farmer Mac's specified servicing requirements or in accordance with the servicing standards established by the servicing institution if the institution's standards are acceptable to Farmer Mac. For these loans, the servicer may or may not be the same entity as the lender that sold the loans to Farmer Mac. However, the originating lender often retains some servicing responsibility, particularly with direct borrower contact, which is referred to as "field servicing." Field servicers may enter into contracts with Farmer Mac's servicers that specify their field servicing responsibilities. Loans under LTSPCs are serviced by the holders of those loans in accordance with those lenders' servicing procedures, which Farmer Mac reviews before entering into those transactions. The substance of all servicing for loans in the Farm & Ranch line of business is performed in a manner consistent with Farmer Mac's servicing requirements, with some special servicing for loans purchased from LTSPCs to collateralize Farm & Ranch Guaranteed Securities, in order to accommodate the borrower rights regime unique to loans originated by FCS institutions. USDA Guarantees Farmer Mac's charter provides that: • USDA-guaranteed portions of loans (which Farmer Mac refers to as "USDA Securities") guaranteed under the Consolidated Farm and Rural Development Act (7 U.S.C. § 1921 et seq.) are statutorily included in the definition of loans eligible for the secondary market programs provided by Farmer Mac; • USDA Securities are exempted from the credit underwriting, collateral valuation, documentation, and other standards that other loans must meet to be eligible for the secondary market provided by Farmer Mac, and are exempted from any diversification and internal credit enhancement that may be required of pools of other eligible loans; and • Farmer Mac is authorized to pool, issue, and guarantee timely interest and principal on securities backed by USDA Securities ("Farmer Mac Guaranteed USDA Securities"). Farmer Mac purchases USDA Securities through Farmer Mac II LLC, a subsidiary of Farmer Mac that operates substantially all of the business related to the USDA Guarantees line of business. Farmer Mac II LLC does not guarantee any USDA Securities it holds or any Farmer Mac Guaranteed USDA Securities issued by Farmer Mac or Farmer Mac II LLC. Lenders Any lender authorized by the USDA to obtain a USDA guarantee on a loan may participate in Farmer Mac's USDA Guarantees line of business. 12 Loan Servicing The lender on each USDA guaranteed loan is required by regulation to retain the unguaranteed portion of the guaranteed loan, to service the entire underlying guaranteed loan, including the USDA-guaranteed portion, and to remain mortgagee and/or secured party of record. The USDA-guaranteed portion and the unguaranteed portion of the loan are to be secured by the same collateral with equal lien priority. The USDA-guaranteed portion of a loan cannot be paid later than, or in any way be subordinated to, the related unguaranteed portion. Rural Utilities Farmer Mac's charter authorizes the purchase of, and guarantee of securities backed by, loans (including participation interests in loans) for electric (including renewable electric energy) or telecommunications facilities by lenders organized as cooperatives to borrowers that have received or are eligible to receive loans under the Rural Electrification Act of 1936 ("REA"). The REA is administered by the Rural Utilities Service ("RUS"), an agency of the USDA. Farmer Mac's Rural Utilities line of business encompasses purchases of eligible Rural Utilities loans and guarantees of securities backed by those loans, as well as LTSPCs for pools of eligible Rural Utilities loans. To be eligible, Rural Utilities loans must meet Farmer Mac's credit underwriting and other specified standards. There currently are no guaranteed securities issued under the Rural Utilities line of business, although the Institutional Credit line of business includes some AgVantage securities that are secured by Rural Utilities loans. The vast majority of Farmer Mac's business to date under the Rural Utilities line of business has involved loans made to electric facilities (primarily electric distribution cooperatives and electric generation and transmission cooperatives). During 2020, Farmer Mac purchased $64.3 million of renewable energy loans in connection with various projects as part of Farmer Mac's renewable energy project finance strategic initiative under its Rural Utilities authority. Loan Eligibility To be eligible for Farmer Mac's Rural Utilities line of business, a Rural Utilities loan (or a participation interest in a loan) must: • be to a borrower that has received or is eligible to receive a loan under the REA for an electric or telecommunications facility; • be by a lender organized as a cooperative; • be performing and not more than 30 days delinquent; and • meet Farmer Mac's underwriting standards described in more detail below. Underwriting and Collateral Standards Farmer Mac's charter does not specify minimum underwriting criteria for eligible Rural Utilities loans. To manage Farmer Mac's credit risk, to mitigate the risk of loss from borrower defaults, and to provide guidance for the management, administration, and conduct of underwriting to participants in the Rural Utilities line of business, Farmer Mac has adopted credit underwriting standards that vary by loan product and by loan type. These standards are based on industry practices for similar Rural Utilities loans and are designed to assess the creditworthiness of the borrower, as well as the risk to Farmer Mac. Farmer Mac 13 reviews lenders' credit submissions and analyzes borrowers' audited financial statements and financial and operating reports to confirm that loans meet Farmer Mac's underwriting standards for Rural Utilities loans. It is customary in loans to electric distribution cooperatives and electric generation and transmission cooperatives for the lender or lender group to take a security interest in substantially all of the borrower's assets. When Farmer Mac purchases a Rural Utilities loan with a pledge of all assets and a lender also has a lien on all assets, Farmer Mac verifies that a lien accommodation results in either a shared first lien or a first lien in favor of Farmer Mac. When debt indentures are used, Farmer Mac determines if available collateral is adequate to support the loan program and Farmer Mac's investment. Loans to renewable electric energy borrowers are typically secured by the borrower's project equipment, contracts, and land or leasehold interest, but Farmer Mac's enforcement rights may be subject to tax equity interests in the borrower's renewable energy project. Farmer Mac also purchases unsecured Rural Utilities loans (primarily electric generation and transmission loans) that meet Farmer Mac's underwriting standards for unsecured Rural Utilities loans. Lenders and Loan Servicing Farmer Mac's charter requires eligible Rural Utilities loans to be by a lender organized as a cooperative. Farmer Mac does not directly service the Rural Utilities loans held in its portfolio, which are serviced by a designee of Farmer Mac. Institutional Credit Under the Institutional Credit line of business, Farmer Mac guarantees and purchases general obligations of lenders and other financial institutions (including financial funds) that are secured by pools of the types of loans eligible for purchase under Farmer Mac's Farm & Ranch, USDA Guarantees, or Rural Utilities lines of business..Farmer Mac refers to these as AgVantage securities. Typically, Farmer Mac retains AgVantage securities in its portfolio. Farmer Mac's guarantee and purchase of AgVantage securities comprise the Institutional Credit line of business. Farmer Mac has direct credit exposure to the general credit of the issuers of AgVantage securities and assumes the ultimate credit risk of an issuer default on the AgVantage securities. Before approving an institution as an issuer in an AgVantage transaction, Farmer Mac assesses the issuer's creditworthiness as well as the credit quality and performance of the issuer's loan portfolio and loan underwriting standards. Farmer Mac continues to monitor the counterparty risk assessment on an ongoing basis after the AgVantage security is issued. In addition to being a general obligation of the issuer, all AgVantage securities must be secured by eligible loans or eligible securities guaranteed by Farmer Mac in an amount at least equal to the outstanding principal amount of the issuer's AgVantage securities. As a result, Farmer Mac has indirect credit exposure to the loans or guaranteed securities that are pledged to secure the AgVantage securities, which comprise collateral for Farmer Mac in the event of a default by the issuer. Loans pledged under AgVantage securities are serviced by the issuers of the securities (or their affiliated servicing institutions) in accordance with these institutions' servicing procedures. Farmer Mac reviews these servicing procedures before purchasing AgVantage securities from the issuer. In AgVantage transactions, the issuer is 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 replace the delinquent loan with another eligible loan that is current in payment or to pay down the AgVantage securities to maintain the minimum required collateralization level. 14 For AgVantage securities secured by loans eligible for Farmer Mac's Farm & Ranch line of business, Farmer Mac currently requires the general obligation to be over-collateralized, either by more eligible loans or any of the following types of assets: • cash; • securities issued by the U.S. Treasury or guaranteed by an agency or instrumentality of the United States; • other highly-rated securities; or • other instruments approved by Farmer Mac. The required collateralization level for the AgVantage securities secured by Farm & Ranch loans currently ranges from 103% to 125%. The required collateralization level is determined based on credit factors related to the issuer, 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 unless mutually agreed by Farmer Mac and the counterparty. For AgVantage securities that are secured by Farm & Ranch loans, Farmer Mac requires that the loans meet the minimum standards set forth in the charter for those types of loans with a maximum limit of $75.0 million in cumulative exposure to any one borrower or related borrowers from a single AgVantage issuer. Farmer Mac has tailored a version of its AgVantage product to focus on institutional investors in agricultural assets that qualify as collateral for the types of loans eligible for the Farm & Ranch line of business. Farmer Mac refers to this product variation as the Farm Equity AgVantage product. This product has similar requirements for AgVantage securities secured by Farm & Ranch loans described above, but Farmer Mac also requires that Farm Equity AgVantage transactions maintain a higher collateralization level through lower loan-to-value ratio thresholds and contain specified financial covenants for the life of the related AgVantage security. AgVantage securities secured by loans eligible for Farmer Mac's Rural Utilities line of business require: • the counterparty issuing the general obligation to have a credit rating from an NRSRO that is at least investment grade, or be of comparable creditworthiness as determined through Farmer Mac's analysis; and • the collateralization (consisting of current, performing loans) to be maintained at the contractually prescribed level, in an amount at least equal to the outstanding principal amount of the security. Although Farmer Mac has only indirect credit exposure on the Rural Utilities loans pledged to secure AgVantage securities, the same underwriting standards that apply to loans made to electric cooperatives on which Farmer Mac assumes direct credit exposure also apply to loans made to electric cooperatives that secure the general obligation of the lender in AgVantage transactions. Farmer Mac's charter does not prescribe a maximum loan size or a total borrower exposure for an eligible Rural Utilities loan, but Farmer Mac's current limit for AgVantage transactions is $75.0 million for cumulative loan exposure to any one borrower or related borrowers (with the amount of any direct exposure to a borrower not counting towards the $75.0 million limit). Farmer Mac also permits up to 20% of Rural Utilities loans pledged to secure AgVantage securities to be unsecured or secured by less than all of the borrower's assets. 15 COMPETITION Farmer Mac is the only federally-chartered corporation established to provide a secondary market for agricultural mortgage loans, Rural Utilities loans, and USDA Securities. But Farmer Mac does face indirect competition from many sources. These sources include other entities that purchase, retain, securitize, or provide financing for the types of assets eligible for Farmer Mac's secondary market activities such as commercial and investment banks, insurance companies, other FCS institutions, financial funds, and certain government programs. Farmer Mac also competes indirectly with originators of eligible loans that would prefer to retain the loans they originate rather than sell them into the secondary market. Farmer Mac is able to compete to acquire eligible loans due to the variety of products it offers and its ability to offer competitive funding structures and pricing to its customers. This enables Farmer Mac to provide flexible financing options and products designed to meet the varied needs of lending institutions related to capital requirements, liquidity, credit risk, and management of sector and geographic concentrations and borrower exposure limits. The relative competitiveness of Farmer Mac's loan rates and Farmer Mac's ability to develop business with lending institutions are affected by many factors, including: • the overall supply of capital available to the agricultural and rural utilities sectors; • the ability of other lending institutions to compete with Farmer Mac (e.g., by price averaging through offering multiple loan and fee based products or by accepting a lower return on equity given market dynamics); • the types and variety of products offered by Farmer Mac's competitors to meet the needs of Farmer Mac's customer base; • changes in the levels of available capital and liquidity of lending institutions; • the existence of alternative sources of funding and credit enhancement for lending institutions; • the rate of growth in the market for eligible loans; and • demand for Farmer Mac's products. Because Farmer Mac's charter limits Farmer Mac's business to secondary-market activities, Farmer Mac's competitive position is affected by the willingness of originators to offer eligible loans for sale in the secondary market or to utilize Farmer Mac for funding syndicated or participated loans. The charter's limits on loan size for some Farm & Ranch loans, as well as the types of loans that are eligible for Farmer Mac's lines of business, also affect Farmer Mac's competitive position. For more information on government regulation of Farmer Mac, see "Business—Government Regulation of Farmer Mac." Farmer Mac's ability to obtain competitive funding in the debt markets is essential to its ability to maintain its relative position with its customers. As a result, competition for debt investors with other debt-issuing institutions, such as the FCS, Federal Home Loan Banks, Fannie Mae, Freddie Mac, and highly-rated financial institutions, can affect the price and volume at which Farmer Mac issues debt and therefore its ability to offer savings to customers in the form of competitive products. CAPITAL AND CORPORATE GOVERNANCE Farmer Mac's charter prescribes the company's basic capital and corporate governance structure. The charter authorizes Farmer Mac to issue two classes of voting common stock, each of which elects one-third of Farmer Mac's 15-person board of directors. The charter also authorizes Farmer Mac to issue non-voting common stock. The classes of Farmer Mac's outstanding common stock and their relationship to Farmer Mac's board of directors are described below. 16 • Class A voting common stock . The charter restricts ownership of Farmer Mac's Class A voting common stock to banks, insurance companies, and other financial institutions or similar entities that are not institutions of the FCS. The charter also provides that five members of Farmer Mac's 15-member board of directors are elected by a plurality of the votes of the Class A stockholders each year. The charter limits the amount of Class A voting common stock that any one holder may own to no more than 33% of the outstanding shares of Class A voting common stock. Farmer Mac is not aware of any regulation applicable to non-FCS financial institutions that requires a minimum investment in Farmer Mac's Class A voting common stock or that prescribes a maximum investment amount lower than the 33% limit set forth in the charter. Farmer Mac's Class A voting common stock is listed on the New York Stock Exchange under the symbol AGM.A. • Class B voting common stock . The charter restricts ownership of Farmer Mac's Class B voting common stock to FCS institutions and also provides that five members of Farmer Mac's 15-member board of directors are elected by a plurality of the votes of the Class B stockholders each year. The charter contains no restrictions on the maximum number or percentage of outstanding shares of Class B voting common stock that any one holder may own, and Farmer Mac is not aware of any regulation applicable to FCS institutions that requires a minimum investment in its Class B voting common stock or that prescribes a maximum amount. Farmer Mac's Class B voting common stock, which has a limited market and trades infrequently, is not listed or quoted on any exchange or other quotation system, and Farmer Mac is not aware of any publicly available quotations or prices for this class of common stock. • Class C non-voting common stock . The charter does not impose any ownership restrictions on Farmer Mac's Class C non-voting common stock, and shares of this class are freely transferable. Farmer Mac uses Class C non-voting stock for awards of equity-based compensation to officers, directors, and selected employees as part of the company's compensation programs. Holders of the Class C common stock do not vote on the election of directors or any other matter. Farmer Mac's Class C non-voting common stock is listed on the New York Stock Exchange under the symbol AGM. • Presidential director appointments . The remaining five members of Farmer Mac's board of directors are individuals who meet the qualifications specified in the charter and are appointed by the President of the United States with the advice and consent of the United States Senate (one of whom is designated as the chair of the board of directors). These appointed directors serve at the pleasure of the President of the United States. The dividend and liquidation rights of all three classes of Farmer Mac's common stock are the same. Dividends may be paid on Farmer Mac's common stock only when, as, and if declared by Farmer Mac's board of directors in its sole discretion, subject to compliance with applicable capital requirements and the payment of dividends on any outstanding preferred stock issued by Farmer Mac. Upon liquidation, dissolution, or winding up of the business of Farmer Mac, after payment and provision for payment of outstanding debt of Farmer Mac, the holders of shares of Farmer Mac's currently outstanding 6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C ("Series C Preferred Stock"), 5.700% Non-Cumulative Preferred Stock, Series D ("Series D Preferred Stock"), 5.750% Non-Cumulative Preferred Stock, Series E ("Series E Preferred Stock"), 5.250% Non-Cumulative Preferred Stock, Series F ("Series F Preferred Stock"), and any other preferred stock then outstanding, would be paid at par value out of assets available for distribution, plus all declared and unpaid dividends, before the holders of shares 17 of common stock received any payment. See also "Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities" for more information about Farmer Mac's common stock, and "Business—Financing—Equity Issuance" for more information about Farmer Mac's common stock and preferred stock. Unlike some other GSEs such as other FCS institutions and the Federal Home Loan Banks, Farmer Mac is not structured as a cooperative owned exclusively by member institutions and established to provide services exclusively to its members. Rather, Farmer Mac, as a publicly-traded corporation, has a broader base of stockholders, including those who do not directly participate in the secondary market provided by Farmer Mac. Farmer Mac therefore seeks to fulfill its mission of serving the financing needs of rural America in a way that is consistent with providing a return on the investment of its stockholders. Farmer Mac generally requires financial institutions to own a requisite amount of Farmer Mac common stock, based on the size and type of institution, to participate in the Farm & Ranch line of business. As a result of this requirement, coupled with the ability of holders of Class A and Class B voting common stock to elect two-thirds of Farmer Mac's board of directors, Farmer Mac regularly conducts business with "related parties," including institutions affiliated with members of Farmer Mac's board of directors and institutions that own large amounts of Farmer Mac's voting common stock. Farmer Mac has adopted a Code of Business Conduct and Ethics and related corporate policies that govern any conflicts of interest that may arise in these transactions. Farmer Mac also requires that any transactions with related parties be conducted in the ordinary course of business, with terms and conditions comparable to those available to any other counterparty not related to Farmer Mac. For more information about related party transactions, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Related Party Transactions" and Note 3 to the consolidated financial statements. Capital Farmer Mac's charter establishes three capital standards for Farmer Mac – minimum capital, critical capital, and risk-based capital. Farmer Mac must comply with the higher of the minimum capital requirement and the risk-based capital requirement. Also, in accordance with the applicable FCA regulation on capital planning, Farmer Mac's board of directors oversees a policy that requires Farmer Mac to maintain a sufficient level of Tier 1 capital and restricts dividends and bonus payments if Farmer Mac's Tier 1 capital falls below specified thresholds. For a discussion of Farmer Mac's capital requirements and its actual capital levels, as well as FCA's role in the establishment and monitoring of those requirements and levels, see "Business—Government Regulation of Farmer Mac—Capital Standards," "Management's Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Review—Equity," and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Requirements." Regulatory Oversight Farmer Mac's charter assigns to FCA, acting through the separate Office of Secondary Market Oversight ("OSMO") within FCA, the responsibility for the examination of Farmer Mac and the general supervision of the safe and sound performance of the powers, functions, and duties vested in Farmer Mac by the charter. The charter also authorizes FCA, acting through OSMO, to apply its general enforcement powers to Farmer Mac. Farmer Mac's charter requires an annual examination of the financial transactions of Farmer Mac and authorizes FCA to assess Farmer Mac for the cost of FCA's regulatory activities, including the cost of any examination. Farmer Mac is also required to file quarterly reports of condition 18 with OSMO. As a publicly-traded corporation, Farmer Mac also must comply with the periodic reporting requirements of the SEC. For a more detailed discussion of Farmer Mac's regulatory and governmental relationships, see "Business—Government Regulation of Farmer Mac." HUMAN CAPITAL As of December 31, 2020, Farmer Mac employed 121 people, with 34 new employees hired during the year. Farmer Mac employs full-time employees to meet its business needs as it grows and evolves while supplementing human capital needs with independent contractors and consultants as needed. Our workforce included seven actively engaged independent contractors as of the end of the year. Farmer Mac's employees are located throughout the United States, often near many of its primary customers. As of December 31, 2020, 83 full-time employees were located in the Washington, D.C. area, 14 full-time employees were located in the Johnston, Iowa area, and 24 full-time employees worked on a fully-remote basis (without regard to the COVID-19 pandemic) in other parts of the United States. As a financial services organization, Farmer Mac must attract and retain a highly-skilled workforce in an often competitive employment environment. We utilize traditional methods to attract and retain talent, such as competitive salaries and benefits, including a generous group health plan and an employer-funded 401(k) plan. We also believe that our mission to serve agricultural and rural communities, as well as philanthropic activities we undertake in support of our mission, provide Farmer Mac an advantage in our efforts to attract and retain talent. We also recognize that employee engagement is a key component in Farmer Mac's human capital retention strategy. Therefore, we seek to create an inclusive work culture that is diverse and collaborative, with a focus on long-term succession planning and professional development. We also utilize flexible work structures and technology to create incentives to join and remain with Farmer Mac. Farmer Mac experienced a 9.6% turnover rate in 2020, which was down 4.3% compared to 2019. COVID-19 Pandemic The COVID-19 pandemic altered the way many companies work, including Farmer Mac. In March 2020, we executed our business continuity plan swiftly and with minimal disruption, and all of our employees have been working in a fully-remote environment since then. We promptly assessed the technical resources required for Farmer Mac to operate on a fully-remote basis, as well the ability of our employees to manage home and work in this new paradigm. For example, Farmer Mac provided stipends to all employees to purchase office equipment and supplies for remote work capability. To encourage employee morale and support our mission, Farmer Mac donated the budgeted stipend funds that remained unused to a nonprofit organization fighting against food insecurity in the United States. To ensure continuity in regular communications, we have reinforced our employees' access to secure digital meeting platforms, and our senior executive team has been leading bi-weekly meetings of all employees to share pertinent information on Farmer Mac's business and operations and to provide a forum for discussing current events. We also leveraged this engagement opportunity to gauge the health and well-being of employees and to solicit their feedback, to which we responded with initiatives to address work/life balance, including added flexibility in working hours and paid time off. We have established a cross-functional team to assess the criteria necessary for a safe return to Farmer Mac's offices, including employee health screenings, facility redesign, and family care needs. We do not 19 currently have an established timeline for a full-scale return of our employees to Farmer Mac's offices. However, we remain confident in our employees' capacity to remain engaged and productive on a remote basis as may be needed for the foreseeable future. Code of Business Conduct and Ethics Farmer Mac provides appropriate orientation for every new hire and requires annual training on and recertification of our Code of Business Conduct and Ethics, which encompasses the following four core principles: (1) promoting a safe workplace and a respectful and inclusive culture, (2) conducting business lawfully, fairly, and objectively, (3) communicating responsibly and protecting information, and (4) conducting business diligently and being a good corporate citizen. Farmer Mac's Code of Business Conduct and Ethics was refreshed in 2018 to reflect this principles-based approach. Our Code of Business Conduct and Ethics is available at www.farmermac.com and is not incorporated by reference into this report. Diversity, Equity, and Inclusion During 2020, we strengthened our focus on diversity, equity, and inclusion ("DE&I") efforts within Farmer Mac's workforce. Our philosophy emphasized listening first, with a focus on small employee groups to solicit feedback on Farmer Mac's practices. This yielded guidance for a newly-formed internal Diversity Council, which is charged with helping to shape Farmer Mac's strategy for DE&I. Farmer Mac has also contracted with an external consultant to help deepen our understanding of race and racism and how it may affect the workplace and to assist Farmer Mac's Diversity Council with building a framework and strategy for DE&I. AVAILABLE INFORMATION Farmer Mac makes available free of charge, through the "Investors" section of its internet website at www.farmermac.com, copies of materials it files with, or furnishes to, the SEC, including its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and any amendments to those filings, as soon as reasonably practicable after electronically filing those materials with, or furnishing those materials to, the SEC. All references to www.farmermac.com in this report are inactive textual references only. The information contained on Farmer Mac's website is not incorporated by reference into this report. 20 FUNDING OF GUARANTEE AND LTSPC OBLIGATIONS The main sources of funding for the payment of Farmer Mac's obligations under its guarantees and LTSPCs are the fees Farmer Mac receives for its guarantees and commitments, net effective spread, proceeds of debt issuances, loan repayments, and maturities of AgVantage securities. Farmer Mac has traditionally satisfied its obligations under LTSPCs and its guarantees by purchasing defaulted loans out of the LTSPCs or from related securitization trusts under the terms of the respective agreements governing the LTSPC or guaranteed securities. Farmer Mac typically recovers a significant portion of the value of defaulted loans purchased either through borrower payments, loan payoffs, payments by third parties, or foreclosure and sale of the property securing the loans. Net credit losses/(gains) arising from Farmer Mac's guarantees and commitments include charge-offs/(recoveries) against its allowance for losses, gains and losses on the sale of real estate acquired through foreclosure (known as "real estate owned" or "REO"), and fair value adjustments of REOs held. Farmer Mac's charter requires Farmer Mac to maintain in its accounts a portion of the guarantee fees it receives from its guarantee activities as a reserve against losses. As of December 31, 2020, this reserve against losses arising from Farmer Mac's guarantee activities was $101.6 million. Farmer Mac calculates the amount of this statutorily required reserve against losses arising from its guarantee activities based on the credit risk component of guarantee fees received on all securities it guarantees, including AgVantage securities. This amount does not represent either anticipated credit losses or estimated probable credit losses and does not directly relate to either the allowance for loan losses or the reserve for losses in Farmer Mac's consolidated balance sheets. Rather, this is the amount of capital that must be exhausted before Farmer Mac may issue obligations to the U.S. Treasury against the $1.5 billion that Farmer Mac is statutorily authorized to borrow from the U.S. Treasury to fulfill its guarantee obligations. That borrowing authority is not intended to be a routine funding source and has never been used. For a more detailed discussion of Farmer Mac's borrowing authority from the U.S. Treasury, see "Business—Farmer Mac's Authority to Borrow from the U.S. Treasury." Farmer Mac's total outstanding guarantees and LTSPCs exceed the total of: (1) the amount held as an allowance for losses, (2) the amount maintained as a reserve against losses arising from guarantee activities, and (3) the amount Farmer Mac may borrow from the U.S. Treasury. However, Farmer Mac does not expect its future payment obligations under its guarantees and LTSPCs to exceed amounts available to satisfy those obligations, which includes access to the underlying collateral in the event of default. For information about Farmer Mac's allowance for losses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees" and Note 2(h), Note 8, and Note 12 to the consolidated financial statements. FINANCING Debt Issuance Farmer Mac's charter authorizes Farmer Mac to issue debt obligations to purchase eligible loans and securities, USDA Securities, and to maintain reasonable amounts of liquid investments to maintain an adequate supply of liquidity. Farmer Mac funds its purchases of eligible program assets and liquidity investment assets primarily by issuing debt obligations of various maturities in the public capital markets. Farmer Mac also issues debt obligations to obtain funds to finance its obligations under guarantees and LTSPCs. Farmer Mac's debt obligations include discount notes and medium-term notes, including callable medium-term notes, all of which are unsecured general obligations of Farmer Mac. 21 Discount notes have original maturities of 1 year or less. Medium-term notes generally have maturities of 6 months to 15 years. The interest and principal on Farmer Mac's debt obligations are not guaranteed by, and do not constitute debts or obligations of, FCA, the United States, or any agency or instrumentality of the United States other than Farmer Mac. Farmer Mac is an institution of the FCS but is not liable for any debt or obligation of any other institution of the FCS. Likewise, neither the FCS nor any other individual institution of the FCS is liable for any debt or obligation of Farmer Mac. Income to the purchaser of a Farmer Mac discount note or medium-term note is not exempt under federal law from federal, state, or local taxation. Farmer Mac's discount notes and medium-term notes are not currently rated by an NRSRO. Farmer Mac invests the proceeds of its debt issuances in eligible program asset purchases, Farmer Mac Guaranteed Securities, and liquidity investment assets in accordance with policies established by its board of directors that comply with FCA's Liquidity and Investment Regulations, which establish limitations on asset class, dollar amount, issuer concentration, and credit quality. Farmer Mac's regular debt issuance supports its access to the capital markets, and Farmer Mac's liquidity investment assets provide an alternative source of funds should market conditions be unfavorable. For more information about the Liquidity and Investment Regulations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources." For more information about Farmer Mac's outstanding investments and indebtedness, see Note 4 and Note 7 to the consolidated financial statements. Equity Issuance Farmer Mac's charter authorizes Farmer Mac to issue voting common stock, non-voting common stock, and non-voting preferred stock. Farmer Mac may obtain additional capital from future issuances of common stock and preferred stock. Common Stock Only banks, other financial entities, insurance companies, and institutions of the FCS may hold voting common stock. No holder of Class A voting common stock may directly or indirectly be a beneficial owner of more than 33% of the outstanding shares of Class A voting common stock. There are no restrictions on the maximum number or percentage of outstanding shares of Class B voting common stock that may be held by an eligible stockholder. No ownership restrictions apply to Class C non-voting common stock, and those securities are freely transferable. The dividend rights of all three classes of Farmer Mac's common stock are the same, and dividends may be paid on common stock only when, as, and if declared by Farmer Mac's board of directors in its sole discretion, subject to compliance with applicable capital requirements and the payment of dividends on outstanding preferred stock. Upon liquidation, dissolution, or winding up of the business of Farmer Mac, after payment and provision for payment of outstanding debt of Farmer Mac, the holders of shares of preferred stock would be paid at par value out of assets available for distribution, plus all declared and unpaid dividends, before the holders of shares of common stock received any payment. As of December 31, 2020, the following shares of Farmer Mac common stock were outstanding: 22 • 1,030,780 shares of Class A voting common stock; • 500,301 shares of Class B voting common stock; and • 9,205,897 shares of Class C non-voting common stock. During first quarter 2020, Farmer Mac repurchased approximately 4,000 shares of Class C non-voting common stock at a cost of approximately $0.2 million under a share repurchase program that Farmer Mac's board or directors approved in 2015 and modified in 2019. Shortly after these repurchases were completed, Farmer Mac indefinitely suspended its share repurchase program in an effort to preserve capital and liquidity in view of market volatility and uncertainty caused by the COVID-19 pandemic. As of December 31, 2020, Farmer Mac had repurchased approximately 673,000 shares of Class C non-voting common stock at a cost of approximately $19.8 million under the share repurchase program since 2015. The program expires at the end of March 2021. The following table presents the dividends declared on Farmer Mac's common stock during and after 2020: Date Dividend Declared Per Share Amount For Holders Of Record As Of Date Paid February 24, 2020 $0.80 March 16, 2020 March 31, 2020 May 29, 2020 $0.80 June 15, 2020 June 30, 2020 August 27, 2020 $0.80 September 16, 2020 September 30, 2020 November 11, 2020 $0.80 December 15, 2020 December 31, 2020 February 23, 2021 $0.88 March 16, 2021 * * The dividend declared on February 23, 2021 is scheduled to be paid on March 31, 2021. Farmer Mac's ability to declare and pay common stock dividends could be restricted if it were to fail to comply with applicable capital requirements. See Note 9 to the consolidated financial statements and "Business—Government Regulation of Farmer Mac—Capital Standards." Preferred Stock No ownership restrictions apply to any preferred stock issued by Farmer Mac, and those securities are freely transferable. As of December 31, 2020, the following shares of Farmer Mac preferred stock were outstanding: • 3,000,000 shares of Series C Preferred Stock, all of which were issued in June 2014; • 4,000,000 shares of Series D Preferred Stock, all of which were issued in May 2019; • 3,180,000 shares of Series E Preferred Stock, all of which were issued in May 2020; and • 4,800,000 shares of Series F Preferred Stock, all of which were issued in August 2020. On September 19, 2020, Farmer Mac used part of the net proceeds from the sale of the Series F Preferred Stock to redeem and repurchase all $60.0 million aggregate outstanding of Farmer Mac's 5.875% Non-Cumulative Preferred Stock, Series A ("Series A Preferred Stock"), plus any declared and unpaid dividends through and including the redemption date. As a result of the retirement of the Series A Preferred Stock, Farmer Mac recognized $1.7 million of deferred issuance costs, which is presented as "Loss on retirement of preferred stock" on the consolidated statements of operations. 23 The Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, and Series F Preferred Stock (collectively, "Outstanding Preferred Stock") each has a par value of $25.00 per share and an initial liquidation preference of $25.00 per share. Since each of their respective issuances, Farmer Mac has not issued any more shares of any series of Outstanding Preferred Stock. Each series of Outstanding Preferred Stock ranks senior to Farmer Mac's outstanding Class A voting common stock, Class B voting common stock, Class C non-voting common stock, and any other common stock of Farmer Mac issues in the future. The Series D Preferred Stock, Series E Preferred Stock, and the Series F Preferred Stock pay an annual dividend rate fixed at 5.700%, 5.750%, and 5.250%, respectively, for the life of the securities. The Series C Preferred Stock pays an annual dividend rate of 6.000% from the date of issuance to and including the quarterly payment date on July 17, 2024 and thereafter at a floating rate equal to three-month LIBOR plus 3.260%. Dividends on all series of Outstanding Preferred Stock are non-cumulative, so if the board of directors has not declared a dividend before the applicable dividend payment date for any dividend period, the dividend will not be paid or accumulate, and Farmer Mac will not be obligated to pay dividends for that dividend period, whether or not dividends on any series of Outstanding Preferred Stock are declared for any future dividend period. Farmer Mac may pay dividends on the Outstanding Preferred Stock without paying dividends on any class or series of stock Farmer Mac may issue in the future that ranks junior to the Outstanding Preferred Stock. The Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, and Series F Preferred Stock rank equally with each other and will rank equally with any other class or series of stock Farmer Mac may issue in the future of equal priority as to dividends and upon liquidation. Farmer Mac has the right, but not the obligation, to redeem some or all of the issued and outstanding shares of Series C Preferred Stock on and any time after July 18, 2024, the Series D Preferred Stock on and after July 17, 2024, the Series E Preferred Stock on and after July 17, 2025, and the Series F Preferred Stock on and after October 17, 2025, all at a price equal to the then-applicable liquidation preference. Any redemption date for the Series D, Series E, or Series F Preferred Stock must be a scheduled quarterly dividend payment date, The Outstanding Preferred Stock is considered Tier 1 capital for Farmer Mac. For more information on Farmer Mac's capital requirements, see "Business—Government Regulation of Farmer Mac—Capital Standards." The following table presents the dividends declared and paid on Series A Preferred Stock during 2020: Date Dividend Declared Per Share Amount For Period Beginning For Period Ending Date Paid February 24, 2020 $0.3672 January 18, 2020 April 17, 2020 April 17, 2020 May 29, 2020 $0.3672 April 18, 2020 July 17, 2020 July 17, 2020 August 27, 2020 $0.2530 July 18, 2020 September 19, 2020 September 19, 2020 24 The following table presents the dividends declared and paid on Series C Preferred Stock during and after 2020: Date Dividend Declared Per Share Amount For Period Beginning For Period Ending Date Paid February 24, 2020 $0.3750 January 18, 2020 April 17, 2020 April 17, 2020 May 29, 2020 $0.3750 April 18, 2020 July 17, 2020 July 17, 2020 August 27, 2020 $0.3750 July 18, 2020 October 17, 2020 October 17, 2020 November 11, 2020 $0.3750 October 18, 2020 January 17, 2021 January 17, 2021 February 23, 2021 $0.3750 January 18, 2021 April 17, 2021 * * The dividend declared on February 23, 2021 is scheduled to be paid on April 17, 2021. The following table presents the dividends declared and paid on Series D Preferred Stock during and after 2020: Date Dividend Declared Per Share Amount For Period Beginning For Period Ending Date Paid February 24, 2020 $0.35625 January 18, 2020 April 17, 2020 April 17, 2020 May 29, 2020 $0.35625 April 18, 2020 July 17, 2020 July 17, 2020 August 27, 2020 $0.35625 July 18, 2020 October 17, 2020 October 17, 2020 November 11, 2020 $0.35625 October 18, 2020 January 17, 2021 January 17, 2021 February 23, 2021 $0.35625 January 18, 2021 April 17, 2021 * * The dividend declared on February 23, 2021 is scheduled to be paid on April 17, 2021. The following table presents the dividends declared and paid on Series E Preferred Stock during and after 2020: Date Dividend Declared Per Share Amount For Period Beginning For Period Ending Date Paid May 29, 2020 $0.227600 May 21, 2020 July 17, 2020 July 17, 2020 August 27, 2020 $0.359375 July 18, 2020 October 17, 2020 October 17, 2020 November 11, 2020 $0.359375 October 18, 2020 January 17, 2021 January 17, 2021 February 23, 2021 $0.359375 January 18, 2021 April 17, 2021 * * The dividend declared on February 23, 2021 is scheduled to be paid on April 17, 2021. The following table presents the dividends declared and paid on Series F Preferred Stock during and after 2020: Date Dividend Declared Per Share Amount For Period Beginning For Period Ending Date Paid August 27, 2020 $0.2078125 August 21, 2020 October 17, 2020 October 17, 2020 November 11, 2020 $0.3281250 October 18, 2020 January 17, 2021 January 17, 2021 February 23, 2021 $0.3281250 January 18, 2021 April 17, 2021 * * The dividend declared on February 23, 2021 is scheduled to be paid on April 17, 2021. FARMER MAC'S AUTHORITY TO BORROW FROM THE U.S. TREASURY Farmer Mac is authorized to borrow up to $1.5 billion from the U.S. Treasury through the issuance of debt obligations to the U.S. Treasury. Any funds borrowed from the U.S. Treasury may be used solely to fulfill 25 Farmer Mac's guarantee obligations. Farmer Mac's charter provides that the U.S. Treasury is required to purchase Farmer Mac's debt obligations up to the authorized limit if Farmer Mac certifies that: • a portion of the guarantee fees assessed by Farmer Mac has been set aside as a reserve against losses arising out of Farmer Mac's guarantee activities in an amount determined by Farmer Mac's board of directors to be necessary and such reserve has been exhausted (that amount was $101.6 million as of December 31, 2020); and • the proceeds of such obligations are needed to fulfill Farmer Mac's guarantee obligations. Any debt obligations issued by Farmer Mac under this authority would bear interest at a rate determined by the U.S. Treasury, taking into consideration the average rate on outstanding marketable obligations of the United States as of the last day of the last calendar month ending before the date of the purchase of the obligations from Farmer Mac. Farmer Mac would be required to repurchase any of its debt obligations held by the U.S. Treasury within a "reasonable time." As of December 31, 2020, Farmer Mac had not used this borrowing authority and does not expect to use this borrowing authority in the future. The United States government does not guarantee payments due on securities guaranteed by Farmer Mac, funds invested in the equity or debt securities of Farmer Mac, any dividend payments on shares of Farmer Mac stock, or the profitability of Farmer Mac. 26 GOVERNMENT REGULATION OF FARMER MAC General Farmer Mac was created by federal statute in 1988 in the aftermath of the collapse of the agricultural credit delivery system. Farmer Mac's primary committees of jurisdiction in Congress – the Committee on Agriculture of the U.S. House of Representatives and the U.S. Senate Committee on Agriculture, Nutrition and Forestry – added requirements for Farmer Mac that had not been included in any of the other statutes establishing other GSEs. Unlike the other existing GSEs at the time, Farmer Mac was required to be regulated by an independent regulator, FCA, which has the authority to regulate Farmer Mac's safety and soundness. The statute creating Farmer Mac expressly requires that eligible Farm & Ranch loans meet minimum credit and appraisal standards that represent sound loans to profitable businesses. The enabling legislation also did not contain a specific federal securities law exemption as had been given to the housing GSEs, which had the effect of requiring Farmer Mac to comply with the periodic reporting requirements of the SEC, including filing annual and quarterly reports on the financial status of Farmer Mac and current reports when there are significant developments. Farmer Mac's charter also requires offerings of securities backed by eligible loans and guaranteed by Farmer Mac to be registered under the Securities Act of 1933 and related regulations (collectively, "Securities Act"), unless an exemption for an offering is available that is not based on Farmer Mac's status as an instrumentality of the United States. Since Farmer Mac's creation, Congress has amended Farmer Mac's charter five times: • in 1990 to create the USDA Guarantees line of business; • in 1991 to clarify Farmer Mac's authority to purchase its guaranteed securities, establish OSMO as Farmer Mac's financial regulator, and set minimum regulatory capital requirements for Farmer Mac; • in 1996 to remove certain barriers to and restrictions on Farmer Mac's operations to be more competitive (e.g., allowing Farmer Mac to buy loans directly from lenders and issue guaranteed securities representing 100% of the principal of the purchased loans and modifying capital requirements); • in 2008 to authorize Farmer Mac to purchase, and guarantee securities backed by, loans or interests in loans by lenders organized as cooperatives to borrowers to finance electrification and telecommunications systems in rural areas; and • in 2018 to expand the acreage exception to the Farm & Ranch loan amount limitation from 1,000 acres to 2,000 acres, subject to FCA's feasibility assessment (which was completed in June 2019), and to repeal obsolete provisions and make technical corrections. Farmer Mac's authorities and regulatory structure were not revised by legislation adopted in 2008 to regulate other GSEs. Office of Secondary Market Oversight (OSMO) As an institution of the FCS, Farmer Mac (including its subsidiaries) is subject to the regulatory authority of FCA. Farmer Mac's charter assigns to FCA, acting through OSMO within FCA, the responsibility for the examination of Farmer Mac and the general supervision of the safe and sound performance of the powers, functions, and duties vested in Farmer Mac by its charter. The charter also authorizes FCA, acting through OSMO, to apply its general enforcement powers to Farmer Mac. Farmer Mac (including its subsidiaries) is the only entity regulated by OSMO, which was created as a separate office in 27 recognition of the different role that Farmer Mac plays in providing a secondary market, as compared to the roles of other FCS institutions as primary lenders. The Director of OSMO is selected by and reports to the FCA board. Farmer Mac's charter requires an annual examination of the financial transactions of Farmer Mac and authorizes FCA to assess Farmer Mac for the cost of its regulatory activities, including the cost of any examination. Each year, OSMO conducts an examination of Farmer Mac to evaluate its safety and soundness, compliance with applicable laws and regulations, and mission achievement. The examination includes a review of Farmer Mac's capital adequacy, asset quality, management performance, earnings, liquidity, and sensitivity to interest rate risk. OSMO may also conduct additional oversight and examination activities unrelated to its annual examination of Farmer Mac at any other time it determines necessary. Farmer Mac is also required to file quarterly reports of condition with FCA. Capital Standards General Requirements . Farmer Mac's charter establishes three capital standards for Farmer Mac: • Statutory minimum capital requirement . Farmer Mac's minimum capital level is an amount of core capital (stockholders' equity less accumulated other comprehensive income) equal to the sum of 2.75% of Farmer Mac's aggregate on-balance sheet assets, as calculated for regulatory purposes, plus 0.75% of Farmer Mac's aggregate off-balance sheet obligations, specifically including: ◦ the unpaid principal balance of outstanding loan-backed securities guaranteed by Farmer Mac; ◦ instruments issued or guaranteed by Farmer Mac that are substantially equivalent to securities guaranteed by Farmer Mac, including LTSPCs; and ◦ other off-balance sheet obligations of Farmer Mac. • Statutory critical capital requirement . Farmer Mac's critical capital level is an amount of core capital equal to 50% of the total minimum capital requirement at that time. • Risk-based capital . The charter directs FCA to establish a risk-based capital stress test for Farmer Mac, using specified stress-test parameters. Farmer Mac must comply with the higher of the minimum capital requirement and the risk-based capital requirement. The risk-based capital stress test promulgated by FCA is intended to determine the amount of regulatory capital (core capital plus the allowance for losses) that Farmer Mac would need to maintain positive capital during a ten-year period in which: • annual losses occur at a rate of default and severity "reasonably related" to the rates of the highest sequential two years in a limited U.S. geographic area; and • interest rates are shocked by the lesser of 600 basis points or 50% of the ten-year U.S. Treasury rate, and interest rates remain at such level for the remainder of the period. The risk-based capital stress test then adds an additional 30% to the resulting capital requirement for management and operational risk. Farmer Mac's risk-based capital requirement as of December 31, 2020 was $197.4 million and Farmer Mac's regulatory capital of $1.0 billion exceeded that amount by 28 approximately $826.6 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Requirements" for a presentation of Farmer Mac's current regulatory capital position. Enforcement Levels . Farmer Mac's charter directs FCA to classify Farmer Mac within one of four enforcement levels to determine compliance with the capital standards established by Farmer Mac's charter. As of December 31, 2020, Farmer Mac was classified as within level I – the highest compliance level. Failure to comply with the applicable required capital level in the charter would result in Farmer Mac being classified as within level II (below the applicable risk-based capital level, but above the minimum capital level), level III (below the minimum capital level, but above the critical capital level) or level IV (below the critical capital level). If Farmer Mac were classified as within level II, III or IV, the charter requires the Director of OSMO to take specified mandatory supervisory measures and provides the Director with discretionary authority to take various optional supervisory measures depending on the level in which Farmer Mac is classified. The mandatory measures applicable to level II and level III include: • requiring Farmer Mac to submit and comply with a capital restoration plan; • prohibiting the payment of dividends if the payment would result in Farmer Mac being reclassified as within a lower level and requiring the pre-approval of any dividend payment even if the payment would not result in reclassification as within level IV; and • reclassifying Farmer Mac as within one level lower if it does not submit a capital restoration plan that is approved by the Director, or the Director determines that Farmer Mac has failed to make, in good faith, reasonable efforts to comply with such a plan and fulfill the schedule for the plan approved by the Director. If Farmer Mac were classified as within level III, then, in addition to the mandatory supervisory measures described above, the Director of OSMO could take any of the following discretionary supervisory measures: • imposing limits on any increase in, or ordering the reduction of, any obligations of Farmer Mac, including off-balance sheet obligations; • limiting or prohibiting asset growth or requiring the reduction of assets; • requiring the acquisition of new capital in an amount sufficient to provide for reclassification as within a higher level; • terminating, reducing, or modifying any activity the Director determines creates excessive risk to Farmer Mac; or • appointing a conservator or a receiver for Farmer Mac. Farmer Mac's charter does not specify any supervisory measures, either mandatory or discretionary, to be taken by the Director if Farmer Mac were classified as within level IV. The Director of OSMO has the discretionary authority to reclassify Farmer Mac to a level that is one level below its then current level (for example, from level I to level II) if the Director determines that Farmer Mac is engaging in any action not approved by the Director that could result in a rapid depletion of core capital or if the value of property subject to mortgages backing securities guaranteed by Farmer Mac has decreased significantly. 29 Capital Adequacy Requirements . Under FCA's rule on capital planning, Farmer Mac must develop and submit to OSMO for approval annually a plan for capital that considers the sources and uses of Farmer Mac's capital, addresses capital projections under stress scenarios, assesses Farmer Mac's overall capital adequacy, and incorporates a Farmer Mac board-approved policy on capital adequacy. In accordance with this regulation, Farmer Mac's board of directors oversees a policy that requires Farmer Mac to maintain an adequate level of "Tier 1" capital, consisting of retained earnings, paid-in-capital, common stock, qualifying preferred stock, and accumulated other comprehensive income allocable to "non-program" investments that are not included in the Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit lines of business. Under this policy, Farmer Mac must maintain at all times a Tier 1 capital ratio of at least 7.0% of risk-weighted assets, calculated using an advanced internal ratings based asset risk weighting regime that is consistent with current Basel-based principles. The policy also requires Farmer Mac to maintain a "capital conservation buffer" of additional Tier 1 capital of more than 2.5% of risk-weighted assets. If the capital conservation buffer drops to various levels at or below 2.5%, as shown in the table below, the policy requires Farmer Mac to restrict distributions of current quarter Tier 1-eligible dividends and any discretionary bonus payments to an amount not to exceed the corresponding payout percentage specified in the table below, which represents the percentage of the cumulative core earnings for the four quarters immediately preceding the distribution date: Capital Conservation Buffer Payout Percentage (percentage of risk-weighted assets) (percentage of four quarters' accumulated core earnings) greater than 2.5% No limitation greater than 1.875% to and including 2.5% 60% greater than 1.25% to and including 1.875% 40% greater than 0.625% to and including 1.25% 20% equal to or less than 0.625% 0% (no payout permitted) These distribution restrictions would remain for so long as the Tier 1 capital conservation buffer remains at or below the minimum level of 2.5%, and Farmer Mac's board of directors may consider other factors, such as earnings presented in accordance with generally accepted accounting principles in the United States ("GAAP") and other regulatory requirements, in determining whether to restrict capital distributions, including dividends and bonus payments. As of December 31, 2020, Farmer Mac's Tier 1 capital ratio was 14.1%. The calculation of Farmer Mac's Tier 1 capital ratio does not include certain interest rate risk components of the risk weighting of assets, which reflects the fact that Farmer Mac pursues an approach to funding its assets with liabilities of similar duration and convexity characteristics and therefore does not bear material interest rate risk in its portfolio. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Requirements" for more information on Farmer Mac's Tier 1 capital ratio. Liquidity Requirements Liquidity Reserve Requirement and Supplemental Liquidity . Farmer Mac's Liquidity and Investment Regulations require that Farmer Mac maintain at all times a liquidity reserve sufficient to fund at least 90 days of the principal portion of maturing obligations and other borrowings. Farmer Mac may also maintain supplemental liquidity to fund obligations and borrowings maturing after 90 days. The 30 investments that Farmer Mac holds as its liquidity reserve and as supplemental liquidity must consist of unencumbered and readily marketable assets that are diversified in accordance with categories prescribed by FCA, including limitations on asset class, dollar amount, issuer concentration, and credit quality. Farmer Mac must report, in writing, to OSMO no later than the next business day following the discovery of any breach of Farmer Mac's minimum liquidity reserve requirement. Liquidity Management . Under the Liquidity and Investment Regulations, Farmer Mac must develop and approve annually a liquidity policy that outlines Farmer Mac's purpose and objectives for liquidity reserves, diversification requirements for liquidity reserves, target liquidity levels, maximum investment amounts as a percentage of Farmer Mac's program assets, exception parameters (and approval requirements), delegations of investment authority, and reporting requirements to Farmer Mac's board of directors and to OSMO. The regulations also require Farmer Mac to develop a liability maturity management plan and a contingency funding plan, each of which must be reviewed and approved annually by Farmer Mac's board of directors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for more information about Farmer Mac's liquidity and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Other Investments" for more information about Farmer Mac's eligible investments. 31 Item 1A. Risk Factors Farmer Mac's business activities, financial performance, and results of operations are, by their nature, subject to risks and uncertainties, including those related to the agricultural industry, the rural utilities industry, access to the capital markets, the regulatory environment, and the level of prevailing interest rates and overall market conditions. The following risk factors should be considered along with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this report, including the risks and uncertainties described in the "Forward-Looking Statements" section. Because new risk factors likely will emerge from time to time, management can neither predict all potential risk factors nor assess the effects of those factors on Farmer Mac's business, operating results, and financial condition or how much any factor, or combination of factors, may affect Farmer Mac's actual results and financial condition. If any of the following risks materialize, Farmer Mac's business, financial condition, or results of operations could be materially and adversely affected. Farmer Mac undertakes no obligation to update or revise this risk factor discussion, unless required by applicable law. COVID-19 Pandemic Risk The effects of the COVID-19 pandemic are uncertain and may heighten the risk factors described in this report or could otherwise have a material adverse effect on Farmer Mac's business, operations, operating results, financial condition, liquidity, or capital levels. The COVID-19 pandemic continues to create extensive disruptions to the global economy and to the lives of individuals throughout the world. The effectiveness of Farmer Mac’s efforts to manage and mitigate the following risk factors during the COVID-19 pandemic and how much the pandemic affects Farmer Mac’s business, results of operations, and financial condition will depend on many factors beyond Farmer Mac’s control, including: • the duration and severity of the pandemic and the effectiveness of government and public health responses, including to the prevalence of any new strains of the novel coronavirus and the widespread distribution, public acceptance, availability, and use of vaccines; • the existence and scope of government intervention to mitigate the negative economic effects of the COVID-19 pandemic, including imposing any moratoria on agricultural mortgage foreclosures; • the ability of Farmer Mac’s borrowers to withstand economic pressures caused by the COVID-19 pandemic, how quickly and to what extent affected borrowers can recover from the negative economic effects of the pandemic, and the nature and extent to which affected borrowers require loan payment deferments; • the extent to which disruptions in the capital markets or volatility in interest rates stemming from the effects of the COVID-19 pandemic impair customer demand for Farmer Mac’s loan products, Farmer Mac’s ability to offer those loan products at competitive prices, or Farmer Mac’s ability to access the capital markets to fund and capitalize its operations; • the continued ability of Farmer Mac, its vendors, and the organizations on which they rely, such as government offices and courthouses, to operate effectively during the COVID-19 pandemic, including their ability to implement effective cyber-security protocols in remote-working environments as needed; • how quickly and to what extent normal economic and operating conditions can resume, including whether any future COVID-19 outbreaks interrupt economic recovery; and 32 • whether the COVID-19 pandemic causes any residual negative effects once the pandemic has subsided. The full effects of the COVID-19 pandemic on Farmer Mac’s business, results of operations, and financial condition may not be fully known for some time and may heighten the risk factors described below or may otherwise materially and adversely affect Farmer Mac’s business, operations, operating results, financial condition, liquidity, or capital levels. Credit and Counterparty Risk Factors outside of Farmer Mac's or borrowers' control may impair borrowers' profitability and ability to repay their loans in Farmer Mac's portfolio, which could have a material adverse effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels. External factors beyond Farmer Mac's or borrowers' control could impair borrowers' profitability, such as severe or protracted adverse weather and related effects (including recent severely cold weather in Texas); volatility in demand for agricultural products or electricity in rural areas; variability in borrowers' input costs; protracted regional, domestic, or global economic stress (whether due to the continued COVID-19 pandemic or otherwise); legislative or regulatory actions affecting rural borrowers; U.S. trade policy affecting the demand for agricultural exports or the price of imports required for borrowers' operations; increased competition among producers due to oversupply or available alternatives; and adverse changes in interest rates and land values. Any of these factors could put downward pressure on the profitability of a farming or rural utilities operation, which could then inhibit the related borrower's repayment capacity on one or more loans that Farmer Mac may have from that borrower in its portfolio. Farmer Mac assumes the ultimate credit risk of borrower defaults on its agricultural mortgage and rural utilities loan assets, and Farmer Mac's earnings, which come from net interest income, guarantee fees, and commitment fees on those assets, depend significantly on their performance. Widespread and sustained repayment shortfalls on loans in Farmer Mac's portfolio could result in losses, particularly if the value of the available collateral does not cover Farmer Mac's exposure, and this could have a material adverse effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels. Concentrations in Farmer Mac's loan or investments portfolios, or to one or more borrowers or counterparties, may increase Farmer Mac's exposure to credit risk, which could materially and adversely affect its business, operating results, and financial condition. Farmer Mac's exposure to credit risk may increase due to concentrations in its loan portfolio to a particular commodity type, geographic region, or collateral type. Widespread weakening in the financial condition of borrowers within a particular geographic region, commodity type, or collateral type (which could be exacerbated by a prolonged period of economic stress due to the effects of the COVID-19 pandemic) could negatively affect Farmer Mac’s financial condition if the geographic and commodity diversity within Farmer Mac's portfolio does not successfully mitigate concentration risk. Farmer Mac's credit risk may also increase due to decline in the collateral values securing the loans in Farmer Mac's portfolio, particularly if the collateral is single-use or highly improved, such as storage and processing facilities or permanent plantings. Single-use or highly improved collateral increases the risk of ultimate losses on a given loan because producers requiring single-use or highly improved collateral are less able to adapt their operations or switch functional production when faced with adverse conditions and are more likely to be undercollateralized in a default scenario. For example, Farmer Mac's cumulative net credit losses for 33 loans to borrowers in the Agricultural Storage and Processing category are 54.5% of its cumulative net credit losses for all categories. Farmer Mac's exposure to credit risk may also increase due to concentrated exposure to a particular borrower or counterparty. Farmer Mac’s Farm & Ranch portfolio consists of loans varying in size and by borrower, including large exposures ($25 million or more) to individual borrowers. The default of any one of these borrowers could negatively affect Farmer Mac's financial condition. Farmer Mac also has concentrated exposures to individual business counterparties on AgVantage securities, which are general obligations of institutional counterparties secured by eligible loans held by the issuing institution. Although AgVantage securities are collateralized by eligible loans in a principal amount equal to or greater than the principal amount of the securities outstanding, Farmer Mac could suffer losses if the market value of the loan collateral declines and the counterparty defaults. Taking possession of the loan collateral upon a default by the AgVantage counterparty could also result in higher current expected credit losses for Farmer Mac's loans held on balance sheet, as well as increased capital requirements. Most of Farmer Mac's AgVantage exposure is concentrated in a few issuers. As of December 31, 2020, $7.0 billion of the $7.7 billion of AgVantage securities outstanding had been issued by three counterparties. A default by any of these counterparties could have a significant adverse effect on Farmer Mac's business, operating results, and financial condition. Farmer Mac's exposure to credit risk may also increase due to concentrated exposure to one or more investment types or counterparties in the investment portfolio Farmer Mac maintains for liquidity. This investment portfolio consists primarily of cash and cash equivalents, U.S. Treasury securities, investment securities guaranteed by U.S. Government agencies and GSEs, and asset-backed securities backed primarily by U.S. Government-guaranteed loans. Farmer Mac regularly reviews concentration limits to ensure that its investments are appropriately diversified and comply with policies approved by Farmer Mac's board of directors and with applicable FCA regulations, but Farmer Mac is still exposed to credit risk from issuers of the investment securities it holds, particularly to issuers to whom Farmer Mac may have a higher concentration of exposure relative to the rest of Farmer Mac's investment portfolio. For example, as of December 31, 2020, Farmer Mac held at fair value $1.9 billion of investment securities guaranteed by GSEs. A default by multiple issuers of investment securities held by Farmer Mac or by a single issuer of investment securities in which Farmer Mac is more heavily concentrated could have an adverse effect on Farmer Mac's business, operating results, and financial condition. Farmer Mac Guaranteed Securities and LTSPCs expose Farmer Mac to significant contingent liabilities, and Farmer Mac's ability to fulfill its obligations under its guarantees and LTSPCs may be limited. Farmer Mac's guarantee and purchase commitment obligations to third parties, including LTSPCs and securities guaranteed by Farmer Mac, are obligations of Farmer Mac only and are not backed by the full faith and credit of the United States, FCA, or any other agency or instrumentality of the United States other than Farmer Mac. As of December 31, 2020, Farmer Mac had $3.3 billion of contingent liabilities related to LTSPCs and securities issued to third parties and guaranteed by Farmer Mac, which represents Farmer Mac's exposure if all loans underlying these LTSPCs and guarantees defaulted and Farmer Mac recovered no value from the related collateral. If this were to occur, the funds available for payment on these guarantees and LTSPCs could be substantially less than the aggregate amount of the corresponding liabilities. As of December 31, 2020, Farmer Mac held cash, cash equivalents, and other investment securities with a fair value of $4.9 billion that could be used as a source of funds for payment on its obligations, including its guarantee and LTSPC obligations. Although Farmer Mac believes that it 34 remains well-collateralized on the assets underlying its guarantee and LTSPC obligations to third parties and that the estimated probable losses for these obligations remain low relative to the amount available for payment of claims on these obligations, Farmer Mac's total contingent liabilities for these obligations could exceed the amount it may have available for payment of Farmer Mac's obligations, including claims on Farmer Mac's contingent obligations. See "Management's Discussion and Analysis—Risk Management—Credit Risk – Loans and Guarantees" for more information on Farmer Mac's management of credit risk. Farmer Mac is exposed to counterparty risk on both its cleared and non-cleared swaps transactions that could materially and adversely affect its business, operating results, and financial condition. Farmer Mac uses interest rate swap contracts and hedging arrangements to manage its interest rate risk. Farmer Mac clears a significant portion of its interest rate swaps through a swap clearinghouse and uses the services of a futures commission merchant to post and receive mark-to-market margin amounts. Farmer Mac also transacts non-cleared (bilateral) derivative contracts directly with swap counterparties and posts and receives collateral to secure the market value of those contracts. A failure of any of these counterparties could cause intra-day disruption for Farmer Mac's swap operations if the failure were to prompt a termination of all or part of Farmer Mac's swap positions or if Farmer Mac were unable to quickly access margin or collateral amounts. These conditions could be exacerbated in volatile market conditions, in which the market could move against Farmer Mac's position before Farmer Mac had time to reposition its swaps. Farmer Mac's derivative contracts executed before March 2017 have market value thresholds ranging from $15 to $25 million that must be exceeded before Farmer Mac must post collateral. Repositioning these swaps under current margin rules if the related counterparty were to fail could require Farmer Mac to post significant collateral within a short time frame. Any of these factors resulting from a failure of the swap clearinghouse, futures commission merchant, or any of Farmer Mac's bilateral swap counterparties could have a negative effect on Farmer Mac's operations and liquidity and could expose Farmer Mac to more interest rate risk, which could materially and adversely affect its business, operating results, and financial condition. As of December 31, 2020, the aggregate notional balance of Farmer Mac's cleared swaps was $12.8 billion, and the aggregate notional balance of Farmer Mac's non-cleared swaps was $2.6 billion (including $0.3 billion notional amount of non-cleared swaps executed before March 2017). Strategic/Business Risk Farmer Mac's business, operating results, financial condition, and capital levels may be materially and adversely affected by external factors that may affect the demand for Farmer Mac's secondary market, the price or marketability of Farmer Mac's products, or Farmer Mac's ability to offer its products and services. Farmer Mac's business, operating results, financial condition, and capital levels may be materially and adversely affected by external factors that may affect the price or marketability of Farmer Mac's products and services or Farmer Mac's ability to offer its products and services, including, but not limited to: • disruptions in the capital markets; • competitive pressures in Farmer Mac's loan purchase and guarantee activities or in the issuance of its debt securities; • changes in interest rates that may increase Farmer Mac's funding costs; • market or customer perception of Farmer Mac's reputation; 35 • legislative or regulatory developments adversely affecting Farmer Mac's ability to offer new products, the ability or motivation of lenders to participate in Farmer Mac's lines of business, or the cost of related corporate activities; • reduced demand for agricultural real estate loans or Rural Utilities loans due to regional, domestic, or global economic conditions; and • expanded funding alternatives available to agricultural and rural utilities borrowers. An inability to access the equity and debt capital markets could have a material adverse effect on Farmer Mac's business, operating results, financial condition, liquidity, and capital levels. Farmer Mac's ability to operate its business, meet its obligations, generate asset volume growth, and fulfill its statutory mission depends on Farmer Mac's capacity to remain adequately capitalized through the issuance of equity and debt securities at favorable rates and terms in the U.S. financial markets. Farmer Mac's potential for growth and future net income depends in part on Farmer Mac's ability to access equity markets to raise efficient capital. The issuance of debt securities is Farmer Mac's primary source for repaying or refinancing existing debt, and one of the primary sources of Farmer Mac's revenue is the net interest income earned from the difference, or "spread," between the return received on assets held and the related borrowing costs. Farmer Mac's ability to access the debt and equity markets to raise capital, fund its assets, repay debt, and earn net interest income depends on market perception of Farmer Mac. If Farmer Mac were unable to access the U.S. financial markets to issue equity or debt securities at favorable rates and terms, Farmer Mac's business, operating results, or financial condition could be adversely affected. The loss of business from key business counterparties or customers, including AgVantage counterparties, could weaken Farmer Mac's business and decrease its revenues and profits. Farmer Mac's business and ability to generate revenues and profits largely depends on its ability to purchase eligible loans or place eligible loans under guarantees or LTSPCs and to purchase or guarantee AgVantage securities. Farmer Mac conducts a significant portion of its business with a few business counterparties. This could result in vulnerability as existing assets pay down or mature and the status and needs of Farmer Mac's business partners evolve. In 2020, ten institutions generated approximately 57% of loan purchase volume in the Farm & Ranch line of business. As of December 31, 2020, approximately 90% of the $7.7 billion outstanding principal amount of AgVantage securities under Farmer Mac's Institutional Credit line of business were issued by three institutions (of which $1.7 billion and $1.4 billion will be maturing in 2021 and 2022, respectively). As of December 31, 2020, transactions with two institutions represented nearly all of the business volume under Farmer Mac's Rural Utilities line of business. Farmer Mac's ability to maintain the current relationships with its business counterparties or customers and the business generated by those business counterparties or customers is significant to Farmer Mac's business. As a result, the loss of business from any one of Farmer Mac's key business counterparties could decrease Farmer Mac's revenues and profitability. Farmer Mac may be unable to replace the loss of business of a key business counterparty or customer with alternate sources of business due to limitations on the types of assets eligible for Farmer Mac's secondary market, which could adversely affect Farmer Mac's business and decrease its revenues and profits. 36 Farmer Mac's efforts to balance fulfilling its mission with providing a return to its stockholders may result in business transactions that involve lower returns or higher risk, which could adversely affect its business, operating results, or financial condition. Congress created Farmer Mac to provide for a secondary market for agricultural mortgage loans, Rural Utilities loans, and the guaranteed portions of USDA-guaranteed loans. In pursuing this mission, Farmer Mac's secondary market activities are designed to: • increase the availability of credit to rural borrowers at stable interest rates; • provide greater liquidity and lending capacity in extending credit to rural borrowers; and • provide an arrangement for new lending by facilitating capital market investments in funding for rural borrowers, including funds at fixed rates of interest. Farmer Mac's charter provides that its standards for Farm & Ranch loans shall not discriminate against small originators or small agricultural mortgage loans of at least $50,000. The charter also requires Farmer Mac's board of directors to promote and encourage the inclusion of qualified loans for small farms and family farmers in the agricultural mortgage secondary market. Although Farmer Mac strives to undertake its mission-related activities in a manner consistent with providing an accretive return to Farmer Mac's stockholders, these activities could contribute to a lower return to stockholders than if Farmer Mac's sole purpose were to maximize stockholder value. If Farmer Mac were to undertake activities involving greater risk or lower returns to satisfy its mission, Farmer Mac's business, operating results, or financial condition could be adversely affected. A few stockholders who own large amounts of Farmer Mac voting common stock may seek to influence Farmer Mac's business, strategy, or board composition, and the interests of these stockholders may differ from the interests of Farmer Mac or other holders of Farmer Mac's common stock. The ownership of Farmer Mac's two classes of voting common stock is concentrated in a few institutions. Three financial institutions hold approximately 44% of Farmer Mac's Class A voting common stock, with 31% held by one institution. Five FCS institutions hold approximately 97% of Farmer Mac's Class B voting common stock (two of which are related to each other through a parent-subsidiary relationship). The holders of Farmer Mac's Class A voting common stock and the holders of Farmer Mac's Class B voting common stock each have the right to elect one-third of the membership of Farmer Mac's board of directors. Many of these holders are rural lenders that may compete directly with each other. As long as Farmer Mac's Class A and Class B voting common stock is highly concentrated in a few institutions, these institutions could seek to influence (and may succeed in influencing), Farmer Mac's business, strategy, or board composition in a way that may not be in the best interests of either Farmer Mac or other stockholders. Changes in Farmer Mac's board could adversely affect its business, operations, and strategy. Farmer Mac's charter prescribes that its board of directors consist of fifteen members. The holders of Farmer Mac's Class A voting common stock and the holders of Farmer Mac's Class B voting common stock separately elect five board members for each class annually. The President of the United States, with the advice and consent of the United States Senate, appoints five board members (one of whom is designated as the chair of the board of directors). Farmer Mac's Presidentially appointed board members serve at the pleasure of the President of the United States and therefore could be replaced at any time. If, 37 as a result of annual elections or new Presidential appointments to the board, Farmer Mac were to experience a significant turnover in board membership within a short time and the new directors were not able to become proficient quickly in Farmer Mac's business, operations, and strategies, the effectiveness of Farmer Mac's board of directors in overseeing the business, affairs, strategies, and operations of Farmer Mac could be adversely affected. In 2020, three new individuals joined Farmer Mac's board of directors, two of whom were elected by holders of voting common stock in May 2020 (one of whom died later that year) and one of whom was appointed by the President of the United States after confirmation by the U.S. Senate in December 2020. Operational Risk The inadequacy or failure of Farmer Mac's operational systems, cybersecurity plan, internal controls or processes, or infrastructure, or those of third parties, could have a material adverse effect on Farmer Mac's business, operating results, or financial condition. Farmer Mac is exposed to operational risk due to the complex nature of its business operations and the processes and systems used to undertake its business activities and comply with regulatory requirements. Operational risk refers to the risk of loss to Farmer Mac resulting from: • inadequate or failed internal processes, systems, cybersecurity plan, or infrastructure; • Farmer Mac's inability to successfully implement enhancements to any of these or migrate to new systems or infrastructure; • failed execution based on human error; • inadequate or failed internal controls or processes to detect or prevent fraud; or • external events, including a disruption involving physical site access, cyber incidents, catastrophic events, natural disasters, terrorist activities, or disease pandemics. Farmer Mac relies on business processes that largely depend on people, technology, and the use of complex systems and models to manage its business, process a high volume of daily transactions, and generate the records on which Farmer Mac's financial statements are based. Inadequacies or failures in Farmer Mac's internal processes, personnel, systems, cybersecurity plan, or infrastructure could lead to a significant disruption in its business operations, financial and economic loss, errors in its financial statements, impairment of its liquidity, liability or service interruptions to its customers, increased regulatory or legislative scrutiny, or reputational damage. In response to the challenges presented by the COVID-19 pandemic, Farmer Mac has modified its business practices to focus on protecting its employees and the public while continuing to fulfill its critical mission and maintaining its regular business operations in support of the farmers, ranchers, and rural utilities of America. On March 12, 2020, Farmer Mac activated its Business Continuity Plan (“BCP”) and has been operating uninterrupted since then with all of its employees working remotely from their homes. Farmer Mac has provided guidance and support to its employees to ensure that they have the tools and knowledge needed to effectively work from home, and Farmer Mac’s technology platform and BCP have been functioning as designed in support of all functions of the organization. Nonetheless, because the technology in employees’ homes may not be as robust as in Farmer Mac’s offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than Farmer Mac’s in-office technology, the continuation of these work-from-home measures introduces more operational risk. These risks include but are not limited to greater cybersecurity risk and disruption or failure of local technology networks, which could impair Farmer Mac's ability to perform 38 critical functions. The realization of any of these risks could have a material adverse effect on Farmer Mac’s business, results of operations, or financial condition. The potential for operational risk exposure also exists as a result of Farmer Mac's interactions with, and reliance on, third parties. Farmer Mac's business relies on its ability to process, evaluate, and interpret significant amounts of information, much of which third parties provide. Yet Farmer Mac's ability to implement safeguards preventing disruption to third-party systems or infrastructure is more limited than for its own systems or infrastructure. The risk of disruption to third-party systems or infrastructure may be heightened due to COVID-19-related illnesses or government or third-party actions taken to mitigate the public health effects of the COVID-19 pandemic, including stay-at-home orders. If the financial, accounting, data processing, backup, information technology, or other operating systems and infrastructure of third parties with whom Farmer Mac interacts or upon whom it relies fail to operate properly or are disrupted, then Farmer Mac's operations and its ability to conduct its business in the ordinary course may be adversely affected, which could have a material adverse effect on Farmer Mac's business, results of operations, or financial condition. Any significant deficiency, failure, interruption, or breach in Farmer Mac's information systems, including the occurrence of successful cyber-attacks or a significant deficiency in Farmer Mac's cybersecurity plan, could result in a loss of business, damage to Farmer Mac's reputation, the disclosure or misuse of confidential or proprietary information, or increased costs or liability to Farmer Mac, which could adversely affect Farmer Mac's business, operating results, or financial condition. Farmer Mac relies heavily on information systems, including from third parties, to conduct and manage its business operations. These information systems encompass an integrated set of hardware, software, infrastructure, and trained personnel organized to facilitate the planning, control, coordination, and decision-making processes within Farmer Mac. As Farmer Mac's reliance on information systems has increased, so have the risks posed to its systems, including the effect of events that would threaten the confidentiality, integrity, or availability of Farmer Mac's information resources, known as cyber incidents. Like many other financial institutions, Farmer Mac faces regular attempts by third parties to gain unauthorized access to its information systems. Despite the increased cybersecurity risks presented by a workforce that is operating entirely remotely, Farmer Mac is not aware of any cyber-attacks or other privacy or data security incidents through the date of this report that negatively affected the confidentiality, integrity, or availability of Farmer Mac’s information resources or that have had a material effect on its business, operating results, or financial condition, but it is not possible to predict the effect on Farmer Mac of any future cyber incidents. Farmer Mac has undertaken preventive measures and devotes what Farmer Mac believes to be adequate resources to design, manage, monitor, deploy, and assess its information systems and cybersecurity program consistent with industry best practices. Farmer Mac's cybersecurity program assesses Farmer Mac's cybersecurity risk profile and seeks to ensure there are sufficient measures and safeguards in place to mitigate the risks identified. However, Farmer Mac may be unable to prevent, address on a timely and adequate basis, or fully mitigate the negative effects associated with a successful cyber-attack on Farmer Mac's or its third-party information systems, which could adversely affect Farmer Mac's business, operating results, reputation, or financial condition. Because the methods used to launch cyber-attacks change often or, in some cases, are not recognized until launched, Farmer Mac also may be unable to implement effective preventive measures or proactively address these methods until discovered. A failure or interruption in any of Farmer Mac's information systems could cause a disruption or malfunction of its operations, which could adversely affect Farmer Mac's ability to conduct business with its customers, loan 39 servicers, service providers, or other counterparties, result in financial loss, or damage Farmer Mac's reputation. The secure transmission, processing, and storage of Farmer Mac's confidential, proprietary, and other information assets through Farmer Mac's or its third-party information systems is instrumental to Farmer Mac's operations. Any action that results in unauthorized access to Farmer Mac's information systems by third parties, including through viruses, malware, cyber-attacks, or other information system breaches, could disrupt Farmer Mac's operations, corrupt its data, or cause the misappropriation, unauthorized release, loss, or destruction of the confidential, proprietary, or other information assets of its customers, loan servicers, service providers, or other counterparties. Unauthorized access to Farmer Mac's information systems or sensitive information could cause Farmer Mac to experience prolonged operational interruption, damage to its reputation, material loss of business, legal liability, or increased costs from private data exposure, which could adversely affect Farmer Mac's business, operating results, reputation, or financial condition Failure by Farmer Mac's third-party loan servicers, information systems providers, and other service providers to protect confidential information from unauthorized access and dissemination could result in liability for Farmer Mac or damage Farmer Mac's reputation, which could have a negative effect on Farmer Mac's business, operating results, or financial condition. Farmer Mac relies on third parties, including loan servicers, information systems providers, software-as-a-service (SaaS) providers, cloud computing service providers, and other service providers, to perform various functions for Farmer Mac. During these activities, these third parties collect and have access to a variety of confidential or proprietary information, including, among others, sensitive financial information, information presented to Farmer Mac's board of directors, information provided to Farmer Mac's regulators, information about the lenders that participate in Farmer Mac's lines of business, and personal financial information about the borrowers with loans in one of Farmer Mac's lines of business. Any unauthorized access to or cyber incidents affecting the information systems of one of these third parties, including through viruses, malware, cyber-attacks, or other information system breaches, could result in the misappropriation and inappropriate release of the confidential or proprietary information entrusted to Farmer Mac. Prior instances of unauthorized access to Farmer Mac's third parties' information systems have not resulted in the misappropriation or inappropriate release of the confidential or proprietary information entrusted to Farmer Mac, although it is not possible to predict the consequences of any future instances. Any employees or agents of Farmer Mac's third parties that have authorized access to confidential or proprietary information could also inadvertently or erroneously disseminate the information to unauthorized third parties. The risk of unauthorized access to confidential or proprietary information through information system breaches or inadvertent dissemination may be heightened in a remote-working environment, which may be more prevalent due to the COVID-19 pandemic. Any unauthorized access to or dissemination of confidential or proprietary information could result in liability for Farmer Mac or damage Farmer Mac's reputation, either of which could have a negative effect on Farmer Mac's business, operating results, or financial condition. If Farmer Mac's management of risk associated with its loan assets and investment securities based on model assumptions and output is not effective, its business, operating results, financial condition, or capital levels could be materially adversely affected. Farmer Mac continually develops and adapts profitability and risk management models to adequately address a wide range of possible market developments. Some of Farmer Mac's qualitative tools and 40 metrics for managing risk are based on its use of observed historical market behavior. Farmer Mac applies statistical and other tools to these observations to quantify its risks. These tools and metrics may fail to predict future or unanticipated risk or may not be effective in mitigating its risk exposure in all economic market environments or against all types of risk, which could expose Farmer Mac to material unanticipated losses. The inability of Farmer Mac to effectively identify and manage the risks inherent in its business could have a material adverse effect on its business, operating results, financial condition, or capital levels. Farmer Mac's efforts to expand product offerings and services to its customers exposes Farmer Mac to operational risk that could materially and adversely affect its business, operating results, or financial condition. As the needs of Farmer Mac's customer base and rural America evolve, Farmer Mac seeks to respond by offering new products and services to meet these needs. As Farmer Mac expands its product offerings and services, it is exposed to operational risk in implementing these new products and services. New products and services may require new operational processes, which often require new internal controls to manage new risks that these new processes present. If these controls are insufficient or ineffective to manage the risks inherent in these new processes, or if there is human error in executing these new controls either due to their novelty or otherwise, Farmer Mac could face financial loss, reputational damage, or regulatory enforcement, which could materially and adversely affect Farmer Mac's business, operating results, or financial condition. Market Risk Farmer Mac is exposed to interest rate risk that could materially and adversely affect its operating results or financial condition. Farmer Mac is subject to interest rate risk due to the timing differences in the cash flows of the assets it holds and the liabilities issued to fund those assets. Farmer Mac's primary strategy for managing interest rate risk is to fund asset purchases with liabilities that have similar duration and convexity characteristics so that they will perform similarly as interest rates change. However, the ability of borrowers to prepay their loans before the scheduled maturities increases the likelihood of asset and liability cash flow mismatches. In a changing interest rate environment, these cash flow mismatches affect Farmer Mac's earnings if assets repay sooner than expected and the resulting cash flows must be reinvested in lower-yielding investments, particularly if Farmer Mac's related funding costs cannot be correspondingly repaid. Conversely, if assets repay more slowly than anticipated and the associated debt issued to fund the assets must be reissued at a higher interest rate, Farmer Mac's earnings could be adversely affected. Volatility in market conditions during the past year stemming from the effects of the COVID-19 pandemic prompted the Federal Reserve to significantly lower the target range for the federal funds rate, resulting in an extremely low interest rate environment. A resumption of market volatility from uncertainties surrounding a prolonged pandemic could adversely affect Farmer Mac's ability to manage interest rate risk, which could have a material adverse effect on Farmer Mac's operating results or financial condition. Farmer Mac is also subject to repricing risk, which is the risk that Farmer Mac's funding cost relative to a benchmark index (for example, the London Interbank Offered Rate known as "LIBOR") will increase from the time the initial funding was issued and the time the liabilities are re-funded. This risk arises from maturity mismatches between assets and liabilities where assets with longer maturities must be re-funded. A significant increase in the difference between Farmer Mac's funding cost relative to the benchmark 41 index, including LIBOR, could compress spread income on the assets Farmer Mac holds and seeks to re-fund with the higher cost funding. Widespread compression within a short timeframe could adversely affect Farmer Mac's operating results or financial condition. Changes in interest rates relative to Farmer Mac's management of interest rate risk through derivatives may cause volatility in financial results and capital levels and may adversely affect Farmer Mac's net income, liquidity position, or operating results. Farmer Mac enters into financial derivatives transactions to hedge interest rate risks inherent in its business and carries its financial derivatives at fair value in its consolidated financial statements. Although Farmer Mac's financial derivatives provide economic hedges of interest rate risk, changes in the fair values of financial derivatives can cause volatility in net income and in capital, particularly if those financial derivatives are not designated in hedge accounting relationships or if there is any ineffectiveness in a hedge accounting relationship. As interest rates increase or decrease, the fair values of Farmer Mac's derivatives change based on the position Farmer Mac holds relative to the specific characteristics of the derivative. Farmer Mac's core capital available to meet its statutory minimum capital requirement can be affected by changes in the fair values of financial derivatives, as noted above. Adverse changes in the fair values of Farmer Mac's financial derivatives that are not designated in hedge accounting relationships and any hedge ineffectiveness that results in a loss would reduce the amount of core capital available to meet this requirement. In 2020 and 2019, Farmer Mac recorded a loss of $3.7 million and a gain of $10.1 million, respectively, from changes in the fair values of its financial derivatives as a result of movements in interest rates during those years. In addition, Farmer Mac recorded losses of $9.2 million and $7.9 million in 2020 and 2019, respectively, related to ineffectiveness in hedge accounting relationships. Changes in interest rates have required, and in the future may require, Farmer Mac to post cash or investment securities to collateralize its derivative exposures due to corresponding changes in the fair market values of these derivatives. If changes in interest rates were to result in a significant decrease in the fair value of Farmer Mac's derivatives, Farmer Mac would be required to post cash, cash equivalents, or investment securities, possibly within a short period of time, to satisfy its obligations under its derivatives contracts. As of December 31, 2020, Farmer Mac posted $11.2 million of cash and $201.1 million of investment securities as collateral for its derivatives in net liability positions. If Farmer Mac is required to fully collateralize a significant portion of its derivatives in an adverse interest rate environment, it could have a material adverse effect on Farmer Mac's liquidity position or operating results. The reform, replacement, or discontinuation of the LIBOR benchmark interest rate could adversely affect Farmer Mac's business, operating results, or financial condition. In July 2017, the United Kingdom's Financial Conduct Authority ("UKFCA"), which regulates U.S. Dollar LIBOR ("LIBOR"), announced that it would no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021 and would support the LIBOR indexes through 2021 to allow for a transition to any alternative reference rates. In November 2020, the UKFCA and the ICE Benchmark Administration, which administers LIBOR, announced that most tenors of LIBOR would continue to be published through June 2023. These announcements indicate that the continuation of LIBOR in its current form will be discontinued after June 2023. Farmer Mac is evaluating the potential effect on its business of the replacement of the LIBOR benchmark interest rate, including the possibility of replacement benchmark interest rates. As of December 31, 2020, Farmer Mac held $5.1 billion of floating rate assets in its lines of business and its investment portfolio, had issued $4.7 billion of floating rate debt, and had 42 entered into $14.6 billion notional amount of interest rate swaps, each of which resets based on LIBOR. In addition, Farmer Mac's Series C Preferred Stock will be indexed to LIBOR after July 17, 2024. 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 to accommodate for differences between the benchmark interest rates. The introduction of an alternative reference rate may also introduce additional re-funding and repricing risk for Farmer Mac if an alternative benchmark interest rate index is used along with LIBOR during a transition period. If LIBOR is discontinued and an alternative benchmark interest rate does not become widely used or accepted in place of LIBOR, then there may be uncertainty or differences in the calculation of the applicable interest rate or payment amounts depending on the terms of the governing instruments for Farmer Mac's assets and liabilities. This could result in different financial performance for previously booked transactions, require different hedging strategies, or require renegotiation of previously booked transactions, and may affect Farmer Mac's existing transaction data, products, systems, operations and pricing processes, which could adversely affect Farmer Mac's business, operating results, or financial condition. Financial Risk Incorrect estimates and assumptions by management in preparing financial statements could adversely affect Farmer Mac's business, operating results, reported assets and liabilities, financial condition, reputation, or capital levels. Farmer Mac's accounting policies and methods are fundamental to how it records and reports its financial condition and results of operations. Some of these policies and methods require management to make estimates and assumptions in preparing Farmer Mac's consolidated financial statements. Incorrect estimates and assumptions by management in connection with preparing Farmer Mac's consolidated financial statements could adversely affect the reported amounts of assets and liabilities and the reported amounts of income and expenses. For example, as of December 31, 2020, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $7.0 billion whose fair values management estimated in the absence of readily observable fair values (in other words, level 3). These financial instruments measured with significant unobservable inputs represented 29% of total assets and 65% of financial instruments measured at fair value as of December 31, 2020. See "Management's Discussion and Analysis—Critical Accounting Policies—Fair Value Measurement" for more information about fair value measurement If management makes incorrect assumptions or estimates that result in understating or overstating reported financial results, it could materially and adversely affect Farmer Mac's business, operating results, reported assets and liabilities, financial condition, reputation, or capital levels. Changes in accounting standards or in applying accounting policies could adversely affect Farmer Mac's business, operating results, financial condition, or capital levels. Farmer Mac is subject to the requirements of entities that set and interpret the accounting standards governing the preparation of Farmer Mac's consolidated financial statements. These entities, which include the Financial Accounting Standards Board ("FASB"), the SEC, and Farmer Mac's independent registered public accounting firm, may add new accounting standards or change their interpretations of how those standards should be applied. These changes may be difficult to predict and could affect how Farmer Mac records and reports its financial condition and results of operations. In some cases, Farmer Mac could be required to apply a new or revised standard retrospectively, potentially resulting in changes to previously reported financial results. For example, the FASB issued a new accounting standard in 2016, which was effective for Farmer Mac on January 1, 2020, that required entities to measure credit 43 losses based on an "expected credit loss" approach rather than an "incurred loss" approach previously required under GAAP. The new approach requires entities to measure all expected credit losses for financial assets carried at amortized cost and debt securities classified as available-for-sale, based on historical experience, current conditions, and reasonable forecasts of collectability. This new accounting standard could cause increases and more volatility in Farmer Mac's provision for credit losses and could adversely affect Farmer Mac's business, operating results, financial condition, or capital levels. See Note 2(p) to the consolidated financial statements for more information about this new accounting standard. Changes in the value or composition of Farmer Mac's investment securities could adversely affect Farmer Mac's business, operating results, financial condition, or capital levels. Deterioration in financial or credit market conditions could reduce the fair value of Farmer Mac's investment securities, particularly those securities that are less liquid and more subject to market variability. Some securities owned by Farmer Mac, including auction-rate certificates, do not have well-established secondary trading markets, making it more difficult to estimate current fair values for those securities. This requires Farmer Mac to rely on market observations and internal models to estimate the fair values of its investment securities and to determine whether credit losses exist. However, available market data may not reflect the actual sale conditions Farmer Mac may face when selling its investment securities, particularly in adverse financial market conditions. Internal models require Farmer Mac to exercise judgment about estimates and assumptions used in the models. If Farmer Mac uses unreliable market data or incorrect estimates or assumptions in its internal models to estimate the fair value of its investment securities, those estimates could adversely affect results of operations during the reporting period. And if Farmer Mac decides to sell securities in its investment portfolio, the price ultimately realized will depend on the demand and liquidity in the market at the time of sale, which could be significantly less than Farmer Mac's estimates for fair value. Failure to accurately estimate the fair value of Farmer Mac's investment securities could adversely affect Farmer Mac's business, operating results, financial condition, or capital levels. The trading price for Farmer Mac's Class C non-voting common stock may be volatile due to market influences, trading volume, the effects of equity awards for Farmer Mac's officers, directors, and employees, or sales of significant amounts of the stock by large holders. The trading price of Farmer Mac's Class C non-voting common stock ("Class C stock") has at times experienced substantial price volatility and may remain volatile. For example, the closing price of the Class C stock ranged from $43.02 per share to $83.55 per share during 2020. The trading price may fluctuate in response to various factors, including short sales, hedging, the presence or absence of a share repurchase program, stock market influences in general that are unrelated to Farmer Mac's operating performance (including COVID-19), or sales of significant amounts of the stock by large holders. Farmer Mac typically grants equity awards each year that are based on the Class C stock, including grants that vest over time or upon the achievement of specified performance goals. Sales of stock acquired upon vesting or the exercise of equity awards by Farmer Mac's officers, directors, or employees, whether under an established trading plan or otherwise, could adversely affect the trading price of the Class C stock. All of these factors may be exacerbated during periods of low trading volume for Farmer Mac's Class C stock, which averaged 53,700 shares daily during 2020, and may have a prolonged negative effect on its trading price or increase price volatility. 44 Regulatory and Compliance Risk Farmer Mac and many of its business partners are subject to comprehensive government regulation, and changes to applicable laws and regulations could adversely affect Farmer Mac's business, operating results, reputation, or financial condition. Farmer Mac was established under a statutory charter that the U.S. Congress may amend at any time and is regulated by various government agencies, including the FCA and the SEC. Farmer Mac is therefore exposed to the risk of legal or regulatory penalties; material financial loss including fines, judgments, damages, or settlements; or loss of reputation if it violates applicable laws, regulations, rules, regulatory requests, self-regulatory organization standards, or codes of conduct applicable to its business activities. Future legislative or regulatory actions affecting Farmer Mac's statutory charter or its business activities, including increased regulatory supervision, and any required changes to Farmer Mac's business or operations resulting from such actions, could result in a financial loss for Farmer Mac or otherwise reduce its profitability, impose more compliance and other costs on Farmer Mac, limit the products offered by Farmer Mac or its ability to pursue business opportunities in which it might otherwise consider engaging, curtail business activities in which it is currently engaged, affect the value of assets that Farmer Mac holds, or otherwise adversely affect Farmer Mac's business, results of operations, reputation, or financial condition. The financial services industry, in which most of Farmer Mac's business counterparties and customers operate, is subject to significant legislation and regulations. To the extent that current or future legislation, regulations, or supervisory activities affect the activities of banks, insurance companies, other rural lenders, derivatives counterparties, clearinghouses, securities dealers, or other regulated entities that constitute a large portion of Farmer Mac's business counterparties or customers, Farmer Mac could experience loss of business or business opportunities, increased compliance costs, disadvantageous business terms in its dealings with counterparties, and unfavorable changes to its business practices or activities. As a result, Farmer Mac's business, operating results, reputation, or financial condition could be adversely affected. Farmer Mac's capital requirements may change, and failure to meet those requirements could result in supervisory measures or the inability of Farmer Mac to declare dividends, or otherwise materially and adversely affect Farmer Mac's business, operating results, or financial condition. Farmer Mac is required by statute and regulation to maintain certain capital levels. Any inability by Farmer Mac to meet these capital requirements could result in supervisory measures by FCA, adversely affect Farmer Mac's ability to declare dividends on its common and preferred stock, or otherwise materially and adversely affect Farmer Mac's business, operating results, or financial condition. As required by an FCA regulation on capital planning, Farmer Mac has adopted a policy to maintain a sufficient level of Tier 1 capital and to restrict paying Tier 1-eligible dividends if Tier 1 capital falls below specified thresholds. For more information about Farmer Mac's capital requirements, including the Tier 1 capital requirement, see "Business—Government Regulation of Farmer Mac—Regulation—Capital Standards." Factors that could adversely affect the adequacy of Farmer Mac's capital levels in the future, and which may be beyond Farmer Mac's control, include: • credit losses; • adverse changes in interest rates or credit spreads; • the need to increase the level of the allowance for losses on loans; 45 • legislative or regulatory actions that increase Farmer Mac's capital requirements; and • changes in GAAP. Political Risk Farmer Mac is a GSE that may be materially and adversely affected by legislative or political developments. Farmer Mac is a GSE with a statutory charter that may be amended by Congress at any time, and is also regulated by government agencies, including the FCA and the SEC. Although Farmer Mac is not aware of any pending legislative or regulatory proposals that would materially impact its business or operations, Farmer Mac's ability to effectively conduct its business is subject to risks and uncertainties related to political developments that could affect Farmer Mac or GSEs generally. These political risks and uncertainties may be heightened under a new Congress or Presidential administration. Farmer Mac cannot predict whether or when legislative or regulatory initiatives may commence that, if successful, could negatively affect the status of Farmer Mac as a GSE or how Farmer Mac operates, and which could have a material and adverse effect on Farmer Mac's business, operating results, financial condition, or capital levels. See "Business—Government Regulation of Farmer Mac" for more information about the rules and regulations governing Farmer Mac's activities. Human Capital Risk Farmer Mac's ability to attract and retain motivated and qualified employees is critical to the success of its business, and significant or sustained disruption in the continuity of Farmer Mac's employees or executive leaders may materially adversely affect Farmer Mac's business performance, operations, financial condition, or reputation. Farmer Mac relies on its employees' breadth and depth of knowledge of Farmer Mac and related industries to run its business operations successfully. If Farmer Mac cannot continue to retain and attract motivated and qualified employees or does not have adequate human capital to achieve its business objectives, Farmer Mac's business performance, operations, financial condition, or reputation could be materially adversely affected. A significant disruption in the continuity of Farmer Mac's employees or any significant executive leadership change could also result in a loss of productivity and affect Farmer Mac's ability to successfully execute business strategies by creating uncertainty or instability or requiring Farmer Mac to divert or expend more resources to replace personnel. For example, after the termination of employment of Farmer Mac's former Chief Financial Officer in July 2019 and resignation of Farmer Mac's former Chief Credit Officer in February 2020, Farmer Mac expended significant resources and attention to identify their successors. Loss of key leadership personnel could also damage the public or market perception of Farmer Mac or result in the departure of other executives or key employees. Any of these factors could materially adversely affect Farmer Mac's business performance, operations, financial condition, or reputation. Any of the risks described in this section could materially and adversely affect Farmer Mac's business, operating results, financial condition, reputation, capital levels, and future earnings. For more information about Farmer Mac's risk management, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management" in Item 7 of this Annual Report on Form 10-K. 46 Item 1B. Unresolved Staff Comments None. Item 2. Properties Farmer Mac maintains its principal office at 1999 K Street, N.W., 4th Floor, Washington, D.C. 20006, under a sublease that began on October 1, 2011 and ends on August 30, 2024. Farmer Mac also maintains one other office location at 9169 Northpark Drive, Johnston, Iowa 50322, under a lease that began on October 1, 2017 and ends on June 30, 2023. Farmer Mac believes that its offices are suitable and adequate for its current and anticipated needs for the near future. Farmer Mac's activities at each property encompass all of its operating segments. Item 3. Legal Proceedings None. Item 4. Mine Safety Disclosures Not applicable. 47 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases for Equity Securities (a) Farmer Mac has three classes of common stock outstanding – Class A voting common stock, Class B voting common stock, and Class C non-voting common stock. Ownership of Class A voting common stock is restricted to banks, insurance companies, and other financial institutions or similar entities that are not institutions of the FCS. Ownership of Class B voting common stock is restricted to institutions of the FCS. There are no ownership restrictions on the Class C non-voting common stock. In the original public offering of the Class A and Class B voting common stock, Farmer Mac reserved the right to redeem at book value any shares of either class held by an ineligible holder. Farmer Mac's Class A voting common stock and Class C non-voting common stock are listed on the New York Stock Exchange under the symbols AGM.A and AGM, respectively. The Class B voting common stock, which has a limited market and trades infrequently, is not listed or quoted on any exchange or other quotation system, and Farmer Mac is not aware of any publicly available quotations or prices for that class of common stock. As of February 8, 2021, Farmer Mac had 889 registered owners of the Class A voting common stock, 77 registered owners of the Class B voting common stock, and 839 registered owners of the Class C non-voting common stock. The dividend rights of all three classes of Farmer Mac's common stock are the same, and dividends may be paid on common stock only when, as, and if declared by Farmer Mac's board of directors in its sole discretion, subject to compliance with applicable capital requirements and payment of dividends on any outstanding preferred stock. On February 19, 2019, Farmer Mac's board of directors declared a dividend of $0.70 per share on Farmer Mac's common stock payable for first quarter 2019. That dividend was paid quarterly through fourth quarter 2019. On February 24, 2020, Farmer Mac's board of directors declared a dividend of $0.80 per share on Farmer Mac's common stock payable for first quarter 2020. That dividend was paid quarterly through fourth quarter 2020. On February 23, 2021, Farmer Mac's board of directors declared a dividend of $0.88per share on Farmer Mac's common stock payable for first quarter 2021. See "Business—Financing—Equity Issuance" for more information on Farmer Mac's common stock. The quarterly dividend of $0.88 per share on all three classes of common stock for first quarter 2021 represents an increase of $0.08 per common share, or 10%, over the quarterly dividend payout in 2020 and reflects the board's goal to maintain Farmer Mac's common stock dividend payout target as a percentage of annual core earnings at 35%. In deciding to maintain Farmer Mac's common stock dividend payout target, the board of directors considered Farmer Mac's strong capital position and the consistency of and outlook for earnings, balanced against the need for capital to fund the significant growth objectives identified in the company's strategic plan and to meet regulatory requirements and metrics established by the board of directors. These actions are also consistent with Farmer Mac's goal of providing a competitive return on its common stockholders' investments through the payment of cash dividends. The declaration and payment of future dividends to holders of Farmer Mac's common stock are, however, at the discretion of Farmer Mac's board of directors and depend on many factors, including Farmer Mac's financial condition, actual results of operations and earnings, the capital needs of Farmer Mac's business, regulatory requirements, and other factors that Farmer Mac's board deems relevant. Farmer Mac's ability 48 to pay dividends on its common stock is also subject to the payment of dividends on its outstanding preferred stock. Applicable FCA regulations also require Farmer Mac to provide FCA with 15 days' advance notice of certain capital distributions. Farmer Mac's ability to declare and pay dividends could be restricted if it were to fail to comply with applicable capital requirements. See Note 9 to the consolidated financial statements for more information about Farmer Mac's capital position and see "Business—Government Regulation of Farmer Mac—Regulation—Capital Standards" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Requirements" for more information on the capital requirements applicable to Farmer Mac. Information about securities authorized for issuance under Farmer Mac's equity compensation plans appears under "Equity Compensation Plans" in Farmer Mac's definitive proxy statement to be filed on or about April 5, 2021. That portion of the definitive proxy statement is incorporated by reference into this Annual Report on Form 10-K. Farmer Mac is a federally chartered instrumentality of the United States, and its common stock is exempt from registration under Section 3(a)(2) of the Securities Act. One type of transaction related to Farmer Mac's common stock occurred during fourth quarter 2020 that was not registered under the Securities Act and not otherwise reported on a Current Report on Form 8-K: • On October 2, 2020, consistent with Farmer Mac's policy that permits directors of Farmer Mac to elect to receive shares of Class C non-voting common stock in lieu of their cash retainers, Farmer Mac issued an aggregate of 187 shares of Class C non-voting common stock to the four directors who elected to receive such stock in lieu of a portion of their cash retainers. The number of shares issued to the directors was calculated based on a price of $63.66 per share, which was the closing price of the Class C non-voting common stock on September 30, 2020, the last business day of the third quarter, as reported by the New York Stock Exchange. Performance Graph . The following graph compares the performance of Farmer Mac's Class A voting common stock and Class C non-voting common stock with the performance of the New York Stock Exchange Composite Index ("NYSE Comp") and the Standard & Poor's 500 Diversified Financials Index ("S&P 500 Div Fin") over the period from December 31, 2015 to December 31, 2020. The graph assumes that $100 was invested on December 31, 2015 in each of: Farmer Mac's Class A voting common stock; Farmer Mac's Class C non-voting common stock; the NYSE Composite Index; and the S&P 500 Diversified Financials Index. The graph also assumes that all dividends were reinvested into the same securities throughout the past five years. Farmer Mac obtained the information in the performance graph from S&P Global Market Intelligence. 49 This performance graph shall not be deemed to be "soliciting material" or to be "filed" with the SEC, and this performance graph shall not be incorporated by reference into any of Farmer Mac's filings under the Securities Act or the Securities Exchange Act of 1934 and related regulations, or any other document, whether made before or after the date of this report and despite any general incorporation language contained in a filing or document (except to the extent Farmer Mac specifically incorporates this section by reference into a filing or document). (b) Not applicable. (c) None. Item 6. Selected Financial Data No longer required. Reference is made to "Item 8—Financial Statements." 50 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The objective of this section of the report is to provide a discussion and analysis, from management’s perspective, of the material information necessary to assess Farmer Mac's financial condition and results of operations for the year ended December 31, 2020. Financial information 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 Farmer Mac's consolidated financial statements and the related notes to the consolidated financial statements for the fiscal years ended December 31, 2020, 2019, and 2018. Overview The discussion below of Farmer Mac's financial information includes "non-GAAP measures," which are measures of financial performance 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." COVID-19 Update Farmer Mac continues to closely monitor the effects of the COVID-19 pandemic on our financial condition and operations. We have operated uninterrupted and entirely remotely since March 2020, and our liquidity levels remain well above regulatory requirements, which has enabled us to execute our mission to support rural America during the pandemic. During 2020: • we maintained uninterrupted access to the debt capital markets; • we provided a total of $5.7 billion in liquidity and lending capacity to lenders serving rural America; • we worked with our loan servicers and other partners to respond to and facilitate COVID-19-related payment deferment requests from borrowers and executed COVID-19 payment deferments for $432.0 million of unpaid principal balance on Farm & Ranch loans, Farm & Ranch LTSPCs, and USDA Securities to provide relief to borrowers; • we continued to maintain strong liquidity in our investment portfolio, as evidenced by our year-end cash position of $1.0 billion; and • we built and preserved capital and liquidity by issuing net new preferred stock of $139.5 million and indefinitely suspending our common stock repurchase program. The economic impacts of the COVID-19 pandemic caused our total allowance for credit losses to remain elevated at the end of 2020. 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. 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 $8.1 million credit loss provision that we recorded during 2020, $1.0 million was attributable to economic factors, mostly related to COVID-19. For more information about the effect of COVID-19 on Farmer Mac's expected credit losses, see "Management's Discussion and 51 Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans & Guarantees." 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." 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 differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value fluctuations and specified infrequent or unusual transactions. Table 1 For the Years Ended December 31, 2020 2019 2018 (in thousands) Net income attributable to common stockholders $ 89,176 $ 93,650 $ 94,898 Core earnings 100,612 93,742 84,047 The $4.5 million decrease in net income attributable to common stockholders for 2020 compared to 2019 was primarily due to a $7.5 million after-tax increase in operating expenses, a $4.4 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates, a $3.9 million increase in preferred stock dividends, and a $3.6 million after-tax increase in the total provision for credit losses. These decreases were partially offset by a $13.8 million after-tax increase in net interest income and a $1.3 million after-tax increase in other income. The $1.2 million decrease in net income attributable to common stockholders for 2019 compared to 2018 was due to a $2.5 million after-tax increase in the provision for loan losses, a $1.6 million after-tax increase in operating expenses, a $1.0 million after-tax decrease in net interest income, and a $0.8 million increase in preferred stock dividends. These factors were partially offset by a $7.1 million after-tax increase in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates. The $6.9 million increase in core earnings for 2020 compared to 2019 was primarily due to a $22.4 million after-tax increase in net effective spread. This increase was partially offset by a $7.5 million after-tax increase in operating expenses, a $3.9 million increase in preferred stock dividends, and a $3.6 million after-tax increase in the total provision for credit losses. The $9.7 million increase in core earnings for 2019 compared to 2018 was primarily due to a $13.8 million after-tax increase in net effective spread driven by higher business volume, partially offset by a $2.5 million after-tax increase in the provision for loan losses and a $1.6 million after-tax increase in operating expenses. 52 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." 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 Years Ended December 31, 2020 2019 2018 (in thousands) Net interest income $ 190,588 $ 173,135 $ 174,436 Net interest yield % 0.85 % 0.87 % 0.96 % Net effective spread 196,956 168,608 151,195 Net effective spread % 0.93 % 0.91 % 0.91 % The $17.5 million increase in net interest income for 2020 compared to 2019 was primarily due to a $23.2 million increase related to new business volume. This was partially offset by a $4.1 million increase in funding and liquidity costs and a $1.3 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives). In percentage terms, the decrease of 0.02% in net interest income yield was primarily attributable to an increase of 0.05% in funding and liquidity costs and 0.01% in net fair value changes from designated financial derivatives, partially offset by an increase of 0.04% related to new business volume. The $1.3 million decrease in net interest income in 2019 compared to 2018 was due to a $12.8 million decrease in net fair value changes from fair value hedge accounting relationships and a $5.2 million increase in funding and liquidity costs. These factors were partially offset by $15.1 million in net new business volume across all lines of business, the change in composition of existing Institutional Credit business volume and $1.6 million in various interest income fluctuations primarily related to prepayment activity. The 0.09% decrease in percentage terms was primarily attributable to a 0.06% decrease in net fair value changes from fair value hedge accounting relationships and a 0.05% increase in funding and liquidity costs, partially offset by a 0.01% increase from business volume. The $28.3 million increase in net effective spread in dollars for 2020 compared to 2019 was primarily due to new business volume, which increased net effective spread by approximately $23.2 million, and a $4.6 million decrease in non-GAAP funding costs. In percentage terms, the increase of 0.02% was primarily attributable to new business volume. The $17.4 million increase in net effective spread in dollars for 2019 compared to 2018 was due to a $14.2 million increase from net new business volume across all lines of business, the change in 53 composition of existing Institutional Credit business volume, a $1.6 million increase in various interest income fluctuations primarily related to prepayment activity, and a $1.6 million decrease in non-GAAP funding costs. In percentage terms, net effective spread was 0.91% in both 2019 and 2018, as the increase from the absence of the amortization of $2.0 million in premium of an interest-only security held in Farmer Mac's investment portfolio (the "Interest-Only Amortization") was offset by the decrease from narrower spreads on liquidity investment securities. 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." Business Volume Our outstanding business volume was $21.9 billion as of December 31, 2020, a net increase of $806.2 million from December 31, 2019 after taking into account all new business, maturities, and paydowns on existing assets. This net increase was primarily attributable to net increases of $804.2 million in Farm & Ranch, $536.3 million in Rural Utilities, and $166.5 million in USDA Guarantees. These net increases were partially offset by a net decrease of $700.9 million in the Institutional Credit line of business. The $804.2 million net increase in our Farm & Ranch line of business reflected a $1.2 billion net increase in outstanding loan purchase volume that was partially offset by net decreases of $313.9 million in loans held in consolidated trusts and $95.7 million in loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities. The $536.3 million net increase in our Rural Utilities line of business reflected a $589.1 million net increase in outstanding loan purchase volume that was partially offset by a $52.9 million net decrease in loans under LTSPCs. The $700.9 million net decrease in our Institutional Credit line of business was primarily attributable to maturities of $2.0 billion in our Institutional Credit line of business that was only partially offset by new business. 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." 54 Capital Table 3 As of December 31, 2020 December 31, 2019 (in thousands) Core capital $ 1,006,400 $ 815,437 Capital in excess of minimum capital level required 325,455 196,669 The increase in capital in excess of the minimum capital level required was primarily due to the 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 redemption of the Series A Preferred Stock. 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 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 year ended December 31, 2020 was affected by the ongoing economic effects of the COVID-19 pandemic. As of December 31, 2020, Farmer Mac's allowance for losses on its on-balance sheet loan portfolio was $13.8 million (0.16% 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 year ended December 31, 2020, Farmer Mac recorded a provision to its allowance for loan losses of $7.7 million. Farmer Mac also recorded a direct charge-off of $5.8 million from the allowance. The charge-off was primarily related to a Farm & Ranch agricultural storage & processing loan secured by a specialized poultry facility. As of December 31, 2020, Farmer Mac's reserve for losses on its off-balance sheet LTSPCs and Guaranteed Securities was $3.3 million (0.10% 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) as of December 31, 2019. As of January 1, 2020, Farmer Mac recorded a cumulative transition adjustment of $0.9 million. For the year ended December 31, 2020, Farmer Mac recorded a provision to its reserve for its off-balance sheet portfolio of $0.3 million. 55 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 December 31, 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) December 31, 2020 $ 180,823 2.9 % $ 110,671 4.6 % December 31, 2019 207,078 3.9 % 102,877 4.1 % Increase/(decrease) from prior year-ending $ (26,255) (1.0) % $ 7,794 0.5 % The decrease of $26.3 million in on-balance sheet substandard assets during 2020 was primarily driven by credit upgrades during the year, particularly in permanent plantings, livestock, and crops. The on-balance sheet Farm & Ranch portfolio grew by $899.9 million which, when coupled with credit upgrades, and charge-offs, caused the percentage of substandard assets to decrease. The $7.8 million increase in substandard assets in our off-balance sheet Farm & Ranch portfolio during 2020 was primarily due to credit downgrades in the livestock portfolio during the year. There were no substandard assets in the Rural Utilities portfolio as of both December 31, 2020 and 2019. 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." 56 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 December 31, 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) December 31, 2020 $ 34,799 0.56 % $ 11,433 0.48 % December 31, 2019 57,719 1.09 % 3,235 0.13 % Increase/(decrease) from prior year-ending $ (22,920) (0.53) % $ 8,198 0.35 % On-balance sheet Farm & Ranch loans 90 or more days delinquent decreased in permanent plantings, livestock, crops, and part-time farms, offset by an increase in agricultural storage and processing attributable to the single loan secured by a specialized poultry facility. Off-balance sheet Farm & Ranch loans 90 days or more delinquent increased in crops and part-time farms, offset by decreases in livestock and permanent plantings. The top ten borrower exposures over 90 days delinquent in either the on- or off-balance sheet portfolio represented over half of the aggregate 90-day delinquencies as of December 31, 2020. There were no delinquencies in the Rural Utilities portfolio as of both December 31, 2020 and 2019. 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." Critical Accounting Policies and Estimates The preparation of Farmer Mac's consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes for the periods presented. Actual results could differ from those estimates. Farmer Mac views the allowance for losses and fair value measurement as critical accounting policies. Both policies require complex and subjective judgments and are important to the presentation of Farmer Mac's financial condition and results of operations. Allowance for Losses On January 1, 2020, Farmer Mac adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ("CECL"). Under CECL, Farmer Mac's allowance for credit losses represents the difference between the carrying amount of the related financial instruments and the present value of their expected cash flows discounted at their effective interest rates, as of the respective balance sheet date. Under CECL, Farmer Mac's reserve for credit losses represents the difference between the outstanding amount of off-balance sheet credit exposures and the present value of their expected cash flows discounted at their effective interest rates. 57 Farmer Mac maintains an allowance for credit losses to cover current expected credit losses as of the balance sheet date for on-balance sheet investment securities, loans held for investment, and Farmer Mac Guaranteed Securities (collectively, "allowance for losses"). Additionally, Farmer Mac maintains a reserve for credit losses to cover current expected credit losses as of the balance sheet date for off-balance sheet loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities (collectively, "reserve for losses"). Both the allowance for losses and reserve for losses are based on historical information and reasonable and supportable forecasts. Farmer Mac has never experienced a credit loss in its Rural Utilities line of business. Upon the adoption of CECL, Farmer Mac is now required to measure its expected credit losses for the expected life of all financial instruments, including its Rural Utilities loans. To estimate expected credit losses on these loans, Farmer Mac relies upon industry historical credit loss data from ratings agencies and publicly available information as disclosed in the securities filings of other major lenders who serve the utilities industry. The allowance for losses increases through periodic provisions for loan losses that are charged against net interest income and the reserve for losses increases through provisions for losses that are charged to non-interest expense. Both the allowance for losses and reserve for losses are decreased by charge-offs for realized losses, net of recoveries. Releases from the allowance for losses or reserve for losses occur when the estimate of expected credit losses as of the end of a period is less than the estimate at the beginning of the period. The total allowance for losses consists of the allowance for losses and the reserve for losses. Charge-offs Farmer Mac records a charge-off from the allowance for losses when either a) a loan, or a portion of a loan, is deemed uncollectible; or b) a loss has been confirmed through the receipt of assets, generally the underlying collateral, in full satisfaction of the loan. The charge-off equals the excess of the recorded investment in the loan over the fair value of the collateral less estimated selling costs. Estimation Methodology Farmer Mac bases its methodology for determining its current estimate of expected losses on a statistical model, which incorporates credit loss history and reasonable and supportable forecasts. Farmer Mac's estimation methodology includes the following key components: • An economic model for each portfolio, including Farm & Ranch, Rural Utilities, and Institutional Credit; • A migration matrix for each portfolio that reasonably predicts the movement of each financial asset among various risk categories over the course of each asset's expected life (the migration matrix forms the basis for our estimate of the probability of default of each financial asset); • A loss-given-default ("LGD") model that reasonably predicts the amount of loss that Farmer Mac would incur upon the default of each financial asset; • An economic factor forecast that updates the migration matrix model and the LGD model with current assumptions for the economic indicators that Farmer Mac has determined are most correlated with or relevant to the performance of each portfolio of assets (including Gross Domestic Product ("GDP"), credit spreads, unemployment rates, land values, and commodity prices); and 58 • A discounted cash flow analysis, which relies upon each of the above model outputs, plus the contractual terms of each financial asset, and the effective interest rate of each financial asset. Management evaluates these assumptions by considering many relevant factors, including: • economic conditions; • geographic and agricultural commodity/product concentrations in the portfolio; • the credit profile of the portfolio, including risk ratings and financial metrics; • delinquency trends of the portfolio; • historical charge-off and recovery activities of the portfolio; and • other factors to capture current portfolio trends and characteristics that differ from historical experience. Management believes that its methodology produces a reasonable estimate of expected credit losses, as of the balance sheet date, for the expected life of all of the company's financial assets. Allowance for Loss on Available-for-Sale (AFS) Securities To measure current expected credit losses on impaired AFS securities, Farmer Mac first considers those impaired securities that: 1) Farmer Mac does not intend to sell, and 2) it is not more likely than not that Farmer Mac will be required to sell before recovering its amortized cost basis. In assessing whether a credit loss exists, Farmer Mac compares the present value, discounted at the security's effective interest rate, of cash flows expected to be collected from an impaired AFS debt security to its amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis of the impaired security, a credit loss exists and Farmer Mac records an allowance for loss for that credit loss. However, the amount of that allowance is limited by the amount that the security’s fair value is less than its amortized cost basis. Accrued interest receivable is recorded separately on the Consolidated Balance Sheet, and the allowance for credit losses excludes uncollectible accrued interest receivable. Collateral Dependent Assets ("CDAs") CDAs are loans, loans underlying LTSPCs, or off-balance sheet credit exposures in which the borrower is either in foreclosure or is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral by Farmer Mac. Farmer Mac estimates the current expected credit loss on CDAs based upon the appraised value of the collateral, the costs to sell it, and any applicable credit protection such as a guarantee. 59 COVID-19 Payment Deferments The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law on March 27, 2020. Section 4013 of the CARES Act titled “Temporary Relief from Troubled Debt Restructurings” provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings (“TDRs”) for a limited period of time to account for the effects of the COVID-19 pandemic. On April 10, 2020, Farmer Mac’s prudential regulator, FCA (through OSMO) issued guidance to Farmer Mac on loan servicing and reporting TDRs for lines of business affected by the COVID-19 outbreak. This guidance was consistent with the guidance provided by other financial regulatory agencies and the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to the COVID-19 national emergency are not TDRs when the borrower was not past due on loan payments before the March 13, 2020 presidential proclamation declaring the COVID-19 outbreak a national emergency. During second quarter 2020, Farmer Mac implemented the guidance from FCA by granting up to 6-month payment deferments to borrowers who have been economically impacted by the COVID-19 pandemic. Farmer Mac deems loans under a COVID-19 payment deferment not to be past due and continues to accrue interest on those loans. Furthermore, Farmer Mac does not consider a payment deferment on any such loan to be a troubled debt restructuring. In estimating expected credit losses on Farm & Ranch loans held for investment, Farmer Mac does consider payment deferments along with other available credit and economic information that pertains to that portfolio. More information about the allowance for losses is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees" and Note 2(g) to the consolidated financial statements. Fair Value Measurement A significant portion of Farmer Mac's assets consists of financial instruments that are measured at fair value in the consolidated balance sheets. For financial instruments that are complex in nature or for which observable inputs are not available, the measurement of fair value requires management to make significant judgments and assumptions. These judgments and assumptions, as well as changes in market conditions, may have a material effect on the consolidated balance sheets and statements of operations. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price) and establishes a hierarchy for ranking fair value measurements. In determining fair value, Farmer Mac uses various valuation approaches, including market and income approaches. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. When available, the fair value of Farmer Mac's financial instruments is based on quoted market prices, valuation techniques that use observable market-based inputs, or unobservable inputs that are corroborated by market data. Pricing information obtained from third parties is internally validated for reasonableness before use in the consolidated financial statements. When observable market prices are not readily available, Farmer Mac estimates fair value using techniques that rely on alternate market data or internally developed models using significant inputs that are generally less readily observable. Market data includes prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility, and prepayment rates. If market data needed to estimate fair value is not available, Farmer Mac estimates fair value using 60 internally-developed models that employ a discounted cash flow approach. Even when market assumptions are not readily available, Farmer Mac's assumptions reflect those that market participants would likely use in pricing the asset or liability at the measurement date. Farmer Mac's assets and liabilities presented at fair value in the consolidated balance sheets on a recurring basis include investment securities, Farmer Mac Guaranteed Securities, and financial derivatives. The changes in fair value from period to period are recorded either in the consolidated statements of comprehensive income as other comprehensive (loss)/income, net of tax or in the consolidated statements of operations as gains/(losses) on financial derivatives, net interest income, or gains/(losses) on trading assets. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The hierarchy has the following three levels to classify fair value measurements: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly. Level 3 Prices or valuations that require unobservable inputs that are significant to the fair value measurement. As of December 31, 2020, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $7.0 billion whose fair values were estimated by management in the absence of readily determinable fair values (i.e., level 3). These financial instruments measured as level 3 represented 29 % of total assets and 65 % of financial instruments measured at fair value as of December 31, 2020. See Note 13 to the consolidated financial statements for more information about fair value measurement. 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. 61 Core Earnings and Core Earnings Per Share The main difference between core earnings and core earnings per share (non-GAAP measures) and net income attributable to common stockholders and earnings per common share (GAAP measures) is that those non-GAAP measures exclude 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. Another difference is that these two non-GAAP measures exclude 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 and core earnings per share any losses on retirement of preferred stock. 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. As further explained below, net effective spread differs from net interest income and net interest yield by excluding certain items from net interest income and net interest yield and including certain other items that net interest income and net interest yield do not contain. 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 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 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. 62 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: 63 Table 6 Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings For the Year Ended December 31, 2020 2019 2018 (in thousands, except per share amounts) Net income attributable to common stockholders $ 89,176 $ 93,650 $ 94,898 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (3,691) 10,077 7,959 (Losses)/gains on hedging activities due to fair value changes (10,019) (9,010) 4,449 Unrealized gains on trading securities 51 326 81 Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 58 (122) (461) Net effects of terminations or net settlements on financial derivatives 1,236 1,089 1,708 Issuance costs on the retirement of preferred stock (1,667) (1,956) — Income tax effect related to reconciling items 2,596 (496) (2,885) Sub-total (11,436) (92) 10,851 Core earnings $ 100,612 $ 93,742 $ 84,047 Composition of Core Earnings: Revenues: Net effective spread (1) $ 196,956 $ 168,608 $ 151,195 Guarantee and commitment fees (2) 19,150 21,335 20,733 Other (3) 2,687 1,775 520 Total revenues 218,793 191,718 172,448 Credit related expense (GAAP): Provision for losses 8,055 3,501 335 REO operating expenses — 64 16 (Gains)/losses on sale of REO (463) — 7 Total credit related expense 7,592 3,565 358 Operating expenses (GAAP): Compensation and employee benefits 36,502 28,762 27,534 General and administrative 21,976 20,311 19,707 Regulatory fees 2,925 2,788 2,562 Total operating expenses 61,403 51,861 49,803 Net earnings 149,798 136,292 122,287 Income tax expense (4) 31,381 28,610 25,058 Preferred stock dividends (GAAP) 17,805 13,940 13,182 Core earnings $ 100,612 $ 93,742 $ 84,047 Core earnings per share: Basic $ 9.38 $ 8.76 $ 7.89 Diluted 9.33 8.70 7.82 Weighted-average shares: Basic 10,728 10,696 10,654 Diluted 10,786 10,778 10,746 (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. 64 (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 Year Ended December 31, 2020 2019 2018 GAAP - Basic EPS $ 8.31 $ 8.76 $ 8.91 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.34) 0.94 0.75 (Losses)/gains on hedging activities due to fair value changes (0.94) (0.83) 0.41 Unrealized gains on trading securities — 0.03 0.01 Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 0.01 (0.01) (0.04) Net effects of terminations or net settlements on financial derivatives 0.12 0.10 0.16 Issuance costs on the retirement of preferred stock (0.16) (0.18) — Income tax effect related to reconciling items 0.24 (0.05) (0.27) Sub-total (1.07) — 1.02 Core Earnings - Basic EPS $ 9.38 $ 8.76 $ 7.89 Shares used in per share calculation (GAAP and Core Earnings) 10,728 10,696 10,654 Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings - Diluted Earnings Per Share For the Year Ended December 31, 2020 2019 2018 GAAP - Diluted EPS $ 8.27 $ 8.69 $ 8.83 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.34) 0.93 0.74 (Losses)/gains on hedging activities due to fair value changes (0.93) (0.83) 0.41 Unrealized gains on trading securities — 0.03 0.01 Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 0.01 (0.01) (0.04) Net effects of terminations or net settlements on financial derivatives 0.11 0.10 0.16 Issuance costs on the retirement of preferred stock (0.15) (0.18) — Income tax effect related to reconciling items 0.24 (0.05) (0.27) Sub-total (1.06) (0.01) 1.01 Core Earnings - Diluted EPS $ 9.33 $ 8.70 $ 7.82 Shares used in per share calculation (GAAP and Core Earnings) 10,786 10,778 10,746 65 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 Year Ended December 31, 2020 2019 2018 (Losses)/gains due to fair value changes (see Table 6.2) $ (9,184) $ (7,907) $ 4,941 Initial cash payment (received) at inception of swap (835) (1,103) (492) (Losses)/gains on hedging activities due to fair value changes $ (10,019) $ (9,010) $ 4,449 2. Unrealized gains 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. The net effects of 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. 5. The recognition of deferred issuance costs on the retirements of the Series A Preferred Stock in third quarter 2020 and Series B Preferred Stock in second quarter 2019 has been excluded from core earnings because they are not frequently occurring transactions, nor are they indicative of future operating results. 66 This is consistent with Farmer Mac's previous treatment of deferred issuance costs associated with the retirement of preferred stock. The next eligible preferred stock redemption date is in third quarter 2024. 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 years ended December 31, 2020, 2019, and 2018. 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 Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Average Balance Income/ Expense Average Rate Average Balance Income/ Expense Average Rate Average Balance Income/ Expense Average Rate (dollars in thousands) Interest-earning assets: Cash and investments $ 4,180,158 $ 42,144 1.01 % $ 3,218,286 $ 81,522 2.53 % $ 2,723,136 $ 55,179 2.03 % Loans, Farmer Mac Guaranteed Securities and USDA Securities (1) 16,950,819 407,296 2.40 % 15,214,248 502,694 3.30 % 13,917,222 434,585 3.12 % Total interest-earning assets 21,130,977 449,440 2.13 % 18,432,534 584,216 3.17 % 16,640,358 489,764 2.94 % Funding: Notes payable due within one year 3,937,104 24,242 0.62 % 3,758,256 86,031 2.29 % 3,412,019 62,447 1.83 % Notes payable due after one year (2) 16,869,918 241,211 1.43 % 14,116,085 332,719 2.36 % 12,501,093 259,638 2.08 % Total interest-bearing liabilities (3) 20,807,022 265,453 1.28 % 17,874,341 418,750 2.34 % 15,913,112 322,085 2.02 % Net non-interest-bearing funding 323,955 — 558,193 — 727,246 — Total funding 21,130,977 265,453 1.26 % 18,432,534 418,750 2.27 % 16,640,358 322,085 1.94 % Net interest income/yield prior to consolidation of certain trusts 21,130,977 183,987 0.87 % 18,432,534 165,466 0.90 % 16,640,358 167,679 1.01 % Net effect of consolidated trusts (4) 1,396,850 6,601 0.47 % 1,544,052 7,669 0.50 % 1,443,394 6,757 0.47 % Net interest income/yield $ 22,527,827 $ 190,588 0.85 % $ 19,976,586 $ 173,135 0.87 % $ 18,083,752 $ 174,436 0.96 % (1) Excludes interest income of $54.1 million, $60.9 million, and $54.5 million in 2020, 2019, and 2018, 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 $47.5 million, $53.2 million, and $47.8 million in 2020, 2019, and 2018, 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. 67 For 2020 compared to 2019, the $17.5 million increase in net interest income was primarily due to net business volume growth across most lines of business, which contributed $23.2 million to net interest income. This was partially offset by a $4.1 million increase in funding and liquidity costs and a decrease of $1.3 million in net fair value changes from designated financial derivatives as a result of fluctuations in interest rates. In percentage terms, the decrease of 0.02% in net interest income yield was primarily attributable to an increase of 0.05% in funding and liquidity costs and 0.01% in net fair value changes from designated financial derivatives, partially offset by an increase of 0.04% related to new business volume. For 2019 compared to 2018, the $1.3 million decrease in net interest income was due to a $12.8 million decrease in net fair value changes from fair value hedge accounting relationships, a $5.2 million increase in funding and liquidity costs and a $1.7 million decrease in cash-basis interest income. These factors were partially offset by: 1) $15.1 million from business volume, including: • $12.3 million in new business volume, • $1.9 million from the refinancing of existing Institutional Credit business volume at higher spreads, • and $0.9 million from consolidated trusts; and 2) $3.4 million in interest income fluctuations, including: • the absence of $2.0 million from the Interest-Only Amortization, and • the receipt of a $1.4 million prepayment penalty. The decrease of 0.09% was primarily attributable to a decrease of 0.06% in net fair value changes from designated financial derivatives and an increase of 0.05% in funding and liquidity costs, partially offset by an increase of 0.01% from business volume. 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), and then allocated based on the relative size of rate and volume changes from the prior period. Table 10 2020 vs. 2019 2019 vs. 2018 Increase/(Decrease) Due to Increase/(Decrease) Due to Rate Volume Total Rate Volume Total (in thousands) Income from interest-earning assets: Cash and investments $ (58,877) $ 19,499 $ (39,378) $ 15,253 $ 11,090 $ 26,343 Loans, Farmer Mac Guaranteed Securities and USDA Securities (148,159) 52,761 (95,398) 26,158 41,951 68,109 Total (207,036) 72,260 (134,776) 41,411 53,041 94,452 Expense from other interest-bearing liabilities (213,715) 60,418 (153,297) 54,225 42,440 96,665 Change in net interest income prior to consolidation of certain trusts (1) $ 6,679 $ 11,842 $ 18,521 $ (12,814) $ 10,601 $ (2,213) (1) Excludes the effect of debt in consolidated trusts with beneficial interests owned by third parties. 68 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. Table 11 For the Years Ended December 31, 2020 2019 2018 Dollars Yield Dollars Yield Dollars Yield Net interest income/yield $ 190,588 0.85 % $ 173,135 0.87 % $ 174,436 0.96 % Net effects of consolidated trusts (6,601) 0.02 % (7,669) 0.03 % (6,757) 0.04 % Expense related to undesignated financial derivatives 3,468 0.02 % (5,095) (0.03) % (11,685) (0.07) % Amortization of premiums/discounts on assets consolidated at fair value 197 — % 398 — % 417 0.01 % Amortization of losses due to terminations or net settlements on financial derivatives 120 — % (68) — % (275) — % Fair value changes on fair value hedge relationships 9,184 0.04 % 7,907 0.04 % (4,941) (0.03) % Net effective spread $ 196,956 0.93 % $ 168,608 0.91 % $ 151,195 0.91 % For 2020 compared to 2019, the $28.3 million increase in net effective spread in dollars was primarily due to net business volume growth across most lines of business, which contributed $23.2 million to net effective spread, and a $4.6 million decrease in non-GAAP funding costs. In percentage terms, the increase of 0.02% was primarily attributable to new business volume. For 2019 compared to 2018, the $17.4 million increase in net effective spread in dollars was due to: 1) $14.2 million increase from business volume, including: • $12.3 million in net new business volume, • $1.9 million from the refinancing of existing Institutional Credit business volume at higher spreads; 2) $1.6 million in interest income fluctuations, including: • the absence of $2.0 million from the Interest-Only Amortization, • the receipt of a $1.4 million prepayment penalty, • partially offset by a $1.7 million decrease in cash-basis interest income; and 3) $1.6 million decrease in non-GAAP funding costs. 69 In percentage terms, net effective spread remained at 0.91% in both 2019 and 2018 primarily because the increase from the absence of the Interest-Only Amortization was offset by the decrease from narrower spreads on liquidity investment securities. See Note 14 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. 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 each year in the three-year period ended December 31, 2020: Table 12 Allowance for Losses Reserve for Losses Total Allowance for Losses (in thousands) Balance as of January 1, 2018 $ 6,796 $ 2,070 $ 8,866 Provision for losses 238 97 335 Charge-offs (17) — (17) Balance as of December 31, 2018 $ 7,017 $ 2,167 $ 9,184 Provision for/(release of) losses 3,504 (3) 3,501 Charge-offs (67) — (67) Balance as of December 31, 2019 $ 10,454 $ 2,164 $ 12,618 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 Provision for/(release of) losses 7,810 250 8,060 Charge-offs (5,759) — (5,759) Ending balance $ 14,298 $ 3,277 $ 17,575 During 2020, the allowance and reserve for losses was impacted by the cumulative transition adjustment that we recorded related to the adoption of CECL and provisions for changes in risk ratings, economic factors, and net business volume growth during the year. 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 under the previous accounting standard and (2) the total allowance for losses on January 1, 2020 that reflected expected losses under CECL. The cumulative effect adjustment for credit losses on on-balance sheet assets was $1.8 million after 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 cumulative effect of CECL on the Farm & Ranch portfolio was a reduction in the allowance for losses on those loans and 70 Farmer Mac Guaranteed Securities that reflected 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 after an increase of $1.0 million on Rural Utilities LTSPCs and a decrease of $0.1 million on Farm & Ranch LTSPCs. 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 economic factor forecasts. As of December 31, 2020, our forecasts included the effects of the COVID-19 pandemic on economic factors such as land values, gross domestic product, credit spreads, and unemployment expectations. The economic factor related to unemployment expectations had the most significant impact on our 2020 provision for credit losses, particularly on our estimate of expected losses in the Rural Utilities portfolio. Unemployment expectations did not affect our estimate of expected losses on the Farm & Ranch portfolio as much because of stable farm land values and improved credit quality in the Farm & Ranch portfolio during the year. The provision to Farmer Mac's allowance for losses for on-balance sheet assets was $7.8 million during 2020, reflecting $4.7 million for expected losses on Rural Utilities loans and a provision of $3.0 million on Farm & Ranch loans and Farmer Mac Guaranteed Securities. See Notes 8 and 12 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 years ended December 31, 2020, 2019, and 2018: Table 13 For the Years Ended December 31, 2020 2019 2018 (in thousands) Guarantee and commitment fees $ 12,549 $ 13,666 $ 13,976 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 year ended December 31, 2020 compared to 2019 was primarily due to decreased LTSPC volume. As adjusted for the core earnings presentation, guarantee and commitment fees were $19.2 million for 2020, compared to $21.3 million and $20.7 million for 2019 and 2018, 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." 71 (Losses)/gains on financial derivatives . The components of gains and losses on financial derivatives for the years ended December 31, 2020, 2019, and 2018 are summarized in the following table: Table 14 For the Years Ended December 31, 2020 2019 2018 (in thousands) (Losses)/gains due to fair value changes $ (3,691) $ 10,077 $ 7,958 Accrual of contractual payments 3,468 (5,095) (11,685) (Losses)/gains due to terminations or net settlements (23) 300 40 (Losses)/gains on financial derivatives $ (246) $ 5,282 $ (3,687) 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 years ended December 31, 2020, 2019, and 2018: Table 15 For the Years Ended December 31, 2020 2019 2018 (in thousands) Late fees $ 1,292 $ 1,135 $ 1,258 Other 2,195 769 119 Total other income $ 3,487 $ 1,904 $ 1,377 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. 72 Operating Expenses . The components of operating expenses for the years ended December 31, 2020, 2019, and 2018 are summarized in the following table: Table 16 For the Years Ended December 31, 2020 2019 2018 (in thousands) Compensation and employee benefits $ 36,502 $ 28,762 $ 27,534 General and administrative 21,976 20,311 19,707 Regulatory fees 2,925 2,788 2,562 Total Operating Expenses $ 61,403 $ 51,861 $ 49,803 a. Compensation and Employee Benefits . The increase in compensation and employee benefits expenses for 2020 compared to 2019 was primarily due to increased headcount in the current period, higher bonus expense, and severance payments made to an executive who resigned in first quarter 2020. The increase in compensation and employee benefits in 2019 compared to 2018 was primarily due to hiring of executives and related employee health insurance costs. b. General and Administrative Expenses (G&A) . The increase in G&A expenses for 2020 compared to 2019 was primarily due to increased spending on software licenses and information technology consultants to support growth and strategic initiatives. The increase in G&A expenses in 2019 compared to 2018 was due to various growth, strategic, and compliance initiatives in 2019. Income Tax Expense. The following table presents income tax expense and the effective income tax rate for the years ended December 31, 2020, 2019, and 2018: Table 17 For the Years Ended December 31, 2020 2019 2018 (dollars in thousands) Income tax expense $ 28,785 $ 29,105 $ 27,942 Effective tax rate 20.9 % 20.9 % 20.5 % 73 Business Volume . The following table sets forth the net growth or decrease under Farmer Mac's lines of business for the years ended December 31, 2020, 2019, and 2018: Table 18 Net New Business Volume – Farmer Mac Loan Purchases, Guarantees, LTSPCs, and AgVantage Securities For the Years Ended December 31, 2020 2019 2018 Net Growth/(Decrease) Net Growth/(Decrease) Net Growth/(Decrease) (in thousands) Farm & Ranch: Loans $ 1,213,754 $ 604,418 $ 272,316 Loans held in trusts: Beneficial interests owned by third party investors (313,872) 83,816 117,273 LTSPCs (95,650) (145,257) (23,204) USDA Guarantees: USDA Securities 256,461 83,023 52,537 Farmer Mac Guaranteed USDA Securities (89,918) 21,532 110,870 Rural Utilities: Loans 589,119 732,450 (137,448) LTSPCs (52,853) (43,994) (153,069) Institutional Credit: AgVantage securities (700,887) 357,429 477,939 AgVantage revolving line of credit facility (1) — (300,000) — Total purchases, guarantees, LTSPCs, and AgVantage securities $ 806,154 $ 1,393,417 $ 717,214 (1) During 2019, the facility was drawn on two separate occurrences for $100.0 million and $150.0 million and later repaid. During 2018, $100.0 million of this facility was drawn and later repaid. The facility was terminated during fourth quarter 2019. Our outstanding business volume was $21.9 billion as of December 31, 2020, a net increase of $806.2 million from December 31, 2019 after taking into account all new business, maturities, and repayments on existing assets. This net increase was primarily attributable to net increases of $804.2 million in Farm & Ranch, $536.3 million in Rural Utilities, and $166.5 million in USDA Guarantees. The net increases were partially offset by a net decrease of $700.9 million in the Institutional Credit line of business. The $804.2 million net increase in our Farm & Ranch line of business reflected a $1.2 billion net increase in outstanding loan purchase volume that was partially offset by net decreases of $313.9 million in loans held in consolidated trusts and $95.7 million in loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities. Included in the $1.2 billion net increase in outstanding loan purchase volume is a growing proportion of larger loan exposures (generally loan commitments more than $10 million) to agribusinesses that support agriculture production, food and fiber processing, and other supply chain production. The net growth in 2020 reflected our ability to retain borrowers in a decreasing interest rate environment by proactively engaging with borrowers and adjusting their rates and loan sizes to reflect current market conditions and their specific funding needs. We broadened and deepened our market share as evidenced by gross new loan purchase volume increasing 82%, or $1.1 billion, versus 2019. Of this gross new loan purchase volume, 80% is attributable to active lenders (lenders selling Farmer Mac volume in 2020 and 2019) and 20% is attributable to new or previously inactive lenders. We 74 deepened our relationship with our lenders as evidenced by an 80% increase in the number of lenders selling us loans totaling $1 million or more versus the prior year period. Our net growth of 17.1% in the Farm & Ranch on-balance sheet portfolio over the twelve months ended December 31, 2020 is significantly higher than the 5.0% net growth of the overall agricultural mortgage loan market over the twelve months ended September 30, 2020 (based on our analysis of bank and Farm Credit System call report data). During 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 $166.5 million in 2020. Our gross volume of $777.9 million was the highest gross volume that we have ever recorded in any calendar year. This growth reflected the positive effect of adjustments that we made to our product structure in the second half of 2019 to more effectively meet customer demands in an increasingly competitive environment and in response to increased USDA loan limits permitted by the 2018 Farm Bill. The $700.9 million net decrease in the Institutional Credit line of business during 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. The year-over-year changes in AgVantage securities volume are primarily driven by the generally larger transaction sizes for that product, scheduled maturity amounts, the liquidity needs of Farmer Mac’s AgVantage counterparties, and changes in the pricing and availability of wholesale funding. The $536.3 million net increase in our Rural Utilities line of business reflected a $589.1 million net increase in outstanding loan purchase volume that was partially offset by a $52.9 net decrease in loans under LTSPCs. During 2020, we funded $64.3 million of loans for solar and wind projects as part of our renewable energy strategic initiative. 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 Years Ended December 31, 2020 2019 2018 (in thousands) Loans securitized and sold as Farm & Ranch Guaranteed Securities $ 165,054 $ 263,561 $ 255,078 Farmer Mac Guaranteed USDA Securities — 57,853 127,851 AgVantage securities 1,298,751 2,258,550 3,010,307 Total Farmer Mac Guaranteed Securities Issuances $ 1,463,805 $ 2,579,964 $ 3,393,236 75 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 2020 and 2019 was less than one year. Of those loans, 45% and 50% had principal amortization periods longer than the maturity date, resulting in balloon payments at maturity, with a weighted-average remaining term to maturity of 19.8 years and 14.2 years for each period, respectively. During 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 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 2020, 2019 and 2018, $41.2 million, $163.1 million and $68.7 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 December 31, 2020 2019 2018 (in thousands) Farm & Ranch: Loans $ 4,889,393 $ 3,675,640 $ 3,071,222 Loans held in trusts: Beneficial interests owned by third party investors 1,287,045 1,600,917 1,517,101 LTSPCs 2,325,431 2,393,071 2,509,787 Guaranteed Securities 79,312 107,322 135,862 USDA Guarantees: USDA Securities 2,452,964 2,199,072 2,120,553 Farmer Mac Guaranteed USDA Securities 333,754 421,103 395,067 Rural Utilities: Loans 2,260,412 1,671,293 938,843 LTSPCs 556,425 609,278 653,272 Institutional Credit AgVantage Securities 7,739,359 8,440,246 8,082,817 Revolving floating rate AgVantage facility (1) — — 300,000 Total $ 21,924,095 $ 21,117,942 $ 19,724,524 (1) During 2019, the facility was drawn on two separate occurrences for $100.0 million and $150.0 million and later repaid. During 2018, $100.0 million of this facility was drawn and later repaid. The facility was terminated during fourth quarter 2019. 76 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 December 31, 2020: Table 21 Schedule of Principal Amortization as of December 31, 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) 2021 $ 354,984 $ 253,508 $ 117,226 $ 725,718 2022 343,208 230,490 121,173 694,871 2023 356,542 209,665 125,543 691,750 2024 350,961 185,040 123,667 659,668 2025 384,864 188,737 126,479 700,080 Thereafter 6,646,291 1,893,728 2,172,630 10,712,649 Total $ 8,436,850 $ 2,961,168 $ 2,786,718 $ 14,184,736 Of the $21.9 billion outstanding principal balance of volume included in Farmer Mac's four lines of business as of December 31, 2020, $7.7 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 December 31, 2020: Table 22 AgVantage Balances by Year of Maturity As of December 31, 2020 (in thousands) 2021 $ 1,823,932 2022 1,565,655 2023 1,045,738 2024 864,090 2025 231,025 Thereafter (1) 2,208,919 Total $ 7,739,359 (1) Includes various maturities ranging from 2026 to 2044. The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.9 years as of December 31, 2020. 77 Related Party Transactions . As provided by Farmer Mac's statutory charter, only banks, insurance companies, and other financial institutions or similar entities may hold Farmer Mac's Class A voting common stock, and only institutions of the FCS may hold Farmer Mac's Class B voting common stock. Farmer Mac's charter also provides that holders of Class A voting common stock elect five members of Farmer Mac's 15-member board of directors and that holders of Class B voting common stock elect five members of the board of directors. The ownership of Farmer Mac's two classes of voting common stock is currently concentrated in a small number of institutions. Approximately 45% of the Class A voting common stock is held by three financial institutions, with 31% held by one institution. Approximately 97% of the Class B voting common stock is held by five FCS institutions (two of which are related to each other through a parent-subsidiary relationship). Unlike some other GSEs, specifically other FCS institutions and the Federal Home Loan Banks, Farmer Mac is not structured as a cooperative owned exclusively by member institutions and established to provide services exclusively to its members. Farmer Mac, as a stockholder-owned, publicly-traded corporation, seeks to fulfill its mission of serving the financing needs of rural America in a way that is consistent with providing a return on the investment of its stockholders, including those who do not directly participate in the secondary market provided by Farmer Mac. Farmer Mac's policy is to generally require financial institutions to own a requisite amount of common stock, based on the size and type of institution, to participate in the Farm & Ranch line of business. As a result of this requirement, coupled with the ability of holders of Class A and Class B voting common stock to elect two-thirds of Farmer Mac's board of directors, Farmer Mac regularly conducts business with "related parties," including institutions affiliated with members of Farmer Mac's board of directors and institutions that own large amounts of Farmer Mac's voting common stock. Farmer Mac has adopted a Code of Business Conduct and Ethics and other related corporate policies that govern any conflicts of interest that may arise in these transactions, and Farmer Mac's policy is to require that any transactions with related parties be conducted in the ordinary course of business, with terms and conditions comparable to those available to any other counterparty not related to Farmer Mac. The following table summarizes the material relationships between Farmer Mac and certain related parties. The related parties listed in the table below consist of (1) all holders of at least five percent of a class of Farmer Mac voting common stock as of December 31, 2020 and (2) other institutions that are considered "related parties" through an affiliation with a Farmer Mac director and that have conducted business with Farmer Mac during the two years ended December 31, 2020. The table below does not specify any relationships based on the ownership of Farmer Mac's non-voting common stock or any series of preferred stock. Table 23 Name of Institution Ownership of Farmer Mac Voting Common Stock Affiliation with Any Farmer Mac Directors Primary Aspects of Institution's Business Relationship with Farmer Mac AgFirst Farm Credit Bank 84,024 shares of Class B voting common stock (16.79% of outstanding Class B stock and 5.49% of total voting common stock outstanding) None In both 2020 and 2019, Farmer Mac earned approximately $1.2 million in fees attributable to transactions with AgFirst, primarily commitment fees for LTSPCs. 78 Name of Institution Ownership of Farmer Mac Voting Common Stock Affiliation with Any Farmer Mac Directors Primary Aspects of Institution's Business Relationship with Farmer Mac AgriBank, FCB 201,621 shares of Class B voting common stock (40.30% of outstanding Class B stock and 13.17% of total voting common stock outstanding) Farmer Mac directors Richard H. Davidson and Daniel L. Shaw serve as directors of AgriBank. Farmer Mac did not conduct any business with AgriBank during 2020 or 2019. Bath State Bank Less than 5% ownership Farmer Mac director Dennis L. Brack serves as a director of Bath State Bank and Bath State Bancorp, the holding company of Bath State Bank. Farmer Mac purchased $9.2 million and $4.0 million in USDA Securities from Bath State Bank in 2020 and 2019, respectively. CoBank, ACB 163,253 shares of Class B voting common stock (32.63% of outstanding Class B stock and 10.66% of total voting common stock outstanding) Farmer Mac director Everett M. Dobrinski served as a director of CoBank through December 2019. Farmer Mac purchased $416.8 million and $776.4 million in participation interests in loans from CoBank in 2020 and 2019, respectively. This represented 56.0% and 89.1% of loan purchases under the Rural Utilities line of business for 2020 and 2019, respectively. In 2020 and 2019, CoBank retained $2.3 million and $1.2 million of servicing fees related to the loan participations sold to Farmer Mac, respectively. Farm Credit Bank of Texas (FCBT) 38,503 shares of Class B voting common stock (7.70% of outstanding Class B stock and 2.51% of total voting common stock outstanding) None In 2020 and 2019, Farmer Mac earned approximately $1.2 million and $1.1 million, respectively, in fees attributable to transactions with FCBT, primarily commitment fees for LTSPCs. In both 2020 and 2019, FCBT retained approximately $0.1 million in servicing fees for its work as a Farmer Mac servicer. Matthew 25 Management Corp. 85,241 shares of Class A voting common stock (8.27% of outstanding Class A stock and 5.57% of total voting common stock outstanding) None Farmer Mac did not conduct any business with Matthew 25 Management Corp. during 2020 or 2019. 79 Name of Institution Ownership of Farmer Mac Voting Common Stock Affiliation with Any Farmer Mac Directors Primary Aspects of Institution's Business Relationship with Farmer Mac National Rural Utilities Cooperative Finance Corporation (CFC) 81,500 shares of Class A voting common stock (7.91% of outstanding Class A stock and 5.32% of total voting common stock outstanding) Farmer Mac director Todd P. Ware serves as a director of CFC. Transactions with CFC represented 36.7% and 9.8% of loan purchases under the Rural Utilities line of business during 2020 and 2019, respectively. In 2020 and 2019, Farmer Mac earned commitment fees of approximately $1.3 million and $1.7 million, respectively, attributable to transactions with CFC. In 2020 and 2019, Farmer Mac earned interest income of $63.1 million and $97.3 million, respectively, attributable to AgVantage transactions with CFC. In 2020 and 2019, CFC retained approximately $3.3 million and $3.2 million, respectively, in servicing fees for its work as a Farmer Mac servicer. The Vanguard Group, Inc. 49,999 shares of Class A voting common stock (4.85% of outstanding Class A stock and 3.27% of total voting common stock outstanding) None Farmer Mac did not conduct any business with The Vanguard Group during 2020 or 2019. Zions Bancorporation, National Association (Zions) 322,100 shares of Class A voting common stock (31.25% of outstanding Class A stock and 21.04% of total voting common stock outstanding) None In 2020 and 2019, Farmer Mac's purchases of loans from Zions under the Farm & Ranch line of business represented approximately 7.1% and 9.5%, respectively, of Farm & Ranch loan purchase volume for those years. Those purchases represented 6.2% and 7.6%, respectively, of total Farm & Ranch business volume for those years. The purchases of USDA Securities from Zions under the USDA Guarantees line of business represented approximately 1.4% and 2.1%, respectively, of the USDA Guarantees line of business purchases for the years ended December 31, 2020 and 2019. Transactions with Zions represented 4.1% and 4.5%, respectively, of Farmer Mac's total outstanding business volume as of December 31, 2020 and 2019. In 2020 and 2019, Zions retained approximately $11.8 million and $12.2 million, respectively, in servicing fees for its work as a Farmer Mac servicer. As discussed in more detail in Note 2(n) to the consolidated financial statements, Farmer Mac’s consolidated financial statements include the accounts of VIEs in which Farmer Mac determines itself to be the primary beneficiary, including securitization trusts where Farmer Mac shares the power to make decisions about default mitigation with a related party. If that related party status changes, consolidation or deconsolidation of securitization trusts may occur. For more information about related party transactions, see Note 3 to the consolidated financial statements. 80 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 utilities business as well as the overall health of 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 prospects for overall loan growth within the rural utilities industry appears to be moderate in the near term due to slow growth in the 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. But the duration, severity, and continued spread of COVID-19, the effectiveness and availability of vaccines, and ongoing government efforts taken to contain COVID-19 and mitigate public health and economic effects continue to evolve and remain uncertain. 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 while also presenting uncertainties and risks. COVID-19 has highlighted the importance of a healthy and stable global food supply chain, as well as the need for increased connectivity through rural broadband. These market conditions could result in increased investment in the supply chain for food, fuel, fiber, energy, and broadband, all of which require access to low-cost, long-term capital. Farmer Mac can provide a source of secondary market liquidity to help stimulate capital deployment to help facilitate these investments while continually monitoring potential market and sector volatility associated with the ongoing impacts of the pandemic. See "Risk Factors" in 81 Part II, Item 1A of this report for more information about the uncertainties and risks associated with the COVID-19 pandemic on Farmer Mac and its business. 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. 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 while monitoring the growth in operating expenses commensurate with the growth in our revenue. 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 . Like most industries, the COVID-19 pandemic heavily impacted the U.S. agricultural and food sectors throughout 2020. According to advance sales data from the U.S. Census Bureau, regional school and restaurant closures combined with consumer social distancing precautions caused a 53% drop in food and beverage sales away from home in April 2020. Sales at food and beverage places ended the year 19% below 2019 levels. Meat and poultry processing plants experienced widespread closures in April and May, as the Center for Disease Control (CDC) reported more than 239 facilities affected by COVID-19 outbreaks in 23 states. According to data from the U.S. Energy Information Administration, ethanol production fell to 50% of 2019 levels in April 2020 as gasoline consumption fell amid closures and reduced mobility. Ethanol is a primary demand driver for corn, so the sudden demand shock caused downward pressure on grain commodity prices. The USDA corn price index hit a 10-year low in April 2020. Despite these pressures, the agricultural and food sectors endured with a strong finish in 2020. Food consumption at home picked up considerably, with U.S. Census data showing an 11% increase in sales at food and beverage stores in 2020 compared to 2019. USDA research shows that farm production and food processing take a higher net margin of the food dollar spent at home, so the shift of consumer spending to food at home could offset some or all of the losses from sales to restaurants and schools. Consumer mobility increased steadily in the second half of 2020, restoring fuel demand and pushing ethanol production back to 88% of 2019 levels by December. Record government support payments to farmers and ranchers helped offset the mid-year disruptions. The USDA estimates total farm program payments to farmers at over $46 billion for the year, a combination of typical farm programs, payments from the trade-oriented Market Facilitation Program (MFP), forgivable loans from the Paycheck Protection Program (PPP), and two rounds of Coronavirus Food Assistance Program (CFAP) payments. Finally, reduced global supply of grains and increased export demand for grains combined to push world grain prices to 7-year highs. USDA corn and soybean cash price indices closed the year 30% and 42% above 2019 levels, respectively. Of the major agricultural commodities, only cattle and dairy prices did not end the year higher than when it began. 82 The rebound in commodity prices combined with extensive government support payments led to a large increase in sector-wide profitability for 2020. USDA projections for net farm income and net cash farm income in 2020 are the highest levels since 2013 at $121.1 billion and $136.2 billion, respectively. An average year generates approximately $100 billion in net farm income, so both 2020 metrics are well above historical averages. A small decline in cash expenses due to a reduction in interest expense added to improved profitability. Animal protein and specialty crop producers did not fully participate in the increase, as higher labor, feed, and other input costs partially offset any gains in cash receipts. Early USDA estimates for 2021 show a stable income outlook of $111.4 billion in net farm income and $128.3 billion in net cash farm income due to a reduction in government support payments but an increase in grain cash receipts. Higher profitability and lower overall interest rates allow sector participants to refinance and restructure their balance sheets with more favorable terms, driving deal flow and lender competition. Farmland values held steady throughout much of 2020 after rising at approximately the rate of inflation for the last two years. Data released in August 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 slowed public auctions and sales in the first half of 2020, but transactions picked up in the third and fourth quarters, and values trended higher in the fourth quarter. An improved profitability outlook combined with low market interest rates could provide support for land values into 2021. Early estimates from the USDA show a 2% increase in farm real estate in 2021. Historically, rising farm real estate values are paired with an increase in real estate-secured debt. 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. As a result of improved profitability and an injection of working capital into the sectors, Farmer Mac's 90-day delinquencies and substandard assets decreased in fourth quarter 2020. Forty-four percent of the loans past due 90-days or more in third quarter 2020 cured or paid off by December 31, 2020. However, the ongoing COVID-19 pandemic and the potential for continued economic stress increase 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. Farmer Mac believes that its portfolio continues to be 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. 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 December 31, 2020, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." Apart from the COVID-19 pandemic, three exogenous factors will continue to be a source of heightened uncertainty for the agricultural and food sectors: international trade, weather conditions, and state and federal farm policy. The U.S. agricultural sector has become increasingly dependent on foreign markets as a source of demand. Agriculture exports were strong in 2020, aided by a weaker U.S. dollar, a recovery in Chinese hog production and subsequent demand for feed inputs, and better overall trade relations. The U.S. experienced $22 billion in severe weather disasters in 2020, the highest level in the 40 years tracked 83 by the National Oceanic and Atmospheric Administration. Many of those events affected agriculture, including a midwestern derecho, western wildfires, and western drought. Federal crop insurance provides a strong mitigator against this risk, but farmers and ranchers face increasingly-severe weather incidents. For more information about the recent Texas Arctic Freeze, please refer to the separate section below. Farmer Mac closely monitors state and federal legislation and regulations that could affect U.S. agriculture. Democrats took control of the White House, the U.S. House of Representatives, and the U.S. Senate in 2021. Although party control has not historically correlated with the availability of government farm payments, there could be changes in regulatory or tax policies that could affect the U.S. agricultural and food sectors. Farmer Mac continues to monitor the effects that any changes in legislation or regulation 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 historic levels of unemployment and reduced energy 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% year-to-date through November 2020 compared to 2019. However, residential sales during the same period were up 2% 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, so 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, so the degree of profitability offset may differ. Some rural electric cooperatives received forgivable loans through the Paycheck Protection Program (PPP), 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 the CARES Act authorized more than $300 million 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 into 2021. Through December 31, 2020 Farmer Mac had not observed material degradation in the financial performance of its Rural Utilities portfolio. During 2020, the sudden decrease of interest rates to historic lows drove significant 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 financing the electric 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. In December 2020, the Federal Communication Commission’s Rural Digital Opportunity Fund (RDOF) auction awarded $9.2 billion in broadband-related operating cost subsidies to winning bidders. This may provide a catalyst for capital demands from rural electric cooperatives who seek to develop and deploy broadband services, as over $1.5 billion in subsidies were awarded to various rural electric cooperatives. The cooperatives that were unsuccessful RDOF bidders also gained knowledge about the processes and technologies involved in broadband projects, which may enable them to develop broadband infrastructure. In particular, these capital needs may provide Farmer Mac with new financing opportunities with our existing customers. 84 The growth in renewable energy generation and deployment of energy storage technologies may help deepen Farmer Mac's relationships with existing customers through new business opportunities with them. This growth may also broaden Farmer Mac's customer base with cooperative lenders focused on lending to renewable cooperatives. In response to this growth, 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, wind project participation interests from an existing counterparty in third quarter 2020, and loans from a new counterparty in fourth quarter 2020. Farmer Mac anticipates further growth in this area during 2021. As of December 31, 2020 the total outstanding balance of Farmer Mac’s renewable energy financing portfolio was $73.0 million. Tex a s Arctic Freeze . Farmer Mac is carefully monitoring the effects of the extremely cold weather during mid-February 2021 in the mid-south region, particularly in Texas, on both our agricultural and rural infrastructure portfolios. As of December 31, 2020, our agricultural portfolio exposure in Texas was approximately $611 million, with cattle being the largest commodity exposure. Cattle producers in that region could face animal health issues as a result of the freezing conditions, but most of our other commodity exposures in that region are less likely to be significantly affected by these conditions. As of December 31, 2020, our rural infrastructure portfolio exposure in Texas was approximately $377 million and is split between distribution and generation and transmission cooperatives. All these cooperatives were affected in some way by the arctic freeze such as obstacles in receiving fuel for power plants or the inability to obtain contracted electricity, which resulted in rolling blackouts across the state. We believe that the electric cooperatives in our portfolio located in Texas entered this period of stress in a strong financial position (including revolving lines of credit) to absorb cost increases. Most of these electric cooperatives have fuel or power cost pass-through provisions within their rate-making authority which provides flexibility to recoup market price fluctuations. It is unknown at this time what magnitude of cost pass-throughs will be required to pay for additional energy costs and whether there will be new regulatory barriers to implementing them. As of February 25, 2021, we are not aware of any damage from the arctic freeze that would likely result in a material credit loss in either our agricultural portfolio or our rural infrastructure portfolio. 85 Balance Sheet Review The following table summarizes the balance sheet as of the periods indicated: Table 24 As of Change December 31, 2020 December 31, 2019 $ % (in thousands) Assets Cash and cash equivalents $ 1,033,941 $ 604,381 $ 429,560 71 % Investment securities, net of allowance 3,898,724 3,004,875 893,849 30 % Farmer Mac Guaranteed Securities, net of allowance 8,123,493 8,590,476 (466,983) (5) % USDA Securities 2,480,321 2,241,073 239,248 11 % Loans, net of allowance 8,535,146 6,981,440 1,553,706 22 % Other 283,876 287,129 (3,253) (1) % Total assets $ 24,355,501 24,355,501 $ 21,709,374 $ 2,646,127 12 % Liabilities Notes Payable 21,848,917 19,098,648 2,750,269 14 % Other 1,514,107 1,811,450 (297,343) (16) % Total liabilities $ 23,363,024 $ 20,910,098 $ 2,452,926 12 % Total equity 992,477 799,276 193,201 24 % Total liabilities and equity $ 24,355,501 $ 21,709,374 $ 2,646,127 12 % 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. 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. In mid-2020, Farmer Mac experienced an increase in payment deferment requests from its network of loan servicers on behalf of borrowers in Farmer Mac's 86 Farm & Ranch loan portfolio, although deferment requests were 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 December 31, 2020, we have executed payment deferments in the Farm & Ranch and USDA Securities portfolios related to an aggregate of $432.0 million of unpaid principal balances, which represents 1.97% of our total outstanding business volume. 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 December 31, 2020 in the Farm & Ranch and USDA Guarantees lines 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." Table 25 Farm & Ranch COVID-19 Deferments Summary As of December 31, 2020 (1) Unpaid Principal Balance Requested, but not yet Approved Approved, but not yet Executed Not Approved (2) Approved and Executed Farm & Ranch: (in thousands) On-balance sheet: Loans held for investment $ 286 $ 675 $ — $ 118,903 Loans held in consolidated trusts — 2,005 1,140 26,564 On-balance sheet total $ 286 $ 2,680 $ 1,140 $ 145,467 Off-balance sheet: LTSPCs 585 8,144 3,502 193,665 Farm & Ranch Total $ 871 $ — $ 10,824 $ 4,642 $ 339,132 USDA: USDA Securities $ 11,664 $ — $ 5,081 $ 86,703 Farmer Mac Guaranteed USDA Securities 946 — 382 6,189 USDA Total $ 12,610 $ — $ 5,463 $ 92,892 Farm & Ranch and USDA Total Deferments $ 13,481 $ 10,824 $ 10,105 $ 432,024 (1) Loans under a COVID-19 deferment are not considered to be past due. (2) Typically due to the borrower withdrawing from the COVID-19 deferment process. For example, the borrower may have refinanced the loan, paid off the loan, or decided not to pursue payment relief. 87 Farm & Ranch Farmer Mac's direct credit exposure to Farm & Ranch loans held and loans underlying Farm & Ranch Guaranteed Securities and LTSPCs as of December 31, 2020 was $8.6 billion across 48 states. Farmer Mac applies credit underwriting standards and methodologies to help assess exposures to Farm & Ranch loans, which may include collateral valuation, financial metrics, and other appropriate borrower financial and credit information. For larger loan exposures to agriculture production and agribusinesses that support agriculture production, food and fiber processing, and other supply chain production, which may have different risk profiles, Farmer Mac has implemented methodologies and parameters that help assess credit risk based on the appropriate sector, borrower construct, and transaction complexity. 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 Standards". 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 December 31, 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 December 31, 2020 and December 31, 2019, the average unpaid principal balances for loans outstanding in the Farm & Ranch line of business was $742,000 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 2020 was 54%, compared to 51% for loans purchased during 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 December 31, 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 December 31, 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 46% and 45% as of December 31, 2020 and December 31, 2019, respectively. For more information about the credit quality of Farmer Mac's Farm & Ranch portfolio and the associated allowance for losses please refer to Notes 8 and 12 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 December 31, 2020, Farmer Mac's 90-day delinquencies were $46.2 million (0.54% of the Farm & Ranch portfolio), compared 88 to $61.0 million (0.78% of the Farm & Ranch portfolio) as of December 31, 2019. Those 90-day delinquencies were comprised of 38 delinquent loans as of December 31, 2020, compared to 57 delinquent loans as of December 31, 2019. The decrease in 90-day delinquencies was primarily driven by three commodity groups – permanent plantings, livestock, and part-time farms. The decreases in those commodity groups were partially offset by increases related to the agricultural storage & processing loan secured by a specialized poultry facility and multiple crop loans. The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of December 31, 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 December 31, 2020 was below Farmer Mac's historical average. In the near-term, our delinquency rate may 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. 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 26 Farm & Ranch Line of Business 90-Day Delinquencies Percentage (dollars in thousands) As of: December 31, 2020 $ 8,581,181 $ 46,232 0.54 % 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 % Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.21% of total outstanding business volume as of December 31, 2020, compared to 0.29% as of December 31, 2019 and 0.14% as of December 31, 2018. 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 December 31, 2020 by year of origination, geographic region, commodity/collateral type, original loan-to-value ratio, and range in the size of borrower exposure: 89 Table 27 Farm & Ranch 90-Day Delinquencies as of December 31, 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 7 % $ 592,548 $ 2,591 0.44 % 2011 2 % 130,862 — — % 2012 4 % 326,344 — — % 2013 6 % 474,806 961 0.20 % 2014 4 % 373,001 1,077 0.29 % 2015 6 % 540,674 691 0.13 % 2016 10 % 875,272 11,326 1.29 % 2017 11 % 903,891 14,811 1.64 % 2018 9 % 828,905 2,317 0.28 % 2019 14 % 1,178,015 12,458 1.06 % 2020 27 % 2,356,863 — 1.06 % Total 100 % $ 8,581,181 $ 46,232 0.54 % By geographic region (2) : Northwest 12 % $ 1,048,868 $ 11,690 1.11 % Southwest 35 % 2,981,880 1,616 0.05 % Mid-North 29 % 2,483,698 15,056 0.61 % Mid-South 12 % 1,059,152 3,043 0.29 % Northeast 4 % 368,156 4,396 1.19 % Southeast 8 % 639,427 10,431 1.63 % Total 100 % $ 8,581,181 $ 46,232 0.54 % By commodity/collateral type: Crops 50 % $ 4,344,410 $ 27,589 0.64 % Permanent plantings 24 % 2,041,054 1,462 0.07 % Livestock 18 % 1,536,808 8,927 0.58 % Part-time farm 6 % 506,140 754 0.15 % Ag. Storage and Processing 2 % 148,091 7,500 5.06 % Other — 4,678 — — % Total 100 % $ 8,581,181 $ 46,232 0.54 % By original loan-to-value ratio: 0.00% to 40.00% 17 % $ 1,466,011 $ 3,803 0.26 % 40.01% to 50.00% 25 % 2,104,552 16,615 0.79 % 50.01% to 60.00% 35 % 2,998,033 22,874 0.76 % 60.01% to 70.00% 20 % 1,695,216 2,608 0.15 % 70.01% to 80.00% (3) 3 % 301,886 222 0.07 % 80.01% to 90.00% (3) — % 15,483 110 0.71 % Total 100 % $ 8,581,181 $ 46,232 0.54 % By size of borrower exposure (4) : Less than $1,000,000 29 % $ 2,475,210 $ 6,456 0.26 % $1,000,000 to $4,999,999 35 % 2,980,950 22,026 0.74 % $5,000,000 to $9,999,999 15 % 1,297,834 7,500 0.58 % $10,000,000 to $24,999,999 12 % 1,019,996 10,250 1.00 % $25,000,000 and greater 9 % 807,191 — — % Total 100 % $ 8,581,181 $ 46,232 0.54 % (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. 90 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 December 31, 2020, Farmer Mac's substandard assets were $291.5 million (3.4% of the Farm & Ranch portfolio), compared to $310.0 million (4.0% of the Farm & Ranch portfolio) as of December 31, 2019. Those substandard assets were comprised of 343 loans as of December 31, 2020 and 353 loans as of December 31, 2019. The decrease of $18.5 million in substandard assets during 2020 was primarily driven by credit upgrades in our on-balance sheet portfolio, partially offset by credit downgrades in our off-balance sheet portfolio during the year. Substandard assets decreased as a percentage of the total on-balance sheet portfolio primarily due to the credit upgrades in our on-balance sheet portfolio. Substandard assets increased as a percentage of the total 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 could rise above that historical average in the short-term. However, the recent improvements in the agricultural economy could potentially counter the negative effects of COVID-19 on our loan portfolio. 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 28 Farm & Ranch current loan-to-value ratio by internally assigned risk rating as of December 31, 2020 Acceptable Special Mention Substandard Total (in thousands) Current loan-to-value ratio (1) : 0.00% to 40.00% $ 2,569,762 $ 81,890 $ 91,930 $ 2,743,582 40.01% to 50.00% 2,161,539 90,165 72,847 2,324,551 50.01% to 60.00% 1,994,724 58,366 81,283 2,134,373 60.01% to 70.00% 1,010,825 60,555 18,988 1,090,368 70.01% to 80.00% 235,587 18,343 18,675 272,605 80.01% and greater 5,920 2,011 7,771 15,702 Total $ 7,978,357 $ 311,330 $ 291,494 $ 8,581,181 (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. 91 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 December 31, 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 29 Farm & Ranch Credit Losses Relative to Cumulative Original Loans, Guarantees, and LTSPCs as of December 31, 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 $ 15,323,945 $ 30,124 0.20 % 2011 780,955 3,661 0.47 % 2012 1,157,760 — — % 2013 1,460,375 — — % 2014 1,032,953 — — % 2015 1,197,566 (516) (0.04) % 2016 1,488,794 — — % 2017 1,578,674 5,365 0.34 % 2018 1,291,175 — — % 2019 1,488,791 — — % 2020 2,590,540 — % Total $ 29,391,528 $ 38,634 0.13 % By geographic region (1) : Northwest $ 3,816,339 $ 11,191 0.29 % Southwest 10,415,885 8,542 0.08 % Mid-North 7,414,805 18,219 0.25 % Mid-South 3,632,060 (613) (0.02) % Northeast 1,611,170 323 0.02 % Southeast 2,501,269 972 0.04 % Total $ 29,391,528 $ 38,634 0.13 % By commodity/collateral type: Crops $ 13,582,696 $ 2,887 0.02 % Permanent plantings 6,535,361 9,783 0.15 % Livestock 6,555,620 3,836 0.06 % Part-time farm 1,707,662 1,090 0.06 % Ag. Storage and Processing 857,324 21,038 2.45 % Other 152,865 — — % Total $ 29,391,528 $ 38,634 0.13 % (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). 92 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 30 As of December 31, 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 $ 505,381 $ 196,530 $ 257,345 $ 84,553 $ 5,000 $ 59 $ 1,048,868 5.8 % 2.3 % 3.0 % 1.0 % 0.1 % — % 12.2 % Southwest 708,740 1,549,973 537,006 96,863 86,919 2,379 2,981,880 8.2 % 18.1 % 6.3 % 1.1 % 1.0 % — % 34.7 % Mid-North 2,102,120 10,955 222,812 117,914 27,963 1,934 2,483,698 24.4 % 0.1 % 2.6 % 1.4 % 0.4 % — % 28.9 % Mid-South 628,515 43,568 312,432 67,897 6,721 19 1,059,152 7.3 % 0.5 % 3.7 % 0.8 % 0.1 % — % 12.4 % Northeast 161,833 58,401 78,494 65,996 3,432 — 368,156 1.9 % 0.7 % 0.9 % 0.8 % — % — % 4.3 % Southeast 237,821 181,627 128,719 72,917 18,056 287 639,427 2.8 % 2.1 % 1.5 % 0.9 % 0.2 % — % 7.5 % Total $ 4,344,410 $ 2,041,054 $ 1,536,808 $ 506,140 $ 148,091 $ 4,678 $ 8,581,181 50.4 % 23.8 % 18.0 % 6.0 % 1.8 % — % 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). 93 Table 31 As of December 31, 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 $ 9,783 $ 3,836 $ 1,066 $ 12,012 $ 30,124 2011 — — — — 3,661 3,661 2012 — — — — — — 2013 — — — — — — 2014 — — — — — — 2015 (540) — — 24 — (516) 2016 — — — — — — 2017 — — — — 5,365 5,365 2018 — — — — — — 2019 — — — — — — 2020 — — — — — — Total $ 2,887 $ 9,783 $ 3,836 $ 1,090 $ 21,038 $ 38,634 Rural Utilities Farmer Mac's direct credit exposure to Rural Utilities loans held and loans underlying LTSPCs as of December 31, 2020 was $2.8 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". As of December 31, 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 December 31, 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. 94 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 32 Rural Utilities portfolio by internally assigned risk rating as of December 31, 2020 Acceptable Special Mention Substandard Total (in thousands) Distribution Cooperative $ 2,128,985 $ — $ — $ 2,128,985 G&T Cooperative 614,817 — — 614,817 Renewable Energy 73,035 — — 73,035 Rural Utilities Total $ 2,816,837 $ — $ — $ 2,816,837 For more information about the credit quality of Farmer Mac's Rural Utilities portfolio and the associated allowance for losses please refer to Notes 8 and 12 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 December 31, 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 December 31, 2020, Farmer Mac had executed COVID-19 payment deferments on loans with unpaid principal balances of $92.9 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 December 31, 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 Standards," "Business—Farmer Mac's Lines of Business—Rural Utilities—Loan Eligibility," and "Business—Farmer Mac's Lines of Business—Rural Utilities—Underwriting and Collateral Standards." 95 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 December 31, 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." 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 either through a higher overcollateralization percentage or through lower loan-to-value ratio thresholds 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." The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Farm & Ranch line of business totaled $5.2 billion as of December 31, 2020 and $5.5 billion as of December 31, 2019. The unpaid principal balance of on-balance sheet AgVantage securities secured by loans eligible for the Rural Utilities line of business totaled $2.6 billion as of December 31, 96 2020 and $2.9 billion as of December 31, 2019. The unpaid principal balance of outstanding off-balance sheet AgVantage securities totaled $4.4 million as of December 31, 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 December 31, 2020 and December 31, 2019: Table 33 As of December 31, 2020 As of December 31, 2019 Counterparty Balance Credit Rating Required Collateralization Balance Credit Rating Required Collateralization (dollars in thousands) AgVantage: CFC $ 2,570,249 A 100% $ 2,949,500 A 100% MetLife 2,375,000 AA- 103% 2,550,000 AA- 103% Rabo AgriFinance 2,050,000 None 110% 2,225,000 None 110% Other (1) 551,654 None 106% to 125% 436,041 None 106% to 125% Farm Equity AgVantage (2) 192,456 None 110% 279,705 None 110% Total outstanding $ 7,739,359 $ 8,440,246 (1) Consists of AgVantage securities issued by 6 and 5 different issuers as of December 31, 2020 and December 31, 2019, respectively. (2) Consists of AgVantage securities issued by 4 and 5 different issuers as of December 31, 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—Lenders" and "Business—Farmer Mac's Lines of Business—Rural Utilities—Lenders." Farmer Mac manages institutional credit risk related to its interest rate swap counterparties through collateralization provisions contained in each of its swap agreements that vary 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 6 to the consolidated financial statements. Credit Risk – Other Investments . As of December 31, 2020, Farmer Mac had $1.0 billion of cash and cash equivalents and $3.9 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 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 97 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 ($102.4 million as of December 31, 2020). However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($51.2 million as of December 31, 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 due to maturity, paydown, or repricing of the assets and debt together with financial derivatives. This risk is primarily related to loans, loan participation interests, Farmer Mac Guaranteed Securities, USDA Securities, and certain investment securities due to the contractual 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 funded financial assets, liabilities, and financial derivatives. 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 98 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 and help to mitigate impacts from interest rates changes across the yield curve. As part of this debt issuance strategy, Farmer Mac seeks to issue a blend of liabilities and enter into financial derivative transactions across a variety of maturities to approximately align the liability cash flows with the forecasted asset cash flows. Farmer Mac issues discount notes and both callable and non-callable medium-term notes across a spectrum of maturities to execute its debt issuance strategy. Callable debt is issued to mitigate prepayment risk associated with certain funded financial assets held on balance sheet. In general, as interest rates decline, prepayments typically increase, and Farmer Mac is able to extinguish certain callable debt issuances. Therefore, these callable liabilities are reduced around the same time and amount of the asset prepayments. The interest rate sensitivities of the debt together with financial derivatives tend to increase or decrease as interest rates change in a manner that fully or partially offset similar changes in the interest rate sensitivities of the funded financial assets. In addition, Farmer Mac enters into financial derivatives, primarily interest rate swaps, 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 behavioral prepayment 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 asset prepayment rates which may, in turn, impact durations and values of the assets. Declining interest rates generally increase prepayment rates, which shortens the duration of these assets, while rising interest rates tend to loan prepayments, thereby extending the duration of the assets. Farmer Mac is subject to interest rate risk on loans and securities 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 assets, 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 $1.0 billion of cash and cash equivalents mature within three months and are generally funded with debt having similar maturities. As of December 31, 2020, $3.6 billion of the $3.9 billion of investment securities (93%) 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 frequency 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. 99 Interest Rate Risk Metrics Farmer Mac regularly stress tests and runs simulations on its portfolio of financial assets and liabilities 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. The MVE sensitivity analysis measures the degree to which the market values of Farmer Mac's assets, liabilities, and financial derivatives are estimated to 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 the current portfolio of interest-earning assets and interest expense produced by the related funding, including associated financial 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 together with the associated financial derivatives. The direction and magnitude of any such effect depends on the direction and magnitude of the change in interest rates across the yield curve as well as the composition of Farmer Mac's portfolio. The NES simulation 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, the NES simulation sensitivity statistics provide a short-term view of Farmer Mac's sensitivity to interest rate shocks. 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 funded assets, debt, and financial derivatives. Because duration is a measure of fair value sensitivity, duration gap quantifies 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 funded assets is greater than the duration of its debt and financial derivatives. A positive duration gap indicates that fair value changes of Farmer Mac's funded assets is more sensitive to small interest rate movements than fair value changes of its debt and financial derivatives. Conversely, a negative duration gap indicates that fair value changes of Farmer Mac's funded assets are less sensitive to small interest rate movements than fair value changes of its debt and financial 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 by the fair value change of its debt and financial derivatives. Each of the interest rate metrics is produced using asset/liability models and is derived based on management's best estimates of factors such as forward interest rates across the yield curve, interest rate volatility, and asset prepayment speeds. Accordingly, these metrics are estimates rather than precise measurements. Actual results may differ to the extent there are material changes to Farmer Mac's financial asset portfolio or changes in funding or hedging strategies undertaken to mitigate unfavorable sensitivities to interest rate changes. 100 The following schedule summarizes the results of Farmer Mac's MVE and NES sensitivity analysis as of December 31, 2020 and December 31, 2019 to an immediate and instantaneous uniform or "parallel" shift in the yield curve: Table 34 Percentage Change in MVE from Base Case Interest Rate Scenario (1) As of December 31, 2020 (1) As of December 31, 2019 +100 basis points 4.9 % 2.7 % -100 basis points (0.2) % (8.4) % Percentage Change in NES from Base Case Interest Rate Scenario (2) As of December 31, 2020 (1) As of December 31, 2019 (2) +100 basis points 3.9 % 0.5 % -100 basis points — % 1.0 % (1) The down 100 basis points shock scenario was replaced in 2020 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. The replacement down shock scenario was negative 4 basis points as of December 31, 2020. (2) The NES shock scenario of +100 and -100 basis points as of December 31, 2019 were updated (from 0.8% and 0.1%, respectively) to conform the underlying NES components of the shock scenario with the reported NES. As of December 31, 2020, Farmer Mac's effective duration gap was negative 1.6 months, compared to negative 1.2 months as of December 31, 2019. In 2020, Farmer Mac updated its duration gap measure to funded assets, debt, and financial derivatives; the previously reported duration gap as of December 31, 2019 was negative 2.5 months. Interest rates decreased significantly during 2020 with the 2-year and 10-year US Treasury Note yield-to-maturity dropping by approximately 145 basis points and 100 basis points, respectively, versus year-end 2019. This rate movement contributed to reducing the duration of Farmer Mac's funded assets compared to its liabilities and financial derivatives, thereby widening Farmer Mac's duration gap. Furthermore, as of December 31, 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 types of financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of funded assets, future cash flows, and debt issuance, and 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 December 31, 2020, Farmer Mac had $15.4 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to thirty years, of which $6.3 billion were pay-fixed interest rate swaps, $5.5 billion were receive-fixed interest rate swaps, and $3.6 billion were basis swaps. Farmer Mac enters into interest rate swap contracts to more closely match the cash flow and duration characteristics of its financial assets with those of its liabilities. For example, Farmer Mac transacts pay- 101 fixed interest rate swaps and issues floating rate debt to effectively 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. 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 6 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 undesignated 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 December 31, 2020 and December 31, 2019, Farmer Mac had no uncollateralized net exposures. Re-funding and repricing risk Farmer Mac is subject to re-funding and repricing risk on any floating rate assets that are not funded to contractual maturity. 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 market index rate to which the assets are indexed can cause changes to net interest income when debt matures and is reissued to continue funding those assets. 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; 102 • issuing non-maturity matched, floating rate medium-term notes with reset frequencies that match the assets being funded; or • issuing non-maturity matched, fixed rate discount notes or medium-term notes swapped to floating rate to match the interest rate reset dates of the assets as an alternative source of effectively floating rate funding. 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 a received-fixed interest rate swap because these alternatives 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 increase relative to the benchmark 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 decrease 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 December 31, 2020, Farmer Mac held $6.4 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 $6.3 billion of interest rate swaps outstanding where Farmer Mac pays a fixed rate of interest and receives a floating rate of interest. Following a period of market volatility in the first half of 2020, Farmer Mac's funding relative to LIBOR stabilized with spreads modestly higher compared to historical averages. Farmer Mac regularly adjusts its funding strategies to mitigate the effects of spread variability 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", 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. As of December 31, 2020, Farmer Mac held $5.1 billion of floating rate assets in its lines of business and its investment portfolio, had issued $4.7 billion of floating rate debt, and had entered into $14.6 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 103 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 indices that may be developed is expected to be complicated and may require the development of term and credit adjustments to accommodate for differences between the benchmark interest rate indices. 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 December 31, 2020, we had $1.0 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 throughout 2020 and 2019. 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 December 31, 2020, Farmer Mac had outstanding discount notes of $1.8 billion, medium-term notes that mature within one year of $8.9 billion, and medium-term notes that mature after one year of $11.0 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 the Liquidity and Investment Regulations prescribed for Farmer Mac by FCA. In accordance with the methodology for calculating available days of liquidity under those regulations, Farmer Mac maintained a monthly average of 196 days of liquidity during 2020 and had 207 days of liquidity as of December 31, 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. 104 The following table presents these assets as of December 31, 2020 and December 31, 2019: Table 35 As of December 31, 2020 As of December 31, 2019 (in thousands) Cash and cash equivalents $ 1,033,941 $ 604,381 Investment securities: Guaranteed by U.S. Government and its agencies 1,935,056 1,842,640 Guaranteed by GSEs 1,944,497 1,143,323 Asset-backed securities 19,171 18,912 Total $ 4,932,665 $ 3,609,256 The increase in the investment portfolio since December 31, 2019 was to provide a greater level of liquidity in response to market disruptions driven by 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 December 31, 2020, Farmer Mac was in compliance with its statutory capital requirements and was classified as within "level 1" (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 December 31, 2020 and December 31, 2019, Farmer Mac's Tier 1 capital ratio was 14.1% 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 2020. As of December 31, 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." See Note 9 to the consolidated financial statements for more information about Farmer Mac's capital position. Discount and Medium-term Notes . The following table presents the amount and timing of Farmer Mac's known, fixed, and determinable discount and medium-term note obligations by payment date as of December 31, 2020. The payment amounts represent those amounts due to the investor (including return of discount and interest on debt) and do not include unamortized premiums or discounts or other similar carrying value adjustments. 105 Table 36 One Year or Less One to Three Years Three to Five Years Over Five Years Total (in thousands) Discount notes (1) $ 1,797,659 $ — $ — $ — $ 1,797,659 Medium-term notes (1) 8,949,870 5,816,659 2,271,750 2,972,372 20,010,651 Interest payments on fixed rate medium-term notes (2) 163,320 226,095 134,352 255,575 779,342 Interest payments on floating rate medium-term notes (3) 11,455 10,679 7,423 6,015 35,572 (1) Future events, including additional issuance of discount notes and medium-term notes and refinancing of those notes, could cause actual payments to differ significantly from these amounts. For more information regarding discount notes and medium-term notes, see Note 7 to the consolidated financial statements. (2) Interest payments on callable medium-term notes are calculated based on maturity. Future calls of these notes could cause actual interest payments to differ significantly from the amounts presented. (3) Calculated using the effective interest rates as of December 31, 2020. As a result, these amounts do not reflect the effects of changes in the interest rates effective on future interest rate reset dates. Farmer Mac enters into financial derivatives contracts under which it either receives cash from counterparties, or is required to pay cash to them, depending on changes in interest rates. Financial derivatives are carried on the consolidated balance sheets at fair value, representing the net present value of expected future cash payments or receipts based on market interest rates as of the balance sheet date adjusted for the consideration of credit risk of Farmer Mac and its counterparties. The fair values of the contracts change daily as market interest rates change. Because the financial derivative liabilities recorded on the consolidated balance sheet as of December 31, 2020 do not represent the amounts that may ultimately be paid under the financial derivative contracts, those liabilities are not included in the table presented above. More information about financial derivatives is included in Note 2(e) and Note 6 to the consolidated financial statements. Contingent Liabilities . In conducting its loan purchase activities, Farmer Mac enters into mandatory delivery commitments to purchase agricultural real estate mortgage loans and USDA Securities. In conducting its LTSPC activities, Farmer Mac commits, subject to the applicable LTSPC agreement, to a future purchase of one or more loans from identified pools of eligible loans that met Farmer Mac's standards when the applicable transaction was entered into and Farmer Mac assumed the credit risk on the loans. The following table presents these significant commitments: Table 37 As of December 31, 2020 2019 (in thousands) LTSPCs $ 2,881,856 $ 3,002,349 Mandatory commitments to purchase loans and USDA Securities 125,811 65,056 For more information about Farmer Mac's commitments to purchase loans, see Note 12 to the consolidated financial statements. 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, 106 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 alternatives create off-balance sheet obligations for Farmer Mac. See Note 12 to the consolidated financial statements for more information about consolidation and Farmer Mac's off-balance sheet business activities. As of December 31, 2020 and 2019, outstanding off-balance sheet LTSPCs and Farmer Mac Guaranteed Securities totaled $3.3 billion and $3.5 billion, respectively. The following table presents the balance of outstanding LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities as of December 31, 2020 and 2019: Table 38 Outstanding Balance of LTSPCs and Off-Balance Sheet Farmer Mac Guaranteed Securities As of December 31, 2020 2019 (in thousands) Farm & Ranch obligations: LTSPCs $ 2,325,431 $ 2,393,071 Farm & Ranch Guaranteed Securities 79,312 107,322 Total Farm & Ranch obligations 2,404,743 2,500,393 USDA Guarantees obligations: Farmer Mac Guaranteed USDA Securities 299,298 389,216 Rural Utilities obligations: LTSPCs 556,425 609,278 Institutional Credit obligations: AgVantage Securities 4,412 7,567 Total off-balance sheet $ 3,264,878 $ 3,506,454 See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees" and Notes 2(b), 2(d), 5 and 12 to the consolidated financial statements for more information about Farmer Mac Guaranteed Securities and Notes 2(l) and 12 to the consolidated financial statements for more information about LTSPCs. Regulatory Matters Section 4013 of the CARES Act that was signed into law on March 27, 2020 provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of the COVID-19 pandemic. On April 10, 2020, Farmer Mac’s prudential regulator, FCA (through OSMO) issued guidance to Farmer Mac 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), as well as guidance on reporting TDRs for lines of business affected by the COVID-19 outbreak. The FCA's guidance on TDRs was consistent with the guidance provided by other financial regulatory agencies and the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to the COVID-19 national emergency are not TDRs when the borrower was not past due on loan payments before the March 13, 2020 presidential proclamation declaring the COVID-19 outbreak a national emergency. 107 In response to the COVID-19 pandemic and the related economic effects, Congress passed a series of stimulus measures (including the CARES Act) that delivered more than $35 billion in emergency aid to farmers and ranchers in 2020. In addition, through funding provided in the various COVID-19 stimulus packages, the USDA oversaw the purchase and delivery of $4.5 billion in food to food banks, churches, community organizations, schools, and tribal organizations through the Farmers to Families Food Box Program during 2020. These purchases have helped support commodity prices and serve millions of Americans in need. On December 27, 2020, President Trump signed into law a bill providing for, among other measures, $13 billion in additional support for U.S. agriculture through direct payments and food support funding that is scheduled to be disbursed in 2021. With the start of a new Congress and President Biden's Administration, Farmer Mac continues to monitor legislation and regulations that could affect Farmer Mac, 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 2(p) to the consolidated financial statements. Supplemental Information The following tables present quarterly and annual information about new business volume, repayments, and outstanding business volume: Table 39 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: December 31, 2020 $ 731,434 $ 141,332 $ 180,520 $ 189,729 $ — $ 96,424 $ 1,339,439 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 For the year ended: December 31, 2020 $ 2,483,394 $ 394,891 $ 777,936 $ 744,063 $ 19,500 $ 1,298,751 $ 5,718,535 December 31, 2019 1,363,863 339,172 432,787 871,377 — 2,258,550 5,265,749 108 Table 40 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 $ 175,613 $ 4,213 $ 26,895 $ 29,120 $ 37,062 $ 19,528 $ 676,567 $ 968,998 Unscheduled 231,342 2,242 95,264 99,811 1,610 — — 430,269 December 31, 2020 $ 406,955 $ 6,455 $ 122,159 $ 128,931 $ 38,672 $ 19,528 $ 676,567 $ 1,399,267 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 For the year ended: Scheduled $ 580,631 $ 15,912 $ 148,574 $ 139,722 $ 149,399 $ 72,353 $ 1,999,638 $ 3,106,229 Unscheduled 997,517 12,098 313,957 471,671 5,545 — — 1,800,788 December 31, 2020 $ 1,578,148 $ 28,010 $ 462,531 $ 611,393 $ 154,944 $ 72,353 $ 1,999,638 $ 4,907,017 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 $ 3,872,332 109 Table 41 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: December 31, 2020 $ 6,176,438 $ 79,312 $ 2,325,431 $ 2,786,718 $ 2,260,412 $ 556,425 $ 7,739,359 $ 21,924,095 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 Table 42 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: December 31, 2020 $ 11,330,414 $ 2,816,840 $ 4,511,964 $ 18,659,218 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 15,748,021 110 The following table presents the quarterly net effective spread (a non-GAAP measure) by segment: Table 43 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: December 31, 2020 (1) $ 20,313 1.75 % $ 6,786 1.10 % $ 7,322 1.35 % $ 17,401 0.85 % $ 2,700 0.22 % $ 54,522 0.98 % September 30, 2020 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 (1) 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 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 % (1) See Note 14 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 years ended December 31, 2020 and 2019. 111 The following table presents quarterly core earnings (a non-GAAP measure) reconciled to net income attributable to common stockholders: Table 44 Core Earnings by Quarter End December 2020 September 2020 June 2020 March 2020 December 2019 September 2019 June 2019 March 2019 December 2018 (in thousands) Revenues: Net effective spread $ 54,522 $ 51,802 $ 46,469 $ 44,163 $ 45,991 $ 42,461 $ 41,355 $ 38,801 $ 38,855 Guarantee and commitment fees 4,652 4,659 4,943 4,896 5,432 5,208 5,276 5,419 5,309 Other 512 453 1,048 674 100 389 777 509 (129) Total revenues 59,686 56,914 52,460 49,733 51,523 48,058 47,408 44,729 44,035 Credit related expense/(income): Provision for/(release of) losses 2,973 1,200 51 3,831 2,851 623 420 (393) 166 REO operating expenses — — — — — — 64 — — Losses/(gains) on sale of REO 22 — — (485) — — — — — Total credit related expense/(income) 2,995 1,200 51 3,346 2,851 623 484 (393) 166 Operating expenses: Compensation and employee benefits 9,497 8,791 8,087 10,127 6,732 7,654 6,770 7,606 7,167 General and administrative 6,274 5,044 5,295 5,363 5,773 5,253 4,689 4,596 5,829 Regulatory fees 750 725 725 725 725 688 687 688 687 Total operating expenses 16,521 14,560 14,107 16,215 13,230 13,595 12,146 12,890 13,683 Net earnings 40,170 41,154 38,302 30,172 35,442 33,840 34,778 32,232 30,186 Income tax expense 8,470 8,297 8,016 6,598 7,526 7,018 7,351 6,715 6,431 Preferred stock dividends 5,269 5,166 3,939 3,431 3,432 3,427 3,785 3,296 3,296 Core earnings $ 26,431 $ 27,691 $ 26,347 $ 20,143 $ 24,484 $ 23,395 $ 23,642 $ 22,221 $ 20,459 Reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (1,758) (4,149) 8,700 (6,484) 4,469 (7,117) 10,485 2,240 (96) Gains/(losses) on hedging activities due to fair value changes 3,827 (5,245) (2,676) (5,925) (220) (4,535) (1,438) (2,817) (853) Unrealized gains/(losses) on trading assets 223 (258) (20) 106 172 49 61 44 57 Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value (77) 97 35 3 40 (7) (139) (16) 67 Net effects of terminations or net settlements on financial derivatives 1,583 233 720 (1,300) 1,339 232 (592) 110 (312) Issuance costs on the retirement of preferred stock — (1,667) — — — — (1,956) — — Income tax effect related to reconciling items (798) 1,957 (1,419) 2,856 (1,218) 2,389 (1,759) 92 238 Net income attributable to common stockholders $ 29,431 $ 18,659 $ 31,687 $ 9,399 $ 29,066 $ 14,406 $ 28,304 $ 21,874 $ 19,560 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Farmer Mac is exposed to market risk from changes in interest rates. Farmer Mac manages this market risk by entering into various financial transactions, including financial derivatives, and by monitoring and 112 measuring its exposure to changes in interest rates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Interest Rate Risk" for more information about Farmer Mac's exposure to interest rate risk and its strategies to manage that risk. For information about Farmer Mac's use of financial derivatives and related accounting policies, see Note 6 to the consolidated financial statements. Item 8. Financial Statements Management's Report on Internal Control over Financial Reporting The management of Farmer Mac is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision of Farmer Mac's Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Farmer Mac's financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Farmer Mac's internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Farmer Mac; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Farmer Mac are being made only in accordance with authorizations of management and directors of Farmer Mac; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Farmer Mac's assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of Farmer Mac's Chief Executive Officer and Chief Financial Officer, Farmer Mac's management assessed the effectiveness of Farmer Mac's internal control over financial reporting as of December 31, 2020. In making this assessment, Farmer Mac's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013) . Based on its evaluation under the COSO criteria, management concluded that Farmer Mac's internal control over financial reporting as of December 31, 2020 was effective. Farmer Mac's independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of Farmer Mac's internal control over financial reporting as of December 31, 2020, as stated in their report appearing below. 113 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of the Federal Agricultural Mortgage Corporation: Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of the Federal Agricultural Mortgage Corporation and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses in 2020. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and 114 performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter s The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Available-for-sale AgVantage Farmer Mac Guaranteed Securities As disclosed by management, the Company guarantees and purchases general obligations of lenders and other financial institutions that are secured by pools of the types of loans eligible for purchase under Farmer Mac's Farm & Ranch, USDA Guarantees, or Rural Utilities lines of business, which are referred to as AgVantage securities. As described in Notes 5 and 13 to the consolidated financial statements, the total unpaid principal balance of available-for-sale AgVantage securities as of December 31, 2020 was $6.6 billion, and the fair value of the available-for-sale AgVantage securities of December 31, 2020 was $6.9 115 billion. The fair value of AgVantage securities is estimated using a discounted cash flow model. The significant unobservable input used is the discount rate commensurate with the risks involved. The principal considerations for our determination that performing procedures relating to the valuation of available-for-sale AgVantage securities is a critical audit matter are (i) the high degree of audit effort in performing procedures and evaluating audit evidence related to the discount rate assumption used by management in the valuation of the available-for-sale AgVantage securities, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of available-for-sale AgVantage securities, including controls over the model, data and assumption. These procedures also included, among others, (i) the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of prices for a sample of available-for-sale AgVantage securities, and (ii) comparing management’s estimate to the independently developed range to evaluate the reasonableness of management’s estimate. Developing the independent range of prices involved testing the completeness and accuracy of data provided by management and independently developing the discount rate assumption. /s/PricewaterhouseCoopers LLP McLean, Virginia February 25, 2021 We have served as the Company’s auditor since 2010. 116 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2020 December 31, 2019 (in thousands) Assets: Cash and cash equivalents $ 1,033,941 $ 604,381 Investment securities: Available-for-sale, at fair value (amortized cost of $ 3,843,666 and $ 2,961,430 , respectively) 3,853,692 2,959,843 Held-to-maturity, at amortized cost 45,032 45,032 Total Investment Securities 3,898,724 3,004,875 Farmer Mac Guaranteed Securities: Available-for-sale, at fair value (amortized cost of $ 6,594,992 and $ 7,016,971 , respectively) 6,947,701 7,143,025 Held-to-maturity, at amortized cost 1,175,792 1,447,451 Total Farmer Mac Guaranteed Securities 8,123,493 8,590,476 USDA Securities: Trading, at fair value 6,695 8,913 Held-to-maturity, at amortized cost 2,473,626 2,232,160 Total USDA Securities 2,480,321 2,241,073 Loans: Loans held for investment, at amortized cost 7,261,933 5,390,977 Loans held for investment in consolidated trusts, at amortized cost 1,287,045 1,600,917 Allowance for losses ( 13,832 ) ( 10,454 ) Total loans, net of allowance 8,535,146 6,981,440 Financial derivatives, at fair value 17,468 10,519 Interest receivable (includes $ 16,401 and $ 20,568 , respectively, related to consolidated trusts) 186,429 199,195 Guarantee and commitment fees receivable 37,113 38,442 Deferred tax asset, net 18,321 16,510 Prepaid expenses and other assets 24,545 22,463 Total Assets $ 24,355,501 $ 21,709,374 Liabilities and Equity: Liabilities: Notes payable $ 21,848,917 $ 19,098,648 Debt securities of consolidated trusts held by third parties 1,323,786 1,616,504 Financial derivatives, at fair value 29,892 27,042 Accrued interest payable (includes $ 14,370 and $ 18,018 , respectively, related to consolidated trusts) 92,738 106,959 Guarantee and commitment obligation 35,535 36,700 Accounts payable and accrued expenses 28,879 22,081 Reserve for losses 3,277 2,164 Total Liabilities 23,363,024 20,910,098 Commitments and Contingencies (Note 12) Equity: Preferred stock: Series A, par value $ 25 per share, 2,400,000 shares authorized, issued and outstanding as of December 31, 2019 (redemption value $ 60,000,000 ) — 58,333 Series C, par value $ 25 per share, 3,000,000 shares authorized, issued and outstanding 73,382 73,382 Series D, par value $ 25 per share, 4,000,000 shares authorized, issued and outstanding 96,659 96,659 Series E, par value $ 25 per share, 3,180,000 shares authorized, issued and outstanding 77,003 — Series F, par value $ 25 per share, 4,800,000 shares authorized, issued and outstanding 116,160 — Common stock: Class A Voting, $ 1 par value, no maximum authorization, 1,030,780 shares outstanding 1,031 1,031 Class B Voting, $ 1 par value, no maximum authorization, 500,301 shares outstanding 500 500 Class C Non-Voting, $ 1 par value, no maximum authorization, 9,205,897 shares and 9,180,744 shares outstanding, respectively 9,206 9,181 Additional paid-in capital 122,899 119,304 Accumulated other comprehensive loss, net of tax ( 13,923 ) ( 16,161 ) Retained earnings 509,560 457,047 Total Equity 992,477 799,276 Total Liabilities and Equity $ 24,355,501 $ 21,709,374 The accompanying notes are an integral part of these consolidated financial statements. 117 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2020 2019 2018 (in thousands, except per share amounts) Interest income: Investments and cash equivalents $ 42,144 $ 81,522 $ 55,179 Farmer Mac Guaranteed Securities and USDA Securities 227,691 333,896 290,953 Loans 233,699 229,675 198,152 Total interest income 503,534 645,093 544,284 Total interest expense 312,946 471,958 369,848 Net interest income 190,588 173,135 174,436 Provision for losses ( 7,805 ) ( 3,504 ) ( 238 ) Net interest income after provision for losses 182,783 169,631 174,198 Non-interest income/(expense): Guarantee and commitment fees 12,549 13,666 13,976 (Losses)/gains on financial derivatives ( 246 ) 5,282 ( 3,687 ) Gains on trading securities 50 326 81 Losses on sale of available-for-sale investment securities — ( 236 ) — Gains/(losses) on sale of real estate owned 463 — ( 7 ) (Provision)/release of reserve for losses ( 250 ) 3 ( 97 ) Other income 3,487 1,904 1,377 Non-interest income/(expense) 16,053 20,945 11,643 Operating expenses: Compensation and employee benefits 36,502 28,762 27,534 General and administrative 21,976 20,311 19,707 Regulatory fees 2,925 2,788 2,562 Real estate owned operating costs, net — 64 16 Operating expenses 61,403 51,925 49,819 Income before income taxes 137,433 138,651 136,022 Income tax expense 28,785 29,105 27,942 Net income 108,648 109,546 108,080 Preferred stock dividends ( 17,805 ) ( 13,940 ) ( 13,182 ) Loss on retirement of preferred stock ( 1,667 ) ( 1,956 ) — Net income attributable to common stockholders $ 89,176 $ 93,650 $ 94,898 Earnings per common share: Basic earnings per common share $ 8.31 $ 8.76 $ 8.91 Diluted earnings per common share $ 8.27 $ 8.69 $ 8.83 The accompanying notes are an integral part of these consolidated financial statements. 118 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended December 31, 2020 2019 2018 (in thousands) Net income $ 108,648 $ 109,546 $ 108,080 Other comprehensive income/(loss) before taxes: Net unrealized gains/(losses) on available-for-sale securities 37,291 ( 22,831 ) ( 29,980 ) Net changes in held-to-maturity securities ( 12,677 ) ( 13,415 ) ( 6,067 ) Net unrealized (losses)/gains on cash flow hedges ( 21,780 ) ( 15,801 ) 2,938 Other comprehensive income/(loss) before tax 2,834 ( 52,047 ) ( 33,109 ) Income tax (expense)/benefit related to other comprehensive income/(loss) ( 596 ) 10,930 6,953 Other comprehensive income/(loss) net of tax 2,238 ( 41,117 ) ( 26,156 ) Comprehensive income $ 110,886 $ 68,429 $ 81,924 The accompanying notes are an integral part of these consolidated financial statements. 119 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY Accumulated Additional Other Preferred Stock Common Stock Paid-In Comprehensive Retained Total Shares Amount Shares Amount Capital Income/(Loss) Earnings Equity (in thousands) Balance as of January 1, 2018 8,400 $ 204,759 10,619 $ 10,619 $ 118,979 $ 51,112 $ 323,175 $ 708,644 Net Income — — — — — — 108,080 108,080 Other comprehensive loss, net of tax — — — — — ( 26,156 ) — ( 26,156 ) Cash dividends: Preferred stock — — — — — — ( 13,182 ) ( 13,182 ) Common stock (cash dividend of $ 0.58 per share) — — — — — — ( 24,722 ) ( 24,722 ) Issuance of Class C Common Stock — — 50 50 7 — — 57 Stock-based compensation cost — — — — 2,518 — — 2,518 Other stock-based award activity — — — — ( 2,682 ) — — ( 2,682 ) Balance as of December 31, 2018 8,400 $ 204,759 10,669 $ 10,669 $ 118,822 $ 24,956 $ 393,351 $ 752,557 Net income — — — — — — 109,546 109,546 Other comprehensive loss, net of tax — — — — — ( 41,117 ) — ( 41,117 ) Cash dividends: Preferred stock — — — — — — ( 13,940 ) ( 13,940 ) Common stock (cash dividend of $ 0.70 per share) — — — — — — ( 29,954 ) ( 29,954 ) Issuance of Series D Preferred Stock 4,000 96,659 — — — — — 96,659 Redemption of Series B Preferred Stock ( 3,000 ) ( 73,044 ) — — — — — ( 73,044 ) Loss on retirement of preferred stock — — — — — — ( 1,956 ) ( 1,956 ) Issuance of Class C Common Stock — — 43 43 44 — — 87 Stock-based compensation cost — — — — 2,258 — — 2,258 Other stock-based award activity — — — — ( 1,820 ) — — ( 1,820 ) Balance as of December 31, 2019 9,400 $ 228,374 10,712 $ 10,712 $ 119,304 $ ( 16,161 ) $ 457,047 $ 799,276 Cumulative effect adjustment from adoption of current expected credit loss standard — — — — — — ( 2,099 ) $ ( 2,099 ) Balances as of January 1, 2020 9,400 $ 228,374 10,712 $ 10,712 $ 119,304 $ ( 16,161 ) $ 454,948 $ 797,177 Net Income — — — — — — 108,648 108,648 Other comprehensive income, net of tax — — — — — 2,238 — 2,238 Cash dividends: Preferred stock — — — — — — ( 17,805 ) ( 17,805 ) Common stock (cash dividend of $ 0.80 per share) — — — — — — ( 34,333 ) ( 34,333 ) Issuance of Series E preferred stock 3,180 77,003 — — — — — 77,003 Issuance of Series F preferred stock 4,800 116,160 — — — — — 116,160 Redemption of Series A preferred stock ( 2,400 ) ( 58,333 ) — — — — — ( 58,333 ) Loss on retirement of preferred stock — — — — — — ( 1,667 ) ( 1,667 ) Issuance of Class C Common Stock — — 29 29 56 — — 85 Repurchase of Class C Common Stock — — ( 4 ) ( 4 ) — — ( 231 ) ( 235 ) Stock-based compensation cost — — — — 4,128 — — 4,128 Other stock-based award activity — — — — ( 589 ) — — ( 589 ) Balance as of December 31, 2020 14,980 $ 363,204 10,737 $ 10,737 $ 122,899 $ ( 13,923 ) $ 509,560 $ 992,477 The accompanying notes are an integral part of these consolidated financial statements. 120 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2020 2019 2018 (in thousands) Cash flows from operating activities: Net income $ 108,648 $ 109,546 $ 108,080 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization of deferred gains, premiums, and discounts on loans, investments, Farmer Mac Guaranteed Securities, and USDA Securities 8,343 ( 10,399 ) ( 1,104 ) Amortization of debt premiums, discounts, and issuance costs 21,319 50,052 30,207 Net change in fair value of trading securities, hedged assets, and financial derivatives ( 256,466 ) ( 220,080 ) ( 23,747 ) Gain/(loss) on sale of real estate owned ( 463 ) — 7 Total provision for allowance for losses 8,055 3,501 335 Excess tax benefits related to stock-based awards ( 440 ) 449 946 Deferred income taxes ( 2,406 ) 789 2,625 Other — 236 — Stock-based compensation expense 4,128 2,258 2,517 Purchases of loans held for sale ( 59,150 ) — ( 25,000 ) Proceeds from the sale of loans held for sale 15,000 — 25,000 Proceeds from repayment of loans purchased as held for sale 59,370 54,195 92,060 Net change in: Interest receivable 11,054 ( 19,080 ) ( 25,866 ) Guarantee and commitment fees receivable 164 ( 59 ) ( 188 ) Other assets ( 3,348 ) ( 2,744 ) ( 6,435 ) Accrued interest payable ( 14,221 ) 10,216 21,341 Other liabilities 5,866 1,421 ( 747 ) Net cash (used in)/provided by operating activities ( 94,547 ) ( 19,699 ) 200,031 Cash flows from investing activities: Purchases of available-for-sale investment securities ( 2,852,658 ) ( 2,166,376 ) ( 1,221,392 ) Purchases of Farmer Mac Guaranteed Securities and USDA Securities ( 2,074,701 ) ( 2,691,104 ) ( 3,470,832 ) Purchases of loans held for investment ( 3,167,198 ) ( 2,234,715 ) ( 947,495 ) Purchases of defaulted loans ( 6,272 ) ( 469 ) ( 1,483 ) Proceeds from repayment of available-for-sale investment securities 1,961,895 1,425,402 1,242,310 Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities 2,517,957 2,190,702 2,813,041 Proceeds from repayment of loans purchased as held for investment 1,715,663 758,192 611,344 Proceeds from sale of available-for-sale investment securities — 12,367 — Proceeds from sale of Farmer Mac Guaranteed Securities 165,054 321,414 382,929 Proceeds from sale of real estate owned 4,169 — 116 Net cash used in investing activities ( 1,736,091 ) ( 2,384,587 ) ( 591,462 ) Cash flows from financing activities: Proceeds from issuance of discount notes 68,548,733 64,642,545 41,726,788 Proceeds from issuance of medium-term notes 13,509,754 10,195,775 7,692,845 Payments to redeem discount notes ( 68,960,492 ) ( 64,079,322 ) ( 41,891,576 ) Payments to redeem medium-term notes ( 10,414,765 ) ( 7,970,126 ) ( 6,834,057 ) Payments to third parties on debt securities of consolidated trusts ( 504,807 ) ( 181,493 ) ( 138,806 ) Proceeds from common stock issuance 56 44 7 Retirement of preferred stock ( 60,000 ) ( 75,000 ) — Proceeds from preferred stock issuance, net of stock issuance costs 193,163 96,659 — Tax payments related to share-based awards ( 560 ) ( 1,777 ) ( 2,631 ) Purchases of common stock ( 235 ) — — Dividends paid on common and preferred stock ( 50,649 ) ( 43,894 ) ( 37,905 ) Net cash provided by financing activities 2,260,198 2,583,411 514,665 Net change in cash and cash equivalents 429,560 179,125 123,234 Cash and cash equivalents at beginning of period 604,381 425,256 302,022 Cash and cash equivalents at end of period $ 1,033,941 $ 604,381 $ 425,256 Cash paid during the period for: Interest 283,335 365,526 268,728 Income taxes 30,000 23,100 30,882 Non-cash activity: Real estate owned acquired through loan liquidation — — 128 Loans acquired and securitized as Farmer Mac Guaranteed Securities 165,054 321,414 382,929 Consolidation of Farmer Mac Guaranteed Securities from off-balance sheet to loans held for investment in consolidated trusts and to debt securities of consolidated trusts held by third parties 165,054 263,561 255,080 Reclassification of defaulted loans from loans held for investment in consolidated trusts to loans held for investment 47,036 5,479 7,748 Reclassification of loans held for sale to loans held for investment 44,150 — — Capitalized interest 1,348 — — Charge-off from the allowance for losses 5,759 — — Purchases of securities - traded, not yet settled — — ( 1,400 ) 121 The accompanying notes are an integral part of these consolidated financial statements. 122 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION The Federal Agricultural Mortgage Corporation ("Farmer Mac") is a stockholder-owned, federally chartered instrumentality of the United States established under Title VIII of the Farm Credit Act of 1971, as amended (12 U.S.C. §§ 2279aa et seq.), which is sometimes referred to as Farmer Mac's charter. Farmer Mac was originally created by the United States Congress to provide a secondary market for a variety of loans made to borrowers in rural America. This secondary market is designed to increase the availability of long-term credit at stable interest rates to America's rural communities and to provide rural borrowers with the benefits of capital markets pricing and product innovation. Farmer Mac's secondary market activities include: • purchasing eligible loans directly from lenders; • providing advances against eligible loans by purchasing obligations secured by those loans; • securitizing assets and guaranteeing the payment of principal and interest on the resulting securities that represent interests in, or obligations secured by, pools of eligible loans; and • issuing long-term standby purchase commitments ("LTSPCs") for eligible loans. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Farmer Mac conform with accounting principles generally accepted in the United States of America ("generally accepted accounting principles" or "GAAP"). The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following are the significant accounting policies that Farmer Mac follows in preparing and presenting its consolidated financial statements: (a) Principles of Consolidation The consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries during the year: (1) Farmer Mac Mortgage Securities Corporation ("FMMSC"), whose principal activities are to facilitate the purchase and issuance of Farmer Mac Guaranteed Securities; and (2) Farmer Mac II LLC, whose principal activity is the operation of substantially all of the business related to the USDA Guarantees line of business – primarily the acquisition of USDA Securities. The consolidated financial statements also include the accounts of Variable Interest Entities ("VIEs") in which Farmer Mac determined itself to be the primary beneficiary. (b) Cash and Cash Equivalents Farmer Mac considers highly liquid investment securities with maturities at the time of purchase of three months or less to be cash equivalents. 123 (c) Investment Securities, Farmer Mac Guaranteed Securities, and USDA Securities Securities for which Farmer Mac has the intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. Securities for which Farmer Mac does not have the positive intent and ability to hold to maturity are classified as available-for-sale or trading and are carried at estimated fair value. Unrealized gains and losses on available-for-sale securities are reported as a component of accumulated other comprehensive income in stockholders' equity. For securities classified as trading, unrealized gains and losses are included in earnings. Gains and losses on the sale of available-for-sale and trading securities are determined using the specific identification cost method. Farmer Mac determines the fair value of investment securities using quoted market prices, when available, and evaluates the securities for other-than-temporary impairment. Farmer Mac determines the fair values of certain investment securities for which quoted market prices are not available, Farmer Mac Guaranteed Securities, and USDA Securities based on the present value of the associated expected future cash flows. In estimating the present value of the expected future cash flows, management is required to make estimates and assumptions. The key estimates and assumptions include discount rates and collateral repayment rates. Premiums, discounts, and other deferred costs are amortized to interest income using the effective interest method. Farmer Mac generally receives compensation when loans with yield maintenance provisions underlying Farmer Mac Guaranteed Securities prepay. These yield maintenance payments mitigate Farmer Mac's exposure to reinvestment risk and are calculated such that, when reinvested with the prepaid principal, they should generate substantially the same cash flows that would have been generated had the loans not prepaid. Yield maintenance payments are recognized as interest income in the consolidated statements of operations upon receipt. (d) Loans Loans for which Farmer Mac has the positive intent and ability to hold for the foreseeable future are classified as held for investment and reported at their unpaid principal balance, net of unamortized purchase discounts or premiums. Loans for which Farmer Mac does not have the positive intent and ability to hold for the foreseeable future are classified as held for sale and reported at the lower of cost or fair value determined on a pooled basis. Farmer Mac de-recognizes sold loans, and recognizes any associated gain or loss, when they have been isolated from Farmer Mac, the buyer has the right to pledge or exchange them, and Farmer Mac does not maintain effective control over them. When Farmer Mac consolidates a trust, it recognizes the loans underlying the trust in the consolidated balance sheets as "Loans held for investment in consolidated trusts, at amortized cost." See Note 2(p) for more information on the accounting policy related to consolidation. Non-accrual Loans Non-accrual loans are loans for which it is probable that Farmer Mac will be unable to collect all amounts due according to the contractual terms of the loan agreement and include all loans 90 days or more past due. When a loan becomes 90 days past due, interest accrual on the loan is discontinued and interest previously accrued is reversed against interest income in the current period. The interest on such loans is accounted for on the cash basis until a loan qualifies for return to accrual status. Loans are returned to accrual status when all the principal and interest payments contractually due are collected and certain performance criteria are met. 124 Troubled Debt Restructuring ("TDR") A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial difficulties is considered a TDR. Farmer Mac has granted a concession when, as a result of the restructuring, it does not expect to collect all amounts due in a timely manner, including interest accrued at the original contract rate. In making its determination of whether a borrower is experiencing financial difficulties, Farmer Mac considers several factors, including whether (1) the borrower has declared or is in the process of declaring bankruptcy, (2) there is substantial doubt as to whether the borrower will continue to be a going concern, and (3) the borrower can obtain funds from other sources at an effective interest rate at or near a current market interest rate for debt with similar risk characteristics. (e) Securitization Securitization involves the transfer of financial assets to another entity in exchange for cash and/or beneficial interests in the assets transferred. Farmer Mac or third parties transfer agricultural real estate mortgage loans, Rural Utilities loans, or USDA securities into trusts that are used as vehicles for the securitization of the transferred financial assets. The trusts issue Farmer Mac Guaranteed Securities that are beneficial interests in the assets of the trusts, to either Farmer Mac or third party investors. Farmer Mac guarantees the timely payment of principal and interest on the securities issued by the trusts and receives guarantee fees as compensation for its guarantee. Farmer Mac recognizes guarantee fees on the accrual basis over the terms of the Farmer Mac Guaranteed Securities, which generally coincide with the terms of the underlying loans. As such, no guarantee fees are unearned at the end of any reporting period. Farmer Mac is required to perform under its guarantee obligation when the underlying loans for the off-balance sheet Farmer Mac Guaranteed Securities do not make their scheduled installment payments. When a loan underlying a Farm & Ranch Guaranteed Security becomes 90 days or more past due, Farmer Mac may, in its sole discretion, repurchase the loan from the trust and generally does repurchase such loans, thereby reducing the principal balance of the outstanding Farm & Ranch Guaranteed Security. When Farmer Mac purchases a delinquent loan underlying a Farmer Mac Guaranteed Security, Farmer Mac stops accruing the guarantee fee upon loan purchase. If Farmer Mac repurchases a loan that is collateral for a Farmer Mac Guaranteed Security, Farmer Mac would have the right to enforce the terms of the loan, and in the event of a default, would have access to the underlying collateral. Farmer Mac typically recovers its investment in the defaulted loans purchased either through borrower payments, loan payoffs, payments by third parties, or foreclosure and sale of the property securing the loans. Farmer Mac has recourse to the USDA for any amounts advanced for the timely payment of principal and interest on Farmer Mac Guaranteed USDA Securities. That recourse is the USDA guarantee, a full-faith-and-credit obligation of the United States that becomes enforceable if a lender fails to repurchase the USDA-guaranteed portion from its owner within 30 days after written demand from the owner when (a) the borrower under the guaranteed loan is in default not less than 60 days in the payment of any principal or interest due on the USDA-guaranteed portion, or (b) the lender has failed to remit to the owner the payment made by the borrower on the USDA-guaranteed portion or any related loan subsidy within 30 days after the lender's receipt of the payment. 125 (f) Financial Derivatives Farmer Mac enters into financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of certain assets, future cash flows or debt issuance, not for trading or speculative purposes. Farmer Mac enters into interest rate swap contracts to adjust the characteristics of its short-term debt to match more closely the cash flow and duration characteristics of its longer-term loans and other assets, and also to adjust the characteristics of its long-term debt to match more closely the cash flow and duration characteristics of its short-term assets, thereby reducing interest rate risk and, often times, deriving an overall lower effective cost of borrowing than would otherwise be available to Farmer Mac in the conventional debt market. Accounting for financial derivatives differs depending on whether a derivative is designated in a hedge accounting relationship. Derivative instruments designated in fair value hedge accounting relationships mitigate exposure to changes in the fair value of assets or liabilities. Derivative instruments designated in cash flow hedge accounting relationships mitigate exposure to the variability in expected future cash flows or other forecasted transactions. In order to qualify for fair value or cash flow hedge accounting treatment, documentation must indicate the intention to designate the derivative as a hedge of a specific asset, or liability, or a future cash flow. Effectiveness of the hedge is assessed before the end of the quarter of inception and monitored over the life of the hedging relationship. Changes in the fair values of financial derivatives not designated as cash flow or fair value hedges were 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 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 relationships are also recorded in "Net interest income" in the consolidated statements of operations. For fi