FEDERAL AGRICULTURAL MORTGAGE CORP 10-Q

Item 1. Financial Statements FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) As of June 30, 2021 December 31, 2020 (in thousands) Assets: Cash and cash equivalents $ 828,403 $ 1,033,941 Investment securities: Available-for-sale, at fair value (amortized cost of $ 3,817,578 and $ 3,843,666 , respectively) 3,832,232 3,853,692 Held-to-maturity, at amortized cost 45,032 45,032 Other investments 403 — Total Investment Securities 3,877,667 3,898,724 Farmer Mac Guaranteed Securities: Available-for-sale, at fair value (amortized cost of $ 6,618,871 and $ 6,594,992 , respectively) 6,877,405 6,947,701 Held-to-maturity, at amortized cost 1,040,757 1,175,792 Total Farmer Mac Guaranteed Securities 7,918,162 8,123,493 USDA Securities: Trading, at fair value 5,050 6,695 Held-to-maturity, at amortized cost 2,445,718 2,473,626 Total USDA Securities 2,450,768 2,480,321 Loans: Loans held for investment, at amortized cost 7,796,712 7,261,933 Loans held for investment in consolidated trusts, at amortized cost 1,077,993 1,287,045 Allowance for losses ( 14,000 ) ( 13,832 ) Total loans, net of allowance 8,860,705 8,535,146 Financial derivatives, at fair value 16,224 17,468 Interest receivable (includes $ 11,197 and $ 16,401 , respectively, related to consolidated trusts) 161,282 186,429 Guarantee and commitment fees receivable 37,261 37,113 Deferred tax asset, net 10,200 18,321 Prepaid expenses and other assets 20,573 24,545 Total Assets $ 24,181,245 $ 24,355,501 Liabilities and Equity: Liabilities: Notes payable $ 21,706,254 $ 21,848,917 Debt securities of consolidated trusts held by third parties 1,120,293 1,323,786 Financial derivatives, at fair value 24,347 29,892 Accrued interest payable (includes $ 10,126 and $ 14,370 , respectively, related to consolidated trusts) 82,060 92,738 Guarantee and commitment obligation 35,827 35,535 Accounts payable and accrued expenses 30,138 28,879 Reserve for losses 2,111 3,277 Total Liabilities 23,001,030 23,363,024 Commitments and Contingencies (Note 6) Equity: Preferred stock: Series C, par value $ 25 per share, 3,000,000 shares authorized, issued and outstanding 73,382 73,382 Series D, par value $ 25 per share, 4,000,000 shares authorized, issued and outstanding 96,659 96,659 Series E, par value $ 25 per share, 3,180,000 shares authorized, issued and outstanding 77,003 77,003 Series F, par value $ 25 per share, 4,800,000 shares authorized, issued and outstanding 116,160 116,160 Series G, par value $ 25 per share, 5,000,000 shares authorized, issued and outstanding 121,327 — Common stock: Class A Voting, $ 1 par value, no maximum authorization, 1,030,780 shares outstanding 1,031 1,031 Class B Voting, $ 1 par value, no maximum authorization, 500,301 shares outstanding 500 500 Class C Non-Voting, $ 1 par value, no maximum authorization, 9,234,311 shares and 9,205,897 shares outstanding, respectively 9,234 9,206 Additional paid-in capital 124,148 122,899 Accumulated other comprehensive income/(loss), net of tax 16,733 ( 13,923 ) Retained earnings 544,038 509,560 Total Equity 1,180,215 992,477 Total Liabilities and Equity $ 24,181,245 $ 24,355,501 The accompanying notes are an integral part of these consolidated financial statements. 3 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) 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) Interest income: Investments and cash equivalents $ 4,457 $ 10,399 $ 9,986 $ 28,140 Farmer Mac Guaranteed Securities and USDA Securities 42,414 61,792 84,818 133,309 Loans 60,214 55,430 119,708 116,026 Total interest income 107,085 127,621 214,512 277,475 Total interest expense 51,956 79,273 106,132 187,815 Net interest income 55,129 48,348 108,380 89,660 Release of/(provision for) losses 761 ( 451 ) ( 152 ) ( 3,889 ) Net interest income after provision for losses 55,890 47,897 108,228 85,771 Non-interest income/(expense): Guarantee and commitment fees 2,997 3,140 6,027 6,336 (Losses)/gains on financial derivatives ( 3,066 ) 6,523 1,227 ( 2,775 ) (Losses)/gains on trading securities ( 62 ) ( 21 ) ( 75 ) 85 Gains on sale of real estate owned — — — 485 Release of reserve for losses 222 400 1,166 7 Other income 435 1,229 1,018 2,045 Non-interest income 526 11,271 9,363 6,183 Operating expenses: Compensation and employee benefits 9,779 8,087 21,574 18,214 General and administrative 6,349 5,295 12,685 10,658 Regulatory fees 750 725 1,500 1,450 Operating expenses 16,878 14,107 35,759 30,322 Income before income taxes 39,538 45,061 81,832 61,632 Income tax expense 8,252 9,435 17,319 13,176 Net income 31,286 35,626 64,513 48,456 Preferred stock dividends ( 5,842 ) ( 3,939 ) ( 11,111 ) ( 7,370 ) Net income attributable to common stockholders $ 25,444 $ 31,687 $ 53,402 $ 41,086 Earnings per common share: Basic earnings per common share $ 2.36 $ 2.95 $ 4.96 $ 3.83 Diluted earnings per common share $ 2.35 $ 2.94 $ 4.93 $ 3.81 The accompanying notes are an integral part of these consolidated financial statements. 4 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) For the Three Months Ended For the Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 (in thousands) Net income $ 31,286 $ 35,626 $ 64,513 $ 48,456 Other comprehensive income/(loss) before taxes: Net unrealized (losses)/gains on available-for-sale securities ( 37,389 ) 42,527 28,975 ( 56,789 ) Net changes in held-to-maturity securities ( 1,653 ) ( 2,496 ) ( 3,810 ) ( 8,184 ) Net unrealized (losses)/gains on cash flow hedges ( 5,274 ) ( 2,132 ) 13,641 ( 30,388 ) Other comprehensive (loss)/income before tax ( 44,316 ) 37,899 38,806 ( 95,361 ) Income tax benefit/(expense) related to other comprehensive (loss)/income 9,305 ( 7,959 ) ( 8,150 ) 20,025 Other comprehensive (loss)/income net of tax ( 35,011 ) 29,940 30,656 ( 75,336 ) Comprehensive (loss)/income $ ( 3,725 ) $ 65,566 $ 95,169 $ ( 26,880 ) The accompanying notes are an integral part of these consolidated financial statements. 5 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (unaudited) Accumulated Additional Other Preferred Stock Common Stock Paid-In Comprehensive Retained Total Shares Amount Shares Amount Capital Income/(Loss) Earnings Equity (in thousands) Balance as of December 31, 2020 14,980 $ 363,204 10,737 $ 10,737 $ 122,899 $ ( 13,923 ) $ 509,560 $ 992,477 Net Income — — — — — — 33,227 33,227 Other comprehensive income, net of tax — — — — — 65,667 — 65,667 Cash dividends: Preferred stock — — — — — — ( 5,269 ) ( 5,269 ) Common stock (cash dividend of $ 0.88 per share) — — — — — — ( 9,450 ) ( 9,450 ) Issuance of Class C Common Stock — — 21 21 12 — — 33 Stock-based compensation cost — — — — 1,665 1,665 Other stock-based award activity — — — — ( 858 ) — — ( 858 ) Balance as of March 31, 2021 14,980 $ 363,204 10,758 $ 10,758 $ 123,718 $ 51,744 $ 528,068 $ 1,077,492 Net Income — — — — — — 31,286 31,286 Other comprehensive loss, net of tax — — — — — ( 35,011 ) — ( 35,011 ) Cash dividends: Preferred stock — — — — — — ( 5,842 ) ( 5,842 ) Common stock (cash dividend of $ 0.88 per share) — — — — — — ( 9,474 ) ( 9,474 ) Issuance of Series G Preferred Stock 5,000 121,327 — — — — — 121,327 Issuance of Class C Common Stock — — 7 7 13 — — 20 Stock-based compensation cost — — — — 891 — — 891 Other stock-based award activity — — — — ( 474 ) — — ( 474 ) Balance as of June 30, 2021 19,980 $ 484,531 10,765 $ 10,765 $ 124,148 $ 16,733 $ 544,038 $ 1,180,215 6 Accumulated Additional Other Preferred Stock Common Stock Paid-In Comprehensive Retained Total Shares Amount Shares Amount Capital Income/(Loss) Earnings Equity (in thousands) Balance as of December 31, 2019 9,400 $ 228,374 10,712 $ 10,712 $ 119,304 $ ( 16,161 ) $ 457,047 $ 799,276 Cumulative effect adjustment from adoption of current expected credit loss standard — — — — — — ( 2,099 ) ( 2,099 ) Balances as of January 1, 2020 9,400 $ 228,374 10,712 $ 10,712 $ 119,304 $ ( 16,161 ) $ 454,948 $ 797,177 Net Income — — — — — — 12,830 12,830 Other comprehensive loss, net of tax — — — — — ( 105,276 ) — ( 105,276 ) Cash dividends: Preferred stock — — — — — — ( 3,431 ) ( 3,431 ) Common stock (cash dividend of $ 0.80 per share) — — — — — — ( 8,571 ) ( 8,571 ) Issuance of Class C Common Stock — — 15 15 19 — — 34 Repurchase of Class C Common Stock — — ( 4 ) ( 4 ) — — ( 231 ) ( 235 ) Stock-based compensation cost — — — — 1,293 — 1,293 Other stock-based award activity — — — — ( 204 ) — — ( 204 ) Balance as of March 31, 2020 9,400 $ 228,374 10,723 $ 10,723 $ 120,412 $ ( 121,437 ) $ 455,545 $ 693,617 Net Income — — — — — — 35,626 35,626 Other comprehensive income, net of tax — — — — — 29,940 — 29,940 Cash dividends: Preferred stock — — — — — — ( 3,939 ) ( 3,939 ) Common stock (cash dividend of $ 0.80 per share) — — — — — — ( 8,585 ) ( 8,585 ) Issuance of Series E Preferred Stock 3,180 77,003 — — — — — 77,003 Issuance of Class C Common Stock — — 10 10 17 — — 27 Stock-based compensation cost — — — — 719 — — 719 Other stock-based award activity — — — — ( 292 ) — — ( 292 ) Balance as of June 30, 2020 12,580 $ 305,377 10,733 $ 10,733 $ 120,856 $ ( 91,497 ) $ 478,647 $ 824,116 The accompanying notes are an integral part of these consolidated financial statements. 7 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ( unaudited ) For the Six Months Ended June 30, 2021 June 30, 2020 (in thousands) Cash flows from operating activities: Net income $ 64,513 $ 48,456 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization of deferred gains, premiums, and discounts on loans, investments, Farmer Mac Guaranteed Securities, and USDA Securities 9,619 1,095 Amortization of debt premiums, discounts, and issuance costs 3,602 14,769 Net change in fair value of trading securities, hedged assets, and financial derivatives 178,314 ( 401,002 ) Gain on sale of real estate owned — ( 485 ) Total (release)/provision for allowance for losses ( 1,014 ) 3,882 Excess tax benefits related to stock-based awards 292 ( 475 ) Deferred income taxes ( 27 ) ( 2,254 ) Stock-based compensation expense 2,557 2,012 Proceeds from repayment of loans purchased as held for sale 30,062 35,351 Net change in: Interest receivable 24,025 24,139 Guarantee and commitment fees receivable 144 292 Other assets 3,680 ( 23,446 ) Accrued interest payable ( 10,678 ) ( 6,825 ) Other liabilities 684 ( 2,453 ) Net cash provided by/(used in) operating activities 305,773 ( 306,944 ) Cash flows from investing activities: Purchases of available-for-sale investment securities ( 893,754 ) ( 1,591,501 ) Purchases of other investment securities ( 403 ) — Purchases of Farmer Mac Guaranteed Securities and USDA Securities ( 1,168,827 ) ( 1,361,109 ) Purchases of loans held for investment ( 1,417,958 ) ( 1,502,920 ) Purchases of defaulted loans ( 8,713 ) ( 6,272 ) Proceeds from repayment of available-for-sale investment securities 884,489 1,097,237 Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities 1,305,719 1,029,718 Proceeds from repayment of loans purchased as held for investment 1,014,805 712,238 Proceeds from sale of available-for-sale investment securities 25,573 — Proceeds from sale of Farmer Mac Guaranteed Securities 49,133 28,050 Proceeds from sale of real estate owned — 2,191 Net cash used in investing activities ( 209,936 ) ( 1,592,368 ) Cash flows from financing activities: Proceeds from issuance of discount notes 31,775,475 34,376,593 Proceeds from issuance of medium-term notes 6,578,677 7,791,406 Payments to redeem discount notes ( 31,895,655 ) ( 34,075,014 ) Payments to redeem medium-term notes ( 6,574,370 ) ( 5,847,765 ) Payments to third parties on debt securities of consolidated trusts ( 276,089 ) ( 175,004 ) Proceeds from common stock issuance 25 36 Proceeds from preferred stock issuance, net of stock issuance costs 121,327 77,003 Tax payments related to share-based awards ( 1,305 ) ( 471 ) Purchases of common stock — ( 235 ) Dividends paid on common and preferred stock ( 29,460 ) ( 24,018 ) Net cash (used in)/provided by financing activities ( 301,375 ) 2,122,531 Net change in cash and cash equivalents ( 205,538 ) 223,219 Cash and cash equivalents at beginning of period 1,033,941 604,381 Cash and cash equivalents at end of period $ 828,403 $ 827,600 Non-cash activity: Loans acquired and securitized as Farmer Mac Guaranteed Securities 49,133 28,050 Consolidation of Farmer Mac Guaranteed Securities from off-balance sheet to loans held for investment in consolidated trusts and to debt securities of consolidated trusts held by third parties 49,133 28,050 Reclassification of defaulted loans from loans held for investment in consolidated trusts to loans held for investment 23,463 7,414 Capitalized interest 1,037 — Purchases of securities - traded, not yet settled — 4,588 The accompanying notes are an integral part of these consolidated financial statements. 8 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim unaudited consolidated financial statements of the Federal Agricultural Mortgage Corporation ("Farmer Mac") and subsidiaries have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Farmer Mac and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted as permitted by SEC rules and regulations. The December 31, 2020 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2020 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the 2020 consolidated financial statements of Farmer Mac and subsidiaries included in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 25, 2021. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year. Presented below are Farmer Mac's significant accounting policies that contain updated information for the three and six months ended June 30, 2021. Principles of Consolidation The consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries during the year: (1) Farmer Mac Mortgage Securities Corporation ("FMMSC"), whose principal activities are to facilitate the purchase and issuance of Farmer Mac Guaranteed Securities; and (2) Farmer Mac II LLC, whose principal activity is the operation of substantially all of the business related to the USDA Guarantees line of business – primarily the acquisition of USDA Securities. The consolidated financial statements also include the accounts of Variable Interest Entities ("VIEs") in which Farmer Mac determined itself to be the primary beneficiary . 9 Table 1.1 Consolidation of Variable Interest Entities As of June 30, 2021 Farm & Ranch USDA Guarantees Corporate Total (in thousands) On-Balance Sheet: Consolidated VIEs: Loans held for investment in consolidated trusts, at amortized cost $ 1,077,993 $ — $ — $ 1,077,993 Debt securities of consolidated trusts held by third parties (1) 1,120,293 — — 1,120,293 Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Carrying value (2) — 28,798 — 28,798 Maximum exposure to loss (3) — 28,756 — 28,756 Investment securities: Carrying value (4) — — 2,084,486 2,084,486 Maximum exposure to loss (3) (4) — — 2,075,774 2,075,774 Off-Balance Sheet: Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Maximum exposure to loss (3) (5) 66,008 270,652 — 336,660 (1) Includes borrower remittances of $ 42.3 million. The borrower remittances had not been passed through to third party investors as of June 30, 2021. (2) Includes $ 41,000 of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business. (3) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss. (4) Includes auction-rate certificates, government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities, and other mission related investments. (5) The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party. Consolidation of Variable Interest Entities As of December 31, 2020 Farm & Ranch USDA Guarantees Corporate Total (in thousands) On-Balance Sheet: Consolidated VIEs: Loans held for investment in consolidated trusts, at amortized cost $ 1,287,045 $ — $ — $ 1,287,045 Debt securities of consolidated trusts held by third parties (1) 1,323,786 — — 1,323,786 Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Carrying value (2) — 34,537 — 34,537 Maximum exposure to loss (3) — 34,456 — 34,456 Investment securities: Carrying value (4) — — 1,918,672 1,918,672 Maximum exposure to loss (3) (4) — — 1,909,535 1,909,535 Off-Balance Sheet: Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Maximum exposure to loss (3) (5) 79,312 299,298 — 378,610 (1) Includes borrower remittances of $ 36.7 million. The borrower remittances had not been passed through to third party investors as of December 31, 2020. (2) Includes $ 0.1 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business. (3) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss. (4) Includes auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities. 10 (5) The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party. (a) Earnings Per Common Share Basic earnings per common share ("EPS") is based on the daily weighted-average number of shares of common stock outstanding. Diluted earnings per common share is based on the daily weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive stock appreciation rights ("SARs") and unvested restricted stock awards. The following schedule reconciles basic and diluted EPS for the three and six months ended June 30, 2021 and 2020: Table 1.2 For the Three Months Ended June 30, 2021 June 30, 2020 Net Income Weighted-Average Shares $ per Share Net Income Weighted-Average Shares $ per Share (in thousands, except per share amounts) Basic EPS Net income attributable to common stockholders $ 25,444 10,763 $ 2.36 $ 31,687 10,730 $ 2.95 Effect of dilutive securities (1) SARs and restricted stock — 75 ( 0.01 ) — 46 ( 0.01 ) Diluted EPS $ 25,444 10,838 $ 2.35 $ 31,687 10,776 $ 2.94 (1) For the three months ended June 30, 2021 and 2020, SARs and restricted stock of 29,043 and 83,297 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the three months ended June 30, 2021 and 2020, contingent shares of unvested restricted stock of 18,183 and 12,680 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met. For the Six Months Ended June 30, 2021 June 30, 2020 Net Income Weighted-Average Shares $ per Share Net Income Weighted-Average Shares $ per Share (in thousands, except per share amounts) Basic EPS Net income attributable to common stockholders $ 53,402 10,751 $ 4.96 $ 41,086 10,721 $ 3.83 Effect of dilutive securities (1) SARs and restricted stock — 78 ( 0.03 ) — 58 ( 0.02 ) Diluted EPS $ 53,402 10,829 $ 4.93 $ 41,086 10,779 $ 3.81 (1) For the six months ended June 30, 2021 and 2020, SARs and restricted stock of 64,364 and 85,223 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the six months ended June 30, 2021 and 2020, contingent shares of unvested restricted stock of 18,183 and 12,680 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met. (b) Comprehensive Income Comprehensive income represents all changes in stockholders' equity except those resulting from investments by or distributions to stockholders, and is comprised of net income and unrealized gains and losses on available-for-sale securities, certain held-to-maturity securities transferred from the available-for-sale classification, and cash flow hedges, net of related taxes. 11 The following table presents the changes in accumulated other comprehensive income ("AOCI"), net of tax, by component for the three and six months ended June 30, 2021 and 2020. Table 1.3 As of June 30, 2021 As of June 30, 2020 Available-for-Sale Securities Held-to-Maturity Securities Cash Flow Hedges Total Available-for-Sale Securities Held-to-Maturity Securities Cash Flow Hedges Total (in thousands) For the Three Months Ended: Beginning Balance $ 38,491 $ 21,125 $ ( 7,872 ) $ 51,744 $ ( 121,858 ) $ 28,351 $ ( 27,930 ) $ ( 121,437 ) Other comprehensive (loss)/income before reclassifications ( 28,751 ) — ( 5,570 ) ( 34,321 ) 34,374 — ( 2,920 ) 31,454 Amounts reclassified from AOCI ( 786 ) ( 1,306 ) 1,402 ( 690 ) ( 777 ) ( 1,972 ) 1,235 ( 1,514 ) Net comprehensive (loss)/income ( 29,537 ) ( 1,306 ) ( 4,168 ) ( 35,011 ) 33,597 ( 1,972 ) ( 1,685 ) 29,940 Ending Balance $ 8,954 $ 19,819 $ ( 12,040 ) $ 16,733 $ ( 88,261 ) $ 26,379 $ ( 29,615 ) $ ( 91,497 ) For the Six Months Ended: Beginning Balance $ ( 13,937 ) $ 22,829 $ ( 22,815 ) $ ( 13,923 ) $ ( 43,397 ) $ 32,845 $ ( 5,609 ) $ ( 16,161 ) Other comprehensive income/(loss) before reclassifications 24,459 — 7,993 32,452 ( 43,310 ) — ( 25,588 ) ( 68,898 ) Amounts reclassified from AOCI ( 1,568 ) ( 3,010 ) 2,782 ( 1,796 ) ( 1,554 ) ( 6,466 ) 1,582 ( 6,438 ) Net comprehensive income/(loss) 22,891 ( 3,010 ) 10,775 30,656 ( 44,864 ) ( 6,466 ) ( 24,006 ) ( 75,336 ) Ending Balance $ 8,954 $ 19,819 $ ( 12,040 ) $ 16,733 $ ( 88,261 ) $ 26,379 $ ( 29,615 ) $ ( 91,497 ) 12 The following table presents other comprehensive income activity, the impact on net income of amounts reclassified from each component of AOCI, and the related tax impact for the three and six months ended June 30, 2021 and 2020: Table 1.4 For the Three Months Ended June 30, 2021 June 30, 2020 Before Tax Provision (Benefit) After Tax Before Tax Provision (Benefit) After Tax (in thousands) Other comprehensive income: Available-for-sale-securities: Unrealized holding (losses)/gains on available-for-sale securities $ ( 36,395 ) $ ( 7,644 ) $ ( 28,751 ) $ 43,512 $ 9,138 $ 34,374 Less reclassification adjustments included in: Net interest income (1) ( 987 ) ( 207 ) ( 780 ) ( 971 ) ( 204 ) ( 767 ) Other income (2) ( 7 ) ( 1 ) ( 6 ) ( 14 ) ( 4 ) ( 10 ) Total $ ( 37,389 ) $ ( 7,852 ) $ ( 29,537 ) $ 42,527 $ 8,930 $ 33,597 Held-to-maturity securities: Less reclassification adjustments included in: Net interest income (3) ( 1,653 ) ( 347 ) ( 1,306 ) ( 2,496 ) ( 524 ) ( 1,972 ) Total $ ( 1,653 ) $ ( 347 ) $ ( 1,306 ) $ ( 2,496 ) $ ( 524 ) $ ( 1,972 ) Cash flow hedges Unrealized losses on cash flow hedges $ ( 7,050 ) $ ( 1,480 ) $ ( 5,570 ) $ ( 3,695 ) $ ( 775 ) $ ( 2,920 ) Less reclassification adjustments included in: Net interest income (4) 1,776 374 1,402 1,563 328 1,235 Total $ ( 5,274 ) $ ( 1,106 ) $ ( 4,168 ) $ ( 2,132 ) $ ( 447 ) $ ( 1,685 ) Other comprehensive (loss)/income $ ( 44,316 ) $ ( 9,305 ) $ ( 35,011 ) $ 37,899 $ 7,959 $ 29,940 (1) Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting. (2) Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities. (3) Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the remaining life of the security with no impact on future net income. (4) Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI. 13 For the Six Months Ended June 30, 2021 June 30, 2020 Before Tax Provision (Benefit) After Tax Before Tax Provision (Benefit) After Tax (in thousands) Other comprehensive income: Available-for-sale-securities: Unrealized holding gains/(losses) on available-for-sale securities $ 30,961 $ 6,502 $ 24,459 $ ( 54,822 ) $ ( 11,512 ) $ ( 43,310 ) Less reclassification adjustments included in: Net interest income (1) ( 1,971 ) ( 415 ) ( 1,556 ) ( 1,940 ) ( 407 ) ( 1,533 ) Other income (2) ( 15 ) ( 3 ) ( 12 ) ( 27 ) ( 6 ) ( 21 ) Total $ 28,975 $ 6,084 $ 22,891 $ ( 56,789 ) $ ( 11,925 ) $ ( 44,864 ) Held-to-maturity securities: Less reclassification adjustments included in: Net interest income (3) ( 3,810 ) ( 800 ) ( 3,010 ) ( 8,184 ) ( 1,718 ) ( 6,466 ) Total $ ( 3,810 ) $ ( 800 ) $ ( 3,010 ) $ ( 8,184 ) $ ( 1,718 ) $ ( 6,466 ) Cash flow hedges Unrealized gains/(losses) on cash flow hedges $ 10,118 $ 2,125 $ 7,993 $ ( 32,390 ) $ ( 6,802 ) $ ( 25,588 ) Less reclassification adjustments included in: Net interest income (4) 3,523 741 2,782 2,002 420 1,582 Total $ 13,641 $ 2,866 $ 10,775 $ ( 30,388 ) $ ( 6,382 ) $ ( 24,006 ) Other comprehensive income/(loss) $ 38,806 $ 8,150 $ 30,656 $ ( 95,361 ) $ ( 20,025 ) $ ( 75,336 ) (1) Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting. (2) Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities. (3) Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the remaining life of the security with no impact on future net income. (4) Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI. (c) New Accounting Standards Recently Adopted Accounting Guidance Standard Description Date of Adoption Effect on Consolidated Financial Statements ASU 2020-04 and 2021-01 , Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting The amendments in this Update provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. They provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. January 1, 2020 Farmer Mac adopted optional expedients specific to discounting transition on a retrospective basis, and as a result of this election, the discounting transition did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. 14 2. INVESTMENT SECURITIES The following tables set forth information about Farmer Mac's available-for-sale and held-to-maturity investment securities as of June 30, 2021 and December 31, 2020: Table 2.1 As of June 30, 2021 Amount Outstanding Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,700 $ — $ 19,700 $ ( 58 ) $ — $ ( 394 ) $ 19,248 Floating rate Government/GSE guaranteed mortgage-backed securities 2,459,511 8 2,459,519 — 15,833 ( 652 ) 2,474,700 Fixed rate GSE guaranteed mortgage-backed securities 28,174 807 28,981 — 29 — 29,010 Fixed rate U.S. Treasuries 1,300,208 9,170 1,309,378 — 204 ( 308 ) 1,309,274 Total available-for-sale 3,807,593 9,985 3,817,578 ( 58 ) 16,066 ( 1,354 ) 3,832,232 Held-to-maturity: Floating rate Government/GSE guaranteed mortgage-backed securities (3) 45,032 — 45,032 — — ( 198 ) 44,834 Total held-to-maturity $ 45,032 $ — $ 45,032 $ — $ — $ ( 198 ) $ 44,834 (1) Amounts presented exclude $ 6.2 million of accrued interest receivable on investment securities as of June 30, 2021. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statement of operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The held-to-maturity investment securities had a weighted average yield of 1.5 % as of June 30, 2021. As of December 31, 2020 Amount Outstanding Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,700 $ — $ 19,700 $ ( 36 ) $ — $ ( 493 ) $ 19,171 Floating rate asset-backed securities 6,232 — 6,232 — — ( 1 ) 6,231 Floating rate Government/GSE guaranteed mortgage-backed securities 2,350,963 ( 44 ) 2,350,919 — 12,150 ( 3,043 ) 2,360,026 Fixed rate GSE guaranteed mortgage-backed securities 279 — 279 — 34 — 313 Fixed rate U.S. Treasuries 1,449,408 17,128 1,466,536 — 1,458 ( 43 ) 1,467,951 Total available-for-sale 3,826,582 17,084 3,843,666 ( 36 ) 13,642 ( 3,580 ) 3,853,692 Held-to-maturity: Floating rate Government/GSE guaranteed mortgage-backed securities (3) 45,032 — 45,032 — 1,201 — 46,233 Total held-to-maturity $ 45,032 $ — $ 45,032 $ — $ 1,201 $ — $ 46,233 (1) Amounts presented exclude $ 9.0 million of accrued interest receivable on investment securities as of December 31, 2020. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statement of operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The held-to-maturity investment securities had a weighted average yield of 1.5 % as of December 31, 2020. During the three and six months ended June 30, 2021, Farmer Mac received proceeds of $ 25.6 million from the sale of securities from its available-for-sale investment portfolio, resulting in a loss of $ 2,900 . Farmer Mac did no t sell any securities from its available-for-sale investment portfolio during the three and six months ended June 30, 2020. 15 As of June 30, 2021 and December 31, 2020, unrealized losses on available-for-sale investment securities were as follows: Table 2.2 As of June 30, 2021 Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (dollars in thousands) Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,248 $ ( 394 ) Floating rate Government/GSE guaranteed mortgage-backed securities 92,080 ( 122 ) 47,682 ( 530 ) Fixed rate U.S. Treasuries 297,864 ( 308 ) — — Total $ 389,944 $ ( 430 ) $ 66,930 $ ( 924 ) Number of securities in loss position 19 25 As of December 31, 2020 Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (dollars in thousands) Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,171 $ ( 493 ) Floating rate asset-backed securities — — 6,231 ( 1 ) Floating rate Government/GSE guaranteed mortgage-backed securities 172,842 ( 593 ) 324,423 ( 2,450 ) Fixed rate U.S. Treasuries 364,320 ( 43 ) — — Total $ 537,162 $ ( 636 ) $ 349,825 $ ( 2,944 ) Number of securities in loss position 27 62 The unrealized losses presented above are principally due to a general widening of market spreads and changes in the levels of interest rates from the dates of acquisition to June 30, 2021 and December 31, 2020, as applicable. The resulting decrease in fair values reflects an increase in the perceived risk by the financial markets related to those securities. As of both June 30, 2021 and December 31, 2020, all of the investment securities in an unrealized loss position either were backed by the full faith and credit of the U.S. government or had credit ratings of at least "AA+." Securities in unrealized loss positions for 12 months or longer have a fair value as of June 30, 2021 that is, on average, approximately 98.6 % of their amortized cost basis. Farmer Mac believes that all of these unrealized losses are recoverable within a reasonable period of time by way of maturity or changes in credit spreads. 16 The amortized cost, fair value, and weighted-average yield of available-for-sale investment securities by remaining contractual maturity as of June 30, 2021 are set forth below. Asset-backed and mortgage-backed securities are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets. Table 2.3 As of June 30, 2021 Available-for-Sale Securities Amortized Cost Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 977,778 $ 977,976 1.82 % Due after one year through five years 711,832 712,720 0.61 % Due after five years through ten years 1,362,956 1,368,656 0.52 % Due after ten years 765,012 772,880 0.63 % Total $ 3,817,578 $ 3,832,232 0.89 % 3. FARMER MAC GUARANTEED SECURITIES AND USDA SECURITIES The following tables set forth information about on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities as of June 30, 2021 and December 31, 2020: Table 3.1 As of June 30, 2021 Unpaid Principal Balance Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Held-to-maturity: AgVantage $ 1,012,162 $ ( 20 ) $ 1,012,142 $ ( 182 ) $ 17,046 $ ( 4,196 ) $ 1,024,810 Farmer Mac Guaranteed USDA Securities 28,756 41 28,797 — 561 ( 178 ) 29,180 Total Farmer Mac Guaranteed Securities 1,040,918 21 1,040,939 ( 182 ) 17,607 ( 4,374 ) 1,053,990 USDA Securities 2,422,597 23,121 2,445,718 — 22,418 ( 1,143 ) 2,466,993 Total held-to-maturity $ 3,463,515 $ 23,142 $ 3,486,657 $ ( 182 ) $ 40,025 $ ( 5,517 ) $ 3,520,983 Available-for-sale: AgVantage $ 6,617,498 $ 1,373 $ 6,618,871 $ ( 220 ) $ 271,223 $ ( 12,469 ) $ 6,877,405 Trading: USDA Securities (3) $ 4,904 $ 138 $ 5,042 $ — $ 22 $ ( 14 ) $ 5,050 (1) Amounts presented exclude $ 32.0 million, $ 31.2 million, and $ 0.1 million of accrued interest receivable on available-for-sale, held-to-maturity, and trading securities, respectively, as of June 30, 2021. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the statement of financial operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The trading USDA securities had a weighted average yield of 5.06 % as of June 30, 2021. 17 As of December 31, 2020 Unpaid Principal Balance Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Held-to-maturity: AgVantage $ 1,141,430 $ ( 55 ) $ 1,141,375 $ ( 120 ) $ 23,986 $ ( 61 ) $ 1,165,180 Farmer Mac Guaranteed USDA Securities 34,456 81 34,537 — 1,273 — 35,810 Total Farmer Mac Guaranteed Securities 1,175,886 26 1,175,912 ( 120 ) 25,259 ( 61 ) 1,200,990 USDA Securities 2,446,550 27,076 2,473,626 — 157,748 ( 560 ) 2,630,814 Total held-to-maturity $ 3,622,436 $ 27,102 $ 3,649,538 $ ( 120 ) $ 183,007 $ ( 621 ) $ 3,831,804 Available-for-sale: AgVantage $ 6,593,518 $ 1,474 $ 6,594,992 $ ( 310 ) $ 368,257 $ ( 15,238 ) $ 6,947,701 Trading: USDA Securities (3) $ 6,413 $ 198 $ 6,611 $ — $ 84 $ — $ 6,695 (1) Amounts presented exclude $ 32.3 million, $ 44.7 million, and $ 0.2 million of accrued interest receivable on available-for-sale, held-to-maturity, and trading securities, respectively, as of December 31, 2020. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the statement of financial operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The trading USDA securities had a weighted average yield of 5.05 % as of December 31, 2020. As of June 30, 2021 and December 31, 2020, unrealized losses on held-to-maturity and available-for-sale on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities were as follows: Table 3.2 As of June 30, 2021 Held-to-Maturity and Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (in thousands) Held-to-maturity: AgVantage $ 270,804 $ ( 4,196 ) $ — $ — Farmer Mac Guaranteed USDA Securities 12,902 ( 178 ) — — USDA Securities 37,862 ( 353 ) 16,780 ( 790 ) Total held-to-maturity $ 321,568 $ ( 4,727 ) $ 16,780 $ ( 790 ) Available-for-sale: AgVantage $ 1,094,412 $ ( 9,962 ) $ 202,492 $ ( 2,507 ) 18 As of December 31, 2020 Held-to-Maturity and Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (in thousands) Held-to-maturity: AgVantage $ 49,939 $ ( 61 ) $ — $ — USDA Securities — — 21,061 ( 560 ) Total held-to-maturity $ 49,939 $ ( 61 ) $ 21,061 $ ( 560 ) Available-for-sale: AgVantage $ 133,703 $ ( 231 ) $ 981,757 $ ( 15,007 ) The unrealized losses presented above are principally due to changes in interest rates from the date of acquisition to June 30, 2021 and December 31, 2020, as applicable. The unrealized losses on the held-to-maturity USDA Securities as of both June 30, 2021 and December 31, 2020 reflect their increased cost basis resulting from their transfer to held-to-maturity as of October 1, 2016. The credit exposure related to Farmer Mac's USDA Guarantees line of business is covered by the full faith and credit guarantee of the United States of America. The unrealized losses from AgVantage securities were on 13 and 11 available-for-sale securities as of June 30, 2021 and December 31, 2020, respectively. There were 4 and 2 held-to-maturity AgVantage securities with an unrealized loss as of June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021 and December 31, 2020, 2 and 7 available-for-sale AgVantage securities, respectively, had been in a loss position for more than 12 months. During the three and six months ended June 30, 2021 and 2020, Farmer Mac had no sales of Farmer Mac Guaranteed Securities or USDA Securities and, therefore, Farmer Mac realized no gains or losses. 19 The amortized cost, fair value, and weighted-average yield of available-for-sale and held-to-maturity Farmer Mac Guaranteed Securities and USDA Securities by remaining contractual maturity as of June 30, 2021 are set forth below. The balances presented are based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets. Table 3.3 As of June 30, 2021 Available-for-Sale Securities Amortized Cost (1) Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 1,581,119 $ 1,586,647 1.58 % Due after one year through five years 2,526,845 2,621,450 2.51 % Due after five years through ten years 922,881 959,208 2.05 % Due after ten years 1,588,026 1,710,100 2.47 % Total $ 6,618,871 $ 6,877,405 2.21 % (1) Amounts presented exclude $ 32.0 million of accrued interest receivable. As of June 30, 2021 Held-to-Maturity Securities Amortized Cost (1) Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 329,849 $ 332,601 2.71 % Due after one year through five years 741,605 750,667 2.51 % Due after five years through ten years 250,695 253,347 2.75 % Due after ten years 2,164,508 2,184,368 3.11 % Total $ 3,486,657 $ 3,520,983 2.90 % (1) Amounts presented exclude $ 31.2 million of accrued interest receivable. 4. FINANCIAL DERIVATIVES Farmer Mac enters into financial derivative transactions to protect against risk from the effects of market price, or interest rate movements, on the value of certain assets, future cash flows, or debt issuance, and not for trading or speculative purposes. For more information about Farmer Mac's financial derivatives, see Note 6 in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on February 25, 2021. The following tables summarize information related to Farmer Mac's financial derivatives on a gross basis without giving consideration to master netting arrangements as of June 30, 2021 and December 31, 2020: 20 Table 4.1 As of June 30, 2021 Fair Value Weighted- Average Pay Rate Weighted- Average Receive Rate Weighted- Average Forward Price Weighted- Average Remaining Term (in years) Notional Amount Asset (Liability) (dollars in thousands) Fair value hedges: Interest rate swaps: Pay fixed non-callable $ 5,450,448 $ 7,863 $ ( 679 ) 2.24 % 0.15 % 11.81 Receive fixed non-callable 4,213,029 64 ( 8,191 ) 0.20 % 0.97 % 2.24 Receive fixed callable 1,067,577 1,529 ( 3,538 ) 0.04 % 0.81 % 4.21 Cash flow hedges: Interest rate swaps: Pay fixed non-callable 528,000 5,572 ( 5,008 ) 1.98 % 0.51 % 5.93 No hedge designation: Interest rate swaps: Pay fixed non-callable 338,951 — ( 6,786 ) 2.38 % 0.14 % 3.73 Receive fixed non-callable 1,747,850 — — 0.13 % 0.61 % 0.82 Basis swaps 2,608,911 1,215 ( 79 ) 0.14 % 0.19 % 2.44 Treasury futures 33,600 — ( 88 ) 132.24 Credit valuation adjustment ( 19 ) 22 Total financial derivatives $ 15,988,366 $ 16,224 $ ( 24,347 ) Collateral (held)/pledged ( 2,601 ) 177,228 Net amount $ 13,623 $ 152,881 21 As of December 31, 2020 Fair Value Weighted- Average Pay Rate Weighted- Average Receive Rate Weighted- Average Forward Price Weighted- Average Remaining Term (in years) Notional Amount Asset (Liability) (dollars in thousands) Fair value hedges: Interest rate swaps: Pay fixed non-callable $ 5,463,303 $ 10,157 $ ( 2,585 ) 2.26 % 0.21 % 11.95 Receive fixed non-callable 2,611,029 2 ( 8,755 ) 0.32 % 1.61 % 2.10 Receive fixed callable 343,500 3,108 ( 4 ) 0.16 % 1.78 % 3.16 Cash flow hedges: Interest rate swaps: Pay fixed non-callable 472,000 2,584 ( 8,771 ) 2.04 % 0.57 % 6.04 No hedge designation: Interest rate swaps: Pay fixed non-callable 339,090 — ( 9,675 ) 2.38 % 0.19 % 4.23 Receive fixed non-callable 2,359,220 — — 0.16 % 0.87 % 1.07 Receive fixed callable 200,000 1 ( 12 ) 0.13 % 0.15 % 0.72 Basis swaps 3,628,911 1,617 ( 43 ) 0.18 % 0.23 % 2.03 Treasury futures 30,500 — ( 82 ) 137.81 Credit valuation adjustment ( 1 ) 35 Total financial derivatives $ 15,447,553 $ 17,468 $ ( 29,892 ) Collateral (held)/pledged ( 1,345 ) 212,263 Net amount $ 16,123 $ 182,371 As of June 30, 2021, Farmer Mac expects to reclassify $ 5.7 million after-tax from accumulated other comprehensive income to earnings over the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges after June 30, 2021. During the three and six months ended June 30, 2021 and 2020, there were no gains or losses from interest rate swaps designated as cash flow hedges reclassified to earnings because it was probable that the originally forecasted transactions would occur. 22 The following table summarizes the net income/(expense) recognized in the consolidated statements of operations related to derivatives for the three and six months ended June 30, 2021 and 2020: Table 4.2 For the Three Months Ended June 30, 2021 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Investments and Cash Equivalents Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Losses on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations $ 4,457 $ 42,414 $ 60,214 $ ( 51,956 ) $ ( 3,066 ) $ 52,063 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 35 ) ( 21,604 ) ( 6,704 ) 9,811 — ( 18,532 ) Recognized on hedged items 67 30,565 11,635 ( 12,141 ) — 30,126 Discount amortization recognized on hedged items — — — ( 257 ) — ( 257 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 32 $ 8,961 $ 4,931 $ ( 2,587 ) $ — $ 11,337 Gains/(losses) on fair value hedging relationships: Recognized on derivatives $ ( 176 ) $ ( 48,680 ) $ ( 65,147 ) $ ( 2,657 ) $ — $ ( 116,660 ) Recognized on hedged items 188 49,878 63,978 891 — 114,935 Gains/(losses) on fair value hedging relationships $ 12 $ 1,198 $ ( 1,169 ) $ ( 1,766 ) $ — $ ( 1,725 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ — $ ( 1,776 ) $ — $ ( 1,776 ) Recognized on hedged items — — — ( 643 ) — ( 643 ) Discount amortization recognized on hedged items — — — ( 8 ) — ( 8 ) Expense recognized on cash flow hedges $ — $ — $ — $ ( 2,427 ) $ — $ ( 2,427 ) Losses on financial derivatives not designated in hedging relationships: Losses on interest rate swaps $ — $ — $ — $ — $ ( 3,739 ) $ ( 3,739 ) Interest expense on interest rate swaps — — — — 1,098 1,098 Treasury futures — — — — ( 425 ) ( 425 ) Losses on financial derivatives not designated in hedge relationships $ — $ — $ — $ — $ ( 3,066 ) $ ( 3,066 ) 23 For The Three Months Ended June 30, 2020 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Gains on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations: $ 61,792 $ 55,430 $ ( 79,273 ) $ 6,523 $ 44,472 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 12,257 ) ( 4,535 ) 5,432 — ( 11,360 ) Recognized on hedged items 32,102 9,812 ( 12,721 ) — 29,193 Discount amortization recognized on hedged items — — ( 181 ) — ( 181 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 19,845 $ 5,277 $ ( 7,470 ) $ — $ 17,652 (Losses)/gains on fair value hedging relationships: Recognized on derivatives $ ( 9,226 ) $ ( 6,616 ) $ 3,722 $ — $ ( 12,120 ) Recognized on hedged items 9,050 3,037 ( 2,348 ) — 9,739 (Losses)/gains on fair value hedging relationships $ ( 176 ) $ ( 3,579 ) $ 1,374 $ — $ ( 2,381 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ ( 1,563 ) $ — $ ( 1,563 ) Recognized on hedged items — — ( 1,029 ) — ( 1,029 ) Discount amortization recognized on hedged items — — ( 2 ) — ( 2 ) Expense recognized on cash flow hedges $ — $ — $ ( 2,594 ) $ — $ ( 2,594 ) Gains on financial derivatives not designated in hedge relationships: Gains on interest rate swaps $ — $ — $ — $ 8,427 $ 8,427 Interest expense on interest rate swaps — — — ( 1,795 ) ( 1,795 ) Treasury futures — — — ( 109 ) ( 109 ) Gains on financial derivatives not designated in hedge relationships $ — $ — $ — $ 6,523 $ 6,523 24 For the Six Months Ended June 30, 2021 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Investments and Cash Equivalents Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Gains on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations $ 9,986 $ 84,818 $ 119,708 $ ( 106,132 ) $ 1,227 $ 109,607 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 35 ) ( 43,041 ) ( 13,275 ) 19,292 — ( 37,059 ) Recognized on hedged items 67 61,341 23,122 ( 23,949 ) — 60,581 Discount amortization recognized on hedged items — — — ( 478 ) — ( 478 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 32 $ 18,300 $ 9,847 $ ( 5,135 ) $ — $ 23,044 Gains/(losses) on fair value hedging relationships: Recognized on derivatives $ ( 176 ) $ 119,396 $ 80,624 $ ( 32,111 ) $ — $ 167,733 Recognized on hedged items 188 ( 118,922 ) ( 80,770 ) 30,392 — ( 169,112 ) Gains/(losses) on fair value hedging relationships $ 12 $ 474 $ ( 146 ) $ ( 1,719 ) $ — $ ( 1,379 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ — $ ( 3,523 ) $ — $ ( 3,523 ) Recognized on hedged items — — — ( 1,298 ) — ( 1,298 ) Discount amortization recognized on hedged items — — — ( 15 ) — ( 15 ) Expense recognized on cash flow hedges $ — $ — $ — $ ( 4,836 ) $ — $ ( 4,836 ) Gains on financial derivatives not designated in hedging relationships: Losses on interest rate swaps $ — $ — $ — $ — $ ( 2,271 ) $ ( 2,271 ) Interest expense on interest rate swaps — — — — 3,322 3,322 Treasury futures — — — — 176 176 Gains on financial derivatives not designated in hedge relationships $ — $ — $ — $ — $ 1,227 $ 1,227 25 For The Six Months Ended June 30, 2020 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Losses on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations: $ 133,309 $ 116,026 $ ( 187,815 ) $ ( 2,775 ) $ 58,745 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 18,408 ) ( 6,412 ) 7,066 — ( 17,754 ) Recognized on hedged items 63,927 18,489 ( 26,997 ) — 55,419 Discount amortization recognized on hedged items — — ( 361 ) — ( 361 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 45,519 $ 12,077 $ ( 20,292 ) $ — $ 37,304 (Losses)/gains on fair value hedging relationships: Recognized on derivatives $ ( 303,159 ) $ ( 152,521 ) $ 62,656 $ — $ ( 393,024 ) Recognized on hedged items 299,430 148,445 ( 62,913 ) — 384,962 (Losses)/gains on fair value hedging relationships $ ( 3,729 ) $ ( 4,076 ) $ ( 257 ) $ — $ ( 8,062 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ ( 2,002 ) $ — $ ( 2,002 ) Recognized on hedged items — — ( 3,152 ) — ( 3,152 ) Discount amortization recognized on hedged items — — ( 2 ) — ( 2 ) Expense recognized on cash flow hedges $ — $ — $ ( 5,156 ) $ — $ ( 5,156 ) (Losses)/gains on financial derivatives not designated in hedge relationships: Gains on interest rate swaps $ — $ — $ — $ 1,878 $ 1,878 Interest expense on interest rate swaps — — — ( 2,657 ) ( 2,657 ) Treasury futures — — — ( 1,996 ) ( 1,996 ) (Losses)/gains on financial derivatives not designated in hedge relationships $ — $ — $ — $ ( 2,775 ) $ ( 2,775 ) 26 The following table shows the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships as of June 30, 2021 and December 31, 2020: Table 4.3 Hedged Items in Fair Value Relationship Carrying Amount of Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustments included in the Carrying Amount of the Hedged Assets/(Liabilities) June 30, 2021 December 31, 2020 June 30, 2021 December 31, 2020 (in thousands) Investment securities, Available-for-Sale, at fair value $ 28,815 $ — $ 188 $ — Farmer Mac Guaranteed Securities, Available-for-Sale, at fair value (1) 4,105,335 4,244,027 263,902 382,825 Loans held for investment, at amortized cost (2) 1,608,163 1,692,609 30,562 111,333 Notes Payable (3) ( 5,065,528 ) ( 3,006,140 ) ( 22,848 ) ( 53,240 ) (1) Includes $ 1.4 million and $ 1.6 million of hedging adjustments on discontinued hedging relationships as of June 30, 2021 and December 31, 2020, respectively. (2) Includes $ 1.4 million of hedging adjustments on a discontinued hedging relationship as of both June 30, 2021 and December 31, 2020. (3) Carrying amount represents amortized cost. The following table shows Farmer Mac's credit exposure to interest rate swap counterparties as of June 30, 2021 and December 31, 2020: Table 4.4 June 30, 2021 Gross Amount Recognized (1) Counterparty Netting Net Amount Presented in the Consolidated Balance Sheet (in thousands) Assets: Derivatives Interest rate swap $ 112,398 $ 110,893 $ 1,505 Liabilities: Derivatives Interest rate swap $ 442,121 $ 419,842 $ 22,279 (1) Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest. December 31, 2020 Gross Amount Recognized (1) Counterparty Netting Net Amount Presented in the Consolidated Balance Sheet (in thousands) Assets: Derivatives Interest rate swaps $ 112,287 $ 111,761 $ 526 Liabilities: Derivatives Interest rate swaps $ 620,236 $ 595,867 $ 24,369 27 (1) Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest. As of June 30, 2021, Farmer Mac held $ 2.6 million of cash and no investment securities as collateral for its derivatives in net asset positions, compared to $ 1.3 million of cash and no investment securities as collateral for its derivatives in net asset positions as of December 31, 2020. Farmer Mac posted $ 8.4 million cash and $ 168.8 million of investment securities as of June 30, 2021 and posted $ 11.2 million cash and $ 201.1 million investment securities as of December 31, 2020. Farmer Mac records posted cash as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of prepaid expenses and other assets. Any investment securities posted as collateral are included in the investment securities balances on the consolidated balance sheets. If Farmer Mac had breached certain provisions of the derivative contracts as of June 30, 2021 and December 31, 2020, it could have been required to settle its obligations under the agreements, but would not have been required to post additional collateral. As of June 30, 2021 and December 31, 2020, there were no financial derivatives in a net payable position where Farmer Mac was required to pledge collateral which the counterparty had the right to sell or repledge. Of Farmer Mac's $ 16.0 billion notional amount of interest rate swaps outstanding as of June 30, 2021, $ 13.6 billion were cleared through the swap clearinghouse, the Chicago Mercantile Exchange ("CME"). Of Farmer Mac's $ 15.4 billion notional amount of interest rate swaps outstanding as of December 31, 2020, $ 12.8 billion were cleared through the CME. During the first half of 2021, Farmer Mac continued the use of non-cleared basis swaps to prepare for the transition away from the use of LIBOR as a reference rate. 5. LOANS Farmer Mac classifies loans as either held for investment or held for sale. Loans held for investment are recorded at the unpaid principal balance, net of unamortized premium or discount and other cost basis adjustments. Loans held for sale are reported at the lower of cost or fair value determined on a pooled basis. As of both June 30, 2021, and December 31, 2020, Farmer Mac had no loans held for sale. The following table includes loans held for investment and displays the composition of the loan balances as of June 30, 2021 and December 31, 2020: Table 5.1 As of June 30, 2021 As of December 31, 2020 Unsecuritized In Consolidated Trusts Total Unsecuritized In Consolidated Trusts Total (in thousands) Farm & Ranch $ 5,523,212 $ 1,077,993 $ 6,601,205 $ 4,889,393 $ 1,287,045 $ 6,176,438 Rural Utilities 2,246,568 — 2,246,568 2,260,412 — 2,260,412 Total unpaid principal balance (1) 7,769,780 1,077,993 8,847,773 7,149,805 1,287,045 8,436,850 Unamortized premiums, discounts, fair value hedge basis adjustment, and other cost basis adjustments 26,932 — 26,932 112,128 — 112,128 Total loans 7,796,712 1,077,993 8,874,705 7,261,933 1,287,045 8,548,978 Allowance for losses ( 13,290 ) ( 710 ) ( 14,000 ) ( 12,943 ) ( 889 ) ( 13,832 ) Total loans, net of allowance $ 7,783,422 $ 1,077,283 $ 8,860,705 $ 7,248,990 $ 1,286,156 $ 8,535,146 (1) Unpaid principal balance is the basis of presentation in disclosures of outstanding balances for Farmer Mac's lines of business. 28 Allowance for Losses The following table is a summary, by asset type, of the allowance for losses as of June 30, 2021 and December 31, 2020: Table 5.2 June 30, 2021 December 31, 2020 Allowance for Losses Allowance for Losses (in thousands) Loans: Farm & Ranch $ 3,092 $ 3,745 Rural Utilities 10,908 10,087 Total $ 14,000 $ 13,832 The following is a summary of the changes in the allowance for losses for the three and six month period ended June 30, 2021 and 2020: Table 5.3 For the Three Months Ended For the Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Allowance for Losses Allowance for Losses Allowance for Losses Allowance for Losses (in thousands) Farm & Ranch: Beginning Balance $ 3,718 $ 7,353 $ 3,745 $ 10,454 Cumulative effect adjustment from adoption of current expected credit loss standard — — — ( 3,909 ) Adjusted Beginning Balance 3,718 7,353 3,745 6,545 Release of losses ( 626 ) ( 920 ) ( 653 ) ( 112 ) Charge-offs — ( 394 ) — ( 394 ) Ending Balance (1) $ 3,092 $ 6,039 $ 3,092 $ 6,039 Rural Utilities: Beginning Balance $ 11,089 $ 7,503 $ 10,087 $ — Cumulative effect adjustment from adoption of current expected credit loss standard — — — 5,378 Adjusted Beginning Balance 11,089 7,503 10,087 5,378 (Release of)/provision for losses ( 181 ) 1,397 821 3,522 Charge-offs — — — — Ending Balance (2) $ 10,908 $ 8,900 $ 10,908 $ 8,900 (1) As of June 30, 2021 and 2020, allowance for losses for Farm & Ranch includes no allowance and $ 1.8 million, respectively, for collateral dependent assets secured by agricultural real estate. (2) As of both June 30, 2021 and 2020, allowance for losses for Rural Utilities includes no allowance for collateral dependent assets. The release from the allowance for Rural Utilities loan losses of $ 0.2 million recorded during second quarter 2021 was primarily attributable to the impact of improving economic factor forecasts, specifically expectations for unemployment. The $ 0.6 million release from the allowance for the Farm & Ranch portfolio during second quarter 2021 was primarily attributable to improving economic factor forecasts, particularly agricultural commodity prices. 29 The small net provision recorded to the allowance for the six months ended June 30, 2021, was primarily a result of the impact of the Texas Arctic Freeze on the Rural Utilities portfolio, partially offset by improving economic factor forecasts. The provision to the allowance for loan losses of $ 0.5 million recorded during second quarter 2020 was primarily due to the impact of net new loan volume in the Rural Utilities portfolio of $ 311.8 million. The impact of the Rural Utilities portfolio on the net increase to the provision was partially offset by improving economic factors that uniquely impacted the Farm & Ranch portfolio, specifically improvements in commodity prices and expectations for stable farm land values. In addition, there was a $ 0.4 million charge-off to the allowance related to the acquisition of a new real estate owned property ("REO") during second quarter 2020. The provision to the allowance for loan losses of $ 3.4 million recorded during the six months ended June 30, 2020 was primarily due to the impact of net new loan volume in the Rural Utilities portfolio and the impact of economic factor forecasts on the Rural Utilities portfolio, especially expected higher unemployment, as a result of the COVID-19 pandemic and the resulting economic volatility. The following table presents the unpaid principal balances by delinquency status of Farmer Mac's loans and non-performing assets as of June 30, 2021 and December 31, 2020: Table 5.4 As of June 30, 2021 Accruing Current 30-59 Days 60-89 Days 90 Days and Greater (2) Total Past Due Nonaccrual loans (3)(4) Total Loans (in thousands) Loans (1) : Farm & Ranch $ 6,475,467 $ 1,501 $ 525 $ 5,418 $ 7,444 $ 118,294 $ 6,601,205 Rural Utilities 2,236,568 10,000 — — 10,000 — 2,246,568 Total $ 8,712,035 $ 11,501 $ 525 $ 5,418 $ 17,444 $ 118,294 $ 8,847,773 (1) Amounts represent unpaid principal balance of risk rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Includes loans in consolidated trusts with beneficial interests owned by third parties that are 90 days or more past due. (3) Includes loans that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. (4) Includes $ 58.4 million of nonaccrual loans for which there was no associated allowance. During the three and six months ended June 30, 2021, Farmer Mac received $ 1.9 million and $ 3.0 million, respectively, in interest on nonaccrual loans. As of December 31, 2020 Accruing Current 30-59 Days 60-89 Days 90 Days and Greater (2) Total Past Due Nonaccrual loans (3)(4) Total Loans (in thousands) Loans (1) : Farm & Ranch $ 6,055,154 $ 4,582 $ 632 $ 1,072 $ 6,286 $ 114,998 $ 6,176,438 Rural Utilities 2,260,412 — — — — — 2,260,412 Total $ 8,315,566 $ 4,582 $ 632 $ 1,072 $ 6,286 $ 114,998 $ 8,436,850 (1) Amounts represent unpaid principal balance of risk rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Includes loans in consolidated trusts with beneficial interests owned by third parties that are 90 days or more past due. 30 (3) Includes loans that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. (4) Includes $ 44.2 million of nonaccrual loans for which there was no associated allowance. During the year ended December 31, 2020, Farmer Mac received $ 4.4 million in interest on nonaccrual loans. Credit Quality Indicators The following tables present credit quality indicators related to Farm & Ranch loans and Rural Utilities loans held as of June 30, 2021 and December 31, 2020, by year of origination: Table 5.5 As of June 30, 2021 Year of Origination: 2021 2020 2019 2018 2017 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch (1) : Internally Assigned Risk Rating: Acceptable $ 1,085,630 $ 1,873,579 $ 704,749 $ 409,047 $ 364,489 $ 1,232,910 $ 511,353 $ 6,181,757 Special mention (2) 43,076 92,886 33,544 14,643 3,809 16,706 8,826 213,490 Substandard (3) — 3,614 26,119 30,481 49,801 84,508 11,435 205,958 Total $ 1,128,706 $ 1,970,079 $ 764,412 $ 454,171 $ 418,099 $ 1,334,124 $ 531,614 $ 6,601,205 For the Three Months Ended June 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Six Months Ended June 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 31 As of June 30, 2021 Year of Origination: 2021 2020 2019 2018 2017 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities (1) : Internally Assigned Risk Rating: Acceptable $ 21,022 $ 635,342 $ 792,333 $ 8,180 $ 89,488 $ 648,818 $ 28,185 $ 2,223,368 Special mention (2) — — — — — — — — Substandard (3) — 23,200 — — — — — 23,200 Total $ 21,022 $ 658,542 $ 792,333 $ 8,180 $ 89,488 $ 648,818 $ 28,185 $ 2,246,568 For the Three Months Ended June 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Six Months Ended June 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 32 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch (1) : Internally Assigned Risk Rating: Acceptable $ 1,947,618 $ 774,315 $ 484,345 $ 500,768 $ 465,277 $ 1,068,693 $ 535,742 $ 5,776,758 Special mention (2) 70,171 79,744 18,317 8,530 13,111 21,328 7,656 218,857 Substandard (3) 3,400 5,821 21,879 52,709 37,173 50,582 9,259 180,823 Total $ 2,021,189 $ 859,880 $ 524,541 $ 562,007 $ 515,561 $ 1,140,603 $ 552,657 $ 6,176,438 For the Three Months Ended June 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ 394 $ — $ 394 Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ 394 $ — $ 394 For the Six Months Ended June 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ 394 $ — $ 394 Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ 394 $ — $ 394 (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 33 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities (1) : Internally Assigned Risk Rating: Acceptable $ 667,489 $ 809,921 $ 8,260 $ 89,842 $ 31,275 $ 641,145 $ 12,480 $ 2,260,412 Special mention (2) — — — — — — — — Substandard (3) — — — — — — — — Total $ 667,489 $ 809,921 $ 8,260 $ 89,842 $ 31,275 $ 641,145 $ 12,480 $ 2,260,412 For the Three Months Ended June 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Six Months Ended June 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 6. GUARANTEES The following table presents the maximum principal amount of potential undiscounted future payments that Farmer Mac could be required to make under all off-balance sheet Farmer Mac Guaranteed Securities as of June 30, 2021 and December 31, 2020, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans: Table 6.1 Outstanding Balance of Off-Balance Sheet Farmer Mac Guaranteed Securities As of June 30, 2021 As of December 31, 2020 (in thousands) Farm & Ranch: Farmer Mac Guaranteed Securities $ 66,008 $ 79,312 USDA Guarantees: Farmer Mac Guaranteed USDA Securities 270,652 299,298 Institutional Credit: AgVantage Securities 4,412 4,412 Total off-balance sheet Farmer Mac Guaranteed Securities $ 341,072 $ 383,022 34 Eligible loans and other eligible assets may be placed into trusts that are used as vehicles for the securitization of the transferred assets and the Farmer Mac-guaranteed beneficial interests in the trusts are sold to investors. The following table summarizes the significant cash flows received from and paid to trusts used for Farmer Mac securitizations: Table 6.2 For the Six Months Ended June 30, 2021 June 30, 2020 (in thousands) Proceeds from new securitizations $ 49,133 $ 28,050 Guarantee fees received 669 894 Farmer Mac presents a liability for its obligation to stand ready under its guarantee in "Guarantee and commitment obligation" on the consolidated balance sheets. The following table presents the liability and the weighted-average remaining maturity of all loans underlying off-balance sheet Farmer Mac Guaranteed Securities: Table 6.3 As of June 30, 2021 As of December 31, 2020 (dollars in thousands) Guarantee and commitment obligation $ 1,411 $ 1,625 Weighted average remaining maturity: Farmer Mac Guaranteed Securities 9.3 years 9.5 years AgVantage Securities 3.5 years 4.0 years Long-Term Standby Purchase Commitments Farmer Mac has recorded a liability for its obligation to stand ready under the guarantee in the guarantee and commitment obligation on the consolidated balance sheets. The following table presents the liability, the maximum principal amount of potential undiscounted future payments that Farmer Mac could be requested to make under all LTSPCs, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans, as well as the weighted-average remaining maturity of all loans underlying LTSPCs: Table 6.4 As of June 30, 2021 As of December 31, 2020 (dollars in thousands) Guarantee and commitment obligation (1) $ 34,416 $ 33,909 Maximum principal amount 2,922,398 2,881,856 Weighted-average remaining maturity 15.6 years 15.3 years (1) Relates to LTSPCs issued or modified on or after January 1, 2003. 35 Reserve for Losses The following table is a summary, by asset type, of the reserve for losses as of June 30, 2021 and December 31, 2020: Table 6.5 June 30, 2021 December 31, 2020 Reserve for Losses Reserve for Losses (in thousands) Farm & Ranch: LTSPCs and Farmer Mac Guaranteed Securities $ 1,194 $ 2,097 Rural Utilities LTSPCs 917 1,180 Total $ 2,111 $ 3,277 The following is a summary of the changes in the reserve for losses for the three and six month period ended June 30, 2021 and 2020: Table 6.6 For the Three Months Ended For the Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Reserve for Losses Reserve for Losses Reserve for Losses Reserve for Losses (in thousands) Farm & Ranch: Beginning Balance $ 1,366 $ 2,020 $ 2,097 $ 2,164 Cumulative effect adjustment from adoption of current expected credit loss standard — — — ( 148 ) Adjusted Beginning Balance 1,366 2,020 2,097 2,016 Release of losses ( 172 ) ( 370 ) ( 903 ) ( 366 ) Charge-offs — — — — Ending Balance $ 1,194 $ 1,650 $ 1,194 $ 1,650 Rural Utilities: Beginning Balance $ 967 $ 1,400 $ 1,180 $ — Cumulative effect adjustment from adoption of current expected credit loss standard — — — 1,011 Adjusted Beginning Balance 967 1,400 1,180 1,011 (Release of)/provision for losses ( 50 ) ( 30 ) ( 263 ) 359 Charge-offs — — — — Ending Balance $ 917 $ 1,370 $ 917 $ 1,370 The release from the reserve for losses in the Rural Utilities LTSPC portfolio recorded during the three and six months ended June 30, 2021 was primarily due to improving economic factor forecasts and ratings upgrades. The release in the Farm & Ranch LTSPC portfolio was primarily due to ratings upgrades and updated loss-given-default assumptions. The release from the reserve for losses recorded during the three and six months ended June 30, 2020 was primarily due to the net decreases in LTSPC volume of $ 58.5 million and $ 119.3 million, respectively. 36 The following table presents the unpaid principal balances by delinquency status of Farm & Ranch loans underlying LTSPCs. Farm & Ranch Farmer Mac Guaranteed Securities, Rural Utilities loans underlying LTSPCs, and non-performing assets as of June 30, 2021 and December 31, 2020: Table 6.7 As of June 30, 2021 Current 30-59 Days 60-89 Days 90 Days and Greater (1) Total Past Due Total Loans (in thousands) Farm and Ranch: LTSPCs and Farmer Mac Guaranteed Securities $ 2,440,348 $ 3,853 $ 4,459 $ 6,287 $ 14,599 $ 2,454,947 Rural Utilities: LTSPCs $ 533,459 $ — $ — $ — $ — $ 533,459 (1) Includes loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days of more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. As of December 31, 2020 Current 30-59 Days 60-89 Days 90 Days and Greater (1) Total Past Due Total Loans (in thousands) Farm and Ranch: LTSPCs and Farmer Mac Guaranteed Securities $ 2,389,777 $ 2,189 $ 1,344 $ 11,433 $ 14,966 $ 2,404,743 Rural Utilities: LTSPCs $ 556,425 $ — $ — $ — $ — $ 556,425 (1) Includes loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days of more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. Credit Quality Indicators The following tables present credit quality indicators related to Farm & Ranch loans underlying LTSPCs, Farm & Ranch Farmer Mac Guaranteed Securities, and Rural Utilities loans underlying LTSPCs as of June 30, 2021 and December 31, 2020, by year of origination: 37 Table 6.8 As of June 30, 2021 Year of Origination: 2021 2020 2019 2018 2017 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities: Internally Assigned Risk Rating: Acceptable $ 176,513 $ 270,877 $ 198,404 $ 181,287 $ 217,421 $ 1,040,596 $ 201,691 $ 2,286,789 Special mention (1) — 3,920 343 2,117 433 60,494 7,683 74,990 Substandard (2) — 242 731 11,568 14,273 62,511 3,843 93,168 Total $ 176,513 $ 275,039 $ 199,478 $ 194,972 $ 232,127 $ 1,163,601 $ 213,217 $ 2,454,947 For the Three Months Ended June 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Six Months Ended June 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 38 As of June 30, 2021 Year of Origination: 2021 2020 20 2019 2018 2017 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities LTSPCs: Internally Assigned Risk Rating: Acceptable $ — $ — $ — $ — $ — $ 520,145 $ 13,314 $ 533,459 Special mention (1) — — — — — — — — Substandard (2) — — — — — — — — Total $ — $ — $ — $ — $ — $ 520,145 $ 13,314 $ 533,459 For the Three Months Ended June 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Six Months Ended June 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 39 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities: Internally Assigned Risk Rating: Acceptable $ 178,213 $ 213,620 $ 183,948 $ 237,042 $ 207,296 $ 969,860 $ 211,620 $ 2,201,599 Special mention (1) 3,920 1,742 1,502 5,603 19,644 50,004 10,058 92,473 Substandard (2) 264 10,250 12,611 14,578 7,841 60,602 4,525 110,671 Total $ 182,397 $ 225,612 $ 198,061 $ 257,223 $ 234,781 $ 1,080,466 $ 226,203 $ 2,404,743 For the Three Months Ended June 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Six Months Ended June 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 40 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities LTSPCs: Internally Assigned Risk Rating: Acceptable $ — $ — $ — $ — $ — $ 549,405 $ 7,020 $ 556,425 Special mention (1) — — — — — — — — Substandard (2) — — — — — — — — Total $ — $ — $ — $ — $ — $ 549,405 $ 7,020 $ 556,425 For the Three Months Ended June 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Six Months Ended June 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 7. NOTES PAYABLE Farmer Mac's borrowings consist of discount notes and medium-term notes, both of which are unsecured general obligations of Farmer Mac. Discount notes generally have original maturities of 1.0 year or less, whereas medium-term notes generally have maturities of 0.5 years to 25.0 years. 41 The following tables set forth information related to Farmer Mac's borrowings as of June 30, 2021 and December 31, 2020: Table 7.1 June 30, 2021 Outstanding as of June 30 Average Outstanding During the Quarter Amount Weighted- Average Rate Amount Weighted- Average Rate (dollars in thousands) Due within one year: Discount notes $ 1,677,800 0.04 % $ 1,720,263 0.09 % Medium-term notes 2,081,520 0.09 % 2,522,888 0.14 % Current portion of medium-term notes 4,565,257 0.72 % Total due within one year $ 8,324,577 0.43 % Due after one year: Medium-term notes due in: Two years $ 3,469,814 0.86 % Three years 2,547,497 0.91 % Four years 1,463,668 1.14 % Five years 2,109,668 0.85 % Thereafter 3,768,182 1.76 % Total due after one year $ 13,358,829 1.15 % Total principal net of discounts $ 21,683,406 0.87 % Hedging adjustments 22,848 Total $ 21,706,254 December 31, 2020 Outstanding as of December 31 Average Outstanding During the Year Amount Weighted- Average Rate Amount Weighted- Average Rate (dollars in thousands) Due within one year: Discount notes $ 1,797,175 0.11 % $ 2,343,702 0.63 % Medium-term notes 2,645,146 0.19 % 1,593,253 0.60 % Current portion of medium-term notes 6,304,061 0.90 % Total due within one year $ 10,746,382 0.59 % Due after one year: Medium-term notes due in: Two years $ 3,004,203 1.00 % Three years 2,809,551 1.24 % Four years 927,119 1.67 % Five years 1,342,250 1.03 % Thereafter 2,966,172 1.92 % Total due after one year $ 11,049,295 1.37 % Total principal net of discounts $ 21,795,677 0.98 % Hedging adjustments 53,240 Total $ 21,848,917 42 The maximum amount of Farmer Mac's discount notes outstanding at any month end during the six months ended June 30, 2021 and 2020 was $ 1.9 billion and $ 2.6 billion, respectively. Callable medium-term notes give Farmer Mac the option to redeem the debt at par value on a specified call date or at any time on or after a specified call date. The following table summarizes by maturity date the amounts and costs for Farmer Mac debt callable in 2021 as of June 30, 2021: Table 7.2 Debt Callable in 2021 as of June 30, 2021, by Maturity Amount Weighted-Average Rate (dollars in thousands) Maturity: 2022 $ 147,480 0.12 % 2023 245,831 0.90 % 2024 159,393 0.77 % 2025 192,827 0.75 % Thereafter 845,922 1.47 % Total $ 1,591,453 1.10 % The following schedule summarizes the earliest interest rate reset date, or debt maturities, of total borrowings outstanding as of June 30, 2021, including callable and non-callable medium-term notes, assuming callable notes are redeemed at the initial call date: Table 7.3 Earliest Interest Rate Reset Date, or Debt Maturities, of Borrowings Outstanding Amount Weighted-Average Rate (dollars in thousands) Debt with interest rate resets, or debt maturities in: 2021 $ 8,179,536 0.29 % 2022 3,187,154 0.90 % 2023 2,896,525 1.08 % 2024 1,650,373 1.05 % 2025 1,483,928 0.94 % Thereafter 4,285,890 1.73 % Total principal net of discounts $ 21,683,406 0.87 % During the six months ended June 30, 2021 and 2020, Farmer Mac called $ 1.6 billion and $ 1.9 billion of callable medium-term notes, respectively. Authority to Borrow from the U.S. Treasury Farmer Mac's statutory charter authorizes it, upon satisfying certain conditions, to borrow up to $ 1.5 billion from the U.S. Treasury through the issuance of debt obligations to the U.S. Treasury. Any funds borrowed from the U.S. Treasury may be used solely to fulfill Farmer Mac's guarantee obligations. Any debt obligations issued by Farmer Mac under this authority would bear interest at a rate determined by the U.S. Treasury, taking into consideration the average rate on outstanding marketable obligations of the 43 United States as of the last day of the last calendar month ending before the date of the purchase of the obligations from Farmer Mac. The charter requires Farmer Mac to repurchase any of its debt obligations held by the U.S. Treasury within a reasonable time. As of June 30, 2021, Farmer Mac had not used this borrowing authority. Gains on Repurchase of Outstanding Debt No outstanding debt repurchases were made in the six months ended June 30, 2021 or 2020. 8. EQUITY Preferred Stock In May 2021, Farmer Mac issued 5.0 million shares of 4.875 % non-cumulative perpetual Series G preferred stock, par value $ 25.00 per share. Farmer Mac incurred direct costs of $ 3.7 million related to the issuance of the Series G preferred stock. The dividend rate on the Series G preferred stock will remain at a non-cumulative, fixed rate of 4.875 % per year, when, as, and if a dividend is declared by the Board of Directors of Farmer Mac, for so long as the Series G preferred stock remains outstanding. The Series G preferred stock has no maturity date, but Farmer Mac has the option to redeem the preferred stock at any time on any dividend payment date on and after July 17, 2026. Common Stock During first and second quarter 2021, Farmer Mac paid a quarterly dividend of $ 0.88 per share on all classes of its common stock. For each quarter in 2020, Farmer Mac paid a quarterly dividend of $ 0.80 per share on all classes of its common stock. Farmer Mac's board of directors approved a share repurchase program during third quarter 2015 authorizing Farmer Mac to repurchase up to $ 25.0 million of its outstanding Class C non-voting common stock. The share repurchase program, last modified on March 14, 2019, authorized Farmer Mac to repurchase up to $ 10.0 million of Farmer Mac's outstanding Class C non-voting common stock. During first quarter 2020, Farmer Mac repurchased approximately 4,000 shares of Class C non-voting common stock at a cost of approximately $ 0.2 million. Shortly after these repurchases were completed, Farmer Mac indefinitely suspended its share repurchase program in an effort to preserve capital and liquidity in view of market volatility and uncertainty caused by the COVID-19 pandemic. In March 2021, Farmer Mac's board of directors reinstated the share repurchase program on its previous terms (with a remaining authorization of up to $ 9.8 million in stock repurchases) and extended the expiration date of the program to March 2023. Farmer Mac did no t repurchase any shares of its Class C non-voting common stock during the first half of 2021. As of June 30, 2021, Farmer Mac had repurchased approximately 673,000 shares of Class C non-voting common stock at a cost of approximately $ 19.8 million under the share repurchase program since 2015. Capital Requirements Farmer Mac is required to comply with the higher of the minimum capital requirement and the risk-based capital requirement. As of both June 30, 2021 and December 31, 2020, the minimum capital requirement was greater than the risk-based capital requirement. Farmer Mac's ability to declare and pay dividends could be restricted if it fails to comply with applicable capital requirements. 44 As of June 30, 2021, Farmer Mac's minimum capital requirement was $ 680.8 million and its core capital level was $ 1.2 billion, which was $ 482.6 million above the minimum capital requirement as of that date. As of December 31, 2020, Farmer Mac's minimum capital requirement was $ 680.9 million and its core capital level was $ 1.0 billion, which was $ 325.5 million above the minimum capital requirement as of that date. In accordance with the Farm Credit Administration's rule on Farmer Mac's capital planning, and as part of Farmer Mac's capital plan, Farmer Mac has adopted a policy for maintaining a sufficient level of Tier 1 capital (consisting of retained earnings, paid-in-capital, common stock, and qualifying preferred stock) and imposing restrictions on Tier 1-eligible dividends and any discretionary bonus payments in the event that this capital falls below specified thresholds. 9. FAIR VALUE DISCLOSURES Fair Value Classification and Transfers The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value: Table 9.1 Assets and Liabilities Measured at Fair Value as of June 30, 2021 Level 1 Level 2 Level 3 (1) Total (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,248 $ 19,248 Floating rate Government/GSE guaranteed mortgage-backed securities — 2,474,700 — 2,474,700 Fixed rate GSE guaranteed mortgage-backed securities — 29,010 — 29,010 Fixed rate U.S. Treasuries 1,309,274 — — 1,309,274 Total Available-for-sale Investment Securities 1,309,274 2,503,710 19,248 3,832,232 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage — — 6,877,405 6,877,405 Total Farmer Mac Guaranteed Securities — — 6,877,405 6,877,405 USDA Securities: Trading — — 5,050 5,050 Total USDA Securities — — 5,050 5,050 Financial derivatives — 16,224 — 16,224 Total Assets at fair value $ 1,309,274 $ 2,519,934 $ 6,901,703 $ 10,730,911 Liabilities: Financial derivatives $ 88 $ 24,259 $ — $ 24,347 Total Liabilities at fair value $ 88 $ 24,259 $ — $ 24,347 (1) Level 3 assets represent 29 % of total assets and 64 % of financial instruments measured at fair value. 45 Assets and Liabilities Measured at Fair Value as of December 31, 2020 Level 1 Level 2 Level 3 (1) Total (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,171 $ 19,171 Floating rate asset-backed securities — 6,231 — 6,231 Floating rate Government/GSE guaranteed mortgage-backed securities — 2,360,026 — 2,360,026 Fixed rate GSE guaranteed mortgage-backed securities — 313 — 313 Fixed rate U.S. Treasuries 1,467,951 — — 1,467,951 Total Available-for-sale Investment Securities 1,467,951 2,366,570 19,171 3,853,692 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage — — 6,947,701 6,947,701 Total Farmer Mac Guaranteed Securities — — 6,947,701 6,947,701 USDA Securities: Trading — — 6,695 6,695 Total USDA Securities — — 6,695 6,695 Financial derivatives — 17,468 — 17,468 Total Assets at fair value $ 1,467,951 $ 2,384,038 $ 6,973,567 $ 10,825,556 Liabilities: Financial derivatives $ 82 $ 29,810 $ — $ 29,892 Total Liabilities at fair value $ 82 $ 29,810 $ — $ 29,892 (1) Level 3 assets represent 29 % of total assets and 65 % of financial instruments measured at fair value. There were no significant assets or liabilities measured at fair value on a non-recurring basis as of June 30, 2021 or December 31, 2020. Transfers in and/or out of the different levels within the fair value hierarchy are based on the fair values of the assets and liabilities as of the beginning of the reporting period. During the six months ended June 30, 2021 and 2020, there were no transfers within the fair value hierarchy for fair value measurements of Farmer Mac's investment securities, Farmer Mac Guaranteed Securities, USDA Securities, and financial derivatives. 46 The following tables present additional information about assets and liabilities measured at fair value on a recurring basis for which Farmer Mac has used significant unobservable inputs to determine fair value. Net transfers in and/or out of Level 3 are based on the fair values of the assets and liabilities as of the beginning of the reporting period. There were no liabilities measured at fair value using significant unobservable inputs during the three and six months ended June 30, 2021 and 2020. Table 9.2 Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2021 Beginning Balance Purchases Sales Settlements Allowance for Losses Realized and unrealized gains/(losses) included in Income Unrealized gains/(losses) included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,146 $ — $ — $ — $ 3 $ — $ 99 $ 19,248 Total available-for-sale 19,146 — — — 3 — 99 19,248 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 6,763,209 417,500 — ( 310,403 ) ( 93 ) 49,939 ( 42,747 ) 6,877,405 Total available-for-sale 6,763,209 417,500 — ( 310,403 ) ( 93 ) 49,939 ( 42,747 ) 6,877,405 USDA Securities: Trading 5,578 — — ( 467 ) — ( 61 ) — 5,050 Total USDA Securities 5,578 — — ( 467 ) ( 61 ) — 5,050 Total Assets at fair value $ 6,787,933 $ 417,500 $ — $ ( 310,870 ) $ ( 90 ) $ 49,878 $ ( 42,648 ) $ 6,901,703 47 Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2020 Beginning Balance Purchases Sales Settlements Allowance for Losses Realized and unrealized gains/(losses) included in Income Unrealized gains included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 16,721 $ — $ — $ — $ ( 15 ) $ — $ 1,577 $ 18,283 Total available-for-sale 16,721 — — — ( 15 ) — 1,577 18,283 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 7,587,186 351,896 — ( 85,261 ) ( 69 ) 9,050 35,585 7,898,387 Total available-for-sale 7,587,186 351,896 — ( 85,261 ) ( 69 ) 9,050 35,585 7,898,387 USDA Securities: Trading 8,408 — — ( 602 ) — ( 20 ) — 7,786 Total USDA Securities 8,408 — — ( 602 ) ( 20 ) — 7,786 Total Assets at fair value $ 7,612,315 $ 351,896 $ — $ ( 85,863 ) $ ( 84 ) $ 9,030 $ 37,162 $ 7,924,456 Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2021 Beginning Balance Purchases Sales Settlements Allowance for Losses Realized and unrealized losses included in Income Unrealized gains included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,171 $ — $ — $ — $ ( 22 ) $ — $ 99 $ 19,248 Total available-for-sale 19,171 — — — ( 22 ) — 99 19,248 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 6,947,701 578,115 — ( 554,235 ) 89 ( 118,803 ) 24,538 6,877,405 Total available-for-sale 6,947,701 578,115 — ( 554,235 ) 89 ( 118,803 ) 24,538 6,877,405 USDA Securities: Trading 6,695 — — ( 1,570 ) — ( 75 ) — 5,050 Total USDA Securities 6,695 — — ( 1,570 ) ( 75 ) — 5,050 Total Assets at fair value $ 6,973,567 $ 578,115 $ — $ ( 555,805 ) $ 67 $ ( 118,878 ) $ 24,637 $ 6,901,703 48 Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2020 Beginning Balance Purchases Sales Settlements Allowance for Losses Realized and unrealized gains included in Income Unrealized losses included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 18,912 $ — $ — $ — $ ( 38 ) $ — $ ( 591 ) $ 18,283 Total available-for-sale 18,912 — — — ( 38 ) — ( 591 ) 18,283 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 7,143,025 835,476 — ( 312,516 ) ( 234 ) 299,429 ( 66,793 ) 7,898,387 Total available-for-sale 7,143,025 835,476 — ( 312,516 ) ( 234 ) 299,429 ( 66,793 ) 7,898,387 USDA Securities: Trading 8,913 — — ( 1,213 ) — 86 — 7,786 Total USDA Securities 8,913 — — ( 1,213 ) 86 — 7,786 Total Assets at fair value $ 7,170,850 $ 835,476 $ — $ ( 313,729 ) $ ( 272 ) $ 299,515 $ ( 67,384 ) $ 7,924,456 49 The following tables present additional information about the significant unobservable inputs, such as discount rates and constant prepayment rates ("CPR"), used in the fair value measurements categorized in Level 3 of the fair value hierarchy as of June 30, 2021 and December 31, 2020: Table 9.3 As of June 30, 2021 Financial Instruments Fair Value Valuation Technique Unobservable Input Range (Weighted-Average) (in thousands) Assets: Investment securities: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,248 Indicative bids Range of broker quotes 98.0 % - 98.0 % ( 98.0 %) Farmer Mac Guaranteed Securities: AgVantage $ 6,877,405 Discounted cash flow Discount rate 0.8 % - 3.9 % ( 1.5 %) USDA Securities $ 5,050 Discounted cash flow Discount rate 2.0 % - 2.3 % ( 2.2 %) CPR 25 % - 45 % ( 35 %) As of December 31, 2020 Financial Instruments Fair Value Valuation Technique Unobservable Input Range (Weighted-Average) (in thousands) Assets: Investment securities: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,171 Indicative bids Range of broker quotes 97.5 % - 97.5 % ( 97.5 %) Farmer Mac Guaranteed Securities: AgVantage $ 6,947,701 Discounted cash flow Discount rate 0.8 % - 2.3 % ( 1.3 %) USDA Securities $ 6,695 Discounted cash flow Discount rate 0.9 % - 1.9 % ( 1.4 %) CPR 25 % - 49 % ( 44 %) The significant unobservable input used in the fair value measurements of AgVantage Farmer Mac Guaranteed Securities is the discount rate commensurate with the risks involved. Typically, significant increases (decreases) in this input in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease. Prepayment rates are not presented in the table above for AgVantage securities because they generally have fixed maturity dates when the secured general obligations are due and do not prepay. The significant unobservable inputs used in the fair value measurements of USDA Securities are the prepayment rate and discount rate commensurate with the risks involved. Typically, significant increases (decreases) in any of these inputs in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase and would likely expect a corresponding decrease in forecasted prepayment rates. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease and would likely expect a corresponding increase in forecasted prepayment rates. 50 Disclosures on Fair Value of Financial Instruments The following table sets forth the estimated fair values and carrying values for financial assets, liabilities, and guarantees and commitments as of June 30, 2021 and December 31, 2020: Table 9.4 As of June 30, 2021 As of December 31, 2020 Fair Value Carrying Amount Fair Value Carrying Amount (in thousands) Financial assets: Cash and cash equivalents $ 828,403 $ 828,403 $ 1,033,941 $ 1,033,941 Investment securities 3,877,470 3,877,667 3,899,925 3,898,724 Farmer Mac Guaranteed Securities 7,931,395 7,918,162 8,148,691 8,123,493 USDA Securities 2,472,043 2,450,768 2,637,509 2,480,321 Loans 9,057,544 8,860,705 9,167,525 8,535,146 Financial derivatives 16,224 16,224 17,468 17,468 Guarantee and commitment fees receivable 34,525 37,261 34,115 37,113 Financial liabilities: Notes payable 21,839,641 21,706,254 22,130,263 21,848,917 Debt securities of consolidated trusts held by third parties 1,121,731 1,120,293 1,390,330 1,323,786 Financial derivatives 24,347 24,347 29,892 29,892 Guarantee and commitment obligations 33,091 35,827 32,537 35,535 The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value and is classified as Level 1. The fair value of investments in U.S. Treasuries are valued based on unadjusted quoted prices in active markets and are classified as Level 1. A significant portion of Farmer Mac's investment portfolio is valued using a reputable nationally recognized third-party pricing service. The prices obtained are non-binding and generally representative of recent market trades and are classified as Level 2. Farmer Mac internally models the fair value of its loan portfolio, including loans held for investment and loans held for investment in consolidated trusts, Farmer Mac Guaranteed Securities, and USDA Securities by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. These fair value measurements do not take into consideration the fair value of the underlying property and are classified as Level 3. Financial derivatives primarily are valued using unadjusted counterparty valuations and are classified as Level 2. The fair value of the guarantee fees receivable/obligation and debt securities of consolidated trusts are estimated based on the present value of expected future cash flows of the underlying mortgage assets using management's best estimate of certain key assumptions, which include prepayments speeds, forward yield curves, and discount rates commensurate with the risks involved and are classified as Level 3. Notes payable are valued by discounting the expected cash flows of these instruments using a yield curve derived from market prices observed for similar agency securities and are also classified as Level 3. Because the cash flows of Farmer Mac's financial instruments may be interest rate path dependent, estimated fair values and projected discount rates for Level 3 financial instruments are derived using a Monte Carlo simulation model. Different market assumptions and estimation methodologies could significantly affect estimated fair value amounts. 51 10. BUSINESS SEGMENT REPORTING The following tables present core earnings for Farmer Mac's operating segments and a reconciliation to consolidated net income for the three and six months ended June 30, 2021 and 2020: Table 10.1 Core Earnings by Business Segment For the Three Months Ended June 30, 2021 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 24,057 $ 6,089 $ 5,328 $ 16,894 $ 2,761 $ — $ 55,129 Less: reconciling adjustments (1)(2)(3) ( 79 ) 893 1,287 ( 763 ) 84 ( 1,422 ) — Net effective spread 23,978 6,982 6,615 16,131 2,845 ( 1,422 ) — Guarantee and commitment fees (2) 3,839 173 317 5 — ( 1,337 ) 2,997 Other income/(expense) (3) 309 120 — — ( 128 ) ( 2,994 ) ( 2,693 ) Non-interest income/(loss) 4,148 293 317 5 ( 128 ) ( 4,331 ) 304 Release of/(provision for) losses 626 — 181 ( 49 ) 3 — 761 Release of reserve for losses 172 — 50 — — — 222 Other non-interest expense ( 5,855 ) ( 2,263 ) ( 1,838 ) ( 2,316 ) ( 4,606 ) — ( 16,878 ) Non-interest expense (4) ( 5,683 ) ( 2,263 ) ( 1,788 ) ( 2,316 ) ( 4,606 ) — ( 16,656 ) Core earnings before income taxes 23,069 5,012 5,325 13,771 ( 1,886 ) ( 5,753 ) (5) 39,538 Income tax (expense)/benefit ( 4,844 ) ( 1,053 ) ( 1,118 ) ( 2,892 ) 444 1,211 ( 8,252 ) Core earnings before preferred stock dividends 18,225 3,959 4,207 10,879 ( 1,442 ) ( 4,542 ) (5) 31,286 Preferred stock dividends — — — — ( 5,842 ) — ( 5,842 ) Segment core earnings/(losses) $ 18,225 $ 3,959 $ 4,207 $ 10,879 $ ( 7,284 ) $ ( 4,542 ) (5) $ 25,444 Total assets at carrying value $ 6,716,880 $ 2,506,410 $ 2,272,425 $ 7,926,520 $ 4,759,010 $ — $ 24,181,245 Total on- and off-balance sheet program assets at principal balance $ 9,056,152 $ 2,726,909 $ 2,780,027 $ 7,634,073 $ — $ — $ 22,197,161 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 52 Core Earnings by Business Segment For the Three Months Ended June 30, 2020 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 19,310 $ 5,403 $ 2,322 $ 20,084 $ 1,229 $ — $ 48,348 Less: reconciling adjustments (1)(2)(3) ( 2,577 ) ( 714 ) 3,194 ( 1,302 ) ( 480 ) 1,879 — Net effective spread 16,733 4,689 5,516 18,782 749 1,879 — Guarantee and commitment fees (2) 4,394 210 332 7 — ( 1,803 ) 3,140 Other income/(expense) (3) 585 617 5 — ( 159 ) 6,683 7,731 Non-interest income/(loss) 4,979 827 337 7 ( 159 ) 4,880 10,871 Provision for loan losses 920 — ( 1,397 ) 41 ( 15 ) — ( 451 ) Provision for reserve for losses 370 — 30 — — — 400 Other non-interest expense ( 5,254 ) ( 1,584 ) ( 1,386 ) ( 2,083 ) ( 3,800 ) — ( 14,107 ) Non-interest expense (4) ( 4,884 ) ( 1,584 ) ( 1,356 ) ( 2,083 ) ( 3,800 ) — ( 13,707 ) Core earnings before income taxes 17,748 3,932 3,100 16,747 ( 3,225 ) 6,759 (5) 45,061 Income tax (expense)/benefit ( 3,727 ) ( 826 ) ( 651 ) ( 3,517 ) 705 ( 1,419 ) ( 9,435 ) Core earnings before preferred stock dividends 14,021 3,106 2,449 13,230 ( 2,520 ) 5,340 (5) 35,626 Preferred stock dividends — — — — ( 3,939 ) — ( 3,939 ) Segment core earnings/(losses) $ 14,021 $ 3,106 $ 2,449 $ 13,230 $ ( 6,459 ) $ 5,340 (5) $ 31,687 Total assets at carrying value $ 5,746,556 $ 2,408,713 $ 2,281,490 $ 9,049,393 $ 4,446,504 $ — $ 23,932,656 Total on- and off-balance sheet program assets at principal balance $ 8,017,850 $ 2,677,807 $ 2,691,621 $ 8,654,830 $ — $ — $ 22,042,108 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 53 Core Earnings by Business Segment For the Six Months Ended June 30, 2021 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 45,912 $ 11,778 $ 12,977 $ 32,417 $ 5,296 $ — $ 108,380 Less: reconciling adjustments (1)(2)(3) ( 480 ) 1,571 312 387 240 ( 2,030 ) — Net effective spread 45,432 13,349 13,289 32,804 5,536 ( 2,030 ) — Guarantee and commitment fees (2) 7,572 356 636 10 — ( 2,547 ) 6,027 Other income/(expense) (3) 713 289 1 — ( 251 ) 1,418 2,170 Non-interest income/(loss) 8,285 645 637 10 ( 251 ) ( 1,129 ) 8,197 Release of/(provision for) losses 653 — ( 821 ) 38 ( 22 ) — ( 152 ) Release of reserve for losses 903 — 263 — — — 1,166 Other non-interest expense ( 12,404 ) ( 4,796 ) ( 3,895 ) ( 4,906 ) ( 9,758 ) — ( 35,759 ) Non-interest expense (4) ( 11,501 ) ( 4,796 ) ( 3,632 ) ( 4,906 ) ( 9,758 ) — ( 34,593 ) Core earnings before income taxes 42,869 9,198 9,473 27,946 ( 4,495 ) ( 3,159 ) (5) 81,832 Income tax (expense)/benefit ( 9,002 ) ( 1,932 ) ( 1,989 ) ( 5,869 ) 809 664 ( 17,319 ) Core earnings before preferred stock dividends 33,867 7,266 7,484 22,077 ( 3,686 ) ( 2,495 ) (5) 64,513 Preferred stock dividends — — — — ( 11,111 ) — ( 11,111 ) Loss on retirement of preferred stock — — — — — — — Segment core earnings/(losses) $ 33,867 $ 7,266 $ 7,484 $ 22,077 $ ( 14,797 ) $ ( 2,495 ) (5) $ 53,402 Total assets at carrying value $ 6,716,880 $ 2,506,410 $ 2,272,425 $ 7,926,520 $ 4,759,010 $ — $ 24,181,245 Total on- and off-balance sheet program assets at principal balance $ 9,056,152 $ 2,726,909 $ 2,780,027 $ 7,634,073 $ — $ — $ 22,197,161 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 54 Core Earnings by Business Segment For the Six Months Ended June 30, 2020 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 35,675 $ 9,944 $ 7,069 $ 33,888 $ 3,084 $ — $ 89,660 Less: reconciling adjustments (1)(2)(3) ( 4,004 ) ( 630 ) 3,367 2,596 ( 357 ) ( 972 ) — Net effective spread 31,671 9,314 10,436 36,484 2,727 ( 972 ) — Guarantee and commitment fees (2) 8,711 445 667 16 — ( 3,503 ) 6,336 Other income/(expense) (3) 1,754 729 12 — ( 288 ) ( 2,367 ) ( 160 ) Non-interest income/(loss) 10,465 1,174 679 16 ( 288 ) ( 5,870 ) 6,176 Provision for loan losses 112 — ( 3,522 ) ( 450 ) ( 29 ) — ( 3,889 ) Provision for reserve for losses 366 — ( 359 ) — — — 7 Other non-interest expense ( 11,251 ) ( 3,402 ) ( 2,990 ) ( 4,446 ) ( 8,233 ) — ( 30,322 ) Non-interest expense (4) ( 10,885 ) ( 3,402 ) ( 3,349 ) ( 4,446 ) ( 8,233 ) — ( 30,315 ) Core earnings before income taxes 31,363 7,086 4,244 31,604 ( 5,823 ) ( 6,842 ) (5) 61,632 Income tax (expense)/benefit ( 6,586 ) ( 1,488 ) ( 891 ) ( 6,637 ) 988 1,438 ( 13,176 ) Core earnings before preferred stock dividends 24,777 5,598 3,353 24,967 ( 4,835 ) ( 5,404 ) (5) 48,456 Preferred stock dividends — — — — ( 7,370 ) — ( 7,370 ) Segment core earnings/(losses) $ 24,777 $ 5,598 $ 3,353 $ 24,967 $ ( 12,205 ) $ ( 5,404 ) (5) $ 41,086 Total assets at carrying value $ 5,746,556 $ 2,408,713 $ 2,281,490 $ 9,049,393 $ 4,446,504 $ — $ 23,932,656 Total on- and off-balance sheet program assets at principal balance $ 8,017,850 $ 2,677,807 $ 2,691,621 $ 8,654,830 $ — $ — $ 22,042,108 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 55