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Item 2. Management’s Discussion and Analysis

2021-11-08 compared with 2021-08-05 · 334 added, 324 removed, 989 unchanged (40% of the section changed)

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

The objective of this section of the report is to provide a discussion and analysis, from management’s perspective, of the material information necessary to assess Farmer Mac's financial condition and results of operations for the quarter ended June 30, 2021.

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

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Management's expectations for Farmer Mac's future necessarily involve assumptions, estimates, and the evaluation of risks and uncertainties.

Various factors or events, both known and unknown, could cause Farmer Mac's actual results to differ materially from the expectations as expressed or implied by the forward-looking statements, including the factors discussed under "Risk Factors" in Item 1A of this report and of the 2020 Annual Report, as well as uncertainties about:

Various factors or events, both known and unknown, could cause Farmer Mac's actual results to differ materially from the expectations as expressed or implied by the forward-looking statements, including the factors discussed under "Risk Factors" in Part II, Item 1A of this report and in Part I, Item 1A of the 2020 Annual Report, as well as uncertainties about:

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

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trade policies, fluctuations in export demand for U.S.

agricultural products, and volatility in commodity prices;

agricultural products, supply chain disruptions, increases in input costs, labor availability, and volatility in commodity prices;

• the degree to which Farmer Mac is exposed to interest rate risk resulting from fluctuations in Farmer Mac's borrowing costs relative to market indexes;

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

During second quarter 2021:

During third quarter 2021:

• we closed on a strategic acquisition that enhanced our operations by expanding our internal loan servicing function and acquiring the loan servicing rights for a sizeable portion of our Farm & Ranch loan and USDA Guaranteed Securities portfolios;

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

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

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

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

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

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For the Three Months Ended

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

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

(in thousands)

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Core earnings 27,646 29,986 27,691

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

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

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

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

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

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

The $1.2 million sequential decrease in net income attributable to common stockholders was primarily due to a $1.0 million after-tax increase in our provision for credit losses and a $0.9 million increase in

preferred stock dividends, which was partially offset by a $0.6 million after-tax increase in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates.

The $5.6 million year-over-year increase in net income attributable to common stockholders was due to an $8.2 million after-tax increase in net interest income, the absence of a $1.7 million after-tax loss on the retirement of preferred stock recorded in the comparable prior period, and a $0.7 million after-tax decrease in the provision for credit losses.

These factors were partially offset by a $2.0 million after-tax increase in operating expenses, a $1.4 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates, and a $1.6 million increase in preferred stock dividends.

The $2.3 million sequential decrease in core earnings was primarily due to a $1.0 million after-tax increase in our provision for credit losses and a $0.9 million increase in preferred stock dividends.

Year-over-year core earnings were approximately equivalent because a $3.3 million after-tax increase in net effective spread and a $0.7 million after-tax decrease in the provision for credit losses, were partially offset by a $2.0 million after-tax increase in operating expenses, a $1.6 million increase in preferred stock dividends, and a $0.3 million after-tax decrease in guarantee fees.

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

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For the Three Months Ended

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

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

(in thousands)

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Net effective spread % 0.99 % 1.01 % 0.96 %

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

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

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

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

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

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

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

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

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

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

Sequential net interest income, in both dollars and percentage, was approximately equivalent because there were no significant fluctuations in the composition of net interest income.

The $10.3 million year-over-year increase in net interest income was primarily due to a $4.5 million decrease in funding costs, a $2.9 million increase related to new business volume, and a $3.1 million increase in the fair value of derivatives designated in fair value hedge accounting relationships (designated

financial derivatives).

In percentage terms, the year-over-year 0.16% increase was primarily attributable to a decrease of 0.06% in funding costs, an increase of 0.05% in net fair value changes from designated financial derivatives, and an increase of 0.03% in new business volume.

The $0.6 million sequential decrease in net effective spread was from a $1.3 million decrease attributable to an increase in non-GAAP funding costs and lower cash-basis interest income, partially offset by $0.7 million in new business volume.

In percentage terms, the decrease of 0.02% was primarily attributable to the decrease of 0.01% related to lower cash-basis interest income and the increase of 0.01% related to non-GAAP funding costs.

The $4.1 million year-over-year increase in net effective spread in dollars was primarily due to an increase of $2.9 million from new business volume and a $1.0 million decrease in non-GAAP funding costs.

In percentage terms, the year-over-year increase of 0.03% was primarily attributable to new business volume.

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

Business Volume

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

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

Our outstanding business volume was $23.1 billion as of September 30, 2021, a net increase of $0.9 billion from June 30, 2021 after taking into account all new business, maturities, and paydowns on existing assets.

The net increase was primarily attributable to net increases of $499.2 million in the Institutional Credit line of business, $389.2 million in the Farm & Ranch line of business, and $37.4 million in the Rural Utilities line of business, partially offset by a net decrease of $4.2 million in the USDA Guarantees line of business.

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(in thousands)

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Capital in excess of minimum capital level required 479,506 325,455

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

Current Expected Credit Loss

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

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

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

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

The increase in capital in excess of the minimum capital level required was primarily due to the issuance of the Series G Preferred Stock in May 2021 and an increase in retained earnings.

Credit Quality

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

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

Farm & Ranch Line of Business

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(dollars in thousands)

September 30, 2021 $ 204,197 3.0 % $ 74,077 2.8 %

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

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

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

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Increase/(decrease) from prior year-ending $ 23,374 0.1 % $ (36,594) (1.8) %

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

The decrease of $1.8 million in on-balance sheet substandard assets during third quarter 2021 was primarily driven by credit upgrades during the quarter, particularly livestock.

The on-balance sheet Farm & Ranch portfolio grew by $176.5 million, which, when coupled with credit upgrades, caused the percentage of substandard assets to decrease.

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

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

The $19.1 million decrease in substandard assets in our off-balance sheet Farm & Ranch portfolio during third quarter 2021 was primarily due to credit upgrades in the livestock and crops portfolios during the quarter.

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

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

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

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

Farm & Ranch Line of Business

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(dollars in thousands)

September 30, 2021 $ 52,625 0.78 % $ 2,167 0.08 %

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

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

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

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Increase/(decrease) from prior year-ending $ 17,826 0.22 % $ (9,266) (0.40) %

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

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

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

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

The delinquent loan became current during third quarter 2021.

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

COVID-19 Update

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

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

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

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

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

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

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

As of both September 30, 2021 and December 31, 2020, there were no delinquencies in Farmer Mac's portfolio of Rural Utilities loans.

As of June 30, 2021, there was one delinquent loan in the amount of $10.0 million in that portfolio.

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

Use of Non-GAAP Measures

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

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

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

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

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

Net effective spread also differs from net interest income and net interest yield because it includes the accrual of income and expense related to the contractual amounts due on financial derivatives that are not

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

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

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

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

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

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

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For the Three Months Ended

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

(in thousands, except per share amounts)

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Less reconciling items:

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

Losses on undesignated financial derivatives due to fair value changes (see Table 14) (1,864) (4,149)

Losses on hedging activities due to fair value changes (2,093) (5,245)

Unrealized losses on trading securities (61) (20)

Unrealized gains/(losses) on trading securities 36 (258)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 23 97

Net effects of terminations or net settlements on financial derivatives (351) 233

Issuance costs on the retirement of preferred stock — (1,667)

Income tax effect related to reconciling items 892 1,957

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Credit related expense (GAAP):

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

Gains on sale of REO — —

Provision for losses 255 1,200

Total credit related expense 255 1,200

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Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings

For the Six Months Ended

June 30, 2021 June 30, 2020

For the Nine Months Ended

September 30, 2021 September 30, 2020

(in thousands, except per share amounts)

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Less reconciling items:

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

Losses on undesignated financial derivatives due to fair value changes (see Table 14) (3,890) (1,933)

Losses on hedging activities due to fair value changes (4,461) (13,846)

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

Unrealized losses on trading securities (39) (173)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 59 135

Net effects of terminations or net settlements on financial derivatives 923 (346)

Issuance costs on the retirement of preferred stock — (1,667)

Income tax effect related to reconciling items 1,556 3,394

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Guarantee and commitment fees (2)

12,896 14,498

Total revenues 180,670 159,107

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

(in thousands, except per share amounts)

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Less reconciling items:

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

Losses on undesignated financial derivatives due to fair value changes (see Table 14) (0.17) (0.39) (0.36) (0.18)

Losses on hedging activities due to fair value changes (0.19) (0.49) (0.42) (1.29)

Unrealized gains on trading securities (0.01) — (0.01) 0.01

Unrealized losses on trading securities — (0.02) — (0.02)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value — 0.01 0.01 0.01

Net effects of terminations or net settlements on financial derivatives (0.03) 0.02 0.08 (0.03)

Issuance costs on the retirement of preferred stock — (0.15) — (0.16)

Income tax effect related to reconciling items 0.08 0.18 0.14 0.32

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

(in thousands, except per share amounts)

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Less reconciling items:

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

Losses on undesignated financial derivatives due to fair value changes (see Table 14) (0.17) (0.39) (0.36) (0.18)

Losses on hedging activities due to fair value changes (0.19) (0.49) (0.42) (1.28)

Unrealized gains on trading securities (0.01) — (0.01) 0.01

Unrealized losses on trading securities — (0.02) — (0.02)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value — 0.01 0.01 0.01

Net effects of terminations or net settlements on financial derivatives (0.03) 0.02 0.09 (0.03)

Issuance costs on the retirement of preferred stock — (0.15) — (0.15)

Income tax effect related to reconciling items 0.08 0.18 0.14 0.31

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Losses on financial derivatives due to fair value changes are presented by two reconciling items in Table 6 above:

(a) Gains/(losses) on undesignated financial derivatives due to fair value changes;

(a) Losses on undesignated financial derivatives due to fair value changes;

and (b) Losses on hedging activities due to fair value changes.

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

(in thousands)

Gains/(losses) due to fair value changes (see Table 4.2) $ (1,725) $ (2,381) $ (1,379) $ (8,062)

Losses due to fair value changes (see Table 4.2) $ (1,920) $ (5,047) $ (3,299) $ (13,109)

Initial cash payment (received) at inception of swap (173) (198) (1,162) (737)

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Net Interest Income .

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

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

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

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

For the Six Months Ended

June 30, 2021 June 30, 2020

For the Nine Months Ended

September 30, 2021 September 30, 2020

Balance Income/

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Net interest income/yield $ 23,451,188 $ 163,385 0.93 % $ 22,182,282 $ 134,321 0.81 %

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

(1) Excludes interest income of $30.1 million and $41.8 million in the first nine months of 2021 and 2020, respectively, related to consolidated trusts with beneficial interests owned by third parties.

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

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

(3) Excludes interest expense of $26.4 million and $36.8 million in the first nine months of 2021 and 2020, respectively, related to consolidated trusts with beneficial interests owned by third parties.

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

The $29.1 million year-over-year increase in net interest income was primarily due to a $14.1 million increase related to new business volume, a $9.8 million increase in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives), and a $5.7 million decrease in funding costs.

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

In percentage terms, the 0.12% increase in net interest income was primarily attributable to an increase of 0.06% in net fair value changes from designated financial derivatives and an increase of 0.05% in new business volume.

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

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

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

For the Nine Months Ended September 30, 2021 Compared to Same Period in 2020

Increase/(Decrease) Due to

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Dollars Yield Dollars Yield Dollars Yield Dollars Yield

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

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

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

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

As of September 30, 2021 As of September 30, 2020

Losses Reserve

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

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

Charge-offs — — — (394) — (394)

Provision for/(release of) losses 366 (111) 255 646 548 1,194

Ending balance $ 14,816 $ 2,000 $ 16,816 $ 16,404 $ 3,568 $ 19,972

For the Six Months Ended:

For the Nine Months Ended:

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

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Guarantee and Commitment Fees .

The following table presents guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs, for the three and six months ended June 30, 2021 and 2020:

For the Three Months Ended For the Six Months Ended

For the Three Months Ended For the Nine Months Ended

Change Change

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

September 30, 2021 September 30, 2020 $ % September 30, 2021 September 30, 2020 $ %

(dollars in thousands)

Guarantee and commitment fees $ 3,155 $ 3,159 $ (4) — % $ 9,182 $ 9,495 $ (313) (3) %

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

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

The decrease in guarantee and commitment fees for the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to a decrease in the average outstanding balance of LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities during 2021.

As adjusted for the core earnings presentation, guarantee and commitment fees were $4.3 million and $12.9 million for the three and nine months ended September 30, 2021, respectively, compared to $4.7 million and $14.5 million for the three and nine months ended September 30, 2020, respectively.

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

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

(Losses)/gains on financial derivatives .

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

For the Three Months Ended For the Six Months Ended

Losses on financial derivatives .

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

For the Three Months Ended For the Nine Months Ended

Change Change

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

September 30, 2021 September 30, 2020 $ % September 30, 2021 September 30, 2020 $ %

(dollars in thousands)

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

Losses due to fair value changes $ (1,864) $ (4,149) $ 2,285 (55) % $ (3,890) $ (1,933) $ (1,957) (101) %

Accrual of contractual payments 117 3,613 (3,496) (97) % 3,154 10 3,144 31440 %

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

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

Losses due to terminations or net settlements (600) (28) (572) (2043) % (384) (1,416) 1,032 73 %

Losses on financial derivatives $ (2,347) $ (564) $ (1,783) (316) % $ (1,120) $ (3,339) $ 2,219 66 %

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

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

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

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

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

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

Treasury security futures and initial cash payments received upon the inception of certain undesignated swaps are included in "Losses due to terminations or net

settlements" in the table above.

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

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

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

Other Income .

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

Change Change

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

September 30, 2021 September 30, 2020 $ % September 30, 2021 September 30, 2020 $ %

(dollars in thousands)

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Total other income $ 582 $ 594 $ (12) (2) % $ 1,600 $ 2,639 $ (1,039) (39) %

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

The decrease in other income for the nine months ended September 30, 2021 compared to the same period in 2020 is primarily due to a decrease in rate modification fees on Farm & Ranch loans.

Operating Expenses .

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

Change Change

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

September 30, 2021 September 30, 2020 $ % September 30, 2021 September 30, 2020 $ %

(dollars in thousands)

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The increase in compensation and employee benefits expenses for 2021 compared to 2020 was due to increased headcount.

We hired ten new employees in connection with the strategic acquisition of loan servicing rights in August 2021.

General and Administrative Expenses (G&A) .

The increase in G&A expenses for 2021 compared to 2020 was primarily due to increased spending on software licenses and information technology consultants to support growth and strategic initiatives.

We entered into a transition services agreement in connection with the strategic acquisition of loan servicing rights in August 2021.

Under that agreement, we have agreed to pay $1.25 million to the seller of the servicing rights in installments through December 31, 2022 for continuing transition assistance.

Income Tax Expense .

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

Change Change

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

September 30, 2021 September 30, 2020 $ % September 30, 2021 September 30, 2020 $ %

(dollars in thousands)

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Business Volume .

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

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

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

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

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Total purchases, guarantees, LTSPCs, and AgVantage securities $ 921,630 $ (52,820) $ 1,194,697 $ 871,346

The net increase was primarily attributable to a net increases of $499.2 million in the Institutional Credit line of business, $389.2 million in the Farm & Ranch line of business, and $37.4 million in the Rural Utilities line of business, partially offset by a net decrease of $4.2 million in the USDA Guarantees line of business.

The $389.2 million net increase in our Farm & Ranch line of business reflected a $277.2 million net increase in outstanding loan purchase volume and a $212.7 million net increase in loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities, which was partially offset by a net decrease of $100.6 million in loans held in consolidated trusts.

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

Our net growth of 15.7% in the Farm & Ranch on-balance sheet portfolio over the twelve months ended September 30, 2021 is significantly higher than the 6.6% net growth of the overall agricultural mortgage loan market over the twelve months ended June 30, 2021 (based on our analysis of call report data from commercial banks, -1.6% growth, and Farm Credit System, 12.7% growth).

The $499.2 million net increase in the Institutional Credit line of business reflects $1.4 billion in gross volume, partially offset by $0.9 billion of paydowns and maturities.

Within the $1.4 billion of gross volume is $1.2 billion of short-term funding that will mature in fourth quarter 2021.

The $37.4 million net increase in the Rural Utilities line of business was due to $113.9 million in gross new volume, partially offset by $76.5 million in paydowns in loans and LTSPCs.

Within the $113.9 million in gross volume is $50.0 million of unfunded telecommunications loan commitments.

The $4.2 million net decrease in the USDA Guarantees line of business reflected $118.3 million in paydowns, partially offset by $114.1 million in gross new volume.

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

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

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

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

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

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

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

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

(in thousands)

Loans securitized and sold as Farm & Ranch Guaranteed Securities $ 34,998 $ 36,562 $ 84,131 $ 64,612

Farmer Mac Guaranteed USDA Securities — — — 28,050

AgVantage securities 1,368,912 211,908 2,280,440 1,202,327

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

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

Of those loans, 25% and 25% had principal

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

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

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

Of those loans, 70% and 68% had principal amortization periods longer than the maturity date, resulting in balloon payments at maturity, with a weighted-average remaining term to maturity of 22.9 years and 23.2 years for each period, respectively.

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

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

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

For the first nine months of 2021 and 2020, no Farmer Mac Guaranteed Securities were sold to a related party.

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

Lines of Business - Outstanding Business Volume

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

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

(in thousands)

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Total $ 23,118,791 $ 21,924,095

The following table summarizes by maturity date the scheduled principal amortization of loans held, loans underlying off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and LTSPCs, USDA Securities, and Farmer Mac Guaranteed USDA Securities as of June 30, 2021:

Schedule of Principal Amortization as of June 30, 2021

Schedule of Principal Amortization as of September 30, 2021

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

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Total $ 9,020,921 $ 3,241,865 $ 2,722,702 $ 14,985,488

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

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

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

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

Of the $23.1 billion outstanding principal balance of volume included in Farmer Mac's four lines of business as of September 30, 2021, $8.1 billion were AgVantage securities included in the Institutional Credit line of business.

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

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

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

AgVantage Balances by Year of Maturity

June 30, 2021

September 30, 2021

(in thousands)

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

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

The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.4 years as of September 30, 2021.

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

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

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

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

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

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

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

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

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

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

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

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

• As we grow our outstanding business volume through the purchases and commitments described above, we are also developing new ways to obtain funding and manage our overall credit risk.

In October 2021, we completed a structured and syndicated agricultural mortgage-backed securitization (AMBS) that included a $280.0 million senior tranche guaranteed by Farmer Mac and a $22.7 million unguaranteed subordinate tranche sold to investors, resulting in off-balance sheet treatment for Farm & Ranch loans formerly held on Farmer Mac's balance sheet.

During fourth quarter 2021, Farmer Mac expects to record a gain on this transaction of approximately $4 million after-tax.

Farmer Mac will serve as the master servicer of the securitization and as central servicer for a portion of the underlying loan pool.

This new source of funding provides us with another tool to help manage capital and credit risk and also provides an investment opportunity for leading institutional investors.

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

However, the potential increase of COVID-19 resulting from certain variants of coronavirus and the utilization of vaccines both domestically and globally continue to evolve and create uncertainty, which may result in increased market volatility such as the supply chain disruptions currently impacting global trade.

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

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We expect these efforts to continue and increase over the next 12 - 18 months as we innovate and grow our business while monitoring the growth in operating expenses commensurate with the growth in our revenue.

During the third quarter, we closed on a strategic acquisition that enhanced our operations by expanding our internal loan servicing function and acquiring the loan servicing rights for a sizeable portion of our Farm & Ranch loan and USDA Guaranteed Securities portfolios.

This acquisition will increase our interest income on our Farm & Ranch loans and USDA Guaranteed Securities that we service because there will not be any third-party central servicer retaining a central servicer fee on those assets.

That increased interest income is expected to be partially offset by the increase in our operating expenses relating to our enhanced internal loan servicing operations.

In the short-term, we do not expect the effect on core earnings to be significant.

In the medium to long-term, the effect will depend on the size of our portfolio that we service and the long-run costs of our servicing operations.

Agricultural Industry .

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

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

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

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

Although grain commodity prices abated during the third quarter, corn, soybean, and wheat prices held between 20% and 40% above their 10-year averages.

Consumer mobility and demand held up during the third quarter, helping to restore fuel

demand and bring ethanol production back to 2019 levels by July 2021, according to U.S.

Energy Information Administration data.

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

Cattle and dairy prices remain the only major agricultural commodities with continued pressure on prices, but both sectors held at-or-above pre-pandemic price levels during third quarter 2021.

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

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

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

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

These conditions continued to be favorable in the first three quarters of 2021, but sales to China slowed in the third quarter due to higher prices, rising grain supplies, and supply chain disruptions that challenged shipping lanes.

Exports have been boosted in 2021 by increases in sales of beef, dairy, pork, and tree nuts, according to data from the USDA's Foreign Agricultural Service (FAS), but global supply chain disruptions and high shipping costs are currently providing a major headwind for agricultural exports.

Through August 2021, USDA FAS trade data shows modest slowing of U.S.

agricultural export volumes to Asia, which could continue into 2022.

Farm incomes have been boosted in recent years by additional sources of liquidity and cash flow.

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

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

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

The USDA estimates that $9.3 billion of that funding has been disbursed to farmers and ranchers in 2021 through the Coronavirus Food Assistance Program (CFAP), with another $8.7 billion in forgivable loans distributed during the year through the Paycheck Protection Program (PPP) by the Small Business Administration.

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

USDA estimates for net farm income and net cash farm income in 2021 are the highest levels since 2013 at $113.0 billion and $134.7 billion, respectively.

An average year generates approximately $100 billion in net farm income, so both 2021 metrics are well above historical averages.

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

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

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

Higher profitability and lower overall interest rates allow sector participants to refinance and restructure their balance sheets with more favorable terms, driving deal flow and lender competition.

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

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

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

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

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

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

Although farm incomes and profitability remain strong in 2021, a potential challenge for producers heading into 2022 will be rising input prices, including the cost of fertilizer, transportation and shipping, and the cost and availability of labor.

Farmland values increased steadily on average in 2021 after rising at approximately the rate of inflation for the last two years.

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

An improved profitability outlook combined with low market interest rates provided support for land values throughout 2021.

Land value survey data from the USDA show a 7.0% increase in average farm real estate values from June 2020 to June 2021.

Annual farm real estate value gains were highest in the Northern Plains (9.4%) and the Southern Plains (9.0%), but also strong in Pacific states (8.6%) and the Corn Belt (7.7%).

The Federal Reserve Bank of Chicago AgLetter reported a 14% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) between June 2020 and June 2021.

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

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

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

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

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

As of October 19, 2021, 98% of the National Weather Service Western Region was designated as experiencing some level of drought or dryness, and 20% of the region was designated as experiencing exceptional drought, according to data from the National Drought Mitigation Center.

Due to drought conditions along the Colorado River Basin, the U.S.

Bureau of Reclamation mandated limits on water use along the river in August 2021 that will be effective for the 2022 water year.

Farmer Mac estimates that less than 2.5% of our Farm & Ranch portfolio is exposed to this water source.

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

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

States also regulate water use, and state laws like California's Sustainable Groundwater Management Act (SGMA) will continue to shape state-led efforts to manage water infrastructure and use.

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

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

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

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

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

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

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

Forty percent of the loans past due 90-days or more in second quarter 2021 cured or paid off by September 30, 2021.

The overall delinquency rate fell from 0.70% of the Farm & Ranch portfolio as of June 30, 2021 to 0.58% of the Farm & Ranch portfolio by September 30, 2021, a significant improvement that defies the seasonal pattern historically observed during the third quarter of each year.

Year-over-year, the delinquency rate fell by 48 basis points from 1.07% in third quarter 2020.

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

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

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

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

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

foreseeable volatility from cyclical and external factors.

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

Therefore, Farmer Mac believes that its portfolio is well-positioned to endure reasonably foreseeable volatility from cyclical and external factors.

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

Rural Utilities Industry .

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According to data from the U.S.

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

Energy Information Administration, sales and the revenue from the sale of electricity to customers is up by 3.7% and 8.2%, respectively, in 2021 through July compared to 2020.

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

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

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

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

economic recovery.

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

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

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In December 2020, the Federal Communications Commission’s Rural Digital Opportunity Fund (RDOF) auction awarded $9.2 billion in broadband-related operating cost subsidies to winning bidders.

This may provide a catalyst for capital demands from rural electric cooperatives who seek to develop and deploy broadband services, as over $1.5 billion in subsidies were awarded to various rural electric cooperatives.

The cooperatives that were unsuccessful RDOF bidders also gained knowledge about the processes and technologies involved in broadband projects, which may enable them to develop broadband infrastructure.

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

This may provide a catalyst for capital demands from rural electric cooperatives and other telecommunications companies providing communication services to rural America who seek to develop and deploy broadband services.

Over $1.5 billion in subsidies were awarded to various rural electric cooperatives, and a significant number of final allocations were made to other carriers investing in rural broadband and other communications services.

The cooperatives and other companies that were unsuccessful RDOF bidders also gained knowledge about the processes and technologies involved in broadband projects, which may enable them to develop broadband infrastructure.

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

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

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

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

Tex a s Arctic Freeze .

Under this new initiative, Farmer Mac's total outstanding loan purchase balance of renewable energy financing transactions including undisbursed commitments as of September 30, 2021 was $92.7 million.

Weather is an ongoing source of uncertainty for the utilities sector.

Drought, fires, and extreme storms can drive demand, outages, and damage to power and telecommunications facilities.

The recent drought and wildfires in California have not materially impacted Farmer Mac’s portfolio as of September 30, 2021, nor has damage from Hurricane Ida.

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

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

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

As of September 30, 2021, our rural infrastructure portfolio exposure in Texas was approximately $405 million and split between distribution and generation and transmission cooperatives.

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

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

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

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

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

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

Legislative and Regulatory Outlook .

Democrats took control of the White House, the U.S.

House of Representatives, and the U.S.

Senate in 2021.

Party control has not historically correlated with the availability of government farm payments.

However, other changes in regulatory or tax policies stemming from the change in control could affect Farmer Mac or the U.S.

agricultural and food sectors.

Farmer Mac continues to monitor legislative and regulatory changes that could affect Farmer Mac or its stakeholders, including:

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

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

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

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

corporate tax rate from the current rate of 21%.

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

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

We expect that President Biden will nominate individuals to fill these seats as early as 2021, with the potential for a two-thirds turnover of the FCA Board composition in a short time frame, which could affect Farmer Mac's regulatory environment.

Farmer Mac continues to monitor potential legislative and regulatory changes that could affect Farmer Mac or its stakeholders, including:

• Section 1005 of the American Rescue Plan Act of 2021 authorized the USDA to provide debt relief to socially disadvantaged producers who had outstanding principal balances on Farm Service Agency (FSA) loans as of January 1, 2021.

In July, a federal judge issued a preliminary injunction

that ordered USDA to halt all payments under that debt relief program pending resolution of the constitutional objections raised against the program in ongoing litigation .

Congress has proposed replacing Section 1005 of the American Rescue Plan with a new program that provides debt relief to “economically distressed” and “at-risk” farmers in the Build Back Better reconciliation package pending in Congress.

If enacted, t his provision could lead to a short-term acceleration in the prepayment of the FSA guaranteed loans in Farmer Mac’s USDA Securities portfolio.

• The Build Back Better reconciliation package pending in Congress contains several proposed changes to the U.S.

As negotiations on the package move forward, Farmer Mac will continue to monitor the effect of any change to the tax code that may affect its business.

The proposed corporate alternative minimum tax in the package is not expected to change Farmer Mac’s tax liability in the near future.

The package does not include any proposed increases to the current U.S.

corporate tax rate of 21%.

The package includes a proposed 1% excise tax on the fair market value of a corporation’s stock repurchased in a taxable year.

That excise tax would apply to future repurchases of common stock under Farmer Mac’s existing stock buyback program that authorizes up to $9.8 million in repurchases of common stock and expires in March 2023.

Under that program, Farmer Mac has repurchased approximately $200,000 of common stock since January 1, 2017.

• Agricultural exports from the United States were valued at $145.7 billion in 2020.

The ability to produce food and fiber and transport it efficiently across the globe is critical for the U.S.

food and agricultural sectors’ competitiveness internationally.

Congress recently passed a bipartisan infrastructure bill that contains several important investments to improve roads, bridges, freight rail, electric, broadband, ports, and waterways that are expected to support farmers and ranchers’ profitability, competitiveness, and access to global markets.

• The three-member board of the Farm Credit Administration (FCA) currently has a vacancy as well as a sitting member whose term expired in 2018.

The Biden Administration is expected to nominate individuals to fill these seats in the future.

Changes to the composition of the FCA board may affect Farmer Mac’s regulatory environment.

Balance Sheet Review

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

June 30, 2021 December 31, 2020 $ %

September 30, 2021 December 31, 2020 $ %

(in thousands)

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Total liabilities and equity $ 24,744,368 $ 24,355,501 $ 388,867 2 %

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

The increase in total assets was primarily attributable to new loan volume.

Liabilities .

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

The increase in total liabilities was primarily due to an increase in total notes payable, to fund the acquisition of loan volume.

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

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Credit Risk – Loans and Guarantees .

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

Farmer Mac's direct credit exposure to Farm & Ranch loans held and loans underlying Farm & Ranch Guaranteed Securities and LTSPCs as of September 30, 2021 was $9.4 billion across 48 states.

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

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

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

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

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

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

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

As of September 30, 2021 and December 31, 2020, the average unpaid principal balances for loans outstanding in the Farm & Ranch line of business was $780,000 and $742,000, respectively.

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

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

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

The weighted-average original loan-to-value ratio for all Farm & Ranch loans held and all loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 52% as of both June 30, 2021 and December 31, 2020.

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

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

The weighted-average original loan-to-value ratio for Farm & Ranch loans purchased during third quarter 2021 was 51%, compared to 55% for loans purchased during third quarter 2020.

The weighted-average original loan-to-value ratio for all 90-day delinquencies was 49% and 50% as of September 30, 2021 and December 31, 2020, respectively.

The weighted-average current loan-to-value ratio (the loan to-value ratio based on original appraised value and current outstanding loan amount adjusted to reflect amortization) for Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 48% and 46% as of September 30, 2021 and December 31, 2020, respectively.

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

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

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

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

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

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

As of September 30, 2021, Farmer Mac's 90-day delinquencies were $54.8 million (0.58% of the Farm & Ranch portfolio), compared to $63.1 million (0.70% of the Farm & Ranch portfolio) as of June 30, 2021 and $46.2 million (0.54% of the Farm & Ranch portfolio) as of December 31, 2020.

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

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

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

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

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

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

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

In the near-term, our delinquency rate may exceed our historical average due to the impact of adverse weather events and/or supply chain disruptions on the agricultural economy.

Farmer Mac's average 90-day delinquency rate as a percentage of its Farm & Ranch portfolio over the last 15 years is approximately 1%.

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(dollars in thousands)

September 30, 2021 $ 9,445,359 $ 54,792 0.58 %

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

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September 30, 2019 7,393,728 59,691 0.81 %

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

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

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

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

Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.24% of total outstanding business volume as of September 30, 2021, compared to 0.21% as of December 31, 2020 and 0.40% as of September 30, 2020.

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

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

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

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

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

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

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

As of September 30, 2021, Farmer Mac's substandard assets were $278.3 million (2.9% of the Farm & Ranch portfolio), compared to $299.1 (3.3% of the Farm & Ranch portfolio) as of June 30, 2021 and $291.5 million (3.4% of the Farm & Ranch portfolio) as of December 31, 2020.

Those substandard assets were comprised of 291 loans as of September 30, 2021, 323 loans as of June 30, 2021, and 343 loans as of December 31, 2020.

The decrease of $20.8 million in substandard assets during third quarter 2021 was primarily driven by credit upgrades in both our on- and off-balance sheet portfolios during the quarter.

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

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

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

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

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

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

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

Acceptable Special Mention Substandard Total

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

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

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

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

Farm & Ranch Credit Losses Relative to Cumulative

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

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

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

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

As of June 30, 2021

As of September 30, 2021

Farm & Ranch Concentrations by Commodity Type within Geographic Region

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

As of June 30, 2021

As of September 30, 2021

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

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Total $ 2,887 $ 9,783 $ 3,836 $ 1,090 $ 21,038 $ 38,634

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

Rural Utilities

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

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

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

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

The delinquent loan became current during third quarter 2021.

As of September 30, 2021, there were no delinquencies in Farmer Mac's portfolio of Rural Utilities loans.

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

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

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

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

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

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

Acceptable Special Mention Substandard Total

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

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

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

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

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

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

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

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

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

If a servicer materially breaches the terms of its servicing

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

If a servicer materially breaches the terms of its servicing agreement with Farmer Mac, such as failing to forward payments received or releasing collateral without Farmer Mac's consent, or experiences insolvency or bankruptcy, the servicer is responsible for any

corresponding damages to Farmer Mac and, in most cases, Farmer Mac has the right to terminate the servicing relationship for a particular loan or the entire portfolio serviced by the servicer.

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

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

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

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

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In AgVantage transactions, the corporate obligor is typically required to remove from the pool of pledged collateral loans that become and remain (within specified parameters) delinquent in the payment of principal or interest and to substitute eligible loans that are current in payment or pay down the AgVantage securities to maintain the minimum required collateralization level.

Since the onset of the COVID-19 pandemic, Farmer Mac has approved payment deferments on loans collateralizing AgVantage securities, allowing the AgVantage counterparty to keep these loans in its collateral pool without replacing them.

The criteria currently in place for approving payment deferments for these loans is similar to the criteria Farmer Mac has established for loans in its Farm & Ranch portfolio that are affected by the COVID-19 pandemic.

In the event of a default on an AgVantage security, Farmer Mac would have recourse to the pledged collateral and have rights to the ongoing borrower payments of principal and interest.

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

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

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

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

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

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

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

The unpaid principal balance of on-balance sheet AgVantage securities secured by loans eligible for the Rural Utilities line of business totaled $3.4 billion as of September 30, 2021 and $2.6 billion as of December 31, 2020.

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

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

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

Counterparty Balance Required Collateralization Balance Required Collateralization

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Total outstanding $ 8,133,303 $ 7,739,359

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

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

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

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

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

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Credit Risk – Other Investments .

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

As of September 30, 2021, Farmer Mac had $0.9 billion of cash and cash equivalents and $3.7 billion of investment securities.

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

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

The Liquidity and Investment Regulations limit Farmer Mac's total credit exposure to any single entity, issuer, or obligor of securities to 10% of Farmer Mac's regulatory capital ($118.0 million as of June 30, 2021).

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

However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($59.8 million as of September 30, 2021).

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

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

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

Alternatively, Farmer Mac could realize a decline in income if assets repay more slowly than originally forecasted and the associated maturing debt must be replaced by debt issuances at higher interest rates.

Interest Rate Risk Management

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Farmer Mac's management-level Asset and Liability Committee ("ALCO") provides oversight, establishes guidelines, and approves strategies to maintain interest rate risk within the board-established limits.

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

As part of this debt issuance strategy, Farmer

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Treasury securities and other financial derivatives.

Similarly, when Farmer Mac commits to sell certain assets, the associated interest rate exposure is primarily managed with exchange-traded futures contracts involving U.S.

Treasury securities and other financial derivatives.

Farmer Mac's $0.9 billion of cash and cash equivalents mature within three months and are generally funded with debt having similar maturities.

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

As of September 30, 2021, $3.0 billion of the $3.7 billion of investment securities (80%) were floating rate securities with rates that adjust within one year or fixed rate securities with original maturities between three months and one year.

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

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Interest Rate Risk Metrics

Farmer Mac regularly stress tests and runs simulations on its portfolio of financial assets and debt for interest rate risk and examines a variety of metrics to quantify and manage its interest rate risk.

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

Farmer Mac regularly evaluates and conducts interest rate shock simulations on its portfolio of financial assets, debt, and financial derivatives and examines a variety of metrics to quantify and manage its exposure to interest rate risk.

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

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

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

Duration gap is the net estimated durations of Farmer Mac's funded assets, debt, and financial derivatives.

Because duration is a measure of fair value sensitivity, duration gap quantifies the extent to which estimated fair value sensitivities for funded assets, debt and financial derivatives are matched.

Duration gap is calculated using the net estimated durations of Farmer Mac's funded financial assets, debt, and financial derivatives.

Duration gap quantifies the extent to which estimated fair value sensitivities are matched for funded financial assets, debt and financial derivatives..

Duration gap provides a relatively concise measure of the interest rate risk inherent in Farmer Mac's outstanding portfolio.

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

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

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

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

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

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

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

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

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

Each of the interest rate risk metrics is quantified using asset/liability models and derived based on management's best estimates of factors such as forward interest rates across the yield curve, interest rate volatility, and timing of asset prepayments and callable debt redemptions.

Accordingly, these metrics are estimates rather than precise measurements.

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

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

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

Percentage Change in MVE from Base Case

Interest Rate Scenario (1)

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

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

+100 basis points 4.1 % 4.9 %

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Percentage Change in NES from Base Case

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

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

+100 basis points 7.5 % 3.9 %

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

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

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

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

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

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

As of September 30, 2021, Farmer Mac's effective duration gap was negative 1.3 months, compared to negative 1.6 months as of December 31, 2020.

Farmer Mac updated its duration gap measure to funded assets, debt, and financial derivatives as of December 31, 2020.

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

Treasury Note yield-to-maturity increasing by approximately 16 basis points and 56 basis points, respectively, versus year-end 2020.

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The economic effects of financial derivatives are included in Farmer Mac's MVE, NES, and duration gap analyses.

Farmer Mac enters into the following types of financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of funded assets, future cash flows, and debt issuance, and not for trading or speculative purposes:

Farmer Mac enters into the following types of financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of funded financial assets, future cash flows, and debt issuance, and not for trading or speculative purposes:

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

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

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

• exchange-traded futures contracts involving U.S.

Treasury securities.

As of September 30, 2021, Farmer Mac had $15.8 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to thirty years, of which $6.1 billion were pay-fixed interest rate swaps, $7.6 billion were receive-fixed interest rate swaps, and $2.1 billion were basis swaps.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Re-funding and repricing risk

Farmer Mac is subject to re-funding and repricing risk on any floating rate assets that are not funded to contractual maturity.

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

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

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

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Farmer Mac can meet floating rate funding needs in several ways, including:

• issuing short-term discount notes with maturities that match the reset period of the assets;

• issuing short-term fixed rate discount notes with maturities that match the reset period of the assets;

• issuing floating rate medium-term notes with maturities and reset frequencies that match the assets being funded;

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

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

However, if the funding cost of Farmer Mac’s discount notes or medium-term notes were to increase relative to the benchmark market index to which the assets are being funded during the time between when these floating rate assets were first funded and when Farmer Mac refinanced the associated debt, Farmer Mac would be exposed to a commensurate reduction in its net effective spread on the associated assets.

Conversely, if the funding cost on Farmer Mac’s discount notes or medium-term notes were to decrease relative to the benchmark market index during that time, Farmer Mac would benefit from a commensurate increase in its net effective spread on those assets.

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

However, if the funding cost of Farmer Mac’s discount notes or medium-term notes increased relative to the benchmark market index of the associated assets during the time between when these floating rate assets were first funded and when Farmer Mac refinanced the associated debt, Farmer Mac would be exposed to a commensurate reduction of net effective spread.

Conversely, if the funding cost on Farmer Mac’s discount notes or medium-term notes decreased relative to the benchmark market index during that time, Farmer Mac would benefit from a commensurate increase to net effective spread.

Farmer Mac's debt issuance strategy targets balancing liquidity risk and re-funding and repricing risk while maintaining an appropriate liability management profile that is consistent with Farmer Mac's risk tolerance.

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

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

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

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

As of September 30, 2021, Farmer Mac held $5.5 billion of floating rate assets in its lines of business and its investment portfolio that reset based on floating rate market indices, such as LIBOR or SOFR.

As of the same date, Farmer Mac also had $6.1 billion of interest rate swaps outstanding where Farmer Mac pays a fixed rate of interest and receives a floating rate of interest, primarily LIBOR.

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

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

As of September 30, 2021, Farmer Mac held $3.9 billion of floating rate assets in its lines of business and its investment portfolio, had issued $2.2 billion of floating rate debt, and had entered into $14.3 billion notional amount of interest rate swaps, each of which reset based on LIBOR.

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

It becomes redeemable at our option on July 18, 2024 and thereafter pays interest at a floating rate equal to three-month LIBOR plus 3.260%.

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

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

The transition

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

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

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

As of September 30, 2021, we had $0.8 billion outstanding in medium-term notes based on SOFR, a potential alternative benchmark interest rate index.

Liquidity and Capital Resources

Farmer Mac's primary sources of funds to meet its liquidity and funding needs are the proceeds of its debt issuances, guarantee and commitment fees, net effective spread, loan repayments, and maturities of AgVantage securities.

Farmer Mac regularly accesses the capital markets for funding, and Farmer Mac has maintained access to the capital markets at favorable rates throughout first quarter 2021.

Farmer Mac regularly accesses the capital markets for funding, and Farmer Mac has maintained access to the capital markets at favorable interest rates throughout the first three quarters of 2021.

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

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

As of September 30, 2021, Farmer Mac had outstanding discount notes of $2.4 billion, medium-term notes that mature within one year of $5.7 billion, and medium-term notes that mature after one year of $14.3 billion.

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

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

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

In accordance with the methodology for calculating available days of liquidity under those regulations, Farmer Mac maintained a monthly average of 279 days of liquidity during third quarter 2021 and had 266 days of liquidity as of September 30, 2021.

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

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• mortgage-backed securities.

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

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

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

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

(in thousands)

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Total $ 4,640,288 $ 4,932,665

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

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

Capital Requirements .

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

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

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

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

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

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

As of September 30, 2021 and December 31, 2020, Farmer Mac's Tier 1 capital ratio was 15.1% and 14.1%, respectively.

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

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

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

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

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For the quarter ended:

September 30, 2021 $ 617,557 $ 313,116 $ 114,120 $ 63,897 $ 50,000 $ 1,368,912 $ 2,527,602

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

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September 30, 2019 309,805 125,022 113,664 117,279 — 402,611 1,068,381

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

For the year ended:

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Unscheduled 222,661 3,933 61,802 85,891 201 — — 374,488

September 30, 2021 $ 441,013 $ 5,659 $ 94,794 $ 118,327 $ 67,293 $ 9,204 $ 869,682 $ 1,605,972

Scheduled $ 128,126 $ 2,778 $ 39,950 $ 41,480 $ 37,991 $ 23,874 $ 476,220 $ 750,419

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

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

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September 30, 2019 $ 227,097 $ 5,758 $ 99,596 $ 67,295 $ 31,656 $ 8,692 $ 442,663 $ 882,757

Scheduled $ 39,879 $ 3,758 $ 58,779 $ 38,676 $ 6,951 $ 17,092 $ 612,964 $ 778,099

Unscheduled 64,912 3,399 58,979 43,044 — — — 170,334

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

For the year ended:

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(in thousands)

September 30, 2021 $ 6,777,749 $ 60,349 $ 2,607,261 $ 2,722,702 $ 2,243,172 $ 574,255 $ 8,133,303 $ 23,118,791

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

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September 30, 2019 4,836,966 115,306 2,441,456 2,567,763 1,612,773 619,829 8,738,266 20,932,359

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

On-Balance Sheet Outstanding Business Volume

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(in thousands)

September 30, 2021 $ 12,921,572 $ 2,872,499 $ 3,818,550 $ 19,612,621

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

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September 30, 2019 9,642,802 2,850,000 4,549,689 17,042,491

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

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

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For the quarter ended:

June 30, 2021 (1)

September 30, 2021 (1)

$ 24,367 1.74 % $ 6,847 1.11 % $ 6,464 1.15 % $ 15,359 0.81 % $ 2,888 0.25 % $ 55,925 0.99 %

June 30, 2021 23,978 1.82 % 6,982 1.12 % 6,615 1.18 % 16,131 0.85 % 2,845 0.24 % 56,551 1.01 %

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

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September 30, 2020 (1)

June 30, 2020 (1)

18,025 1.67 % 5,865 0.97 % 6,939 1.32 % 18,601 0.87 % 2,372 0.23 % 51,802 0.96 %

June 30, 2020 16,733 1.71 % 4,689 0.81 % 5,516 1.15 % 18,782 0.86 % 749 0.08 % 46,469 0.89 %

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

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September 30, 2019 13,181 1.66 % 4,314 0.79 % 4,502 1.16 % 17,807 0.84 % 2,657 0.30 % 42,461 0.90 %

June 30, 2019

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

(1) See Note 10 to the consolidated financial statements for a reconciliation of GAAP net interest income by line of business to net effective spread by line of business for the three months ended June 30, 2021 and 2020.

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

Core Earnings by Quarter End

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

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

(in thousands)

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Credit related expense/(income):

(Release of)/provision for losses (983) (31) 2,973 1,200 51 3,831 2,851 623 420

Provision for/(release of) losses 255 (983) (31) 2,973 1,200 51 3,831 2,851 623

REO operating expenses — — — — — — — — —

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(Losses)/gains on hedging activities due to fair value changes (2,093) (2,097) (271) 3,827 (5,245) (2,676) (5,925) (220) (4,535)

Unrealized (losses)/gains on trading assets (61) (14) 223 (258) (20) 106 172 49 61

Unrealized gains/(losses) on trading assets 36 (61) (14) 223 (258) (20) 106 172 49

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 23 20 16 (77) 97 35 3 40 (7)

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis