What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-02-25 · 635 added, 704 removed, 891 unchanged (60% of the section changed)

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

The objective of this section of the report is to provide a discussion and analysis, from management’s perspective, of the material information necessary to assess Farmer Mac's financial condition and results of operations for the year ended December 31, 2020.

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

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

This discussion and analysis of financial condition and results of operations should be read together with Farmer Mac's consolidated financial statements and the related notes to the consolidated financial statements for the fiscal years ended December 31, 2021, 2020, and 2019.

Farmer Mac is a mission-focused, purpose-driven company determined to improve the economic opportunity in rural America by increasing the availability and affordability of credit.

As the nation’s secondary market for agricultural and rural infrastructure loans, we provide a broad array of financial solutions to lenders that support flexible low-cost financing to farmers, ranchers, agribusinesses, renewable energy projects, rural utilities, and other institutions.

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

• we provided $8.6 billion in liquidity and lending capacity to lenders serving rural America;

• we closed on a newly-designed structured securitization transaction involving approximately $300 million of agricultural mortgage loans;

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

• we added 32 net new employees to our workforce (a 26% increase compared to year-end 2020) to enable continued growth of our business and to fulfill our mission to rural America;

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

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

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

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

For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures."

COVID-19 Update

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

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

• we maintained uninterrupted access to the debt capital markets;

• we provided a total of $5.7 billion in liquidity and lending capacity to lenders serving rural America;

• we worked with our loan servicers and other partners to respond to and facilitate COVID-19-related payment deferment requests from borrowers and executed COVID-19 payment deferments for $432.0 million of unpaid principal balance on Farm & Ranch loans, Farm & Ranch LTSPCs, and USDA Securities to provide relief to borrowers;

• we continued to maintain strong liquidity in our investment portfolio, as evidenced by our year-end cash position of $1.0 billion;

• we built and preserved capital and liquidity by issuing net new preferred stock of $139.5 million and indefinitely suspending our common stock repurchase program.

The economic impacts of the COVID-19 pandemic caused our total allowance for credit losses to remain elevated at the end of 2020.

On January 1, 2020, we adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Loss (Topic 326):

Measurement of Credit Losses on Financial Instruments ("CECL").

Under CECL, our allowances and reserve for credit losses reflect our estimate of expected losses over the lives of our financial instruments based on historical information and reasonable and supportable forecasts.

The economic effects from the COVID-19 pandemic that most affected our estimate of expected credit losses were the effects on credit spreads and expectations for continued elevated levels of unemployment.

Of the $8.1 million credit loss provision that we recorded during 2020, $1.0 million was attributable to economic factors, mostly related to COVID-19.

For more information about the effect of COVID-19 on Farmer Mac's expected credit losses, see "Management's Discussion and

Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans & Guarantees."

For more information about Farm & Ranch payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." For more information about AgVantage loan collateral payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Institutional."

Net Income and Core Earnings

6 unchanged sentences

Core earnings 113,570 100,612 93,742

The $4.5 million decrease in net income attributable to common stockholders for 2020 compared to 2019 was primarily due to a $7.5 million after-tax increase in operating expenses, a $4.4 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates, a $3.9 million increase in preferred stock dividends, and a $3.6 million after-tax increase in the total provision for credit losses.

These decreases were partially offset by a $13.8 million after-tax increase in net interest income and a $1.3 million after-tax increase in other income.

The $1.2 million decrease in net income attributable to common stockholders for 2019 compared to 2018 was due to a $2.5 million after-tax increase in the provision for loan losses, a $1.6 million after-tax increase in operating expenses, a $1.0 million after-tax decrease in net interest income, and a $0.8 million increase in preferred stock dividends.

These factors were partially offset by a $7.1 million after-tax increase in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates.

The $6.9 million increase in core earnings for 2020 compared to 2019 was primarily due to a $22.4 million after-tax increase in net effective spread.

The $18.4 million year-over-year increase in net income attributable to common stockholders was due to a $23.8 million after-tax increase in net interest income, a net change in our (release)/provision for credit losses of $8.1 million after tax, and a $5.2 million after-tax gain on sale of mortgage loans.

These factors were partially offset by a $9.5 million after-tax increase in operating expenses, a $6.9 million increase in preferred stock dividends, and a $2.5 million after-tax decrease in the fair value of undesignated financial derivatives.

The $4.5 million decrease in net income attributable to common stockholders for 2020 compared to 2019

was primarily due to a $7.5 million after-tax increase in operating expenses, a $4.4 million after-tax

decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest

rates, a $3.9 million increase in preferred stock dividends, and a $3.6 million after-tax increase in the total

provision for credit losses.

These decreases were partially offset by a $13.8 million after-tax increase in

net interest income and a $1.3 million after-tax increase in other income.

The $13.0 million year-over-year increase in core earnings was due to a $18.7 million after-tax increase in net effective spread, a net change in our (release)/provision for credit losses of $8.1 million after tax, and a $5.2 million after-tax gain on sale of mortgage loans.

These factors were partially offset by a $9.5 million after-tax increase in operating expenses, a $6.9 million increase in preferred stock dividends, a $1.3 million after-tax decrease in guarantee fees, and a $0.8 million after-tax decrease in other income.

The $6.9 million increase in core earnings for 2020 compared to 2019 was primarily due to a $22.4

million after-tax increase in net effective spread.

This increase was partially offset by a $7.5 million after-tax increase in operating expenses, a $3.9 million increase in preferred stock dividends, and a $3.6 million after-tax increase in the total provision for credit losses.

The $9.7 million increase in core earnings for 2019 compared to 2018 was primarily due to a $13.8 million after-tax increase in net effective spread driven by higher business volume, partially offset by a $2.5 million after-tax increase in the provision for loan losses and a $1.6 million after-tax increase in operating expenses.

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

9 unchanged sentences

Net effective spread % 0.98 % 0.93 % 0.91 %

The $17.5 million increase in net interest income for 2020 compared to 2019 was primarily due to a $23.2 million increase related to new business volume.

The $30.2 million year-over-year increase in net interest income was primarily due to a $16.7 million increase related to net new business volume, a $6.9 million decrease in funding costs, and a $7.7 million increase in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives).

In percentage terms, the year-over-year 0.09% increase was primarily attributable to an increase of 0.04% in net new business volume, an increase of 0.03% in net fair value changes from designated financial derivatives, and a decrease of 0.01% in funding costs.

The $17.5 million increase in net interest income for 2020 compared to 2019 was primarily due to a

$23.2 million increase related to net new business volume.

This was partially offset by a $4.1 million increase in funding and liquidity costs and a $1.3 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives).

In percentage terms, the decrease of 0.02% in net interest income yield was primarily attributable to an increase of 0.05% in funding and liquidity costs and 0.01% in net fair value changes from designated financial derivatives, partially offset by an increase of 0.04% related to new business volume.

The $1.3 million decrease in net interest income in 2019 compared to 2018 was due to a $12.8 million decrease in net fair value changes from fair value hedge accounting relationships and a $5.2 million increase in funding and liquidity costs.

These factors were partially offset by $15.1 million in net new business volume across all lines of business, the change in composition of existing Institutional Credit business volume and $1.6 million in various interest income fluctuations primarily related to prepayment activity.

The 0.09% decrease in percentage terms was primarily attributable to a 0.06% decrease in net fair value changes from fair value hedge accounting relationships and a 0.05% increase in funding and liquidity costs, partially offset by a 0.01% increase from business volume.

The $28.3 million increase in net effective spread in dollars for 2020 compared to 2019 was primarily due to new business volume, which increased net effective spread by approximately $23.2 million, and a $4.6 million decrease in non-GAAP funding costs.

In percentage terms, the increase of 0.02% was primarily attributable to new business volume.

The $17.4 million increase in net effective spread in dollars for 2019 compared to 2018 was due to a $14.2 million increase from net new business volume across all lines of business, the change in

composition of existing Institutional Credit business volume, a $1.6 million increase in various interest income fluctuations primarily related to prepayment activity, and a $1.6 million decrease in non-GAAP funding costs.

In percentage terms, net effective spread was 0.91% in both 2019 and 2018, as the increase from the absence of the amortization of $2.0 million in premium of an interest-only security held in Farmer Mac's investment portfolio (the "Interest-Only Amortization") was offset by the decrease from narrower spreads on liquidity investment securities.

The $23.7 million year-over-year increase in net effective spread in dollars was primarily due to an increase of $16.7 million from net new business volume and a $6.3 million decrease in non-GAAP funding costs.

In percentage terms, the year-over-year increase of 0.05% was primarily attributable to an increase of 0.04% in net new business volume and a decrease of 0.01% in funding costs.

The $28.3 million increase in net effective spread in dollars for 2020 compared to 2019 was primarily due

to net new business volume, which increased net effective spread by approximately $23.2 million, and a

$4.6 million decrease in non-GAAP funding costs.

In percentage terms, the increase of 0.02% was

primarily attributable to net new business volume.

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

Business Volume

Our outstanding business volume was $21.9 billion as of December 31, 2020, a net increase of $806.2 million from December 31, 2019 after taking into account all new business, maturities, and paydowns on existing assets.

This net increase was primarily attributable to net increases of $804.2 million in Farm & Ranch, $536.3 million in Rural Utilities, and $166.5 million in USDA Guarantees.

These net increases were partially offset by a net decrease of $700.9 million in the Institutional Credit line of business.

The $804.2 million net increase in our Farm & Ranch line of business reflected a $1.2 billion net increase in outstanding loan purchase volume that was partially offset by net decreases of $313.9 million in loans held in consolidated trusts and $95.7 million in loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities.

The $536.3 million net increase in our Rural Utilities line of business reflected a $589.1 million net increase in outstanding loan purchase volume that was partially offset by a $52.9 million net decrease in loans under LTSPCs.

The $700.9 million net decrease in our Institutional Credit line of business was primarily attributable to maturities of $2.0 billion in our Institutional Credit line of business that was only partially offset by new business.

Our outstanding business volume was $23.6 billion as of December 31, 2021, a net increase of $1.7 billion from December 31, 2020 after taking into account all new business, maturities, sales, and paydowns on existing assets.

The net increase was primarily attributable to net increases of $1.1 billion in the Agricultural Finance line of business and $0.6 billion in the Rural Infrastructure Finance line of business.

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

3 unchanged sentences

Capital in excess of minimum capital level required 486,810 325,455

The increase in capital in excess of the minimum capital level required was primarily due to the issuance of the Series E Preferred Stock and Series F Preferred Stock and the increase in retained earnings, partially offset by growth in our outstanding business volume and the redemption of the Series A Preferred Stock.

Current Expected Credit Loss

As noted above, Farmer Mac adopted CECL on January 1, 2020.

Under CECL, we estimate and recognize expected credit losses over the lives of our financial assets.

We base our estimate of expected losses on historical loss information and reasonable and supportable forecasts.

In 2020, our reasonable and supportable forecasts included the impact of the COVID-19 pandemic on economic factors such as credit spreads and unemployment.

Thus, our total provision for credit losses during the year ended December 31, 2020 was affected by the ongoing economic effects of the COVID-19 pandemic.

As of December 31, 2020, Farmer Mac's allowance for losses on its on-balance sheet loan portfolio was $13.8 million (0.16% of all loans), compared to $10.5 million (0.15% of all loans) as of December 31, 2019.

As of January 1, 2020, Farmer Mac recorded a cumulative transition adjustment of $1.5 million.

For the year ended December 31, 2020, Farmer Mac recorded a provision to its allowance for loan losses of $7.7 million.

Farmer Mac also recorded a direct charge-off of $5.8 million from the allowance.

The charge-off was primarily related to a Farm & Ranch agricultural storage & processing loan secured by a specialized poultry facility.

As of December 31, 2020, Farmer Mac's reserve for losses on its off-balance sheet LTSPCs and Guaranteed Securities was $3.3 million (0.10% of all off-balance sheet LTSPCs and Guaranteed Securities), compared to $2.2 million (0.06% of all off-balance sheet LTSPCs and Guaranteed Securities) as of December 31, 2019.

As of January 1, 2020, Farmer Mac recorded a cumulative transition adjustment of $0.9 million.

For the year ended December 31, 2020, Farmer Mac recorded a provision to its reserve for its off-balance sheet portfolio of $0.3 million.

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

Credit Quality

The following table presents Farm & Ranch substandard assets, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of December 31, 2020 and December 31, 2019:

Farm & Ranch Line of Business

The following table presents Agricultural Finance on-balance sheet loan purchase and off-balance sheet LTSPCs and Farmer Mac Guaranteed Securities substandard assets, in dollars and as a percentage of the respective portfolio as of December 31, 2021 and December 31, 2020:

On-Balance Sheet Off-Balance Sheet

4 unchanged sentences

Increase/(decrease) from prior year-ending $ 4,935 (0.2) % $ (49,749) (2.5) %

The decrease of $26.3 million in on-balance sheet substandard assets during 2020 was primarily driven by credit upgrades during the year, particularly in permanent plantings, livestock, and crops.

The on-balance sheet Farm & Ranch portfolio grew by $899.9 million which, when coupled with credit upgrades, and charge-offs, caused the percentage of substandard assets to decrease.

The $7.8 million increase in substandard assets in our off-balance sheet Farm & Ranch portfolio during 2020 was primarily due to credit downgrades in the livestock portfolio during the year.

There were no substandard assets in the Rural Utilities portfolio as of both December 31, 2020 and 2019.

The increase of $4.9 million in on-balance sheet substandard assets during 2021 was primarily driven by credit downgrades during the year in permanent plantings, partially offset by credit upgrades in livestock and crops as well as the payoff of one substandard storage and processing loan.

The on-balance sheet Agricultural Finance mortgage loan portfolio grew by $670.6 million, which, when coupled with credit upgrades, caused the percentage of substandard assets to decrease.

The $49.7 million decrease in substandard assets in our off-balance sheet LTSPC and Farmer Mac Guaranteed Securities portfolios during 2021 was primarily due to credit upgrades across the portfolios during the year, particularly crops and livestock.

There was one substandard asset in the Rural Infrastructure Finance loan purchase portfolio (a Rural Utilities loan) as of December 31, 2021 and none as of December 31, 2020.

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

The following table presents Farm & Ranch 90-day delinquencies, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of December 31, 2020 and December 31, 2019:

Farm & Ranch Line of Business

The following table presents 90-day delinquencies for on-balance sheet Agricultural Finance mortgage loan purchases and off-balance sheet LTSPCs and Farmer Mac Guaranteed Securities, in dollars and as a percentage of the respective balance sheet category as of December 31, 2021 and December 31, 2020:

On-Balance Sheet Off-Balance Sheet

5 unchanged sentences

Increase/(decrease) from prior year-ending $ 8,911 0.08 % $ (7,836) (0.36) %

On-balance sheet Farm & Ranch loans 90 or more days delinquent decreased in permanent plantings, livestock, crops, and part-time farms, offset by an increase in agricultural storage and processing attributable to the single loan secured by a specialized poultry facility.

Off-balance sheet Farm & Ranch loans 90 days or more delinquent increased in crops and part-time farms, offset by decreases in livestock and permanent plantings.

The top ten borrower exposures over 90 days delinquent in either the on- or off-balance sheet portfolio represented over half of the aggregate 90-day delinquencies as of December 31, 2020.

There were no delinquencies in the Rural Utilities portfolio as of both December 31, 2020 and 2019.

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

Critical Accounting Policies and Estimates

On-balance sheet Farm & Ranch loans 90 or more days delinquent increased in all commodity groups, except storage and processing where one loan paid off.

Off-balance sheet Farm & Ranch loans 90 days or more delinquent decreased in crops and part-time farms and was partially offset by increases in permanent plantings and livestock.

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

As of both December 31, 2021 and 2020, there were no 90-day delinquencies in Farmer Mac's portfolio of Rural Infrastructure Finance loan purchases and loans underlying LTSPCs.

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

COVID-19 Update

Farmer Mac has operated successfully throughout the COVID-19 pandemic with most employees still working remotely.

Farmer Mac has maintained uninterrupted access to the debt capital markets during that time and remains a source of capital and liquidity to rural borrowers facing economic or market volatility stemming from the ongoing pandemic.

For more information on the effects of the COVID-19 pandemic on Farmer Mac's business, see "Business—Human Capital" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Outlook."

Critical Accounting Estimates

The preparation of Farmer Mac's consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes for the periods presented.

Actual results could differ from those estimates.

Farmer Mac views the allowance for losses and fair value measurement as critical accounting policies.

Both policies require complex and subjective judgments and are important to the presentation of Farmer Mac's financial condition and results of operations.

Allowance for Losses

On January 1, 2020, Farmer Mac adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, ("CECL").

Under CECL, Farmer Mac's allowance for credit losses represents the difference between the carrying amount of the related financial instruments and the present value of their expected cash flows discounted at their effective interest rates, as of the respective balance sheet date.

Under CECL, Farmer Mac's reserve for credit losses represents the difference between the outstanding amount of off-balance sheet credit exposures and the present value of their expected cash flows discounted at their effective interest rates.

Farmer Mac maintains an allowance for credit losses to cover current expected credit losses as of the balance sheet date for on-balance sheet investment securities, loans held for investment, and Farmer Mac Guaranteed Securities (collectively, "allowance for losses").

Additionally, Farmer Mac maintains a reserve for credit losses to cover current expected credit losses as of the balance sheet date for off-balance sheet loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities (collectively, "reserve for losses").

Both the allowance for losses and reserve for losses are based on historical information and reasonable and supportable forecasts.

Farmer Mac has never experienced a credit loss in its Rural Utilities line of business.

Upon the adoption of CECL, Farmer Mac is now required to measure its expected credit losses for the expected life of all financial instruments, including its Rural Utilities loans.

To estimate expected credit losses on these loans, Farmer Mac relies upon industry historical credit loss data from ratings agencies and publicly available information as disclosed in the securities filings of other major lenders who serve the utilities industry.

The allowance for losses increases through periodic provisions for loan losses that are charged against net interest income and the reserve for losses increases through provisions for losses that are charged to non-interest expense.

Both the allowance for losses and reserve for losses are decreased by charge-offs for realized losses, net of recoveries.

Releases from the allowance for losses or reserve for losses occur when the estimate of expected credit losses as of the end of a period is less than the estimate at the beginning of the period.

The total allowance for losses consists of the allowance for losses and the reserve for losses.

Farmer Mac records a charge-off from the allowance for losses when either a) a loan, or a portion of a loan, is deemed uncollectible;

or b) a loss has been confirmed through the receipt of assets, generally the underlying collateral, in full satisfaction of the loan.

The charge-off equals the excess of the recorded investment in the loan over the fair value of the collateral less estimated selling costs.

Estimation Methodology

Farmer Mac bases its methodology for determining its current estimate of expected losses on a statistical model, which incorporates credit loss history and reasonable and supportable forecasts.

Farmer Mac's estimation methodology includes the following key components:

• An economic model for each portfolio, including Farm & Ranch, Rural Utilities, and Institutional Credit;

• A migration matrix for each portfolio that reasonably predicts the movement of each financial asset among various risk categories over the course of each asset's expected life (the migration matrix forms the basis for our estimate of the probability of default of each financial asset);

• A loss-given-default ("LGD") model that reasonably predicts the amount of loss that Farmer Mac would incur upon the default of each financial asset;

• An economic factor forecast that updates the migration matrix model and the LGD model with current assumptions for the economic indicators that Farmer Mac has determined are most correlated with or relevant to the performance of each portfolio of assets (including Gross Domestic Product ("GDP"), credit spreads, unemployment rates, land values, and commodity prices);

• A discounted cash flow analysis, which relies upon each of the above model outputs, plus the contractual terms of each financial asset, and the effective interest rate of each financial asset.

Management evaluates these assumptions by considering many relevant factors, including:

• economic conditions;

• geographic and agricultural commodity/product concentrations in the portfolio;

• the credit profile of the portfolio, including risk ratings and financial metrics;

• delinquency trends of the portfolio;

• historical charge-off and recovery activities of the portfolio;

• other factors to capture current portfolio trends and characteristics that differ from historical experience.

Management believes that its methodology produces a reasonable estimate of expected credit losses, as of the balance sheet date, for the expected life of all of the company's financial assets.

Allowance for Loss on Available-for-Sale (AFS) Securities

To measure current expected credit losses on impaired AFS securities, Farmer Mac first considers those impaired securities that:

1) Farmer Mac does not intend to sell, and 2) it is not more likely than not that Farmer Mac will be required to sell before recovering its amortized cost basis.

In assessing whether a credit loss exists, Farmer Mac compares the present value, discounted at the security's effective interest rate, of cash flows expected to be collected from an impaired AFS debt security to its amortized cost basis.

If the present value of cash flows expected to be collected is less than the amortized cost basis of the impaired security, a credit loss exists and Farmer Mac records an allowance for loss for that credit loss.

However, the amount of that allowance is limited by the amount that the security’s fair value is less than its amortized cost basis.

Accrued interest receivable is recorded separately on the Consolidated Balance Sheet, and the allowance for credit losses excludes uncollectible accrued interest receivable.

Collateral Dependent Assets ("CDAs")

CDAs are loans, loans underlying LTSPCs, or off-balance sheet credit exposures in which the borrower is either in foreclosure or is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral by Farmer Mac.

Farmer Mac estimates the current expected credit loss on CDAs based upon the appraised value of the collateral, the costs to sell it, and any applicable credit protection such as a guarantee.

COVID-19 Payment Deferments

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law on March 27, 2020.

Section 4013 of the CARES Act titled “Temporary Relief from Troubled Debt Restructurings” provides financial institutions the option to temporarily suspend certain requirements under U.S.

GAAP related to troubled debt restructurings (“TDRs”) for a limited period of time to account for the effects of the COVID-19 pandemic.

On April 10, 2020, Farmer Mac’s prudential regulator, FCA (through OSMO) issued guidance to Farmer Mac on loan servicing and reporting TDRs for lines of business affected by the COVID-19 outbreak.

This guidance was consistent with the guidance provided by other financial regulatory agencies and the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to the COVID-19 national emergency are not TDRs when the borrower was not past due on loan payments before the March 13, 2020 presidential proclamation declaring the COVID-19 outbreak a national emergency.

During second quarter 2020, Farmer Mac implemented the guidance from FCA by granting up to 6-month payment deferments to borrowers who have been economically impacted by the COVID-19 pandemic.

Farmer Mac deems loans under a COVID-19 payment deferment not to be past due and continues to accrue interest on those loans.

Furthermore, Farmer Mac does not consider a payment deferment on any such loan to be a troubled debt restructuring.

In estimating expected credit losses on Farm & Ranch loans held for investment, Farmer Mac does consider payment deferments along with other available credit and economic information that pertains to that portfolio.

More information about the allowance for losses is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees" and Note 2(g) to the consolidated financial statements.

Fair Value Measurement

A significant portion of Farmer Mac's assets consists of financial instruments that are measured at fair value in the consolidated balance sheets.

For financial instruments that are complex in nature or for which observable inputs are not available, the measurement of fair value requires management to make significant judgments and assumptions.

These judgments and assumptions, as well as changes in market conditions, may have a material effect on the consolidated balance sheets and statements of operations.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price) and establishes a hierarchy for ranking fair value measurements.

In determining fair value, Farmer Mac uses various valuation approaches, including market and income approaches.

The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

When available, the fair value of Farmer Mac's financial instruments is based on quoted market prices, valuation techniques that use observable market-based inputs, or unobservable inputs that are corroborated by market data.

Pricing information obtained from third parties is internally validated for reasonableness before use in the consolidated financial statements.

When observable market prices are not readily available, Farmer Mac estimates fair value using techniques that rely on alternate market data or internally developed models using significant inputs that are generally less readily observable.

Market data includes prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility, and prepayment rates.

If market data needed to estimate fair value is not available, Farmer Mac estimates fair value using

internally-developed models that employ a discounted cash flow approach.

Even when market assumptions are not readily available, Farmer Mac's assumptions reflect those that market participants would likely use in pricing the asset or liability at the measurement date.

Farmer Mac's assets and liabilities presented at fair value in the consolidated balance sheets on a recurring basis include investment securities, Farmer Mac Guaranteed Securities, and financial derivatives.

The changes in fair value from period to period are recorded either in the consolidated statements of comprehensive income as other comprehensive (loss)/income, net of tax or in the consolidated statements of operations as gains/(losses) on financial derivatives, net interest income, or gains/(losses) on trading assets.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.

The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The hierarchy has the following three levels to classify fair value measurements:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 Prices or valuations that require unobservable inputs that are significant to the fair value measurement.

As of December 31, 2020, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $7.0 billion whose fair values were estimated by management in the absence of readily determinable fair values (i.e., level 3).

These financial instruments measured as level 3 represented 29 % of total assets and 65 % of financial instruments measured at fair value as of December 31, 2020.

See Note 13 to the consolidated financial statements for more information about fair value measurement.

Farmer Mac considers an accounting estimate made in accordance with GAAP to be critical when it involves a significant level of estimation uncertainty and it has had or is likely to have a material impact on our financial condition or results of operations.

The accounting estimate that Farmer Mac considers to be critical in the preparation of its consolidated financial statements is the estimation of the fair value of AgVantage Securities that are classified as available for sale (AgVantage AFS).

Farmer Mac considers the fair value of AgVantage AFS to be a critical estimate due to the significance of the periodic measurement of mark-to-market adjustments relative to the company's total assets, comprehensive income, and equity.

Farmer Mac also considers the fair value of AgVantage AFS to be a critical accounting estimate because Farmer Mac applies a discount rate in calculating the net present value of future expected cash flows that is both significant to the estimate of their fair value and unobservable in the market.

Farmer Mac relies upon this significant unobservable input to estimate the fair value of AgVantage AFS because there are no observable transactions in these securities in the market.

The fair value of AgVantage AFS had accumulated unrealized gains in the amount of $212.9 million and $368.3 million as of December 31, 2021 and 2020, respectively.

See Note 5 to the consolidated financial statements – Farmer Mac Guaranteed Securities and USDA Securities for more information.

Farmer Mac applies discount rates that are commensurate with the risks involved to estimate the fair value measurement of AgVantage AFS.

As of December 31, 2021, Farmer Mac applied discount rates that ranged from 0.9% to 2.1% (with a weighted average of 1.7%), As of December 31 2020, Farmer Mac applied discount rates that ranged from 0.8% to 2.3% (with a weighted average of 1.3%).

Use of different discount rates than those selected by Farmer Mac may result in materially different estimates of fair value for AgVantage AFS.

Farmer Mac selects the discount rate for each AgVantage AFS security by analyzing credit default swap levels and the long-term credit outlook of Farmer Mac's major counterparties and estimating an appropriate credit spread relative to U.S.

Treasury yields.

The periodic measurement of fair value and underlying discount rate methodology is subject to Farmer Mac’s internal controls and review by management.

As of December 31, 2021, a 0.50% increase in the discount rates used to determine the fair value of AgVantage AFS would decrease the overall GAAP carrying value by approximately 2.5%.

See Note 13 to the consolidated financial statements – Fair Value Disclosures for more information.

For a description of Farmer Mac’s accounting policy for fair value measurements, see Note 2(n) to the consolidated financial statements – Significant Accounting Policies, Fair Value Measurements.

Use of Non-GAAP Measures

16 unchanged sentences

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

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

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

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

2 unchanged sentences

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

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

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

Net effective spread also differs from net interest income and net interest yield because it includes the net effects of terminations or net settlements on financial derivatives, which consist of:

7 unchanged sentences

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings

For the Year Ended December 31,

For the Years Ended December 31,

2021 2020 2019

3 unchanged sentences

(Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (5,103) (3,691) 10,077

(Losses)/gains on hedging activities due to fair value changes (10,019) (9,010) 4,449

Unrealized gains on trading securities 51 326 81

Losses on hedging activities due to fair value changes (2,985) (10,019) (9,010)

Unrealized (losses)/gains on trading securities (115) 51 326

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 130 58 (122)

9 unchanged sentences

17,533 19,150 21,335

Gain on sale of mortgage loans 6,539 — —

1,680 2,687 1,775

1 unchanged sentence

Credit related expense (GAAP):

Provision for losses 8,055 3,501 335

(Release of)/provision for losses (2,187) 8,055 3,501

REO operating expenses — — 64

(Gains)/losses on sale of REO (463) — 7

Gains on sale of REO — (463) —

Total credit related expense (2,187) 7,592 3,565

22 unchanged sentences

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

For the Year Ended December 31,

For the Years Ended December 31,

2021 2020 2019

(in thousands, except per share amounts)

GAAP - Basic EPS $ 10.00 $ 8.31 $ 8.76

1 unchanged sentence

(Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.47) (0.34) 0.94

(Losses)/gains on hedging activities due to fair value changes (0.94) (0.83) 0.41

Unrealized gains on trading securities — 0.03 0.01

Losses on hedging activities due to fair value changes (0.28) (0.94) (0.83)

Unrealized (losses)/gains on trading securities (0.01) — 0.03

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

6 unchanged sentences

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

For the Year Ended December 31,

For the Years Ended December 31,

2021 2020 2019

(in thousands, except per share amounts)

GAAP - Diluted EPS $ 9.92 $ 8.27 $ 8.69

1 unchanged sentence

(Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.47) (0.34) 0.93

(Losses)/gains on hedging activities due to fair value changes (0.93) (0.83) 0.41

Unrealized gains on trading securities — 0.03 0.01

Losses on hedging activities due to fair value changes (0.28) (0.93) (0.83)

Unrealized (losses)/gains on trading securities (0.01) — 0.03

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

7 unchanged sentences

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

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

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

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

1 unchanged sentence

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

For the Year Ended December 31,

For the Years Ended December 31,

2021 2020 2019

(Losses)/gains due to fair value changes (see Table 6.2) $ (9,184) $ (7,907) $ 4,941

(in thousands)

Losses due to fair value changes (see Table 6.2) $ (1,515) $ (9,184) $ (7,907)

Initial cash payment (received) at inception of swap (1,470) (835) (1,103)

(Losses)/gains on hedging activities due to fair value changes $ (10,019) $ (9,010) $ 4,449

Unrealized gains on trading securities.

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

Losses on hedging activities due to fair value changes $ (2,985) $ (10,019) $ (9,010)

Unrealized (losses)/gains on trading securities.

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

The net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value.

11 unchanged sentences

For purposes of core earnings, these initial cash payments are deferred and amortized as net yield adjustments over the term of the related debt, which generally ranges from 3 to 25 years.

The recognition of deferred issuance costs on the retirements of the Series A Preferred Stock in third quarter 2020 and Series B Preferred Stock in second quarter 2019 has been excluded from core earnings because they are not frequently occurring transactions, nor are they indicative of future operating results.

The recognition of deferred issuance costs on the retirements of the Series A Preferred Stock in 2020 and Series B Preferred Stock in 2019 has been excluded from core earnings because they are not

frequently occurring transactions, nor are they indicative of future operating results.

This is consistent with Farmer Mac's previous treatment of deferred issuance costs associated with the retirement of preferred stock.

The next eligible preferred stock redemption date is in third quarter 2024.

The next eligible preferred stock redemption date is in 2024.

The following sections provide more detail about specific components of Farmer Mac's results of operations.

34 unchanged sentences

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

For 2020 compared to 2019, the $17.5 million increase in net interest income was primarily due to net business volume growth across most lines of business, which contributed $23.2 million to net interest income.

This was partially offset by a $4.1 million increase in funding and liquidity costs and a decrease of $1.3 million in net fair value changes from designated financial derivatives as a result of fluctuations in interest rates.

For 2019 compared to 2018, the $1.3 million decrease in net interest income was due to a $12.8 million decrease in net fair value changes from fair value hedge accounting relationships, a $5.2 million increase in funding and liquidity costs and a $1.7 million decrease in cash-basis interest income.

These factors were partially offset by:

1) $15.1 million from business volume, including:

• $12.3 million in new business volume,

• $1.9 million from the refinancing of existing Institutional Credit business volume at higher spreads,

• and $0.9 million from consolidated trusts;

2) $3.4 million in interest income fluctuations, including:

• the absence of $2.0 million from the Interest-Only Amortization, and

• the receipt of a $1.4 million prepayment penalty.

The decrease of 0.09% was primarily attributable to a decrease of 0.06% in net fair value changes from designated financial derivatives and an increase of 0.05% in funding and liquidity costs, partially offset by an increase of 0.01% from business volume.

For 2020 compared to 2019, the $17.5 million increase in net interest income was primarily due to net

business volume growth across most lines of business, which contributed $23.2 million to net interest

This was partially offset by a $4.1 million increase in funding and liquidity costs and a decrease

of $1.3 million in net fair value changes from designated financial derivatives as a result of fluctuations in

interest rates.

In percentage terms, the decrease of 0.02% in net interest income yield was primarily

attributable to an increase of 0.05% in funding and liquidity costs and 0.01% in net fair value changes

from designated financial derivatives, partially offset by an increase of 0.04% related to new business

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

20 unchanged sentences

Dollars Yield Dollars Yield Dollars Yield

(dollars in thousands)

Net interest income/yield $ 220,775 0.94 % $ 190,588 0.85 % $ 173,135 0.87 %

5 unchanged sentences

Net effective spread $ 220,668 0.98 % $ 196,956 0.93 % $ 168,608 0.91 %

For 2020 compared to 2019, the $28.3 million increase in net effective spread in dollars was primarily due to net business volume growth across most lines of business, which contributed $23.2 million to net effective spread, and a $4.6 million decrease in non-GAAP funding costs.

In percentage terms, the increase of 0.02% was primarily attributable to new business volume.

For 2019 compared to 2018, the $17.4 million increase in net effective spread in dollars was due to:

1) $14.2 million increase from business volume, including:

• $12.3 million in net new business volume,

• $1.9 million from the refinancing of existing Institutional Credit business volume at higher spreads;

2) $1.6 million in interest income fluctuations, including:

• the absence of $2.0 million from the Interest-Only Amortization,

• the receipt of a $1.4 million prepayment penalty,

• partially offset by a $1.7 million decrease in cash-basis interest income;

3) $1.6 million decrease in non-GAAP funding costs.

In percentage terms, net effective spread remained at 0.91% in both 2019 and 2018 primarily because the increase from the absence of the Interest-Only Amortization was offset by the decrease from narrower spreads on liquidity investment securities.

In percentage terms, the year-over-year increase of 0.05% was primarily attributable to an increase of 0.04% in net new business volume and a decrease of 0.01% in funding costs.

For 2020 compared to 2019, the $28.3 million increase in net effective spread in dollars was primarily due

to net business volume growth across most lines of business, which contributed $23.2 million to net

effective spread, and a $4.6 million decrease in non-GAAP funding costs.

In percentage terms, the

increase of 0.02% was primarily attributable to new business volume.

See Note 14 to the consolidated financial statements for more information about net interest income and net effective spread from Farmer Mac's individual business segments.

6 unchanged sentences

Balance as of January 1, 2019 $ 7,017 $ 2,167 $ 9,184

Provision for losses 238 97 335

Charge-offs (17) — (17)

Balance as of December 31, 2018 $ 7,017 $ 2,167 $ 9,184

Provision for/(release of) losses 3,504 (3) 3,501

3 unchanged sentences

Adjusted beginning balance $ 12,247 $ 3,027 $ 15,274

Provision for/(release of) losses 7,810 250 8,060

Provision for losses 7,810 250 8,060

Charge-offs (5,759) — (5,759)

Ending balance $ 14,298 $ 3,277 $ 17,575

During 2020, the allowance and reserve for losses was impacted by the cumulative transition adjustment that we recorded related to the adoption of CECL and provisions for changes in risk ratings, economic factors, and net business volume growth during the year.

The cumulative effect adjustment from the adoption of CECL on January 1, 2020 was $2.7 million and was recorded directly to retained earnings, net of tax.

The transition adjustment was the difference between (1) the total allowance for losses on December 31, 2019 that reflected probable incurred losses under the previous accounting standard and (2) the total allowance for losses on January 1, 2020 that reflected expected losses under CECL.

The cumulative effect adjustment for credit losses on on-balance sheet assets was $1.8 million after an increase of $5.4 million to the allowance for losses on Rural Utilities loans and Farmer Mac Guaranteed Securities and a $3.6 million decrease in the allowance for losses on Farm & Ranch loans and Farmer Mac Guaranteed Securities.

Although Farmer Mac has never experienced any credit losses in its portfolio of Rural Utilities loans and Farmer Mac Guaranteed Securities, our estimate of expected losses is based upon reasonable and supportable forecasts over the expected lives of these assets.

The cumulative effect of CECL on the Farm & Ranch portfolio was a reduction in the allowance for losses on those loans and

Farmer Mac Guaranteed Securities that reflected the expected recovery rate based on loan-to-value ratios in those portfolios.

The cumulative effect adjustment for credit losses on LTSPCs was $0.9 million after an increase of $1.0 million on Rural Utilities LTSPCs and a decrease of $0.1 million on Farm & Ranch LTSPCs.

Our estimates of expected losses are based on historical information and reasonable and supportable forecasts.

Our reasonable and supportable forecasts incorporate economic factor forecasts and are sensitive to changes in those economic factor forecasts.

As of December 31, 2020, our forecasts included the effects of the COVID-19 pandemic on economic factors such as land values, gross domestic product, credit spreads, and unemployment expectations.

The economic factor related to unemployment expectations had the most significant impact on our 2020 provision for credit losses, particularly on our estimate of expected losses in the Rural Utilities portfolio.

Unemployment expectations did not affect our estimate of expected losses on the Farm & Ranch portfolio as much because of stable farm land values and improved credit quality in the Farm & Ranch portfolio during the year.

The provision to Farmer Mac's allowance for losses for on-balance sheet assets was $7.8 million during 2020, reflecting $4.7 million for expected losses on Rural Utilities loans and a provision of $3.0 million on Farm & Ranch loans and Farmer Mac Guaranteed Securities.

Balance as of December 31, 2020 $ 14,298 $ 3,277 $ 17,575

Release of losses (860) (1,327) (2,187)

Recovery 1,054 — 1,054

Charge-offs — — —

Balance as of December 31, 2021 $ 14,492 $ 1,950 $ 16,442

See Notes 8 and 12 to the consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."

5 unchanged sentences

Guarantee and commitment fees $ 12,669 $ 12,549 $ 13,666

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

The decrease in guarantee and commitment fees for the year ended December 31, 2020 compared to 2019 was primarily due to decreased LTSPC volume.

As adjusted for the core earnings presentation, guarantee and commitment fees were $19.2 million for 2020, compared to $21.3 million and $20.7 million for 2019 and 2018, respectively.

Guarantee and commitment fees were relatively flat for the year ended December 31, 2021 compared to 2020, which was due to stability in the average outstanding balance of LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities during 2021.

As adjusted for the core earnings presentation, guarantee and commitment fees were $17.5 million for the year ended December 31, 2021, respectively, compared to $19.2 million and $21.3 million for the 2020 and 2019, respectively.

Table 6 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures."

(Losses)/gains on financial derivatives .

14 unchanged sentences

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

Gains on Sale of Mortgage Loans

For the Years Ended December 31,

2021 2020 2019

(in thousands)

Gain on sale of mortgage loans $ 6,539 $ — $ —

In fourth quarter 2021, Farmer Mac executed a newly-designed structured securitization of a $299.4 million pool of Farm & Ranch loans.

The transaction was structured into two pass-through tranches, Class A and Class B, each of which were sold to third-party investors in the capital markets, as well as an interest-only Farmer Mac Guaranteed Security ("IO-FMGS") that Farmer Mac retained.

The Class A tranche makes up 92.5% of the pool and is guaranteed as to principal and interest by Farmer Mac.

The IO-FMGS is guaranteed as to interest by Farmer Mac.

The Class B tranche makes up the remaining 7.5% of the pool and is subordinated in right of interest and principal payments in the event of a shortfall to the Class A tranche and the IO-FMGS.

As a result of this transaction, Farmer Mac recognized the following:

A guarantee obligation and corresponding guarantee fee related to the Farmer Mac-guaranteed Class A tranche;

A servicing asset and corresponding servicing fee related to Farmer Mac’s role as master servicer for the entire pool and as central servicer for the portion of the pool for which it serves as central servicer;

A security representing the IO-FMGS.

These assets and liabilities were initially recorded on the balance sheet at fair value.

Other Income .

The following table presents other income for years ended December 31, 2020, 2019, and 2018:

The following table presents other income for the years ended December 31, 2021, 2020, and 2019:

For the Years Ended December 31,

2 unchanged sentences

Late fees $ 951 $ 1,292 $ 1,135

Servicing fees 291 — —

Mortgage servicing rights amortization (128) — —

Other 955 2,195 769

Total other income $ 2,069 $ 3,487 $ 1,904

The increase in other fees is primarily due to an increase in the fees received from borrowers to modify their long-term fixed borrowing rate to a new lower rate.

The decrease in other income for the year ended December 31, 2021 compared to 2020 is primarily due to a decrease in rate modification fees on Farm & Ranch loans.

Operating Expenses .

8 unchanged sentences

Compensation and Employee Benefits .

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

We hired 32 net new employees this year, including ten new employees in connection with the strategic acquisition of loan servicing rights in third quarter 2021.

The increase in compensation and employee benefits expenses for 2020 compared to 2019 was primarily due to increased headcount in the current period, higher bonus expense, and severance payments made to an executive who resigned in first quarter 2020.

The increase in compensation and employee benefits in 2019 compared to 2018 was primarily due to hiring of executives and related employee health insurance costs.

General and Administrative Expenses (G&A) .

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

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

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

The increase in G&A expenses for 2020 compared to 2019 was primarily due to increased spending on software licenses and information technology consultants to support growth and strategic initiatives

The increase in G&A expenses in 2019 compared to 2018 was due to various growth, strategic, and compliance initiatives in 2019.

Income Tax Expense .

6 unchanged sentences

Business Volume .

The following table sets forth the net growth or decrease under Farmer Mac's lines of business for the years ended December 31, 2020, 2019, and 2018:

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

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

Net New Business Volume

For the Years Ended December 31,

2020 2019 2018

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

Balance Sheet Net Growth/(Decrease) Net Growth/(Decrease)

(in thousands)

Agricultural Finance:

Farm & Ranch:

Loans $ 1,213,754 $ 604,418 $ 272,316

Loans held in trusts:

Beneficial interests owned by third party investors (313,872) 83,816 117,273

LTSPCs (95,650) (145,257) (23,204)

USDA Guarantees:

USDA Securities 256,461 83,023 52,537

Farmer Mac Guaranteed USDA Securities (89,918) 21,532 110,870

Loans On-balance sheet $ 795,216 $ 917,071

Loans held in consolidated trusts:

Beneficial interests owned by third-party investors On-balance sheet (338,422) (313,872)

IO-FMGS On-balance sheet 12,297 —

USDA Securities On-balance sheet (41,614) 256,461

AgVantage Securities On-balance sheet 300,000 (350,000)

LTSPCs and unfunded commitments Off-balance sheet 272,189 (78,106)

Farmer Mac Guaranteed Securities Off-balance sheet 199,748 (117,927)

Loans serviced for others Off-balance sheet 22,331 —

Total Farm & Ranch $ 1,221,745 $ 313,627

Corporate AgFinance:

Loans On-balance sheet $ 213,761 $ 296,682

AgVantage Securities On-balance sheet (376,646) 28,364

Unfunded Loan Commitments Off-balance sheet 36,604 10,466

Total Corporate AgFinance $ (126,281) $ 335,512

Total Agricultural Finance $ 1,095,464 $ 649,139

Rural Infrastructure Finance:

Rural Utilities:

Loans 589,119 732,450 (137,448)

LTSPCs (52,853) (43,994) (153,069)

Institutional Credit:

AgVantage securities (700,887) 357,429 477,939

AgVantage revolving line of credit facility (1)

— (300,000) —

Total purchases, guarantees, LTSPCs, and AgVantage securities $ 806,154 $ 1,393,417 $ 717,214

(1) During 2019, the facility was drawn on two separate occurrences for $100.0 million and $150.0 million and later repaid.

During 2018, $100.0 million of this facility was drawn and later repaid.

The facility was terminated during fourth quarter 2019.

This net increase was primarily attributable to net increases of $804.2 million in Farm & Ranch, $536.3 million in Rural Utilities, and $166.5 million in USDA Guarantees.

The net increases were partially offset by a net decrease of $700.9 million in the Institutional Credit line of business.

Included in the $1.2 billion net increase in outstanding loan purchase volume is a growing proportion of larger loan exposures (generally loan commitments more than $10 million) to agribusinesses that support agriculture production, food and fiber processing, and other supply chain production.

The net growth in 2020 reflected our ability to retain borrowers in a decreasing interest rate environment by proactively engaging with borrowers and adjusting their rates and loan sizes to reflect current market conditions and their specific funding needs.

We broadened and deepened our market share as evidenced by gross new loan purchase volume increasing 82%, or $1.1 billion, versus 2019.

Of this gross new loan purchase volume, 80% is attributable to active lenders (lenders selling Farmer Mac volume in 2020 and 2019) and 20% is attributable to new or previously inactive lenders.

deepened our relationship with our lenders as evidenced by an 80% increase in the number of lenders selling us loans totaling $1 million or more versus the prior year period.

Our net growth of 17.1% in the Farm & Ranch on-balance sheet portfolio over the twelve months ended December 31, 2020 is significantly higher than the 5.0% net growth of the overall agricultural mortgage loan market over the twelve months ended September 30, 2020 (based on our analysis of bank and Farm Credit System call report data).

During 2020, Farmer Mac syndicated a $15.0 million position of a newly purchased $59.2 million agricultural loan.

This transaction represents new activity for Farmer Mac to broaden its relationships across the agricultural lending spectrum.

Our USDA Guarantees line of business grew by $166.5 million in 2020.

Our gross volume of $777.9 million was the highest gross volume that we have ever recorded in any calendar year.

This growth reflected the positive effect of adjustments that we made to our product structure in the second half of 2019 to more effectively meet customer demands in an increasingly competitive environment and in response to increased USDA loan limits permitted by the 2018 Farm Bill.

The $700.9 million net decrease in the Institutional Credit line of business during 2020 was due primarily to three large counterparties who reduced their amount of outstanding credit in connection with scheduled maturities and payments on multiple AgVantage bonds.

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

During 2020, we funded $64.3 million of loans for solar and wind projects as part of our renewable energy strategic initiative.

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

Loans On-balance sheet $ 114,996 $ 525,886

AgVantage Securities On-balance sheet 467,425 (376,096)

LTSPCs and Unfunded Loan Commitments Off-balance sheet 412 (52,854)

Farmer Mac Guaranteed Securities Off-balance sheet (1,657) (3,155)

Total Rural Utilities $ 581,176 $ 93,781

Renewable Energy:

Loans On-balance sheet $ 13,728 $ 63,233

Unfunded Loan Commitments Off-balance sheet — —

Total Renewable Energy $ 13,728 $ 63,233

Total Rural Infrastructure Finance $ 594,904 $ 157,014

Total $ 1,690,368 $ 806,153

Farmer Mac's outstanding business volume was $23.6 billion as of December 31, 2021, a net increase of $1.7 billion from December 31, 2020 after taking into account all new business, maturities, sales, and paydowns on existing assets.

The $1.2 billion net increase in Farm & Ranch was comprised of $5.9 billion of new purchases and guarantees, partially offset by $4.7 billion of scheduled maturities, repayments, and sales.

Farmer Mac purchased a total of $2.1 billion in loans, which was primarily driven by farm real estate acquisitions due to improved borrower economics as well as a continued competitive interest rate environment resulting in demand for long-term financing solutions.

The $2.1 billion in gross Farm & Ranch loan purchases was partially offset by $1.3 billion in scheduled maturities, repayments, and sales, including the sale of $299.4 million of agricultural mortgage loans through Farmer Mac's newly-designed structured securitization executed in the fourth quarter.

The securitization resulted in $289.5 million in Farmer Mac Guaranteed Securities backed by the sold loans.

Farmer Mac also purchased a total of $2.2 billion in AgVantage Securities, which primarily reflected the refinancing of maturing securities as well as financial counterparties seeking additional short-term, low-cost securities to manage their asset-liability maturity profile.

The $2.2 billion in gross purchases was partially offset by $1.9 billion in scheduled maturities.

While the short-term nature of the AgVantage securities added during 2021 may create volatility in AgVantage volumes, Farmer Mac does not anticipate a material impact to its net effective spread given the low-cost nature of these securities due to the short maturity profile.

Farmer Mac entered into $788.3 million of new LTSPCs, which was offset by $516.1 million of maturities on existing LTSPCs.

The new volume in LTSPCs during 2021 was driven primarily by Farm Credit System institutions seeking credit risk management solutions to address increasing commodity and borrower hold limits resulting from strong loan growth in in their regional portfolios.

The $126.3 million net decrease in Corporate AgFinance was comprised of $880.2 million of new loan and AgVantage security purchases, which was offset by $1.0 billion of scheduled maturities, repayments, and sales.

Farmer Mac purchased a total of $314.9 million in AgVantage Securities, which was offset by $691.6 million in scheduled maturities and repayments.

This net decrease in AgVantage Securities was primarily due to improved borrower economics that reduced the demand for higher priced institutional financing, counterparties diversifying wholesale funding sources, and competitive funding availability for institutional counterparties.

Farmer Mac purchased a total of $509.1 million in Corporate AgFinance loans in furtherance of Farmer Mac's strategic initiative to support larger and more complex farming operations, agribusinesses focused on agriculture production, food and fiber processing, and other supply chain production.

The $509.1 million in gross purchases was partially offset by $295.4 million in scheduled maturities and repayments.

The $581.2 million net increase in Rural Utilities was comprised of $1.8 billion of new purchases and guarantees, which was partially offset by $1.2 billion of scheduled maturities and repayments.

Farmer Mac purchased a total of $1.5 billion in AgVantage Securities which was partially offset by $982.6 million in scheduled maturities.

The net increase in AgVantage Securities of $467.4 million was a result of a key counterparty proactively managing its capital structure as well as Farmer Mac's ability to offer competitively priced financing structures.

Farmer Mac purchased a total of $313.4 million in Rural Utilities loans, which was fueled by a competitive interest rate environment resulting in demand for long-term financing solutions for planned maintenance, capital expenditures, and refinancing higher cost debt.

The $313.4 million in loan purchases was partially offset by $198.4 million in scheduled maturities and repayments.

The $13.7 million net increase in Renewable Energy was comprised of $43.6 million of new loan purchases, which was partially offset by $29.9 million of repayments.

Farmer Mac's outstanding business volume was $21.9 billion as of December 31, 2020, a net increase of $806.2 million from December 31, 2019 after taking into account all new business, scheduled maturities, sales, and paydowns on existing assets.

The $313.6 million net increase in Farm & Ranch was comprised of $3.8 billion of new purchases and guarantees, partially offset by $3.5 billion of scheduled maturities and repayments.

The $335.5 million net increase in Corporate AgFinance was comprised of $899.4 million of new purchases, which was partially offset by $563.9 million of scheduled maturities and repayments.

The $93.8 million net increase in Rural Utilities was comprised of $949.3 million of new purchases and guarantees, which was partially offset by $855.5 million of scheduled maturities and repayments.

The $63.2 million net increase in Renewable Energy was comprised of $64.3 million of new purchases, which was partially offset by $1.1 million of repayments.

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

This relationship in turn depends on a variety of factors both internal and external to Farmer Mac.

6 unchanged sentences

(in thousands)

Loans securitized and sold as Farm & Ranch Guaranteed Securities $ 165,054 $ 263,561 $ 255,078

Farmer Mac Guaranteed USDA Securities — 57,853 127,851

AgVantage securities $ 3,919,907 $ 1,298,751 $ 2,258,550

Structured securitization transactions 289,519 — —

Loans securitized and held in consolidated trusts with beneficial interests owned by third parties 113,175 165,054 263,561

Farmer Mac Guaranteed USDA Securities — — 57,853

Total Farmer Mac Guaranteed Securities Issuances $ 4,322,601 $ 4,322,601 $ 1,463,805 $ 2,579,964

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

The weighted-average age of the Farm & Ranch non-delinquent eligible loans purchased and retained (excluding the purchases of defaulted loans) during both 2020 and 2019 was less than one year.

Of those loans, 45% and 50% had principal amortization periods longer than the maturity date, resulting in balloon payments at maturity, with a weighted-average remaining term to maturity of 19.8 years and 14.2 years for each period, respectively.

During 2020 and 2019, Farmer Mac securitized some of the Farm & Ranch loans it had purchased and sold the resulting Farmer Mac Guaranteed Securities, as shown above.

During 2020 and 2019, Farmer Mac realized no gains or losses from the sale of Farmer Mac Guaranteed Securities or USDA Securities.

During 2021, Farmer Mac executed a structured securitization transaction, whereby it sold and securitized agricultural mortgage loans resulting in $289.5 million of additional Farmer Mac Guaranteed Securities from this transaction.

During 2021, Farmer Mac realized $5.2 million gain after tax from the sale of Farmer Mac Guaranteed Securities in its structured securitization transaction.

During 2021 and 2020, Farmer Mac realized no gains or losses from the securitization of loans that it holds in consolidated trusts.

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

For 2020, 2019 and 2018, $41.2 million, $163.1 million and $68.7 million, respectively, of Farmer Mac Guaranteed Securities were sold to a related party (related by virtue of its owning more than 10% of Farmer Mac's Class A voting common stock).

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

Lines of Business - Outstanding Business Volume

During 2021 and 2020, Farmer Mac realized no gains or losses from the issuance of Farmer Mac Guaranteed USDA Securities, or AgVantage Securities.

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

Outstanding Business Volume

As of December 31,

2020 2019 2018

Balance Sheet 2021 2020 2019

(in thousands)

Agricultural Finance:

Farm & Ranch:

Loans $ 4,889,393 $ 3,675,640 $ 3,071,222

Loans held in trusts:

Beneficial interests owned by third party investors 1,287,045 1,600,917 1,517,101

LTSPCs 2,325,431 2,393,071 2,509,787

Guaranteed Securities 79,312 107,322 135,862

USDA Guarantees:

USDA Securities 2,452,964 2,199,072 2,120,553

Farmer Mac Guaranteed USDA Securities 333,754 421,103 395,067

Loans On-balance sheet $ 4,775,070 $ 3,979,854 $ 3,062,783

Loans held in consolidated trusts:

Beneficial interests owned by third-party investors On-balance sheet 948,623 1,287,045 1,600,917

IO-FMGS On-balance sheet 12,297 — —

USDA Securities On-balance sheet 2,445,806 2,487,420 2,230,959

AgVantage Securities On-balance sheet 4,725,000 4,425,000 4,775,000

LTSPCs and unfunded commitments Off-balance sheet 2,587,154 2,314,965 2,393,071

Farmer Mac Guaranteed Securities Off-balance sheet 578,358 378,610 496,537

Loans serviced for others Off-balance sheet 22,331 — —

Total Farm & Ranch $ 16,094,639 $ 14,872,894 $ 14,559,267

Corporate AgFinance:

Loans On-balance sheet $ 1,123,300 $ 909,539 $ 612,857

AgVantage Securities On-balance sheet 367,464 744,110 715,746

Unfunded Loan Commitments Off-balance sheet 47,070 10,466 —

Total Corporate AgFinance $ 1,537,834 $ 1,664,115 $ 1,328,603

Total Agricultural Finance $ 17,632,473 $ 16,537,009 $ 15,887,870

Rural Infrastructure Finance:

Rural Utilities:

Loans 2,260,412 1,671,293 938,843

LTSPCs 556,425 609,278 653,272

Institutional Credit

AgVantage Securities 7,739,359 8,440,246 8,082,817

Revolving floating rate AgVantage facility (1)

Loans On-balance sheet $ 2,302,373 $ 2,187,377 $ 1,661,491

AgVantage Securities On-balance sheet 3,033,262 2,565,837 2,941,933

LTSPCs and Unfunded Loan Commitments Off-balance sheet 556,837 556,425 609,279

Farmer Mac Guaranteed Securities Off-balance sheet 2,755 4,412 7,567

Total Rural Utilities $ 5,895,227 $ 5,314,051 $ 5,220,270

Renewable Energy:

Loans On-balance sheet $ 86,763 $ 73,035 $ 9,802

Unfunded Loan Commitments Off-balance sheet — — —

Total Renewable Energy $ 86,763 $ 73,035 $ 9,802

Total Rural Infrastructure Finance $ 5,981,990 $ 5,387,086 $ 5,230,072

Total $ 23,614,463 $ 21,924,095 $ 21,117,942

(1) During 2019, the facility was drawn on two separate occurrences for $100.0 million and $150.0 million and later repaid.

During 2018, $100.0 million of this facility was drawn and later repaid.

The facility was terminated during fourth quarter 2019.

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

9 unchanged sentences

Total $ 9,236,129 $ 3,521,593 $ 2,693,632 $ 15,451,354

Of the $21.9 billion outstanding principal balance of volume included in Farmer Mac's four lines of business as of December 31, 2020, $7.7 billion were AgVantage securities included in the Institutional Credit line of business.

Of Farmer Mac's $23.6 billion outstanding principal balance of business volume as of December 31, 2021, $8.1 billion were AgVantage securities included in the Agricultural Finance and Rural Infrastructure Finance lines of business.

Unlike business volume in the form of purchased loans, USDA Securities, and loans underlying LTSPCs and non-AgVantage Farmer Mac Guaranteed Securities, most AgVantage securities do not require periodic payments of principal based on amortization schedules and instead have fixed maturity dates when the secured general obligation is due.

5 unchanged sentences

2023 1,090,564

2023 1,045,738

Thereafter (1)

4 unchanged sentences

As provided by Farmer Mac's statutory charter, only banks, insurance companies, and other financial institutions or similar entities may hold Farmer Mac's Class A voting common stock, and only institutions of the FCS may hold Farmer Mac's Class B voting common stock.

Farmer Mac's charter also provides that holders of Class A voting common stock elect five members of Farmer Mac's 15-member board of directors and that holders of Class B voting common stock elect five members of the board of directors.

Farmer Mac's charter also provides that holders of Class A voting common stock elect five members of Farmer Mac's 15-member board of directors and that holders of Class B voting common stock

elect five members of the board of directors.

The ownership of Farmer Mac's two classes of voting common stock is currently concentrated in a small number of institutions.

Approximately 45% of the Class A voting common stock is held by three financial institutions, with 31% held by one institution.

Approximately 53% of the Class A voting common stock is held by four financial institutions, with 31% held by one institution.

Approximately 97% of the Class B voting common stock is held by five FCS institutions (two of which are related to each other through a parent-subsidiary relationship).

1 unchanged sentence

Farmer Mac, as a stockholder-owned, publicly-traded corporation, seeks to fulfill its mission of serving the financing needs of rural America in a way that is consistent with providing a return on the investment of its stockholders, including those who do not directly participate in the secondary market provided by Farmer Mac.

Farmer Mac's policy is to generally require financial institutions to own a requisite amount of common stock, based on the size and type of institution, to participate in the Farm & Ranch line of business.

Farmer Mac's generally requires most financial institutions that participate in Farmer Mac's Agricultural Finance line of business to own a requisite amount of common stock, based on the size and type of institution.

As a result of this requirement, coupled with the ability of holders of Class A and Class B voting common stock to elect two-thirds of Farmer Mac's board of directors, Farmer Mac regularly conducts business with "related parties," including institutions affiliated with members of Farmer Mac's board of directors and institutions that own large amounts of Farmer Mac's voting common stock.

10 unchanged sentences

None In both 2021 and 2020, Farmer Mac earned approximately $1.2 million in fees attributable to transactions with AgFirst, primarily commitment fees for LTSPCs.

AgriBank, FCB 201,621 shares of Class B voting common stock

(40.30% of outstanding Class B stock and 13.17% of total voting common stock outstanding)

Farmer Mac director Richard H.

Davidson served as director of AgriBank until March 2021 and former Farmer Mac director (through May 2021) Daniel L.

Shaw serves as director of AgriBank.

Farmer Mac did not conduct any business with AgriBank during 2021 or 2020.

Name of Institution Ownership of

2 unchanged sentences

Business Relationship with Farmer Mac

AgriBank, FCB 201,621 shares of Class B voting common stock

(40.30% of outstanding Class B stock and 13.17% of total voting common stock outstanding)

Farmer Mac directors Richard H.

Davidson and Daniel L.

Shaw serve as directors of AgriBank.

Farmer Mac did not conduct any business with AgriBank during 2020 or 2019.

Bath State Bank Less than 5% ownership Farmer Mac director Dennis L.

1 unchanged sentence

Farmer Mac purchased $2.3 million and $9.2 million in USDA Securities from Bath State Bank in 2021 and 2020, respectively.

Additionally, Farmer Mac purchased $5.0 million in Agricultural Finance mortgage loans from Bath State Bank in 2021.

Farmer Mac did not purchase any Agricultural Finance mortgage loans from Bath State Bank in 2020.

163,253 shares of Class B voting common stock

1 unchanged sentence

Dobrinski served as a director of CoBank through December 2019.

Although no longer a director of CoBank, Mr.

Dobrinski currently serves on CoBank's independent nominating committee that screens and interviews director candidates and recommends a slate of candidates for consideration by CoBank's membership.

Farmer Mac purchased $207.5 million and $416.8 million in participation interests in loans from CoBank in 2021 and 2020, respectively.

This represented 56.0% and 89.1% of loan purchases under the Rural Utilities line of business for 2020 and 2019, respectively.

This represented 60.2% and 56.0% of loan purchases under the Rural Infrastructure Finance line of business for 2021 and 2020, respectively.

Farmer Mac entered into $72.0 million in unfunded commitments from CoBank in 2021.

Farmer Mac did not purchase any of these from CoBank in 2020.

In 2021 and 2020, CoBank retained $3.2 million and $2.3 million of servicing fees related to the loan participations sold to Farmer Mac, respectively.

5 unchanged sentences

during 2021 or 2020.

Name of Institution Ownership of

Farmer Mac Voting Common Stock Affiliation with Any

Farmer Mac Directors Primary Aspects of Institution's

Business Relationship with Farmer Mac

National Rural Utilities Cooperative Finance Corporation (CFC)

1 unchanged sentence

(7.91% of outstanding Class A stock and 5.32% of total voting common stock outstanding) Farmer Mac director Todd P.

Ware serves as a director of CFC.

Transactions with CFC represented 36.7% and 9.8% of loan purchases under the Rural Utilities line of business during 2020 and 2019, respectively.

Ware served as a director of CFC from June 2015 through June 2021.

Transactions with CFC represented 36.9% and 36.7% of loan purchases under the Rural Infrastructure Finance line of business during 2021 and 2020, respectively.

In 2021 and 2020, Farmer Mac earned commitment fees of approximately $1.2 million and $1.3 million, respectively, attributable to transactions with CFC.

In 2021 and 2020, Farmer Mac earned interest income of $50.0 million and $63.1 million, respectively, attributable to AgVantage transactions with CFC.

In 2020 and 2019, CFC retained approximately $3.3 million and $3.2 million, respectively, in servicing fees for its work as a Farmer Mac servicer.

In both 2021 and 2020, CFC retained approximately $3.3 million in servicing fees for its work as a Farmer Mac servicer.

Name of Institution Ownership of

Farmer Mac Voting Common Stock Affiliation with Any

Farmer Mac Directors Primary Aspects of Institution's

Business Relationship with Farmer Mac

The Vanguard Group, Inc.

4 unchanged sentences

(31.25% of outstanding Class A stock and 21.04% of total voting common stock outstanding)

None In 2020 and 2019, Farmer Mac's purchases of loans from Zions under the Farm & Ranch line of business represented approximately 7.1% and 9.5%, respectively, of Farm & Ranch loan purchase volume for those years.

Those purchases represented 6.2% and 7.6%, respectively, of total Farm & Ranch business volume for those years.

The purchases of USDA Securities from Zions under the USDA Guarantees line of business represented approximately 1.4% and 2.1%, respectively, of the USDA Guarantees line of business purchases for the years ended December 31, 2020 and 2019.

None In 2021 and 2020, Farmer Mac's purchases of on-balance sheet Agricultural Finance mortgage loans from Zions represented approximately 8.0% and 7.1%, respectively, of Agricultural Finance mortgage loan purchase volume for those years.

Those purchases represented 5.6% and 6.2%, respectively, of total Agricultural Finance mortgage loan business volume (excluding AgVantage and USDA Securities) for those years.

The purchases of USDA Securities from Zions represented approximately 2.1% and 1.4%, respectively, of the USDA Guarantees purchases for the years ended December 31, 2021 and 2020.

Transactions with Zions represented 3.4% and 4.1%, respectively, of Farmer Mac's total outstanding business volume as of December 31, 2021 and 2020.

In 2021 and 2020, Zions retained approximately $11.0 million and $11.8 million, respectively, in servicing fees for its work as a Farmer Mac servicer.

As discussed in more detail in Note 2(n) to the consolidated financial statements, Farmer Mac’s consolidated financial statements include the accounts of VIEs in which Farmer Mac determines itself to be the primary beneficiary, including securitization trusts where Farmer Mac shares the power to make decisions about default mitigation with a related party.

As discussed in more detail in Note 2(o) to the consolidated financial statements, Farmer Mac’s consolidated financial statements include the accounts of variable interest entities ("VIEs") in which Farmer Mac determines itself to be the primary beneficiary, including securitization trusts where Farmer Mac shares the power to make decisions about default mitigation with a related party.

If that related party status changes, consolidation or deconsolidation of securitization trusts may occur.

For more information about related party transactions, see Note 3 to the consolidated financial statements.

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

The pace of Farmer Mac’s growth will depend on the capital and liquidity needs of the lending institutions in the agricultural and rural utilities business as well as the overall health of borrowers in the sectors we serve.

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

The pace and trajectory of Farmer Mac's growth will depend on the capital and liquidity needs of the lending institutions in the agriculture and rural utilities business and the overall financial health of borrowers in the sectors we serve.

Farmer Mac foresees opportunities for profitable growth across our lines of business driven by several key factors:

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

• While prospects for overall loan growth within the rural utilities industry appears to be moderate in the near term due to slow growth in the demand for capital, future growth opportunities may increase in Farmer Mac’s Rural Utilities line of business from deepening business relationships with eligible counterparties, broadband-related capital expenditures, and the exploration of new types of loan products.

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

• As a result of business and product development efforts and continued interest in the agricultural asset class from institutional investors and nontraditional agricultural real estate lenders, Farmer

Mac's customer base and product set continue to expand and diversify, which may generate more demand for Farmer Mac's products from new sources.

• Farmer Mac's growing relationships with larger regional and national lenders, as well as consolidation within the agricultural lending industry, continue to provide opportunities that could influence Farmer Mac's loan demand and increase the average transaction size within Farmer Mac's lines of business.

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

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

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

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

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

The COVID-19 pandemic and related efforts to contain it continue to create disruptions to the global economy.

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

But the duration, severity, and continued spread of COVID-19, the effectiveness and availability of vaccines, and ongoing government efforts taken to contain COVID-19 and mitigate public health and economic effects continue to evolve and remain uncertain.

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

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

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

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

See "Risk Factors" in

Part II, Item 1A of this report for more information about the uncertainties and risks associated with the COVID-19 pandemic on Farmer Mac and its business.

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

• Lower market interest rates have driven a cyclical increase in agricultural loan refinancings over the last two years.

Future changes to monetary policy and the overall level of interest rates could impact the pace and timing of Agricultural Finance mortgage loan purchase demand.

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

In October 2021, we completed a structured agricultural mortgage-backed securitization (AMBS) that included a $277.0 million senior tranche guaranteed by Farmer Mac and a $22.5 million unguaranteed subordinate tranche sold to investors, resulting in the sale of Farm & Ranch loans formerly held on Farmer Mac's balance sheet.

During fourth quarter 2021, Farmer Mac recorded a gain on this transaction of $5.2 million after-tax.

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

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

The disruptions from the COVID-19 pandemic experienced during 2020 were significantly moderated during 2021.

However, the recent and rapid increase in cases of COVID-19 resulting from variants of coronavirus demonstrates the volatility and uncertainty stemming from the pandemic.

Future variants and outbreaks may result in increased market volatility and supply chain disruptions similar to the market dislocations experienced in 2020 and 2021.

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

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

Operating Expense .

2 unchanged sentences

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

On March 12, 2020, Farmer Mac activated its business continuity plan and has been operating uninterruptedly since then, with all of its employees working remotely from their homes.

Farmer Mac has provided guidance and support to all of its employees to ensure that they have the tools and knowledge needed to effectively work from home, and Farmer Mac’s technology platform and business continuity plan have been functioning as designed in support of all functions of the organization with no material disruption of business.

As a secondary market participant in the agricultural and rural utility lending space, Farmer Mac's business model is already based on a remote interface with its customers and vendors.

We do not expect Farmer Mac's remote-working environment to have a material effect on our operations either in the near term or for the foreseeable future.

During third quarter 2021, we closed on a strategic acquisition that enhanced our operations by expanding our internal loan servicing function and acquiring the loan servicing rights for a sizeable portion of our Farm & Ranch loan and USDA Securities portfolios.

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

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

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

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

On March 12, 2020, Farmer Mac activated its business continuity plan and has been operating uninterruptedly since then, with most of its employees working remotely throughout 2020 and 2021.

Farmer Mac has provided guidance and support to all of its employees to ensure that they have the tools and knowledge needed to effectively work remotely, and Farmer Mac's technology platform and business continuity plan have been functioning as designed in support of all functions of the organization with no material disruption of business.

As a secondary market participant in the agricultural and rural utilities lending space, Farmer Mac's business model is already based on a remote interface with its customers and vendors.

Agricultural Industry .

Like most industries, the COVID-19 pandemic heavily impacted the U.S.

agricultural and food sectors throughout 2020.

According to advance sales data from the U.S.

Census Bureau, regional school and restaurant closures combined with consumer social distancing precautions caused a 53% drop in food and beverage sales away from home in April 2020.

Sales at food and beverage places ended the year 19% below 2019 levels.

Meat and poultry processing plants experienced widespread closures in April and May, as the Center for Disease Control (CDC) reported more than 239 facilities affected by COVID-19 outbreaks in 23 states.

According to data from the U.S.

Energy Information Administration, ethanol production fell to 50% of 2019 levels in April 2020 as gasoline consumption fell amid closures and reduced mobility.

Ethanol is a primary demand driver for corn, so the sudden demand shock caused downward pressure on grain commodity prices.

The USDA corn price index hit a 10-year low in April 2020.

Despite these pressures, the agricultural and food sectors endured with a strong finish in 2020.

Food consumption at home picked up considerably, with U.S.

Census data showing an 11% increase in sales at food and beverage stores in 2020 compared to 2019.

USDA research shows that farm production and food processing take a higher net margin of the food dollar spent at home, so the shift of consumer spending to food at home could offset some or all of the losses from sales to restaurants and schools.

Consumer mobility increased steadily in the second half of 2020, restoring fuel demand and pushing ethanol production back to 88% of 2019 levels by December.

Record government support payments to farmers and ranchers helped offset the mid-year disruptions.

The USDA estimates total farm program payments to farmers at over $46 billion for the year, a combination of typical farm programs, payments from the trade-oriented Market Facilitation Program (MFP), forgivable loans from the Paycheck Protection Program (PPP), and two rounds of Coronavirus Food Assistance Program (CFAP) payments.

Finally, reduced global supply of grains and increased export demand for grains combined to push world grain prices to 7-year highs.

USDA corn and soybean cash price indices closed the year 30% and 42% above 2019 levels, respectively.

Of the major agricultural commodities, only cattle and dairy prices did not end the year higher than when it began.

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

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

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

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

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

Early USDA estimates for 2021 show a stable income outlook of $111.4 billion in net farm income and $128.3 billion in net cash farm income due to a reduction in government support payments but an increase in grain cash receipts.

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

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

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

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

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

An improved profitability outlook combined with low market interest rates could provide support for land values into 2021.

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

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

Economic conditions throughout the agricultural, food, fuel, and fiber sectors were generally positive throughout 2021.

According to USDA estimates, gross farm income increased by 10% in 2021 to a record high of $487.9 billion.

Improved commodity prices for grains and animal proteins drove the increase in gross cash receipts, and the increase in gross income was more than enough to offset a 40% decline in direct government payments.

The general price rally is largely a function of dwindling global supplies for most major crop commodities.

Farm expenses also rose in 2021 for most producers, driven by rising feed, energy, and labor costs.

However, growth in income outpaced growth in expense, and net cash farm income increased nearly 15% in 2021 to $134.2 billion, the highest level since 2013.

Consumers returned to restaurants and food service establishments in 2021, with a 41% annual increase in retail spending at food service and drinking places according to advance retail sales data from the U.S.

Census Bureau.

Combined with an annual 8.4% increase in retail spending at food and drinking stores (e.g., grocery), consumers have demonstrated the ability to absorb higher commodity prices in their food budgets in 2021.

The increase in farm profitability combined with low overall interest rates drove a rapid rise in land values and a decrease in farm delinquencies and bankruptcies.

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

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

The Federal Reserve Bank of Chicago AgLetter reported an 18% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) between October 2020 and October 2021.

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

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

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

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

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

Forty-four percent of the loans past due 90-days or more in third quarter 2020 cured or paid off by December 31, 2020.

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

A prolonged disruption may result in elevated loan delinquencies and a higher percentage of loans rated substandard.

In its first look at the 2022 farm economy, the USDA projects a tightening profitability outlook.

The rapid rise of input costs and interest expense is likely to increase the cost of production in 2022, putting downward pressure on overall net farm income.

However, the USDA projects a modest increase in net cash farm income by 1.4% in 2022 to $136.1 billion due to cash revenue rising slightly faster than cash expenses.

Fertilizer prices spiked in 2021, with December prices paid by farmers 62% higher than 2020 levels.

While fertilizer prices abated somewhat in early 2022, the elevated costs may have already been incurred as prepaid input expense.

Interest expense is also seen rising in 2022 due to a combination of higher debt levels and rising short-term borrowing costs.

The decline in net cash farm income is modest historically, and most of the USDA's projected financial ratios show a robust food and farm economy in 2022.

Farm equity is expected to rise for the third straight year, as forecasts for land values outpace the expected increase in debt utilization.

The farm sector's overall working capital and interest expense coverage ratios are expected to reach their highest levels in eight years during 2022.

Economic conditions are likely to bring mixed effects to credit demand in 2022.

Strong asset appreciation and rising interest rates could signal a credit cycle expansion as financial decision-makers look to lock in long-term economics for their appreciating farm and agribusiness assets.

Farm profitability generally increases asset values and demand for the asset class, which also contributes to increasing credit demand.

The low interest rate environment in 2021 increased farmland mortgage refinancing and loan prepayment speeds throughout the year.

A reduction in loan refinancing is possible in 2022, as fewer borrowers will economically benefit from refinancing or restructuring their farm debt.

This could have mixed effects on mortgage portfolios, potentially lowering new sales and originations but also slowing portfolio prepayments and exits.

Finally, a rising yield curve coupled with widening market credit spreads could increase opportunities for corporate and institutional lending, as Farmer Mac's programs become more attractive at higher costs of capital.

Combined, these factors are generally supportive of continued net portfolio growth in 2022.

Positive economic conditions improved portfolio performance in 2021, and they could continue to positively impact loan delinquencies and losses into 2022.

Farmer Mac's 90-day delinquencies and substandard assets levels improved in fourth quarter 2021 relative to fourth quarter 2020.

One-third of the loan volume past due 90-days or more in third quarter 2021 cured or paid off by December 31, 2021.

The overall delinquency rate fell from 0.58% of the Farm & Ranch operating segment as of September 30, 2021, to 0.48% of the Farm & Ranch portfolio by December 31, 2021, a significant improvement that follows the seasonal pattern historically observed during the fourth quarter of each year.

Year-over-year, the delinquency rate fell by 6 basis points from 0.54% in fourth quarter 2020.

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

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

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

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

For more information about the loan balances, loan-to-value ratios, 90-day delinquencies, and substandard asset rate for the Farm & Ranch loans in Farmer Mac’s portfolio as of December 31, 2020, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees."

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

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

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

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

dollar, a recovery in Chinese hog production and subsequent demand for feed inputs, and better overall trade relations.

experienced $22 billion in severe weather disasters in 2020, the highest level in the 40 years tracked

by the National Oceanic and Atmospheric Administration.

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

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

Exogenous factors facing farm and food producers can create uncertainty and market instability within the sector.

External market conditions that could adversely impact the farm and food sectors in 2022 include supply chain disruptions, foreign trade and trade policy, and environmental conditions.

The logistics of growing, harvesting, processing, packaging, shipping, storing, and retailing food are complex and intertwined.

Labor shortages and transportation disruptions created supply chain stoppages in 2020 and 2021, and they could again challenge producers in 2022.

agricultural sector has become increasingly dependent on foreign markets as a source of demand, making trade policy increasingly important to farms and food.

The USDA reports U.S.

agricultural exports in the fiscal year 2021 at $173.5 billion, 35% of the total estimated gross farm income in 2021.

The USDA's initial forecast for 2022 is a modest increase in export value, but this outcome could be influenced by foreign relations or foreign economic conditions should they worsen in markets important to exports or imported inputs.

For example, U.S.

sanctions against Belarus in 2021 create upward pressure on fertilizer prices, and tensions between Ukraine and Russia create uncertainty and volatility in global grain prices.

Severe weather conditions and long-term environmental change continue to shape agricultural sectors.

experienced 20 separate billion-dollar weather disasters in 2021, the second-highest level in the 40 years tracked by the National Oceanic and Atmospheric Administration behind 2020.

Many of those events affected agriculture, including a midwestern derecho, western wildfires, and western drought.

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

For more information about the recent Texas Arctic Freeze, please refer to the separate section below.

Farmer Mac closely monitors state and federal legislation and regulations that could affect U.S.

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

House of Representatives, and the U.S.

Senate in 2021.

Although party control has not historically correlated with the availability of government farm payments, there could be changes in regulatory or tax policies that could affect the U.S.

agricultural and food sectors.

Farmer Mac continues to monitor the effects that any changes in legislation or regulation could have on Farmer Mac or its customers.

Rural Utilities Industry .

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

Higher levels of unemployment and adverse credit markets are typically associated with drops in energy demand (i.e., lower commercial, industrial, or residential demand) and increases in industry ratings downgrades.

The economic distress caused by the COVID-19 pandemic has led to historic levels of unemployment and reduced energy demand from the commercial and industrial sectors.

Long and persistent drought conditions impacted western agriculture during much of 2021.

Although drought conditions improved in fourth quarter 2021 and early weeks of 2022, 12% of the continental U.S.

remained in exceptional or extreme drought as of February 1, 2022, according to data from the National Drought Mitigation Center.

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

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

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

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

For more information about Farmer Mac's environmental risk mitigation requirements, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees—Environmental Considerations."

Rural Infrastructure Industry .

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

According to data from the U.S.

Energy Information Administration, electricity sales to commercial and industrial consumers dropped 8% year-to-date through November 2020 compared to 2019.

However, residential sales during the same period were up 2% compared to 2019, as residents spent more time at home during state, local, and self-imposed quarantines.

Residential power sales are typically significantly more profitable than those for commercial and industrial consumers, so some of the profitability reduction from the loss of commercial and industrial sales can be offset by the change in sales mix.

Sector sales mix varies from utility to utility based on the characteristics of the region served, so the degree of profitability offset may differ.

Some rural electric cooperatives received forgivable loans through the Paycheck Protection Program (PPP), which are another potential source to offset any profitability reduction.

The COVID-19 pandemic has also highlighted the greater need for and interest in access to broadband internet in rural areas, and the CARES Act authorized more than $300 million to support healthcare industry telecommunications and rural broadband grants.

Farmer Mac expects the heightened level of uncertainty surrounding the economic impacts of COVID-19 to continue into 2021.

Through December 31, 2020 Farmer Mac had not observed material degradation in the financial performance of its Rural Utilities portfolio.

During 2020, the sudden decrease of interest rates to historic lows drove significant financing activity on the part of rural electric cooperatives.

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

Farmer Mac's future growth opportunities for financing the electric cooperative industry may be affected by the demand for electric power in rural areas, capital expenditures by electric cooperatives driven by regulatory or technological changes, the continuation of a low interest rate environment, and competitive dynamics within the rural utilities cooperative finance industry.

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

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

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

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

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

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

Energy Information Administration, sales and the revenue from the sale of electricity to customers increased by 2.5% and 8.2%, respectively, in 2021 through November compared to 2020.

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

Overall economic conditions continued to improve throughout 2021, with improved employment, credit, and retail sales activity, but COVID-19 variants and higher inflation continue to impact economic activity.

Through December 31, 2021, Farmer Mac had not observed material degradation in the financial performance of its rural infrastructure portfolio.

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

infrastructure continue at typical levels.

Farmer Mac's future growth opportunities for financing the electric cooperative industry may be affected by the demand for electric power in rural areas, capital expenditures by electric cooperatives driven by regulatory or technological changes, the continuation of a low interest rate environment compared to historical rates, and competitive dynamics within the rural utilities cooperative finance industry.

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

As RDOF auction winners submit plans to the FCC and begin development, Farmer Mac could see increased lending activity for rural utilities providers.

In addition to RDOF broadband, Farmer Mac could see an increase in financing opportunities to other telecommunications providers to rural areas with wireless broadband increasingly important to economic opportunity and precision agriculture.

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

According to data from the U.S.

Energy Information Administration, renewable electricity capacity will grow by 48% in the next five years, compared to total electric capacity growth of only 10%.

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

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

Under this new program, Farmer Mac purchased solar project participation interests from a new counterparty during first quarter 2020, wind project participation interests from an existing counterparty in third quarter 2020, and loans from a new counterparty in fourth quarter 2020.

Farmer Mac anticipates further growth in this area during 2021.

As of December 31, 2020 the total outstanding balance of Farmer Mac’s renewable energy financing portfolio was $73.0 million.

Tex a s Arctic Freeze .

Farmer Mac is carefully monitoring the effects of the extremely cold weather during mid-February 2021 in the mid-south region, particularly in Texas, on both our agricultural and rural infrastructure portfolios.

As of December 31, 2020, our agricultural portfolio exposure in Texas was approximately $611 million, with cattle being the largest commodity exposure.

Cattle producers in that region could face animal health issues as a result of the freezing conditions, but most of our other commodity exposures in that region are less likely to be significantly affected by these conditions.

As of December 31, 2020, our rural infrastructure portfolio exposure in Texas was approximately $377 million and is split between distribution and generation and transmission cooperatives.

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

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

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

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

As of February 25, 2021, we are not aware of any damage from the arctic freeze that would likely result in a material credit loss in either our agricultural portfolio or our rural infrastructure portfolio.

Under this new initiative, Farmer Mac's total outstanding loan purchase balance of renewable energy financing transactions was $86.8 million as of December 31, 2021.

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

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

The recent drought and wildfires in California have not materially impacted Farmer Mac's portfolio as of December 31, 2021, nor has damage from Hurricane Ida.

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

As of December 31, 2021, our rural infrastructure portfolio exposure in Texas was approximately $428.0 million and split between distribution and generation and transmission cooperatives.

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

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

In January 2022, the first Texas electric cooperative announced plans to use securitization financing to recover these extraordinary costs.

We believe that the current risk ratings applied to our rural infrastructure portfolio reflect any remaining financial stress resulting from the 2021 Texas freeze and elevated energy costs.

Legislative and Regulatory Outlook .

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

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

In July 2021, a federal judge issued a preliminary injunction that ordered USDA to halt all payments under that debt relief program pending resolution of the constitutional objections raised against the program in ongoing litigation.

Congress has proposed replacing Section 1005 of the American Rescue Plan with a new program that provides debt relief to "economically distressed" and "at-risk" farmers.

If enacted, this

provision could lead to a short-term acceleration in the prepayment of the FSA guaranteed loans in Farmer Mac's USDA Securities portfolio.

• Farmer Mac continues to monitor legislative developments that could lead to changes in the tax code that could affect Farmer Mac’s business.

For example, an increase in the U.S.

corporate tax rate (currently at 21%) has been proposed in recent years as a possible offset to increased spending on social programs.

A proposed 1% excise tax on the fair market value of a corporation's stock repurchased in a taxable year has been considered as well.

Farmer Mac has an existing stock buyback program that authorizes up to $9.8 million in repurchases of common stock that expires in March 2023 .

• The current farm bill is set to expire in 2023.

The farm bill is an omnibus piece of legislation that may impact several programs impacting farm profitability, the vitality of rural communities, and Farmer Mac’s charter.

The House and Senate Agriculture Committees are expected to begin consideration of a new farm bill during 2022.

Farmer Mac will continue to monitor this legislation for any impact it may have to Farmer Mac and farm profitability.

• Agricultural exports from the United States were valued at more than $177 billion in the fiscal year 2021.

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

food and agricultural sectors' competitiveness internationally.

In 2021, Congress passed a $550 billion bipartisan infrastructure bill that provides for key investments to improve roads, bridges, freight rail, electric, broadband, ports, and waterways that are expected to support farmers and ranchers' profitability, competitiveness, and access to global markets.

• The prudential regulator of Farmer Mac is expected to undergo significant changes to its board this calendar year.

The three-member board of the Farm Credit Administration (FCA) currently has one vacant seat, a member whose term expired in 2018, and a third member whose term expires in May 2022.

The two current board members continue to serve until their replacement has been confirmed the U.S.

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

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

Balance Sheet Review

7 unchanged sentences

Loans, net of allowance 8,300,619 7,248,990 1,051,629 15 %

Loans held in trusts, net of allowance 948,059 1,286,156 (338,097) (26) %

Other 302,908 283,876 19,032 7 %

1 unchanged sentence

Notes Payable 22,716,156 21,848,917 867,239 4 %

Debt securities of consolidated trusts held by third parties 981,379 1,323,786 (342,407) (26) %

Other 243,543 190,321 53,222 28 %

2 unchanged sentences

Total liabilities and equity $ 25,145,491 $ 24,355,501 $ 789,990 3 %

The increase in total assets was primarily attributable to the net growth in our outstanding business volume across most lines of business.

The increase in cash and cash equivalents and investment securities was primarily due to a decision to increase our liquidity investment portfolio due to the COVID-19 pandemic and to support our program asset growth.

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

Liabilities .

The increase in total liabilities was primarily due to an increase in total notes payable to support our program asset growth.

The increase in total equity was primarily due to the issuance of the Series E Preferred Stock and the Series F Preferred Stock and an increase in net income.

These increases were partially offset by the redemption of the Series A Preferred stock and an increase in other comprehensive losses, net of tax, primarily due to decreases in the fair value of available-for-sale securities and financial derivatives designated in cash flow hedge accounting relationships.

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

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

Risk Management

Credit Risk – Loans and Guarantees .

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

In mid-2020, Farmer Mac experienced an increase in payment deferment requests from its network of loan servicers on behalf of borrowers in Farmer Mac's

Farm & Ranch loan portfolio, although deferment requests were below our expectations.

Our early expectations for payment deferment requests were based on forecasts provided by other GSEs and other Farm Credit System institutions.

To address the requests that we have received, Farmer Mac has established criteria for approval of payment deferments for borrowers impacted by the COVID-19 pandemic and have communicated these criteria to key counterparties.

Farmer Mac will monitor the criteria as the impact of the pandemic continues to unfold and determine if any changes should be made.

Most of the payment deferments Farmer Mac has approved and executed for loans it has purchased or securitized in its Farm & Ranch portfolio have been for up to six months, with the deferred principal and interest payments capitalized into the unpaid principal balance of the loan.

The unpaid principal balance is then re-amortized over the remaining term of the loan.

Approved and executed payment deferments for loans in LTSPCs have varied from three-month payment deferments for principal and interest to deferred interest-only payments for up to twelve months, depending on the applicable LTSPC lender's deferment policy.

As of December 31, 2020, we have executed payment deferments in the Farm & Ranch and USDA Securities portfolios related to an aggregate of $432.0 million of unpaid principal balances, which represents 1.97% of our total outstanding business volume.

In addition, FCA has issued regulatory guidance encouraging Farmer Mac to work with its lending and servicing partners in approving and executing servicing actions for borrowers impacted by COVID-19.

The table below presents a cumulative summary of COVID-19 payment deferments through December 31, 2020 in the Farm & Ranch and USDA Guarantees lines of business.

Farmer Mac has not received any payment deferment requests in the Rural Utilities line of business.

For more information about FCA's regulatory guidance related to the COVID-19 pandemic, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Regulatory Matters."

Farm & Ranch COVID-19 Deferments Summary

As of December 31, 2020 (1)

Unpaid Principal Balance

Requested, but not yet Approved Approved, but not yet Executed Not Approved (2)

Approved and Executed

Farm & Ranch:

(in thousands)

On-balance sheet:

Loans held for investment $ 286 $ 675 $ — $ 118,903

Loans held in consolidated trusts — 2,005 1,140 26,564

On-balance sheet total $ 286 $ 2,680 $ 1,140 $ 145,467

Off-balance sheet:

LTSPCs 585 8,144 3,502 193,665

Farm & Ranch Total $ 871 $ — $ 10,824 $ 4,642 $ 339,132

USDA Securities $ 11,664 $ — $ 5,081 $ 86,703

Farmer Mac Guaranteed USDA Securities 946 — 382 6,189

USDA Total $ 12,610 $ — $ 5,463 $ 92,892

Farm & Ranch and USDA Total Deferments $ 13,481 $ 10,824 $ 10,105 $ 432,024

(1) Loans under a COVID-19 deferment are not considered to be past due.

(2) Typically due to the borrower withdrawing from the COVID-19 deferment process.

For example, the borrower may have refinanced the loan, paid off the loan, or decided not to pursue payment relief.

Farmer Mac's direct credit exposure to Farm & Ranch loans held and loans underlying Farm & Ranch Guaranteed Securities and LTSPCs as of December 31, 2020 was $8.6 billion across 48 states.

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

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

For more information about Farmer Mac's underwriting and collateral valuation standards for Farm & Ranch loans, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Underwriting and Collateral Standards".

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

As of December 31, 2020, Farmer Mac had not experienced any credit losses on any AgVantage securities.

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

Farmer Mac considers a loan's original loan-to-value ratio as one of many factors in evaluating loss severity.

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

As of December 31, 2020 and December 31, 2019, the average unpaid principal balances for loans outstanding in the Farm & Ranch line of business was $742,000 and $683,000, respectively.

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

This calculation does not reflect any amortization of the original loan balance or any adjustment to the original appraised value to provide a current market value.

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

The weighted-average original loan-to-value ratio for Farm & Ranch loans purchased during 2020 was 54%, compared to 51% for loans purchased during 2019.

The weighted-average original loan-to-value ratio for all Farm & Ranch loans held and all loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 52% and 51% as of December 31, 2020 and December 31, 2019, respectively.

The weighted-average original loan-to-value ratio for all 90-day delinquencies was 50% and 53% as of December 31, 2020 and December 31, 2019, respectively.

The weighted-average current loan-to-value ratio (the loan to-value ratio based on original appraised value and current outstanding loan amount adjusted to reflect amortization) for Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 46% and 45% as of December 31, 2020 and December 31, 2019, respectively.

For more information about the credit quality of Farmer Mac's Farm & Ranch portfolio and the associated allowance for losses please refer to Notes 8 and 12 to the consolidated financial statements.

Activity affecting the allowance for loan losses and reserve for losses is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Provision for and Release of Allowance for Loan Losses and Reserve for Losses."

Agricultural Finance - Direct Credit Exposure

Farmer Mac's direct credit exposure to Agricultural Finance mortgage loans as of December 31, 2021 was $9.8 billion across 48 states.

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

For Corporate AgFinance loans, which are often larger loan exposures to agriculture production and agribusinesses that support agriculture production, food and fiber processing, and other supply chain production, and which may have risk profiles that differ from smaller agricultural mortgage loans, Farmer Mac has implemented methodologies and parameters that help assess credit risk based on the appropriate sector, borrower construct, and transaction complexity.

For more information about Farmer Mac's underwriting and collateral valuation standards for Agricultural Finance mortgage loans, see "Business—Farmer Mac's Lines of Business—Agricultural

Finance—Underwriting and Collateral Standards—Farm & Ranch" and "Business—Farmer Mac's Lines of Business—Agricultural Finance—Underwriting and Collateral Standards—Corporate AgFinance."

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

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

to $61.0 million (0.78% of the Farm & Ranch portfolio) as of December 31, 2019.

Those 90-day delinquencies were comprised of 38 delinquent loans as of December 31, 2020, compared to 57 delinquent loans as of December 31, 2019.

The decrease in 90-day delinquencies was primarily driven by three commodity groups – permanent plantings, livestock, and part-time farms.

The decreases in those commodity groups were partially offset by increases related to the agricultural storage & processing loan secured by a specialized poultry facility and multiple crop loans.

For Agricultural Finance mortgage loans to which Farmer Mac has direct credit exposure, Farmer Mac's 90-day delinquencies as of December 31, 2021, were $47.3 million (0.48% of the Agricultural Finance mortgage loan portfolio to which Farmer Mac has direct credit exposure), compared to $46.2 million (0.54% of the Agricultural Finance mortgage loan portfolio) as of December 31, 2020.

Those 90-day delinquencies were comprised of 32 and 38 delinquent loans as of December 31, 2021 and December 31, 2020, respectively.

The increase in 90-day delinquencies was primarily driven by increased delinquencies in crops, permanent plantings, and livestock, partially offset by the payoff of a single delinquent loan in storage and processing.

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

Loans under COVID-19 deferment are not considered past due and are not included in our delinquent loan statistics.

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

Our 90-day delinquency rate as of December 31, 2020 was below Farmer Mac's historical average.

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

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

The highest 90-day delinquency rate observed during that period occurred in 2009 at approximately 2%, which coincided with increased delinquencies in loans within Farmer Mac's then-held ethanol loan portfolio that Farmer Mac no longer holds.

The following table presents historical information about Farmer Mac's 90-day delinquencies in the Farm & Ranch line of business compared to the unpaid principal balance of all Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs:

Farm & Ranch Line of Business 90-Day

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

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

Farmer Mac's average 90-day delinquency rate as a percentage of its Agricultural Finance mortgage loan portfolio over the last 15 years is approximately 1%.

The highest 90-day delinquency rate observed during that period occurred in 2009 at approximately 2%, which coincided with increased delinquencies in loans within Farmer Mac's ethanol loan portfolio.

The following table presents historical information about Farmer Mac's 90-day delinquencies in the Agricultural Finance mortgage loan portfolio compared to the unpaid principal balance of all Agricultural Finance mortgage loans to which Farmer Mac has direct credit exposure:

Agricultural Finance Mortgage Loans 90-Day

Delinquencies Percentage

10 unchanged sentences

Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.20% of total outstanding business volume as of December 31, 2021, compared to 0.21% as of December 31, 2020 and 0.29% as of December 31, 2019.

The following table presents outstanding Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities and 90-day delinquencies as of December 31, 2020 by year of origination, geographic region, commodity/collateral type, original loan-to-value ratio, and range in the size of borrower exposure:

Farm & Ranch 90-Day Delinquencies as of December 31, 2020

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

The following table presents outstanding Agricultural Finance mortgage loans and 90-day delinquencies as of December 31, 2021 by year of origination, geographic region, commodity/collateral type, original loan-to-value ratio, and range in the size of borrower exposure:

Agricultural Finance Mortgage Loans 90-Day Delinquencies as of December 31, 2021

Distribution of Agricultural Loans Agricultural Loans 90-Day Delinquencies (1)

(dollars in thousands)

45 unchanged sentences

Total 100 % $ 9,811,749 $ 47,307 0.48 %

(1) Includes loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan.

(1) Includes loans held and loans underlying off-balance sheet Agricultural Finance Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan.

(2) Geographic regions:

8 unchanged sentences

(4) Includes aggregated loans to single borrowers or borrower-related entities.

Another indicator that Farmer Mac considers in analyzing the credit quality of its Farm & Ranch portfolio is the level of internally-rated "substandard" assets, both in dollars and as a percentage of the outstanding Farm & Ranch portfolio.

Another indicator that Farmer Mac considers in analyzing the credit quality of its Agricultural Finance mortgage loans is the level of internally-rated "substandard" assets, both in dollars and as a percentage of the outstanding portfolio.

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

As of December 31, 2020, Farmer Mac's substandard assets were $291.5 million (3.4% of the Farm & Ranch portfolio), compared to $310.0 million (4.0% of the Farm & Ranch portfolio) as of December 31, 2019.

Those substandard assets were comprised of 343 loans as of December 31, 2020 and 353 loans as of December 31, 2019.

The decrease of $18.5 million in substandard assets during 2020 was primarily driven by credit upgrades in our on-balance sheet portfolio, partially offset by credit downgrades in our off-balance sheet portfolio during the year.

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

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

The percentage of substandard assets within the portfolio closely approximates the historical average.

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

Due to the COVID-19 pandemic, we believe that the substandard rate could rise above that historical average in the short-term.

However, the recent improvements in the agricultural economy could potentially counter the negative effects of COVID-19 on our loan portfolio.

The full extent of the impact of the COVID-19 pandemic remains to be seen, and we will continue to monitor its impact on our substandard asset rate.

The highest substandard asset rate observed during the last 15 years occurred in 2010 at approximately 8%, which coincided with an increase in substandard loans within Farmer Mac's then-held ethanol portfolio that Farmer Mac no longer holds.

As of December 31, 2021, Farmer Mac's Agricultural Finance mortgage loans (to which it has direct credit exposure) comprising substandard assets were $246.7 million (2.5% of the portfolio), compared to $291.5 million (3.4% of the portfolio) as of December 31, 2020.

Those substandard assets comprised 274 loans as of December 31, 2021 and 343 loans as of December 31, 2020.

The decrease of $44.8 million in substandard assets during 2021 was primarily driven by credit upgrades in our off-balance sheet portfolio, partially offset by credit downgrades in our on-balance sheet portfolio.

Substandard assets decreased as a percentage of the total on-balance sheet and off-balance sheet portfolios due to a combination of credit upgrades in the off-balance sheet portfolio and growth in both portfolios.

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

Farmer Mac's average substandard assets as a percentage of its Agricultural Finance mortgage loans over the last 15 years is approximately 4%.

The highest substandard asset rate observed during the last 15 years occurred in 2010 at approximately 8%, which coincided with an increase in substandard loans within Farmer Mac's ethanol portfolio.

If Farmer Mac's substandard asset rate increases from current levels, it is likely that Farmer Mac's provision to the allowance for loan losses and the reserve for losses will also increase.

Although some credit losses are inherent to the business of agricultural lending, Farmer Mac believes that losses associated with the current agricultural credit cycle will be moderated by the strength and diversity of its portfolio, which Farmer Mac believes is adequately collateralized.

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

Farm & Ranch current loan-to-value ratio by internally assigned risk rating as of December 31, 2020

Farmer Mac considers a loan's original loan-to-value ratio as one of many factors in evaluating loss severity.

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

As of December 31, 2021 and December 31, 2020, the average unpaid principal balances for Agricultural Finance mortgage loans outstanding and to which Farmer Mac has direct credit exposure was $790,000 and $742,000, respectively.

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

This calculation does not reflect any amortization of the original loan balance or any adjustment to the original appraised value to provide a current market value.

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

The weighted-average original loan-to-value ratio for Agricultural Finance mortgage loans purchased during 2021 was 49%, compared to 54% for loans purchased during 2020.

The weighted-average original loan-to-value ratio for Agricultural Finance mortgage loans and loans underlying off-balance sheet Agricultural Finance Guaranteed Securities and LTSPCs was 52% as of both December 31, 2021 and December 31, 2020.

The weighted-average original loan-to-value ratio for all 90-day delinquencies was 51% and 50% as of December 31, 2021 and December 31, 2020, respectively.

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

The following table presents the current loan-to-value ratios for the Agricultural Finance mortgage loans to which Farmer Mac has direct credit exposure, as disaggregated by internally assigned risk ratings:

Agricultural Finance Mortgage Loans current loan-to-value ratio by internally assigned risk rating as of December 31, 2021

Acceptable Special Mention Substandard Total

9 unchanged sentences

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

The following table presents Farmer Mac's cumulative net credit losses relative to the cumulative original balance for all Farm & Ranch loans purchased and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities as of December 31, 2020 by year of origination, geographic region, and commodity/collateral type.

The following table presents Farmer Mac's cumulative net credit losses relative to the cumulative original balance for all Agricultural Finance mortgage loans as of December 31, 2021 by year of origination, geographic region, and commodity/collateral type.

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

Farm & Ranch Credit Losses Relative to Cumulative

Agricultural Finance Mortgage Loans Credit Losses Relative to Cumulative

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

38 unchanged sentences

Analysis of portfolio performance indicates that commodity type is the primary determinant of Farmer Mac's exposure to loss on a given loan.

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

The following tables present concentrations of Agricultural Finance mortgage loans by commodity type within geographic region and cumulative credit losses by origination year and commodity type:

As of December 31, 2021

Farm & Ranch Concentrations by Commodity Type within Geographic Region

Agricultural Finance Mortgage Loans Concentrations by Commodity Type within Geographic Region

Crops Permanent

25 unchanged sentences

As of December 31, 2021

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

Agricultural Loans Cumulative Credit Losses by Origination Year and Commodity Type

Crops Permanent

15 unchanged sentences

Total $ 2,887 $ 9,783 $ 3,836 $ 1,090 $ 19,984 $ 37,580

Rural Utilities

Farmer Mac's direct credit exposure to Rural Utilities loans held and loans underlying LTSPCs as of December 31, 2020 was $2.8 billion across 45 states.

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

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

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

As of December 31, 2020, Farmer Mac had not experienced any credit losses on any AgVantage securities.

Farmer Mac has never experienced a credit loss in its Rural Utilities line of business.

Upon the adoption of the current expected credit loss accounting standard ("CECL") on January 1, 2020, we are now required to forecast and disclose our expected credit losses for the expected life of our Rural Utilities portfolio assets.

To do this, Farmer Mac relies upon industry data purchased from ratings agencies as well as publicly available information as disclosed in the securities filings of other major lenders who serve this industry.

For more information about the credit quality of Farmer Mac's Agricultural Finance mortgage loans and the associated allowance for losses please refer to Note 8 and Note 12 to the consolidated financial statements.

Rural Infrastructure Finance - Direct Credit Exposure

Farmer Mac's direct credit exposure to Rural Utilities loans held and loans underlying LTSPCs as of December 31, 2021 was $2.9 billion across 45 states.

For more information about Farmer Mac's underwriting and collateral valuation standards for Rural Utilities loans, see "Business—Farmer Mac's Lines of Business—Rural Infrastructure Finance—Underwriting and Collateral Standards." As of December 31, 2021, there were no delinquencies in Farmer Mac's portfolio of Rural Utilities loans.

Farmer Mac evaluates credit risk for these assets by reviewing a variety of borrower credit risk characteristics.

1 unchanged sentence

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

Rural Utilities portfolio by internally assigned risk rating as of December 31, 2020

Rural Infrastructure Finance portfolio by internally assigned risk rating as of December 31, 2021

Acceptable Special Mention Substandard Total

4 unchanged sentences

Rural Utilities Total $ 2,923,173 $ — $ 22,800 $ 2,945,973

For more information about the credit quality of Farmer Mac's Rural Utilities portfolio and the associated allowance for losses please refer to Notes 8 and 12 of the consolidated financial statements.

For more information about the credit quality of Farmer Mac's Rural Infrastructure Finance portfolio and the associated allowance for losses please refer to Notes 8 and 12 of the consolidated financial statements.

Other Considerations Regarding Credit Risk Related to Loans and Guarantees

The credit exposure on USDA Securities, including those underlying Farmer Mac Guaranteed USDA Securities, is guaranteed by the full faith and credit of the United States.

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

As of December 31, 2020, Farmer Mac had not experienced any credit losses on any securities under the USDA Guarantees line of business and does not expect to incur any such losses in the future.

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

As of December 31, 2020, Farmer Mac had executed COVID-19 payment deferments on loans with unpaid principal balances of $92.9 million underlying USDA Securities.

Farmer Mac requires most approved lenders to make representations and warranties about the conformity of eligible agricultural mortgage and Rural Utilities loans to Farmer Mac's standards, the accuracy of loan data provided to Farmer Mac, and other requirements related to the loans.

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

As of December 31, 2021, Farmer Mac had not experienced any credit losses on any USDA Securities or Farmer Mac Guaranteed USDA Securities and does not expect to incur any such losses in the future.

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

Farmer Mac requires many lenders to make representations and warranties about the conformity of Agricultural Finance mortgage loans and Rural Infrastructure Finance loans to Farmer Mac's standards, the accuracy of loan data provided to Farmer Mac, and other requirements related to the loans.

Sellers who make these representations and warranties are responsible to Farmer Mac for breaches of those representations and warranties.

1 unchanged sentence

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

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

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

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

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

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

For more information about Farmer Mac's loan eligibility requirements and underwriting standards, see "Business—Farmer Mac's Lines of Business—Agricultural Finance—Loan Eligibility," "Business—Farmer Mac's Lines of Business—Agricultural Finance—Underwriting and Collateral Standards—Farm & Ranch," "Business—Farmer Mac's Lines of Business—Agricultural Finance—Underwriting and Collateral Standards—Corporate AgFinance," and "Business—Farmer Mac's Lines of Business—Rural Infrastructure Finance—Underwriting and Collateral Standards."

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

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

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

If a servicer materially breaches the terms of its servicing agreement with Farmer Mac, such as failing to forward payments received or releasing collateral without

Farmer Mac's consent, or experiences insolvency or bankruptcy, the servicer is responsible for any corresponding damages to Farmer Mac and, in most cases, Farmer Mac has the right to terminate the servicing relationship for a particular loan or the entire portfolio serviced by the servicer.

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

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

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

Credit Risk – Institutional .

For more information about Farmer Mac's servicing requirements, see "Business—Farmer Mac's Lines of Business—Agricultural Finance—Loan Servicing" and "Business—Farmer Mac's Lines of Business—Rural Infrastructure Finance—Lenders and Loan Servicing."

Environmental Considerations

For loans purchased by Farmer Mac in its Agricultural Finance line of business, Farmer Mac has outlined specific requirements for environmental compliance.

Sellers seeking to sell Agricultural Finance mortgage loans to Farmer Mac must complete an environmental disclosure form and ensure that properties securing these loans are in full compliance with applicable permitting requirements and have necessary access to proper waste disposal.

Farmer Mac requires sellers to make representations and warranties that it has physically inspected the property prior to sale to ensure that the borrower has handled any hazardous materials on the property (including the waters adjacent) only as necessary to operate the property and in compliance with applicable environmental laws.

Farmer Mac also requires sellers to monitor each borrower's continuing compliance with environmental laws and regulations by performing annual inspections throughout the life of the loan.

Farmer Mac also requires that each mortgage note prohibit the use, disposal, storage, or release of hazardous substances on the property except for small amounts appropriate for the maintenance of the property.

For Agricultural Finance mortgage loans secured by irrigated property, Farmer Mac requires the seller to prepare an analysis for water rights and water sustainability for the borrower's operation for the life of the loan.

This analysis must include pump and well tests for groundwater sources and legally-documented easements or agreements for off-site water sources.

For loans secured by properties where water availability may be a concern (primarily California), Farmer Mac's underwriting process includes an assessment of anticipated long-term water availability for the related property and how that impacts the collateral value and borrower's cash flow position to mitigate that risk.

As part of this process, Farmer Mac may conduct, or require the seller to conduct, an in-depth groundwater availability analysis.

Credit Risk – Counterparty Risk .

Farmer Mac is exposed to credit risk arising from its business relationships with other institutions, which include:

4 unchanged sentences

The required collateralization level is established when the AgVantage facility is entered into with the counterparty and does not change during the life of the AgVantage securities issued under the facility without Farmer Mac's consent.

In AgVantage transactions, the corporate obligor is typically required to remove from the pool of pledged collateral any loan that becomes more than 30 days delinquent in the payment of principal or interest and to substitute an eligible loan that is current in payment to maintain the minimum required collateralization level.

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

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

In AgVantage transactions, the corporate obligor is typically required to remove from the pool of pledged collateral loans that become and remain (within specified parameters) delinquent in the payment of principal or interest and to

substitute eligible loans that are current in payment or pay down the AgVantage securities to maintain the minimum required collateralization level.

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

For Farm Equity AgVantage counterparties and smaller financial funds or entities, Farmer Mac also requires that the counterparty generally (1) maintain a higher collateralization level either through a higher overcollateralization percentage or through lower loan-to-value ratio thresholds and (2) comply with specified financial covenants for the life of the related AgVantage security to avoid default.

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

The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Farm & Ranch line of business totaled $5.2 billion as of December 31, 2020 and $5.5 billion as of December 31, 2019.

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

2020 and $2.9 billion as of December 31, 2019.

As a result, Farmer Mac has indirect credit exposure to the Agricultural Finance mortgage loans and Rural Utilities loans that secure AgVantage securities.

For AgVantage counterparties that are institutional real estate investors or financial funds and other similar entities, Farmer Mac also typically requires that the counterparty (1) maintain a higher collateralization level, through either a higher overcollateralization percentage or lower loan-to-value ratio thresholds and (2) comply with specified financial covenants for the life of the related AgVantage security to avoid default.

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

For a more detailed description of AgVantage securities, see "Business—Farmer Mac's Lines of Business—Agricultural Finance—Other Products – Agricultural Finance—AgVantage Securities" and "Business—Farmer Mac's Lines of Business—Rural Infrastructure Finance—Other Products – Rural Infrastructure Finance—AgVantage Securities."

The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Agricultural Finance line of business totaled $5.1 billion as of December 31, 2021 and $5.2 billion as of December 31, 2020.

The unpaid principal balance of on-balance sheet AgVantage securities secured by loans eligible for the Rural Infrastructure Finance line of business totaled $3.0 billion as of December 31, 2021 and $2.6 billion as of December 31, 2020.

The unpaid principal balance of outstanding off-balance sheet AgVantage securities totaled $2.8 million as of December 31, 2021 and $4.4 million as of December 31, 2020.

A $0.3 billion off-balance sheet AgVantage revolving line of credit facility was terminated during fourth quarter 2019.

The following table provides information about the issuers of AgVantage securities, as well as the required collateralization levels for those transactions as of December 31, 2020 and December 31, 2019:

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

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

Counterparty Balance Credit Rating Required Collateralization Balance Credit Rating Required Collateralization

Counterparty Balance Required Collateralization Balance Required Collateralization

(dollars in thousands)

CFC $ 2,570,249 A 100% $ 2,949,500 A 100%

MetLife 2,375,000 AA- 103% 2,550,000 AA- 103%

Rabo AgriFinance 2,050,000 None 110% 2,225,000 None 110%

551,654 None 106% to 125% 436,041 None 106% to 125%

Farm Equity AgVantage (2)

192,456 None 110% 279,705 None 110%

CFC $ 3,036,017 100% $ 2,570,249 100%

MetLife 2,050,000 103% 2,375,000 103%

Rabo AgriFinance 2,550,000 110% 2,050,000 110%

492,464 106% to 125% 744,110 106% to 125%

Total outstanding $ 8,128,481 $ 7,739,359

(1) Consists of AgVantage securities issued by 13 and 10 different issuers as of December 31, 2021 and December 31, 2020, respectively.

(2) Consists of AgVantage securities issued by 4 and 5 different issuers as of December 31, 2020 and December 31, 2019, respectively.

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

Farmer Mac monitors the financial condition of those institutions by evaluating financial statements and bank credit rating agency reports.

For more information about Farmer Mac's lender eligibility requirements, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Lenders" and "Business—Farmer Mac's Lines of Business—Rural Utilities—Lenders."

Farmer Mac monitors the financial condition of those institutions by evaluating financial statements and credit rating agency reports.

For more information about Farmer Mac's lender eligibility requirements, see "Business—Farmer Mac's Lines of Business—Agricultural Finance—Lenders" and "Business—Farmer Mac's Lines of Business—Rural Infrastructure Finance—Lenders and Loan Servicing."

Farmer Mac manages institutional credit risk related to its interest rate swap counterparties through collateralization provisions contained in each of its swap agreements that vary based on the market value of its swap portfolio with each counterparty.

Farmer Mac and its interest rate swap counterparties are required to fully collateralize their derivatives positions without any minimum threshold for cleared swap transactions, as well as for non-cleared swap transactions entered into after March 1, 2017.

Farmer Mac and its interest rate swap counterparties are

required to fully collateralize their derivatives positions without any minimum threshold for cleared swap transactions, as well as for non-cleared swap transactions entered into after March 1, 2017.

Farmer Mac transacts interest rate swaps with multiple counterparties to reduce counterparty credit exposure concentration.

4 unchanged sentences

As of December 31, 2021, Farmer Mac had $0.9 billion of cash and cash equivalents and $3.9 billion of investment securities.

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

In addition to establishing a portfolio of highly liquid investments

as an available source of cash, the goals of Farmer Mac's investment policies are designed to minimize Farmer Mac's exposure to financial market volatility, preserve capital, and support Farmer Mac's access to the debt markets.

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

The management of the credit risk inherent in these investments is governed by Farmer Mac's internal policies as well as FCA's Liquidity and Investment Regulations.

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

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

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

2 unchanged sentences

and (3) the investment must exhibit low credit risk and other risk characteristics consistent with the purpose or purposes for which it is held.

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

Farmer Mac's Liquidity and Investment Regulations limit Farmer Mac's total credit exposure to any single entity, issuer, or obligor of securities to 10% of Farmer Mac's regulatory capital ($102.4 million as of December 31, 2020).

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

The Liquidity and Investment Regulations limit Farmer Mac's total credit exposure to any single entity, issuer, or obligor of securities to 10% of Farmer Mac's regulatory capital ($121.7 million as of December 31, 2021).

However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($60.8 million as of December 31, 2021).

3 unchanged sentences

Interest Rate Risk .

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

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

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

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

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

Alternatively, Farmer Mac could realize a decline in income if assets repay more slowly than

originally forecasted and the associated maturing debt must be replaced by debt issuances at higher interest rates.

Interest Rate Risk Management

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

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

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

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

Farmer Mac's management-level Asset and Liability

Committee ("ALCO") provides oversight and approves strategies to maintain interest rate risk within the board-established limits.

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

As part of this debt issuance strategy, Farmer Mac seeks to issue a blend of liabilities and enter into financial derivative transactions across a variety of maturities to approximately align the liability cash flows with the forecasted asset cash flows.

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

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

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

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

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

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

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

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

Callable debt is issued to mitigate prepayment risk associated with certain interest-earning assets held on balance sheet.

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

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

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

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

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

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

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

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

Farmer Mac manages the interest rate risk related to these loans by using futures contracts involving U.S.

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

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

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

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

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

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

Treasury securities and other financial

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

Treasury securities and other financial derivatives.

Farmer Mac enters into U.S.

Treasury futures contracts as a hedge against the level of interest rates.

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

As of December 31, 2021, $2.9 billion of the $3.9 billion of investment securities (74%) were floating rate securities with rates that adjust within one year or fixed rate securities with original maturities between three months and one year.

The floating rate securities are funded with effectively floating rate debt that closely matches the rate adjustment frequency of the associated investments.

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

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

Interest Rate Risk Metrics

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

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

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

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

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

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

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

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

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

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

Farmer Mac's NES may be impacted by changes in market interest rates resulting from timing differences between maturities and re-pricing characteristics of assets and liabilities together with the associated financial derivatives.

Farmer Mac's NES simulation may be impacted by changes in market interest rates resulting from timing differences between maturities and re-pricing characteristics of funded assets and debt together with the associated financial derivatives.

The direction and magnitude of any such effect depends on the direction and magnitude of the change in interest rates across the yield curve as well as the composition of Farmer Mac's portfolio.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conversely, a negative duration gap indicates that with small changes in interest rate movements the fair value change of Farmer Mac's

interest-earning assets are less sensitive than the fair value change of its debt and financial derivatives.

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

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

Accordingly, these metrics are estimates rather than precise measurements.

3 unchanged sentences

Interest Rate Scenario (1)

As of December 31, 2020 (1)

As of December 31, 2019

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

+100 basis points 3.7 % 4.9 %

1 unchanged sentence

Percentage Change in NES from Base Case

Interest Rate Scenario (2)

As of December 31, 2020 (1)

As of December 31, 2019 (2)

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

+100 basis points 6.6 % 3.9 %

1 unchanged sentence

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

The replacement down shock scenario was negative 4 basis points as of December 31, 2020.

(2) The NES shock scenario of +100 and -100 basis points as of December 31, 2019 were updated (from 0.8% and 0.1%, respectively) to conform the underlying NES components of the shock scenario with the reported NES.

As of December 31, 2020, Farmer Mac's effective duration gap was negative 1.6 months, compared to negative 1.2 months as of December 31, 2019.

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

the previously reported duration gap as of December 31, 2019 was negative 2.5 months.

Interest rates decreased significantly during 2020 with the 2-year and 10-year US Treasury Note yield-to-maturity dropping by approximately 145 basis points and 100 basis points, respectively, versus year-end 2019.

This rate movement contributed to reducing the duration of Farmer Mac's funded assets compared to its liabilities and financial derivatives, thereby widening Farmer Mac's duration gap.

Furthermore, as of December 31, 2020, Farmer Mac implemented a replacement behavioral prepayment model that also contributed to a widening duration gap.

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

As of December 31, 2021, Farmer Mac's duration gap was negative 1.5 months, compared to negative 1.6 months as of December 31, 2020.

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

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

Treasury Note yield-to-maturity increasing by approximately 61 basis points and 59 basis points, respectively, versus year-end 2020.

This rate movement contributed to extending the duration of Farmer Mac's funded assets compared to its debt and financial derivatives, thereby narrowing Farmer Mac's duration gap.

Financial Derivatives Transactions

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

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

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

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

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

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

As of December 31, 2020, Farmer Mac had $15.4 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to thirty years, of which $6.3 billion were pay-fixed interest rate swaps, $5.5 billion were receive-fixed interest rate swaps, and $3.6 billion were basis swaps.

Farmer Mac enters into interest rate swap contracts to more closely match the cash flow and duration characteristics of its financial assets with those of its liabilities.

For example, Farmer Mac transacts pay-

fixed interest rate swaps and issues floating rate debt to effectively create fixed rate funding that approximately matches duration with the corresponding assets being funded.

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

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

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

• exchange-traded futures contracts involving U.S.

Treasury securities.

As of December 31, 2021, Farmer Mac had $17.5 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to just over thirty years, of which $7.0 billion were pay-fixed interest rate swaps, $8.8 billion were receive-fixed interest rate swaps, and $1.6 billion were basis swaps.

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

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

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

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

4 unchanged sentences

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

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

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

As of December 31, 2020 and December 31, 2019, Farmer Mac had no uncollateralized net exposures.

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

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

As of both December 31, 2021 and December 31, 2020, Farmer Mac had no uncollateralized net exposures based on the mark-to-market value of the portfolio of interest rate swaps

Re-funding and repricing risk

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

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

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

Re-funding and repricing risk arises from potential changes in funding costs resulting from a funding strategy whereby Farmer Mac issues floating rate debt across a variety of maturities to fund floating rate or synthetically floating rate assets that on average may have longer maturities.

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

Farmer Mac is also subject to re-funding and repricing risk on a portion of its fixed rate assets as a result of its use of pay-fixed receive-floating interest rate swaps that effectively convert the required funding needed from fixed rate to floating rate.

Farmer Mac is subject to re-funding and repricing risk on a portion of its fixed rate assets as a result of its use of pay-fixed receive-floating interest rate swaps that effectively convert the required funding needed from fixed rate to floating rate.

These fixed rate assets are then effectively synthetically floating rate assets that require floating rate funding.

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

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

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

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

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

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

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

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

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

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

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

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

As of December 31, 2020, Farmer Mac held $6.4 billion of floating rate assets in its lines of business and its investment portfolio that reset based on floating rate market indexes, primarily one-month and three-month LIBOR.

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

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

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

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

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

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

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

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

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

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

As of December 31, 2021, Farmer Mac held $5.3 billion of floating rate assets in its lines of business and its investment portfolio that reset based on floating rate market indices, such as LIBOR or SOFR.

As of the same date, Farmer Mac also had $7.0 billion of interest rate swaps outstanding where Farmer Mac pays a fixed rate of interest and receives a floating rate of interest, primarily LIBOR or SOFR.

Discontinuation of LIBOR

As described in "Risk Factors—Market Risk", Farmer Mac faces risks associated with the reform, replacement, or discontinuation of the LIBOR benchmark interest rate and the transition to an alternative benchmark interest rate.

We are currently evaluating the potential effect on our business of the replacement of the LIBOR benchmark interest rate.

As described in "Risk Factors—Market Risk" in Part I, Item 1A, Farmer Mac faces risks associated with the reform, replacement, or discontinuation of the LIBOR benchmark interest rate and the transition to an alternative benchmark interest rate.

Farmer Mac is evaluating the potential effect on our business of the

replacement of the LIBOR benchmark interest rate, including the possibility of replacement benchmark interest rates.

As of December 31, 2021, Farmer Mac held $3.6 billion of floating rate assets in its lines of business and its investment portfolio, had issued $1.1 billion of floating rate debt, and had entered into $13.7 billion notional amount of interest rate swaps, each of which reset based on LIBOR.

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

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

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

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

As of December 31, 2020, we had $1.0 billion outstanding in medium-term notes based on the Secured Overnight Financing Rate (SOFR), a potential alternative benchmark interest rate.

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

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

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

As of December 31, 2021, we had $0.6 billion outstanding in medium-term notes based on SOFR, a potential alternative benchmark interest rate index.

Liquidity and Capital Resources

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

Farmer Mac regularly accesses the capital markets for funding, and Farmer Mac has maintained access to the capital markets at favorable rates throughout 2020 and 2019.

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

Farmer Mac regularly accesses the debt capital markets for funding, and Farmer Mac has maintained access to the debt capital markets at favorable interest rates throughout 2021 and 2020.

As of December 31, 2021, Farmer Mac had outstanding discount notes of $2.2 billion, medium-term notes that mature within one year of $4.8 billion, and medium-term notes that mature after one year of $15.8 billion.

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

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

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

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

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

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

In accordance with the methodology for calculating available days of liquidity under those regulations, Farmer Mac maintained a monthly average of 196 days of liquidity during 2020 and had 207 days of liquidity as of December 31, 2020.

ALCO regularly reviews Farmer Mac's liquidity position and ensures the required minimums are maintained.

In accordance with the methodology for calculating available days of liquidity under those regulations, Farmer Mac maintained a monthly average of 280 days of liquidity throughout 2021 and had 367 days of liquidity as of December 31, 2021.

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

21 unchanged sentences

Total $ 4,790,146 $ 4,932,665

The increase in the investment portfolio since December 31, 2019 was to provide a greater level of liquidity in response to market disruptions driven by the COVID-19 pandemic, to prepare for the possibility of future volatility in the debt capital markets, and to support program asset growth as the overall funding needs for the balance sheet increased.

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

Capital Requirements .

5 unchanged sentences

As of December 31, 2021 and December 31, 2020, Farmer Mac's Tier 1 capital ratio was 14.7% and 14.1%, respectively.

The increase in our Tier 1 capital ratio was due to the fact that capital growth, which reflects the issuance of the Series E and Series F Preferred Stock, partially offset by the redemption of the Series A Preferred Stock, outpaced the growth in risk-weighted assets during 2020.

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

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

26 unchanged sentences

Because the financial derivative liabilities recorded on the consolidated balance sheet as of December 31, 2021 do not represent the amounts that may ultimately be paid under the financial derivative contracts, those liabilities are not included in the table presented above.

More information about financial derivatives is included in Note 2(e) and Note 6 to the consolidated financial statements.

More information about financial derivatives is included in Note 2(f) and Note 6 to the consolidated financial statements.

Contingent Liabilities .

In conducting its loan purchase activities, Farmer Mac enters into mandatory delivery commitments to purchase agricultural real estate mortgage loans and USDA Securities.

In conducting its loan purchase activities, Farmer Mac enters into mandatory delivery commitments to purchase agricultural mortgage loans and USDA Securities.

In conducting its LTSPC activities, Farmer Mac commits, subject to the applicable LTSPC agreement, to a future purchase of one or more loans from identified pools of eligible loans that met Farmer Mac's standards when the applicable transaction was entered into and Farmer Mac assumed the credit risk on the loans.

7 unchanged sentences

Farmer Mac offers approved lenders two credit enhancement alternatives to increase their liquidity or lending capacity while retaining the cash flow benefits of their loans:

(1) Farmer Mac Guaranteed Securities, which are available through each of the Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit lines of business;

and (2) LTSPCs, which are available through the Farm & Ranch and Rural Utilities lines of business.

For securitization trusts where Farmer Mac is the primary beneficiary,

the trust assets and liabilities are included on Farmer Mac's consolidated balance sheet.

For securitization trusts where Farmer Mac is not the primary beneficiary and in the event of de-consolidation, both of these alternatives create off-balance sheet obligations for Farmer Mac.

(1) Farmer Mac Guaranteed Securities;

and (2) LTSPCs.

Both products are available through each of the Agricultural Finance and Rural Infrastructure Finance lines of business.

For securitization trusts where Farmer Mac is the primary beneficiary, the trust assets and liabilities are included on Farmer Mac's consolidated balance sheet.

securitization trusts where Farmer Mac is not the primary beneficiary and in the event of de-consolidation, both of these alternatives create off-balance sheet obligations for Farmer Mac.

See Note 12 to the consolidated financial statements for more information about consolidation and Farmer Mac's off-balance sheet business activities.

5 unchanged sentences

(in thousands)

Farm & Ranch obligations:

LTSPCs $ 2,325,431 $ 2,393,071

Farm & Ranch Guaranteed Securities 79,312 107,322

Total Farm & Ranch obligations 2,404,743 2,500,393

USDA Guarantees obligations:

Farmer Mac Guaranteed USDA Securities 299,298 389,216

Rural Utilities obligations:

LTSPCs 556,425 609,278

Institutional Credit obligations:

AgVantage Securities 4,412 7,567

Agricultural Finance:

Corporate AgFinance:

Unfunded Loan Commitments $ 47,070 $ 10,466

Farm & Ranch:

LTSPCs and unfunded commitments 2,587,154 2,314,965

Farmer Mac Guaranteed Securities 578,358 378,610

Total Agricultural Finance obligations 3,212,582 2,704,041

Rural Infrastructure:

Rural Utilities:

LTSPCs and Unfunded Loan Commitments 556,837 556,425

Farmer Mac Guaranteed Securities 2,755 4,412

Renewable Energy:

Unfunded Loan Commitments — —

Total Rural Infrastructure obligations 559,592 560,837

Total off-balance sheet $ 3,772,174 $ 3,264,878

See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees" and Notes 2(b), 2(d), 5 and 12 to the consolidated financial statements for more information about Farmer Mac Guaranteed Securities and Notes 2(l) and 12 to the consolidated financial statements for more information about LTSPCs.

Regulatory Matters

Section 4013 of the CARES Act that was signed into law on March 27, 2020 provides financial institutions the option to temporarily suspend certain requirements under U.S.

GAAP related to TDRs for a limited period of time to account for the effects of the COVID-19 pandemic.

On April 10, 2020, Farmer Mac’s prudential regulator, FCA (through OSMO) issued guidance to Farmer Mac to encourage Farmer Mac to work with its lending and servicing partners in approving servicing actions for borrowers impacted by COVID-19, including working with other Farm Credit System institutions on approvals for loans to which statutory borrower rights are attached (primarily in LTSPCs), as well as guidance on reporting TDRs for lines of business affected by the COVID-19 outbreak.

The FCA's guidance on TDRs was consistent with the guidance provided by other financial regulatory agencies and the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to the COVID-19 national emergency are not TDRs when the borrower was not past due on loan payments before the March 13, 2020 presidential proclamation declaring the COVID-19 outbreak a national emergency.

In response to the COVID-19 pandemic and the related economic effects, Congress passed a series of stimulus measures (including the CARES Act) that delivered more than $35 billion in emergency aid to farmers and ranchers in 2020.

In addition, through funding provided in the various COVID-19 stimulus packages, the USDA oversaw the purchase and delivery of $4.5 billion in food to food banks, churches, community organizations, schools, and tribal organizations through the Farmers to Families Food Box Program during 2020.

These purchases have helped support commodity prices and serve millions of Americans in need.

On December 27, 2020, President Trump signed into law a bill providing for, among other measures, $13 billion in additional support for U.S.

agriculture through direct payments and food support funding that is scheduled to be disbursed in 2021.

With the start of a new Congress and President Biden's Administration, Farmer Mac continues to monitor legislation and regulations that could affect Farmer Mac, farmers, ranchers, rural lenders, and rural America in general.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees" and Notes 2(c), 2(d), 5 and 12 to the consolidated financial statements for more information about Farmer Mac Guaranteed Securities and Notes 2(m) and 12 to the consolidated financial statements for more information about LTSPCs.

Other Matters

The expected effects of recently issued accounting pronouncements on the consolidated financial statements are presented in Note 2(p) to the consolidated financial statements.

Supplemental Information

1 unchanged sentence

New Business Volume

Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit

Loans LTSPCs USDA Securities Loans LTSPCs AgVantage Total

Agricultural Finance Rural Infrastructure Finance

Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Total

(in thousands)

12 unchanged sentences

December 31, 2020 3,805,600 899,372 949,250 64,313 5,718,535

Repayments of Assets by Line of Business

Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit

Loans Guaranteed Securities LTSPCs USDA Securities Loans LTSPCs AgVantage Total

Repayments of Assets

Agricultural Finance Rural Infrastructure Finance

Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Total

(in thousands)

34 unchanged sentences

December 31, 2020 $ 3,486,610 $ 563,858 $ 855,469 $ 1,080 $ 4,907,017

Lines of Business - Outstanding Business Volume

Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit

Loans Guaranteed Securities LTSPCs USDA Securities Loans LTSPCs AgVantage Total

Outstanding Business Volume

Agricultural Finance Rural Infrastructure Finance

Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Total

(in thousands)

21 unchanged sentences

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

Net Effective Spread by Line of Business

Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Net Effective Spread

Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield

Net Effective Spread (1)

Agricultural Finance Rural Infrastructure Finance Treasury

Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Funding Investments Net Effective Spread

Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield

(dollars in thousands)

9 unchanged sentences

June 30, 2020 21,597 0.83 % 4,997 1.36 % 1,701 0.14 % 47 0.93 % 19,449 0.37 % (1,322) (0.13) % 46,469 0.89 %

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

March 31, 2020 19,230 0.76 % 4,421 1.32 % 1,315 0.11 % 58 1.51 % 19,150 0.39 % (11) — % 44,163 0.89 %

December 31, 2019 20,677 0.83 % 4,049 1.33 % 1,411 0.12 % 22 1.07 % 19,868 0.41 % (36) — % 45,991 0.95 %

(1) See Note 14 to the consolidated financial statements for a reconciliation of GAAP net interest income by line of business to net effective spread by line of business for the years ended December 31, 2020 and 2019.

(1) Farmer Mac excludes the Corporate segment in the presentation above because the segment does not have any interest-earning assets.

(2) See Note 14 to the consolidated financial statements for a reconciliation of GAAP net interest income by segment to net effective spread by segment for the years ended December 31, 2021 and 2020.

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

4 unchanged sentences

Guarantee and commitment fees 4,637 4,322 4,334 4,240 4,652 4,659 4,943 4,896 5,432

Gain on sale of mortgage loans 6,539 — — — — — — — —

Other 241 687 301 451 512 453 1,048 674 100

1 unchanged sentence

Credit related expense/(income):

Provision for/(release of) losses 2,973 1,200 51 3,831 2,851 623 420 (393) 166

(Release of)/provision for losses (1,428) 255 (983) (31) 2,973 1,200 51 3,831 2,851

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

13 unchanged sentences

Gains/(losses) on hedging activities due to fair value changes 1,476 (2,093) (2,097) (271) 3,827 (5,245) (2,676) (5,925) (220)

Unrealized gains/(losses) on trading assets 223 (258) (20) 106 172 49 61 44 57

Unrealized (losses)/gains on trading assets (76) 36 (61) (14) 223 (258) (20) 106 172

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 71 23 20 16 (77) 97 35 3 40

4 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis