FEDERAL AGRICULTURAL MORTGAGE CORP 10-K

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 financial derivatives designated in cash flow hedge 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. See Notes 6 and 13 for more information on financial derivatives. (g) Notes Payable Debt issuance costs and premiums and discounts are deferred and amortized to interest expense using the effective interest method over the contractual life of the related debt. 126 (h) Allowance for Losses and Reserve for Losses Current Expected Credit Loss ("CECL") 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. Under CECL, Farmer Mac's allowance for credit losses represents the difference between the carrying amount of the related financial instruments and the present value of their expected cash flows discounted at their effective interest rates, as of the respective balance sheet date. Under CECL, Farmer Mac's reserve for credit losses represents the difference between the outstanding amount of off-balance sheet credit exposures and the present value of their expected cash flows discounted at their effective interest rates. Farmer Mac maintains an allowance for credit losses to cover current expected credit losses as of the balance sheet date for on-balance sheet investment securities, loans held for investment, and Farmer Mac Guaranteed Securities (collectively referred to as "allowance for losses"). Additionally, Farmer Mac maintains a reserve for credit losses to cover current expected credit losses as of the balance sheet date for off-balance sheet loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities (collectively referred to as "reserve for losses"). Both the allowance for losses and reserve for losses are based on historical information and reasonable and supportable forecasts. Farmer Mac has never experienced a credit loss in its Rural Utilities line of business. Upon the adoption of CECL, Farmer Mac measures 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, under CECL 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, under CECL 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: 127 • An economic model for each portfolio, including Farm & Ranch, Rural Utilities, and Institutional Credit; • A migration matrix for each portfolio that reasonably predicts the movement of each financial asset among various risk categories over the course of each asset's expected life (the migration matrix forms the basis for our estimate of the probability of default of each financial asset); • A loss-given-default ("LGD") model that reasonably predicts the amount of loss that Farmer Mac would incur upon the default of each financial asset; • An economic factor forecast that updates the migration matrix model and the LGD model with current assumptions for the economic indicators that Farmer Mac has determined are most correlated with or relevant to the performance of each portfolio of assets (including Gross Domestic Product ("GDP"), credit spreads, unemployment rates, land values, and commodity prices); and • A discounted cash flow analysis, which relies upon each of the above model outputs, plus the contractual terms of each financial asset, and the effective interest rate of each financial asset. Management evaluates these assumptions by considering many relevant factors, including: • economic conditions; • geographic and agricultural commodity/product concentrations in the portfolio; • the credit profile of the portfolio, including risk ratings and financial metrics; • delinquency trends of the portfolio; • historical charge-off and recovery activities of the portfolio; and • other factors to capture current portfolio trends and characteristics that differ from historical experience. Management believes that its methodology produces a reasonable estimate of expected credit losses, as of the balance sheet date, for the expected life of all of its financial assets. Allowance for Loss on Available-for-Sale (AFS) Securities, under CECL 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"), under CECL 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. 128 COVID-19 Payment Deferments The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law on March 27, 2020. Section 4013 of the CARES Act titled “Temporary Relief from Troubled Debt Restructurings” provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings (“TDRs”) for a limited period of time to account for the effects of the novel coronavirus disease 2019 ("COVID-19"). On April 10, 2020, Farmer Mac’s prudential regulator, the Office of Secondary Market Oversight (OSMO) within the Farm Credit Administration (FCA), issued guidance to Farmer Mac on loan servicing and reporting TDRs for lines of business affected by the COVID-19 outbreak. This guidance was consistent with the guidance provided by other financial regulatory agencies and the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to the COVID-19 national emergency are not TDRs when the borrower was not past due on loan payments before the March 13, 2020 presidential proclamation declaring the COVID-19 outbreak a national emergency. During second quarter 2020, Farmer Mac implemented the guidance from FCA by granting up to 6-month payment deferments to borrowers who have been economically impacted by COVID-19. Farmer Mac deems loans under a COVID-19 payment deferment not to be past due and continues to accrue interest on those loans. Furthermore, Farmer Mac does not consider a payment deferment on any such loan to be a troubled debt restructuring. 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. Probable Incurred Credit Loss (prior to January 1, 2020) Prior to January 1, 2020, Farmer Mac maintained an allowance for losses to cover estimated probable losses incurred as of the balance sheet date on loans held ("allowance for loan losses") and loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities ("reserve for losses") based on available information. Disaggregation by: commodity type, portfolio, and risk rating; was performed, where appropriate, in analyzing the need for an allowance for losses. General Allowance for Loss, for Probable Incurred Credit Losses Prior to January 1, 2020, Farmer Mac's methodology to determine its allowance for losses incorporated Farmer Mac's automated loan classification system. That system scored loans based on criteria such as historical repayment performance, indicators of current financial condition, loan seasoning, loan size and loan-to-value ratio. The previous allowance methodology captured the migration of loan scores across concurrent and overlapping 3-year time horizons and calculated loss rates separately within each loan classification for (1) loans underlying LTSPCs and (2) loans held and loans underlying Farm & Ranch Guaranteed Securities. The calculated loss rates were applied to the current classification distribution of unimpaired loans in Farmer Mac's portfolio to estimate inherent losses, under the assumption that the historical credit losses and trends used to calculate loss rates would continue in the future. Management evaluated those assumptions through considering many relevant factors, including: • economic conditions; • geographic and agricultural commodity/product concentrations in the portfolio; • the credit profile of the portfolio; • 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. 129 Prior to January 1, 2020, Management believed that its use of that methodology produced a reasonable estimate of probable losses incurred as of the balance sheet date, for all loans held in the Farm & Ranch portfolio and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs. Prior to January 1, 2020, Farmer Mac separately evaluated the Rural Utilities loans it owned to determine if there were any probable losses inherent in those assets. Specific Allowance for Impaired Loans Prior to January 1, 2020, Farmer Mac analyzed individual loans for impairment. Those individual loans included loans 90 days or more past due, in foreclosure, restructured, in bankruptcy and certain performing loans that had previously been delinquent or were secured by real estate that produced agricultural commodities or products then under stress. (i) Earnings Per Common Share Basic earnings per common share ("EPS") is based on the daily weighted-average number of shares of common stock outstanding. Diluted earnings per common share is based on the daily weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive stock appreciation rights ("SARs") and unvested restricted stock awards. The following schedule reconciles basic and diluted EPS for the years ended December 31, 2020, 2019 and 2018: Table 2.1 For the Years Ended December 31, 2020 2019 2018 Net Income Weighted-Average Shares $ per Share Net Income Weighted-Average Shares $ per Share Net Income Weighted-Average Shares $ per Share (in thousands, except per share amounts) Basic EPS Net income attributable to common stockholders $ 89,176 10,728 $ 8.31 $ 93,650 10,696 $ 8.76 $ 94,898 10,654 $ 8.91 Effect of dilutive securities (1) SARs and restricted stock — 58 ( 0.04 ) — 82 ( 0.07 ) — 92 ( 0.08 ) Diluted EPS $ 89,176 10,786 $ 8.27 $ 93,650 10,778 $ 8.69 $ 94,898 10,746 $ 8.83 (1) For the years ended December 31, 2020, 2019, and 2018, SARs and restricted stock of 74,336 , 43,374 , and 15,812 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the years ended December 31, 2020, 2019, and 2018, contingent shares of unvested restricted stock of 12,680 , 10,349 , and 13,138 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met. (j) Income Taxes Deferred federal income tax assets and liabilities are established for temporary differences between financial and taxable income and are measured using the current enacted statutory tax rate. Income tax expense is equal to the income taxes payable in the current year plus the net change in the deferred tax asset or liability balance. Deferred tax assets are measured at rates in effect when they arise. To the extent rates change, the deferred tax asset will be adjusted to reflect the new rate. A increase in corporate tax rates would result in an increase in the value of the deferred tax asset. 130 Farmer Mac evaluates its tax positions quarterly to identify and recognize any liabilities related to uncertain tax positions in its federal income tax returns. Farmer Mac uses a two-step approach in which income tax benefits are recognized if, based on the technical merits of a tax position, it is more likely than not (a probability of greater than 50%) that the tax position would be sustained upon examination by the taxing authority, which includes all related appeals and litigation process. The amount of tax benefit recognized is then measured at the largest amount of tax benefit that is greater than 50% likely to be realized upon settlement with the taxing authority, considering all information available at the reporting date. Farmer Mac's policy for recording interest and penalties associated with uncertain tax positions is to record them as a component of income tax expense. Farmer Mac establishes a valuation allowance for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining its deferred tax asset valuation allowance, Farmer Mac considered its taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback and carryforward periods available under the tax law and the impact of possible tax planning strategies. (k) Stock-Based Compensation Farmer Mac accounts for its stock-based employee compensation plans using the grant date fair value method of accounting. Farmer Mac measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award determined using the Black-Scholes option pricing model. The cost is recognized over the period during which an employee is required to provide service in exchange for the award. For performance-based grants, Farmer Mac recognizes the grant-date fair value over the vesting period as long as it remains probable that the performance conditions will be met. If the service or performance conditions are not met, Farmer Mac reverses previously recognized compensation expense upon forfeiture. Farmer Mac recognized $ 4.1 million, $ 2.3 million, and $ 2.5 million of compensation expense related to stock options, SARs, and non-vested restricted stock awards for 2020, 2019, and 2018, respectively. (l) Comprehensive Income Comprehensive income represents all changes in stockholders' equity except those resulting from investments by or distributions to stockholders, and is comprised of net income and unrealized gains and losses on available-for-sale securities, certain held-to-maturity securities transferred from the available-for-sale classification, and cash flow hedges, net of related taxes. 131 The following table presents the changes in accumulated other comprehensive income ("AOCI"), net of tax, by component for the years ended December 31, 2020, 2019, and 2018: Table 2.2 Available-for-Sale Securities Held-to-Maturity Securities Cash Flow Hedges Total (in thousands) Balance as of January 1, 2018 $ ( 1,676 ) $ 48,236 $ 4,552 $ 51,112 Other comprehensive (loss)/income before reclassifications ( 19,151 ) — 2,571 ( 16,580 ) Amounts reclassified from AOCI ( 4,533 ) ( 4,793 ) ( 250 ) ( 9,576 ) Net comprehensive (loss)/income ( 23,684 ) ( 4,793 ) 2,321 ( 26,156 ) Balance as of December 31, 2018 $ ( 25,360 ) $ 43,443 $ 6,873 $ 24,956 Other comprehensive loss before reclassifications ( 14,976 ) — ( 11,561 ) ( 26,537 ) Amounts reclassified from AOCI ( 3,061 ) ( 10,598 ) ( 921 ) ( 14,580 ) Net comprehensive loss ( 18,037 ) ( 10,598 ) ( 12,482 ) ( 41,117 ) Balance as of December 31, 2019 $ ( 43,397 ) $ 32,845 $ ( 5,609 ) $ ( 16,161 ) Other comprehensive income/(loss) before reclassifications 32,739 — ( 21,606 ) 11,133 Amounts reclassified from AOCI ( 3,279 ) ( 10,016 ) 4,400 ( 8,895 ) Net comprehensive income/(loss) 29,460 ( 10,016 ) ( 17,206 ) 2,238 Balance as of December 31, 2020 $ ( 13,937 ) $ 22,829 $ ( 22,815 ) $ ( 13,923 ) 132 The following table presents other comprehensive income activity, the impact on net income of amounts reclassified from each component of AOCI, and the related tax impact for the years ended December 31, 2020, 2019, and 2018: Table 2.3 For the Years Ended December 31, 2020 2019 2018 Before Tax Provision (Benefit) After Tax Before Tax Provision (Benefit) After Tax Before Tax Provision (Benefit) After Tax (in thousands) Other comprehensive income: Available-for-sale-securities: Unrealized holding gains/(losses) on available-for-sale securities $ 41,442 $ 8,703 $ 32,739 $ ( 18,958 ) $ ( 3,982 ) $ ( 14,976 ) $ ( 24,241 ) $ ( 5,090 ) $ ( 19,151 ) Less reclassification adjustments included in: Net interest income (1) ( 3,895 ) ( 818 ) ( 3,077 ) ( 3,834 ) ( 805 ) ( 3,029 ) ( 5,784 ) ( 1,215 ) ( 4,569 ) Gains on sale of available-for-sale investment securities (2) — — — 236 50 186 — — — Other income (2) ( 256 ) ( 54 ) ( 202 ) ( 275 ) ( 57 ) ( 218 ) 45 9 36 Total $ 37,291 $ 7,831 $ 29,460 $ ( 22,831 ) $ ( 4,794 ) $ ( 18,037 ) $ ( 29,980 ) $ ( 6,296 ) $ ( 23,684 ) Held-to-maturity securities: Less reclassification adjustments included in: Net interest income (3) ( 12,677 ) ( 2,661 ) ( 10,016 ) ( 13,415 ) ( 2,817 ) ( 10,598 ) ( 6,067 ) ( 1,274 ) ( 4,793 ) Total $ ( 12,677 ) $ ( 2,661 ) $ ( 10,016 ) $ ( 13,415 ) $ ( 2,817 ) $ ( 10,598 ) $ ( 6,067 ) $ ( 1,274 ) $ ( 4,793 ) Cash flow hedges Unrealized (losses)/gains on cash flow hedges $ ( 27,350 ) $ ( 5,744 ) $ ( 21,606 ) $ ( 14,635 ) $ ( 3,074 ) $ ( 11,561 ) $ 3,254 $ 683 $ 2,571 Less reclassification adjustments included in: Net interest income (4) 5,570 1,170 4,400 ( 1,166 ) ( 245 ) ( 921 ) ( 316 ) ( 66 ) ( 250 ) Total $ ( 21,780 ) $ ( 4,574 ) $ ( 17,206 ) $ ( 15,801 ) $ ( 3,319 ) $ ( 12,482 ) $ 2,938 $ 617 $ 2,321 Other comprehensive income/(loss) $ 2,834 $ 596 $ 2,238 $ ( 52,047 ) $ ( 10,930 ) $ ( 41,117 ) $ ( 33,109 ) $ ( 6,953 ) $ ( 26,156 ) (1) Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting. (2) Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities. (3) Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the remaining life of the security with no impact on future net income. (4) Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI. (m) Guarantees Farmer Mac accounts for its LTSPCs as guarantees. LTSPCs and securitization trusts where Farmer Mac is not the primary beneficiary result in the creation of off-balance sheet obligations for Farmer Mac. Farmer Mac records, at the inception of an off-balance sheet guarantee or LTSPC, a liability for the fair value of its obligation to stand ready to perform under the terms of each guarantee or LTSPC and an asset that is equal to the fair value of the fees that will be received over the life of each guarantee or LTSPC. The fair values of the guarantee obligation and asset at inception are based on the present value of 133 expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved. Because the cash flows of these instruments may be interest rate path dependent, these values and projected discount rates are derived using a Monte Carlo simulation model. The guarantee obligation and corresponding asset are later amortized into guarantee and commitment fee income in relation to the decrease in the unpaid principal balance on the underlying agricultural real estate mortgage and Rural Utilities loans. See Note 2(h) for Farmer Mac's policy for estimating probable losses for LTSPCs. (n) Fair Value Measurement 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. In determining fair value, Farmer Mac uses various valuation approaches, including market and income based approaches. 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. Fair value measurements related to financial instruments that are reported at fair value in the consolidated financial statements each period are referred to as recurring fair value measurements. Fair value measurements related to financial instruments that are not reported at fair value each period but are subject to fair value adjustments in certain circumstances are referred to as nonrecurring fair value measurements. Fair Value Classification and Transfers 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 following three levels are used 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. Farmer Mac performs a detailed analysis of the assets and liabilities carried at fair value to determine the appropriate level based on the transparency of the inputs used in the valuation techniques. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Farmer Mac's assessment of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of factors specific to the instrument. While Farmer Mac believes its valuation methods are appropriate and consistent with those of other market participants, using different methodologies or assumptions to 134 determine fair value could result in a materially different estimate of fair value for some financial instruments. The following is a description of the fair value techniques used for instruments measured at fair value as well as the general classification of those instruments under the valuation hierarchy described above. Recurring Fair Value Measurements and Classification Available-for-Sale and Trading Investment Securities The fair value of investments in U.S. Treasuries is based on unadjusted quoted prices in active markets. Farmer Mac classifies these fair value measurements as "Level 1." For a significant portion of Farmer Mac's investment portfolio, including most asset-backed securities, senior agency debt securities, and Government/GSE guaranteed mortgage-backed securities, fair value is primarily determined using a reputable and nationally recognized third-party pricing service. The prices obtained are non-binding and generally representative of recent market trades. The fair value of certain asset-backed and Government guaranteed mortgage-backed securities are estimated based on quotations from brokers or dealers. Farmer Mac corroborates its primary valuation source by obtaining a secondary price from another independent third-party pricing service. Farmer Mac classifies these fair value measurements as "Level 2." For certain investment securities that are thinly traded or not quoted, Farmer Mac estimates fair value using internally-developed models that employ a discounted cash flow approach. Farmer Mac maximizes the use of observable market data, including prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility, and prepayment rates. Farmer Mac generally considers a market to be thinly traded or not quoted if the following conditions exist: (1) there are few transactions for the financial instruments; (2) the prices in the market are not current; (3) the price quotes vary significantly either over time or among independent pricing services or dealers; or (4) there is limited availability of public market information. Farmer Mac classifies these fair value measurements as "Level 3." Available-for-Sale and Trading Farmer Mac Guaranteed Securities and USDA Securities Farmer Mac estimates the fair value of its Farmer Mac Guaranteed Securities and USDA Securities by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved. Farmer Mac classifies these fair value measurements as Level 3 because there is limited market activity and therefore little or no price transparency. On a sample basis, Farmer Mac corroborates the fair value of its Farmer Mac Guaranteed Securities and USDA Securities by obtaining a secondary valuation from an independent third-party service. Financial Derivatives The fair value of exchange-traded U.S. Treasury futures is based on unadjusted quoted prices for identical financial instruments. Farmer Mac classifies these fair value measurements as Level 1. 135 Farmer Mac's derivative portfolio consists primarily of interest rate swaps and forward sales contracts on the debt of other GSEs. Farmer Mac estimates the fair value of these financial instruments primarily based upon the counterparty valuations. Farmer Mac internally values its derivative portfolio using a discounted cash flow valuation technique and obtains a secondary valuation for certain interest rate swaps to corroborate the counterparty valuations. Farmer Mac also regularly reviews the counterparty valuations as part of the collateral exchange process. Farmer Mac classifies these fair value measurements as Level 2. Certain basis swaps are non-standard interest rate swap structures and are therefore internally modeled using significant assumptions and unobservable inputs, resulting in Level 3 classification. Farmer Mac uses a discounted cash flow valuation technique, using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved. See Note 13 for more information regarding fair value measurement. (o) Consolidation of Variable Interest Entities Farmer Mac has interests in various entities that are considered to be VIEs. These interests include investments in securities issued by VIEs, such as Farmer Mac agricultural mortgage-backed securities created pursuant to Farmer Mac's securitization transactions and mortgage and asset-backed trusts that Farmer Mac did not create. The consolidation model uses a qualitative evaluation that requires consolidation of an entity when the reporting enterprise both: (1) has the power to direct matters which significantly impact the activities and success of the entity, and (2) has exposure to benefits and/or losses that could potentially be significant to the entity. The reporting enterprise that meets both these conditions is deemed the primary beneficiary of the VIE. Upon consolidation of a VIE, Farmer Mac accounts for the incremental assets and liabilities initially at their carrying amounts. The VIEs in which Farmer Mac has a variable interest are limited to securitization trusts. The major factor in determining if Farmer Mac is the primary beneficiary is whether Farmer Mac has the power to direct the activities of the trust that potentially have the most significant impact on the economic performance of the trust. Generally, the ability to make decisions regarding default mitigation is evidence of that power. Farmer Mac determined that it is the primary beneficiary for the securitization trusts related to most Farm & Ranch and all Rural Utilities securitization transactions because of its rights as guarantor under both programs to control the default mitigation activities of the trusts. For certain securitization trusts created when loans subject to LTSPCs were converted to Farm & Ranch Guaranteed Securities, Farmer Mac determined that it was not the primary beneficiary since the power to make decisions regarding default mitigation was shared among unrelated parties. For these trusts, the shared power provisions are substantive with respect to decision-making power and relate to the same activity (i.e., default mitigation). For similar securitization transactions where the power to make decisions regarding default mitigation was shared with a related party, Farmer Mac determined that it was the primary beneficiary because the applicable accounting guidance does not permit parties within a related party group to conclude that the power is shared. In the event that a related party status changes, consolidation or deconsolidation of these securitization trusts could occur. For those trusts that Farmer Mac is the primary beneficiary, the assets and liabilities are presented on the consolidated balance sheets as "Loans held for investment in consolidated trusts, at amortized cost" and "Debt securities of consolidated trusts held by third parties," respectively. These assets can only be used to satisfy the obligations of the related trust. 136 For those trusts in which Farmer Mac has a variable interest but is not the primary beneficiary, Farmer Mac's interests are presented as either "Farmer Mac Guaranteed Securities," "USDA Securities," or "Investment securities" on the consolidated balance sheets. Farmer Mac's involvement in VIEs classified as Farmer Mac Guaranteed Securities or USDA Securities include securitization trusts under the USDA Guarantees line of business. In the case of USDA guaranteed trusts, Farmer Mac is not determined to be the primary beneficiary because it does not have the decision-making power over default mitigation activities. Based on the USDA's program authority over the servicing and default mitigation activities of the USDA guaranteed portions of loans, Farmer Mac believes that the USDA has the power to direct the activities that most significantly impact the trust's economic performance. Farmer Mac does not have exposure to losses that could be significant to the trust and there are no triggers that would result in Farmer Mac superseding the USDA's authority with regard to directing the activities of the trust. For VIEs classified as investment securities, which include auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE") guaranteed mortgage-backed securities, Farmer Mac is determined not to be the primary beneficiary because of the lack of voting rights or other powers to direct the activities of the trust. The following tables present, by line of business, details about the consolidation of VIEs: Table 2.4 Consolidation of Variable Interest Entities As of December 31, 2020 Farm & Ranch USDA Guarantees Corporate Total (in thousands) On-Balance Sheet: Consolidated VIEs: Loans held for investment in consolidated trusts, at amortized cost $ 1,287,045 $ — $ — $ 1,287,045 Debt securities of consolidated trusts held by third parties (1) 1,323,786 — — 1,323,786 Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Carrying value (2) — 34,537 — 34,537 Maximum exposure to loss (3) — 34,456 — 34,456 Investment securities: Carrying value (4) — — 1,918,672 1,918,672 Maximum exposure to loss (3) (4) — — 1,909,535 1,909,535 Off-Balance Sheet: Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Maximum exposure to loss (3) (5) 79,312 299,298 — 378,610 (1) Includes borrower remittances of $ 36.7 million. The borrower remittances had not been passed through to third party investors as of December 31, 2020. (2) Includes $ 0.1 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business. (3) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss. (4) Includes auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities. (5) The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party. 137 Consolidation of Variable Interest Entities As of December 31, 2019 Farm & Ranch USDA Guarantees Corporate Total (in thousands) On-Balance Sheet: Consolidated VIEs: Loans held for investment in consolidated trusts, at amortized cost $ 1,600,917 $ — $ — $ 1,600,917 Debt securities of consolidated trusts held by third parties (1) 1,616,504 — — 1,616,504 Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Carrying value (2) — 32,041 — 32,041 Maximum exposure to loss (3) — 31,887 — 31,887 Investment securities: Carrying value (4) — — 1,117,203 1,117,203 Maximum exposure to loss (3) (4) — — 1,120,765 1,120,765 Off-Balance Sheet: Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Maximum exposure to loss (3) (5) 107,322 389,216 — 496,538 (1) Includes borrower remittances of $ 15.6 million. The borrower remittances had not been passed through to third party investors as of December 31, 2019. (2) Includes $ 0.2 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business. (3) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss. (4) Includes auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities. (5) The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party. 138 (p) New Accounting Standards Recently Adopted Accounting Guidance Standard Description Date of Adoption Effect on Consolidated Financial Statements ASU 2016-13 , Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments This Update required entities to measure all expected credit losses for financial assets held at amortized cost at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts, as well as requiring entities to use forward-looking information to form their credit loss estimates. January 1, 2020 In 2020 Farmer Mac adopted the new guidance. The cumulative-effect adjustment to retained earnings as of January 1, 2020 reflected application of the new guidance and did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. For more information on the transition adjustment see Table 2.5 below. ASU 2017-08 , Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium by requiring the premium to be amortized to the earliest call date. There is no required accounting change for securities held at a discount in this Update. January 1, 2020 The adoption of this Update did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. ASU 2018-13 , Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurements, including the consideration of costs and benefits. Certain disclosure requirements were either removed, modified, or added. January 1, 2020 The adoption of this Update did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. ASU 2020-04 and 2021-01 , Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting The amendments in this Update provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. They provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. January 1, 2020 Farmer Mac adopted optional expedients specific to discounting transition on a retrospective basis, and as a result of this election, the discounting transition did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. 139 The following table presents the impact of adopting CECL on January 1, 2020 on our allowance and retained earnings: Table 2.5 December 31, 2019 Transition Adjustment January 1, 2020 (in thousands) Allowance: Farm & Ranch: Loans $ 10,454 $ ( 3,909 ) $ 6,545 Long-term standby purchase commitments and guarantees 2,164 ( 148 ) 2,016 Rural Utilities: Loans — 5,378 5,378 Long-term standby purchase commitments — 1,011 1,011 Farmer Mac Guaranteed Securities: AgVantage — 315 315 Investment Securities — 9 9 Total Allowance $ 12,618 $ 2,656 $ 15,274 Retained Earnings $ 457,047 $ ( 2,099 ) $ 454,948 (q) Reclassifications Certain reclassifications of prior period information were made to conform to the current period presentation. 3. RELATED PARTY TRANSACTIONS Farmer Mac considers an entity to be a related party if (1) the entity holds at least 5% of a class of Farmer Mac voting common stock or (2) the institution has an affiliation with a Farmer Mac director and conducts material business with Farmer Mac. 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 Farm Credit System may hold Farmer Mac's Class B voting common stock. Farmer Mac's statutory charter also provides that Class A stockholders elect 5 members of Farmer Mac's 15-member board of directors and that Class B stockholders elect 5 members of the board of directors. Farmer Mac generally requires 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 these requirements, Farmer Mac conducts business with related parties in the normal course of Farmer Mac's business. All related party transactions were conducted with terms and conditions comparable to those available to any other participant in Farmer Mac's lines of business not related to Farmer Mac. 140 Zions Bancorporation, National Association : Farmer Mac considers Zions Bancorporation, National Association and its affiliates ("Zions") a related party because Zions owns approximately 31.2 % of Farmer Mac's Class A voting common stock. The following transactions occurred between Farmer Mac and Zions during 2020, 2019, and 2018: Table 3.1 For the Years Ended December 31, 2020 2019 2018 (in thousands) Unpaid Principal Balance: Purchases: Loans $ 177,143 $ 129,040 $ 114,719 USDA Securities 10,764 8,875 19,120 Sales of Farmer Mac Guaranteed Securities 41,247 163,134 68,721 The purchases of loans from Zions under the Farm & Ranch line of business represented approximately 7.1 %, 9.5 %, and 11.9 % of Farm & Ranch loan purchases for the years ended December 31, 2020, 2019, and 2018, respectively, and 6.2 %, 7.6 % and 8.2 %, respectively, of total new Farm & Ranch business volume. The purchases of USDA Securities from Zions under the USDA Guarantees line of business represented approximately 1.4 %, 2.1 %, and 4.2 % of purchases in that line of business for the years ended December 31, 2020, 2019, and 2018, respectively. Outstanding Farm & Ranch loans, USDA Securities, and AgVantage securities purchased from Zions represented 4.1 % and 4.5 %, respectively, of Farmer Mac's outstanding business volume as of December 31, 2020 and 2019. Zions retained servicing fees of $ 11.8 million, $ 12.2 million, and $ 11.6 million in 2020, 2019, and 2018, respectively, for its work as a Farmer Mac servicer. National Rural Utilities Cooperative Financial Corporation : Farmer Mac considers the National Rural Utilities Cooperative Financial Corporation ("CFC") a related party because CFC owns approximately 7.9 % of Farmer Mac's Class A voting common stock and because a member of Farmer Mac's board of directors has an affiliation with CFC. The following transactions occurred between Farmer Mac and CFC during 2020, 2019, and 2018: Table 3.2 Farmer Mac Loan Purchases and Guarantees For the Years Ended December 31, 2020 2019 2018 (in thousands) Unpaid Principal Balance: Loans $ 272,943 $ 85,000 $ 11,645 Off-balance sheet revolving line of credit 19,500 — — On-balance sheet AgVantage Securities 250,000 575,000 675,000 Off-balance sheet revolving floating rate AgVantage facility — — 300,000 Total purchases and guarantees $ 542,443 $ 660,000 $ 986,645 141 The transactions with CFC represented 36.7 % of Farmer Mac's loan purchase volume under the Rural Utilities line of business for 2020, compared to 9.8% of Farmer Mac's loan purchase volume for 2019 and 100% for 2018. These transactions represented 19.2 %, 25.5 %, and 29.5 % of AgVantage securities volume under the Institutional Credit line of business for 2020, 2019, and 2018, respectively, and represented 9.5 %, 12.5 %, and 19.1 % of total purchases, guarantees, and LTSPCs for 2020, 2019, and 2018, respectively. Of Farmer Mac's total outstanding business volume as of December 31, 2020 and 2019, Rural Utilities loans, loans under LTSPCs, and AgVantage securities issued by CFC represented 19.2 % and 21.2 %, respectively. Farmer Mac had interest receivable of $ 5.3 million and $ 9.2 million as of December 31, 2020 and 2019, respectively, and earned interest income of $ 63.1 million, $ 97.3 million, and $ 76.8 million during 2020, 2019, and 2018, respectively, related to its AgVantage transactions with CFC. As of both December 31, 2020 and 2019, Farmer Mac had $ 0.1 million of commitment fees receivable from CFC and earned commitment fees of $ 1.3 million , $ 1.7 million, and $ 1.9 million, respectively for 2020, 2019, and 2018. CFC retained servicing fees of $ 3.3 million, $ 3.2 million and $ 3.6 million in 2020, 2019, and 2018, respectively, for its work as a Farmer Mac central servicer. CoBank : Farmer Mac considers CoBank a related party because CoBank owns approximately 32.6 % of Farmer Mac's Class B voting common stock and because a member of Farmer Mac's board of directors had an affiliation with CoBank through the end of 2019. Farmer Mac purchased $ 416.8 million and $ 776.4 million of loans and participations from CoBank, under the Rural Utilities line of business in 2020 and 2019, respectively. The transactions with CoBank represented 56.0 % and 89.1 % of Farmer Mac's loan purchase transactions under the Rural Utilities line of business for 2020 and 2019, respectively. During 2018, Farmer Mac did not do any business with CoBank through any of its lines of business. CoBank retained servicing fees of $ 2.3 million and $ 1.2 million in 2020 and 2019, respectively, for its work as a Farmer Mac central servicer. During 2018, CoBank was not a Farmer Mac central servicer. AgFirst Farm Credit Bank : Farmer Mac considers AgFirst Farm Credit Bank ("AgFirst") a related party because AgFirst owns approximately 16.8 % of Farmer Mac's Class B voting common stock. AgFirst entered into $ 32.5 million, $ 26.7 million, and $ 26.6 million of LTSPC transactions in 2020, 2019, and 2018, respectively, and the aggregate balance of LTSPCs outstanding as of December 31, 2020 and 2019 was $ 331.2 million and $ 332.4 million, respectively. In each of 2020, 2019, and 2018, Farmer Mac received $ 1.2 million in commitment fees from AgFirst, and had $ 0.1 million of commitment fees receivable as of both December 31, 2020 and 2019. AgFirst owns certain securities backed by rural housing loans. Farmer Mac guarantees the last ten percent of losses (based on the original principal balance at the time of pooling) from each loan in the pool 142 backing those securities. As of December 31, 2020 and 2019, the outstanding balance of those securities owned by AgFirst was $ 5.5 million and $ 7.0 million, respectively. Farmer Mac received guarantee fees of $ 25,000 , $ 29,000 , and $ 33,000 in 2020, 2019, and 2018, respectively, on those securities. Farm Credit Bank of Texas : Farmer Mac considers Farm Credit Bank of Texas a related party because the bank owns approximately 7.7 % of Farmer Mac's Class B voting common stock. Farmer Mac received from Farm Credit Bank of Texas commitment fees of $ 1.2 million, $ 1.1 million, and $ 1.0 million in 2020, 2019, and 2018, respectively. The aggregate amount of LTSPCs outstanding with Farm Credit Bank of Texas as of December 31, 2020 and 2019 was $ 304.9 million and $ 270.3 million, respectively. In 2020, 2019, and 2018, Farm Credit Bank of Texas retained $ 0.1 million, $ 0.1 million, and $ 0.2 million, respectively, in servicing fees for its work as a Farmer Mac central servicer. Other Related Party Transactions : Farmer Mac considers Bath State Bank and Farm Credit of Florida related parties because a member of Farmer Mac's board of directors is affiliated with those entities. Farmer Mac purchased $ 9.2 million, $ 4.0 million, and $ 2.0 million in USDA Securities from Bath State Bank in 2020, 2019, and 2018, respectively. Farmer Mac purchased $ 0.2 million of Farm & Ranch loans from Farm Credit of Florida in 2020. Farmer Mac did no t purchase any loans from Farm Credit of Florida in 2019 or 2018. 4. INVESTMENT SECURITIES The following tables set forth information about Farmer Mac's investment securities as of December 31, 2020 and December 31, 2019: Table 4.1 As of December 31, 2020 Amount Outstanding Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,700 $ — $ 19,700 $ ( 36 ) $ — $ ( 493 ) $ 19,171 Floating rate asset-backed securities 6,232 — 6,232 — — ( 1 ) 6,231 Floating rate Government/GSE guaranteed mortgage-backed securities 2,350,963 ( 44 ) 2,350,919 — 12,150 ( 3,043 ) 2,360,026 Fixed rate GSE guaranteed mortgage-backed securities 279 — 279 — 34 — 313 Fixed rate U.S. Treasuries 1,449,408 17,128 1,466,536 — 1,458 ( 43 ) 1,467,951 Total available-for-sale 3,826,582 17,084 3,843,666 ( 36 ) 13,642 ( 3,580 ) 3,853,692 Held-to-maturity: Floating rate Government/GSE guaranteed mortgage-backed securities (3) 45,032 — 45,032 — 1,201 — 46,233 Total investment securities $ 3,871,614 $ 17,084 $ 3,888,698 $ ( 36 ) $ 14,843 $ ( 3,580 ) $ 3,899,925 (1) Amounts presented exclude $ 9.0 million of accrued interest receivable on investment securities as of December 31, 2020. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statement of operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The held-to-maturity investment securities had a weighted average yield of 1.5 % as of December 31, 2020. 143 As of December 31, 2019 Amount Outstanding Unamortized Premium/(Discount) Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,700 $ — $ 19,700 $ — $ ( 788 ) $ 18,912 Floating rate asset-backed securities 11,092 — 11,092 — ( 7 ) 11,085 Floating rate Government/GSE guaranteed mortgage-backed securities 1,633,731 1,174 1,634,905 2,414 ( 4,736 ) 1,632,583 Fixed rate GSE guaranteed mortgage-backed securities 315 — 315 25 — 340 Fixed rate U.S. Treasuries 1,295,210 208 1,295,418 1,520 ( 15 ) 1,296,923 Total available-for-sale 2,960,048 1,382 2,961,430 3,959 ( 5,546 ) 2,959,843 Held-to-maturity: Floating rate Government/GSE guaranteed mortgage-backed securities (1) 45,032 — 45,032 953 — 45,985 Total investment securities $ 3,005,080 $ 1,382 $ 3,006,462 $ 4,912 $ ( 5,546 ) $ 3,005,828 (1) The held-to-maturity investment securities had a weighted average yield of 3.3 % as of December 31, 2019. Farmer Mac did not sell any securities from its available-for-sale investment portfolio during the years ended December 31, 2020 or 2018. During the year ended December 31, 2019, Farmer Mac received proceeds of $12.4 million from the sale of securities from its available-for-sale investment portfolio, resulting in gross realized losses of $0.2 million. As of December 31, 2020 and December 31, 2019, unrealized losses on available-for-sale investment securities were as follows: Table 4.2 As of December 31, 2020 Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (dollars in thousands) Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,171 $ ( 493 ) Floating rate asset-backed securities — — 6,231 ( 1 ) Floating rate Government/GSE guaranteed mortgage-backed securities 172,842 ( 593 ) 324,423 ( 2,450 ) Fixed rate U.S. Treasuries 364,320 ( 43 ) — — Total $ 537,162 $ ( 636 ) $ 349,825 $ ( 2,944 ) Number of securities in loss position 27 62 144 As of December 31, 2019 Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (dollars in thousands) Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 18,912 $ ( 788 ) Floating rate asset-backed securities 2,583 ( 1 ) 8,502 ( 6 ) Floating rate Government/GSE guaranteed mortgage-backed securities 841,993 ( 2,244 ) 436,621 ( 2,492 ) Fixed rate U.S. Treasuries 35,107 ( 15 ) — — Total $ 879,683 $ ( 2,260 ) $ 464,035 $ ( 3,286 ) Number of securities in loss position 57 62 The unrealized losses presented above are principally due to a general widening of market spreads and changes in the levels of interest rates from the dates of acquisition to December 31, 2020 and December 31, 2019, as applicable. The resulting decrease in fair values reflects an increase in the perceived risk by the financial markets related to those securities. As of both December 31, 2020 and December 31, 2019, all of the investment securities in an unrealized loss position either were backed by the full faith and credit of the U.S. government or had credit ratings of at least "AA+." Securities in unrealized loss positions for 12 months or longer have a fair value as of December 31, 2020 that is, on average, approximately 99.2 % of their amortized cost basis. Farmer Mac believes that all of these unrealized losses are recoverable within a reasonable period of time by way of maturity or changes in credit spreads. The amortized cost, fair value, and weighted-average yield of available-for-sale investment securities by remaining contractual maturity as of December 31, 2020 are set forth below. Asset-backed and mortgage-backed securities are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets. Table 4.3 As of December 31, 2020 Available-for-Sale Securities Amortized Cost Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 1,192,119 $ 1,193,525 1.97 % Due after one year through five years 622,016 622,930 1.30 % Due after five years through ten years 1,157,692 1,165,188 0.64 % Due after ten years 871,839 872,049 0.68 % Total $ 3,843,666 $ 3,853,692 1.17 % 145 5. FARMER MAC GUARANTEED SECURITIES AND USDA SECURITIES The following tables set forth information about on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities as of December 31, 2020 and December 31, 2019: Table 5.1 As of December 31, 2020 Unpaid Principal Balance Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Held-to-maturity: AgVantage $ 1,141,430 $ ( 55 ) $ 1,141,375 $ ( 120 ) $ 23,986 $ ( 61 ) $ 1,165,180 Farmer Mac Guaranteed USDA Securities 34,456 81 34,537 — 1,273 — 35,810 Total Farmer Mac Guaranteed Securities 1,175,886 26 1,175,912 ( 120 ) 25,259 ( 61 ) 1,200,990 USDA Securities 2,446,550 27,076 2,473,626 — 157,748 ( 560 ) 2,630,814 Total held-to-maturity $ 3,622,436 $ 27,102 $ 3,649,538 $ ( 120 ) $ 183,007 $ ( 621 ) $ 3,831,804 Available-for-sale: AgVantage $ 6,593,518 $ 1,474 $ 6,594,992 $ ( 310 ) $ 368,257 $ ( 15,238 ) $ 6,947,701 Trading: USDA Securities (3) $ 6,413 $ 198 $ 6,611 $ — $ 84 $ — $ 6,695 (1) Amounts presented exclude $ 32.3 million, $ 44.7 million, and $ 0.2 million of accrued interest receivable on available-for-sale, held-to-maturity, and trading securities, respectively, as of December 31, 2020. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the statement of financial operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The trading USDA securities had a weighted average yield of 5.05 % as of December 31, 2020. As of December 31, 2019 Unpaid Principal Balance Unamortized Premium/(Discount) Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Held-to-maturity: AgVantage $ 1,415,584 $ ( 174 ) $ 1,415,410 $ 15,300 $ ( 164 ) $ 1,430,546 Farmer Mac Guaranteed USDA Securities 31,887 154 32,041 839 — 32,880 Total Farmer Mac Guaranteed Securities 1,447,471 ( 20 ) 1,447,451 16,139 ( 164 ) 1,463,426 USDA Securities 2,190,671 41,489 2,232,160 54,356 ( 758 ) 2,285,758 Total held-to-maturity $ 3,638,142 $ 41,469 $ 3,679,611 $ 70,495 $ ( 922 ) $ 3,749,184 Available-for-sale: AgVantage $ 7,017,095 $ ( 124 ) $ 7,016,971 $ 161,316 $ ( 35,262 ) $ 7,143,025 Trading: USDA Securities (1) $ 8,400 $ 479 $ 8,879 $ 61 $ ( 27 ) $ 8,913 (1) The trading USDA securities had a weighted average yield of 5.20 % as of December 31, 2019. 146 As of December 31, 2020 and December 31, 2019, unrealized losses on held-to-maturity and available-for-sale on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities were as follows: Table 5.2 As of December 31, 2020 Held-to-Maturity and Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (in thousands) Held-to-maturity: AgVantage $ 49,939 $ ( 61 ) $ — $ — Farmer Mac Guaranteed USDA Securities — — — — USDA Securities — — 21,061 ( 560 ) Total held-to-maturity $ 49,939 $ ( 61 ) $ 21,061 $ ( 560 ) Available-for-sale: AgVantage $ 133,703 $ ( 231 ) $ 981,757 $ ( 15,007 ) As of December 31, 2019 Held-to-Maturity and Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (in thousands) Held-to-maturity: AgVantage $ — $ — $ 301,836 $ ( 164 ) USDA Securities — — 27,089 ( 758 ) Total held-to-maturity $ — $ — $ 328,925 $ ( 922 ) Available-for-sale: AgVantage $ 225,239 $ ( 2,203 ) $ 1,394,802 $ ( 33,059 ) The unrealized losses presented above are principally due to changes in interest rates from the date of acquisition to December 31, 2020 and December 31, 2019, as applicable. The unrealized losses on the held-to-maturity USDA Securities as of both December 31, 2020 and December 31, 2019 reflect their increased cost basis resulting from their transfer to held-to-maturity as of October 1, 2016. The credit exposure related to Farmer Mac's USDA Guarantees line of business is covered by the full faith and credit guarantee of the United States of America. As of December 31, 2020, Farmer Mac had executed COVID-19 payment deferments on loans with unpaid principal balances of $ 92.9 million underlying USDA Securities. The unrealized losses from AgVantage securities were on 11 and 17 available-for-sale securities as of December 31, 2020 and December 31, 2019, respectively. There were 2 and 4 held-to-maturity AgVantage securities with an unrealized loss as of December 31, 2020 and December 31, 2019, 147 respectively. As of December 31, 2020 and December 31, 2019, 7 and 13 available-for-sale AgVantage securities, respectively, had been in a loss position for more than 12 months. During the years ended December 31, 2020, 2019, and 2018, Farmer Mac had no sales of Farmer Mac Guaranteed Securities or USDA Securities and, therefore, Farmer Mac realized no gains or losses. The amortized cost, fair value, and weighted-average yield of available-for-sale and held-to-maturity Farmer Mac Guaranteed Securities and USDA Securities by remaining contractual maturity as of December 31, 2020 are set forth below. The balances presented are based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets. Table 5.3 As of December 31, 2020 Available-for-Sale Securities Amortized Cost (1) Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 1,212,051 $ 1,216,431 1.52 % Due after one year through five years 2,861,186 2,971,603 2.41 % Due after five years through ten years 1,016,527 1,092,170 2.36 % Due after ten years 1,505,228 1,667,497 2.55 % Total $ 6,594,992 $ 6,947,701 2.27 % (1) Amounts presented exclude $ 32.3 million of accrued interest receivable. As of December 31, 2020 Held-to-Maturity Securities Amortized Cost (1) Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 526,374 $ 529,401 2.79 % Due after one year through five years 683,135 706,287 3.12 % Due after five years through ten years 255,180 269,945 2.89 % Due after ten years 2,184,849 2,326,171 3.19 % Total $ 3,649,538 $ 3,831,804 3.07 % (1) Amounts presented exclude $ 44.7 million of accrued interest receivable. 6. FINANCIAL DERIVATIVES Farmer Mac enters into financial derivative transactions to protect against risk from the effects of market price, or interest rate movements, on the value of certain assets, future cash flows, or debt issuance, and not for trading or speculative purposes. Certain financial derivatives are designated as fair value hedges of fixed rate assets, classified as available-for-sale, to protect against fair value changes in the assets related to changes in a benchmark interest rate (e.g., LIBOR). Certain other financial derivatives are designated as cash flow hedges to mitigate the volatility of future interest rate payments on floating rate debt. Certain financial derivatives are not designated in hedge accounting relationships. 148 Farmer Mac manages the interest rate risk related to loans it has committed to acquire, but has not yet permanently funded, primarily through the use of forward sale contracts on the debt of other GSEs and futures contracts involving U.S. Treasury securities. Farmer Mac uses forward sale contracts on GSE securities to reduce its interest rate exposure to changes in both U.S. Treasury rates and spreads on Farmer Mac debt. Farmer Mac aims to achieve a duration-matched hedge ratio between the hedged item and the hedge instrument. Gains or losses generated by these hedge transactions are expected to offset changes in funding costs. All financial derivatives are recorded on the balance sheet at fair value as a freestanding asset or liability. The following tables summarize information related to Farmer Mac's financial derivatives on a gross basis without giving consideration to master netting arrangements as of December 31, 2020 and December 31, 2019: Table 6.1 As of December 31, 2020 Fair Value Weighted- Average Pay Rate Weighted- Average Receive Rate Weighted- Average Forward Price Weighted- Average Remaining Term (in years) Notional Amount Asset (Liability) (dollars in thousands) Fair value hedges: Interest rate swaps: Pay fixed non-callable $ 5,463,303 $ 10,157 $ ( 2,585 ) 2.26 % 0.21 % 11.95 Receive fixed non-callable 2,611,029 2 ( 8,755 ) 0.32 % 1.61 % 2.10 Receive fixed callable 343,500 3,108 ( 4 ) 0.16 % 1.78 % 3.16 Cash flow hedges: Interest rate swaps: Pay fixed non-callable 472,000 2,584 ( 8,771 ) 2.04 % 0.57 % 6.04 No hedge designation: Interest rate swaps: Pay fixed non-callable 339,090 — ( 9,675 ) 2.38 % 0.19 % 4.23 Receive fixed non-callable 2,359,220 — — 0.16 % 0.87 % 1.07 Receive fixed callable 200,000 1 ( 12 ) 0.13 % 0.15 % 0.72 Basis swaps 3,628,911 1,617 ( 43 ) 0.18 % 0.23 % 2.03 Treasury futures 30,500 — ( 82 ) 137.81 Credit valuation adjustment ( 1 ) 35 Total financial derivatives $ 15,447,553 $ 17,468 $ ( 29,892 ) Collateral (held)/pledged ( 1,345 ) 212,263 Net amount $ 16,123 $ 182,371 149 As of December 31, 2019 Fair Value Weighted- Average Pay Rate Weighted- Average Receive Rate Weighted- Average Forward Price Weighted- Average Remaining Term (in years) Notional Amount Asset (Liability) (dollars in thousands) Fair value hedges: Interest rate swaps: Pay fixed non-callable $ 4,955,686 $ 7,163 $ ( 3,281 ) 2.47 % 1.93 % 11.26 Receive fixed non-callable 1,413,200 76 ( 5,329 ) 1.88 % 2.13 % 1.25 Receive fixed callable 524,000 476 ( 772 ) 1.52 % 1.91 % 2.83 Cash flow hedges: Interest rate swaps: Pay fixed non-callable 428,000 1,882 ( 1,514 ) 2.36 % 2.12 % 5.43 No hedge designation: Interest rate swaps: Pay fixed non-callable 342,745 7 ( 14,046 ) 3.55 % 2.00 % 5.51 Receive fixed non-callable 3,124,148 49 ( 1,637 ) 1.88 % 2.06 % 1.66 Receive fixed callable 525,000 79 ( 80 ) 1.64 % 1.68 % 0.83 Basis swaps 2,670,000 787 ( 395 ) 1.86 % 1.76 % 0.90 Treasury futures 39,400 — ( 51 ) 128.29 Credit valuation adjustment — 63 Total financial derivatives $ 14,022,179 $ 10,519 $ ( 27,042 ) Collateral (held)/pledged ( 2,685 ) 132,129 Net amount $ 7,834 $ 105,087 As of December 31, 2020, Farmer Mac expects to reclassify $ 5.3 million after tax from accumulated other comprehensive income to earnings over the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges after December 31, 2020. During the years ended December 31, 2020 and 2019, there were no gains or losses from interest rate swaps designated as cash flow hedges reclassified to earnings because it was probable that the originally forecasted transactions would occur. 150 The following table summarizes the net income/(expense) recognized in the consolidated statements of operations related to derivatives for the years ended December 31, 2020, 2019, and 2018: Table 6.2 For the Year Ended December 31, 2020 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Losses on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations $ 227,691 $ 233,699 $ ( 312,946 ) $ ( 246 ) $ 148,198 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 60,056 ) ( 19,135 ) 26,386 — ( 52,805 ) Recognized on hedged items 126,170 40,793 ( 51,230 ) — 115,733 Discount amortization recognized on hedged items — — ( 745 ) — ( 745 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 66,114 $ 21,658 $ ( 25,589 ) $ — $ 62,183 (Losses)/gains on fair value hedging relationships: Recognized on derivatives $ ( 206,281 ) $ ( 76,565 ) $ 43,332 $ — $ ( 239,514 ) Recognized on hedged items 202,624 73,426 ( 45,720 ) — 230,330 (Losses)/gains on fair value hedging relationships $ ( 3,657 ) $ ( 3,139 ) $ ( 2,388 ) $ — $ ( 9,184 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ ( 5,570 ) $ — $ ( 5,570 ) Recognized on hedged items — — ( 4,553 ) — ( 4,553 ) Discount amortization recognized on hedged items — — ( 13 ) — ( 13 ) Expense recognized on cash flow hedges $ — $ — $ ( 10,136 ) $ — $ ( 10,136 ) (Losses)/gains on financial derivatives not designated in hedging relationships: Losses on interest rate swaps $ — $ — $ — $ ( 4,204 ) $ ( 4,204 ) Interest expense on interest rate swaps — — — 5,808 5,808 Treasury futures — — — ( 1,850 ) ( 1,850 ) (Losses)/gains on financial derivatives not designated in hedge relationships $ — $ — $ — $ ( 246 ) $ ( 246 ) 151 For The Year Ended December 31, 2019 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Gains/(losses) on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations: $ 333,896 $ 229,675 $ ( 471,958 ) $ 5,282 $ 96,895 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 2,177 ) ( 2,053 ) ( 6,227 ) — ( 10,457 ) Recognized on hedged items 118,609 26,352 ( 45,309 ) — 99,652 Discount amortization recognized on hedged items — — ( 631 ) — ( 631 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 116,432 $ 24,299 $ ( 52,167 ) $ — $ 88,564 (Losses)/gains on fair value hedging relationships: Recognized on derivatives $ ( 184,478 ) $ ( 50,141 ) $ 18,401 $ — $ ( 216,218 ) Recognized on hedged items 181,144 43,194 ( 16,027 ) — 208,311 (Losses)/gains on fair value hedging relationships $ ( 3,334 ) $ ( 6,947 ) $ 2,374 $ — $ ( 7,907 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ 1,166 $ — $ 1,166 Recognized on hedged items — — ( 10,569 ) — ( 10,569 ) Discount amortization recognized on hedged items — — ( 4 ) — ( 4 ) Expense recognized on cash flow hedges $ — $ — $ ( 9,407 ) $ — $ ( 9,407 ) Gains on financial derivatives not designated in hedge relationships: Gains on interest rate swaps $ — $ — $ — $ 10,321 $ 10,321 Interest expense on interest rate swaps — — — ( 4,213 ) ( 4,213 ) Treasury futures — — — ( 826 ) ( 826 ) Gains on financial derivatives not designated in hedge relationships $ — $ — $ — $ 5,282 $ 5,282 152 For The Year Ended December, 2018 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense (Losses)/gains on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations: $ 290,953 $ 198,152 $ ( 369,848 ) $ ( 3,687 ) $ 115,570 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives 1,861 ( 630 ) ( 7,995 ) — ( 6,764 ) Recognized on hedged items 65,238 6,284 ( 36,837 ) — 34,685 Discount amortization recognized on hedged items — — ( 668 ) — ( 668 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 67,099 $ 5,654 $ ( 45,500 ) $ — $ 27,253 Gains/(losses) on fair value hedging relationships: Recognized on derivatives $ ( 20,279 ) $ 5,031 $ 835 $ — $ ( 14,413 ) Recognized on hedged items 21,460 ( 5,243 ) 3,137 — 19,354 Gains/(losses) on fair value hedging relationships $ 1,181 $ ( 212 ) $ 3,972 $ — $ 4,941 Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ 316 $ — $ 316 Recognized on hedged items — — ( 9,182 ) — ( 9,182 ) Discount amortization recognized on hedged items — — ( 6 ) — ( 6 ) Expense recognized on cash flow hedges $ — $ — $ ( 8,872 ) $ — $ ( 8,872 ) Losses on financial derivatives not designated in hedge relationships: Gains on interest rate swaps $ — $ — $ — $ 7,206 $ 7,206 Interest expense on interest rate swaps — — — ( 10,920 ) ( 10,920 ) Treasury futures — — — 27 27 Losses on financial derivatives not designated in hedge relationships $ — $ — $ — $ ( 3,687 ) $ ( 3,687 ) 153 The following table shows the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships as of December 31, 2020 and December 31, 2019: Table 6.3 Hedged Items in Fair Value Relationship Carrying Amount of Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustments included in the Carrying Amount of the Hedged Assets/(Liabilities) December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019 (in thousands) Farmer Mac Guaranteed Securities, Available-for-Sale, at fair value (1) $ 4,244,027 $ 4,092,611 $ 382,825 $ 180,215 Loans held for investment, at amortized cost (2) 1,692,609 1,050,335 111,333 37,907 Notes Payable (3) ( 3,006,140 ) ( 2,761,052 ) ( 53,240 ) ( 7,433 ) (1) Includes $ 1.6 million of hedging adjustments on discontinued hedging relationships as of December 31, 2020. (2) Includes $ 1.4 million of hedging adjustments on a discontinued hedging relationship as of December 31, 2020. (3) Carrying amount represents amortized cost. The following table shows Farmer Mac's credit exposure to interest rate swap counterparties as of December 31, 2020 and December 31, 2019: Table 6.4 December 31, 2020 Gross Amount Recognized (1) Counterparty Netting Net Amount Presented in the Consolidated Balance Sheet (in thousands) Assets: Derivatives Interest rate swap $ 112,287 $ 111,761 $ 526 Liabilities: Derivatives Interest rate swap $ 620,236 $ 595,867 $ 24,369 (1) Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest. December 31, 2019 Gross Amount Recognized (1) Counterparty Netting Net Amount Presented in the Consolidated Balance Sheet (in thousands) Assets: Derivatives Interest rate swaps $ 56,139 $ 53,771 $ 2,368 Liabilities: Derivatives Interest rate swaps $ 305,584 $ 291,326 $ 14,258 (1) Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest. 154 As of December 31, 2020, Farmer Mac held $ 1.3 million of cash and no investment securities as collateral for its derivatives in net asset positions, compared to $ 2.7 million of cash and no investment securities as collateral for its derivatives in net asset positions as of December 31, 2019. Farmer Mac posted $ 11.2 million cash and $ 201.1 million of investment securities as of December 31, 2020 and posted $ 0.5 million cash and $ 131.7 million investment securities as of December 31, 2019. Farmer Mac records posted cash as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of prepaid expenses and other assets. Any investment securities posted as collateral are included in the investment securities balances on the consolidated balance sheets. If Farmer Mac had breached certain provisions of the derivative contracts as of December 31, 2020 and December 31, 2019, it could have been required to settle its obligations under the agreements, but would not have been required to post additional collateral. As of December 31, 2020 and December 31, 2019, there were no financial derivatives in a net payable position where Farmer Mac was required to pledge collateral which the counterparty had the right to sell or repledge. Of Farmer Mac's $ 15.4 billion notional amount of interest rate swaps outstanding as of December 31, 2020, $ 12.8 billion were cleared through the swap clearinghouse, the Chicago Mercantile Exchange ("CME"). Of Farmer Mac's $ 14.0 billion notional amount of interest rate swaps outstanding as of December 31, 2019, $ 11.0 billion were cleared through the CME. During 2020 and throughout 2019, Farmer Mac increased its use of non-cleared basis swaps as it began to prepare for the transition away from the use of LIBOR as a reference rate. 7. NOTES PAYABLE Farmer Mac's borrowings consist of discount notes and medium-term notes, both of which are unsecured general obligations of Farmer Mac. Discount notes generally have original maturities of 1.0 year or less, whereas medium-term notes generally have maturities of 0.5 years to 15.0 years. 155 The following tables set forth information related to Farmer Mac's borrowings as of December 31, 2020 and December 31, 2019: Table 7.1 December 31, 2020 Outstanding as of December 31 Average Outstanding During the Year Amount Weighted- Average Rate Amount Weighted- Average Rate (dollars in thousands) Due within one year: Discount notes $ 1,797,175 0.11 % $ 2,343,702 0.63 % Medium-term notes 2,645,146 0.19 % 1,593,253 0.60 % Current portion of medium-term notes 6,304,061 0.90 % Total due within one year $ 10,746,382 0.59 % Due after one year: Medium-term notes due in: Two years $ 3,004,203 1.00 % Three years 2,809,551 1.24 % Four years 927,119 1.67 % Five years 1,342,250 1.03 % Thereafter 2,966,172 1.92 % Total due after one year $ 11,049,295 1.37 % Total principal net of discounts $ 21,795,677 0.98 % Hedging adjustments 53,240 Total $ 21,848,917 156 December 31, 2019 Outstanding as of December 31 Average Outstanding During the Year Amount Weighted- Average Rate Amount Weighted- Average Rate (dollars in thousands) Due within one year: Discount notes $ 2,194,177 1.72 % $ 1,977,214 2.25 % Medium-term notes 1,152,770 1.98 % 1,780,517 2.33 % Current portion of medium-term notes 6,672,135 1.85 % Total due within one year $ 10,019,082 1.84 % Due after one year: Medium-term notes due in: Two years $ 3,696,699 2.04 % Three years 1,592,315 2.15 % Four years 1,202,817 2.27 % Five years 762,003 2.25 % Thereafter 1,818,299 2.89 % Total due after one year $ 9,072,133 2.28 % Total principal net of discounts $ 19,091,215 2.05 % Hedging adjustments 7,433 Total $ 19,098,648 The maximum amount of Farmer Mac's discount notes outstanding at any month end during each of the years ended December 31, 2020 and 2019 was $ 2.6 billion and $ 2.3 billion, respectively. Callable medium-term notes give Farmer Mac the option to redeem the debt at par value on a specified call date or at any time on or after a specified call date. The following table summarizes by maturity date the amounts and costs for Farmer Mac debt callable in 2021 as of December 31, 2020: Table 7.2 Debt Callable in 2021 as of December 31, 2020, by Maturity Amount Weighted-Average Rate (dollars in thousands) Maturity: 2022 $ 243,410 0.42 % 2023 592,529 0.97 % 2024 119,898 1.56 % 2025 306,683 1.08 % Thereafter 670,657 1.51 % Total $ 1,933,177 1.15 % The following schedule summarizes the earliest interest rate reset date, or debt maturities, of total borrowings outstanding as of December 31, 2020, including callable and non-callable medium-term notes, assuming callable notes are redeemed at the initial call date: 157 Table 7.3 Earliest Interest Rate Reset Date, or Debt Maturities, of Borrowings Outstanding Amount Weighted-Average Rate (dollars in thousands) Debt with interest rate resets, or debt maturities in: 2021 $ 12,805,994 0.55 % 2022 2,123,372 1.34 % 2023 2,390,730 1.39 % 2024 884,138 1.74 % 2025 1,126,871 1.15 % Thereafter 2,464,572 2.19 % Total principal net of discounts $ 21,795,677 0.98 % During the years ended December 31, 2020 and 2019, Farmer Mac called $ 3.1 billion and $ 1.5 billion of callable medium-term notes, respectively. The decrease in market interest rates throughout 2020 led to an increase in called medium-term notes compared to the prior year. Authority to Borrow from the U.S. Treasury Farmer Mac's statutory charter authorizes it, upon satisfying certain conditions, to borrow up to $ 1.5 billion from the U.S. Treasury through the issuance of debt obligations to the U.S. Treasury. Any funds borrowed from the U.S. Treasury may be used solely 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. The charter requires Farmer Mac 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. Gains on Repurchase of Outstanding Debt No outstanding debt repurchases were made in the years ended December 31, 2020, 2019, or 2018. 8. LOANS Farmer Mac classifies loans as either held for investment or held for sale. Loans held for investment are recorded at the unpaid principal balance, net of unamortized premium or discount and other cost basis adjustments. Loans held for sale are reported at the lower of cost or fair value determined on a pooled basis. During the year ended December 31, 2020, Farmer Mac acquired $ 59.2 million in loans held for sale, of which it sold $ 15.0 million during the year, and reclassified $ 44.2 million as loans held for investment. As of both December 31, 2020 and December 31, 2019, Farmer Mac had no loans held for sale. The following table includes loans held for investment and displays the composition of the loan balances as of December 31, 2020 and December 31, 2019: 158 Table 8.1 As of December 31, 2020 (1) As of December 31, 2019 (2) Unsecuritized In Consolidated Trusts Total Unsecuritized In Consolidated Trusts Total (in thousands) Farm & Ranch $ 4,889,393 $ 1,287,045 $ 6,176,438 $ 3,675,640 $ 1,600,917 $ 5,276,557 Rural Utilities 2,260,412 — 2,260,412 1,671,293 — 1,671,293 Total unpaid principal balance (3) 7,149,805 1,287,045 8,436,850 5,346,933 1,600,917 6,947,850 Unamortized premiums, discounts, fair value hedge basis adjustment, and other cost basis adjustments 112,128 — 112,128 44,044 — 44,044 Total loans 7,261,933 1,287,045 8,548,978 5,390,977 1,600,917 6,991,894 Allowance for losses ( 12,943 ) ( 889 ) ( 13,832 ) ( 8,853 ) ( 1,601 ) ( 10,454 ) Total loans, net of allowance $ 7,248,990 $ 1,286,156 $ 8,535,146 $ 5,382,124 $ 1,599,316 $ 6,981,440 (1) Allowance for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020. (2) Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020, Farmer Mac maintained an allowance for losses to cover estimated probable incurred losses on loans held. (3) Unpaid principal balance is the basis of presentation in disclosures of outstanding balances for Farmer Mac's lines of business. Allowance for Losses The following table is a summary, by asset type, of the allowance for losses as of December 31, 2020 and December 31, 2019: Table 8.2 December 31, 2020 (1) December 31, 2019 (2) Allowance for Losses Allowance for Losses (in thousands) Loans: Farm & Ranch $ 3,745 $ 10,454 Rural Utilities 10,087 — Total $ 13,832 $ 10,454 (1) Allowance for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020. (2) Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020, Farmer Mac maintained an allowance for loan losses to cover estimated probable incurred losses on loans held. 159 The following is a summary of the changes in the allowance for losses for each year in the three-year period ended December 31, 2020: Table 8.3 Farm & Ranch Rural Utilities Allowance for Losses Allowance for Losses (in thousands) Balance as of December 31, 2017 (1) $ 6,796 $ — Provision for losses 238 — Charge-offs ( 17 ) — Balance as of December 31, 2018 (1) $ 7,017 $ — Provision for losses 3,504 — Charge-offs ( 67 ) — Balance as of December 31, 2019 (1) $ 10,454 $ — Cumulative effect adjustment from adoption of current expected credit loss standard ( 3,909 ) 5,378 Adjusted Beginning Balance 6,545 5,378 (Release of)/provision for losses 2,959 4,709 Charge-offs ( 5,759 ) — Balance as of December 31, 2020 (2)(3)(4) $ 3,745 $ 10,087 (1) Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020, Farmer Mac maintained an allowance for loan losses to cover estimated probable incurred losses on loans held. (2) Allowance for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020. (3) Allowance for losses for Farm & Ranch includes no allowance for collateral dependent assets secured by agricultural real estate. (4) Allowance for losses for Rural Utilities includes no allowance for collateral dependent assets. The cumulative transition adjustment decrease of $ 3.9 million in the Farm & Ranch portfolio was primarily attributable to differences in the way that the two loss models measure the impact of low loan-to-value ratios in that portfolio. Under the previous accounting standard, Farmer Mac's estimated incurred loss model was based on historical weighted-average loss rates from realized losses within commodities and risk ratings. The historical weighted average loss rates were then applied to sub-portfolios, as disaggregated by commodity and risk rating, to calculate the general allowance. Under the CECL accounting standard, Farmer Mac's current expected credit losses are calculated individually based on the expected probability of default and the expected loss-given-default for each loan. The low loan-to-value ratios in the Farm & Ranch portfolio result in low individual losses-given-default. Thus, our expected credit losses as of January 1, 2020 were less than our estimate of incurred losses as of December 31, 2019. The cumulative transition adjustment increase of $ 5.4 million in the Rural Utilities portfolio was primarily attributable to the change from measuring incurred probable credit losses to measuring expected credit losses over the expected lives of these loans. Farmer Mac has never realized a credit loss in its Rural Utilities portfolio. Additionally, these loans have strong credit ratings and performance, which supported Farmer Mac's estimate of no incurred credit losses under the previous accounting standard. Upon the adoption of CECL, Farmer Mac is now required to measure its expected credit losses for the entire expected life of all financial instruments, including its Rural Utilities loans. To estimate expected credit losses on these loans, Farmer Mac relies upon industry data from ratings agencies and publicly available information as disclosed in the securities filings of other major lenders who serve the utilities industry. Under CECL, Farmer Mac's loss allowance model for these loans is primarily impacted by the long-term maturities of the loans and their low probability of prepayment. In addition, the highly-specialized nature of power generation and transmission and other rural infrastructure facilities results in significant expected 160 losses given default even though the probability of default is low. Thus, the long-term expected lives of these loans combined with high losses given default result in an estimate of expected losses although we have never realized a credit loss in this portfolio. The provision to the allowance for Rural Utilities loan losses of $ 4.7 million recorded during the year ended December 31, 2020 was primarily attributable to the impact of net new loan volume in the Rural Utilities portfolio and the impact of economic factor forecasts on the Rural Utilities portfolio, especially continued expected higher unemployment, as a result of the COVID-19 pandemic and the resulting economic volatility. The provision to the allowance for Farm & Ranch loan losses of $ 3.0 million recorded during the year ended December 31, 2020 was primarily related to the Farm & Ranch agricultural storage & processing loan secured by a specialized poultry facility that Farmer Mac has deemed to be a CDA. The provision was more than offset by charge-offs from the allowance of $ 5.8 million, primarily related to the specialized poultry loan because a portion of the loan was deemed to be uncollectible. The provision to the allowance for loan losses recorded during 2019 was primarily attributable to a specific reserve on a single specialized poultry loan, a decrease in overall credit quality, and net portfolio growth. The allowance for losses in the Farm & Ranch portfolio, as a percentage of outstanding loan volume, increased slightly from the previous year. The total provision for losses increased by $ 3.2 million, during 2019 as compared to 2018, primarily due to the specific reserve on the single specialized poultry loan mentioned above and a decrease in overall credit quality combined with net portfolio growth. During 2018, the total allowance for losses increased because of increased loan volume within Farmer Mac's Farm & Ranch portfolio. The total allowance for losses in the Farm & Ranch portfolio, as a percentage of outstanding loan volume, remained consistent with recent years. The total provision for losses decreased by $ 1.4 million during 2018 as compared to 2017 primarily due to decreased loan growth year-over-year and modestly improved credit quality in the Farm & Ranch portfolio. The following table presents the unpaid principal balances by delinquency status of Farmer Mac's loans and non-performing assets as of December 31, 2020: Table 8.4 As of December 31, 2020 Accruing Current (5) 30-59 Days 60-89 Days 90 Days and Greater (2) Total Past Due Nonaccrual loans (3)(4) Total Loans (in thousands) Loans (1) : Farm & Ranch $ 6,055,154 $ 4,582 $ 632 $ 1,072 $ 6,286 $ 114,998 $ 6,176,438 Rural Utilities 2,260,412 — — — — — 2,260,412 Total $ 8,315,566 $ 4,582 $ 632 $ 1,072 $ 6,286 $ 114,998 $ 8,436,850 (1) Amounts represent unpaid principal balance of risk rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Includes loans in consolidated trusts with beneficial interests owned by third parties that are 90 days or more past due. (3) Includes loans that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. (4) Includes $ 44.2 million of nonaccrual loans for which there was no associated allowance. During the year ended December 31, 2020, Farmer Mac received $ 4.4 million in interest on nonaccrual loans. (5) Includes $ 145.5 million of unpaid principal balance related to Farm & Ranch loans that Farmer Mac has executed a COVID-19 payment deferment. 161 The following table presents the unpaid principal balances of loans held and the related total allowance for losses by impairment method and commodity type as of December 31, 2019: Table 8.5 As of December 31, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) Ending Balance: Collectively evaluated for impairment $ 2,664,362 $ 1,161,900 $ 871,341 $ 356,920 $ 10,360 $ 4,597 $ 5,069,480 Individually evaluated for impairment 108,815 51,256 39,962 7,044 — — 207,077 Total Farm & Ranch loans $ 2,773,177 $ 1,213,156 $ 911,303 $ 363,964 $ 10,360 $ 4,597 $ 5,276,557 Allowance for Losses: Collectively evaluated for impairment $ 1,880 $ 1,362 $ 714 $ 249 $ 47 $ 4 $ 4,256 Individually evaluated for impairment 2,628 1,008 2,447 115 — — 6,198 Total Farm & Ranch loans $ 4,508 $ 2,370 $ 3,161 $ 364 $ 47 $ 4 $ 10,454 162 The following table presents by commodity type the unpaid principal balances, recorded investment, and specific allowance for losses related to impaired loans and the recorded investment in loans on nonaccrual status as of December 31, 2019: Table 8.6 As of December 31, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) Impaired Loans: With no specific allowance: Recorded investment $ 30,846 $ 16,696 $ 3,195 $ 1,398 $ — $ 56 $ 52,191 Unpaid principal balance 30,741 16,638 3,185 1,394 — 56 52,014 With a specific allowance: Recorded investment (1) 84,044 36,852 47,113 6,376 — — 174,385 Unpaid principal balance 83,772 36,732 46,984 6,356 — — 173,844 Associated allowance 2,725 1,051 2,636 129 — — 6,541 Total: Recorded investment 114,890 53,548 50,308 7,774 — 56 226,576 Unpaid principal balance 114,513 53,370 50,169 7,750 — 56 225,858 Associated allowance 2,725 1,051 2,636 129 — — 6,541 Recorded investment of loans on nonaccrual status (2) $ 34,037 $ 22,849 $ 28,441 $ 2,454 $ — $ — $ 87,781 (1) Impairment analysis was performed in the aggregate in consideration of similar risk characteristics of the assets and historical statistics on $ 159.1 million ( 70 %) of impaired loans as of December 31, 2019, which resulted in a specific allowance of $ 3.0 million. (2) Includes $ 30.1 million of loans that are less than 90 days delinquent but which have not met Farmer Mac's performance criteria for returning to accrual status. The following table presents by commodity type the average recorded investment and interest income recognized on impaired loans for the year ended December 31, 2019: Table 8.7 December 31, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) For the Year Ended: Average recorded investment in impaired loans $ 101,053 $ 44,986 $ 36,054 $ 7,953 $ — $ 60 $ 190,106 Income recognized on impaired loans 1,157 625 687 284 — — 2,753 Net credit losses and 90-day delinquencies as of and for the periods indicated for loans held are presented in the table below. As of December 31, 2019, there were no delinquencies and no probable losses inherent in Farmer Mac's Rural Utilities loan portfolio and Farmer Mac had not experienced credit losses on any Rural Utilities loans. 163 Table 8.8 90-Day Delinquencies (1) Net Credit Losses As of For the Year Ended December 31, 2019 December 31, 2019 December 31, 2018 (in thousands) Farm & Ranch loans $ 57,719 $ 131 $ 40 (1) Includes loans that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. Rural Utilities As of December 31, 2019, no allowance for losses had been provided for Farmer Mac's Rural Utilities line of business based on the performance of the loans in this line of business and the credit quality of the collateral supporting these loans, as well as Farmer Mac's counterparty risk analysis. As of December 31, 2019, there were no delinquencies or probable losses inherent in Farmer Mac's Rural Utilities loans held or underlying LTSPCs. Credit Quality Indicators The following tables present credit quality indicators related to Farm & Ranch loans and Rural Utilities loans held as of December 31, 2020, by year of origination: Table 8.9 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch (1) : Internally Assigned Risk Rating: Acceptable $ 1,947,618 $ 774,315 $ 484,345 $ 500,768 $ 465,277 $ 1,068,693 $ 535,742 $ 5,776,758 Special mention (2) 70,171 79,744 18,317 8,530 13,111 21,328 7,656 218,857 Substandard (3) 3,400 5,821 21,879 52,709 37,173 50,582 9,259 180,823 Total $ 2,021,189 $ 859,880 $ 524,541 $ 562,007 $ 515,561 $ 1,140,603 $ 552,657 $ 6,176,438 For the Year Ended: Current period charge-offs $ — $ — $ — $ 5,365 $ — $ 394 $ — $ 5,759 Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ 5,365 $ — $ 394 $ — $ 5,759 (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 164 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities (1) : Internally Assigned Risk Rating: Acceptable $ 667,489 $ 809,921 $ 8,260 $ 89,842 $ 31,275 $ 641,145 $ 12,480 $ 2,260,412 Special mention (2) — — — — — — — — Substandard (3) — — — — — — — — Total $ 667,489 $ 809,921 $ 8,260 $ 89,842 $ 31,275 $ 641,145 $ 12,480 $ 2,260,412 For the Year Ended: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. The following table presents credit quality indicators related to Farm & Ranch loans held as of December 31, 2019: Table 8.10 As of December 31, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) Internally Assigned Risk Rating (1) Acceptable $ 2,556,956 $ 1,050,160 $ 825,234 $ 343,329 $ 10,360 $ 4,597 $ 4,790,636 Special mention (2) 107,406 111,739 46,107 13,591 — — 278,843 Substandard (3) 108,815 51,257 39,962 7,044 — — 207,078 Total $ 2,773,177 $ 1,213,156 $ 911,303 $ 363,964 $ 10,360 $ 4,597 $ 5,276,557 Commodity analysis of past due loans (1) $ 21,167 $ 15,828 $ 19,354 $ 1,370 $ — $ — $ 57,719 (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 165 9. EQUITY Common Stock Farmer Mac has three classes of common stock outstanding: • Class A voting common stock, which may be held only by banks, insurance companies, and other financial institutions or similar entities that are not institutions of the Farm Credit System. By federal statute, 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. • Class B voting common stock, which may be held only by institutions of the Farm Credit System. There are no restrictions on the maximum holdings of Class B voting common stock. • Class C non-voting common stock, which has no ownership restrictions. During 2020, 2019, and 2018, Farmer Mac paid a quarterly dividend of $ 0.80 , $ 0.70 , and $ 0.58 per share on all classes of its common stock. Farmer Mac's ability to declare and pay dividends on its common stock could be restricted if it fails to comply with applicable capital requirements. Farmer Mac's board of directors approved a share repurchase program during third quarter 2015 authorizing Farmer Mac to repurchase up to $ 25.0 million of its outstanding Class C non-voting common stock. The share repurchase program, last modified on March 14, 2019, authorized Farmer Mac to repurchase up to $ 10.0 million of Farmer Mac's outstanding Class C non-voting common stock. During first quarter 2020, Farmer Mac repurchased approximately 4,000 shares of Class C non-voting common stock at a cost of approximately $ 0.2 million. Shortly after these repurchases were completed, Farmer Mac indefinitely suspended its share repurchase program in an effort to preserve capital and liquidity in view of market volatility and uncertainty caused by the COVID-19 pandemic. As of 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. Preferred Stock On August 20, 2020, Farmer Mac issued 4.8 million shares of 5.250 % Non-Cumulative Preferred Stock, Series F ("Series F Preferred Stock"), which has a par value and liquidation preference of $ 25.00 per share, or $ 120.0 million aggregate outstanding. Farmer Mac incurred direct costs of $ 3.8 million related to the issuance of the Series F Preferred Stock. The dividend rate on the Series F Preferred Stock will remain at a non-cumulative, fixed rate of 5.250 % per year, when, as, and if a dividend is declared by the Board of Directors of Farmer Mac, for so long as the Series F Preferred Stock remains outstanding. The Series F Preferred Stock has no maturity date, but Farmer Mac has the option to redeem the Series F Preferred Stock at any time on any dividend payment date on and after October 17, 2025. 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 166 Preferred Stock, Farmer Mac recognized $ 1.7 million of deferred issuance costs, which is presented as "Loss on retirement of preferred stock" on the consolidated statements of operations. In May 2020, Farmer Mac issued 3.18 million shares of 5.750 % Non-Cumulative Preferred Stock, Series E ("Series E Preferred Stock"), which has a par value and liquidation preference of $ 25.00 per share, or $ 79.5 million aggregate outstanding. Farmer Mac incurred direct costs of $ 2.5 million related to the issuance of the Series E Preferred Stock. The dividend rate on the Series E Preferred Stock will remain at a non-cumulative, fixed rate of 5.750 % per year, when, as, and if a dividend is declared by the Board of Directors of Farmer Mac, for so long as the Series E Preferred Stock remains outstanding. The Series E Preferred Stock has no maturity date, but Farmer Mac has the option to redeem the preferred stock at any time on any dividend payment date on and after July 17, 2025. The following table presents the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, and the Series F Preferred Stock (collectively referred to as the "Outstanding Preferred Stock") as of December 31, 2020: Table 9.1 Name Issuance Date Issuance Cost Shares Issued Annual Dividend Rate (3) Liquidation Value Redemption Date (4) Series C (1) June 20, 2014 $ 1,618,583 3,000,000 6.000 % $ 25.00 July 18, 2024 Series D (2) May 13, 2019 $ 3,340,456 4,000,000 5.700 % $ 25.00 July 17, 2024 Series E May 20, 2020 $ 2,496,750 3,180,000 5.750 % $ 25.00 July 17, 2025 Series F August 20, 2020 $ 3,839,902 4,800,000 5.250 % $ 25.00 October 17, 2025 (1) 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 occurring on July 17, 2024, and thereafter, at a floating rate equal to three-month LIBOR plus 3.26 %. (2) Farmer Mac has the option to redeem the preferred stock on any quarterly dividend payment date on and after July 17, 2024. (3) Dividends on all series of Outstanding Preferred Stock are non-cumulative, which means that if Farmer Mac's board of directors has not declared a dividend before the applicable dividend payment date for any dividend period, such dividend will not be paid or cumulate, and Farmer Mac will have no obligation to pay dividends for such dividend period, whether or not dividends on any series of Outstanding Preferred Stock are declared for any future dividend period. (4) Farmer Mac has the right but not the obligation to redeem. The following tables present the quarterly dividends paid by Farmer Mac on its outstanding preferred during 2020, 2019, and 2018: Table 9.2 2020 1st Quarter 2nd Quarter (1) 3rd Quarter (2)(3) 4th Quarter 5.875% Non-Cumulative Preferred Stock, Series A $ 0.3672 $ 0.3672 $ 0.2530 $ — 6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C 0.3750 0.3750 0.3750 0.3750 5.700% Non-Cumulative Preferred Stock, Series D 0.3563 0.3563 0.3563 0.3563 5.750% Non-Cumulative Preferred Stock, Series E — 0.2276 0.3594 0.3594 5.250% Non-Cumulative Preferred Stock, Series F — — 0.2078 0.3281 (1) For second quarter 2020, dividend payment includes $ 0.2276 per share on the Series E Preferred Stock for the period from but not including May 20, 2020 (issuance date) to and including the July 17, 2020. (2) For third quarter 2020 dividend payment includes $ 0.2530 per share on the Series A Preferred Stock for the period from but not including July 17, 2020 to and including the September 19, 2020 redemption date. (3) For third quarter 2020, dividend payment includes $ 0.2078 per share on the Series F Preferred Stock for the period from but not including August 20, 2020 (issuance date) to and including the October 17, 2020. 167 2019 1st Quarter 2nd Quarter (1)(2) 3rd Quarter 4th Quarter 5.875% Non-Cumulative Preferred Stock, Series A $ 0.3672 $ 0.3672 $ 0.3672 $ 0.3672 6.875% Non-Cumulative Preferred Stock, Series B 0.4297 0.2626 — — 6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C 0.3750 0.3750 0.3750 0.3750 5.700% Non-Cumulative Preferred Stock, Series D — 0.2533 0.3563 0.3563 (1) For second quarter 2019, dividend payment includes $ 0.2626 per share on the Series B Preferred Stock for the period from but not including April 17, 2019 to and including the June 12, 2019 redemption date. (2) For second quarter 2019, dividend payment includes $ 0.2533 per share on the Series D Preferred Stock for the period from but not including May 13, 2019 (issuance date) to and including July 17, 2019. 2018 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 5.875% Non-Cumulative Preferred Stock, Series A $ 0.3672 $ 0.3672 $ 0.3672 $ 0.3672 6.875% Non-Cumulative Preferred Stock, Series B 0.4297 0.4297 0.4297 0.4297 6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C 0.3750 0.3750 0.3750 0.3750 Equity-Based Incentive Compensation Plans Farmer Mac's Amended and Restated 2008 Omnibus Incentive Compensation Plan authorizes the grant of restricted stock and SARs, among other alternative forms of equity-based compensation, to Farmer Mac's directors, officers, and employees. SARs awarded to officers and employees vest annually in thirds. Farmer Mac has not granted SARs to directors since 2008. If not exercised or cancelled earlier due to the termination of employment, SARs granted to officers or employees expire after 10 years from the grant date. For all SARs granted, the exercise price is equal to the closing price of Farmer Mac's Class C non-voting common stock on the date of grant. SARs granted during 2020 have an exercise price ranging from $ 72.26 to $ 75.16 per share, SARs granted during 2019 have an exercise price of $ 82.76 per share, and SARs granted during 2018 have an exercise price of $ 86.15 per share. During 2020, 2019, and 2018, restricted stock awards were granted to employees, officers, and directors with vesting periods of one to three years . 168 The following tables summarize SARs and non-vested restricted stock activity for the years ended December 31, 2020, 2019, and 2018: Table 9.3 For the Years Ended December 31, 2020 2019 2018 SARs Weighted- Average Exercise Price SARs Weighted- Average Exercise Price SARs Weighted- Average Exercise Price Outstanding, beginning of year 98,836 $ 46.47 124,960 $ 38.38 163,272 $ 32.95 Granted 34,881 74.80 24,582 82.76 10,122 86.15 Exercised ( 15,912 ) 26.93 ( 40,851 ) 35.61 ( 48,434 ) 30.06 Canceled ( 1,388 ) 86.15 ( 9,855 ) 79.45 — — Outstanding, end of year 116,417 57.16 98,836 46.47 124,960 38.38 Exercisable at end of year 66,602 42.08 72,696 34.07 95,675 31.41 For the Years Ended December 31, 2020 2019 2018 Non-vested Restricted Stock Weighted- Average Grant Date Fair Value Non-vested Restricted Stock Weighted- Average Grant Date Fair Value Non-vested Restricted Stock Weighted- Average Grant Date Fair Value Outstanding, beginning of year 62,597 $ 75.81 80,153 $ 60.98 95,015 $ 44.39 Granted 53,471 66.02 41,735 80.51 32,070 84.03 Canceled ( 4,042 ) 69.66 ( 17,054 ) 74.97 ( 1,098 ) 86.15 Vested and issued ( 28,070 ) 70.13 ( 42,237 ) 52.65 ( 45,834 ) 42.12 Outstanding, end of year 83,956 71.76 62,597 75.81 80,153 60.98 The cancellations of SARs and non-vested restricted stock during 2020, 2019, and 2018 were due to unvested awards terminating in accordance with the provisions of the applicable equity compensation plans or award agreements upon directors' or employees' departures from Farmer Mac. Cash is not received from exercises of SARs or the vesting and issuance of restricted stock. During 2020, 2019, and 2018, the reduction of income taxes payable as a result of the deduction for the exercise of SARs and the vesting or accelerated tax elections of restricted stock was $ 0.5 million, $ 1.0 million, and $ 1.5 million, respectively. During 2020 and 2019, Farmer Mac recognized $ 8,900 and $ 0.4 million, respectively, of tax benefits recognized in income tax expense associated with stock compensation activity. During 2020, 2019, and 2018 , Farmer Mac recorded a net decrease to additional paid-in capital of $ 0.6 million, $ 1.8 million, and $ 2.7 million, respectively, related to stock-based compensation awards. 169 As of December 31, 2020, Farmer Mac had no stock options outstanding. The following tables summarize information regarding SARs and non-vested restricted stock outstanding as of December 31, 2020: Table 9.4 SARs: Outstanding Exercisable Vested or Expected to Vest Range of Exercise Prices SARs Weighted- Average Remaining Contractual Life SARs Weighted- Average Remaining Contractual Life SARs Weighted- Average Remaining Contractual Life $10.00 - $24.99 9,000 1.1 years 9,000 1.1 years 9,000 1.1 years 25.00 - 39.99 40,537 3.7 years 40,537 3.7 years 40,537 3.7 years 40.00 - 54.99 — 0.0 years — 0.0 years — 0.0 years 55.00 - 69.99 6,619 6.3 years 6,619 6.3 years 6,619 6.3 years 70.00 - 84.99 54,303 8.9 years 6,474 8.3 years 54,303 8.9 years 85.00 - 99.99 5,958 7.3 years 3,972 7.3 years 5,958 7.3 years 116,417 66,602 116,417 Non-vested Restricted Stock: Outstanding Expected to Vest Weighted- Average Grant-Date Fair Value Non-vested Restricted Stock Weighted-Average Remaining Contractual Life Non-vested Restricted Stock Weighted-Average Remaining Contractual Life $35.00 - $49.99 — 0.0 years — 0.0 years 50.00 - 64.99 19,622 2.2 years 19,622 2.2 years 65.00 - 79.99 43,804 1.4 years 43,804 1.4 years 80.00 - 94.99 20,530 0.8 years 20,530 0.8 years 83,956 83,956 As of December 31, 2020 and 2019, the intrinsic value of SARs, and non-vested restricted stock outstanding, exercisable, and vested or expected to vest was $ 8.5 million and $ 8.9 million, respectively. During 2020, 2019, and 2018, the total intrinsic value of SARs exercised was $ 0.7 million, $ 1.9 million, and $ 3.0 million, respectively. As of December 31, 2020, there was $ 2.4 million of total unrecognized compensation cost related to non-vested SARs and restricted stock awards. This cost is expected to be recognized over a weighted-average period of 1.8 years. The weighted-average grant date fair values of SARs and restricted stock awards granted in 2020, 2019, and 2018 were $ 45.91 , $ 58.27 , and $ 69.38 per share, respectively. Under the fair value-based method of accounting for stock-based compensation cost, Farmer Mac recognized compensation expense of $ 4.1 million, $ 2.3 million, and $ 2.5 million during 2020, 2019, and 2018, respectively. 170 The fair value of SARs was estimated using the Black-Scholes option pricing model based on the following assumptions: Table 9.5 For the Year Ended December 31, 2020 2019 2018 Risk-free interest rate 0.9 % 2.5 % 2.7 % Expected years until exercise 6 years 6 years 6 years Expected stock volatility 34.3 % 33.8 % 33.0 % Dividend yield 4.2 % 3.4 % 2.7 % The risk-free interest rates used in the model were based on the U.S. Treasury yield curve in effect at the grant date. Farmer Mac used historical data to estimate the timing of option exercises and stock option cancellation rates used in the model. Expected volatilities were based on historical volatility of Farmer Mac's Class C non-voting common stock. The dividend yields were based on the expected dividends as a percentage of the value of Farmer Mac's Class C non-voting common stock on the grant date. Because restricted stock awards will be issued upon vesting regardless of the stock price, expected stock volatility is not considered in determining grant date fair value. Restricted stock awards also accrue dividends which are paid at vesting. The weighted-average grant date fair value of the restricted stock awarded in 2020, 2019, and 2018 was $ 66.02 , $ 80.51 , and $ 84.03 per share, respectively, which is based on the closing price of the stock on the date granted. Capital Requirements Farmer Mac is required to comply with the higher of the minimum capital requirement and the risk-based capital requirement. As of both December 31, 2020 and December 31, 2019, the minimum capital requirement was greater than the risk-based capital requirement. Farmer Mac's ability to declare and pay dividends could be restricted if it fails to comply with applicable capital requirements. As of December 31, 2020, Farmer Mac's minimum capital requirement was $ 680.9 million and its core capital level was $ 1.0 billion, which was $ 325.5 million above the minimum capital requirement as of that date. As of December 31, 2019, Farmer Mac's minimum capital requirement was $ 618.8 million and its core capital level was $ 815.4 million, which was $ 196.6 million above the minimum capital requirement as of that date. In accordance with the Farm Credit Administration's rule on Farmer Mac's capital planning, and as part of Farmer Mac's capital plan, Farmer Mac has adopted a policy for maintaining a sufficient level of Tier 1 capital (consisting of retained earnings, paid-in-capital, common stock, and qualifying preferred stock) and imposing restrictions on Tier 1-eligible dividends and any discretionary bonus payments in the event that this capital falls below specified thresholds. 171 10. INCOME TAXES Farmer Mac is subject to federal corporate income taxes but is exempt from state and local corporate income taxes. The components of the federal corporate income tax expense for the years ended December 31, 2020, 2019, and 2018 were as follows: Table 10.1 For the Year Ended December 31, 2020 2019 2018 (in thousands) Current income tax expense $ 30,634 $ 28,316 $ 25,317 Deferred income tax expense ( 1,849 ) 789 2,625 Income tax expense $ 28,785 $ 29,105 $ 27,942 A reconciliation of income tax at the statutory federal corporate income tax rate to the income tax expense for the years ended December 31, 2020, 2019, and 2018 is as follows: Table 10.2 For the Year Ended December 31, 2020 2019 2018 (dollars in thousands) Tax expense at statutory rate $ 28,861 $ 29,117 $ 28,564 Excess tax benefits related to stock-based awards ( 9 ) ( 449 ) ( 946 ) Valuation allowance — 49 — Other ( 67 ) 388 324 Income tax expense $ 28,785 $ 29,105 $ 27,942 Statutory tax rate 21.0 % 21.0 % 21.0 % 172 The components of the deferred tax assets and liabilities as of December 31, 2020 and 2019 were as follows: Table 10.3 As of December 31, 2020 2019 (in thousands) Deferred tax assets: Basis differences related to financial derivatives $ 100,099 $ 51,177 Unrealized losses on securities — 2,805 Allowance for losses 3,690 2,650 Unrealized losses on cash flow hedges 6,065 1,491 Compensation and benefits 1,020 819 Stock-based compensation 1,027 571 Capital loss carryforwards and other-than-temporary impairment 86 86 Valuation allowance ( 86 ) ( 86 ) Other 341 88 Total deferred tax assets 112,242 59,601 Deferred tax liability: Basis differences related to hedged items 91,460 42,940 Unrealized gains on securities 2,364 — Other 97 151 Total deferred tax liability 93,921 43,091 Net deferred tax asset $ 18,321 $ 16,510 After the evaluation of both positive and negative objective evidence regarding the likelihood that its deferred tax assets will be realized, Farmer Mac established a valuation allowance of $ 86,000 as of both December 31, 2020 and 2019, which was attributable to capital loss carryforwards on investment securities. Farmer Mac did not establish a valuation allowance for the remainder of its deferred tax assets because it believes it is more likely than not that those deferred tax assets will be realized. As of December 31, 2020, no capital loss carryforwards expired. As of December 31, 2020, the amount of capital loss carryforwards was $ 0.4 million. These capital loss carryforwards will expire beginning in 2021 . As of December 31, 2020 and 2019, Farmer Mac did not identify any uncertain tax positions. Farmer Mac did no t have any unrecognized tax benefits for the years ended December 31, 2020, 2019, and 2018. Tax years 2017 through 2020 remain subject to examination. 11. EMPLOYEE BENEFITS Farmer Mac makes contributions to a defined contribution retirement plan for all of its employees. Farmer Mac contributed 13.2 % of the lesser of an employee's gross salary and the maximum compensation permitted under the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA") ($ 285,000 for 2020, $ 280,000 for 2019, and $ 275,000 for 2018), plus 5.7 % of the difference between: (1) the lesser of the gross salary and the amount established under EGTRRA and (2) the Social 173 Security Taxable Wage Base. Employees are fully vested after having been employed for approximately 3 years. Expenses for this plan for the years ended December 31, 2020, 2019, and 2018 were $ 2.2 million, $ 1.9 million, and $ 1.8 million, respectively. Farmer Mac established a Nonqualified Deferred Compensation Plan ("NQDC Plan") for its executive officers effective May 1, 2017. Under the NQDC Plan, Farmer Mac credits the account of each participant each calendar year with an amount equal to 18.9 % of the difference between: (1) the amount established under EGTRRA and (2) a participant’s gross annual base salary, which for purposes of calculating employer credits under the NQDC Plan is capped at $ 700,000 for Farmer Mac’s Chief Executive Officer and $ 500,000 for all other participants. This fixed contribution percentage is the same formula used for determining employer contributions to Farmer Mac’s defined contribution retirement plan based on an employee’s gross annual base salary that is above the amount established under EGTRRA for that year. Expenses for the NQDC Plan were $ 0.2 million, $ 0.1 million, and $ 0.1 million for the years ended December 31, 2020, 2019, and 2018, respectively. 12. GUARANTEES Farmer Mac offers two credit enhancement alternatives to direct loan purchases that allow approved lenders the ability to retain the cash flow benefits of their loans and increase their liquidity and lending capacity: (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 or the Rural Utilities lines of business. The contractual terms of Farmer Mac's off-balance sheet guarantees and LTSPCs range from less than 1 year to 30 years. However, the actual term of each guarantee or LTSPC may be significantly less than the contractual term based on the prepayment characteristics of the related loans. Farmer Mac's maximum potential exposure under these off-balance sheet guarantees and LTSPCs is the unpaid principal balance of the underlying loans. Guarantees issued or modified on or after January 1, 2003 are recorded in the consolidated balance sheets. Farmer Mac's maximum potential exposure was $ 3.3 billion and $ 3.5 billion as of December 31, 2020 and 2019, respectively. Farmer Mac's maximum potential exposure for guarantees issued before January 1, 2003, which are not recorded on the consolidated balance sheets, was $ 10.8 million and $ 15.5 million as of December 31, 2020 and 2019, respectively. The maximum exposure from these guarantees and LTSPCs is not representative of the actual loss Farmer Mac is likely to incur, based on historical loss experience. In the event Farmer Mac was required to make payments under its guarantees or LTSPCs, Farmer Mac would have the right to enforce the terms of the loans, and in the event of default, would have access to the underlying collateral. For information on Farmer Mac's methodology for determining the reserve for losses for its financial guarantees, see Note 2(h). The following table presents changes in Farmer Mac's guarantee and commitment obligations in the consolidated balance sheets for the years ended December 31, 2020, 2019, and 2018: Table 12.1 For the Years Ended December 31, 2020 2019 2018 (in thousands) Beginning balance, January 1 $ 36,700 $ 38,683 $ 38,400 Additions to the guarantee and commitment obligation (1) 5,210 4,398 6,202 Amortization of the guarantee and commitment obligation ( 6,375 ) ( 6,381 ) ( 5,919 ) Ending balance, December 31 $ 35,535 $ 36,700 $ 38,683 174 (1) Represents the fair value of the guarantee and commitment obligation at inception. Off-Balance Sheet Farmer Mac Guaranteed Securities The following table presents the maximum principal amount of potential undiscounted future payments that Farmer Mac could be required to make under all off-balance sheet Farmer Mac Guaranteed Securities as of December 31, 2020 and 2019, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans: Table 12.2 Outstanding Balance of Off-Balance Sheet Farmer Mac Guaranteed Securities As of December 31, 2020 As of December 31, 2019 (in thousands) Farm & Ranch: Farmer Mac Guaranteed Securities $ 79,312 $ 107,322 USDA Guarantees: Farmer Mac Guaranteed USDA Securities 299,298 389,216 Institutional Credit: AgVantage Securities 4,412 7,567 Total off-balance sheet Farmer Mac Guaranteed Securities $ 383,022 $ 504,105 Eligible loans and other eligible assets may be placed into trusts that are used as vehicles for the securitization of the transferred assets and the Farmer Mac-guaranteed beneficial interests in the trusts are sold to investors. The following table summarizes the significant cash flows received from and paid to trusts used for Farmer Mac securitizations: Table 12.3 For the Years Ended December 31, 2020 2019 2018 (in thousands) Proceeds from new securitizations $ 165,054 $ 321,414 $ 382,929 Guarantee fees received 1,365 1,413 1,920 Farmer Mac presents a liability for its obligation to stand ready under its guarantee in "Guarantee and commitment obligation" on the consolidated balance sheets. The following table presents the liability and the weighted-average remaining maturity of all loans underlying off-balance sheet Farmer Mac Guaranteed Securities: Table 12.4 As of December 31, 2020 As of December 31, 2019 (dollars in thousands) Guarantee and commitment obligation $ 1,625 $ 2,230 Weighted average remaining maturity: Farmer Mac Guaranteed Securities 9.5 years 9.8 years AgVantage Securities 4.0 years 5.0 years 175 Long-Term Standby Purchase Commitments Farmer Mac has recorded a liability for its obligation to stand ready under the guarantee in the guarantee and commitment obligation on the consolidated balance sheets. The following table presents the liability, the maximum principal amount of potential undiscounted future payments that Farmer Mac could be requested to make under all LTSPCs, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans, as well as the weighted-average remaining maturity of all loans underlying LTSPCs: Table 12.5 As of December 31, 2020 As of December 31, 2019 (dollars in thousands) Guarantee and commitment obligation (1) $ 33,909 $ 34,470 Maximum principal amount 2,881,856 3,002,349 Weighted-average remaining maturity 15.3 years 15.2 years (1) Relates to LTSPCs issued or modified on or after January 1, 2003. Commitments Farmer Mac enters into mandatory and optional delivery commitments to purchase loans. Most loan purchase commitments entered into by Farmer Mac are mandatory commitments, in which Farmer Mac charges a fee to extend or cancel the commitment. As of December 31, 2020 and 2019, commitments to purchase Farm & Ranch loans and USDA Guarantees totaled $ 125.8 million and $ 65.1 million, respectively, all of which were mandatory commitments. As of December 31, 2020, there were no commitments to purchase Rural Utilities loans. Any optional loan purchase commitments are sold forward under optional commitments to deliver Farmer Mac Guaranteed Securities that may be canceled by Farmer Mac without penalty. 176 Reserve for Losses The following table is a summary, by asset type, of the reserve for losses as of December 31, 2020 and December 31, 2019: Table 12.6 December 31, 2020 (1) December 31, 2019 (2) Reserve for Losses Reserve for Losses (in thousands) Farm & Ranch: LTSPCs and Farmer Mac Guaranteed Securities $ 2,097 $ 2,164 Rural Utilities LTSPCs 1,180 — Total $ 3,277 $ 2,164 (1) Reserve for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020. (2) Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained a reserve for losses to cover estimated probable incurred losses on loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities. The following is a summary of the changes in the reserve for losses for each year in the three-year period ended December 31, 2020: Table 12.7 Farm & Ranch Rural Utilities Reserve for Losses Reserve for Losses (in thousands) Balance as of December 31, 2017 (1) $ 2,070 $ — Provision for losses 97 — Balance as of December 31, 2018 (1) $ 2,167 $ — (Release of)/provision for losses ( 3 ) — Balance as of December 31, 2019 (1) $ 2,164 $ — Cumulative effect adjustment from adoption of current expected credit loss standard ( 148 ) 1,011 Adjusted Beginning Balance 2,016 1,011 Provision for losses 81 169 Balance as of December 31, 2020 (2) $ 2,097 $ 1,180 (1) Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained a reserve for losses to cover estimated probable incurred losses on loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities. (2) Reserve for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020. The provision to the reserve for losses recorded during the year ended December 31, 2020 was primarily due to credit downgrades in the LTSPC portfolio. 177 The following table presents the unpaid principal balances by delinquency status of Farm & Ranch loans underlying LTSPCs. Farm & Ranch Farmer Mac Guaranteed Securities, Rural Utilities loans underlying LTSPCs, and non-performing assets as of December 31, 2020: Table 12.8 As of December 31, 2020 Current (2) 30-59 Days 60-89 Days 90 Days and Greater (1) Total Past Due Total Loans (in thousands) Farm and Ranch: LTSPCs and Farmer Mac Guaranteed Securities $ 2,389,777 $ 2,189 $ 1,344 $ 11,433 $ 14,966 $ 2,404,743 Rural Utilities: LTSPCs $ 556,425 $ — $ — $ — $ — $ 556,425 (1) Includes loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days of more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. (2) Includes $ 193.7 million of unpaid principal balance related to Farm & Ranch LTSPCs for which the lender has notified Farmer Mac of an executed COVID-19 payment deferment. The following table presents the unpaid principal balances of Farm & Ranch loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and the related reserve for losses by impairment method and commodity type as of December 31, 2019: Table 12.9 As of December 31, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) Ending Balance: Collectively evaluated for impairment: $ 1,151,983 $ 511,991 $ 581,377 $ 167,395 $ 66,106 $ 2,760 $ 2,481,612 Individually evaluated for impairment: 5,698 2,114 10,207 706 — 56 18,781 Total Farm & Ranch $ 1,157,681 $ 514,105 $ 591,584 $ 168,101 $ 66,106 $ 2,816 $ 2,500,393 Allowance for Losses: Collectively evaluated for impairment: $ 599 $ 96 $ 308 $ 50 $ 767 $ 1 $ 1,821 Individually evaluated for impairment: 97 43 189 14 — — 343 Total Farm & Ranch $ 696 $ 139 $ 497 $ 64 $ 767 $ 1 $ 2,164 178 Net credit losses and 90-day delinquencies as of and for the periods indicated for loans underlying off-balance sheet securities representing interests in pools of eligible Farm & Ranch LTSPCs are presented in the table below. As of December 31, 2019, there were no delinquencies and no probable losses inherent in Farmer Mac's Rural Utilities LTSPCs portfolio and Farmer Mac had not experienced credit losses on any Rural Utilities LTSPCs. Table 12.10 90-Day Delinquencies (1) Net Credit Losses/(Recoveries) As of For the Years Ended December 31, 2019 December 31, 2019 December 31, 2018 (in thousands) Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities $ 3,235 $ — $ — (1) Includes loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. Credit Quality Indicators The following tables present credit quality indicators related to Farm & Ranch loans underlying LTSPCs, Farm & Ranch Farmer Mac Guaranteed Securities, and Rural Utilities loans underlying LTSPCs as of December 31, 2020, by year of origination: Table 12.11 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities: Internally Assigned Risk Rating: Acceptable $ 178,213 $ 213,620 $ 183,948 $ 237,042 $ 207,296 $ 969,860 $ 211,620 $ 2,201,599 Special mention (1) 3,920 1,742 1,502 5,603 19,644 50,004 10,058 92,473 Substandard (2) 264 10,250 12,611 14,578 7,841 60,602 4,525 110,671 Total $ 182,397 $ 225,612 $ 198,061 $ 257,223 $ 234,781 $ 1,080,466 $ 226,203 $ 2,404,743 For the Year Ended: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 179 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities LTSPCs: Internally Assigned Risk Rating: Acceptable $ — $ — $ — $ — $ — $ 549,405 $ 7,020 $ 556,425 Special mention (1) — — — — — — — — Substandard (2) — — — — — — — — Total $ — $ — $ — $ — $ — $ 549,405 $ 7,020 $ 556,425 For the Year Ended: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. The following table presents credit quality indicators related to Farm & Ranch loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities as of December 31, 2019: Table 12.12 As of December 31, 2019 Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (in thousands) Internally Assigned Risk Rating (1) Acceptable $ 1,033,002 $ 484,601 $ 521,341 $ 161,361 $ 66,106 $ 2,594 $ 2,269,005 Special mention (2) 68,372 22,909 35,618 1,612 — — 128,511 Substandard (3) 56,307 6,595 34,625 5,128 — 222 102,877 Total $ 1,157,681 $ 514,105 $ 591,584 $ 168,101 $ 66,106 $ 2,816 $ 2,500,393 Commodity analysis of past due loans (1) $ 1,493 $ 196 $ 1,066 $ 480 $ — $ — $ 3,235 (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 180 13. FAIR VALUE DISCLOSURES Fair Value Classification and Transfers The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value: Table 13.1 Assets and Liabilities Measured at Fair Value as of December 31, 2020 Level 1 Level 2 Level 3 (1) Total (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,171 $ 19,171 Floating rate asset-backed securities — 6,231 — 6,231 Floating rate Government/GSE guaranteed mortgage-backed securities — 2,360,026 — 2,360,026 Fixed rate GSE guaranteed mortgage-backed securities — 313 — 313 Fixed rate U.S. Treasuries 1,467,951 — — 1,467,951 Total Investment Securities 1,467,951 2,366,570 19,171 3,853,692 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage — — 6,947,701 6,947,701 Total Farmer Mac Guaranteed Securities — — 6,947,701 6,947,701 USDA Securities: Trading — — 6,695 6,695 Total USDA Securities — — 6,695 6,695 Financial derivatives — 17,468 — 17,468 Total Assets at fair value $ 1,467,951 $ 2,384,038 $ 6,973,567 $ 10,825,556 Liabilities: Financial derivatives $ 82 $ 29,810 $ — $ 29,892 Total Liabilities at fair value $ 82 $ 29,810 $ — $ 29,892 (1) Level 3 assets represent 29 % of total assets and 65 % of financial instruments measured at fair value. 181 Assets and Liabilities Measured at Fair Value as of December 31, 2019 Level 1 Level 2 Level 3 (1) Total (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 18,912 $ 18,912 Floating rate asset-backed securities — 11,085 — 11,085 Floating rate Government/GSE guaranteed mortgage-backed securities — 1,632,583 — 1,632,583 Fixed rate GSE guaranteed mortgage-backed securities — 340 — 340 Fixed rate U.S. Treasuries 1,296,923 — — 1,296,923 Total available-for-sale 1,296,923 1,644,008 18,912 2,959,843 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage — — 7,143,025 7,143,025 Total Farmer Mac Guaranteed Securities — — 7,143,025 7,143,025 USDA Securities: Trading — — 8,913 8,913 Total USDA Securities — — 8,913 8,913 Financial derivatives — 10,519 — 10,519 Total Assets at fair value $ 1,296,923 $ 1,654,527 $ 7,170,850 $ 10,122,300 Liabilities: Financial derivatives $ 51 $ 26,991 $ — $ 27,042 Total Liabilities at fair value $ 51 $ 26,991 $ — $ 27,042 (1) Level 3 assets represent 33 % of total assets and 71 % of financial instruments measured at fair value. There were no significant assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2020 or December 31, 2019. Transfers in and/or out of the different levels within the fair value hierarchy are based on the fair values of the assets and liabilities as of the beginning of the reporting period. During both 2020 and 2019, there were no transfers within the fair value hierarchy for fair value measurements of Farmer Mac's investment securities, Farmer Mac Guaranteed Securities, USDA Securities, and financial derivatives. 182 The following tables present additional information about assets and liabilities measured at fair value on a recurring basis for which Farmer Mac has used significant unobservable inputs to determine fair value. Net transfers in and/or out of Level 3 are based on the fair values of the assets and liabilities as of the beginning of the reporting period. There were no liabilities measured at fair value using significant unobservable inputs during the years ended December 31, 2020 and 2019. Table 13.2 Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2020 Beginning Balance Purchases Sales Settlements Allowance for Losses Realized and unrealized gains included in Income Unrealized gains included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 18,912 $ — $ — $ — $ ( 36 ) $ — $ 295 $ 19,171 Total available-for-sale 18,912 — — — ( 36 ) — 295 19,171 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 7,143,025 974,237 — ( 1,397,861 ) ( 309 ) 202,706 25,903 6,947,701 Total available-for-sale 7,143,025 974,237 — ( 1,397,861 ) ( 309 ) 202,706 25,903 6,947,701 USDA Securities: Trading 8,913 — — ( 2,269 ) — 51 — 6,695 Total USDA Securities 8,913 — — ( 2,269 ) 51 — 6,695 Total Assets at fair value $ 7,170,850 $ 974,237 $ — $ ( 1,400,130 ) $ ( 345 ) $ 202,757 $ 26,198 $ 6,973,567 183 Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2019 Beginning Balance Purchases Sales Settlements Realized and unrealized gains included in Income Unrealized gains/(losses) included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 18,715 $ — $ — $ — $ — $ 197 $ 18,912 Total available-for-sale 18,715 — — — — 197 18,912 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 5,974,497 2,033,713 — ( 1,020,294 ) 181,144 ( 26,035 ) 7,143,025 Total available-for-sale 5,974,497 2,033,713 — ( 1,020,294 ) 181,144 ( 26,035 ) 7,143,025 USDA Securities: Available-for-sale — 57,853 ( 57,853 ) — — — — Trading 9,999 — — ( 1,412 ) 326 — 8,913 Total USDA Securities 9,999 57,853 ( 57,853 ) ( 1,412 ) 326 — 8,913 Total Assets at fair value $ 6,003,211 $ 2,091,566 $ ( 57,853 ) $ ( 1,021,706 ) $ 181,470 $ ( 25,838 ) $ 7,170,850 Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2018 Beginning Balance Cumulative Effect from Change in Hedge Accounting Purchases Sales Settlements Realized and unrealized (losses)/gains included in Income Unrealized gains/(losses) included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 18,814 $ — $ — $ — $ — $ — $ ( 99 ) $ 18,715 Fixed rate GSE guaranteed mortgage-backed securities 4,333 — — — ( 2,137 ) ( 2,092 ) ( 104 ) — Total available-for-sale 23,147 — — — ( 2,137 ) ( 2,092 ) ( 203 ) 18,715 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 5,471,914 487 2,177,546 — ( 1,670,402 ) 21,459 ( 26,507 ) 5,974,497 Total available-for-sale 5,471,914 487 2,177,546 — ( 1,670,402 ) 21,459 ( 26,507 ) 5,974,497 USDA Securities: Available-for-sale — — 127,850 ( 127,850 ) — — — — Trading (1) 13,515 — — — ( 3,597 ) 81 — 9,999 Total USDA Securities 13,515 — 127,850 ( 127,850 ) ( 3,597 ) 81 — 9,999 Total Assets at fair value $ 5,508,576 $ 487 $ 2,305,396 $ ( 127,850 ) $ ( 1,676,136 ) $ 19,448 $ ( 26,710 ) $ 6,003,211 (1) Includes unrealized gains of $ 0.1 million attributable to assets still held as of December 31, 2018 that are recorded in "Gains on trading securities." 184 The following tables present additional information about the significant unobservable inputs, such as discount rates and constant prepayment rates ("CPR"), used in the fair value measurements categorized in Level 3 of the fair value hierarchy as of December 31, 2020 and 2019: Table 13.3 As of December 31, 2020 Financial Instruments Fair Value Valuation Technique Unobservable Input Range (Weighted-Average) (in thousands) Assets: Investment securities: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,171 Indicative bids Range of broker quotes 97.5 % - 97.5 % ( 97.5 %) Farmer Mac Guaranteed Securities: AgVantage $ 6,947,701 Discounted cash flow Discount rate 0.8 % - 2.3 % ( 1.3 %) USDA Securities $ 6,695 Discounted cash flow Discount rate 0.9 % - 1.9 % ( 1.4 %) CPR 25 % - 49 % ( 44 %) As of December 31, 2019 Financial Instruments Fair Value Valuation Technique Unobservable Input Range (Weighted-Average) (in thousands) Assets: Investment securities: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 18,912 Indicative bids Range of broker quotes 96.0 % - 96.0 % ( 96.0 %) Farmer Mac Guaranteed Securities: AgVantage $ 7,143,025 Discounted cash flow Discount rate 2.3 % - 5.5 % ( 2.6 %) USDA Securities $ 8,913 Discounted cash flow Discount rate 2.3 % - 2.6 % ( 2.1 %) CPR 10 % - 21 % ( 19 %) The significant unobservable input used in the fair value measurements of AgVantage Farmer Mac Guaranteed Securities is the discount rate commensurate with the risks involved. Typically, significant increases (decreases) in this input in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease. Prepayment rates are not presented in the table above for AgVantage securities because they generally have fixed maturity dates when the secured general obligations are due and don't prepay. The significant unobservable inputs used in the fair value measurements of USDA Securities are the prepayment rate and discount rate commensurate with the risks involved. Typically, significant increases (decreases) in any of these inputs in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase and would likely expect a corresponding decrease in forecasted prepayment rates. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease and would likely expect a corresponding increase in forecasted prepayment rates. 185 Disclosures on Fair Value of Financial Instruments The following table sets forth the estimated fair values and carrying values for financial assets, liabilities, and guarantees and commitments as of December 31, 2020 and 2019: Table 13.4 As of December 31, 2020 As of December 31, 2019 Fair Value Carrying Amount Fair Value Carrying Amount (in thousands) Financial assets: Cash and cash equivalents $ 1,033,941 $ 1,033,941 $ 604,381 $ 604,381 Investment securities 3,899,925 3,898,724 3,005,828 3,004,875 Farmer Mac Guaranteed Securities 8,148,691 8,123,493 8,606,451 8,590,476 USDA Securities 2,637,509 2,480,321 2,294,671 2,241,073 Loans 9,167,525 8,535,146 7,317,091 6,981,440 Financial derivatives 17,468 17,468 10,519 10,519 Guarantee and commitment fees receivable 34,115 37,113 36,732 38,442 Financial liabilities: Notes payable 22,130,263 21,848,917 19,234,079 19,098,648 Debt securities of consolidated trusts held by third parties 1,390,330 1,323,786 1,663,177 1,616,504 Financial derivatives 29,892 29,892 27,042 27,042 Guarantee and commitment obligations 32,537 35,535 34,990 36,700 The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value and is classified as Level 1. The fair value of investments in U.S. Treasuries are valued based on unadjusted quoted prices in active markets and are classified as Level 1. A significant portion of Farmer Mac's investment portfolio is valued using a reputable nationally recognized third-party pricing service. The prices obtained are non-binding and generally representative of recent market trades and are classified as Level 2. Farmer Mac internally models the fair value of its loan portfolio, including loans held for investment and loans held for investment in consolidated trusts, Farmer Mac Guaranteed Securities, and USDA Securities by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. These fair value measurements do not take into consideration the fair value of the underlying property and are classified as Level 3. Financial derivatives primarily are valued using unadjusted counterparty valuations and are classified as Level 2. The fair value of the guarantee fees receivable/obligation and debt securities of consolidated trusts are estimated based on the present value of expected future cash flows of the underlying mortgage assets using management's best estimate of certain key assumptions, which include prepayments speeds, forward yield curves, and discount rates commensurate with the risks involved and are classified as Level 3. Notes payable are valued by discounting the expected cash flows of these instruments using a yield curve derived from market prices observed for similar agency securities and are also classified as Level 3. Because the cash flows of Farmer Mac's financial instruments may be interest rate path dependent, estimated fair values and projected discount rates for Level 3 financial instruments are derived using a Monte Carlo simulation model. Different market assumptions and estimation methodologies could significantly affect estimated fair value amounts. 186 14. BUSINESS SEGMENT REPORTING Farmer Mac's operations consist of four operating segments – Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit. The Institutional Credit segment comprises Farmer Mac's purchases and guarantees of AgVantage securities related to general obligations of lenders that are secured by pools of eligible loans. Each segment is based on distinct products and distinct business activities. In addition to these four operating segments, a corporate segment is presented. That segment represents activity in Farmer Mac's investment portfolio and other corporate activities. Each operating segment's financial results include directly attributable revenues and expenses. Corporate charges for administrative expenses not directly attributable to an operating segment are allocated to each segment based on headcount. Farmer Mac uses the non-GAAP financial measure "core earnings" to measure corporate economic performance and develop financial plans because, in management's view, core earnings is a useful alternative measure in understanding Farmer Mac's economic performance, transaction economics, and business trends. The main difference between core earnings and net income attributable to common stockholders is that core earnings excludes the effects of fair value fluctuations, which are not expected to have a cumulative net impact on financial condition or results of operations reported in accordance with generally accepted accounting principles if the related financial instruments are held to maturity, as is generally expected. Core earnings also differs from net income attributable to common stockholders by excluding specified infrequent or unusual transactions that Farmer Mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. This corporate economic performance measure may not be comparable to similarly labeled measures disclosed by other companies. Farmer Mac uses net effective spread to measure the net spread Farmer Mac earns between its interest-earning assets and the related net funding costs of these assets. Net effective spread differs from net interest income and net interest yield because it excludes: (1) the amortization of premiums and discounts on assets consolidated at fair value that are amortized as adjustments to yield in interest income over the contractual or estimated remaining lives of the underlying assets; (2) interest income and interest expense related to consolidated trusts with beneficial interests owned by third parties, which are presented on Farmer Mac's consolidated balance sheets as "Loans held for investment in consolidated trusts, at amortized cost"; and (3) the fair value changes of financial derivatives and the corresponding assets or liabilities designated in a fair value hedge accounting relationship. The financial information presented below reflects the accounts of Farmer Mac and its subsidiaries on a consolidated basis. Accordingly, the core earnings for Farmer Mac's reportable operating segments will differ from the stand-alone financial statements of Farmer Mac's subsidiaries. These differences will be due to various factors, including the exclusion of unrealized gains and losses related to fair value changes of trading assets and financial derivatives, as well as the allocation of certain expenses such as dividends and interest expense related to the issuance of capital and the issuance of indebtedness managed at the corporate level. The allocation of general and administrative expenses that are not directly attributable to an operating segment may also result in differences. 187 The following tables present core earnings for Farmer Mac's operating segments and a reconciliation to consolidated net income for the years ended December 31, 2020, 2019, and 2018: Table 14.1 Core Earnings by Business Segment For the Year Ended December 31, 2020 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 73,901 $ 19,570 $ 21,963 $ 67,953 $ 7,201 $ — $ 190,588 Less: reconciling adjustments (1)(2)(3) ( 3,892 ) 2,395 2,734 4,533 598 ( 6,368 ) — Net effective spread 70,009 21,965 24,697 72,486 7,799 ( 6,368 ) — Guarantee and commitment fees (2) 16,957 850 1,314 29 — ( 6,601 ) 12,549 Other income/(expense) (3) 2,556 1,098 32 — ( 536 ) 604 3,754 Non-interest income/(loss) 19,513 1,948 1,346 29 ( 536 ) ( 5,997 ) 16,303 Release of losses ( 2,959 ) — ( 4,709 ) ( 110 ) ( 27 ) — ( 7,805 ) Provision for reserve for losses ( 81 ) — ( 169 ) — — — ( 250 ) Other non-interest expense ( 22,414 ) ( 7,270 ) ( 6,224 ) ( 8,784 ) ( 16,711 ) — ( 61,403 ) Non-interest expense (4) ( 22,495 ) ( 7,270 ) ( 6,393 ) ( 8,784 ) ( 16,711 ) — ( 61,653 ) Core earnings before income taxes 64,068 16,643 14,941 63,621 ( 9,475 ) ( 12,365 ) (5) 137,433 Income tax (expense)/benefit ( 13,454 ) ( 3,495 ) ( 3,137 ) ( 13,361 ) 2,066 2,596 ( 28,785 ) Core earnings before preferred stock dividends 50,614 13,148 11,804 50,260 ( 7,409 ) ( 9,769 ) (5) 108,648 Preferred stock dividends — — — — ( 17,805 ) — ( 17,805 ) Loss on retirement of preferred stock — — — — — ( 1,667 ) ( 1,667 ) Segment core earnings/(losses) $ 50,614 $ 13,148 $ 11,804 $ 50,260 $ ( 25,214 ) $ ( 11,436 ) (5) $ 89,176 Total assets at carrying value $ 6,305,975 $ 2,553,176 $ 2,365,996 $ 8,128,489 $ 5,001,865 $ — $ 24,355,501 Total on- and off-balance sheet program assets at principal balance $ 8,581,181 $ 2,786,718 $ 2,816,837 $ 7,739,359 $ — $ — $ 21,924,095 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 188 Core Earnings by Business Segment For the Year Ended December 31, 2019 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 65,098 $ 17,470 $ 10,459 $ 69,039 $ 11,069 $ — $ 173,135 Less: reconciling adjustments (1)(2)(3) ( 9,471 ) ( 732 ) 6,143 520 ( 987 ) 4,527 — Net effective spread 55,627 16,738 16,602 69,559 10,082 4,527 — Guarantee and commitment fees (2) 18,593 958 1,412 372 — ( 7,669 ) 13,666 Other income/(expense) (3) 1,397 174 38 — 166 5,501 7,276 Non-interest income/(loss) 19,990 1,132 1,450 372 166 ( 2,168 ) 20,942 Provision for loan losses ( 3,504 ) — — — — — ( 3,504 ) Release of reserve for losses 3 — — — — — 3 Other non-interest expense ( 19,375 ) ( 5,757 ) ( 3,898 ) ( 8,390 ) ( 14,505 ) — ( 51,925 ) Non-interest expense (4) ( 19,372 ) ( 5,757 ) ( 3,898 ) ( 8,390 ) ( 14,505 ) — ( 51,922 ) Core earnings before income taxes 52,741 12,113 14,154 61,541 ( 4,257 ) 2,359 (5) 138,651 Income tax (expense)/benefit ( 11,076 ) ( 2,545 ) ( 2,972 ) ( 12,924 ) 907 ( 495 ) ( 29,105 ) Core earnings before preferred stock dividends 41,665 9,568 11,182 48,617 ( 3,350 ) 1,864 (5) 109,546 Preferred stock dividends — — — — ( 13,940 ) — ( 13,940 ) Loss on retirement of preferred stock — — — — — ( 1,956 ) ( 1,956 ) Segment core earnings/(losses) $ 41,665 $ 9,568 $ 11,182 $ 48,617 $ ( 17,290 ) $ ( 92 ) (5) $ 93,650 Total assets at carrying value $ 5,408,302 $ 2,311,932 $ 1,717,405 $ 8,606,912 $ 3,664,823 $ — $ 21,709,374 Total on- and off-balance sheet program assets at principal balance $ 7,776,950 $ 2,620,175 $ 2,280,571 $ 8,440,246 $ — $ — $ 21,117,942 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 189 Core Earnings by Business Segment For the Year Ended December 31, 2018 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 62,951 $ 20,554 $ 12,505 $ 69,321 $ 9,105 $ — $ 174,436 Less: reconciling adjustments (1)(2)(3) ( 9,889 ) ( 2,499 ) ( 922 ) ( 7,884 ) ( 2,047 ) 23,241 — Net effective spread 53,062 18,055 11,583 61,437 7,058 23,241 — Guarantee and commitment fees (2) 17,976 797 1,599 360 — ( 6,756 ) 13,976 Other income/(expense) (3) 1,371 20 33 — ( 913 ) ( 2,747 ) ( 2,236 ) Non-interest income/(loss) 19,347 817 1,632 360 ( 913 ) ( 9,503 ) 11,740 Provision for loan losses ( 238 ) — — — — — ( 238 ) Release of reserve for losses ( 97 ) — — — — — ( 97 ) Other non-interest expense ( 19,026 ) ( 5,309 ) ( 3,062 ) ( 8,011 ) ( 14,411 ) — ( 49,819 ) Non-interest expense (4) ( 19,123 ) ( 5,309 ) ( 3,062 ) ( 8,011 ) ( 14,411 ) — ( 49,916 ) Core earnings before income taxes 53,048 13,563 10,153 53,786 ( 8,266 ) 13,738 (5) 136,022 Income tax (expense)/benefit ( 11,140 ) ( 2,848 ) ( 2,133 ) ( 11,295 ) 2,361 ( 2,887 ) ( 27,942 ) Core earnings before preferred stock dividends 41,908 10,715 8,020 42,491 ( 5,905 ) 10,851 (5) 108,080 Preferred stock dividends — — — — ( 13,182 ) — ( 13,182 ) Segment core earnings/(losses) $ 41,908 $ 10,715 $ 8,020 $ 42,491 $ ( 19,087 ) $ 10,851 (5) $ 94,898 Total assets at carrying value $ 4,701,736 $ 2,240,906 $ 945,282 $ 8,089,410 $ 2,716,994 $ — $ 18,694,328 Total on- and off-balance sheet program assets at principal balance $ 7,233,972 $ 2,515,620 $ 1,592,115 $ 8,382,817 $ — $ — $ 19,724,524 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.