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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 369 added, 329 removed, 944 unchanged (43% of the section changed)

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

The objective of this section of the report is to provide a discussion and analysis, from management’s perspective, of the material information necessary to assess Farmer Mac's financial condition and results of operations for the quarter ended March 31, 2021.

Financial information included in this report is consolidated to include the accounts of Farmer Mac and its two subsidiaries – Farmer Mac Mortgage Securities Corporation and Farmer Mac II LLC.

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• the duration, spread, and severity of the COVID-19 pandemic and its effects on the business operations of agricultural and rural borrowers, the capital markets, and Farmer Mac's business operations;

• the actions taken to address the COVID-19 pandemic, including government actions to mitigate the economic impact of the pandemic, how quickly and to what extent normal economic and operating conditions can resume, the possibility of future disruptions to economic recovery caused by any future outbreaks, regulatory measures or voluntary actions to limit the spread of COVID-19, and the duration and efficacy of any restrictions that may be imposed;

• the actions taken to address the COVID-19 pandemic, including government actions to mitigate the economic impact of the pandemic, how quickly and to what extent normal economic and operating conditions can resume, the possibility of future disruptions to economic recovery caused by any further outbreaks, regulatory measures or voluntary actions to limit the spread of COVID-19, and the duration and efficacy of any restrictions that may be imposed;

• the availability to Farmer Mac of debt and equity financing and, if available, the reasonableness of rates and terms;

• legislative or regulatory developments that could affect Farmer Mac, its sources of business, or the agricultural or rural utilities industries;

• legislative or regulatory developments that could affect Farmer Mac, its sources of business, or agricultural or rural infrastructure industries;

• fluctuations in the fair value of assets held by Farmer Mac and its subsidiaries;

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• the effect of any changes in Farmer Mac's executive leadership;

• other factors that could hinder agricultural mortgage lending or borrower repayment capacity, including the effects of weather and fluctuations in agricultural real estate values.

• other factors that could hinder agricultural mortgage lending or borrower repayment capacity, including the effects of severe weather or fluctuations in agricultural real estate values.

Considering these potential risks and uncertainties, no undue reliance should be placed on any forward-looking statements expressed in this report.

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Farmer Mac also serves as a critical investment tool for states, counties, municipalities, pension funds, banks, public trust funds, and credit unions by providing diversification in their investment portfolios, issuance structure flexibility, and a safe, competitive return on their investment dollars.

During first quarter 2021:

During second quarter 2021:

• we continued to operate effectively while nearly all employees worked remotely;

• we provided nearly $1.5 billion in liquidity and lending capacity to lenders serving rural America;

• we provided $1.5 billion in liquidity and lending capacity to lenders serving rural America;

• we maintained uninterrupted access to the debt capital markets and a strong capital position;

• we maintained strong liquidity in our investment portfolio well above regulatory requirements.

Farmer Mac’s performance during first quarter 2021 described in more detail in this report reflects the success of our continued focus on pursuing new channels and innovative ways to further our mission to help build a strong and vital rural America.

Farmer Mac’s performance during second quarter 2021 described in more detail in this report reflects the success of our continued focus on pursuing new channels and innovative ways to further our mission to help build a strong and vital rural America.

The discussion below of Farmer Mac's financial information includes "non-GAAP measures," which are measures of financial performance not presented in accordance with generally accepted accounting principles in the United States ("GAAP").

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For the Three Months Ended

March 31, 2021 December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021 June 30, 2020

(in thousands)

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Core earnings 29,986 25,911 26,347

The $1.5 million sequential decrease in net income attributable to common stockholders was primarily due to a $2.4 million after-tax decrease in net interest income and a $1.9 million after-tax increase in operating expenses, partially offset by a $2.4 million after-tax decrease in the total provision for credit losses.

The $18.6 million year-over-year increase in net income attributable to common stockholders was due to a $10.7 million after-tax increase in the fair value of undesignated financial derivatives due to fluctuations

in long-term interest rates, a $9.4 million after-tax increase in net interest income, and a $3.1 million after-tax decrease in the provision for credit losses.

These factors were partially offset by a $2.0 million after-tax increase in operating expenses and a $1.8 million increase in preferred stock dividends.

The $0.5 million sequential decrease in core earnings was primarily due to a $1.9 million after-tax increase in operating expenses and a $0.5 million after-tax decrease in net effective spread, partially offset by a $2.4 million after-tax decrease in the total provision for credit losses.

The $5.8 million year-over-year increase in core earnings was primarily due to a $7.7 million after-tax increase in net effective spread and a $3.1 million after-tax decrease in the total provision for credit losses.

The $2.5 million sequential decrease in net income attributable to common stockholders was primarily due to a $5.8 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates, which was partially offset by a $1.5 million after-tax increase in net interest income, and a $1.6 million after-tax decrease in operating expenses.

The $6.2 million year-over-year decrease in net income attributable to common stockholders was due to a $7.6 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates, a $2.2 million after-tax increase in operating expenses, and a $1.9 million increase in preferred stock dividends.

These factors were partially offset by a $5.4 million after-tax increase in net interest income.

The $4.1 million sequential increase in core earnings was primarily due to a $2.1 million after-tax increase in net effective spread and a $1.6 million after-tax decrease in operating expenses.

The $3.6 million year-over-year increase in core earnings was primarily due to a $8.0 million after-tax increase in net effective spread.

This increase was partially offset by a $2.2 million after-tax increase in operating expenses and a $1.9 million increase in preferred stock dividends.

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For the Three Months Ended

March 31, 2021 December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021 June 30, 2020

(in thousands)

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Net effective spread % 1.01 % 0.97 % 0.89 %

The $3.0 million sequential decrease in net interest income was primarily due to a $3.6 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives) and partially offset by a $0.7 million increase related to new business volume.

In percentage terms, the decrease of 0.05% in net interest income yield was primarily attributable to a decrease of 0.06% in net fair value changes from designated financial derivatives, partially offset by an increase of 0.01% related to new business volume.

The $12.0 million year-over-year increase in net interest income was primarily due to a $6.0 million increase in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives) and a $6.1 million increase related to new business volume.

In percentage terms, the

0.13% increase was primarily attributable to an increase of 0.10% in net fair value changes from designated financial derivatives and an increase of 0.05% in new business volume.

The $0.7 million sequential decrease in net effective spread was primarily due to a $0.6 million decrease in interest income related to fewer interest-bearing days in the quarter and a $0.6 million increase in non-GAAP funding costs, which were partially offset by a $0.7 million increase related to new business volume.

In percentage terms, the decrease of 0.01% was primarily attributable to the increase in non-GAAP funding costs of 0.01%.

The $9.7 million year-over-year increase in net effective spread in dollars was primarily due to an increase of $6.1 million from new business volume and a $3.5 million decrease in non-GAAP funding costs.

In percentage terms, the increase of 0.08% was primarily attributable to the increase in new business volume of 0.05% and a decrease in non-GAAP funding costs of 0.03%.

The $1.9 million sequential increase in net interest income was primarily due to a $1.2 million increase related to new business volume, a $1.3 million decrease in funding costs, and a $1.1 million increase in cash collections on non-accrual loans.

These factors were offset by a $2.1 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives).

In percentage terms, the increase of 0.03% in net interest income yield was primarily attributable to a decrease of 0.03% in funding costs, an increase of 0.02% related to cash collections on non-accrual loans, an increase of 0.01% related to new business volume, partially offset by a decrease of 0.03% in net fair value changes from designated financial derivatives.

The $6.8 million year-over-year increase in net interest income was primarily due to a $4.3 million increase related to new business volume, a $1.8 million decrease in funding costs, and a $0.7 million

increase in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives).

In percentage terms, the 0.07% increase was primarily attributable to an increase of 0.05% in new business volume and an increase of 0.01% in net fair value changes from designated financial derivatives.

The $2.7 million sequential increase in net effective spread was primarily due to a $1.2 million increase related to new business volume and a $1.1 million increase in cash collections on non-accrual loans.

In percentage terms, the increase of 0.04% was primarily attributable to the increase of 0.02% related to cash collections on non-accrual loans and the increase of 0.01% related to new business volume.

The $10.1 million year-over-year increase in net effective spread in dollars was primarily due to a $5.1 million decrease in non-GAAP funding costs, an increase of $4.3 million from new business volume, and a $0.7 million increase in cash collections on non-accrual loans.

In percentage terms, the increase of 0.12% was primarily attributable to the decrease in non-GAAP funding costs of 0.06%, the increase of 0.05% related to new business volume, and the increase of 0.01% related to cash collections on non-accrual loans.

For more information about Farmer Mac's use of net effective spread as a financial measure, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." For a reconciliation of net interest income to net effective spread, see Table 11 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income."

Business Volume

Our outstanding business volume was $21.9 billion as of March 31, 2021, a net decrease of $61.6 million from December 31, 2020 after taking into account all new business, maturities, and paydowns on existing assets.

The net decrease was primarily attributable to net decreases of $97.7 million in the Institutional Credit line of business and $12.4 million in Rural Utilities.

The net decreases were partially offset by net increases of $48.2 million in Farm & Ranch and $0.3 million in USDA Guarantees.

Our outstanding business volume was $22.2 billion as of June 30, 2021, a net increase of $0.3 billion from March 31, 2021 after taking into account all new business, maturities, and paydowns on existing assets.

The net increase was primarily attributable to a net increase of $426.8 million in the Farm & Ranch line of business, partially offset by net decreases of $60.2 million in the USDA Guarantees line of business, $24.4 million in the Rural Utilities line of business, and $7.6 million in the Institutional Credit line of business.

For more information about Farmer Mac's business volume, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Business Volume."

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(in thousands)

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Capital in excess of minimum capital level required 482,647 325,455

The increase in capital in excess of the minimum capital level required was primarily due to the increase in retained earnings.

The increase in capital in excess of the minimum capital level required was primarily due to the issuance of the Series G Preferred Stock and an increase in retained earnings.

Current Expected Credit Loss

As of March 31, 2021, Farmer Mac's allowance for losses on its on-balance sheet loan portfolio was $14.8 million (0.17% of all loans), compared to $13.8 million (0.16% of all loans) as of December 31,

During first quarter 2021, Farmer Mac recorded a provision to its allowance for loan losses of $1.0 million.

As of March 31, 2021, Farmer Mac's reserve for losses on its off-balance sheet LTSPCs and Guaranteed Securities was $2.3 million (0.07% of all off-balance sheet LTSPCs and Guaranteed Securities), compared to $3.3 million (0.10% of all off-balance sheet LTSPCs and Guaranteed Securities) as of December 31, 2020.

During first quarter 2021, Farmer Mac recorded a release from the reserve for its off-balance sheet portfolio of $1.0 million.

As of June 30, 2021, Farmer Mac's allowance for losses on its on-balance sheet loan portfolio was $14.0 million (0.16% of all loans), compared to $14.8 million (0.17% of all loans) as of March 31, 2021 and $13.8 million (0.16% of all loans) as of December 31, 2020.

During second quarter 2021, Farmer Mac recorded a release from its allowance for loan losses of $0.8 million.

As of June 30, 2021, Farmer Mac's reserve for losses on its off-balance sheet LTSPCs and Guaranteed Securities was $2.1 million (0.06% of all off-balance sheet LTSPCs and Guaranteed Securities), compared to $2.3 million (0.07% of all off-balance sheet LTSPCs and Guaranteed Securities) as of March 31, 2021 and $3.3 million (0.10% of all off-balance sheet LTSPCs and Guaranteed Securities) as of December 31, 2020.

During second quarter 2021, Farmer Mac recorded a release from the reserve for its off-balance sheet portfolio of $0.2 million.

Credit Quality

The following table presents Farm & Ranch substandard assets, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of March 31, 2021 and December 31, 2020:

The following table presents Farm & Ranch substandard assets, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of June 30, 2021, March 31, 2021, and December 31, 2020:

Farm & Ranch Line of Business

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(dollars in thousands)

June 30, 2021 $ 205,958 3.1 % $ 93,168 3.8 %

March 31, 2021 221,987 3.5 % 99,674 4.3 %

December 31, 2020 180,823 2.9 % 110,671 4.6 %

Increase/(decrease) from prior quarter-ending $ (16,029) (0.4) % $ (6,506) (0.5) %

Increase/(decrease) from prior year-ending $ 25,135 0.2 % $ (17,503) (0.8) %

The increase of $41.2 million in on-balance sheet substandard assets during first quarter 2021 was primarily driven by credit downgrades during the quarter, particularly in permanent plantings and crops.

The on-balance sheet Farm & Ranch portfolio grew by $126.5 million, which, when coupled with credit downgrades, caused the percentage of substandard assets to increase.

The $11.0 million decrease in substandard assets in our off-balance sheet Farm & Ranch portfolio during first quarter 2021 was primarily due to payoffs in crops and credit upgrades in the livestock and crops portfolios during the quarter.

There were no substandard assets in the Rural Utilities portfolio as of both March 31, 2021 and December 31, 2020.

The decrease of $16.0 million in on-balance sheet substandard assets during second quarter 2021 was primarily driven by credit upgrades during the quarter, particularly in crops and livestock.

The on-balance sheet Farm & Ranch portfolio grew by $298.2 million, which, when coupled with credit upgrades, caused the percentage of substandard assets to decrease.

The $6.5 million decrease in substandard assets in our off-balance sheet Farm & Ranch portfolio during second quarter 2021 was primarily due to credit upgrades in the livestock and crops portfolios during the quarter.

There was one substandard asset in the Rural Utilities portfolio as of June 30, 2021 and none as of December 31, 2020.

For an analysis of current loan-to-value ratios across substandard and other internally assigned risk ratings, see Table 26 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."

The following table presents Farm & Ranch 90-day delinquencies, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of March 31, 2021 and December 31, 2020:

The following table presents Farm & Ranch 90-day delinquencies, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of June 30, 2021, March 31, 2021, and December 31, 2020:

Farm & Ranch Line of Business

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(dollars in thousands)

June 30, 2021 $ 56,790 0.86 % $ 6,286 0.26 %

March 31, 2021 65,437 1.04 % 6,909 0.30 %

December 31, 2020 34,799 0.56 % 11,433 0.48 %

Increase/(decrease) from prior quarter-ending $ (8,647) (0.18) % $ (623) (0.04) %

Increase/(decrease) from prior year-ending $ 21,991 0.30 % $ (5,147) (0.22) %

On-balance sheet Farm & Ranch loans 90 or more days delinquent increased in crops, permanent plantings, and livestock.

Off-balance sheet Farm & Ranch loans 90 days or more delinquent decreased in crops.

The top ten borrower exposures over 90 days delinquent in either the on- or off-balance sheet portfolio represented over half of the aggregate 90-day delinquencies as of March 31, 2021.

There were no delinquencies in the Rural Utilities portfolio as of both March 31, 2021 and December 31, 2020.

On-balance sheet Farm & Ranch loans 90 or more days delinquent decreased in permanent plantings and livestock.

Off-balance sheet Farm & Ranch loans 90 days or more delinquent decreased in crops and part-time farms.

The top ten borrower exposures over 90 days delinquent in either the on- or off-balance sheet portfolio represented over half of the aggregate 90-day delinquencies as of June 30, 2021.

There was one $10.0 million loan that was delinquent in the Rural Utilities portfolio as of June 30, 2021 and none as of December 31, 2020.

The delinquent loan became current during third quarter 2021.

For more information about Farmer Mac's credit metrics, including 90-day delinquencies, the total allowance for losses, and substandard assets, as well as the effects of the COVID-19 pandemic on loan payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."

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Farmer Mac continues to closely monitor the effects of the COVID-19 pandemic on our financial condition and operations.

We have operated uninterrupted and entirely remotely since March 2020, and our liquidity levels remain well above regulatory requirements, which has enabled us to execute our mission to support rural America during the pandemic.

We have operated uninterrupted and almost entirely remotely since March 2020, and our liquidity levels remain well above regulatory requirements, which has enabled us to execute our mission to support rural America during the pandemic.

During the pandemic, we have continued to work with our loan servicers and other partners to respond to and facilitate COVID-19-related payment deferment requests from borrowers.

Since March 2020, we have executed COVID-19 payment deferments for $429.8 million of unpaid principal balance on Farm & Ranch loans, Farm & Ranch LTSPCs, and USDA Securities, with approximately $51.0 million of unpaid principal balance still in deferment as of March 31, 2021.

Since March 2020, we have executed COVID-19 payment deferments for $428.4 million of unpaid principal balance on Farm & Ranch loans, Farm & Ranch LTSPCs, and USDA Securities, most of which have ended their deferment periods and begun making payments.

Use of Non-GAAP Measures

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Specifically, Farmer Mac uses the following non-GAAP measures:

"core earnings," "core earnings per share," and "net effective spread." Farmer Mac uses these non-GAAP measures to measure corporate economic performance and develop financial plans because, in management's view, they are useful alternative measures in understanding Farmer Mac's economic performance, transaction economics, and business trends.

measures in understanding Farmer Mac's economic performance, transaction economics, and business trends.

The non-GAAP financial measures that Farmer Mac uses may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies.

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Accordingly, the excluded interest income and interest expense associated with consolidated trusts is reclassified to guarantee and commitment fees in determining Farmer Mac's core earnings.

Farmer Mac also excludes from net effective spread the fair value changes of financial derivatives and the corresponding assets or liabilities designated in fair value hedge relationships because they are not expected to have an economic effect on Farmer Mac's financial performance, as we expect to hold the financial derivatives and corresponding hedged items to maturity.

Net effective spread also differs from net interest income and net interest yield because it includes the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge accounting relationships ("undesignated financial derivatives").

Farmer Mac uses interest rate swaps to manage its interest rate risk exposure by synthetically modifying the interest rate

reset or maturity characteristics of certain assets and liabilities.

Farmer Mac also excludes from net effective spread the fair value changes of financial derivatives and the corresponding assets or liabilities designated in fair value hedge accounting relationships because they are not expected to have an economic effect on Farmer Mac's financial performance, as we expect to hold the financial derivatives and corresponding hedged items to maturity.

designated in hedge accounting relationships ("undesignated financial derivatives").

Farmer Mac uses interest rate swaps to manage its interest rate risk exposure by synthetically modifying the interest rate reset or maturity characteristics of certain assets and liabilities.

The accrual of the contractual amounts due on interest rate swaps designated in hedge accounting relationships is included as an adjustment to the yield or cost of the hedged item and is included in net interest income.

For undesignated financial derivatives, Farmer Mac records the income or expense related to the accrual of the contractual amounts due in "Gains/(losses) on financial derivatives" on the consolidated statements of operations.

For undesignated financial derivatives, Farmer Mac records the income or expense related to the accrual of the contractual amounts due in "(Losses)/gains on financial derivatives" on the consolidated statements of operations.

However, the accrual of the contractual amounts due for undesignated financial derivatives are included in Farmer Mac's calculation of net effective spread.

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For the Three Months Ended

March 31, 2021 March 31, 2020

June 30, 2021 June 30, 2020

(in thousands, except per share amounts)

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Less reconciling items:

Gains/(losses) on undesignated financial derivatives due to fair value changes (see Table 14) 1,695 (6,484)

(Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (3,721) 8,700

Losses on hedging activities due to fair value changes (2,097) (2,676)

Unrealized losses on trading securities (61) (20)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 20 35

Net effects of terminations or net settlements on financial derivatives 109 720

Income tax effect related to reconciling items 1,208 (1,419)

Sub-total (4,542) 5,340

Core earnings $ 29,986 $ 26,347

Composition of Core Earnings:

Net effective spread (1)

$ 56,551 $ 46,469

Guarantee and commitment fees (2)

Total revenues 61,186 52,460

Credit related expense (GAAP):

(Release of)/provision for losses (983) 51

Gains on sale of REO — —

Total credit related expense (983) 51

Operating expenses (GAAP):

Compensation and employee benefits 9,779 8,087

General and administrative 6,349 5,295

Regulatory fees 750 725

Total operating expenses 16,878 14,107

Net earnings 45,291 38,302

Income tax expense (4)

Preferred stock dividends (GAAP) 5,842 3,939

Core earnings $ 29,986 $ 26,347

Core earnings per share:

Basic $ 2.79 $ 2.46

Diluted 2.77 2.45

Weighted-average shares:

Basic 10,763 10,730

Diluted 10,838 10,776

(1) Net effective spread is a non-GAAP measure.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for an explanation of net effective spread.

See Table 11 for a reconciliation of net interest income to net effective spread.

(2) Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.

(3) Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.

(4) Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings

For the Six Months Ended

June 30, 2021 June 30, 2020

(in thousands, except per share amounts)

Net income attributable to common stockholders $ 53,402 $ 41,086

Less reconciling items:

(Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (2,026) 2,216

Losses on hedging activities due to fair value changes (2,368) (8,601)

Unrealized (losses)/gains on trading securities (75) 86

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Income tax expense (4)

17,983 14,614

Preferred stock dividends (GAAP) 11,111 7,370

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Reconciliation of GAAP Basic Earnings Per Share to Core Earnings - Basic Earnings Per Share

For the Three Months Ended

March 31, 2021 March 31, 2020

For the Three Months Ended For the Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

(in thousands, except per share amounts)

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Less reconciling items:

Gains/(losses) on undesignated financial derivatives due to fair value changes (see Table 14) 0.16 (0.61)

Gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.35) 0.81 (0.19) 0.21

Losses on hedging activities due to fair value changes (0.19) (0.25) (0.22) (0.80)

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Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings - Diluted Earnings Per Share

For the Three Months Ended

March 31, 2021 March 31, 2020

For the Three Months Ended For the Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

(in thousands, except per share amounts)

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Less reconciling items:

Gains/(losses) on undesignated financial derivatives due to fair value changes (see Table 14) 0.16 (0.60)

Gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.34) 0.81 (0.18) 0.21

Losses on hedging activities due to fair value changes (0.19) (0.25) (0.22) (0.80)

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Non-GAAP Reconciling Items for (Losses)/Gains on Hedging Activities due to Fair Value Changes

For the Three Months Ended

March 31, 2021 March 31, 2020

For the Three Months Ended For the Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

(in thousands)

2 unchanged sentences

Losses on hedging activities due to fair value changes $ (2,097) $ (2,676) $ (2,368) $ (8,601)

Unrealized gains on trading securities.

Unrealized gains/(losses) on trading securities.

The unrealized gains/(losses) on trading securities are reported on Farmer Mac's consolidated statements of operations, which represent changes during the period in fair values for trading assets remaining on Farmer Mac's balance sheet as of the end of the reporting period.

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Net Interest Income .

The following table provides information about interest-earning assets and funding for the quarters ended March 31, 2021 and 2020.

The following table provides information about interest-earning assets and funding for the six months ended June 30, 2021 and 2020.

The average balance of non-accruing loans is included in the average balance of loans, Farmer Mac Guaranteed Securities, and USDA Securities presented, though the related income is accounted for on a cash basis.

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The interest income and expense associated with these trusts are shown in the net effect of consolidated trusts.

For the Three Months Ended

March 31, 2021 March 31, 2020

For the Six Months Ended

June 30, 2021 June 30, 2020

Balance Income/

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Net interest income/yield $ 23,434,573 $ 108,380 0.93 % $ 21,803,193 $ 89,660 0.82 %

(1) Excludes interest income of $10.6 million and $14.9 million in first quarter 2021 and 2020, respectively, related to consolidated trusts with beneficial interests owned by third parties.

(1) Excludes interest income of $20.9 million and $29.3 million in the first half of 2021 and 2020, respectively, related to consolidated trusts with beneficial interests owned by third parties.

(2) Includes current portion of long-term notes.

(3) Excludes interest expense of $9.4 million and $13.2 million in first quarter 2021 and 2020, respectively, related to consolidated trusts with beneficial interests owned by third parties.

(3) Excludes interest expense of $18.4 million and $25.8 million in the first half of 2021 and 2020, respectively, related to consolidated trusts with beneficial interests owned by third parties.

(4) Includes the effect of consolidated trusts with beneficial interests owned by third parties.

The $18.7 million year-over-year increase in net interest income was primarily due to a $10.9 million increase related to new business volume, a $6.7 million increase in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives), and a $1.4 million decrease in funding costs.

In percentage terms, the 0.11% increase was primarily attributable to an increase of 0.06% in net fair value changes from designated financial derivatives and an increase of 0.05% in new business volume.

The following table sets forth information about changes in the components of Farmer Mac's net interest income prior to consolidation of certain trusts for the periods indicated.

For each category, information is provided on changes attributable to changes in volume (change in volume multiplied by old rate), and changes in rate (change in rate multiplied by old volume), and then allocated based on the relative size of rate and volume changes from the prior period.

For the Three Months Ended March 31, 2021 Compared to Same Period in 2020

For the Six Months Ended June 30, 2021 Compared to Same Period in 2020

Increase/(Decrease) Due to

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See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for more information about net effective spread.

For the Three Months Ended

March 31, 2021 March 31, 2020

Dollars Yield Dollars Yield

For the Three Months Ended For the Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Dollars Yield Dollars Yield Dollars Yield Dollars Yield

(dollars in thousands)

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Net effective spread $ 56,551 1.01 % $ 46,469 0.89 % $ 110,410 0.99 % $ 90,632 0.89 %

The $19.8 million year-over-year increase in net effective spread in dollars was primarily due to an increase of $10.9 million from new business volume, a $8.2 million decrease in non-GAAP funding costs, and a $1.0 million increase in cash collections on non-accrual loans.

In percentage terms, the increase of 0.10% was primarily attributable to the increase of 0.05% related to net new business volume, the decrease in non-GAAP funding costs of 0.04%, and the increase of 0.01% related to cash collections on non-accrual loans.

See Note 10 to the consolidated financial statements for more information about net interest income and net effective spread from Farmer Mac's individual business segments.

See "Management's Discussion and

Analysis of Financial Condition and Results of Operations—Supplemental Information" for quarterly net effective spread by line of business.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Information" for quarterly net effective spread by line of business.

Provision for and Release of Allowance for Losses and Reserve for Losses .

The following table summarizes the components of Farmer Mac's total allowance for losses for the three months ended March 31, 2021 and 2020:

For the Three Months Ended

March 31, 2021 March 31, 2020

The following table summarizes the components of Farmer Mac's total allowance for losses for the three and six months ended June 30, 2021 and 2020:

As of June 30, 2021 As of June 30, 2020

Losses Reserve

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(in thousands)

For the Three Months Ended:

Beginning balance $ 15,211 $ 2,333 $ 17,544 $ 15,685 $ 3,420 $ 19,105

(Release of)/provision for losses (761) (222) (983) 467 (400) 67

Charge-offs — — — (394) — (394)

Ending balance $ 14,450 $ 2,111 $ 16,561 $ 15,758 $ 3,020 $ 18,778

For the Six Months Ended:

Beginning balance $ 14,298 $ 3,277 $ 17,575 $ 10,454 $ 2,164 $ 12,618

Cumulative effect adjustment from adoption of current expected credit loss standard — — — 1,793 863 2,656

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Provision for/(release of) losses 152 (1,166) (1,014) 3,905 (7) 3,898

Charge-offs — — — (394) — (394)

Ending balance $ 14,450 $ 2,111 $ 16,561 $ 15,758 $ 3,020 $ 18,778

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Guarantee and Commitment Fees .

The following table presents guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs, for the three months ended March 31, 2021 and 2020:

For the Three Months Ended

March 31, 2021 March 31, 2020 $ %

For the Three Months Ended For the Six Months Ended

Change Change

June 30, 2021 June 30, 2020 $ % June 30, 2021 June 30, 2020 $ %

(dollars in thousands)

Guarantee and commitment fees $ 2,997 $ 3,140 $ (143) (5) % $ 6,027 $ 6,336 $ (309) (5) %

The decrease in guarantee and commitment fees for the three and six months ended June 30, 2021 compared to the same periods in 2020 was primarily due to decreased LTSPC volume.

As adjusted for the core earnings presentation, guarantee and commitment fees were $4.3 million and $8.6 million for the three and six months ended June 30, 2021, respectively, compared to $4.9 million and $9.8 million for the three and six months ended June 30, 2020, respectively.

In Farmer Mac's presentation of core earnings, guarantee and commitment fees include interest income and interest expense related to consolidated trusts owned by third parties to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.

The decrease in guarantee and commitment fees for the three months ended March 31, 2021 compared to 2020 was primarily due to decreased LTSPC volume.

As adjusted for the core earnings presentation, guarantee and commitment fees were $4.2 million for first quarter 2021, compared to $4.9 million in first quarter 2020, respectively.

For more information about net income attributable to common stockholders, the composition of core earnings, and a reconciliation of net income attributable to common stockholders to core earnings, see Table 1 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." For more information about the non-GAAP measures Farmer Mac uses, see

"Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures."

Gains/(losses) on financial derivatives .

The components of gains and losses on financial derivatives for the three months ended March 31, 2021 and 2020 are summarized in the following table:

For the Three Months Ended

March 31, 2021 March 31, 2020 $ %

For more information about net income attributable to common stockholders, the composition of core earnings, and a reconciliation of net income attributable to common stockholders to core earnings, see Table 6 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures."

(Losses)/gains on financial derivatives .

The components of gains and losses on financial derivatives for the three and six months ended June 30, 2021 and 2020 are summarized in the following table:

For the Three Months Ended For the Six Months Ended

Change Change

June 30, 2021 June 30, 2020 $ % June 30, 2021 June 30, 2020 $ %

(dollars in thousands)

Gains/(losses) due to fair value changes $ 1,695 $ (6,484) $ 8,179 126 %

(Losses)/gains due to fair value changes $ (3,721) $ 8,700 $ (12,421) (143) % $ (2,026) $ 2,216 $ (4,242) (191) %

Accrual of contractual payments 970 (2,413) 3,383 140 % 3,038 (3,603) 6,641 184 %

Gains/(losses) due to terminations or net settlements 530 (1,624) 2,154 133 %

Gains/(losses) on financial derivatives $ 4,293 $ (9,298) $ 13,591 146 %

(Losses)/gains due to terminations or net settlements (315) 236 (551) (233) % 215 (1,388) 1,603 115 %

(Losses)/gains on financial derivatives $ (3,066) $ 6,523 $ (9,589) (147) % $ 1,227 $ (2,775) $ 4,002 144 %

These changes in fair value are primarily the result of fluctuations in long-term interest rates.

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Payments or receipts to terminate undesignated derivative positions or net cash settled forward sales contracts on the debt of other GSEs and undesignated U.S.

Treasury security futures and initial cash payments received upon the inception of certain undesignated swaps are included in "Gains/(losses) due to terminations or net settlements" in the table above.

For undesignated swaps, when there is no direct payment arrangement between a swap dealer counterparty and a debt dealer issuing Farmer Mac's medium-term notes for a particular transaction, Farmer Mac may receive an initial cash payment from the swap dealer at the inception of the swap to offset dollar-for-dollar the amount of the discount on the associated hedged debt.

Changes in the fair value of these swaps are recognized immediately in "Gains/(losses) on financial derivatives," while the offsetting discount on the hedged debt is amortized over the term of the debt as an adjustment to its yield.

Treasury security futures and initial cash payments received upon the inception of certain undesignated swaps are included in "(Losses)/gains due to terminations or net settlements" in the table above.

For undesignated swaps, when there is no direct payment arrangement between a swap dealer counterparty and a debt dealer issuing Farmer Mac's medium-term notes for a

particular transaction, Farmer Mac may receive an initial cash payment from the swap dealer at the inception of the swap to offset dollar-for-dollar the amount of the discount on the associated hedged debt.

Changes in the fair value of these swaps are recognized immediately in "(Losses)/gains on financial derivatives," while the offsetting discount on the hedged debt is amortized over the term of the debt as an adjustment to its yield.

The amounts of initial cash payments received by Farmer Mac vary depending on the number of the aforementioned type of swaps it executes during a quarter.

Other Income .

The following table presents other income for the three months ended March 31, 2021 and 2020:

For the Three Months Ended

March 31, 2021 March 31, 2020 $ %

The following table presents other income for the three and six months ended June 30, 2021 and 2020:

For the Three Months Ended For the Six Months Ended

Change Change

June 30, 2021 June 30, 2020 $ % June 30, 2021 June 30, 2020 $ %

(dollars in thousands)

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Total other income $ 435 $ 1,229 $ (794) (65) % $ 1,018 $ 2,045 $ (1,027) (50) %

The decrease in other income is primarily due to a decrease in late fee income on Farm & Ranch loans.

The decrease in other income is primarily due to a decrease in rate modification fees on Farm & Ranch loans.

Operating Expenses .

The components of operating expenses for the three months ended March 31, 2021 and 2020 are summarized in the following table:

For the Three Months Ended

March 31, 2021 March 31, 2020 $ %

The components of operating expenses for the three and six months ended June 30, 2021 and 2020 are summarized in the following table:

For the Three Months Ended For the Six Months Ended

Change Change

June 30, 2021 June 30, 2020 $ % June 30, 2021 June 30, 2020 $ %

(dollars in thousands)

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Income Tax Expense .

The following table presents income tax expense and the effective income tax rate for the three months ended March 31, 2021 and 2020:

For the Three Months Ended

March 31, 2021 March 31, 2020 $ %

The following table presents income tax expense and the effective income tax rate for the three and six months ended June 30, 2021 and 2020:

For the Three Months Ended For the Six Months Ended

Change Change

June 30, 2021 June 30, 2020 $ % June 30, 2021 June 30, 2020 $ %

(dollars in thousands)

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Business Volume .

The following table sets forth the net growth or decrease in Farmer Mac's four lines of business for the three months ended March 31, 2021 and 2020:

The following table sets forth the net growth or decrease in Farmer Mac's four lines of business for the three and six months ended June 30, 2021 and 2020:

Net New Business Volume – Farmer Mac Loan Purchases, Guarantees, LTSPCs, and AgVantage Securities

For the Three Months Ended

March 31, 2021 March 31, 2020

Net Growth/(Decrease) Net Growth/(Decrease)

For the Three Months Ended For the Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Net Growth/(Decrease) Net Growth/(Decrease) Net Growth/(Decrease) Net Growth/(Decrease)

(in thousands)

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Total purchases, guarantees, LTSPCs, and AgVantage securities $ 334,630 $ 502,796 $ 273,066 $ 924,166

Our outstanding business volume was $21.9 billion as of March 31, 2021, a net decrease during the quarter of $61.6 million, after taking into account all new business, maturities, and paydowns on existing assets.

The net decrease was primarily attributable to net decreases of $97.7 million in the Institutional Credit line of business and $12.4 million in Rural Utilities.

The net decreases were partially offset by net increases of $48.2 million in Farm & Ranch and $0.3 million in USDA Guarantees.

The $97.7 million net decrease in the Institutional Credit line of business during first quarter 2021 was due primarily to two large counterparties who reduced their amount of outstanding credit in connection with scheduled maturities and payments on multiple AgVantage bonds.

The quarterly change in AgVantage securities volume is primarily driven by the generally larger transaction sizes for that product, scheduled maturity amounts, the liquidity needs of Farmer Mac’s AgVantage counterparties, and changes in the pricing and availability of wholesale funding.

The $12.4 million net decrease in our Rural Utilities line of business reflected a $13.3 million net decrease in outstanding loan purchase volume that was partially offset by a $0.9 million net increase in loans under LTSPCs.

The $48.2 million net increase in our Farm & Ranch line of business reflected a $239.0 million net increase in outstanding loan purchase volume that was partially offset by net decreases of $112.5 million in loans held in consolidated trusts and $78.4 million in loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities.

The Farm & Ranch portfolio grew despite our heaviest payment date

of the year (January 1) occurring during the quarter.

Our net growth of 17.6% in the Farm & Ranch on-balance sheet portfolio over the twelve months ended March 31, 2021 is significantly higher than the 5.8% net growth of the overall agricultural mortgage loan market over the twelve months ended December 31, 2020 (based on our analysis of bank and Farm Credit System call report data).

The $426.8 million net increase in our Farm & Ranch line of business reflected a $394.8 million net increase in outstanding loan purchase volume and a $128.6 million net increase in loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities, which was partially offset by a net decrease of $96.5 million in loans held in consolidated trusts.

Our net growth of 17.5% in the Farm & Ranch on-balance sheet portfolio over the twelve months ended June 30, 2021 is significantly higher than the 6.0% net growth of the overall agricultural mortgage loan market over the twelve months ended March 31, 2021 (based on our analysis of bank and Farm Credit System call report data).

The $60.2 million net decrease in the USDA Guarantees line of business reflected $160.6 million in paydowns, partially offset by $100.4 million in gross new volume.

The net volume decrease is reflective of the low interest rate environment that has increased the competitiveness and lowered the spreads in this line of business.

The $24.4 million net decrease in the Rural Utilities line of business was due to $63.5 million in paydowns in loans and LTSPCs, partially offset by $39.1 million in gross new loan volume.

The net volume decrease is due to increased market competitiveness that has lowered spreads in this line of business.

The $7.6 million net decrease in the Institutional Credit line of business reflects $476.2 million of maturities, partially offset by $468.6 million in gross volume.

This net decrease was due to a net volume decrease in our smaller fund counterparties, partially offset by a modest net increase among our three largest counterparties.

The level and composition of Farmer Mac’s outstanding business volume is based on the relationship between new business, maturities, and repayments on existing assets from quarter to quarter.

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The following table sets forth information about the Farmer Mac Guaranteed Securities issued during the periods indicated:

For the Three Months Ended

March 31, 2021 March 31, 2020

For the Three Months Ended For the Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

(in thousands)

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Farmer Mac either retains the loans it purchases or securitizes them and retains or sells Farmer Mac Guaranteed Securities backed by those loans.

The weighted-average age of the Farm & Ranch non-delinquent eligible loans purchased and retained (excluding the purchases of defaulted loans) during both first quarter 2021 and 2020 was less than one year.

Of those loans, 55% and 53% had principal amortization periods longer than the maturity date, resulting in balloon payments at maturity, with a weighted-average remaining term to maturity of 21.6 years and 22.8 years for each period, respectively.

During first quarter 2021 and 2020, Farmer Mac securitized some of the Farm & Ranch loans it had purchased and sold the resulting Farmer Mac Guaranteed Securities, as shown above.

During first quarter 2021 and 2020, Farmer Mac realized no gains or losses from the sale of Farmer Mac Guaranteed Securities or USDA Securities.

The weighted-average age of the Farm & Ranch non-delinquent eligible loans purchased and retained (excluding the purchases of defaulted loans) during both second quarter 2021 and 2020 was less than one year.

Of those loans, 25% and 25% had principal

amortization periods longer than the maturity date, resulting in balloon payments at maturity, with a weighted-average remaining term to maturity of 15.6 years and 15.0 years for each period, respectively.

During the three and six months ended June 30, 2021 and 2020, Farmer Mac realized no gains or losses from the sale of Farmer Mac Guaranteed Securities or USDA Securities.

Farmer Mac consolidates these loans and presents them as "Loans held for investment in consolidated trusts, at amortized cost" on the consolidated balance sheets.

For first quarter 2021 and 2020 none of Farmer Mac Guaranteed Securities were sold to a related party.

For the first six months of 2021 and 2020, none of Farmer Mac Guaranteed Securities were sold to a related party.

The following table sets forth information about outstanding volume in each of Farmer Mac's four lines of business as of the dates indicated:

Lines of Business - Outstanding Business Volume

As of March 31, 2021 As of December 31, 2020

As of June 30, 2021 As of December 31, 2020

(in thousands)

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Total $ 22,197,161 $ 21,924,095

The following table summarizes by maturity date the scheduled principal amortization of loans held, loans underlying off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and LTSPCs, USDA Securities, and Farmer Mac Guaranteed USDA Securities as of March 31, 2021:

Schedule of Principal Amortization as of March 31, 2021

Schedule of Principal Amortization as of June 30, 2021

Loans Held Loans Underlying Off-Balance Sheet Farmer Mac Guaranteed Securities and LTSPCs USDA Securities and Farmer Mac Guaranteed USDA Securities Total

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Total $ 8,847,773 $ 2,988,406 $ 2,726,909 $ 14,563,088

Of the $21.9 billion outstanding principal balance of volume included in Farmer Mac's four lines of business as of March 31, 2021, $7.6 billion were AgVantage securities included in the Institutional Credit line of business.

Of the $22.2 billion outstanding principal balance of volume included in Farmer Mac's four lines of business as of June 30, 2021, $7.6 billion were AgVantage securities included in the Institutional Credit line of business.

Unlike business volume in the form of purchased loans, USDA Securities, and loans underlying LTSPCs and non-AgVantage Farmer Mac Guaranteed Securities, most AgVantage securities

do not require periodic payments of principal based on amortization schedules and instead have fixed maturity dates when the secured general obligation is due.

The following table summarizes by maturity date the outstanding principal amount of both on- and off-balance sheet AgVantage securities as of March 31, 2021:

The following table summarizes by maturity date the outstanding principal amount of both on- and off-balance sheet AgVantage securities as of June 30, 2021:

AgVantage Balances by Year of Maturity

March 31, 2021

June 30, 2021

(in thousands)

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(1) Includes various maturities ranging from 2026 to 2044.

The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 5.0 years as of March 31, 2021.

The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.9 years as of June 30, 2021.

Farmer Mac continues to provide a stable source of liquidity, capital, and risk management tools as the secondary market that helps meet the financing needs of rural America.

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• As agricultural and rural utilities lenders seek to manage equity capital and return on equity capital requirements or seek to reduce exposure due to lending or concentration limits, Farmer Mac can provide relief for those institutions through loan and portfolio purchases, participations, guarantees, LTSPCs, or wholesale funding.

• While prospects for overall loan growth within the rural utilities industry appear to be moderate in the near term due to slower growth in the demand for capital reflected in an increase in interest rates, future growth opportunities may increase in Farmer Mac’s Rural Utilities line of business from deepening business relationships with eligible counterparties, broadband-related capital expenditures, growing opportunities for renewable energy project finance, and the exploration of new types of loan products.

• Future growth opportunities in Farmer Mac’s Rural Utilities line of business may evolve by deepening business relationships with eligible counterparties, financing broadband-related capital expenditures, growing opportunities for renewable energy project finance, and exploring new types of loan products.

These opportunities may be limited by sector growth, credit quality, and the competitiveness of Farmer Mac’s products.

• As a result of business and product development efforts and continued interest in the agricultural asset class from institutional investors, Farmer Mac’s customer base and product set continue to expand, which may generate more demand for Farmer Mac’s products from new sources.

• Consolidation within the agricultural finance industry, coupled with Farmer Mac’s relationships with larger regional and national lenders, continue to provide opportunities that could influence

Farmer Mac’s loan demand and increase the average transaction size within Farmer Mac’s Farm & Ranch line of business.

• Expansion and refinancing opportunities for agricultural producers and agribusinesses resulting from competitive interest rates have increased financing requirements for mergers and acquisitions, consolidation, and vertical integration across many sectors of the agricultural industry, which may also generate demand for Farmer Mac’s loan products.

The COVID-19 pandemic continues to disrupt parts of the global economy, although the disruptions experienced during 2020 were significantly moderated during first quarter 2021.

Government stimulus programs designed to mitigate the economic impacts of the pandemic, as well as continued liquidity support by the Federal Reserve to facilitate the functioning of the capital markets, continue to reduce volatility to the economy and the sectors we serve.

But the continued spread of COVID-19 resulting from certain variants of coronavirus and the effectiveness and availability of vaccines globally continue to evolve and create uncertainty, which may result in increased market volatility.

Farmer Mac’s mission is to support rural America during this pandemic, and the disruptions caused by COVID-19 may present some new and expanded opportunities for Farmer Mac to help meet the financing needs of rural America while also presenting uncertainties and risks.

COVID-19 has highlighted the importance of a healthy and stable global food supply chain, as well as the need for increased connectivity through rural broadband.

These market conditions could result in increased investment in the supply chain for food, fuel, fiber, energy, and broadband, all of which require access to competitive, long-term capital.

Farmer Mac can provide a source of secondary market liquidity to help stimulate capital deployment to help facilitate these investments while continually monitoring potential market and sector volatility associated with the ongoing impacts of the pandemic.

• As a result of business and product development efforts and continued interest of institutional investors in agricultural assets, Farmer Mac’s customer base and product set continue to expand, which may generate more demand for Farmer Mac’s products from new sources.

• Consolidation within the agricultural finance industry, coupled with Farmer Mac’s relationships with larger regional and national lenders, continue to provide opportunities that could influence Farmer Mac’s loan demand and increase the average transaction size within Farmer Mac’s lines of business.

• Expansion and refinancing opportunities for agricultural producers and agribusinesses resulting from competitive interest rates have increased financing needs to support mergers and acquisitions, consolidation, and vertical integration across many sectors of the agricultural industry, which may also generate demand for Farmer Mac’s loan products.

The disruptions from the COVID-19 pandemic experienced during 2020 continued to be significantly moderated during first half of 2021.

However, the continued spread of COVID-19 resulting from certain variants of coronavirus and the effectiveness, availability, and utilization of vaccines both domestically and globally continue to evolve and create uncertainty, which may result in increased market volatility.

Farmer Mac’s mission is to support rural America, and the disruptions caused by COVID-19 may continue to present new and expanded opportunities for Farmer Mac to help meet the financing needs of rural America while also presenting uncertainties and risks.

See "Risk Factors" in Part I, Item 1A of the 2020 Annual Report for more information about the uncertainties and risks associated with the COVID-19 pandemic on Farmer Mac and its business.

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Agricultural Industry .

Economic conditions throughout the agricultural, food, fuel, and fiber sectors continued to improve in early 2021.

Consumers picked up first quarter retail spending at both food and drinking places (only 7% below pre-pandemic levels) as well as food and beverage stores (14% above pre-pandemic levels).

Consumer mobility increased steadily in first quarter 2021, helping to restore fuel demand and bring ethanol production back to 93% of 2019 levels by April 2021, according to U.S.

Economic conditions throughout the agricultural, food, fuel, and fiber sectors remained largely positive throughout the first half of 2021.

Consumers picked up retail spending in the first half of 2021 at both food and drinking places (about the same as pre-pandemic levels) as well as food and beverage stores (15% above pre-pandemic levels).

Consumer mobility has increased steadily in 2021, helping to restore fuel demand and bring ethanol production back to 2019 levels by July 2021, according to U.S.

Energy Information Administration data.

Reduced global supply of grains and increased export demand for grains combined to push world grain prices to 8-year highs.

USDA corn and soybean cash price indices closed the year 70% and 66% above pre-pandemic levels, respectively.

Cattle and dairy prices are the only major agricultural commodities with continued pressure on prices, but both sectors are above 90% of pre-pandemic price levels in April 2021.

Cattle and dairy prices remain the only major agricultural commodities with continued pressure on prices, but both sectors touched pre-pandemic price levels during the second quarter.

agricultural sector has become increasingly dependent on foreign markets as a source of demand.

Agriculture exports were strong in 2020, aided by a weaker U.S.

dollar, a recovery in Chinese demand for grains and oilseeds, and better overall trade relations.

These conditions continued to be favorable in first half of 2021.

Reduced global supply of grains and increased export demand for grains combined to push world grain prices to 8-year highs in June 2021.

During 2020, Congress provided a significant amount of emergency assistance through direct payments to producers, food support funding, and other measures to support the food supply chain.

An estimated $13 billion of that funding is scheduled to be disbursed in 2021.

The rebound in commodity prices combined with extensive government support payments led to a large increase in sector-wide profitability for 2020.

USDA projections for net farm income and net cash farm income in 2020 are the highest levels since 2013 at $121.1 billion and $136.2 billion, respectively.

The rebound in commodity prices combined with extensive government support payments led to a large increase in sector-wide profitability for 2020 and into 2021.

USDA estimates for net farm income and net cash farm income in 2020 are the highest levels since 2013 at $121.1 billion and $136.2 billion, respectively.

An average year generates approximately $100 billion in net farm income, so both 2020 metrics are well above historical averages.

A small decline in cash expenses due to a reduction in interest expense added to improved profitability.

Animal protein and specialty crop producers did not fully participate in the increased profitability, as higher labor, feed, and other input costs partially offset any gains in cash receipts.

Early USDA estimates for 2021 show a stable income outlook of $111.4 billion in net farm income and $128.3 billion in net cash farm income.

Early USDA estimates for 2021 show a stable income outlook of $111.4 billion in net farm income and $128.3 billion in net cash

Higher commodity prices are estimated to offset lower projected government payments in 2021.

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Farmland values held steady throughout the first half of 2020 after rising at approximately the rate of inflation for the last two years.

Data released in August 2020 by the USDA indicates an average increase in farm real estate values of 0.2% in 2020 in Corn Belt states (Illinois, Indiana, Iowa, Missouri, and Ohio), but a decrease of 2.3% in Northern Plains states (Kansas, Nebraska, North Dakota, and South Dakota).

In all other regions, farmland value averages are reported to be flat to increasing.

The COVID-19 pandemic slowed public auctions and sales in the first half of 2020, but transactions picked up in the third and fourth quarters, and values trended higher in the fourth quarter.

An improved profitability outlook combined with low market interest rates provided support for land values in fourth quarter 2020 and first quarter 2021.

Though the COVID-19 pandemic slowed public auctions and sales in the first half of 2020, transactions picked up in recent quarters, and values began to trend higher in fourth quarter 2020.

An improved profitability outlook combined with low market interest rates provided support for land values in fourth quarter 2020 and first half of 2021.

Early estimates from the USDA show a 2% increase in farm real estate in 2021.

The Federal Reserve Bank of Chicago AgLetter reported a 4% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) in fourth quarter 2020 alone.

The Federal Reserve Bank of Chicago AgLetter reported a 4% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) in fourth quarter 2020 followed by a 3% rise in first quarter 2021.

Data from the Federal Reserve Bank of Kansas City show a similar rise in land values in the Tenth District (primarily Kansas, Missouri, Nebraska, and Oklahoma).

Historically, rising farm real estate values are paired with an increase in real estate-secured debt.

Historically, rising farm real estate values have paired with an increase in real estate-secured debt.

While regional averages for farmland values provide a good barometer for the overall movement in U.S.

farmland values, economic forces affecting land markets are highly localized, and some markets may experience greater volatility than state or national averages indicate.

As a result of improved profitability and an injection of working capital into the sectors, Farmer Mac's 90-day delinquencies and substandard assets levels improved in first quarter 2021 relative to first quarter 2020.

Thirty-nine percent of the loans past due 90-days or more in the fourth quarter 2020 cured or paid off by March 31, 2021.

The overall delinquency rate rose from 0.54% of the Farm & Ranch portfolio as of December 31, 2020 to 0.84% of the Farm & Ranch portfolio by March 31, 2021, but that increase is consistent with the seasonal rise historically observed during the first quarter of each year due to the large percentage of loans with January 1 payment due dates.

Compared to first quarter 2020, the delinquency rate has fallen by 18 basis points (from 1.04% in 2020).

However, the ongoing COVID-19 pandemic and the potential for continued economic stress increase the level of uncertainty inherent in the agricultural credit sector and could alter the trajectory of the current agricultural cycle.

A virus resurgence or another economic disruption may result in elevated loan delinquencies and a higher percentage of loans rated substandard.

Farmer Mac believes that its portfolio continues to be highly diversified, both geographically and by commodity, and that its portfolio has been underwritten to high credit quality standards.

Therefore, Farmer Mac believes that its portfolio is well-positioned to endure reasonably foreseeable volatility in commodity prices and farmland values.

For more information about the loan balances, loan-to-value ratios, 90-day delinquencies, and substandard asset rate for the Farm & Ranch loans in Farmer Mac’s portfolio as of March 31, 2021, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."

Apart from the COVID-19 pandemic, three exogenous factors will continue to be a source of heightened uncertainty for the agricultural and food sectors:

international trade, weather conditions, and state and federal farm policy.

agricultural sector has become increasingly dependent on foreign markets as a source of demand.

Agriculture exports were strong in 2020, aided by a weaker U.S.

dollar, a recovery in Chinese demand for grains and oilseeds, and better overall trade relations.

These conditions continued to be positive in first quarter 2021.

experienced $22 billion in severe weather disasters in 2020, the highest level in the 40 years tracked by the National Oceanic and Atmospheric Administration.

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Federal crop insurance provides a strong mitigator against this risk, but farmers and ranchers face increasingly-severe weather incidents.

For more information about the February 2021 "Texas arctic freeze," please refer to the separate section below.

Weather conditions have also presented a challenge to many producers in 2021.

Long and persistent drought conditions have impacted western agriculture in the first half of 2021.

As of July 13, 2021, 100% of the National Weather Service Western Region was designated as experiencing some level of drought or dryness, and 28% of the region was designated as experiencing exceptional drought, according to data from the National Drought Mitigation Center.

Extended periods of drought and dryness can reduce agricultural productivity, cause lasting damage to permanent crops like fruit and tree nuts, and result in producers leaving some fields fallow due to lack of water.

Agricultural production in California, Oregon, Washington, Arizona, and Utah is likely to experience the greatest impact from the 2021 drought.

For loans in areas that commonly experience exceptional drought (primarily in California), Farmer Mac’s underwriting process includes an assessment of anticipated long-term water availability for the related property and how that impacts the collateral value and borrower’s cash flow position to mitigate that risk.

Due to improvements in sector profitability and despite weather challenges in the west, Farmer Mac's 90-day delinquencies and substandard assets levels improved in second quarter 2021 relative to second quarter 2020.

Twenty-nine percent of the loans past due 90-days or more in first quarter 2021 cured or paid off by June 30, 2021.

The overall delinquency rate fell from 0.84% of the Farm & Ranch portfolio as of March 31, 2021 to 0.70% of the Farm & Ranch portfolio by June 30, 2021, a pattern consistent with the seasonal decrease historically observed during the second quarter of each year.

Year-over-year, the delinquency rate fell by 15 basis points from 0.85% in second quarter 2020.

However, the ongoing COVID-19 pandemic and the potential for continued economic and weather-related stress increase the level of uncertainty inherent in the agricultural credit sector and could alter the trajectory of the current agricultural cycle.

A virus resurgence, another economic disruption, or long-term damage to secured collateral from drought and wildfires could result in elevated loan delinquencies and a higher percentage of loans rated substandard.

Farmer Mac believes that its portfolio continues to be highly diversified, both geographically and by commodity, and that its portfolio has been underwritten to high credit quality standards.

Therefore, Farmer Mac believes that its portfolio is well-positioned to endure reasonably

foreseeable volatility from cyclical and external factors.

For more information about the loan balances, loan-to-value ratios, 90-day delinquencies, and substandard asset rate for the Farm & Ranch loans in Farmer Mac’s portfolio as of June 30, 2021, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."

Rural Utilities Industry .

The rural energy industry has less cyclicality than the agricultural sector, but does trend with conditions in the general economy.

Economic conditions affecting the rural utilities industry tend to follow those in the general economy.

According to data from the U.S.

Energy Information Administration, electricity sales to commercial and industrial consumers dropped 8% in 2020 compared to 2019 as a result of the COVID-19 pandemic.

However, residential sales during the same period were up 3% compared to 2019, as residents spent more time at home during state, local, and self-imposed quarantines.

Electricity revenues in January 2021 increased 4% compared to January 2020, indicating a strong start to the year for both residential and industrial power sales.

Overall economic conditions improved considerably in first quarter 2021, with improved employment, credit, and retail sales activity, but COVID-19 continues to threaten the depth and speed of the economic recovery.

Through March 31, 2021, Farmer Mac had not observed material degradation in the financial performance of its Rural Utilities portfolio.

Energy Information Administration, sales and the revenue from the sale of electricity to customers is up more than 3% and 9%, respectively, in 2021 through April compared to 2020.

This increase was driven by higher sales to residential markets, a rebound in sales to the industrial sector, and an increase in the retail price of electricity.

Overall economic conditions continued to improve during the first half of 2021, with improved employment, credit, and retail sales activity, but COVID-19 variants continue to threaten the depth and speed of the economic recovery.

Through June 30, 2021, Farmer Mac had not observed material degradation in the financial performance of its Rural Utilities portfolio.

Prospects for loan growth within the rural utilities industry overall appear to be moderate in the near term, as ongoing normal-course capital expenditures related to maintaining and upgrading utility infrastructure continue at typical levels.

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In particular, these capital needs may provide Farmer Mac with new financing opportunities with our existing customers.

The growth in renewable energy generation and deployment of energy storage technologies may help deepen Farmer Mac's relationships with existing customers through new business opportunities with them.

This growth may also broaden Farmer Mac's customer base with cooperative lenders focused on lending to renewable cooperatives.

The growth in renewable energy generation and deployment of energy storage technologies may help deepen Farmer Mac's relationships with existing customers through new business opportunities.

This growth may also broaden Farmer Mac's customer base with cooperative lenders focused on lending to renewable energy customers.

In response to this growth, Farmer Mac has deployed new financing products tailored to the renewable energy sector, which represents a new market opportunity for Farmer Mac.

Under this new initiative, Farmer Mac purchased solar and wind project participation interests totaling $64 million from new and existing counterparties in 2020.

Farmer Mac anticipates further growth in this area during 2021, with an additional $22 million commitment closed in first quarter 2021.

As of March 31,

2021, the total outstanding loan purchase balance of Farmer Mac’s renewable energy financing portfolio was $82.9 million.

Under this new initiative, Farmer Mac's total outstanding loan purchase balance of renewable energy financing transactions as of June 30, 2021 was $85.1 million.

Tex a s Arctic Freeze .

Farmer Mac continues to monitor the ongoing effects of the extremely cold weather event that occurred during mid-February 2021 in the mid-south region, particularly in Texas, on both our agricultural and rural infrastructure portfolios.

As of March 31, 2021, our agricultural portfolio exposure in Texas was approximately $624 million, with cattle being the largest commodity exposure.

We currently do not expect there to be material impacts from the freeze on this population of the Farmer Mac portfolio.

As of March 31, 2021, our rural infrastructure portfolio exposure in Texas was approximately $416 million and split between distribution and generation and transmission cooperatives.

As of June 30, 2021, our rural infrastructure portfolio exposure in Texas was approximately $412 million and split between distribution and generation and transmission cooperatives.

Many of these cooperatives were affected in some way by the arctic freeze such as obstacles in receiving fuel for power plants or the inability to obtain contracted electricity, which resulted in rolling blackouts across the state.

We believe that the electric cooperatives in our portfolio located in Texas entered this period of stress in a strong financial position (including revolving lines of credit) to absorb cost increases.

Many of these electric cooperatives have fuel or power cost pass-through provisions within their rate-making authority which provides flexibility to recoup market price fluctuations.

It is unknown at this time what magnitude of cost pass-throughs will be required to pay for additional energy costs and whether there will be new regulatory barriers to implementing them.

In June 2021, the governor of Texas signed Texas Senate Bill 1580 into law allowing electric cooperatives impacted by the severe weather event to use securitization financing to recover the extraordinary costs and expenses incurred during the event.

This bill would allow impacted cooperatives to spread the repayment of power purchases incurred during the arctic freeze period over 30 years, which

would reduce the required increase in rates to retail customers dramatically.

While this law seems to be a pathway to the Texas electric power industry to manage the extraordinary impacts of the arctic freeze, as of this time, no solution has been implemented and the outcome is still uncertain.

We believe that the current internal risk ratings applied to our rural infrastructure portfolio reflect the elevated financial stress resulting from the Texas freeze and elevated energy costs.

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• On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021, which authorized the USDA to provide debt relief to socially disadvantaged producers who had outstanding principal balances on Farm Service Agency ("FSA") loans as of January 1, 2021.

We estimate that approximately 3% to 8% of Farmer Mac's USDA Securities that comprise FSA loans may be eligible for this program, which could result in an accelerated rate of prepayments when the provision is fully implemented.

The aggregate outstanding principal balance of all of Farmer Mac's USDA Securities comprising FSA loans was $2.6 billion as of March 31, 2021.

Although the provision is currently being litigated, we estimate that approximately 3% to 8% of Farmer Mac's USDA Securities that comprise FSA loans could be eligible for this program, which could result in an accelerated rate of prepayments if the provision is fully implemented.

The aggregate outstanding principal balance of all of Farmer Mac's USDA Securities comprising FSA loans was $2.5 billion as of June 30, 2021.

• On March 31, 2021, President Biden announced as part of the American Jobs Plan a proposal to increase the U.S.

corporate tax rate from the current rate of 21%.

Farmer Mac expects that any such tax increase would likely apply to Farmer Mac and could result in decreased profitability.

Farmer Mac expects that any such tax increase would likely apply to Farmer Mac and could result in decreased after-tax profitability.

• FCA's three-member Board currently has a vacancy as well as a sitting member whose term expired in 2018.

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The following table summarizes the balance sheet as of the periods indicated:

March 31, 2021 December 31, 2020 $ %

June 30, 2021 December 31, 2020 $ %

(in thousands)

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Total liabilities and equity $ 24,181,245 $ 24,355,501 $ (174,256) (1) %

The decrease in total assets was primarily attributable to the maturity of Farmer Mac Guaranteed Securities and the receipt of other principal payments.

The decrease in total assets was primarily attributable to the maturity of Farmer Mac Guaranteed Securities and the decrease in Cash and cash equivalents.

Liabilities .

The decrease in total liabilities was primarily due to a decrease in total notes payable, mainly driven by a decreased collateral posting requirement in our cleared derivatives portfolio.

The increase in total equity was primarily due to increased accumulated other comprehensive income and retained earnings.

The increase in total equity was primarily due to the issuance of the Series G Preferred Stock, an increase in accumulated other comprehensive income, and an increase in retained earnings.

Risk Management

Credit Risk – Loans and Guarantees .

Farmer Mac's direct credit exposure to Farm & Ranch loans held and loans underlying Farm & Ranch Guaranteed Securities and LTSPCs as of March 31, 2021 was $8.6 billion across 48 states.

Farmer Mac's direct credit exposure to Farm & Ranch loans held and loans underlying Farm & Ranch Guaranteed Securities and LTSPCs as of June 30, 2021 was $9.1 billion across 48 states.

Farmer Mac applies credit underwriting standards and methodologies to help assess exposures to Farm & Ranch loans, which may include collateral valuation, financial metrics, and other appropriate borrower financial and credit information.

For larger loan exposures to agriculture production and agribusinesses that support agriculture production, food and fiber processing, and other supply chain production, which may have different risk profiles, Farmer Mac has implemented methodologies and parameters that help assess credit risk based on the appropriate sector, borrower construct, and transaction complexity.

For more information

about Farmer Mac's underwriting and collateral valuation standards for Farm & Ranch loans, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Underwriting and Collateral Standards" in Farmer Mac’s 2020 Annual Report.

For more information about Farmer Mac's underwriting and collateral valuation standards for Farm & Ranch loans, see

"Business—Farmer Mac's Lines of Business—Farm & Ranch—Underwriting and Collateral Standards" in Farmer Mac’s 2020 Annual Report.

Farmer Mac has indirect credit exposure to the Farm & Ranch loans that secure AgVantage securities included in the Institutional Credit line of business.

As of March 31, 2021, Farmer Mac had not experienced any credit losses on any AgVantage securities.

As of June 30, 2021, Farmer Mac had not experienced any credit losses on any AgVantage securities.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Institutional" for more information about Farmer Mac's credit risk on AgVantage securities.

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Loan-to-value ratios depend on the market value of a property, as determined in accordance with Farmer Mac's collateral valuation standards.

As of March 31, 2021 and December 31, 2020, the average unpaid principal balances for loans outstanding in the Farm & Ranch line of business was $752,000 and $742,000, respectively.

As of June 30, 2021 and December 31, 2020, the average unpaid principal balances for loans outstanding in the Farm & Ranch line of business was $771,000 and $742,000, respectively.

Farmer Mac calculates the "original loan-to-value" ratio of a loan by dividing the original loan principal balance by the original appraised property value.

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The original loan-to-value ratio of any cross-collateralized loans is calculated on a combined basis rather than on a loan-by-loan basis.

The weighted-average original loan-to-value ratio for Farm & Ranch loans purchased during first quarter 2021 was 53%, compared to 54% for loans purchased during first quarter 2020.

The weighted-average original loan-to-value ratio for all Farm & Ranch loans held and all loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 52% as of both March 31, 2021 and December 31, 2020.

The weighted-average original loan-to-value ratio for all 90-day delinquencies was 52% and 50% as of March 31, 2021 and December 31, 2020, respectively.

The weighted-average current loan-to-value ratio (the loan to-value ratio based on original appraised value and current outstanding loan amount adjusted to reflect amortization) for Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 46% as of both March 31, 2021 and December 31, 2020.

The weighted-average original loan-to-value ratio for Farm & Ranch loans purchased during second quarter 2021 was 48%, compared to 41% for loans purchased during second quarter 2020.

The weighted-average original loan-to-value ratio for all 90-day delinquencies was 53% and 50% as of June 30, 2021 and December 31, 2020, respectively.

The weighted-average current loan-to-value ratio (the loan to-value ratio based on original appraised value and current outstanding loan amount adjusted to reflect amortization) for Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 47% and 46% as of June 30, 2021 and December 31, 2020, respectively.

For more information about the credit quality of Farmer Mac's Farm & Ranch portfolio and the associated allowance for losses please refer to Note 5 to the consolidated financial statements.

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Farmer Mac's 90-day delinquency measure includes loans 90 days or more past due, as well as loans in foreclosure and non-performing loans where the borrower is in bankruptcy.

As of March 31, 2021, Farmer Mac's 90-day delinquencies were $72.3 million (0.84% of the Farm & Ranch portfolio), compared to $46.2 million (0.54% of the Farm & Ranch portfolio) as of December 31, 2020.

Those 90-day delinquencies were comprised of 55 delinquent loans as of March 31, 2021, compared to 38 delinquent loans as of December 31, 2020.

The increase in 90-day delinquencies was primarily driven by three commodity groups – crops, permanent plantings, and livestock.

The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of March 31, 2021.

As of June 30, 2021, Farmer Mac's 90-day delinquencies were $63.1 million (0.70% of the Farm & Ranch portfolio), compared to $72.3 million (0.84% of the Farm & Ranch portfolio) as of March 31, 2021 and $46.2 million (0.54% of the Farm & Ranch portfolio) as of December 31, 2020.

Those 90-day delinquencies were comprised of 42 delinquent loans as of June 30, 2021, compared to 55 delinquent loans as of March 31, 2021 and 38 delinquent loans as of December 31, 2020.

The decrease in 90-day delinquencies from first quarter was primarily driven by two commodity groups – permanent plantings and livestock.

The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of June 30, 2021.

Farmer Mac believes that it remains adequately collateralized on its delinquent loans.

Loans under COVID-19 deferment are not considered past due and are not included in our 90-day delinquent loan statistics until after those loans have exited their deferment period and remain unpaid for 90 or more days.

March 31, 2021, $3.6 million of loans that have exited a COVID-19 deferment period were 90 or more days delinquent.

Our 90-day delinquency rate as of March 31, 2021 was below Farmer Mac's historical average.

Our 90-day delinquency rate as of June 30, 2021 was below Farmer Mac's historical average.

In the near-term, our delinquency rate may exceed our historical average due to the impact of the COVID-19 pandemic on the agricultural economy.

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(dollars in thousands)

June 30, 2021 $ 9,056,152 $ 63,076 0.70 %

March 31, 2021 8,629,352 72,346 0.84 %

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June 30, 2019 7,291,352 28,045 0.38 %

March 31, 2019 7,215,585 52,366 0.73 %

Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.33% of total outstanding business volume as of March 31, 2021, compared to 0.21% as of December 31, 2020 and 0.37% as of March 31, 2020.

The following table presents outstanding Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities and 90-day delinquencies as of March 31, 2021 by year of origination, geographic region, commodity/collateral type, original loan-to-value ratio, and range in the size of borrower exposure:

Farm & Ranch 90-Day Delinquencies as of March 31, 2021

Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.28% of total outstanding business volume as of June 30, 2021, compared to 0.21% as of December 31, 2020 and 0.31% as of June 30, 2020.

The following table presents outstanding Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities and 90-day delinquencies as of June 30, 2021 by year of origination, geographic region, commodity/collateral type, original loan-to-value ratio, and range in the size of borrower exposure:

Farm & Ranch 90-Day Delinquencies as of June 30, 2021

Distribution of Farm & Ranch Line of Business Farm & Ranch Line of Business 90-Day Delinquencies (1)

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Assets categorized as "substandard" have a well-defined weakness or weaknesses, and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected.

As of March 31, 2021, Farmer Mac's substandard assets were $321.7 million (3.7% of the Farm & Ranch portfolio), compared to $291.5 million (3.4% of the Farm & Ranch portfolio) as of December 31, 2020.

Those substandard assets were comprised of 354 loans as of March 31, 2021 and 343 loans as of December 31, 2020.

The increase of $30.2 million in substandard assets during first quarter 2021 was primarily driven by credit downgrades in our on-balance sheet portfolio, partially offset by payoffs in our off-balance sheet portfolio during the year.

Substandard assets increased as a percentage of the total on-balance sheet portfolio primarily due to the credit downgrades in our on-balance sheet portfolio.

Substandard assets decreased as a percentage of the total off-balance sheet portfolio primarily due to payoffs in our off-balance sheet portfolio.

The percentage of substandard assets within the portfolio as of March 31, 2021 was slightly below the historical average.

As of June 30, 2021, Farmer Mac's substandard assets were $299.1 million (3.3% of the Farm & Ranch portfolio), compared to $321.7 (3.7% of the Farm & Ranch portfolio) as of March 31, 2021 and $291.5 million (3.4% of the Farm & Ranch portfolio) as of December 31, 2020.

Those substandard assets were comprised of 323 loans as of June 30, 2021, 354 loans as of March 31, 2021, and 343 loans as of December 31, 2020.

The decrease of $22.6 million in substandard assets during second quarter 2021 was primarily driven by credit upgrades in both our on- and off-balance sheet portfolios during the year.

Substandard assets decreased as a percentage of the total on-balance sheet and off-balance sheet portfolios primarily due to these credit upgrades.

The percentage of substandard assets within the portfolio as of June 30, 2021 was slightly below the historical average.

Farmer Mac's average substandard assets as a percentage of its Farm & Ranch portfolio over the last 15 years is approximately 4%.

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The following table presents the current loan-to-value ratios for the Farm & Ranch portfolio, as disaggregated by internally assigned risk ratings:

Farm & Ranch current loan-to-value ratio by internally assigned risk rating as of March 31, 2021

Farm & Ranch current loan-to-value ratio by internally assigned risk rating as of June 30, 2021

Acceptable Special Mention Substandard Total

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(1) The current loan-to-value ratio is based on original appraised value (or most recently obtained appraisal, if available) and current outstanding loan amount adjusted to reflect loan amortization.

The following table presents Farmer Mac's cumulative net credit losses relative to the cumulative original balance for all Farm & Ranch loans purchased and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities as of March 31, 2021 by year of origination, geographic region, and commodity/collateral type.

The following table presents Farmer Mac's cumulative net credit losses relative to the cumulative original balance for all Farm & Ranch loans purchased and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities as of June 30, 2021 by year of origination, geographic region, and commodity/collateral type.

The purpose of this information is to present information about realized losses relative to original Farm & Ranch purchases, guarantees, and commitments.

Farm & Ranch Credit Losses Relative to Cumulative

Original Loans, Guarantees, and LTSPCs as of March 31, 2021

Original Loans, Guarantees, and LTSPCs as of June 30, 2021

Cumulative Original Loans, Guarantees and LTSPCs Cumulative Net Credit Losses/(Recoveries) Cumulative Loss Rate

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The following tables present concentrations of Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities by commodity type within geographic region and cumulative credit losses by origination year and commodity type:

As of March 31, 2021

As of June 30, 2021

Farm & Ranch Concentrations by Commodity Type within Geographic Region

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Southeast (AL, FL, GA, MS, NC, SC, TN).

As of March 31, 2021

As of June 30, 2021

Farm & Ranch Cumulative Credit Losses by Origination Year and Commodity Type

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Farmer Mac continues to monitor the effects of the COVID-19 pandemic on Farmer Mac's credit risk related to Farmer Mac's borrower exposures.

During first quarter 2021, Farmer Mac experienced a significant decrease in payment deferment requests from borrowers.

As of March 31, 2021, we had executed cumulative COVID-19 payment deferments on loans with unpaid principal balances of $333.3 million (i.e., net of payoffs and paydowns) in the Farm & Ranch portfolio, which represented 1.52% of our total outstanding business volume.

As of March 31, 2021, deferments on $276.7 million aggregate unpaid principal balance of Farm & Ranch loans had expired, of which $273.1 million are current as of the date of this report.

As of March 31, 2021, loans with approximately $56.6 million of unpaid principal balance are still in deferment in the Farm & Ranch portfolio.

These unpaid principal balances exclude deferments in our USDA Securities portfolio because those assets are backed by the full faith and credit of the United States government.

Deferred interest on loans under COVID-19 deferment is capitalized into the loan balance at the end of the deferment period.

Rural Utilities

Farmer Mac's direct credit exposure to Rural Utilities loans held and loans underlying LTSPCs as of March 31, 2021 was $2.8 billion across 45 states.

Farmer Mac's direct credit exposure to Rural Utilities loans held and loans underlying LTSPCs as of June 30, 2021 was $2.8 billion across 45 states.

For more information about Farmer Mac's underwriting and collateral valuation standards for Rural Utilities loans, see "Business—Farmer Mac's Lines of Business—Rural Utilities—Underwriting" in Farmer Mac’s 2020 Annual Report.

As of March 31, 2021, there were no delinquencies in Farmer Mac's portfolio of Rural Utilities loans.

There was one $10.0 million loan that was delinquent in the Rural Utilities portfolio as of June 30, 2021 and none as of December 31, 2020.

The delinquent loan became current during third quarter 2021.

Farmer Mac has indirect credit exposure to Rural Utilities loans that secure AgVantage securities included in the Institutional Credit line of business.

As of March 31, 2021, Farmer Mac had not experienced any credit losses on any AgVantage securities.

As of June 30, 2021, Farmer Mac had not experienced any credit losses on any AgVantage securities.

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The following table presents Farmer Mac’s portfolio of generation and transmission ("G&T") and distribution cooperative borrowers, as well as renewable energy loans, disaggregated by internally assigned risk ratings.

Rural Utilities portfolio by internally assigned risk rating as of March 31, 2021

Rural Utilities portfolio by internally assigned risk rating as of June 30, 2021

Acceptable Special Mention Substandard Total

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Therefore, Farmer Mac believes that we have little or no credit risk exposure in the USDA Guarantees line of business because of the USDA guarantee.

As of March 31, 2021, Farmer Mac had not experienced any credit losses on any securities under the USDA Guarantees line of business and does not expect to incur any such losses in the future.

As of June 30, 2021, Farmer Mac had not experienced any credit losses on any securities under the USDA Guarantees line of business and does not expect to incur any such losses in the future.

Because we do not expect credit losses on this portfolio, Farmer Mac does not provide an allowance for losses on its portfolio of USDA Securities.

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Farmer Mac has the ability to require a seller to cure, replace, or repurchase a loan sold or transferred to Farmer Mac if any breach of a representation or warranty is discovered that was material to Farmer Mac's decision to purchase the loan or that directly or indirectly causes a default or potential loss on a loan sold or transferred by the seller to Farmer Mac.

During the previous three years ended March 31, 2021, there have been no breaches of representations and warranties by sellers that resulted in Farmer Mac requiring a seller to cure, replace, or repurchase a loan.

During the previous three years ended June 30, 2021, there have been no breaches of representations and warranties by sellers that resulted in Farmer Mac requiring a seller to cure, replace, or repurchase a loan.

In addition to relying on the representations and warranties of sellers, Farmer Mac also underwrites the agricultural real estate mortgage loans (other than rural housing and part-time farm mortgage loans) and Rural Utilities loans on which it has direct credit exposure.

For rural housing and part-time farm mortgage loans, Farmer Mac relies on representations and warranties from the seller that those loans conform to Farmer Mac's specified underwriting criteria without exception.

For more information about Farmer Mac's loan eligibility requirements and underwriting standards, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Loan Eligibility,"

"Business—Farmer Mac's Lines of Business—Farm & Ranch—Underwriting and Collateral Standards," "Business—Farmer Mac's Lines of Business—Rural Utilities—Loan Eligibility," and "Business—Farmer Mac's Lines of Business—Rural Utilities—Underwriting and Collateral Standards" in Farmer Mac’s 2020 Annual Report.

For rural housing and part-time farm mortgage loans, Farmer Mac relies on representations and warranties from the seller that those loans conform to Farmer Mac's specified underwriting criteria.

For more information about Farmer Mac's loan eligibility requirements and underwriting standards, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Loan Eligibility," "Business—Farmer Mac's Lines of Business—Farm & Ranch—Underwriting and Collateral Standards," "Business—Farmer Mac's Lines of Business—Rural Utilities—Loan Eligibility," and "Business—Farmer Mac's Lines of Business—Rural Utilities—Underwriting and Collateral Standards" in Farmer Mac’s 2020 Annual Report.

Under contracts with Farmer Mac and in consideration for servicing fees, Farmer Mac-approved servicers service loans in accordance with Farmer Mac's requirements.

Servicers are responsible to Farmer Mac for serious errors in the servicing of those loans.

If a servicer materially breaches the terms of its servicing agreement with Farmer Mac, such as failing to forward payments received or releasing collateral without Farmer Mac's consent, or experiences insolvency or bankruptcy, the servicer is responsible for any corresponding damages to Farmer Mac and, in most cases, Farmer Mac has the right to terminate the servicing relationship for a particular loan or the entire portfolio serviced by the servicer.

If a servicer materially breaches the terms of its servicing

agreement with Farmer Mac, such as failing to forward payments received or releasing collateral without Farmer Mac's consent, or experiences insolvency or bankruptcy, the servicer is responsible for any corresponding damages to Farmer Mac and, in most cases, Farmer Mac has the right to terminate the servicing relationship for a particular loan or the entire portfolio serviced by the servicer.

Farmer Mac also can proceed against the servicer in arbitration or exercise any remedies available to it under law.

During the previous three years ended March 31, 2021, Farmer Mac had not exercised any remedies or taken any formal action against any servicers.

During the previous three years ended June 30, 2021, Farmer Mac had not exercised any remedies or taken any formal action against any servicers.

For more information about Farmer Mac's servicing requirements, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Servicing" and "Business—Farmer Mac's Lines of Business—Rural Utilities—Servicing" in Farmer Mac’s 2020 Annual Report.

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For a more detailed description of AgVantage securities, see "Business—Farmer Mac's Lines of Business—Institutional Credit" in Farmer Mac's 2020 Annual Report.

The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Farm & Ranch line of business totaled $5.0 billion as of March 31, 2021 and $5.2 billion as of December 31, 2020.

The unpaid principal balance of on-balance sheet AgVantage securities secured by loans eligible for the Rural Utilities line of business totaled $2.7 billion as of March 31, 2021 and $2.6 billion as of December 31, 2020.

The unpaid principal balance of outstanding off-balance sheet AgVantage securities totaled $4.4 million as of March 31, 2021 and $4.4 million as of December 31, 2020.

The following table provides information about the issuers of AgVantage securities and the required collateralization levels for those transactions as of March 31, 2021 and December 31, 2020:

As of March 31, 2021 As of December 31, 2020

The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Farm & Ranch line of business totaled $4.8 billion as of June 30, 2021 and $5.2 billion as of December 31, 2020.

The unpaid principal balance of on-balance sheet AgVantage securities secured by loans eligible for the Rural Utilities line of business totaled $2.9 billion as of June 30, 2021 and $2.6 billion as of December 31, 2020.

The unpaid principal balance of outstanding off-balance sheet AgVantage securities totaled $4.4 million as of both June 30, 2021 and December 31, 2020.

The following table provides information about the issuers of AgVantage securities and the required collateralization levels for those transactions as of June 30, 2021 and December 31, 2020:

As of June 30, 2021 As of December 31, 2020

Counterparty Balance Required Collateralization Balance Required Collateralization

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Total outstanding $ 7,634,073 $ 7,739,359

(1) Consists of AgVantage securities issued by 8 and 6 different issuers as of March 31, 2021 and December 31, 2020, respectively.

(2) Consists of AgVantage securities issued by 4 and 4 different issuers as of March 31, 2021 and December 31, 2020, respectively.

(1) Consists of AgVantage securities issued by 9 and 6 different issuers as of June 30, 2021 and December 31, 2020, respectively.

(2) Consists of AgVantage securities issued by 4 and 4 different issuers as of June 30, 2021 and December 31, 2020, respectively.

Farmer Mac manages institutional credit risk related to lenders and servicers by requiring those institutions to meet Farmer Mac's standards for creditworthiness.

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Credit Risk – Other Investments .

As of March 31, 2021, Farmer Mac had $1.0 billion of cash and cash equivalents and $3.9 billion of investment securities.

The management of the credit risk inherent in these investments is governed by Farmer Mac's internal policies as well as FCA regulations that establish

criteria for investments eligible for Farmer Mac's investment portfolio, including limitations on asset class, dollar amount, issuer concentration, and credit quality (the "Liquidity and Investment Regulations").

As of June 30, 2021, Farmer Mac had $0.8 billion of cash and cash equivalents and $3.9 billion of investment securities.

The management of the credit risk inherent in these investments is governed by Farmer Mac's internal policies as well as FCA regulations that establish criteria for investments eligible for Farmer Mac's investment portfolio, including limitations on asset class, dollar amount, issuer concentration, and credit quality (the "Liquidity and Investment Regulations").

In addition to establishing a portfolio of highly liquid investments as an available source of cash, the goals of Farmer Mac's investment policies are designed to minimize Farmer Mac's exposure to financial market volatility, preserve capital, and support Farmer Mac's access to the debt markets.

The Liquidity and Investment Regulations and Farmer Mac's internal policies require that investments held in Farmer Mac's investment portfolio meet the following creditworthiness standards:

(1) at a minimum, at least one obligor of the investment must have a very strong capacity to meet financial commitments for the life of the investment, even under severely adverse or stressful conditions, and generally present a very low risk of default;

minimum, at least one obligor of the investment must have a very strong capacity to meet financial commitments for the life of the investment, even under severely adverse or stressful conditions, and generally present a very low risk of default;

(2) if the obligor whose capacity to meet financial commitments is being relied upon to meet the standard set forth in subparagraph (1) is located outside of the United States, the investment must also be fully guaranteed by a U.S.

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The Liquidity and Investment Regulations and Farmer Mac's internal policies also establish concentration limits, which are intended to limit exposure to any single entity, issuer, or obligor.

The Liquidity and Investment Regulations limit Farmer Mac's total credit exposure to any single entity, issuer, or obligor of securities to 10% of Farmer Mac's regulatory capital ($104.3 million as of March 31, 2021).

However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($52.2 million as of March 31, 2021).

However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($59.0 million as of June 30, 2021).

These exposure limits do not apply to obligations of U.S.

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Interest Rate Risk .

Farmer Mac is subject to interest rate risk on all financial assets retained on its balance sheet because of timing differences in the cash flows due to maturity, paydown, or repricing of the assets and debt together with financial derivatives.

This risk is primarily related to loans, loan participation interests, Farmer Mac Guaranteed Securities, USDA Securities, and certain investment securities due to the contractual right of borrowers to prepay their loans before the scheduled maturities.

Farmer Mac is subject to interest rate risk on all funded financial assets on its balance sheet because of timing differences in the cash flows due to maturity, paydown, or repricing of the assets and debt together with financial derivatives.

Cash flow mismatches due to changing interest rates can reduce the earnings of Farmer Mac if assets prepay sooner than expected and the resulting cash flows must be reinvested in lower-yielding investments when Farmer Mac's funding costs cannot be correspondingly reduced.

Alternatively, Farmer Mac could see a drop in income if assets repay more slowly than expected in a rising interest rate environment and the associated debt must be replaced by higher-cost debt.

Alternatively, Farmer Mac could realize a decline in income if assets repay more slowly than originally forecasted or assets reprice after the associated debt and the maturing debt must be replaced by higher-cost due to higher interest rates or spreads.

Interest Rate Risk Management

The goal of interest rate risk management at Farmer Mac is to manage the balance sheet in a manner that generates stable earnings and value across a variety of interest rate environments.

Recognizing that interest rate sensitivity may change with the passage of time and as interest rates change, Farmer Mac regularly assesses this exposure and, if necessary, adjusts its portfolio of funded financial assets, debt, and financial derivatives.

Recognizing that interest rate sensitivities may change with the passage of time and as interest rates change, Farmer Mac regularly assesses this exposure and, if necessary, adjusts its portfolio of funded financial assets, debt, and financial derivatives.

Farmer Mac's objective is to maintain its exposure to interest rate risk within appropriate limits, as approved by Farmer Mac's board of directors.

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Farmer Mac's primary strategy for managing interest rate risk is to fund asset purchases with debt that together with financial derivatives have similar duration and convexity characteristics and help to mitigate impacts from interest rates changes across the yield curve.

As part of this debt issuance strategy, Farmer Mac seeks to issue debt securities across a variety of maturities that together with financial derivatives approximately align the debt and financial derivative cash flows with forecasted asset cash flows.

As part of this debt issuance strategy, Farmer

Mac seeks to issue debt securities across a variety of maturities that together with financial derivatives closely align the debt and financial derivative cash flows with forecasted asset cash flows.

Farmer Mac issues discount notes and both callable and non-callable medium-term notes across a spectrum of maturities to execute its debt issuance strategy.

Callable debt is issued to mitigate prepayment risk associated with certain funded financial assets held on balance sheet.

In general, as interest rates decline, prepayments typically increase, and Farmer Mac is able to extinguish certain callable debt issuances.

Therefore, these callable liabilities are reduced typically around the same time and by approximately the amount of asset prepayments.

In general, as interest rates decline, prepayments typically increase, and Farmer Mac is able to economically extinguish certain callable debt issuances.

Furthermore, the interest rate sensitivities of the debt together with financial derivatives tend to increase or decrease as interest rates change in a manner that fully or partially offset similar changes in the interest rate sensitivities of the funded financial assets.

In addition, Farmer Mac enters into financial derivatives, primarily interest rate swaps, to better match the durations of Farmer Mac's assets and liabilities, thereby reducing overall sensitivity to changing interest rates.

Taking into consideration the prepayment provisions and the default probabilities associated with its portfolio of retained assets, Farmer Mac incorporates behavioral prepayment models when projecting and valuing cash flows associated with these assets.

Taking into consideration the prepayment provisions and the default probabilities associated with its portfolio of funded financial assets, Farmer Mac incorporates behavioral prepayment models when projecting and valuing cash flows associated with these assets.

Because borrowers' behaviors in various interest rate environments may change over time, Farmer Mac periodically evaluates the effectiveness of these models compared to actual prepayment experience and adjusts and refines the models as necessary to improve the precision of future prepayment forecasts.

Changes in interest rates may affect asset prepayment rates which may, in turn, impact durations and values of the assets.

Declining interest rates generally increase prepayment rates, which shortens the duration of these assets, while rising interest rates tend to lower prepayments, thereby extending the duration of the assets.

Changes in interest rates may affect the timing of asset prepayments which may, in turn, impact durations and values of the assets.

Declining interest rates generally results in increased prepayments, which shortens the duration of these assets, while rising interest rates generally results in lower prepayments, thereby extending the duration of the assets.

Farmer Mac is subject to interest rate risk on loans and securities committed to acquire but has not yet purchased (other than delinquent loans purchased through LTSPCs or loans designated for securitization under a forward purchase agreement).

When Farmer Mac commits to purchase these assets, it is exposed to interest rate risk between the time it commits to purchase the loans and the time it issues debt to fund the purchase of those loans.

Farmer Mac manages the interest rate risk related to these loans by entering into exchange-traded futures contracts involving U.S.

Farmer Mac manages the interest rate risk exposure related to these loans by entering into exchange-traded futures contracts involving U.S.

Treasury securities and other financial derivatives.

Farmer Mac's $0.8 billion of cash and cash equivalents mature within three months and are generally funded with debt having similar maturities.

As of March 31, 2021, $3.5 billion of the $3.9 billion of investment securities (92%) were floating rate securities with rates that adjust within one year or fixed rate securities with original maturities between three months and one year.

Farmer Mac's floating rate investment securities are funded with floating rate debt that closely matches the rate adjustment frequency

of the associated investments.

As of June 30, 2021, $3.5 billion of the $3.9 billion of investment securities (91%) were floating rate securities with rates that adjust within one year or fixed rate securities with original maturities between three months and one year.

Farmer Mac's floating rate investment securities are funded with floating rate debt that closely matches the rate adjustment frequency of the associated investments.

The fixed rate investment securities are generally funded in a manner consistent with Farmer Mac's overall funding strategy that approximates a duration and convexity match.

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These metrics include sensitivity to interest rate movements of market value of equity ("MVE") and projected net effective spread ("NES") as well as duration gap analysis.

MVE represents management's estimate of the present value of all future cash flows from on- and off-balance sheet assets, liabilities, and financial derivatives, discounted at current interest rates and appropriate spreads.

MVE represents management's estimate of the present value of all future cash flows from its current portfolio of on- and off-balance sheet assets, liabilities, and financial derivatives, discounted at current interest rates and appropriate spreads.

However, MVE is not indicative of the market value of Farmer Mac as a going concern because these market values are theoretical and do not reflect future business activities.

The MVE sensitivity analysis measures the degree to which the market values of Farmer Mac's assets, liabilities, and financial derivatives are estimated to change for a given change in interest rates.

Because this analysis evaluates the effect of interest rate movements on the value of all future cash flows, this measure provides an evaluation of Farmer Mac's long-term interest rate risk.

Farmer Mac's NES simulation represents the difference between projected income over the next twelve months from the current portfolio of interest-earning assets and interest expense produced by the related funding, including associated financial derivatives.

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The NES simulation represents an estimate of the net effective spread income that Farmer Mac's current portfolio is expected to produce over a twelve-month horizon.

As a result, the NES simulation sensitivity statistics provide a short-term view of Farmer Mac's sensitivity to interest rate shocks.

As a result, the NES simulation sensitivity statistics provide a short-term view of Farmer Mac's NES income sensitivity to interest rate shocks.

Duration is a measure of a financial instrument's fair value sensitivity to small changes in interest rates.

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A positive duration gap denotes that the duration of Farmer Mac's funded assets is greater than the duration of its debt and financial derivatives.

A positive duration gap indicates that fair value changes of Farmer Mac's funded assets is more sensitive to small interest rate movements than fair value changes of its debt and financial derivatives.

Conversely, a negative duration gap indicates that fair value changes of Farmer Mac's funded assets are less sensitive to small interest rate movements than fair value changes of its debt and financial derivatives.

A positive duration gap indicates that with small changes in interest rate movements the fair value change of Farmer Mac's funded assets is more sensitive than the fair value change of its debt and financial derivatives.

Conversely, a negative duration gap indicates that with small changes in interest rate movements the fair value change of Farmer Mac's funded assets are less sensitive than the fair value change of its debt and financial derivatives.

A duration gap of zero indicates that with small changes in interest rate movements the fair value change of Farmer Mac's assets is effectively offset by the fair value change of its debt and financial derivatives.

Each of the interest rate metrics is produced using asset/liability models and is derived based on management's best estimates of factors such as forward interest rates across the yield curve, interest rate volatility, and asset prepayment speeds.

Accordingly, these metrics are estimates rather than precise measurements.

Actual results may differ to the extent there are material changes to Farmer Mac's financial

asset portfolio or changes in funding or hedging strategies undertaken to mitigate unfavorable sensitivities to interest rate changes.

The following schedule summarizes the results of Farmer Mac's MVE and NES sensitivity analysis as of March 31, 2021 and December 31, 2020 to an immediate and instantaneous uniform or "parallel" shift in the yield curve:

Actual results may differ to the extent there are material changes to Farmer Mac's financial asset portfolio or changes in funding or hedging strategies undertaken to mitigate unfavorable sensitivities to interest rate changes.

The following schedule summarizes the results of Farmer Mac's MVE and NES sensitivity analysis as of June 30, 2021 and December 31, 2020 to an immediate and instantaneous uniform or "parallel" shift in the yield curve:

Percentage Change in MVE from Base Case

Interest Rate Scenario (1)

As of March 31, 2021 As of December 31, 2020 (1)

As of June 30, 2021 As of December 31, 2020 (1)

+100 basis points 4.2 % 4.9 %

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Percentage Change in NES from Base Case

Interest Rate Scenario As of March 31, 2021 As of December 31, 2020 (1)

Interest Rate Scenario As of June 30, 2021 As of December 31, 2020 (1)

+100 basis points 5.7 % 3.9 %

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(1) The down 100 basis points shock scenario was replaced in 2020 with a proportional shock relative to 50% of the 3-month Treasury bill rate, with the approval of the Financial Risk Committee of the Board of Directors.

The replacement down shock scenario was negative 1 basis point as of March 31, 2021 and negative 4 basis points as of December 31, 2020.

As of March 31, 2021, Farmer Mac's effective duration gap was negative 0.1 months, compared to negative 1.6 months as of December 31, 2020.

The replacement down shock scenario was negative 2 basis point as of June 30, 2021 and negative 4 basis points as of December 31, 2020.

As of June 30, 2021, Farmer Mac's effective duration gap was negative 1.2 months, compared to negative 1.6 months as of December 31, 2020.

In 2020, Farmer Mac updated its duration gap measure to funded assets, debt, and financial derivatives.

Interest rates within the yield curve steepened significantly during first quarter 2021 with the 2-year and 10-year U.S.

Interest rates within the yield curve steepened significantly during the first six months of 2021 with the 2-year and 10-year U.S.

Treasury Note yield-to-maturity increasing by approximately 13 basis points and 56 basis points, respectively, versus year-end 2020.

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• "receive-fixed" interest rate swaps, in which Farmer Mac receives fixed rates of interest from, and pays floating rates of interest to, counterparties;

• "basis swaps," in which Farmer Mac pays variable rates of interest based on one index to, and receives variable rates of interest based on a different index from, counterparties.

As of March 31, 2021, Farmer Mac had $15.7 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to thirty years, of which $6.3 billion were pay-fixed interest rate swaps, $6.5 billion were receive-fixed interest rate swaps, and $2.9 billion were basis swaps.

• "basis swaps," in which Farmer Mac pays floating rates of interest based on one index to, and receives floating rates of interest based on a different index from, counterparties.

As of June 30, 2021, Farmer Mac had $16.0 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to thirty years, of which $6.3 billion were pay-fixed interest rate swaps, $7.0 billion were receive-fixed interest rate swaps, and $2.6 billion were basis swaps.

Farmer Mac enters into interest rate swaps to more closely match the cash flow and duration characteristics of its funded financial assets with those of its debt.

For example, Farmer Mac transacts pay-fixed interest rate swaps and issues floating rate debt to effectively create fixed rate funding that approximately matches the duration with the corresponding fixed rate assets being funded.

Farmer Mac evaluates the overall cost of using the swap market in conjunction with debt issuance as a funding alternative to duration-matched debt and enters into interest rate swaps to manage interest rate risks across the balance sheet.

Certain financial derivatives are designated as fair value hedges of fixed rate assets classified as available for sale or liabilities to protect against fair value changes in the assets or liabilities related to a benchmark interest rate (e.g., LIBOR and SOFR).

Farmer Mac evaluates the overall cost of using interest rate swaps in conjunction with debt issuance as a funding

alternative to duration-matched debt and enters into interest rate swaps to manage interest rate risks across the balance sheet.

Also, certain financial derivatives are designated as cash flow hedges to mitigate the volatility of future interest rate payments on floating rate debt.

As discussed in Note 4 to the consolidated financial statements, all financial derivatives are recorded on the balance sheet at fair value as derivative assets or as derivative liabilities.

Changes in the fair values of undesignated financial derivatives are reported in "Gains/(losses) on financial derivatives" in the consolidated statements of operations.

Changes in the fair values of undesignated financial derivatives are reported in "(Losses)/gains on financial derivatives" in the consolidated statements of operations.

For financial derivatives designated in fair value hedge accounting relationships, changes in the fair values of the hedged items related to the risk being hedged are reported in "Net interest income" in the consolidated statements of operations.

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For financial derivatives designated in cash flow hedge accounting relationships, the unrealized gain or loss on the derivative is recorded in other comprehensive income.

Because the hedging instrument is an interest rate swap and the hedged forecasted transactions are future interest payments on variable rate debt, amounts recorded in accumulated other comprehensive income are reclassified to "Total interest expense" in conjunction with the recognition of interest expense on the debt.

Because the hedging instrument is an interest rate swap and the hedged forecasted transactions are future interest payments on floating rate debt, amounts recorded in accumulated other comprehensive income are reclassified to "Total interest expense" in conjunction with the recognition of interest expense on the debt.

All of Farmer Mac's financial derivatives transactions are conducted under standard collateralized agreements that limit Farmer Mac's potential credit exposure to any counterparty.

As of March 31, 2021 and December 31, 2020, Farmer Mac had no uncollateralized net exposures.

As of June 30, 2021 and December 31, 2020, Farmer Mac had no uncollateralized net exposures.

Re-funding and repricing risk

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Re-funding and repricing risk arises from potential changes in funding costs when Farmer Mac funds floating rate, or synthetic floating rate, assets with floating rate liabilities with shorter maturities.

Changes in Farmer Mac's funding costs relative to the benchmark market index rate to which the assets are indexed can cause changes to net interest income when debt matures and is reissued to continue funding those assets.

In addition, many of Farmer Mac's floating rate assets may prepay before the contractual maturity date.

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• issuing non-maturity matched, floating rate medium-term notes with reset frequencies that match the assets being funded;

• issuing non-maturity matched, fixed rate discount notes or medium-term notes swapped to floating rate to match the interest rate reset dates of the assets as an alternative source of effectively floating rate funding.

To meet floating rate funding needs, Farmer Mac frequently issues shorter-term floating-rate medium-term notes or fixed rate medium-term notes paired with a received-fixed interest rate swap because these alternatives generally provide a lower cost of funding while generating an effective interest rate match.

• issuing non-maturity matched, fixed rate discount notes or medium-term notes swapped to floating rate to match the interest rate reset dates of the assets.

To meet certain floating rate funding needs, Farmer Mac frequently issues shorter-term floating-rate medium-term notes or fixed rate medium-term notes paired with a received-fixed interest rate swap because these funding alternatives generally provide a lower cost of funding while generating an effective interest rate match.

As funding for these floating rate assets matures, Farmer Mac seeks to refinance the debt associated with these assets in a similar fashion to achieve an appropriate interest rate match in the context of Farmer Mac's overall liability issuance and liquidity management strategies.

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ALCO regularly reviews Farmer Mac's liability issuance strategy to appropriately manage re-funding and repricing risk.

As of March 31, 2021, Farmer Mac held $6.3 billion of floating rate assets in its lines of business and its investment portfolio that reset based on floating rate market indices, such as LIBOR or SOFR.

As of the same date, Farmer Mac also had $6.3 billion of interest rate swaps outstanding where Farmer Mac pays a fixed rate of interest and receives a floating rate of interest, primarily LIBOR.

Following a period of market volatility in the first half of 2020, Farmer Mac's funding spreads relative to LIBOR stabilized with spreads modestly higher compared to historical averages on shorter-term maturities.

Farmer Mac's funding spreads relative to LIBOR on longer-term maturity issuances have improved and are currently lower than historical averages.

Farmer Mac regularly adjusts its funding strategies to mitigate the effects of spread variability and seeks to maintain an effective mixture of funding structures in the context of its overall liability management and liquidity management strategies.

As of June 30, 2021, Farmer Mac held $6.1 billion of floating rate assets in its lines of business and its investment portfolio that reset based on floating rate market indices, such as LIBOR or SOFR.

As of the same date, Farmer Mac also had $6.3 billion of interest rate swaps outstanding where Farmer Mac pays a fixed rate of interest and receives a floating rate of interest, primarily LIBOR.

Discontinuation of LIBOR

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Farmer Mac is evaluating the potential effect on our business of the replacement of the LIBOR benchmark interest rate, including the possibility of replacement benchmark interest rates.

As of March 31, 2021, Farmer Mac held $4.8 billion of floating rate assets in its lines of business and its investment portfolio, had issued $4.2 billion of floating rate debt, and had entered into $14.9 billion notional amount of interest rate swaps, each of which reset based on LIBOR.

As of June 30, 2021, Farmer Mac held $4.5 billion of floating rate assets in its lines of business and its investment portfolio, had issued $3.1 billion of floating rate debt, and had entered into $14.9 billion notional amount of interest rate swaps, each of which reset based on LIBOR.

In addition, our Non-Cumulative Series C Preferred Stock currently pays a fixed rate of interest until July 17, 2024.

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The market transition away from LIBOR and towards an alternative benchmark interest rate indices that may be developed is expected to be complicated and may require the development of term and credit adjustments to accommodate for differences between the benchmark interest rate indices.

The transition may also result in different financial performance for previously booked transactions, require different hedging strategies, or require renegotiation of previously booked transactions.

As of March 31, 2021, we had $0.9 billion outstanding in medium-term notes based on the Secured Overnight Financing Rate (SOFR), a potential alternative benchmark interest rate.

The transition

may also result in different financial performance for previously booked transactions, require different hedging strategies, or require renegotiation of previously booked transactions.

As of June 30, 2021, we had $0.9 billion outstanding in medium-term notes based on SOFR, a potential alternative benchmark interest rate index.

Liquidity and Capital Resources

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Farmer Mac funds its purchases of eligible loan assets, USDA Securities, Farmer Mac Guaranteed Securities, and investment assets and finances its operations primarily by issuing debt obligations of various maturities in the public capital markets.

As of March 31, 2021, Farmer Mac had outstanding discount notes of $1.7 billion, medium-term notes that mature within one year of $7.9 billion, and medium-term notes that mature after one year of $11.9 billion.

As of June 30, 2021, Farmer Mac had outstanding discount notes of $1.7 billion, medium-term notes that mature within one year of $6.6 billion, and medium-term notes that mature after one year of $13.4 billion.

Assuming continued access to the capital markets, Farmer Mac believes it has sufficient liquidity and capital resources to support its operations for the next 12 months and for the foreseeable future.

Farmer Mac has a contingency funding plan to manage unanticipated disruptions in its access to the capital markets.

That plan involves borrowing through repurchase agreement arrangements and the sale of liquid assets.

Farmer Mac must maintain a minimum of 90 days of liquidity under the Liquidity and Investment Regulations prescribed for Farmer Mac by FCA.

In accordance with the methodology for calculating available days of liquidity under those regulations, Farmer Mac maintained a monthly average of 242 days of liquidity during first quarter 2021 and had 264 days of liquidity as of March 31, 2021.

ALCO regularly reviews Farmer Mac's liquidity position to ensure that the required minimums are maintained.

In accordance with the methodology for calculating available days of liquidity under those regulations, Farmer Mac maintained a monthly average of 269 days of liquidity during second quarter 2021 and had 274 days of liquidity as of June 30, 2021.

Farmer Mac maintains cash, cash equivalents (including U.S.

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• mortgage-backed securities.

The following table presents these assets as of March 31, 2021 and December 31, 2020:

As of March 31, 2021 As of December 31, 2020

The following table presents these assets as of June 30, 2021 and December 31, 2020:

As of June 30, 2021 As of December 31, 2020

(in thousands)

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Total $ 4,705,668 $ 4,932,665

The objective of the investment portfolio as of March 31, 2021 and December 31, 2020 was to provide a greater level of liquidity than historically in response to market disruptions driven by the COVID-19 pandemic, to prepare for the possibility of future volatility in the debt capital markets, and to support program asset growth.

The objective of the investment portfolio as of June 30, 2021 and December 31, 2020 was to provide a level of liquidity that mitigates enterprise risk, provides a reliable source of short-term and long-term liquidity, to prepare for the possibility of future volatility in the debt capital markets, and to support program asset growth.

Capital Requirements .

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Farmer Mac must comply with the higher of the minimum capital requirement and the risk-based capital requirement.

As of March 31, 2021, Farmer Mac was in compliance with its statutory capital requirements and was classified as within "level 1" (the highest compliance level).

As of June 30, 2021, Farmer Mac was in compliance with its statutory capital requirements and was classified as within "level 1" (the highest compliance level).

In accordance with FCA's rule on capital planning, Farmer Mac's board of directors has adopted a policy for maintaining a sufficient level of "Tier 1" capital (consisting of retained earnings, paid-in capital, common stock, and qualifying preferred stock).

That policy restricts Tier 1-eligible dividends and any discretionary bonus payments if Tier 1 capital falls below specified thresholds.

As of March 31, 2021 and December 31, 2020, Farmer Mac's Tier 1 capital ratio was 14.0% and 14.1%, respectively.

The decrease in our Tier 1 capital ratio resulted from growth in risk-weighted assets outpacing capital growth during first quarter 2021.

As of March 31, 2021, Farmer Mac was in compliance with its capital adequacy policy.

As of June 30, 2021 and December 31, 2020, Farmer Mac's Tier 1 capital ratio was 15.3% and 14.1%, respectively.

The increase in our Tier 1 capital ratio was due to that fact that capital growth, which reflects the issuance of the Series G Preferred Stock, outpaced the growth in risk-weighted assets during the first half of 2021.

As of June 30, 2021, Farmer Mac was in compliance with its capital adequacy policy.

Farmer Mac does not expect its compliance on an ongoing basis with FCA's rule on capital planning, including Farmer Mac's policy on Tier 1 capital, to materially affect Farmer Mac's operations or financial condition.

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For the quarter ended:

June 30, 2021 $ 650,436 $ 241,387 $ 100,469 $ 39,107 $ — $ 468,616 $ 1,500,015

March 31, 2021 681,412 117,693 157,273 48,030 22,000 442,912 1,469,320

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June 30, 2019 248,152 57,321 118,335 105,000 — 659,447 1,188,255

March 31, 2019 203,156 91,215 57,223 546,198 — 825,417 1,723,209

For the year ended:

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Unscheduled 224,072 3,417 66,680 119,145 1,652 — — 414,966

June 30, 2021 $ 352,198 $ 6,195 $ 106,630 $ 160,625 $ 39,643 $ 23,874 $ 476,220 $ 1,165,385

Scheduled $ 214,978 $ 4,362 $ 56,642 $ 48,137 $ 59,059 $ 21,092 $ 540,594 $ 944,864

Unscheduled 339,905 2,747 132,300 108,789 2,279 — — 586,020

March 31, 2021 $ 554,883 $ 7,109 $ 188,942 $ 156,926 $ 61,338 $ 21,092 $ 540,594 $ 1,530,884

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June 30, 2019 $ 104,791 $ 7,157 $ 117,758 $ 81,720 $ 6,951 $ 17,092 $ 612,964 $ 948,433

Scheduled $ 112,973 $ 5,843 $ 74,054 $ 41,266 $ 31,492 $ 7,660 $ 470,812 $ 744,100

Unscheduled 67,608 1,798 50,482 46,798 24,448 — 5,587 196,721

March 31, 2019 $ 180,581 $ 7,641 $ 124,536 $ 88,064 $ 55,940 $ 7,660 $ 476,399 $ 940,821

For the year ended:

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(in thousands)

June 30, 2021 $ 6,601,205 $ 66,008 $ 2,388,939 $ 2,726,909 $ 2,246,568 $ 533,459 $ 7,634,073 $ 22,197,161

March 31, 2021 6,302,967 72,203 2,254,182 2,787,065 2,247,104 557,333 7,641,677 21,862,531

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June 30, 2019 4,754,258 121,064 2,416,030 2,521,394 1,527,150 628,521 8,778,318 20,746,735

March 31, 2019 4,610,897 128,221 2,476,467 2,484,779 1,429,101 645,613 8,731,835 20,506,913

On-Balance Sheet Outstanding Business Volume

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(in thousands)

June 30, 2021 $ 11,800,429 $ 2,878,637 $ 4,254,625 $ 18,933,691

March 31, 2021 11,454,321 2,824,551 4,410,661 18,689,533

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June 30, 2019 9,446,117 2,825,151 4,601,917 16,873,185

March 31, 2019 9,206,082 2,720,639 4,643,506 16,570,227

The following table presents the quarterly net effective spread (a non-GAAP measure) by segment:

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For the quarter ended:

March 31, 2021 (1)

June 30, 2021 (1)

$ 23,978 1.82 % $ 6,982 1.12 % $ 6,615 1.18 % $ 16,131 0.85 % $ 2,845 0.24 % $ 56,551 1.01 %

March 31, 2021 21,454 1.74 % 6,367 1.02 % 6,674 1.19 % 16,673 0.87 % 2,691 0.22 % 53,859 0.97 %

December 31, 2020 20,313 1.75 % 6,786 1.10 % 7,322 1.35 % 17,401 0.85 % 2,700 0.22 % 54,522 0.98 %

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June 30, 2020 (1)

March 31, 2020 (1)

16,733 1.71 % 4,689 0.81 % 5,516 1.15 % 18,782 0.86 % 749 0.08 % 46,469 0.89 %

March 31, 2020 14,938 1.64 % 4,625 0.81 % 4,920 1.14 % 17,702 0.84 % 1,978 0.21 % 44,163 0.89 %

December 31, 2019 16,374 1.90 % 4,363 0.78 % 4,871 1.17 % 18,008 0.85 % 2,375 0.27 % 45,991 0.95 %

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13,335 1.72 % 4,097 0.76 % 3,996 1.10 % 17,371 0.82 % 2,556 0.34 % 41,355 0.91 %

March 31, 2019 12,737 1.70 % 3,964 0.74 % 3,233 1.12 % 16,373 0.79 % 2,494 0.35 % 38,801 0.89 %

(1) See Note 10 to the consolidated financial statements for a reconciliation of GAAP net interest income by line of business to net effective spread by line of business for the three months ended March 31, 2021 and 2020.

The following table presents quarterly core earnings (a non-GAAP measure) reconciled to net income attributable to common stockholders:

Core Earnings by Quarter End

March 2021 December 2020 September 2020 June 2020 March 2020 December 2019 September 2019 June 2019 March 2019

June 2021 March 2021 December 2020 September 2020 June 2020 March 2020 December 2019 September 2019 June 2019

(in thousands)

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Reconciling items:

Gains/(losses) on undesignated financial derivatives due to fair value changes 1,695 (1,758) (4,149) 8,700 (6,484) 4,469 (7,117) 10,485 2,240

(Losses)/gains on undesignated financial derivatives due to fair value changes (3,721) 1,695 (1,758) (4,149) 8,700 (6,484) 4,469 (7,117) 10,485

(Losses)/gains on hedging activities due to fair value changes (2,097) (271) 3,827 (5,245) (2,676) (5,925) (220) (4,535) (1,438)

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis