FEDERAL AGRICULTURAL MORTGAGE CORP 10-Q

Item 1. Financial Statements FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) As of September 30, 2021 December 31, 2020 (in thousands) Assets: Cash and cash equivalents $ 899,052 $ 1,033,941 Investment securities: Available-for-sale, at fair value (amortized cost of $ 3,684,066 and $ 3,843,666 , respectively) 3,696,204 3,853,692 Held-to-maturity, at amortized cost 45,032 45,032 Other investments 403 — Total Investment Securities 3,741,639 3,898,724 Farmer Mac Guaranteed Securities: Available-for-sale, at fair value (amortized cost of $ 5,909,989 and $ 6,594,992 , respectively) 6,138,759 6,947,701 Held-to-maturity, at amortized cost 2,248,303 1,175,792 Total Farmer Mac Guaranteed Securities 8,387,062 8,123,493 USDA Securities: Trading, at fair value 4,793 6,695 Held-to-maturity, at amortized cost 2,457,217 2,473,626 Total USDA Securities 2,462,010 2,480,321 Loans: Loans held for sale, at lower of cost or fair value 301,551 — Loans held for investment, at amortized cost 7,758,286 7,261,933 Loans held for investment in consolidated trusts, at amortized cost 977,372 1,287,045 Allowance for losses ( 14,294 ) ( 13,832 ) Total loans, net of allowance 9,022,915 8,535,146 Financial derivatives, at fair value 15,668 17,468 Interest receivable (includes $ 7,400 and $ 16,401 , respectively, related to consolidated trusts) 144,078 186,429 Guarantee and commitment fees receivable 39,038 37,113 Deferred tax asset, net 11,084 18,321 Prepaid expenses and other assets 21,822 24,545 Total Assets $ 24,744,368 $ 24,355,501 Liabilities and Equity: Liabilities: Notes payable $ 22,365,121 $ 21,848,917 Debt securities of consolidated trusts held by third parties 990,961 1,323,786 Financial derivatives, at fair value 25,633 29,892 Accrued interest payable (includes $ 6,550 and $ 14,370 , respectively, related to consolidated trusts) 83,263 92,738 Guarantee and commitment obligation 37,526 35,535 Accounts payable and accrued expenses 42,566 28,879 Reserve for losses 2,000 3,277 Total Liabilities 23,547,070 23,363,024 Commitments and Contingencies (Note 6) Equity: Preferred stock: Series C, par value $ 25 per share, 3,000,000 shares authorized, issued and outstanding 73,382 73,382 Series D, par value $ 25 per share, 4,000,000 shares authorized, issued and outstanding 96,659 96,659 Series E, par value $ 25 per share, 3,180,000 shares authorized, issued and outstanding 77,003 77,003 Series F, par value $ 25 per share, 4,800,000 shares authorized, issued and outstanding 116,160 116,160 Series G, par value $ 25 per share, 5,000,000 shares authorized, issued and outstanding 121,327 — Common stock: Class A Voting, $ 1 par value, no maximum authorization, 1,030,780 shares outstanding 1,031 1,031 Class B Voting, $ 1 par value, no maximum authorization, 500,301 shares outstanding 500 500 Class C Non-Voting, $ 1 par value, no maximum authorization, 9,234,778 shares and 9,205,897 shares outstanding, respectively 9,235 9,206 Additional paid-in capital 124,942 122,899 Accumulated other comprehensive income/(loss), net of tax 18,206 ( 13,923 ) Retained earnings 558,853 509,560 Total Equity 1,197,298 992,477 Total Liabilities and Equity $ 24,744,368 $ 24,355,501 The accompanying notes are an integral part of these consolidated financial statements. 3 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Three Months Ended For the Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 (in thousands, except per share amounts) Interest income: Investments and cash equivalents $ 4,121 $ 7,096 $ 14,107 $ 35,236 Farmer Mac Guaranteed Securities and USDA Securities 38,428 45,335 123,246 178,644 Loans 61,923 56,204 181,631 172,230 Total interest income 104,472 108,635 318,984 386,110 Total interest expense 49,467 63,974 155,599 251,789 Net interest income 55,005 44,661 163,385 134,321 Provision for losses ( 366 ) ( 653 ) ( 518 ) ( 4,542 ) Net interest income after provision for losses 54,639 44,008 162,867 129,779 Non-interest income/(expense): Guarantee and commitment fees 3,155 3,159 9,182 9,495 Losses on financial derivatives ( 2,347 ) ( 564 ) ( 1,120 ) ( 3,339 ) Gains/(losses) on trading securities 37 ( 258 ) ( 38 ) ( 173 ) Gains on sale of available-for-sale investment securities 253 — 253 — Gains on sale of real estate owned — — — 485 Release of/(provision for) reserve for losses 111 ( 547 ) 1,277 ( 540 ) Other income 582 594 1,600 2,639 Non-interest income 1,791 2,384 11,154 8,567 Operating expenses: Compensation and employee benefits 10,027 8,791 31,601 27,005 General and administrative 6,330 5,044 19,015 15,702 Regulatory fees 750 725 2,250 2,175 Operating expenses 17,107 14,560 52,866 44,882 Income before income taxes 39,323 31,832 121,155 93,464 Income tax expense 8,260 6,340 25,579 19,516 Net income 31,063 25,492 95,576 73,948 Preferred stock dividends ( 6,774 ) ( 5,166 ) ( 17,885 ) ( 12,536 ) Loss on retirement of preferred stock — ( 1,667 ) — ( 1,667 ) Net income attributable to common stockholders $ 24,289 $ 18,659 $ 77,691 $ 59,745 Earnings per common share: Basic earnings per common share $ 2.26 $ 1.74 $ 7.22 $ 5.57 Diluted earnings per common share $ 2.24 $ 1.73 $ 7.17 $ 5.54 The accompanying notes are an integral part of these consolidated financial statements. 4 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) For the Three Months Ended For the Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 (in thousands) Net income $ 31,063 $ 25,492 $ 95,576 $ 73,948 Other comprehensive income/(loss) before taxes: Net unrealized gains/(losses) on available-for-sale securities 991 47,235 29,966 ( 9,554 ) Net changes in held-to-maturity securities ( 2,385 ) ( 2,523 ) ( 6,195 ) ( 10,707 ) Net unrealized gains/(losses) on cash flow hedges 3,258 2,959 16,899 ( 27,429 ) Other comprehensive income/(loss) before tax 1,864 47,671 40,670 ( 47,690 ) Income tax (expense)/benefit related to other comprehensive income/(loss) ( 391 ) ( 10,011 ) ( 8,541 ) 10,014 Other comprehensive income/(loss) net of tax 1,473 37,660 32,129 ( 37,676 ) Comprehensive income $ 32,536 $ 63,152 $ 127,705 $ 36,272 The accompanying notes are an integral part of these consolidated financial statements. 5 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (unaudited) Accumulated Additional Other Preferred Stock Common Stock Paid-In Comprehensive Retained Total Shares Amount Shares Amount Capital Income/(Loss) Earnings Equity (in thousands) Balance as of December 31, 2020 14,980 $ 363,204 10,737 $ 10,737 $ 122,899 $ ( 13,923 ) $ 509,560 $ 992,477 Net Income — — — — — — 33,227 33,227 Other comprehensive income, net of tax — — — — — 65,667 — 65,667 Cash dividends: Preferred stock — — — — — — ( 5,269 ) ( 5,269 ) Common stock (cash dividend of $ 0.88 per share) — — — — — — ( 9,450 ) ( 9,450 ) Issuance of Class C Common Stock — — 21 21 12 — — 33 Stock-based compensation cost — — — — 1,665 1,665 Other stock-based award activity — — — — ( 858 ) — — ( 858 ) Balance as of March 31, 2021 14,980 $ 363,204 10,758 $ 10,758 $ 123,718 $ 51,744 $ 528,068 $ 1,077,492 Net Income — — — — — — 31,286 31,286 Other comprehensive loss, net of tax — — — — — ( 35,011 ) — ( 35,011 ) Cash dividends: Preferred stock — — — — — — ( 5,842 ) ( 5,842 ) Common stock (cash dividend of $ 0.88 per share) — — — — — — ( 9,474 ) ( 9,474 ) Issuance of Series G Preferred Stock 5,000 121,327 — — — — — 121,327 Issuance of Class C Common Stock — — 7 7 13 — — 20 Stock-based compensation cost — — — — 891 — — 891 Other stock-based award activity — — — — ( 474 ) — — ( 474 ) Balance as of June 30, 2021 19,980 $ 484,531 10,765 $ 10,765 $ 124,148 $ 16,733 $ 544,038 $ 1,180,215 Net Income — — — — — — 31,063 31,063 Other comprehensive income, net of tax — — — — — 1,473 — 1,473 Cash dividends: Preferred stock — — — — — — ( 6,774 ) ( 6,774 ) Common stock (cash dividend of $ 0.88 per share) — — — — — — ( 9,474 ) ( 9,474 ) Issuance of Class C Common Stock — — 1 1 45 — — 46 Stock-based compensation cost — — — — 749 — — 749 Balance as of September 30, 2021 19,980 $ 484,531 10,766 $ 10,766 $ 124,942 $ 18,206 $ 558,853 $ 1,197,298 6 Accumulated Additional Other Preferred Stock Common Stock Paid-In Comprehensive Retained Total Shares Amount Shares Amount Capital Income/(Loss) Earnings Equity (in thousands) Balance as of December 31, 2019 9,400 $ 228,374 10,712 $ 10,712 $ 119,304 $ ( 16,161 ) $ 457,047 $ 799,276 Cumulative effect adjustment from adoption of current expected credit loss standard — — — — — — ( 2,099 ) ( 2,099 ) Balances as of January 1, 2020 9,400 $ 228,374 10,712 $ 10,712 $ 119,304 $ ( 16,161 ) $ 454,948 $ 797,177 Net Income — — — — — — 12,830 12,830 Other comprehensive loss, net of tax — — — — — ( 105,276 ) — ( 105,276 ) Cash dividends: Preferred stock — — — — — — ( 3,431 ) ( 3,431 ) Common stock (cash dividend of $ 0.80 per share) — — — — — — ( 8,571 ) ( 8,571 ) Issuance of Class C Common Stock — — 15 15 19 — — 34 Repurchase of Class C Common Stock — — ( 4 ) ( 4 ) — — ( 231 ) ( 235 ) Stock-based compensation cost — — — — 1,293 — 1,293 Other stock-based award activity — — — — ( 204 ) — — ( 204 ) Balance as of March 31, 2020 9,400 $ 228,374 10,723 $ 10,723 $ 120,412 $ ( 121,437 ) $ 455,545 $ 693,617 Net Income — — — — — — 35,626 35,626 Other comprehensive income, net of tax — — — — — 29,940 — 29,940 Cash dividends: Preferred stock — — — — — — ( 3,939 ) ( 3,939 ) Common stock (cash dividend of $ 0.80 per share) — — — — — — ( 8,585 ) ( 8,585 ) Issuance of Series E Preferred Stock 3,180 77,003 — — — — — 77,003 Issuance of Class C Common Stock — — 10 10 17 — — 27 Stock-based compensation cost — — — — 719 — — 719 Other stock-based award activity — — — — ( 292 ) — — ( 292 ) Balance as of June 30, 2020 12,580 $ 305,377 10,733 $ 10,733 $ 120,856 $ ( 91,497 ) $ 478,647 $ 824,116 Net Income — — — — — — 25,492 25,492 Other comprehensive income, net of tax — — — — — 37,660 — 37,660 Cash dividends: Preferred stock — — — — — — ( 5,166 ) ( 5,166 ) Common stock (cash dividend of $ 0.80 per share) — — — — — — ( 8,589 ) ( 8,589 ) Issuance of Series F Preferred Stock 4,800 116,160 — — — — — 116,160 Redemption of Series A preferred stock ( 2,400 ) ( 58,333 ) — — — — — ( 58,333 ) Loss on retirement of preferred stock — — — — — — ( 1,667 ) ( 1,667 ) Issuance of Class C Common Stock — — 3 3 8 — — 11 Stock-based compensation cost — — — — 753 — — 753 Other stock-based award activity — — — — ( 92 ) — — ( 92 ) Balance as of September 30, 2020 14,980 $ 363,204 10,736 $ 10,736 $ 121,525 $ ( 53,837 ) $ 488,717 $ 930,345 The accompanying notes are an integral part of these consolidated financial statements. 7 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ( unaudited ) For the Nine Months Ended September 30, 2021 September 30, 2020 (in thousands) Cash flows from operating activities: Net income $ 95,576 $ 73,948 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization of deferred gains, premiums, and discounts on loans, investments, Farmer Mac Guaranteed Securities, and USDA Securities 13,631 3,800 Amortization of debt premiums, discounts, and issuance costs 5,106 18,502 Net change in fair value of trading securities, hedged assets, and financial derivatives 226,895 ( 342,380 ) Gain on sale of real estate owned — ( 485 ) Gain on the sale of available-for-sale investment securities ( 253 ) — Total (release)/provision for allowance for losses ( 759 ) 5,083 Excess tax benefits related to stock-based awards 292 ( 421 ) Deferred income taxes ( 1,302 ) ( 2,763 ) Stock-based compensation expense 3,306 2,765 Purchases of loans held for sale — ( 59,150 ) Proceeds from the sale of loans held for sale — 15,000 Proceeds from repayment of loans purchased as held for sale 44,744 54,661 Net change in: Interest receivable 40,509 44,706 Guarantee and commitment fees receivable 66 218 Other assets 2,431 ( 20,169 ) Accrued interest payable ( 9,475 ) ( 14,311 ) Custodial deposit liability 20,798 — Other liabilities ( 8,346 ) ( 4,412 ) Net cash provided by/(used in) operating activities 433,219 ( 225,408 ) Cash flows from investing activities: Purchases of available-for-sale investment securities ( 1,414,547 ) ( 2,177,560 ) Purchases of other investment securities ( 403 ) — Purchases of Farmer Mac Guaranteed Securities and USDA Securities ( 2,658,305 ) ( 1,798,028 ) Purchases of loans held for investment ( 2,107,746 ) ( 2,245,958 ) Purchases of defaulted loans ( 8,713 ) ( 6,272 ) Proceeds from repayment of available-for-sale investment securities 1,303,141 1,612,075 Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities 2,282,970 1,725,500 Proceeds from repayment of loans purchased as held for investment 1,500,239 1,272,603 Proceeds from sale of loans previously classified as held for investment 10,000 — Proceeds from sale of available-for-sale investment securities 257,524 — Proceeds from sale of Farmer Mac Guaranteed Securities 84,131 64,612 Proceeds from sale of real estate owned — 2,191 Net cash used in investing activities ( 751,709 ) ( 1,550,837 ) Cash flows from financing activities: Proceeds from issuance of discount notes 46,784,100 51,936,788 Proceeds from issuance of medium-term notes 8,588,616 10,561,149 Payments to redeem discount notes ( 46,182,144 ) ( 51,785,666 ) Payments to redeem medium-term notes ( 8,640,370 ) ( 8,293,765 ) Payments to third parties on debt securities of consolidated trusts ( 441,646 ) ( 431,093 ) Proceeds from common stock issuance 71 44 Retirement of preferred stock — ( 60,000 ) Proceeds from preferred stock issuance, net of stock issuance costs 121,327 193,163 Tax payments related to share-based awards ( 1,305 ) ( 560 ) Purchases of common stock — ( 235 ) Dividends paid on common and preferred stock ( 45,048 ) ( 37,369 ) Net cash provided by financing activities 183,601 2,082,456 Net change in cash and cash equivalents ( 134,889 ) 306,211 Cash and cash equivalents at beginning of period 1,033,941 604,381 Cash and cash equivalents at end of period $ 899,052 $ 910,592 Non-cash activity: Loans acquired and securitized as Farmer Mac Guaranteed Securities 84,131 64,612 Consolidation of Farmer Mac Guaranteed Securities from off-balance sheet to loans held for investment in consolidated trusts and to debt securities of consolidated trusts held by third parties 84,131 64,612 Reclassification of defaulted loans from loans held for investment in consolidated trusts to loans held for investment 24,690 42,393 Reclassification of loans held for sale to loans held for investment — 24,150 Reclassification of loans held for investment to loans held for sale 301,551 — Capitalized interest 1,253 937 The accompanying notes are an integral part of these consolidated financial statements. 8 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim unaudited consolidated financial statements of the Federal Agricultural Mortgage Corporation ("Farmer Mac") and subsidiaries have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Farmer Mac and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted as permitted by SEC rules and regulations. The December 31, 2020 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2020 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the 2020 consolidated financial statements of Farmer Mac and subsidiaries included in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 25, 2021. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year. Presented below are Farmer Mac's significant accounting policies that contain updated information for the three and nine months ended September 30, 2021. Principles of Consolidation The consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries during the year: (1) Farmer Mac Mortgage Securities Corporation, whose principal activities are to facilitate the purchase and issuance of Farmer Mac Guaranteed Securities; and (2) Farmer Mac II LLC, whose principal activity is the operation of substantially all of the business related to the USDA Guarantees line of business – primarily the acquisition of USDA Securities. The consolidated financial statements also include the accounts of Variable Interest Entities ("VIEs") in which Farmer Mac determined itself to be the primary beneficiary . 9 Table 1.1 Consolidation of Variable Interest Entities As of September 30, 2021 Farm & Ranch USDA Guarantees Corporate Total (in thousands) On-Balance Sheet: Consolidated VIEs: Loans held for investment in consolidated trusts, at amortized cost $ 977,372 $ — $ — $ 977,372 Debt securities of consolidated trusts held by third parties (1) 990,961 — — 990,961 Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Carrying value — 28,265 — 28,265 Maximum exposure to loss (2) — 28,227 — 28,227 Investment securities: Carrying value (3) — — 2,030,155 2,030,155 Maximum exposure to loss (2) (3) — — 2,019,108 2,019,108 Off-Balance Sheet: Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Maximum exposure to loss (2) (4) 60,349 259,893 — 320,242 (1) Includes borrower remittances of $ 13.6 million. The borrower remittances had not been passed through to third party investors as of September 30, 2021. (2) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss. (3) Includes auction-rate certificates, government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities, and other mission related investments. (4) The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party. Consolidation of Variable Interest Entities As of December 31, 2020 Farm & Ranch USDA Guarantees Corporate Total (in thousands) On-Balance Sheet: Consolidated VIEs: Loans held for investment in consolidated trusts, at amortized cost $ 1,287,045 $ — $ — $ 1,287,045 Debt securities of consolidated trusts held by third parties (1) 1,323,786 — — 1,323,786 Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Carrying value (2) — 34,537 — 34,537 Maximum exposure to loss (3) — 34,456 — 34,456 Investment securities: Carrying value (4) — — 1,918,672 1,918,672 Maximum exposure to loss (3) (4) — — 1,909,535 1,909,535 Off-Balance Sheet: Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Maximum exposure to loss (3) (5) 79,312 299,298 — 378,610 (1) Includes borrower remittances of $ 36.7 million. The borrower remittances had not been passed through to third party investors as of December 31, 2020. (2) Includes $ 0.1 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business. (3) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss. (4) Includes auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities. 10 (5) The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party. (a) Earnings Per Common Share Basic earnings per common share ("EPS") is based on the daily weighted-average number of shares of common stock outstanding. Diluted earnings per common share is based on the daily weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive stock appreciation rights ("SARs") and unvested restricted stock awards. The following schedule reconciles basic and diluted EPS for the three and nine months ended September 30, 2021 and 2020: Table 1.2 For the Three Months Ended September 30, 2021 September 30, 2020 Net Income Weighted-Average Shares $ per Share Net Income Weighted-Average Shares $ per Share (in thousands, except per share amounts) Basic EPS Net income attributable to common stockholders $ 24,289 10,766 $ 2.26 $ 18,659 10,734 $ 1.74 Effect of dilutive securities (1) SARs and restricted stock — 76 ( 0.02 ) — 51 ( 0.01 ) Diluted EPS $ 24,289 10,842 $ 2.24 $ 18,659 10,785 $ 1.73 (1) For the three months ended September 30, 2021 and 2020, SARs and restricted stock of 28,575 and 66,445 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the three months ended September 30, 2021 and 2020, contingent shares of unvested restricted stock of 18,183 and 12,680 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met. For the Nine Months Ended September 30, 2021 September 30, 2020 Net Income Weighted-Average Shares $ per Share Net Income Weighted-Average Shares $ per Share (in thousands, except per share amounts) Basic EPS Net income attributable to common stockholders $ 77,691 10,756 $ 7.22 $ 59,745 10,725 $ 5.57 Effect of dilutive securities (1) SARs and restricted stock — 78 ( 0.05 ) — 56 ( 0.03 ) Diluted EPS $ 77,691 10,834 $ 7.17 $ 59,745 10,781 $ 5.54 (1) For the nine months ended September 30, 2021 and 2020, SARs and restricted stock of 52,434 and 78,963 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the nine months ended September 30, 2021 and 2020, contingent shares of unvested restricted stock of 18,183 and 12,680 , respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met. (b) Comprehensive Income Comprehensive income represents all changes in stockholders' equity except those resulting from investments by or distributions to stockholders, and is comprised of net income and unrealized gains and losses on available-for-sale securities, certain held-to-maturity securities transferred from the available-for-sale classification, and cash flow hedges, net of related taxes. 11 The following table presents the changes in accumulated other comprehensive income ("AOCI"), net of tax, by component for the three and nine months ended September 30, 2021 and 2020. Table 1.3 As of September 30, 2021 As of September 30, 2020 Available-for-Sale Securities Held-to-Maturity Securities Cash Flow Hedges Total Available-for-Sale Securities Held-to-Maturity Securities Cash Flow Hedges Total (in thousands) For the Three Months Ended: Beginning Balance $ 8,954 $ 19,819 $ ( 12,040 ) $ 16,733 $ ( 88,261 ) $ 26,379 $ ( 29,615 ) $ ( 91,497 ) Other comprehensive income before reclassifications 1,275 — 1,049 2,324 38,099 — 904 39,003 Amounts reclassified from AOCI ( 493 ) ( 1,884 ) 1,526 ( 851 ) ( 783 ) ( 1,993 ) 1,433 ( 1,343 ) Net comprehensive income/(loss) 782 ( 1,884 ) 2,575 1,473 37,316 ( 1,993 ) 2,337 37,660 Ending Balance $ 9,736 $ 17,935 $ ( 9,465 ) $ 18,206 $ ( 50,945 ) $ 24,386 $ ( 27,278 ) $ ( 53,837 ) For the Nine Months Ended: Beginning Balance $ ( 13,937 ) $ 22,829 $ ( 22,815 ) $ ( 13,923 ) $ ( 43,397 ) $ 32,845 $ ( 5,609 ) $ ( 16,161 ) Other comprehensive income/(loss) before reclassifications 25,734 — 9,041 34,775 ( 5,210 ) — ( 24,684 ) ( 29,894 ) Amounts reclassified from AOCI ( 2,061 ) ( 4,894 ) 4,309 ( 2,646 ) ( 2,338 ) ( 8,459 ) 3,015 ( 7,782 ) Net comprehensive income/(loss) 23,673 ( 4,894 ) 13,350 32,129 ( 7,548 ) ( 8,459 ) ( 21,669 ) ( 37,676 ) Ending Balance $ 9,736 $ 17,935 $ ( 9,465 ) $ 18,206 $ ( 50,945 ) $ 24,386 $ ( 27,278 ) $ ( 53,837 ) 12 The following table presents other comprehensive income activity, the impact on net income of amounts reclassified from each component of AOCI, and the related tax impact for the three and nine months ended September 30, 2021 and 2020: Table 1.4 For the Three Months Ended September 30, 2021 September 30, 2020 Before Tax Provision (Benefit) After Tax Before Tax Provision (Benefit) After Tax (in thousands) Other comprehensive income: Available-for-sale-securities: Unrealized holding gains on available-for-sale securities $ 1,614 $ 339 $ 1,275 $ 48,226 $ 10,127 $ 38,099 Less reclassification adjustments included in: Net interest income (1) ( 362 ) ( 76 ) ( 286 ) ( 976 ) ( 205 ) ( 771 ) Gains on sale of available-for-sale investment securities (2) ( 253 ) ( 53 ) ( 200 ) — — — Other income (3) ( 8 ) ( 1 ) ( 7 ) ( 15 ) ( 3 ) ( 12 ) Total $ 991 $ 209 $ 782 $ 47,235 $ 9,919 $ 37,316 Held-to-maturity securities: Less reclassification adjustments included in: Net interest income (4) ( 2,385 ) ( 501 ) ( 1,884 ) ( 2,523 ) ( 530 ) ( 1,993 ) Total $ ( 2,385 ) $ ( 501 ) $ ( 1,884 ) $ ( 2,523 ) $ ( 530 ) $ ( 1,993 ) Cash flow hedges Unrealized gains on cash flow hedges $ 1,326 $ 277 $ 1,049 $ 1,145 $ 241 $ 904 Less reclassification adjustments included in: Net interest income (5) 1,932 406 1,526 1,814 381 1,433 Total $ 3,258 $ 683 $ 2,575 $ 2,959 $ 622 $ 2,337 Other comprehensive income $ 1,864 $ 391 $ 1,473 $ 47,671 $ 10,011 $ 37,660 (1) Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting. (2) Represents unrealized gains and losses on sales of available-for-sale securities. (3) Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities. (4) Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the remaining life of the security with no impact on future net income. (5) Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI. 13 For the Nine Months Ended September 30, 2021 September 30, 2020 Before Tax Provision (Benefit) After Tax Before Tax Provision (Benefit) After Tax (in thousands) Other comprehensive income: Available-for-sale-securities: Unrealized holding gains/(losses) on available-for-sale securities $ 32,574 $ 6,840 $ 25,734 $ ( 6,596 ) $ ( 1,386 ) $ ( 5,210 ) Less reclassification adjustments included in: Net interest income (1) ( 2,333 ) ( 490 ) ( 1,843 ) ( 2,916 ) ( 612 ) ( 2,304 ) Gains on sale of available-for-sale investment securities (2) ( 253 ) ( 53 ) ( 200 ) — — — Other income (3) ( 22 ) ( 4 ) ( 18 ) ( 42 ) ( 8 ) ( 34 ) Total $ 29,966 $ 6,293 $ 23,673 $ ( 9,554 ) $ ( 2,006 ) $ ( 7,548 ) Held-to-maturity securities: Less reclassification adjustments included in: Net interest income (4) ( 6,195 ) ( 1,301 ) ( 4,894 ) ( 10,707 ) ( 2,248 ) ( 8,459 ) Total $ ( 6,195 ) $ ( 1,301 ) $ ( 4,894 ) $ ( 10,707 ) $ ( 2,248 ) $ ( 8,459 ) Cash flow hedges Unrealized gains/(losses) on cash flow hedges $ 11,445 $ 2,404 $ 9,041 $ ( 31,246 ) $ ( 6,562 ) $ ( 24,684 ) Less reclassification adjustments included in: Net interest income (5) 5,454 1,145 4,309 3,817 802 3,015 Total $ 16,899 $ 3,549 $ 13,350 $ ( 27,429 ) $ ( 5,760 ) $ ( 21,669 ) Other comprehensive income/(loss) $ 40,670 $ 8,541 $ 32,129 $ ( 47,690 ) $ ( 10,014 ) $ ( 37,676 ) (1) Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting. (2) Represents unrealized gains and losses on sales of available-for-sale securities. (3) Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities. (4) Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the remaining life of the security with no impact on future net income. (5) Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI. (c) Custodial Deposit Liability During the third quarter, Farmer Mac acquired the loan servicing rights for a sizeable portion of its Farm & Ranch loan and USDA Guaranteed Securities portfolios. In connection with this acquisition, Farmer Mac now collects cash from borrowers in advance of the borrower's contractual payment date. Farmer Mac's policy is to include the cash in the consolidated balance sheet as "Cash and cash equivalents" with an offsetting liability to "Accounts payable and accrued expenses" until the contractual payment is due, at which point the payment is applied to the loan. The net change in the amount of this custodial cash will also be disclosed in the consolidated statements of cash flows as "Custodial deposit liability". 14 (d) New Accounting Standards Recently Adopted Accounting Guidance Standard Description Date of Adoption Effect on Consolidated Financial Statements ASU 2020-04 and 2021-01 , Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting The amendments in this Update provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. They provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. January 1, 2020 Farmer Mac adopted optional expedients specific to discounting transition on a retrospective basis, and as a result of this election, the discounting transition did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. 2. INVESTMENT SECURITIES The following tables set forth information about Farmer Mac's available-for-sale and held-to-maturity investment securities as of September 30, 2021 and December 31, 2020: Table 2.1 As of September 30, 2021 Amount Outstanding Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,700 $ — $ 19,700 $ ( 52 ) $ — $ ( 148 ) $ 19,500 Floating rate Government/GSE guaranteed mortgage-backed securities 2,386,373 4,127 2,390,500 — 14,827 ( 2,253 ) 2,403,074 Fixed rate GSE guaranteed mortgage-backed securities 28,170 791 28,961 — 21 ( 85 ) 28,897 Fixed rate U.S. Treasuries 1,239,500 5,405 1,244,905 — 162 ( 334 ) 1,244,733 Total available-for-sale 3,673,743 10,323 3,684,066 ( 52 ) 15,010 ( 2,820 ) 3,696,204 Held-to-maturity: Floating rate Government/GSE guaranteed mortgage-backed securities (3) 45,032 — 45,032 — 996 — 46,028 Total held-to-maturity $ 45,032 $ — $ 45,032 $ — $ 996 $ — $ 46,028 (1) Amounts presented exclude $ 4.7 million of accrued interest receivable on investment securities as of September 30, 2021. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statement of operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The held-to-maturity investment securities had a weighted average yield of 1.5 % as of September 30, 2021. 15 As of December 31, 2020 Amount Outstanding Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,700 $ — $ 19,700 $ ( 36 ) $ — $ ( 493 ) $ 19,171 Floating rate asset-backed securities 6,232 — 6,232 — — ( 1 ) 6,231 Floating rate Government/GSE guaranteed mortgage-backed securities 2,350,963 ( 44 ) 2,350,919 — 12,150 ( 3,043 ) 2,360,026 Fixed rate GSE guaranteed mortgage-backed securities 279 — 279 — 34 — 313 Fixed rate U.S. Treasuries 1,449,408 17,128 1,466,536 — 1,458 ( 43 ) 1,467,951 Total available-for-sale 3,826,582 17,084 3,843,666 ( 36 ) 13,642 ( 3,580 ) 3,853,692 Held-to-maturity: Floating rate Government/GSE guaranteed mortgage-backed securities (3) 45,032 — 45,032 — 1,201 — 46,233 Total held-to-maturity $ 45,032 $ — $ 45,032 $ — $ 1,201 $ — $ 46,233 (1) Amounts presented exclude $ 9.0 million of accrued interest receivable on investment securities as of December 31, 2020. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statement of operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The held-to-maturity investment securities had a weighted average yield of 1.5 % as of December 31, 2020. During the three and nine months ended September 30, 2021, Farmer Mac received proceeds of $ 232.0 million and $ 257.5 million, respectively, from the sale of securities from its available-for-sale investment portfolio, resulting in gains of $ 0.3 million and $ 0.3 million, respectively. Farmer Mac did no t sell any securities from its available-for-sale investment portfolio during the three and nine months ended September 30, 2020. 16 As of September 30, 2021 and December 31, 2020, unrealized losses on available-for-sale investment securities were as follows: Table 2.2 As of September 30, 2021 Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (dollars in thousands) Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,500 $ ( 148 ) Floating rate Government/GSE guaranteed mortgage-backed securities 155,001 ( 1,823 ) 29,211 ( 430 ) Fixed rate Government/GSE guaranteed mortgage-backed securities 28,706 ( 85 ) — — Fixed rate U.S. Treasuries 472,909 ( 334 ) — — Total $ 656,616 $ ( 2,242 ) $ 48,711 $ ( 578 ) Number of securities in loss position 21 24 As of December 31, 2020 Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (dollars in thousands) Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,171 $ ( 493 ) Floating rate asset-backed securities — — 6,231 ( 1 ) Floating rate Government/GSE guaranteed mortgage-backed securities 172,842 ( 593 ) 324,423 ( 2,450 ) Fixed rate U.S. Treasuries 364,320 ( 43 ) — — Total $ 537,162 $ ( 636 ) $ 349,825 $ ( 2,944 ) Number of securities in loss position 27 62 The unrealized losses presented above are principally due to a general widening of market spreads and changes in the levels of interest rates from the dates of acquisition to September 30, 2021 and December 31, 2020, as applicable. The resulting decrease in fair values reflects an increase in the perceived risk by the financial markets related to those securities. As of both September 30, 2021 and December 31, 2020, all of the investment securities in an unrealized loss position either were backed by the full faith and credit of the U.S. government or had credit ratings of at least "AA+." Securities in unrealized loss positions for 12 months or longer have a fair value as of September 30, 2021 that is, on average, approximately 98.8 % of their amortized cost basis. Farmer Mac believes that all of these unrealized losses are recoverable within a reasonable period of time by way of maturity or changes in credit spreads. 17 The amortized cost, fair value, and weighted-average yield of available-for-sale investment securities by remaining contractual maturity as of September 30, 2021 are set forth below. Asset-backed and mortgage-backed securities are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets. Table 2.3 As of September 30, 2021 Available-for-Sale Securities Amortized Cost Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 678,261 $ 678,387 1.64 % Due after one year through five years 845,628 846,303 0.55 % Due after five years through ten years 1,446,607 1,450,446 0.64 % Due after ten years 713,570 721,068 0.64 % Total $ 3,684,066 $ 3,696,204 0.81 % 3. FARMER MAC GUARANTEED SECURITIES AND USDA SECURITIES The following tables set forth information about on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities as of September 30, 2021 and December 31, 2020: Table 3.1 As of September 30, 2021 Unpaid Principal Balance Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Held-to-maturity: AgVantage $ 2,220,224 $ ( 13 ) $ 2,220,211 $ ( 173 ) $ 13,626 $ ( 8,134 ) $ 2,225,530 Farmer Mac Guaranteed USDA Securities 28,227 38 28,265 — 936 — 29,201 Total Farmer Mac Guaranteed Securities 2,248,451 25 2,248,476 ( 173 ) 14,562 ( 8,134 ) 2,254,731 USDA Securities 2,429,950 27,267 2,457,217 — 86,988 ( 791 ) 2,543,414 Total held-to-maturity $ 4,678,401 $ 27,292 $ 4,705,693 $ ( 173 ) $ 101,550 $ ( 8,925 ) $ 4,798,145 Available-for-sale: AgVantage $ 5,908,666 $ 1,323 $ 5,909,989 $ ( 290 ) $ 245,361 $ ( 16,301 ) $ 6,138,759 Trading: USDA Securities (3) $ 4,632 $ 115 $ 4,747 $ — $ 48 $ ( 2 ) $ 4,793 (1) Amounts presented exclude $ 30.4 million, $ 37.5 million, and $ 0.1 million of accrued interest receivable on available-for-sale, held-to-maturity, and trading securities, respectively, as of September 30, 2021. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the statement of financial operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The trading USDA securities had a weighted average yield of 5.13 % as of September 30, 2021. 18 As of December 31, 2020 Unpaid Principal Balance Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Held-to-maturity: AgVantage $ 1,141,430 $ ( 55 ) $ 1,141,375 $ ( 120 ) $ 23,986 $ ( 61 ) $ 1,165,180 Farmer Mac Guaranteed USDA Securities 34,456 81 34,537 — 1,273 — 35,810 Total Farmer Mac Guaranteed Securities 1,175,886 26 1,175,912 ( 120 ) 25,259 ( 61 ) 1,200,990 USDA Securities 2,446,550 27,076 2,473,626 — 157,748 ( 560 ) 2,630,814 Total held-to-maturity $ 3,622,436 $ 27,102 $ 3,649,538 $ ( 120 ) $ 183,007 $ ( 621 ) $ 3,831,804 Available-for-sale: AgVantage $ 6,593,518 $ 1,474 $ 6,594,992 $ ( 310 ) $ 368,257 $ ( 15,238 ) $ 6,947,701 Trading: USDA Securities (3) $ 6,413 $ 198 $ 6,611 $ — $ 84 $ — $ 6,695 (1) Amounts presented exclude $ 32.3 million, $ 44.7 million, and $ 0.2 million of accrued interest receivable on available-for-sale, held-to-maturity, and trading securities, respectively, as of December 31, 2020. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the statement of financial operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The trading USDA securities had a weighted average yield of 5.05 % as of December 31, 2020. As of September 30, 2021 and December 31, 2020, unrealized losses on held-to-maturity and available-for-sale on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities were as follows: Table 3.2 As of September 30, 2021 Held-to-Maturity and Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (in thousands) Held-to-maturity: AgVantage $ 1,596,866 $ ( 8,134 ) $ — $ — USDA Securities — — 16,671 ( 791 ) Total held-to-maturity $ 1,596,866 $ ( 8,134 ) $ 16,671 $ ( 791 ) Available-for-sale: AgVantage $ 1,204,379 $ ( 13,381 ) $ 90,853 $ ( 2,920 ) 19 As of December 31, 2020 Held-to-Maturity and Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (in thousands) Held-to-maturity: AgVantage $ 49,939 $ ( 61 ) $ — $ — USDA Securities — — 21,061 ( 560 ) Total held-to-maturity $ 49,939 $ ( 61 ) $ 21,061 $ ( 560 ) Available-for-sale: AgVantage $ 133,703 $ ( 231 ) $ 981,757 $ ( 15,007 ) The unrealized losses presented above are principally due to changes in interest rates from the date of acquisition to September 30, 2021 and December 31, 2020, as applicable. The unrealized losses on the held-to-maturity USDA Securities as of both September 30, 2021 and December 31, 2020 reflect their increased cost basis resulting from their transfer to held-to-maturity as of October 1, 2016. The credit exposure related to Farmer Mac's USDA Guarantees line of business is covered by the full faith and credit guarantee of the United States of America. The unrealized losses from AgVantage securities were on 11 available-for-sale securities as of both September 30, 2021 and December 31, 2020. There were 8 and 2 held-to-maturity AgVantage securities with an unrealized loss as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021 and December 31, 2020, 2 and 7 available-for-sale AgVantage securities, respectively, had been in a loss position for more than 12 months. During the three and nine months ended September 30, 2021 and 2020, Farmer Mac had no sales of Farmer Mac Guaranteed Securities or USDA Securities and, therefore, Farmer Mac realized no gains or losses. 20 The amortized cost, fair value, and weighted-average yield of available-for-sale and held-to-maturity Farmer Mac Guaranteed Securities and USDA Securities by remaining contractual maturity as of September 30, 2021 are set forth below. The balances presented are based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets. Table 3.3 As of September 30, 2021 Available-for-Sale Securities Amortized Cost (1) Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 1,643,186 $ 1,653,306 1.59 % Due after one year through five years 1,821,449 1,899,828 2.70 % Due after five years through ten years 865,954 897,786 2.11 % Due after ten years 1,579,400 1,687,839 2.46 % Total $ 5,909,989 $ 6,138,759 2.24 % (1) Amounts presented exclude $ 30.4 million of accrued interest receivable. As of September 30, 2021 Held-to-Maturity Securities Amortized Cost (1) Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 1,442,247 $ 1,443,316 0.74 % Due after one year through five years 834,861 840,125 2.08 % Due after five years through ten years 248,841 257,529 2.79 % Due after ten years 2,179,744 2,257,175 3.17 % Total $ 4,705,693 $ 4,798,145 2.19 % (1) Amounts presented exclude $ 37.5 million of accrued interest receivable. 4. FINANCIAL DERIVATIVES Farmer Mac enters into financial derivative transactions to protect against risk from the effects of market price, or interest rate movements, on the value of certain assets, future cash flows, or debt issuance, and not for trading or speculative purposes. For more information about Farmer Mac's financial derivatives, see Note 6 in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on February 25, 2021. The following tables summarize information related to Farmer Mac's financial derivatives on a gross basis without giving consideration to master netting arrangements as of September 30, 2021 and December 31, 2020: 21 Table 4.1 As of September 30, 2021 Fair Value Weighted- Average Pay Rate Weighted- Average Receive Rate Weighted- Average Forward Price Weighted- Average Remaining Term (in years) Notional Amount Asset (Liability) (dollars in thousands) Fair value hedges: Interest rate swaps: Pay fixed non-callable $ 5,322,606 $ 7,407 $ ( 770 ) 2.20 % 0.12 % 12.13 Receive fixed non-callable 4,748,529 22 ( 9,657 ) 0.17 % 0.90 % 2.17 Receive fixed callable 1,459,577 1,246 ( 5,108 ) 0.02 % 0.73 % 4.06 Cash flow hedges: Interest rate swaps: Pay fixed non-callable 535,000 6,121 ( 4,149 ) 1.96 % 0.49 % 5.69 No hedge designation: Interest rate swaps: Pay fixed non-callable 238,809 — ( 5,826 ) 3.31 % 0.14 % 4.99 Receive fixed non-callable 1,373,250 — — 0.10 % 0.50 % 0.94 Basis swaps 2,088,911 902 ( 135 ) 0.14 % 0.18 % 2.77 Treasury futures 154,500 — — 131.61 Credit valuation adjustment ( 30 ) 12 Total financial derivatives $ 15,921,182 $ 15,668 $ ( 25,633 ) Collateral (held)/pledged ( 2,198 ) 175,189 Net amount $ 13,470 $ 149,556 22 As of December 31, 2020 Fair Value Weighted- Average Pay Rate Weighted- Average Receive Rate Weighted- Average Forward Price Weighted- Average Remaining Term (in years) Notional Amount Asset (Liability) (dollars in thousands) Fair value hedges: Interest rate swaps: Pay fixed non-callable $ 5,463,303 $ 10,157 $ ( 2,585 ) 2.26 % 0.21 % 11.95 Receive fixed non-callable 2,611,029 2 ( 8,755 ) 0.32 % 1.61 % 2.10 Receive fixed callable 343,500 3,108 ( 4 ) 0.16 % 1.78 % 3.16 Cash flow hedges: Interest rate swaps: Pay fixed non-callable 472,000 2,584 ( 8,771 ) 2.04 % 0.57 % 6.04 No hedge designation: Interest rate swaps: Pay fixed non-callable 339,090 — ( 9,675 ) 2.38 % 0.19 % 4.23 Receive fixed non-callable 2,359,220 — — 0.16 % 0.87 % 1.07 Receive fixed callable 200,000 1 ( 12 ) 0.13 % 0.15 % 0.72 Basis swaps 3,628,911 1,617 ( 43 ) 0.18 % 0.23 % 2.03 Treasury futures 30,500 — ( 82 ) 137.81 Credit valuation adjustment ( 1 ) 35 Total financial derivatives $ 15,447,553 $ 17,468 $ ( 29,892 ) Collateral (held)/pledged ( 1,345 ) 212,263 Net amount $ 16,123 $ 182,371 As of September 30, 2021, Farmer Mac expects to reclassify $ 5.7 million after-tax from accumulated other comprehensive income to earnings over the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges after September 30, 2021. During the three and nine months ended September 30, 2021 and 2020, there were no gains or losses from interest rate swaps designated as cash flow hedges reclassified to earnings because it was probable that the originally forecasted transactions would occur. 23 The following table summarizes the net income/(expense) recognized in the consolidated statements of operations related to derivatives for the three and nine months ended September 30, 2021 and 2020: Table 4.2 For the Three Months Ended September 30, 2021 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Investments and Cash Equivalents Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Losses on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations $ 4,121 $ 38,428 $ 61,923 $ ( 49,467 ) $ ( 2,347 ) $ 52,658 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 141 ) ( 20,925 ) ( 6,911 ) 10,886 — ( 17,091 ) Recognized on hedged items 274 28,937 11,817 ( 12,940 ) — 28,088 Discount amortization recognized on hedged items — — — ( 287 ) — ( 287 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 133 $ 8,012 $ 4,906 $ ( 2,341 ) $ — $ 10,710 Gains/(losses) on fair value hedging relationships: Recognized on derivatives $ 1,827 $ 30,060 $ 19,652 $ ( 9,727 ) $ — $ 41,812 Recognized on hedged items ( 1,737 ) ( 31,523 ) ( 19,184 ) 8,712 — ( 43,732 ) Gains/(losses) on fair value hedging relationships $ 90 $ ( 1,463 ) $ 468 $ ( 1,015 ) $ — $ ( 1,920 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ — $ ( 1,932 ) $ — $ ( 1,932 ) Recognized on hedged items — — — ( 685 ) — ( 685 ) Discount amortization recognized on hedged items — — — ( 11 ) — ( 11 ) Expense recognized on cash flow hedges $ — $ — $ — $ ( 2,628 ) $ — $ ( 2,628 ) Losses on financial derivatives not designated in hedging relationships: Losses on interest rate swaps $ — $ — $ — $ — $ ( 2,093 ) $ ( 2,093 ) Interest expense on interest rate swaps — — — — 168 168 Treasury futures — — — — ( 422 ) ( 422 ) Losses on financial derivatives not designated in hedge relationships $ — $ — $ — $ — $ ( 2,347 ) $ ( 2,347 ) 24 For The Three Months Ended September 30, 2020 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Losses on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations: $ 45,335 $ 56,204 $ ( 63,974 ) $ ( 564 ) $ 37,001 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 20,373 ) ( 6,194 ) 9,605 — ( 16,962 ) Recognized on hedged items 31,439 10,965 ( 12,328 ) — 30,076 Discount amortization recognized on hedged items — — ( 191 ) — ( 191 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 11,066 $ 4,771 $ ( 2,914 ) $ — $ 12,923 (Losses)/gains on fair value hedging relationships: Recognized on derivatives $ 38,363 $ 28,198 $ ( 9,665 ) $ — $ 56,896 Recognized on hedged items ( 41,855 ) ( 29,372 ) 9,284 — ( 61,943 ) (Losses)/gains on fair value hedging relationships $ ( 3,492 ) $ ( 1,174 ) $ ( 381 ) $ — $ ( 5,047 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ ( 1,814 ) $ — $ ( 1,814 ) Recognized on hedged items — — ( 711 ) — ( 711 ) Discount amortization recognized on hedged items — — ( 4 ) — ( 4 ) Expense recognized on cash flow hedges $ — $ — $ ( 2,529 ) $ — $ ( 2,529 ) Losses on financial derivatives not designated in hedge relationships: Losses on interest rate swaps $ — $ — $ — $ ( 4,292 ) $ ( 4,292 ) Interest expense on interest rate swaps — — — 3,800 3,800 Treasury futures — — — ( 72 ) ( 72 ) Losses on financial derivatives not designated in hedge relationships $ — $ — $ — $ ( 564 ) $ ( 564 ) 25 For the Nine Months Ended September 30, 2021 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Investments and Cash Equivalents Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Losses on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations $ 14,107 $ 123,246 $ 181,631 $ ( 155,599 ) $ ( 1,120 ) $ 162,265 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 177 ) ( 63,966 ) ( 20,185 ) 30,178 — ( 54,150 ) Recognized on hedged items 341 90,278 34,940 ( 36,889 ) — 88,670 Discount amortization recognized on hedged items — — — ( 765 ) — ( 765 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 164 $ 26,312 $ 14,755 $ ( 7,476 ) $ — $ 33,755 Gains/(losses) on fair value hedging relationships: Recognized on derivatives $ 1,651 $ 149,457 $ 100,276 $ ( 41,838 ) $ — $ 209,546 Recognized on hedged items ( 1,549 ) ( 150,445 ) ( 99,955 ) 39,104 — ( 212,845 ) Gains/(losses) on fair value hedging relationships $ 102 $ ( 988 ) $ 321 $ ( 2,734 ) $ — $ ( 3,299 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ — $ ( 5,454 ) $ — $ ( 5,454 ) Recognized on hedged items — — — ( 1,983 ) — ( 1,983 ) Discount amortization recognized on hedged items — — — ( 25 ) — ( 25 ) Expense recognized on cash flow hedges $ — $ — $ — $ ( 7,462 ) $ — $ ( 7,462 ) Losses on financial derivatives not designated in hedging relationships: Losses on interest rate swaps $ — $ — $ — $ — $ ( 4,363 ) $ ( 4,363 ) Interest expense on interest rate swaps — — — — 3,489 3,489 Treasury futures — — — — ( 246 ) ( 246 ) Losses on financial derivatives not designated in hedge relationships $ — $ — $ — $ — $ ( 1,120 ) $ ( 1,120 ) 26 For The Nine Months Ended September 30, 2020 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Losses on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations: $ 178,644 $ 172,230 $ ( 251,789 ) $ ( 3,339 ) $ 95,746 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 38,781 ) ( 12,607 ) 16,671 — ( 34,717 ) Recognized on hedged items 95,366 29,454 ( 39,325 ) — 85,495 Discount amortization recognized on hedged items — — ( 552 ) — ( 552 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 56,585 $ 16,847 $ ( 23,206 ) $ — $ 50,226 (Losses)/gains on fair value hedging relationships: Recognized on derivatives $ ( 264,797 ) $ ( 124,322 ) $ 52,991 $ — $ ( 336,128 ) Recognized on hedged items 257,575 119,072 ( 53,628 ) — 323,019 (Losses)/gains on fair value hedging relationships $ ( 7,222 ) $ ( 5,250 ) $ ( 637 ) $ — $ ( 13,109 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ ( 3,817 ) $ — $ ( 3,817 ) Recognized on hedged items — — ( 3,863 ) — ( 3,863 ) Discount amortization recognized on hedged items — — ( 6 ) — ( 6 ) Expense recognized on cash flow hedges $ — $ — $ ( 7,686 ) $ — $ ( 7,686 ) (Losses)/gains on financial derivatives not designated in hedge relationships: Losses on interest rate swaps $ — $ — $ — $ ( 2,415 ) $ ( 2,415 ) Interest expense on interest rate swaps — — — 1,143 1,143 Treasury futures — — — ( 2,067 ) ( 2,067 ) (Losses)/gains on financial derivatives not designated in hedge relationships $ — $ — $ — $ ( 3,339 ) $ ( 3,339 ) 27 The following table shows the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships as of September 30, 2021 and December 31, 2020: Table 4.3 Hedged Items in Fair Value Relationship Carrying Amount of Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustments included in the Carrying Amount of the Hedged Assets/(Liabilities) September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020 (in thousands) Investment securities, Available-for-Sale, at fair value $ 167,970 $ — $ ( 1,549 ) $ — Farmer Mac Guaranteed Securities, Available-for-Sale, at fair value (1) 3,798,859 4,244,027 232,379 382,825 Loans held for investment, at amortized cost (2) 1,604,954 1,692,609 11,378 111,333 Notes Payable (3) ( 5,730,114 ) ( 3,006,140 ) ( 14,136 ) ( 53,240 ) (1) Includes $ 1.4 million and $ 1.6 million of hedging adjustments on discontinued hedging relationships as of September 30, 2021 and December 31, 2020, respectively. (2) Includes $ 1.2 million and $ 1.4 million of hedging adjustments on a discontinued hedging relationship as of September 30, 2021 and December 31, 2020, respectively. (3) Carrying amount represents amortized cost. The following table shows Farmer Mac's credit exposure to interest rate swap counterparties as of September 30, 2021 and December 31, 2020: Table 4.4 September 30, 2021 Gross Amount Recognized (1) Counterparty Netting Net Amount Presented in the Consolidated Balance Sheet (in thousands) Assets: Derivatives Interest rate swap $ 116,064 $ 113,901 $ 2,163 Liabilities: Derivatives Interest rate swap $ 397,989 $ 388,194 $ 9,795 (1) Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest. December 31, 2020 Gross Amount Recognized (1) Counterparty Netting Net Amount Presented in the Consolidated Balance Sheet (in thousands) Assets: Derivatives Interest rate swaps $ 112,287 $ 111,761 $ 526 Liabilities: Derivatives Interest rate swaps $ 620,236 $ 595,867 $ 24,369 28 (1) Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest. As of September 30, 2021, Farmer Mac held $ 2.2 million of cash and no investment securities as collateral for its derivatives in net asset positions, compared to $ 1.3 million of cash and no investment securities as collateral for its derivatives in net asset positions as of December 31, 2020. Farmer Mac posted $ 6.0 million cash and $ 169.2 million of investment securities as of September 30, 2021 and posted $ 11.2 million cash and $ 201.1 million investment securities as of December 31, 2020. Farmer Mac records posted cash as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of prepaid expenses and other assets. Any investment securities posted as collateral are included in the investment securities balances on the consolidated balance sheets. If Farmer Mac had breached certain provisions of the derivative contracts as of September 30, 2021 and December 31, 2020, it could have been required to settle its obligations under the agreements, but would not have been required to post additional collateral. As of September 30, 2021 and December 31, 2020, there were no financial derivatives in a net payable position where Farmer Mac was required to pledge collateral which the counterparty had the right to sell or repledge. Of Farmer Mac's $ 15.8 billion notional amount of interest rate swaps outstanding as of September 30, 2021, $ 13.2 billion were cleared through the swap clearinghouse, the Chicago Mercantile Exchange ("CME"). Of Farmer Mac's $ 15.4 billion notional amount of interest rate swaps outstanding as of December 31, 2020, $ 12.8 billion were cleared through the CME. During the first nine months of 2021, Farmer Mac continued the use of non-cleared basis swaps to prepare for the transition away from the use of LIBOR as a reference rate. 5. LOANS Farmer Mac classifies loans as either held for investment or held for sale. Loans held for investment are recorded at the unpaid principal balance, net of unamortized premium or discount and other cost basis adjustments. Loans held for sale are reported at the lower of cost or fair value determined on a pooled basis. During third quarter 2021, Farmer Mac reclassified $ 301.6 million from loans held for investment to loans held for sale related to the FARM Series 2021-1 securitization. See note 11 for more information on the securitization. As of September 30, 2021 and December 31, 2020, Farmer Mac had $ 301.6 million and no loans held for sale, respectively. Farmer Mac did not record any lower of cost or fair value adjustments during the three or nine months ended September 30, 2021 related to its loans held for sale. The following table includes loans held for investment and loans held for sale and displays the composition of the loan balances as of September 30, 2021 and December 31, 2020: 29 Table 5.1 As of September 30, 2021 As of December 31, 2020 Unsecuritized In Consolidated Trusts Total Unsecuritized In Consolidated Trusts Total (in thousands) Farm & Ranch $ 5,800,376 $ 977,373 $ 6,777,749 $ 4,889,393 $ 1,287,045 $ 6,176,438 Rural Utilities 2,243,172 — 2,243,172 2,260,412 — 2,260,412 Total unpaid principal balance (1) 8,043,548 977,373 9,020,921 7,149,805 1,287,045 8,436,850 Unamortized premiums, discounts, fair value hedge basis adjustment, and other cost basis adjustments 16,288 — 16,288 112,128 — 112,128 Total loans 8,059,836 977,373 9,037,209 7,261,933 1,287,045 8,548,978 Allowance for losses ( 13,621 ) ( 673 ) ( 14,294 ) ( 12,943 ) ( 889 ) ( 13,832 ) Total loans, net of allowance $ 8,046,215 $ 976,700 $ 9,022,915 $ 7,248,990 $ 1,286,156 $ 8,535,146 (1) Unpaid principal balance is the basis of presentation in disclosures of outstanding balances for Farmer Mac's lines of business. 30 Allowance for Losses The following table is a summary, by asset type, of the allowance for losses as of September 30, 2021 and December 31, 2020: Table 5.2 September 30, 2021 December 31, 2020 Allowance for Losses Allowance for Losses (in thousands) Loans: Farm & Ranch $ 3,506 $ 3,745 Rural Utilities 10,788 10,087 Total $ 14,294 $ 13,832 The following is a summary of the changes in the allowance for losses for the three and nine month period ended September 30, 2021 and 2020: Table 5.3 For the Three Months Ended For the Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Allowance for Losses Allowance for Losses Allowance for Losses Allowance for Losses (in thousands) Farm & Ranch: Beginning Balance $ 3,092 $ 6,039 $ 3,745 $ 10,454 Cumulative effect adjustment from adoption of current expected credit loss standard — — — ( 3,909 ) Adjusted Beginning Balance 3,092 6,039 3,745 6,545 Provision for/(release of) losses 414 ( 300 ) ( 239 ) ( 412 ) Charge-offs — — — ( 394 ) Ending Balance (1) $ 3,506 $ 5,739 $ 3,506 $ 5,739 Rural Utilities: Beginning Balance $ 10,908 $ 8,900 $ 10,087 $ — Cumulative effect adjustment from adoption of current expected credit loss standard — — — 5,378 Adjusted Beginning Balance 10,908 8,900 10,087 5,378 (Release of)/provision for losses ( 120 ) 1,182 701 4,704 Charge-offs — — — — Ending Balance (2) $ 10,788 $ 10,082 $ 10,788 $ 10,082 (1) As of September 30, 2021 and 2020, allowance for losses for Farm & Ranch includes no allowance and $ 1.8 million, respectively, for collateral dependent assets secured by agricultural real estate. (2) As of both September 30, 2021 and 2020, allowance for losses for Rural Utilities includes no allowance for collateral dependent assets. The release from the allowance for Rural Utilities loan losses of $ 0.1 million recorded during third quarter 2021 was primarily attributable to the impact of improving economic factor forecasts. The $ 0.4 million provision to the allowance for the Farm & Ranch portfolio during third quarter 2021 was primarily attributable to a decline in the economic factor forecast for commodity prices in Farmer Mac's fruit and nuts portfolio. 31 The net provision recorded to the allowance for the nine months ended September 30, 2021 was primarily a result of the impact of the Texas Arctic Freeze on the Rural Utilities portfolio, partially offset by improving economic factor forecasts. The net release from the allowance for the nine months ended September 30, 2021 was primarily a result of improving agricultural commodity prices on the Farm & Ranch portfolio in the first half of the year, partially offset by declines in the third quarter. The provision to the allowance for loan losses of $ 0.9 million recorded during third quarter 2020 was primarily due to the impact of net new loan volume in the Rural Utilities portfolio and credit downgrades on existing volume during the quarter. The impact of the Rural Utilities portfolio on the net increase to the provision was partially offset by improving economic factors that uniquely impacted the Farm & Ranch portfolio, specifically continued improvements in commodity prices and continued expectations for stable farm land values. The provision to the allowance for loan losses of $ 4.3 million recorded during the nine months ended September 30, 2020 was primarily due to the impact of net new loan volume in the Rural Utilities portfolio and the impact of economic factor forecasts on the Rural Utilities portfolio, especially continued expected higher unemployment, as a result of the COVID-19 pandemic and the resulting economic volatility. The following table presents the unpaid principal balances by delinquency status of Farmer Mac's loans and non-performing assets as of September 30, 2021 and December 31, 2020: Table 5.4 As of September 30, 2021 Accruing Current 30-59 Days 60-89 Days 90 Days and Greater (2) Total Past Due Nonaccrual loans (3)(4) Total Loans (in thousands) Loans (1) : Farm & Ranch $ 6,633,343 $ 2,345 $ 482 $ 3,655 $ 6,482 $ 137,924 $ 6,777,749 Rural Utilities 2,243,172 — — — — — 2,243,172 Total $ 8,876,515 $ 2,345 $ 482 $ 3,655 $ 6,482 $ 137,924 $ 9,020,921 (1) Amounts represent unpaid principal balance of risk rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Includes loans in consolidated trusts with beneficial interests owned by third parties that are 90 days or more past due. (3) Includes loans that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. (4) Includes $ 44.8 million of nonaccrual loans for which there was no associated allowance. During the three and nine months ended September 30, 2021, Farmer Mac received $ 1.4 million and $ 4.4 million, respectively, in interest on nonaccrual loans. 32 As of December 31, 2020 Accruing Current 30-59 Days 60-89 Days 90 Days and Greater (2) Total Past Due Nonaccrual loans (3)(4) Total Loans (in thousands) Loans (1) : Farm & Ranch $ 6,055,154 $ 4,582 $ 632 $ 1,072 $ 6,286 $ 114,998 $ 6,176,438 Rural Utilities 2,260,412 — — — — — 2,260,412 Total $ 8,315,566 $ 4,582 $ 632 $ 1,072 $ 6,286 $ 114,998 $ 8,436,850 (1) Amounts represent unpaid principal balance of risk rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Includes loans in consolidated trusts with beneficial interests owned by third parties that are 90 days or more past due. (3) Includes loans that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. (4) Includes $ 44.2 million of nonaccrual loans for which there was no associated allowance. During the year ended December 31, 2020, Farmer Mac received $ 4.4 million in interest on nonaccrual loans. Credit Quality Indicators The following tables present credit quality indicators related to Farm & Ranch loans and Rural Utilities loans held as of September 30, 2021 and December 31, 2020, by year of origination: Table 5.5 As of September 30, 2021 Year of Origination: 2021 2020 2019 2018 2017 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch (1) : Internally Assigned Risk Rating: Acceptable $ 1,570,766 $ 1,798,703 $ 660,485 $ 382,027 $ 318,043 $ 1,054,024 $ 531,063 $ 6,315,111 Special mention (2) 83,224 88,848 36,050 13,828 6,962 18,998 10,531 258,441 Substandard (3) 607 5,305 26,892 27,730 50,478 81,240 11,945 204,197 Total $ 1,654,597 $ 1,892,856 $ 723,427 $ 423,585 $ 375,483 $ 1,154,262 $ 553,539 $ 6,777,749 For the Three Months Ended September 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended September 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. 33 (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. As of September 30, 2021 Year of Origination: 2021 2020 2019 2018 2017 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities (1) : Internally Assigned Risk Rating: Acceptable $ 60,793 $ 619,772 $ 784,153 $ 8,100 $ 89,263 $ 628,903 $ 28,988 $ 2,219,972 Special mention (2) — — — — — — — — Substandard (3) — 23,200 — — — — — 23,200 Total $ 60,793 $ 642,972 $ 784,153 $ 8,100 $ 89,263 $ 628,903 $ 28,988 $ 2,243,172 For the Three Months Ended September 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended September 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 34 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch (1) : Internally Assigned Risk Rating: Acceptable $ 1,947,618 $ 774,315 $ 484,345 $ 500,768 $ 465,277 $ 1,068,693 $ 535,742 $ 5,776,758 Special mention (2) 70,171 79,744 18,317 8,530 13,111 21,328 7,656 218,857 Substandard (3) 3,400 5,821 21,879 52,709 37,173 50,582 9,259 180,823 Total $ 2,021,189 $ 859,880 $ 524,541 $ 562,007 $ 515,561 $ 1,140,603 $ 552,657 $ 6,176,438 For the Three Months Ended September 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended September 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ 394 $ — $ 394 Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ 394 $ — $ 394 (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 35 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities (1) : Internally Assigned Risk Rating: Acceptable $ 667,489 $ 809,921 $ 8,260 $ 89,842 $ 31,275 $ 641,145 $ 12,480 $ 2,260,412 Special mention (2) — — — — — — — — Substandard (3) — — — — — — — — Total $ 667,489 $ 809,921 $ 8,260 $ 89,842 $ 31,275 $ 641,145 $ 12,480 $ 2,260,412 For the Three Months Ended September 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended September 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 6. GUARANTEES AND COMMITMENTS The following table presents the maximum principal amount of potential undiscounted future payments that Farmer Mac could be required to make under all off-balance sheet Farmer Mac Guaranteed Securities as of September 30, 2021 and December 31, 2020, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans: Table 6.1 Outstanding Balance of Off-Balance Sheet Farmer Mac Guaranteed Securities As of September 30, 2021 As of December 31, 2020 (in thousands) Farm & Ranch: Farmer Mac Guaranteed Securities $ 60,349 $ 79,312 USDA Guarantees: Farmer Mac Guaranteed USDA Securities 259,893 299,298 Institutional Credit: AgVantage Securities 4,412 4,412 Total off-balance sheet Farmer Mac Guaranteed Securities $ 324,654 $ 383,022 36 Eligible loans and other eligible assets may be placed into trusts that are used as vehicles for the securitization of the transferred assets and the Farmer Mac-guaranteed beneficial interests in the trusts are sold to investors. The following table summarizes the significant cash flows received from and paid to trusts used for Farmer Mac securitizations: Table 6.2 For the Nine Months Ended September 30, 2021 September 30, 2020 (in thousands) Proceeds from new securitizations $ 84,131 $ 64,612 Guarantee fees received 848 1,136 Farmer Mac presents a liability for its obligation to stand ready under its guarantee in "Guarantee and commitment obligation" on the consolidated balance sheets. The following table presents the liability and the weighted-average remaining maturity of all loans underlying off-balance sheet Farmer Mac Guaranteed Securities: Table 6.3 As of September 30, 2021 As of December 31, 2020 (dollars in thousands) Guarantee and commitment obligation $ 1,257 $ 1,625 Weighted average remaining maturity: Farmer Mac Guaranteed Securities 8.9 years 9.5 years AgVantage Securities 3.2 years 4.0 years Long-Term Standby Purchase Commitments Farmer Mac has recorded a liability for its obligation to stand ready under the commitment in the guarantee and commitment obligation on the consolidated balance sheets. The following table presents the liability, the maximum principal amount of potential undiscounted future payments that Farmer Mac could be requested to make under all Long-Term Standby Purchase Commitments ("LTSPCs"), not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans, as well as the weighted-average remaining maturity of all loans underlying LTSPCs: Table 6.4 As of September 30, 2021 As of December 31, 2020 (dollars in thousands) Guarantee and commitment obligation (1) $ 36,270 $ 33,909 Maximum principal amount 3,181,516 2,881,856 Weighted-average remaining maturity 15.4 years 15.3 years (1) Relates to LTSPCs issued or modified on or after January 1, 2003. 37 Reserve for Losses The following table is a summary, by asset type, of the reserve for losses as of September 30, 2021 and December 31, 2020: Table 6.5 September 30, 2021 December 31, 2020 Reserve for Losses Reserve for Losses (in thousands) Farm & Ranch: LTSPCs and Farmer Mac Guaranteed Securities $ 1,103 $ 2,097 Rural Utilities LTSPCs 897 1,180 Total $ 2,000 $ 3,277 The following is a summary of the changes in the reserve for losses for the three and nine month period ended September 30, 2021 and 2020: Table 6.6 For the Three Months Ended For the Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Reserve for Losses Reserve for Losses Reserve for Losses Reserve for Losses (in thousands) Farm & Ranch: Beginning Balance $ 1,194 $ 1,650 $ 2,097 $ 2,164 Cumulative effect adjustment from adoption of current expected credit loss standard — — — ( 148 ) Adjusted Beginning Balance 1,194 1,650 2,097 2,016 (Release of)/provision for losses ( 91 ) 628 ( 994 ) 262 Charge-offs — — — — Ending Balance $ 1,103 $ 2,278 $ 1,103 $ 2,278 Rural Utilities: Beginning Balance $ 917 $ 1,370 $ 1,180 $ — Cumulative effect adjustment from adoption of current expected credit loss standard — — — 1,011 Adjusted Beginning Balance 917 1,370 1,180 1,011 (Release of)/provision for losses ( 20 ) ( 80 ) ( 283 ) 279 Charge-offs — — — — Ending Balance $ 897 $ 1,290 $ 897 $ 1,290 The release from the reserve for losses in the Rural Utilities LTSPC portfolio recorded during the three and nine months ended September 30, 2021 was primarily due to improving economic factor forecasts and ratings upgrades. The release in the Farm & Ranch LTSPC portfolio was primarily due to ratings upgrades and updated loss-given-default assumptions. 38 The provision to the reserve for losses recorded during the three and nine months ended September 30, 2020 was primarily due to credit downgrades in the LTSPC portfolio. The following table presents the unpaid principal balances by delinquency status of Farm & Ranch loans underlying LTSPCs. Farm & Ranch Farmer Mac Guaranteed Securities, Rural Utilities loans underlying LTSPCs, and non-performing assets as of September 30, 2021 and December 31, 2020: Table 6.7 As of September 30, 2021 Current 30-59 Days 60-89 Days 90 Days and Greater (1) Total Past Due Total Loans (in thousands) Farm and Ranch: LTSPCs and Farmer Mac Guaranteed Securities $ 2,659,372 $ 6,026 $ 45 $ 2,167 $ 8,238 $ 2,667,610 Rural Utilities: LTSPCs $ 574,255 $ — $ — $ — $ — $ 574,255 (1) Includes loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days of more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. As of December 31, 2020 Current 30-59 Days 60-89 Days 90 Days and Greater (1) Total Past Due Total Loans (in thousands) Farm and Ranch: LTSPCs and Farmer Mac Guaranteed Securities $ 2,389,777 $ 2,189 $ 1,344 $ 11,433 $ 14,966 $ 2,404,743 Rural Utilities: LTSPCs $ 556,425 $ — $ — $ — $ — $ 556,425 (1) Includes loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days of more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. Credit Quality Indicators The following tables present credit quality indicators related to Farm & Ranch loans underlying LTSPCs, Farm & Ranch Farmer Mac Guaranteed Securities, and Rural Utilities loans underlying LTSPCs as of September 30, 2021 and December 31, 2020, by year of origination: 39 Table 6.8 As of September 30, 2021 Year of Origination: 2021 2020 2019 2018 2017 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities: Internally Assigned Risk Rating: Acceptable $ 306,664 $ 309,938 $ 206,652 $ 189,643 $ 225,421 $ 1,054,049 $ 228,509 $ 2,520,876 Special mention (1) — 3,915 — 1,382 3,190 58,112 6,058 72,657 Substandard (2) — 220 730 10,496 12,942 45,900 3,789 74,077 Total $ 306,664 $ 314,073 $ 207,382 $ 201,521 $ 241,553 $ 1,158,061 $ 238,356 $ 2,667,610 For the Three Months Ended September 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended September 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 40 As of September 30, 2021 Year of Origination: 2021 2020 20 2019 2018 2017 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities LTSPCs: Internally Assigned Risk Rating: Acceptable $ — $ — $ — $ — $ — $ 511,743 $ 62,512 $ 574,255 Special mention (1) — — — — — — — — Substandard (2) — — — — — — — — Total $ — $ — $ — $ — $ — $ 511,743 $ 62,512 $ 574,255 For the Three Months Ended September 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended September 30, 2021: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 41 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities: Internally Assigned Risk Rating: Acceptable $ 178,213 $ 213,620 $ 183,948 $ 237,042 $ 207,296 $ 969,860 $ 211,620 $ 2,201,599 Special mention (1) 3,920 1,742 1,502 5,603 19,644 50,004 10,058 92,473 Substandard (2) 264 10,250 12,611 14,578 7,841 60,602 4,525 110,671 Total $ 182,397 $ 225,612 $ 198,061 $ 257,223 $ 234,781 $ 1,080,466 $ 226,203 $ 2,404,743 For the Three Months Ended September 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended September 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 42 As of December 31, 2020 Year of Origination: 2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Utilities LTSPCs: Internally Assigned Risk Rating: Acceptable $ — $ — $ — $ — $ — $ 549,405 $ 7,020 $ 556,425 Special mention (1) — — — — — — — — Substandard (2) — — — — — — — — Total $ — $ — $ — $ — $ — $ 549,405 $ 7,020 $ 556,425 For the Three Months Ended September 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Rural Utilities net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — For the Nine Months Ended September 30, 2020: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Current period recoveries — — — — — — — — Current period Farm & Ranch net charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 7. NOTES PAYABLE Farmer Mac's borrowings consist of discount notes and medium-term notes, both of which are unsecured general obligations of Farmer Mac. Discount notes generally have original maturities of 1.0 year or less, whereas medium-term notes generally have maturities of 0.5 years to 25.0 years. 43 The following tables set forth information related to Farmer Mac's borrowings as of September 30, 2021 and December 31, 2020: Table 7.1 September 30, 2021 Outstanding as of September 30 Average Outstanding During the Quarter Amount Weighted- Average Rate Amount Weighted- Average Rate (dollars in thousands) Due within one year: Discount notes $ 2,400,268 0.04 % $ 1,744,214 0.09 % Medium-term notes 1,276,557 0.08 % 2,247,220 0.12 % Current portion of medium-term notes 4,405,308 0.69 % Total due within one year $ 8,082,133 0.40 % Due after one year: Medium-term notes due in: Two years $ 3,692,620 0.87 % Three years 2,513,348 0.87 % Four years 1,684,685 1.01 % Five years 2,288,647 0.88 % Thereafter 4,089,552 1.73 % Total due after one year $ 14,268,852 1.14 % Total principal net of discounts $ 22,350,985 0.87 % Hedging adjustments 14,136 Total $ 22,365,121 December 31, 2020 Outstanding as of December 31 Average Outstanding During the Year Amount Weighted- Average Rate Amount Weighted- Average Rate (dollars in thousands) Due within one year: Discount notes $ 1,797,175 0.11 % $ 2,343,702 0.63 % Medium-term notes 2,645,146 0.19 % 1,593,253 0.60 % Current portion of medium-term notes 6,304,061 0.90 % Total due within one year $ 10,746,382 0.59 % Due after one year: Medium-term notes due in: Two years $ 3,004,203 1.00 % Three years 2,809,551 1.24 % Four years 927,119 1.67 % Five years 1,342,250 1.03 % Thereafter 2,966,172 1.92 % Total due after one year $ 11,049,295 1.37 % Total principal net of discounts $ 21,795,677 0.98 % Hedging adjustments 53,240 Total $ 21,848,917 44 The maximum amount of Farmer Mac's discount notes outstanding at any month end during the nine months ended September 30, 2021 and 2020 was $ 2.4 billion and $ 2.6 billion, respectively. Callable medium-term notes give Farmer Mac the option to redeem the debt at par value on a specified call date or at any time on or after a specified call date. The following table summarizes by maturity date the amounts and costs for Farmer Mac debt callable in 2021 as of September 30, 2021: Table 7.2 Debt Callable in 2021 as of September 30, 2021, by Maturity Amount Weighted-Average Rate (dollars in thousands) Maturity: 2022 $ 116,487 0.11 % 2023 210,867 0.99 % 2024 149,405 0.83 % 2025 137,896 0.66 % Thereafter 569,647 1.51 % Total $ 1,184,302 1.10 % The following schedule summarizes the earliest interest rate reset date, or debt maturities, of total borrowings outstanding as of September 30, 2021, including callable and non-callable medium-term notes, assuming callable notes are redeemed at the initial call date: Table 7.3 Earliest Interest Rate Reset Date, or Debt Maturities, of Borrowings Outstanding Amount Weighted-Average Rate (dollars in thousands) Debt with interest rate resets, or debt maturities in: 2021 $ 7,159,124 0.22 % 2022 3,242,709 0.89 % 2023 3,267,608 0.98 % 2024 1,870,603 0.98 % 2025 1,633,640 0.90 % Thereafter 5,177,301 1.63 % Total principal net of discounts $ 22,350,985 0.87 % During the nine months ended September 30, 2021 and 2020, Farmer Mac called $ 1.7 billion and $ 2.7 billion of callable medium-term notes, respectively. Authority to Borrow from the U.S. Treasury Farmer Mac's statutory charter authorizes it, upon satisfying certain conditions, to borrow up to $ 1.5 billion from the U.S. Treasury through the issuance of debt obligations to the U.S. Treasury. Any funds borrowed from the U.S. Treasury may be used solely to fulfill Farmer Mac's guarantee obligations. Any debt obligations issued by Farmer Mac under this authority would bear interest at a rate determined by the U.S. Treasury, taking into consideration the average rate on outstanding marketable obligations of the 45 United States as of the last day of the last calendar month ending before the date of the purchase of the obligations from Farmer Mac. The charter requires Farmer Mac to repurchase any of its debt obligations held by the U.S. Treasury within a reasonable time. As of September 30, 2021, Farmer Mac had not used this borrowing authority. Gains on Repurchase of Outstanding Debt During the three and nine months ended September 30, 2021, Farmer Mac repurchased $ 23.0 million of outstanding debt at a gain of $ 14,000 ; no outstanding debt repurchases were made in the three and nine months ended September 30, 2020. 8. EQUITY Preferred Stock In May 2021, Farmer Mac issued 5.0 million shares of 4.875 % non-cumulative perpetual Series G preferred stock, par value $ 25.00 per share. Farmer Mac incurred direct costs of $ 3.7 million related to the issuance of the Series G preferred stock. The dividend rate on the Series G preferred stock will remain at a non-cumulative, fixed rate of 4.875 % per year, when, as, and if a dividend is declared by the Board of Directors of Farmer Mac, for so long as the Series G preferred stock remains outstanding. The Series G preferred stock has no maturity date, but Farmer Mac has the option to redeem the preferred stock at any time on any dividend payment date on and after July 17, 2026. Common Stock During each of the first, second, and third quarters in 2021, Farmer Mac paid a quarterly dividend of $ 0.88 per share on all classes of its common stock. For each quarter in 2020, Farmer Mac paid a quarterly dividend of $ 0.80 per share on all classes of its common stock. Farmer Mac's board of directors approved a share repurchase program during third quarter 2015 authorizing Farmer Mac to repurchase up to $ 25.0 million of its outstanding Class C non-voting common stock. The share repurchase program, last modified on March 14, 2019, authorized Farmer Mac to repurchase up to $ 10.0 million of Farmer Mac's outstanding Class C non-voting common stock. During first quarter 2020, Farmer Mac repurchased approximately 4,000 shares of Class C non-voting common stock at a cost of approximately $ 0.2 million. Shortly after these repurchases were completed, Farmer Mac indefinitely suspended its share repurchase program in an effort to preserve capital and liquidity in view of market volatility and uncertainty caused by the COVID-19 pandemic. In March 2021, Farmer Mac's board of directors reinstated the share repurchase program on its previous terms (with a remaining authorization of up to $ 9.8 million in stock repurchases) and extended the expiration date of the program to March 2023. Farmer Mac did no t repurchase any shares of its Class C non-voting common stock during the first nine months of 2021. As of September 30, 2021, Farmer Mac had repurchased approximately 673,000 shares of Class C non-voting common stock at a cost of approximately $ 19.8 million under the share repurchase program since 2015. Capital Requirements Farmer Mac is required to comply with the higher of the minimum capital requirement and the risk-based capital requirement. As of both September 30, 2021 and December 31, 2020, the minimum capital 46 requirement was greater than the risk-based capital requirement. Farmer Mac's ability to declare and pay dividends could be restricted if it fails to comply with applicable capital requirements. As of September 30, 2021, Farmer Mac's minimum capital requirement was $ 699.6 million and its core capital level was $ 1.2 billion, which was $ 479.5 million above the minimum capital requirement as of that date. As of December 31, 2020, Farmer Mac's minimum capital requirement was $ 680.9 million and its core capital level was $ 1.0 billion, which was $ 325.5 million above the minimum capital requirement as of that date. In accordance with the Farm Credit Administration's rule on Farmer Mac's capital planning, and as part of Farmer Mac's capital plan, Farmer Mac has adopted a policy for maintaining a sufficient level of Tier 1 capital (consisting of retained earnings, paid-in-capital, common stock, and qualifying preferred stock) and imposing restrictions on Tier 1-eligible dividends and any discretionary bonus payments in the event that this capital falls below specified thresholds. 47 9. FAIR VALUE DISCLOSURES Fair Value Classification and Transfers The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value: Table 9.1 Assets and Liabilities Measured at Fair Value as of September 30, 2021 Level 1 Level 2 Level 3 (1) Total (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,500 $ 19,500 Floating rate Government/GSE guaranteed mortgage-backed securities — 2,403,074 — 2,403,074 Fixed rate GSE guaranteed mortgage-backed securities — 28,897 — 28,897 Fixed rate U.S. Treasuries 1,244,733 — — 1,244,733 Total Available-for-sale Investment Securities 1,244,733 2,431,971 19,500 3,696,204 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage — — 6,138,759 6,138,759 Total Farmer Mac Guaranteed Securities — — 6,138,759 6,138,759 USDA Securities: Trading — — 4,793 4,793 Total USDA Securities — — 4,793 4,793 Financial derivatives — 15,668 — 15,668 Total Assets at fair value $ 1,244,733 $ 2,447,639 $ 6,163,052 $ 9,855,424 Liabilities: Financial derivatives $ — $ 25,633 $ — $ 25,633 Total Liabilities at fair value $ — $ 25,633 $ — $ 25,633 Non-recurring: Assets Loans held for sale $ — $ — $ 324,246 $ 324,246 Total non-recurring assets at fair value $ — $ — $ 324,246 $ 324,246 (1) Level 3 assets represent 26 % of total assets and 64 % of financial instruments measured at fair value. 48 Assets and Liabilities Measured at Fair Value as of December 31, 2020 Level 1 Level 2 Level 3 (1) Total (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,171 $ 19,171 Floating rate asset-backed securities — 6,231 — 6,231 Floating rate Government/GSE guaranteed mortgage-backed securities — 2,360,026 — 2,360,026 Fixed rate GSE guaranteed mortgage-backed securities — 313 — 313 Fixed rate U.S. Treasuries 1,467,951 — — 1,467,951 Total Available-for-sale Investment Securities 1,467,951 2,366,570 19,171 3,853,692 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage — — 6,947,701 6,947,701 Total Farmer Mac Guaranteed Securities — — 6,947,701 6,947,701 USDA Securities: Trading — — 6,695 6,695 Total USDA Securities — — 6,695 6,695 Financial derivatives — 17,468 — 17,468 Total Assets at fair value $ 1,467,951 $ 2,384,038 $ 6,973,567 $ 10,825,556 Liabilities: Financial derivatives $ 82 $ 29,810 $ — $ 29,892 Total Liabilities at fair value $ 82 $ 29,810 $ — $ 29,892 (1) Level 3 assets represent 29 % of total assets and 65 % of financial instruments measured at fair value. There were no significant assets or liabilities measured at fair value on a non-recurring basis as of September 30, 2021 or December 31, 2020. Transfers in and/or out of the different levels within the fair value hierarchy are based on the fair values of the assets and liabilities as of the beginning of the reporting period. During the nine months ended September 30, 2021 and 2020, there were no transfers within the fair value hierarchy for fair value measurements of Farmer Mac's investment securities, Farmer Mac Guaranteed Securities, USDA Securities, and financial derivatives. 49 The following tables present additional information about assets and liabilities measured at fair value on a recurring basis for which Farmer Mac has used significant unobservable inputs to determine fair value. Net transfers in and/or out of Level 3 are based on the fair values of the assets and liabilities as of the beginning of the reporting period. There were no liabilities measured at fair value using significant unobservable inputs during the three and nine months ended September 30, 2021 and 2020. Table 9.2 Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended September 30, 2021 Beginning Balance Purchases Sales Settlements Allowance for Losses Realized and unrealized gains/(losses) included in Income Unrealized gains/(losses) included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,248 $ — $ — $ — $ 6 $ — $ 246 $ 19,500 Total available-for-sale 19,248 — — — 6 — 246 19,500 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 6,877,405 — — ( 708,882 ) ( 70 ) ( 31,462 ) 1,768 6,138,759 Total available-for-sale 6,877,405 — — ( 708,882 ) ( 70 ) ( 31,462 ) 1,768 6,138,759 USDA Securities: Trading 5,050 — — ( 294 ) — 37 — 4,793 Total USDA Securities 5,050 — — ( 294 ) 37 — 4,793 Total Assets at fair value $ 6,901,703 $ — $ — $ ( 709,176 ) $ ( 64 ) $ ( 31,425 ) $ 2,014 $ 6,163,052 50 Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended September 30, 2020 Beginning Balance Purchases Sales Settlements Allowance for Losses Realized and unrealized gains/(losses) included in Income Unrealized gains/(losses) included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 18,283 $ — $ — $ — $ 1 $ — $ 788 $ 19,072 Total available-for-sale 18,283 — — — 1 — 788 19,072 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 7,898,387 122,892 — ( 513,864 ) ( 96 ) ( 41,832 ) 46,151 7,511,638 Total available-for-sale 7,898,387 122,892 — ( 513,864 ) ( 96 ) ( 41,832 ) 46,151 7,511,638 USDA Securities: Trading 7,786 — — ( 697 ) — ( 259 ) — 6,830 Total USDA Securities 7,786 — — ( 697 ) ( 259 ) — 6,830 Total Assets at fair value $ 7,924,456 $ 122,892 $ — $ ( 514,561 ) $ ( 95 ) $ ( 42,091 ) $ 46,939 $ 7,537,540 Level 3 Assets and Liabilities Measured at Fair Value for the Nine Months Ended September 30, 2021 Beginning Balance Purchases Sales Settlements Allowance for Losses Realized and unrealized losses included in Income Unrealized gains included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,171 $ — $ — $ — $ ( 16 ) $ — $ 345 $ 19,500 Total available-for-sale 19,171 — — — ( 16 ) — 345 19,500 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 6,947,701 578,115 — ( 1,263,117 ) 19 ( 150,265 ) 26,306 6,138,759 Total available-for-sale 6,947,701 578,115 — ( 1,263,117 ) 19 ( 150,265 ) 26,306 6,138,759 USDA Securities: Trading 6,695 — — ( 1,864 ) — ( 38 ) — 4,793 Total USDA Securities 6,695 — — ( 1,864 ) ( 38 ) — 4,793 Total Assets at fair value $ 6,973,567 $ 578,115 $ — $ ( 1,264,981 ) $ 3 $ ( 150,303 ) $ 26,651 $ 6,163,052 51 Level 3 Assets and Liabilities Measured at Fair Value for the Nine Months Ended September 30, 2020 Beginning Balance Purchases Sales Settlements Allowance for Losses Realized and unrealized gains/(losses) included in Income Unrealized gains/(losses) included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 18,912 $ — $ — $ — $ ( 37 ) $ — $ 197 $ 19,072 Total available-for-sale 18,912 — — — ( 37 ) — 197 19,072 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 7,143,025 958,368 — ( 826,380 ) ( 330 ) 257,597 ( 20,642 ) 7,511,638 Total available-for-sale 7,143,025 958,368 — ( 826,380 ) ( 330 ) 257,597 ( 20,642 ) 7,511,638 USDA Securities: Trading 8,913 — — ( 1,910 ) — ( 173 ) — 6,830 Total USDA Securities 8,913 — — ( 1,910 ) ( 173 ) — 6,830 Total Assets at fair value $ 7,170,850 $ 958,368 $ — $ ( 828,290 ) $ ( 367 ) $ 257,424 $ ( 20,445 ) $ 7,537,540 52 The following tables present additional information about the significant unobservable inputs, such as discount rates and constant prepayment rates ("CPR"), used in the fair value measurements categorized in Level 3 of the fair value hierarchy as of September 30, 2021 and December 31, 2020: Table 9.3 As of September 30, 2021 Financial Instruments Fair Value Valuation Technique Unobservable Input Range (Weighted-Average) (in thousands) Assets: Investment securities: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,500 Indicative bids Range of broker quotes 99.3 % - 99.3 % ( 99.3 %) Farmer Mac Guaranteed Securities: AgVantage $ 6,138,759 Discounted cash flow Discount rate 0.9 % - 2.1 % ( 1.4 %) USDA Securities $ 4,793 Discounted cash flow Discount rate 1.4 % - 2.3 % ( 1.8 %) CPR 25 % - 43 % ( 34 %) As of December 31, 2020 Financial Instruments Fair Value Valuation Technique Unobservable Input Range (Weighted-Average) (in thousands) Assets: Investment securities: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,171 Indicative bids Range of broker quotes 97.5 % - 97.5 % ( 97.5 %) Farmer Mac Guaranteed Securities: AgVantage $ 6,947,701 Discounted cash flow Discount rate 0.8 % - 2.3 % ( 1.3 %) USDA Securities $ 6,695 Discounted cash flow Discount rate 0.9 % - 1.9 % ( 1.4 %) CPR 25 % - 49 % ( 44 %) The significant unobservable input used in the fair value measurements of AgVantage Farmer Mac Guaranteed Securities is the discount rate commensurate with the risks involved. Typically, significant increases (decreases) in this input in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease. Prepayment rates are not presented in the table above for AgVantage securities because they generally have fixed maturity dates when the secured general obligations are due and do not prepay. The significant unobservable inputs used in the fair value measurements of USDA Securities are the prepayment rate and discount rate commensurate with the risks involved. Typically, significant increases (decreases) in any of these inputs in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase and would likely expect a corresponding decrease in forecasted prepayment rates. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease and would likely expect a corresponding increase in forecasted prepayment rates. 53 Disclosures on Fair Value of Financial Instruments The following table sets forth the estimated fair values and carrying values for financial assets, liabilities, and guarantees and commitments as of September 30, 2021 and December 31, 2020: Table 9.4 As of September 30, 2021 As of December 31, 2020 Fair Value Carrying Amount Fair Value Carrying Amount (in thousands) Financial assets: Cash and cash equivalents $ 899,052 $ 899,052 $ 1,033,941 $ 1,033,941 Investment securities 3,742,635 3,741,639 3,899,925 3,898,724 Farmer Mac Guaranteed Securities 8,393,490 8,387,062 8,148,691 8,123,493 USDA Securities 2,548,207 2,462,010 2,637,509 2,480,321 Loans 9,526,315 9,022,915 9,167,525 8,535,146 Financial derivatives 15,668 15,668 17,468 17,468 Guarantee and commitment fees receivable 36,643 39,038 34,115 37,113 Financial liabilities: Notes payable 22,448,508 22,365,121 22,130,263 21,848,917 Debt securities of consolidated trusts held by third parties 1,039,150 990,961 1,390,330 1,323,786 Financial derivatives 25,633 25,633 29,892 29,892 Guarantee and commitment obligations 35,131 37,526 32,537 35,535 The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value and is classified as Level 1. The fair value of investments in U.S. Treasuries are valued based on unadjusted quoted prices in active markets and are classified as Level 1. A significant portion of Farmer Mac's investment portfolio is valued using a reputable nationally recognized third-party pricing service. The prices obtained are non-binding and generally representative of recent market trades and are classified as Level 2. Farmer Mac internally models the fair value of its loan portfolio, including loans held for investment and loans held for investment in consolidated trusts, Farmer Mac Guaranteed Securities, and USDA Securities by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. These fair value measurements do not take into consideration the fair value of the underlying property and are classified as Level 3. Financial derivatives primarily are valued using unadjusted counterparty valuations and are classified as Level 2. The fair value of the guarantee fees receivable/obligation and debt securities of consolidated trusts are estimated based on the present value of expected future cash flows of the underlying mortgage assets using management's best estimate of certain key assumptions, which include prepayments speeds, forward yield curves, and discount rates commensurate with the risks involved and are classified as Level 3. Notes payable are valued by discounting the expected cash flows of these instruments using a yield curve derived from market prices observed for similar agency securities and are also classified as Level 3. Because the cash flows of Farmer Mac's financial instruments may be interest rate path dependent, estimated fair values and projected discount rates for Level 3 financial instruments are derived using a Monte Carlo simulation model. Different market assumptions and estimation methodologies could significantly affect estimated fair value amounts. 54 10. BUSINESS SEGMENT REPORTING The following tables present core earnings for Farmer Mac's operating segments and a reconciliation to consolidated net income for the three and nine months ended September 30, 2021 and 2020: Table 10.1 Core Earnings by Business Segment For the Three Months Ended September 30, 2021 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 24,893 $ 6,449 $ 7,018 $ 13,707 $ 2,938 $ — $ 55,005 Less: reconciling adjustments (1)(2)(3) ( 526 ) 398 ( 554 ) 1,652 ( 50 ) ( 920 ) — Net effective spread 24,367 6,847 6,464 15,359 2,888 ( 920 ) — Guarantee and commitment fees (2) 3,831 166 320 5 — ( 1,167 ) 3,155 Other income/(expense) (3) 405 152 2 — 128 ( 2,162 ) ( 1,475 ) Non-interest income/(loss) 4,236 318 322 5 128 ( 3,329 ) 1,680 (Provision for)/release of losses ( 414 ) — 120 ( 78 ) 6 — ( 366 ) Release of reserve for losses 91 — 20 — — — 111 Other non-interest expense ( 6,275 ) ( 2,284 ) ( 1,889 ) ( 2,514 ) ( 4,145 ) — ( 17,107 ) Non-interest expense (4) ( 6,184 ) ( 2,284 ) ( 1,869 ) ( 2,514 ) ( 4,145 ) — ( 16,996 ) Core earnings before income taxes 22,005 4,881 5,037 12,772 ( 1,123 ) ( 4,249 ) (5) 39,323 Income tax (expense)/benefit ( 4,621 ) ( 1,025 ) ( 1,058 ) ( 2,682 ) 234 892 ( 8,260 ) Core earnings before preferred stock dividends 17,384 3,856 3,979 10,090 ( 889 ) ( 3,357 ) (5) 31,063 Preferred stock dividends — — — — ( 6,774 ) — ( 6,774 ) Segment core earnings/(losses) $ 17,384 $ 3,856 $ 3,979 $ 10,090 $ ( 7,663 ) $ ( 3,357 ) (5) $ 24,289 Total assets at carrying value $ 6,883,879 $ 2,522,382 $ 2,249,071 $ 8,395,286 $ 4,693,750 $ — $ 24,744,368 Total on- and off-balance sheet program assets at principal balance $ 9,445,359 $ 2,722,702 $ 2,817,427 $ 8,133,303 $ — $ — $ 23,118,791 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "Losses on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 55 Core Earnings by Business Segment For the Three Months Ended September 30, 2020 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 18,093 $ 4,747 $ 5,709 $ 14,171 $ 1,941 $ — $ 44,661 Less: reconciling adjustments (1)(2)(3) ( 68 ) 1,118 1,230 4,430 431 ( 7,141 ) — Net effective spread 18,025 5,865 6,939 18,601 2,372 ( 7,141 ) — Guarantee and commitment fees (2) 4,111 213 328 7 — ( 1,500 ) 3,159 Other income/(expense) (3) 443 135 — — ( 125 ) ( 681 ) ( 228 ) Non-interest income/(loss) 4,554 348 328 7 ( 125 ) ( 2,181 ) 2,931 Release of/(provision for) losses 300 — ( 1,182 ) 228 1 — ( 653 ) (Provision for)/release of reserve for losses ( 628 ) — 81 — — — ( 547 ) Other non-interest expense ( 5,381 ) ( 1,643 ) ( 1,438 ) ( 2,160 ) ( 3,938 ) — ( 14,560 ) Non-interest expense (4) ( 6,009 ) ( 1,643 ) ( 1,357 ) ( 2,160 ) ( 3,938 ) — ( 15,107 ) Core earnings before income taxes 16,870 4,570 4,728 16,676 ( 1,690 ) ( 9,322 ) (5) 31,832 Income tax (expense)/benefit ( 3,543 ) ( 960 ) ( 993 ) ( 3,502 ) 701 1,957 ( 6,340 ) Core earnings before preferred stock dividends 13,327 3,610 3,735 13,174 ( 989 ) ( 7,365 ) (5) 25,492 Preferred stock dividends — — — — ( 5,166 ) — ( 5,166 ) Loss on retirement of preferred stock — — — — — ( 1,667 ) ( 1,667 ) Segment core earnings/(losses) $ 13,327 $ 3,610 $ 3,735 $ 13,174 $ ( 6,155 ) $ ( 9,032 ) (5) $ 18,659 Total assets at carrying value $ 5,961,307 $ 2,487,687 $ 2,256,011 $ 8,716,923 $ 4,576,909 $ — $ 23,998,837 Total on- and off-balance sheet program assets at principal balance $ 8,249,349 $ 2,735,128 $ 2,685,309 $ 8,319,502 $ — $ — $ 21,989,288 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "Losses on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 56 Core Earnings by Business Segment For the Nine Months Ended September 30, 2021 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 70,805 $ 18,227 $ 19,995 $ 46,124 $ 8,234 $ — $ 163,385 Less: reconciling adjustments (1)(2)(3) ( 1,006 ) 1,969 ( 242 ) 2,039 190 ( 2,950 ) — Net effective spread 69,799 20,196 19,753 48,163 8,424 ( 2,950 ) — Guarantee and commitment fees (2) 11,403 522 956 15 — ( 3,714 ) 9,182 Other income/(expense) (3) 1,118 441 3 — ( 123 ) ( 744 ) 695 Non-interest income/(loss) 12,521 963 959 15 ( 123 ) ( 4,458 ) 9,877 Release of/(provision for) losses 239 — ( 701 ) ( 40 ) ( 16 ) — ( 518 ) Release of reserve for losses 994 — 283 — — — 1,277 Other non-interest expense ( 18,679 ) ( 7,080 ) ( 5,784 ) ( 7,420 ) ( 13,903 ) — ( 52,866 ) Non-interest expense (4) ( 17,685 ) ( 7,080 ) ( 5,501 ) ( 7,420 ) ( 13,903 ) — ( 51,589 ) Core earnings before income taxes 64,874 14,079 14,510 40,718 ( 5,618 ) ( 7,408 ) (5) 121,155 Income tax (expense)/benefit ( 13,623 ) ( 2,957 ) ( 3,047 ) ( 8,551 ) 1,043 1,556 ( 25,579 ) Core earnings before preferred stock dividends 51,251 11,122 11,463 32,167 ( 4,575 ) ( 5,852 ) (5) 95,576 Preferred stock dividends — — — — ( 17,885 ) — ( 17,885 ) Segment core earnings/(losses) $ 51,251 $ 11,122 $ 11,463 $ 32,167 $ ( 22,460 ) $ ( 5,852 ) (5) $ 77,691 Total assets at carrying value $ 6,883,879 $ 2,522,382 $ 2,249,071 $ 8,395,286 $ 4,693,750 $ — $ 24,744,368 Total on- and off-balance sheet program assets at principal balance $ 9,445,359 $ 2,722,702 $ 2,817,427 $ 8,133,303 $ — $ — $ 23,118,791 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "Losses on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 57 Core Earnings by Business Segment For the Nine Months Ended September 30, 2020 Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 53,768 $ 14,691 $ 12,778 $ 48,059 $ 5,025 $ — $ 134,321 Less: reconciling adjustments (1)(2)(3) ( 4,072 ) 488 4,597 7,026 74 ( 8,113 ) — Net effective spread 49,696 15,179 17,375 55,085 5,099 ( 8,113 ) — Guarantee and commitment fees (2) 12,822 658 995 23 — ( 5,003 ) 9,495 Other income/(expense) (3) 2,197 864 12 — ( 413 ) ( 3,048 ) ( 388 ) Non-interest income/(loss) 15,019 1,522 1,007 23 ( 413 ) ( 8,051 ) 9,107 Release of/(provision for) losses 412 — ( 4,704 ) ( 222 ) ( 28 ) — ( 4,542 ) Provision for reserve for losses ( 262 ) — ( 278 ) — — — ( 540 ) Other non-interest expense ( 16,632 ) ( 5,045 ) ( 4,428 ) ( 6,606 ) ( 12,171 ) — ( 44,882 ) Non-interest expense (4) ( 16,894 ) ( 5,045 ) ( 4,706 ) ( 6,606 ) ( 12,171 ) — ( 45,422 ) Core earnings before income taxes 48,233 11,656 8,972 48,280 ( 7,513 ) ( 16,164 ) (5) 93,464 Income tax (expense)/benefit ( 10,129 ) ( 2,448 ) ( 1,884 ) ( 10,139 ) 1,689 3,395 ( 19,516 ) Core earnings before preferred stock dividends 38,104 9,208 7,088 38,141 ( 5,824 ) ( 12,769 ) (5) 73,948 Preferred stock dividends — — — — ( 12,536 ) — ( 12,536 ) Loss on retirement of preferred stock — — — — — ( 1,667 ) ( 1,667 ) Segment core earnings/(losses) $ 38,104 $ 9,208 $ 7,088 $ 38,141 $ ( 18,360 ) $ ( 14,436 ) (5) $ 59,745 Total assets at carrying value $ 5,961,307 $ 2,487,687 $ 2,256,011 $ 8,716,923 $ 4,576,909 $ — $ 23,998,837 Total on- and off-balance sheet program assets at principal balance $ 8,249,349 $ 2,735,128 $ 2,685,309 $ 8,319,502 $ — $ — $ 21,989,288 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "Losses on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. (5) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 11. SUBSEQUENT EVENT On October 14, 2021, Farmer Mac completed a structured and syndicated agricultural mortgage-backed securitization (AMBS). The underlying mortgage pool for FARM Series 2021-1 consisted of 384 agricultural mortgage loans with an aggregate outstanding principal balance of approximately $ 302.7 million. The loans in the pool were underwritten to Farmer Mac’s standards and acquired by Farmer Mac between July 2019 and December 2020. This transaction included a $ 280.0 million senior tranche guaranteed by Farmer Mac and a $ 22.7 million unguaranteed subordinate tranche. During fourth quarter 2021, Farmer Mac expects to record a gain on this transaction of approximately $ 4 million after-tax. 58