FEDERAL AGRICULTURAL MORTGAGE CORP 10-K

Item 7. 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, 2021, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources. 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. Overview 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. During 2021: • 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; and • 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." 53 Net Income and Core Earnings The following table shows our net income attributable to common stockholders and core earnings for the periods presented. Core earnings and core earnings per share are non-GAAP measures that differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value fluctuations and specified infrequent or unusual transactions. Table 1 For the Years Ended December 31, 2021 2020 2019 (in thousands) Net income attributable to common stockholders $ 107,583 $ 89,176 $ 93,650 Core earnings 113,570 100,612 93,742 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. 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." 54 Net Interest Income and Net Effective Spread The following table shows our net interest income and net effective spread in both dollars and percentage yield or spread for the periods presented. Farmer Mac uses net effective spread, a non-GAAP measure, as an alternative to net interest income because management believes it is a useful metric that reflects the economics of the net spread between all the assets owned by Farmer Mac and all related funding, including any associated derivatives, some of which may not be included in net interest income. Table 2 For the Years Ended December 31, 2021 2020 2019 (in thousands) Net interest income $ 220,775 $ 190,588 $ 173,135 Net interest yield % 0.94 % 0.85 % 0.87 % Net effective spread $ 220,668 $ 196,956 $ 168,608 Net effective spread % 0.98 % 0.93 % 0.91 % 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 net new business volume. 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." 55 Business Volume 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." Capital Table 3 As of December 31, 2021 December 31, 2020 (in thousands) Core capital $ 1,200,560 $ 1,006,400 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 G Preferred Stock in May 2021 and an increase in retained earnings. Credit Quality 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: Table 4 On-Balance Sheet Off-Balance Sheet Substandard Assets % of Portfolio Substandard Assets % of Portfolio (dollars in thousands) December 31, 2021 $ 185,758 2.7 % $ 60,922 2.1 % December 31, 2020 180,823 2.9 % 110,671 4.6 % Increase/(decrease) from prior year-ending $ 4,935 (0.2) % $ (49,749) (2.5) % 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. 56 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 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: Table 5 On-Balance Sheet Off-Balance Sheet 90-Day Delinquencies % of Portfolio 90-Day Delinquencies % of Portfolio (dollars in thousands) December 31, 2021 $ 43,710 0.64 % $ 3,597 0.12 % December 31, 2020 34,799 0.56 % 11,433 0.48 % 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 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. 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. 57 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 In the accompanying analysis of its financial information, Farmer Mac uses "non-GAAP measures," which are measures of financial performance that are not presented in accordance with GAAP. Specifically, Farmer Mac uses the following non-GAAP measures: "core earnings," "core earnings per share," and "net effective spread." Farmer Mac uses these non-GAAP measures to measure corporate economic performance and develop financial plans because, in management's view, they are useful alternative measures in understanding Farmer Mac's economic performance, transaction economics, and business trends. The non-GAAP financial measures that Farmer Mac uses may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of these non-GAAP measures is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP. 58 Core Earnings and Core Earnings Per Share The main difference between core earnings and core earnings per share (non-GAAP measures) and net income attributable to common stockholders and earnings per common share (GAAP measures) is that those non-GAAP measures exclude the effects of fair value fluctuations. These fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is expected. Another difference is that these two non-GAAP measures exclude specified infrequent or unusual transactions that we believe are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. For example, we have excluded from core earnings and core earnings per share any losses on retirement of preferred stock. For a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings and of earnings per common share to core earnings per share, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." Net Effective Spread Farmer Mac uses net effective spread to measure the net spread Farmer Mac earns between its interest-earning assets and the related net funding costs of these assets. As further explained below, net effective spread differs from net interest income and net interest yield by excluding certain items from net interest income and net interest yield and including certain other items that net interest income and net interest yield do not contain. Farmer Mac excludes from net effective spread the premiums and discounts on assets consolidated at fair value because they either do not reflect actual cash premiums paid for the assets at acquisition or are not expected to have an economic effect on Farmer Mac's financial performance if the assets are held to maturity, as is expected. Farmer Mac also excludes from net effective spread the interest income and interest expense associated with the consolidated trusts and the average balance of the loans underlying these trusts to reflect management's view that the net interest income Farmer Mac earns on the related Farmer Mac Guaranteed Securities owned by third parties is effectively a guarantee fee. 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 accounting relationships because they are not expected to have an economic effect on Farmer Mac's financial performance, as we expect to hold the financial derivatives and corresponding hedged items to maturity. Net effective spread also differs from net interest income and net interest yield because it includes the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge accounting relationships ("undesignated financial derivatives"). Farmer Mac uses interest rate swaps to manage its interest rate risk exposure by synthetically modifying the interest rate reset or maturity characteristics of certain assets and liabilities. The accrual of the contractual amounts due on interest rate swaps designated in hedge accounting relationships is included as an adjustment to the yield or cost of the hedged item and is included in net interest income. For undesignated financial derivatives, Farmer Mac records the income or expense related to the accrual of the contractual amounts due in "(Losses)/gains on financial derivatives" on the consolidated statements of operations. However, 59 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: (1) the net effects of cash settlements on agency forward contracts on the debt of other GSEs and U.S. Treasury security futures that we use as short-term economic hedges on the issuance of debt; and (2) the net effects of initial cash payments that Farmer Mac receives upon the inception of certain swaps. The inclusion of these items in net effective spread is intended to reflect our view of the complete net spread between an asset and all of its related funding, including any associated derivatives, whether or not they are designated in a hedge accounting relationship. For a reconciliation of net interest income and net interest yield 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." Results of Operations Reconciliations of Farmer Mac's net income attributable to common stockholders to core earnings and core earnings per share are presented in the following tables along with information about the composition of core earnings: 60 Table 6 Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings For the Years Ended December 31, 2021 2020 2019 (in thousands, except per share amounts) Net income attributable to common stockholders $ 107,583 $ 89,176 $ 93,650 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (5,103) (3,691) 10,077 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) Net effects of terminations or net settlements on financial derivatives 494 1,236 1,089 Issuance costs on the retirement of preferred stock — (1,667) (1,956) Income tax effect related to reconciling items 1,592 2,596 (496) Sub-total (5,987) (11,436) (92) Core earnings $ 113,570 $ 100,612 $ 93,742 Composition of Core Earnings: Revenues: Net effective spread (1) $ 220,668 $ 196,956 $ 168,608 Guarantee and commitment fees (2) 17,533 19,150 21,335 Gain on sale of mortgage loans 6,539 — — Other (3) 1,680 2,687 1,775 Total revenues 246,420 218,793 191,718 Credit related expense (GAAP): (Release of)/provision for losses (2,187) 8,055 3,501 REO operating expenses — — 64 Gains on sale of REO — (463) — Total credit related expense (2,187) 7,592 3,565 Operating expenses (GAAP): Compensation and employee benefits 42,847 36,502 28,762 General and administrative 27,507 21,976 20,311 Regulatory fees 3,062 2,925 2,788 Total operating expenses 73,416 61,403 51,861 Net earnings 175,191 149,798 136,292 Income tax expense (4) 36,944 31,381 28,610 Preferred stock dividends (GAAP) 24,677 17,805 13,940 Core earnings $ 113,570 $ 100,612 $ 93,742 Core earnings per share: Basic $ 10.56 $ 9.38 $ 8.76 Diluted 10.47 9.33 8.70 Weighted-average shares: Basic 10,758 10,728 10,696 Diluted 10,846 10,786 10,778 (1) Net effective spread is a non-GAAP measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for an explanation of net effective spread. See Table 11 for a reconciliation of net interest income to net effective spread. 61 (2) Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities. (3) Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities. (4) Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings. Table 7 Reconciliation of GAAP Basic Earnings Per Share to Core Earnings - Basic Earnings Per Share For the Years Ended December 31, 2021 2020 2019 (in thousands, except per share amounts) GAAP - Basic EPS $ 10.00 $ 8.31 $ 8.76 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.47) (0.34) 0.94 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) Net effects of terminations or net settlements on financial derivatives 0.04 0.12 0.10 Issuance costs on the retirement of preferred stock — (0.16) (0.18) Income tax effect related to reconciling items 0.15 0.24 (0.05) Sub-total (0.56) (1.07) — Core Earnings - Basic EPS $ 10.56 $ 9.38 $ 8.76 Shares used in per share calculation (GAAP and Core Earnings) 10,758 10,728 10,696 Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings - Diluted Earnings Per Share For the Years Ended December 31, 2021 2020 2019 (in thousands, except per share amounts) GAAP - Diluted EPS $ 9.92 $ 8.27 $ 8.69 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.47) (0.34) 0.93 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) Net effects of terminations or net settlements on financial derivatives 0.05 0.11 0.10 Issuance costs on the retirement of preferred stock — (0.15) (0.18) Income tax effect related to reconciling items 0.15 0.24 (0.05) Sub-total (0.55) (1.06) (0.01) Core Earnings - Diluted EPS $ 10.47 $ 9.33 $ 8.70 Shares used in per share calculation (GAAP and Core Earnings) 10,846 10,786 10,778 62 The non-GAAP reconciling items between net income attributable to common stockholders and core earnings are: 1. Losses on financial derivatives due to fair value changes are presented by two reconciling items in Table 6 above: (a) Losses on undesignated financial derivatives due to fair value changes; and (b) Losses on hedging activities due to fair value changes. The table below calculates the non-GAAP reconciling item for losses on hedging activities due to fair value changes: Table 8 Non-GAAP Reconciling Items for (Losses)/Gains on Hedging Activities due to Fair Value Changes For the Years Ended December 31, 2021 2020 2019 (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 on hedging activities due to fair value changes $ (2,985) $ (10,019) $ (9,010) 2. 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. 3. The net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value. The amount of this non-GAAP reconciling item is the recorded amount of premium, discount, or deferred gain amortization during the reporting period on those assets for which the premium, discount, or deferred gain was based on the application of an accounting principle (e.g., consolidation of variable interest entities) rather than on a cash transaction (e.g., a purchase price premium or discount). 4. The net effects of terminations or net settlements on financial derivatives. These terminations or net settlements relate to: • Forward contracts on the debt of other GSEs and futures contracts on U.S. Treasury securities. These contracts are used as a short-term economic hedge of the issuance of debt. For GAAP purposes, realized gains or losses on settlements of these contracts are reported in the consolidated statements of operations in the period in which they occur. For core earnings purposes, these realized gains or losses are deferred and amortized as net yield adjustments over the term of the related debt, which generally ranges from 3 to 15 years. • Initial cash payments received by Farmer Mac upon the inception of certain swaps. When there is no direct payment arrangement between a swap dealer counterparty and a debt dealer issuing Farmer Mac's medium-term notes for a particular transaction, Farmer Mac may receive an initial cash payment from the swap dealer at the inception of the swap to offset dollar-for-dollar the amount of the discount on the associated hedged debt. For GAAP purposes, changes in fair value of the swaps are recognized in "Gains on financial derivatives," while the economically offsetting discount on the associated hedged debt is amortized over the term of the debt as an adjustment to its yield. 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. 5. 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 63 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 2024. The following sections provide more detail about specific components of Farmer Mac's results of operations. Net Interest Income . The following table provides information about interest-earning assets and funding for the years ended December 31, 2021, 2020, and 2019. The average balance of non-accruing loans is included in the average balance of loans, Farmer Mac Guaranteed Securities, and USDA Securities presented, though the related income is accounted for on a cash basis. Therefore, as the average balance of non-accruing loans and the income received increases or decreases, the net interest income and yield will fluctuate accordingly. The average balance of loans in consolidated trusts with beneficial interests owned by third parties is disclosed in the net effect of consolidated trusts and is not included in the average balances of interest-earning assets and interest-bearing liabilities. The interest income and expense associated with these trusts are shown in the net effect of consolidated trusts. Table 9 For the Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Average Balance Income/ Expense Average Rate Average Balance Income/ Expense Average Rate Average Balance Income/ Expense Average Rate (dollars in thousands) Interest-earning assets: Cash and investments $ 4,726,552 $ 18,660 0.39 % $ 4,180,158 $ 42,144 1.01 % $ 3,218,286 $ 81,522 2.53 % Loans, Farmer Mac Guaranteed Securities and USDA Securities (1) 17,838,238 367,154 2.06 % 16,950,819 407,296 2.40 % 15,214,248 502,694 3.30 % Total interest-earning assets 22,564,790 385,814 1.71 % 21,130,977 449,440 2.13 % 18,432,534 584,216 3.17 % Funding: Notes payable due within one year 3,779,689 3,820 0.10 % 3,937,104 24,242 0.62 % 3,758,256 86,031 2.29 % Notes payable due after one year (2) 18,004,757 166,083 0.92 % 16,869,918 241,211 1.43 % 14,116,085 332,719 2.36 % Total interest-bearing liabilities (3) 21,784,446 169,903 0.78 % 20,807,022 265,453 1.28 % 17,874,341 418,750 2.34 % Net non-interest-bearing funding 780,344 — 323,955 — 558,193 — Total funding 22,564,790 169,903 0.75 % 21,130,977 265,453 1.26 % 18,432,534 418,750 2.27 % Net interest income/yield prior to consolidation of certain trusts 22,564,790 215,911 0.96 % 21,130,977 183,987 0.87 % 18,432,534 165,466 0.90 % Net effect of consolidated trusts (4) 1,049,521 4,864 0.46 % 1,396,850 6,601 0.47 % 1,544,052 7,669 0.50 % Net interest income/yield $ 23,614,311 $ 220,775 0.94 % $ 22,527,827 $ 190,588 0.85 % $ 19,976,586 $ 173,135 0.87 % (1) Excludes interest income of $39.0 million, $54.1 million, and $60.9 million in 2021, 2020, and 2019, respectively, related to consolidated trusts with beneficial interests owned by third parties. (2) Includes current portion of long-term notes. (3) Excludes interest expense of $34.1 million, $47.5 million, and $53.2 million in 2021, 2020, and 2019, respectively, related to consolidated trusts with beneficial interests owned by third parties. (4) Includes the effect of consolidated trusts with beneficial interests owned by third parties. The $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. For 2020 compared to 2019, the $17.5 million increase in net interest income was primarily due to net 64 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. 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 following table sets forth information about changes in the components of Farmer Mac's net interest income prior to consolidation of certain trusts for the periods indicated. For each category, information is provided on changes attributable to changes in volume (change in volume multiplied by old rate), and changes in rate (change in rate multiplied by old volume), and then allocated based on the relative size of rate and volume changes from the prior period. Table 10 2021 vs. 2020 2020 vs. 2019 Increase/(Decrease) Due to Increase/(Decrease) Due to Rate Volume Total Rate Volume Total (in thousands) Income from interest-earning assets: Cash and investments $ (28,400) $ 4,916 $ (23,484) $ (58,877) $ 19,499 $ (39,378) Loans, Farmer Mac Guaranteed Securities and USDA Securities (60,647) 20,505 (40,142) (148,159) 52,761 (95,398) Total (89,047) 25,421 (63,626) (207,036) 72,260 (134,776) Expense from other interest-bearing liabilities (107,497) 11,947 (95,550) (213,715) 60,418 (153,297) Change in net interest income prior to consolidation of certain trusts (1) $ 18,450 $ 13,474 $ 31,924 $ 6,679 $ 11,842 $ 18,521 (1) Excludes the effect of debt in consolidated trusts with beneficial interests owned by third parties. The following table presents a reconciliation of net interest income and net interest yield to net effective spread. Net effective spread is measured by: including (1) expenses related to undesignated financial derivatives, which consists of income or expense related to contractual amounts due on financial derivatives not designated in hedge relationships (the income or expense related to financial derivatives designated in hedge accounting relationships is already included in net interest income), and (2) the amortization of losses due to terminations or net settlements of financial derivatives; and excluding (3) the amortization of premiums and discounts on assets consolidated at fair value, (4) the net effects of consolidated trusts with beneficial interests owned by third parties, and (5) the fair value changes of financial derivatives and corresponding financial assets or liabilities in fair value hedge relationships. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for more information about net effective spread. 65 Table 11 For the Years Ended December 31, 2021 2020 2019 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 % Net effects of consolidated trusts (4,864) 0.02 % (6,601) 0.02 % (7,669) 0.03 % Expense related to undesignated financial derivatives 2,841 0.01 % 3,468 0.02 % (5,095) (0.03) % Amortization of premiums/discounts on assets consolidated at fair value (45) — % 197 — % 398 — % Amortization of losses due to terminations or net settlements on financial derivatives 446 — % 120 — % (68) — % Fair value changes on fair value hedge relationships 1,515 0.01 % 9,184 0.04 % 7,907 0.04 % Net effective spread $ 220,668 0.98 % $ 196,956 0.93 % $ 168,608 0.91 % 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. 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. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Information" for quarterly net effective spread by line of business. 66 Provision for and Release of Allowance for Losses and Reserve for Losses . The following table summarizes the components of Farmer Mac's total allowance for losses for each year in the three-year period ended December 31, 2021: Table 12 Allowance for Losses Reserve for Losses Total Allowance for Losses (in thousands) Balance as of January 1, 2019 $ 7,017 $ 2,167 $ 9,184 Provision for/(release of) losses 3,504 (3) 3,501 Charge-offs (67) — (67) Balance as of December 31, 2019 $ 10,454 $ 2,164 $ 12,618 Cumulative effect adjustment from adoption of current expected credit loss standard 1,793 863 2,656 Adjusted beginning balance $ 12,247 $ 3,027 $ 15,274 Provision for losses 7,810 250 8,060 Charge-offs (5,759) — (5,759) 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." Guarantee and Commitment Fees . The following table presents guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs, for the years ended December 31, 2021, 2020, and 2019: Table 13 For the Years Ended December 31, 2021 2020 2019 (in thousands) Guarantee and commitment fees $ 12,669 $ 12,549 $ 13,666 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. 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 those consolidated Farmer Mac Guaranteed Securities. For more information about net income attributable to common stockholders, the composition of core earnings, and a reconciliation of net income attributable to common stockholders to core earnings, see 67 Table 6 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." (Losses)/gains on financial derivatives . The components of gains and losses on financial derivatives for the years ended December 31, 2021, 2020, and 2019 are summarized in the following table: Table 14 For the Years Ended December 31, 2021 2020 2019 (in thousands) (Losses)/gains due to fair value changes $ (5,103) $ (3,691) $ 10,077 Accrual of contractual payments 2,841 3,468 (5,095) (Losses)/gains due to terminations or net settlements (1,086) (23) 300 (Losses)/gains on financial derivatives $ (3,348) $ (246) $ 5,282 These changes in fair value are primarily the result of fluctuations in long-term interest rates. The accrual of periodic cash settlements for interest paid or received from Farmer Mac's interest rate swaps that are undesignated financial derivatives is shown as expense related to financial derivatives. Payments or receipts to terminate undesignated derivative positions or net cash settled forward sales contracts on the debt of other GSEs and undesignated U.S. Treasury security futures and initial cash payments received upon the inception of certain undesignated swaps are included in "(Losses)/gains due to terminations or net settlements" in the table above. For undesignated swaps, when there is no direct payment arrangement between a swap dealer counterparty and a debt dealer issuing Farmer Mac's medium-term notes for a particular transaction, Farmer Mac may receive an initial cash payment from the swap dealer at the inception of the swap to offset dollar-for-dollar the amount of the discount on the associated hedged debt. Changes in the fair value of these swaps are recognized immediately in "(Losses)/gains on financial derivatives," while the offsetting discount on the hedged debt is amortized over the term of the debt as an adjustment to its yield. 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. 68 Gains on Sale of Mortgage Loans Table 15 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: 1. A guarantee obligation and corresponding guarantee fee related to the Farmer Mac-guaranteed Class A tranche; 2. 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; and 3. 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 the years ended December 31, 2021, 2020, and 2019: Table 16 For the Years Ended December 31, 2021 2020 2019 (in thousands) 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 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. 69 Operating Expenses . The components of operating expenses for the years ended December 31, 2021, 2020, and 2019 are summarized in the following table: Table 17 For the Years Ended December 31, 2021 2020 2019 (in thousands) Compensation and employee benefits $ 42,847 $ 36,502 $ 28,762 General and administrative 27,507 21,976 20,311 Regulatory fees 3,062 2,925 2,788 Total Operating Expenses $ 73,416 $ 61,403 $ 51,861 a. 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. b. 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 Income Tax Expense . The following table presents income tax expense and the effective income tax rate for the years ended December 31, 2021, 2020, and 2019: Table 18 For the Years Ended December 31, 2021 2020 2019 (dollars in thousands) Income tax expense $ 35,353 $ 28,785 $ 29,105 Effective tax rate 21.1 % 20.9 % 20.9 % 70 Business Volume . 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: Table 19 Net New Business Volume For the Years Ended December 31, 2021 2020 On or Off Balance Sheet Net Growth/(Decrease) Net Growth/(Decrease) (in thousands) Agricultural Finance: Farm & Ranch: 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 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. 71 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. 72 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. The external factors include general market forces, competition, and our counterparties’ liquidity needs, access to alternative funding, desired products, and assessment of strategic factors. The internal factors include our assessment of profitability, mission fulfillment, credit risk, and customer relationships. For more information about potential growth opportunities in Farmer Mac's lines of business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Outlook" in this report. The following table sets forth information about the Farmer Mac Guaranteed Securities issued during the periods indicated: Table 20 For the Years Ended December 31, 2021 2020 2019 (in thousands) 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. 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. 73 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. 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: 74 Table 21 Outstanding Business Volume As of December 31, On or Off Balance Sheet 2021 2020 2019 (in thousands) Agricultural Finance: Farm & Ranch: 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 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 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: 75 Table 22 Schedule of Principal Amortization as of December 31, 2021 Loans Held Loans Underlying Off-Balance Sheet Farmer Mac Guaranteed Securities and LTSPCs USDA Securities and Farmer Mac Guaranteed USDA Securities Total (in thousands) 2022 $ 380,999 $ 248,877 $ 115,980 $ 745,856 2023 368,059 236,628 118,486 723,173 2024 380,945 210,773 117,940 709,658 2025 406,447 211,653 120,298 738,398 2026 460,738 231,084 126,211 818,033 Thereafter 7,238,941 2,382,578 2,094,717 11,716,236 Total $ 9,236,129 $ 3,521,593 $ 2,693,632 $ 15,451,354 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. The following table summarizes by maturity date the outstanding principal amount of both on- and off-balance sheet AgVantage securities as of December 31, 2021: Table 23 AgVantage Balances by Year of Maturity As of December 31, 2021 (in thousands) 2022 $ 2,638,903 2023 1,090,564 2024 796,416 2025 361,025 2026 975,660 Thereafter (1) 2,265,913 Total $ 8,128,481 (1) Includes various maturities ranging from 2026 to 2044. The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.7 years as of December 31, 2021. Related Party Transactions . 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 76 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 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). Unlike some other GSEs, specifically other FCS institutions and the Federal Home Loan Banks, Farmer Mac is not structured as a cooperative owned exclusively by member institutions and established to provide services exclusively to its members. 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 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. Farmer Mac has adopted a Code of Business Conduct and Ethics and other related corporate policies that govern any conflicts of interest that may arise in these transactions, and Farmer Mac's policy is to require that any transactions with related parties be conducted in the ordinary course of business, with terms and conditions comparable to those available to any other counterparty not related to Farmer Mac. The following table summarizes the material relationships between Farmer Mac and certain related parties. The related parties listed in the table below consist of (1) all holders of at least five percent of a class of Farmer Mac voting common stock as of December 31, 2021 and (2) other institutions that are considered "related parties" through an affiliation with a Farmer Mac director and that have conducted business with Farmer Mac during the two years ended December 31, 2021. The table below does not specify any relationships based on the ownership of Farmer Mac's non-voting common stock or any series of preferred stock. Table 24 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 AgFirst Farm Credit Bank 84,024 shares of Class B voting common stock (16.79% of outstanding Class B stock and 5.49% of total voting common stock outstanding) 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. 77 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 Bath State Bank Less than 5% ownership Farmer Mac director Dennis L. Brack serves as a director of Bath State Bank and Bath State Bancorp, the holding company of Bath State Bank. 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. CoBank, ACB 163,253 shares of Class B voting common stock (32.63% of outstanding Class B stock and 10.66% of total voting common stock outstanding) Farmer Mac director Everett M. 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 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. Farm Credit Bank of Texas (FCBT) 38,503 shares of Class B voting common stock (7.70% of outstanding Class B stock and 2.51% of total voting common stock outstanding) None In 2021 and 2020, Farmer Mac earned approximately $1.9 million and $1.2 million, respectively, in fees attributable to transactions with FCBT, primarily commitment fees for LTSPCs. In both 2021 and 2020, FCBT retained approximately $0.1 million in servicing fees for its work as a Farmer Mac servicer. Matthew 25 Management Corp. 77,412 shares of Class A voting common stock (7.51% of outstanding Class A stock and 5.06% of total voting common stock outstanding) None Farmer Mac did not conduct any business with Matthew 25 Management Corp. during 2021 or 2020. National Rural Utilities Cooperative Finance Corporation (CFC) 81,500 shares of Class A voting common stock (7.91% of outstanding Class A stock and 5.32% of total voting common stock outstanding) Farmer Mac director Todd P. 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 both 2021 and 2020, CFC retained approximately $3.3 million in servicing fees for its work as a Farmer Mac servicer. 78 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. 66,056 shares of Class A voting common stock (6.41% of outstanding Class A stock and 4.31% of total voting common stock outstanding) None Farmer Mac did not conduct any business with The Vanguard Group during 2021 or 2020. Zions Bancorporation, National Association (Zions) 322,100 shares of Class A voting common stock (31.25% of outstanding Class A stock and 21.04% of total voting common stock outstanding) 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(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. Outlook 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 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 79 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. • 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 . Farmer Mac continues to expand its investments in human capital, technology, and business infrastructure to increase capacity and efficiency as it seeks to accommodate its growth opportunities and achieve its long-term strategic objectives. Farmer Mac expects continued increases in its operating expenses over the next several years corresponding to business and revenue growth. 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. 80 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. 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 . 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. 81 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 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." 82 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. The U.S. 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. The U.S. 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. 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, 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 83 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 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 84 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. Senate. 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. 85 Balance Sheet Review The following table summarizes the balance sheet as of the periods indicated: Table 25 As of Change December 31, 2021 December 31, 2020 $ % (in thousands) Assets Cash and cash equivalents $ 908,785 $ 1,033,941 $ (125,156) (12) % Investment securities, net of allowance 3,882,590 3,898,724 (16,134) — % Farmer Mac Guaranteed Securities, net of allowance 8,361,798 8,123,493 238,305 3 % USDA Securities 2,440,732 2,480,321 (39,589) (2) % 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 % Total assets $ 25,145,491 25,145,491 $ 24,355,501 $ 789,990 3 % Liabilities 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 % Total liabilities $ 23,941,078 $ 23,363,024 $ 578,054 2 % Total equity 1,204,413 992,477 211,936 21 % Total liabilities and equity $ 25,145,491 $ 24,355,501 $ 789,990 3 % Assets . 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 fund the acquisition of loan volume. Equity . 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 . 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 86 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. 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. Farmer Mac believes that it remains adequately collateralized on its delinquent loans. 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: Table 26 Agricultural Finance Mortgage Loans 90-Day Delinquencies Percentage (dollars in thousands) As of: December 31, 2021 $ 9,811,749 $ 47,307 0.48 % September 30, 2021 9,445,359 54,792 0.58 % June 30, 2021 9,056,152 63,076 0.70 % March 31, 2021 8,629,352 72,346 0.84 % December 31, 2020 8,581,181 46,232 0.54 % September 30, 2020 8,249,349 88,041 1.07 % June 30, 2020 8,017,850 68,682 0.86 % March 31, 2020 7,811,594 79,722 1.02 % December 31, 2019 7,776,950 60,954 0.78 % 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. 87 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: 88 Table 27 Agricultural Finance Mortgage Loans 90-Day Delinquencies as of December 31, 2021 Distribution of Agricultural Loans Agricultural Loans 90-Day Delinquencies (1) Percentage (dollars in thousands) By year of origination: 2011 and prior 6 % $ 532,267 $ 2,906 0.55 % 2012 2 % 236,822 231 0.10 % 2013 3 % 331,265 1,107 0.33 % 2014 3 % 274,519 3,641 1.33 % 2015 4 % 427,958 10,110 2.36 % 2016 7 % 666,632 11,075 1.66 % 2017 7 % 685,753 5,074 0.74 % 2018 7 % 672,594 2,987 0.44 % 2019 10 % 954,909 8,713 0.91 % 2020 23 % 2,288,796 1,463 0.06 % 2021 28 % 2,740,234 — 0.06 % Total 100 % $ 9,811,749 $ 47,307 0.48 % By geographic region (2) : Northwest 13 % $ 1,271,158 $ 7,169 0.56 % Southwest 32 % 3,127,283 10,279 0.33 % Mid-North 27 % 2,650,690 3,979 0.15 % Mid-South 15 % 1,511,250 9,872 0.65 % Northeast 4 % 408,053 7,296 1.79 % Southeast 9 % 843,315 8,712 1.03 % Total 100 % $ 9,811,749 $ 47,307 0.48 % By commodity/collateral type: Crops 50 % $ 4,916,170 $ 32,427 0.66 % Permanent plantings 22 % 2,180,623 3,567 0.16 % Livestock 19 % 1,838,097 10,797 0.59 % Part-time farm 5 % 485,342 516 0.11 % Ag. Storage and Processing 4 % 377,220 — — % Other — 14,297 — — % Total 100 % $ 9,811,749 $ 47,307 0.48 % By original loan-to-value ratio: 0.00% to 40.00% 17 % $ 1,694,247 $ 2,775 0.16 % 40.01% to 50.00% 24 % 2,342,658 16,428 0.70 % 50.01% to 60.00% 35 % 3,412,859 23,706 0.69 % 60.01% to 70.00% 21 % 2,058,146 4,398 0.21 % 70.01% to 80.00% (3) 3 % 265,592 — — % 80.01% to 90.00% (3) — % 38,247 — — % Total 100 % $ 9,811,749 $ 47,307 0.48 % By size of borrower exposure (4) : Less than $1,000,000 34 % $ 3,326,506 $ 6,632 0.20 % $1,000,000 to $4,999,999 40 % 3,897,862 26,068 0.67 % $5,000,000 to $9,999,999 15 % 1,501,123 14,607 0.97 % $10,000,000 to $24,999,999 10 % 999,255 — — % $25,000,000 and greater 1 % 87,003 — — % Total 100 % $ 9,811,749 $ 47,307 0.48 % (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: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). (3) Primarily part-time farm loans. Loans with an original loan-to-value ratio of greater than 80% are required to have private mortgage insurance. (4) Includes aggregated loans to single borrowers or borrower-related entities. 89 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, 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. 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. 90 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: Table 28 Agricultural Finance Mortgage Loans current loan-to-value ratio by internally assigned risk rating as of December 31, 2021 Acceptable Special Mention Substandard Total (in thousands) Current loan-to-value ratio (1) : 0.00% to 40.00% $ 2,761,962 $ 52,503 $ 89,018 $ 2,903,483 40.01% to 50.00% 2,378,511 97,733 58,177 2,534,421 50.01% to 60.00% 2,484,515 90,934 57,317 2,632,766 60.01% to 70.00% 1,427,135 54,072 22,594 1,503,801 70.01% to 80.00% 188,280 22,260 17,123 227,663 80.01% and greater 6,359 805 2,451 9,615 Total $ 9,246,762 $ 318,307 $ 246,680 $ 9,811,749 (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. 91 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. Table 29 Agricultural Finance Mortgage Loans Credit Losses Relative to Cumulative Original Loans, Guarantees, and LTSPCs as of December 31, 2021 Cumulative Original Loans, Guarantees and LTSPCs Cumulative Net Credit Losses/(Recoveries) Cumulative Loss Rate (dollars in thousands) By year of origination: 2011 and prior $ 16,099,619 $ 33,785 0.21 % 2012 1,161,476 — — % 2013 1,470,293 — — % 2014 1,059,486 — — % 2015 1,227,120 (516) (0.04) % 2016 1,542,996 — — % 2017 1,641,538 4,311 0.26 % 2018 1,326,813 — — % 2019 1,533,503 — — % 2020 2,832,102 — — % 2021 3,048,399 — — % Total $ 32,943,345 $ 37,580 0.11 % By geographic region (1) : Northwest $ 4,323,709 $ 11,191 0.26 % Southwest 11,248,086 8,542 0.08 % Mid-North 8,263,325 17,165 0.21 % Mid-South 4,450,935 (613) (0.01) % Northeast 1,753,860 323 0.02 % Southeast 2,903,430 972 0.03 % Total $ 32,943,345 $ 37,580 0.11 % By commodity/collateral type: Crops $ 15,250,131 $ 2,887 0.02 % Permanent plantings 7,171,387 9,783 0.14 % Livestock 7,322,393 3,836 0.05 % Part-time farm 1,829,054 1,090 0.06 % Ag. Storage and Processing 1,206,989 19,984 1.66 % Other 163,391 — — % Total $ 32,943,345 $ 37,580 0.11 % (1) Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). 92 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 Agricultural Finance mortgage loans by commodity type within geographic region and cumulative credit losses by origination year and commodity type: Table 30 As of December 31, 2021 Agricultural Finance Mortgage Loans Concentrations by Commodity Type within Geographic Region Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (dollars in thousands) By geographic region (1) : Northwest $ 634,469 $ 190,687 $ 291,914 $ 105,312 $ 48,695 $ 81 $ 1,271,158 6.5 % 1.9 % 3.0 % 1.1 % 0.5 % — % 13.0 % Southwest 673,514 1,639,929 570,639 96,212 134,629 12,360 3,127,283 6.9 % 16.7 % 5.8 % 1.0 % 1.4 % 0.1 % 31.9 % Mid-North 2,257,009 11,761 208,460 99,043 72,781 1,636 2,650,690 23.0 % 0.1 % 2.1 % 1.0 % 0.7 % — % 26.9 % Mid-South 835,252 72,925 495,756 64,200 43,086 31 1,511,250 8.5 % 0.7 % 5.1 % 0.7 % 0.4 % — % 15.4 % Northeast 197,876 43,229 79,836 54,097 33,015 — 408,053 2.0 % 0.4 % 0.8 % 0.6 % 0.3 % — % 4.1 % Southeast 318,050 222,092 191,492 66,478 45,014 189 843,315 3.2 % 2.3 % 2.0 % 0.7 % 0.5 % — % 8.7 % Total $4,916,170 $2,180,623 $1,838,097 $485,342 $377,220 $14,297 $9,811,749 50.1 % 22.1 % 18.8 % 5.1 % 3.8 % 0.1 % 100.0 % (1) Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). 93 Table 31 As of December 31, 2021 Agricultural Loans Cumulative Credit Losses by Origination Year and Commodity Type Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Total (in thousands) By year of origination: 2011 and prior $ 3,427 $ 9,783 $ 3,836 $ 1,066 $ 15,673 $ 33,785 2012 — — — — — — 2013 — — — — — — 2014 — — — — — — 2015 (540) — — 24 — (516) 2016 — — — — — — 2017 — — — — 4,311 4,311 2018 — — — — — — 2019 — — — — — — 2020 — — — — — — 2021 — — — — — — Total $ 2,887 $ 9,783 $ 3,836 $ 1,090 $ 19,984 $ 37,580 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. 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." 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. These characteristics can include (but is not limited to) financial metrics, internal risk ratings, ratings assigned by ratings agencies, types of customers served, sources of power supply, and the regulatory environment. 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. 94 Table 32 Rural Infrastructure Finance portfolio by internally assigned risk rating as of December 31, 2021 Acceptable Special Mention Substandard Total (in thousands) Distribution Cooperative $ 2,166,068 $ — $ — $ 2,166,068 G&T Cooperative 670,342 — 22,800 693,142 Renewable Energy 86,763 — — 86,763 Rural Utilities Total $ 2,923,173 $ — $ 22,800 $ 2,945,973 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 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. Farmer Mac has the ability to require a seller to cure, replace, or repurchase a loan sold or transferred to Farmer Mac if any breach of a representation or warranty is discovered that was material to Farmer Mac's decision to purchase the loan or that directly or indirectly causes a default or potential loss on a loan sold or transferred by the seller to Farmer Mac. During the previous three years ended 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 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 95 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—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: • issuers of AgVantage securities; • approved lenders and servicers; and • interest rate swap counterparties. Farmer Mac approves AgVantage counterparties and manages institutional credit risk related to those AgVantage counterparties by requiring them to meet Farmer Mac's standards for creditworthiness for the particular counterparty type and transaction. 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 loans that become and remain (within specified parameters) delinquent in the payment of principal or interest and to 96 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. 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. 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: Table 33 As of December 31, 2021 As of December 31, 2020 Counterparty Balance Required Collateralization Balance Required Collateralization (dollars in thousands) AgVantage: 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% Other (1) 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. 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 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 97 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. Farmer Mac's usage of cleared derivatives has increased over time as has its exposure to clearinghouses. The usage of cleared swap transactions reduces Farmer Mac's exposure to individual counterparties with the central clearinghouse acting to settle the change in value of contracts on a daily basis. Credit risk related to interest rate swap contracts is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Interest Rate Risk" and Note 6 to the consolidated financial statements. Credit Risk – Other Investments . 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 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) if the obligor whose capacity to meet financial commitments is being relied upon to meet the standard set forth in subparagraph (1) is located outside of the United States, the investment must also be fully guaranteed by a U.S. government agency; and (3) the investment must exhibit low credit risk and other risk characteristics consistent with the purpose or purposes for which it is held. 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). These exposure limits do not apply to obligations of U.S. government agencies or GSEs, although Farmer Mac's current policy restricts investing more than 100% of regulatory capital in the senior non-convertible debt securities of any one GSE. Although the Liquidity and Investments Regulations do not establish limits on the maximum amount, expressed as a percentage of Farmer Mac's investment portfolio, that can be invested in each eligible asset class, Farmer Mac's internal policies set forth asset class limits as part of Farmer Mac's overall risk management framework. Interest Rate Risk . 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 realize a decline in income if assets repay more slowly than 98 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 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, 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 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 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). 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 these loans. 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 99 derivatives. Similarly, when Farmer Mac commits to sell certain assets, the associated interest rate exposure is primarily managed with exchange-traded futures contracts involving U.S. Treasury securities and other financial derivatives. Farmer Mac's $0.9 billion of cash and cash equivalents mature within three months and are generally funded with debt having similar maturities. As of 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. 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 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. 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 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 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 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 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 100 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. Actual results may differ to the extent there are material changes to Farmer Mac's financial asset portfolio or changes in funding or hedging strategies undertaken to mitigate unfavorable sensitivities to interest rate changes. The following schedule summarizes the results of Farmer Mac's MVE and NES sensitivity analysis as of December 31, 2021 and December 31, 2020 to an immediate and instantaneous uniform or "parallel" shift in the yield curve: Table 34 Percentage Change in MVE from Base Case Interest Rate Scenario (1) As of December 31, 2021 As of December 31, 2020 (1) +100 basis points 3.7 % 4.9 % -100 basis points (0.1) % (0.2) % Percentage Change in NES from Base Case Interest Rate Scenario As of December 31, 2021 As of December 31, 2020 (1) +100 basis points 6.6 % 3.9 % -100 basis points (0.1) % — % (1) The down 100 basis points shock scenario was replaced in 2020 with a proportional shock relative to 50% of the 3-month Treasury bill rate, with the approval of the Financial Risk Committee of the Board of Directors. The replacement down shock scenario was negative 2 basis point as of 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 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; 101 • "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; and • 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. Certain financial derivatives are designated as fair value hedges of fixed rate assets classified as available for sale or liabilities to protect against fair value changes in the assets or liabilities related to a benchmark interest rate (e.g., LIBOR or Secured Overnight Financing Rate (“SOFR”)). Also, certain financial derivatives are designated as cash flow hedges to mitigate the volatility of future interest rate payments on floating rate debt. As discussed in Note 6 to the consolidated financial statements, all financial derivatives are recorded on the balance sheet at fair value as derivative assets or as derivative liabilities. Changes in the fair values of undesignated financial derivatives are reported in "(Losses)/gains on financial derivatives" in the consolidated statements of operations. For financial derivatives designated in fair value hedge accounting relationships, changes in the fair values of the hedged items related to the risk being hedged are reported in "Net interest income" in the consolidated statements of operations. Interest accruals on derivatives designated in fair value hedge accounting relationships are also recorded in "Net interest income" in the consolidated statements of operations. 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 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 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. Changes in Farmer Mac's funding costs relative to the benchmark market index rate to which the assets are indexed can cause changes to net interest income when debt matures and is reissued at then current interest rates to continue funding those assets. 102 In addition, many of Farmer Mac's floating rate assets may prepay before the contractual maturity date. 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 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; or • 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" 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 103 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. 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 and investment securities. 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. 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 debt capital markets. 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 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 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. Treasury securities and other short-term money market instruments), and other investment securities that can be drawn upon for liquidity needs. Farmer Mac's current policies authorize liquidity investments in: • obligations of or fully guaranteed by the United States or a U.S. government agency; • obligations of or fully guaranteed by GSEs; • municipal securities; • international and multilateral development bank obligations; • money market instruments; • diversified investment funds; • asset-backed securities; 104 • corporate debt securities; and • mortgage-backed securities. The following table presents these assets as of December 31, 2021 and December 31, 2020: Table 35 As of December 31, 2021 As of December 31, 2020 (in thousands) Cash and cash equivalents $ 908,785 $ 1,033,941 Investment securities: Guaranteed by U.S. Government and its agencies 1,579,452 1,935,056 Guaranteed by GSEs 2,282,655 1,944,497 Asset-backed securities 19,254 19,171 Total $ 4,790,146 $ 4,932,665 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 . Farmer Mac is subject to the following statutory capital requirements – minimum, critical, and risk-based. Farmer Mac must comply with the higher of the minimum capital requirement and the risk-based capital requirement. As of December 31, 2021, Farmer Mac was in compliance with its statutory capital requirements and was classified as within "level 1" (the highest compliance level). In accordance with FCA's rule on capital planning, Farmer Mac's board of directors has adopted a policy for maintaining a sufficient level of "Tier 1" capital (consisting of retained earnings, paid-in capital, common stock, and qualifying preferred stock). That policy restricts Tier 1-eligible dividends and any discretionary bonus payments if Tier 1 capital falls below specified thresholds. As of 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 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. Farmer Mac does not expect its compliance on an ongoing basis with FCA's rule on capital planning, including Farmer Mac's policy on Tier 1 capital, to materially affect Farmer Mac's operations or financial condition. For more information about the capital requirements applicable to Farmer Mac, its capital adequacy policy, and FCA's rule on capital planning, see "Business—Government Regulation of Farmer Mac—Capital Standards." See Note 9 to the consolidated financial statements for more information about Farmer Mac's capital position. Discount and Medium-term Notes . The following table presents the amount and timing of Farmer Mac's known, fixed, and determinable discount and medium-term note obligations by payment date as of December 31, 2021. The payment amounts represent those amounts due to the investor (including return of discount and interest on debt) and do not include unamortized premiums or discounts or other similar carrying value adjustments. 105 Table 36 One Year or Less One to Three Years Three to Five Years Over Five Years Total (in thousands) Discount notes (1) $ 2,168,288 $ — $ — $ — $ 2,168,288 Medium-term notes (1) 4,819,159 6,738,000 4,935,827 4,114,997 20,607,983 Interest payments on fixed rate medium-term notes (2) 180,554 275,464 188,425 323,262 967,705 Interest payments on floating rate medium-term notes (3) 7,008 10,547 7,767 5,676 30,998 (1) Future events, including additional issuance of discount notes and medium-term notes and refinancing of those notes, could cause actual payments to differ significantly from these amounts. For more information regarding discount notes and medium-term notes, see Note 7 to the consolidated financial statements. (2) Interest payments on callable medium-term notes are calculated based on maturity. Future calls of these notes could cause actual interest payments to differ significantly from the amounts presented. (3) Calculated using the effective interest rates as of December 31, 2021. As a result, these amounts do not reflect the effects of changes in the interest rates effective on future interest rate reset dates. Farmer Mac enters into financial derivatives contracts under which it either receives cash from counterparties, or is required to pay cash to them, depending on changes in interest rates. Financial derivatives are carried on the consolidated balance sheets at fair value, representing the net present value of expected future cash payments or receipts based on market interest rates as of the balance sheet date adjusted for the consideration of credit risk of Farmer Mac and its counterparties. The fair values of the contracts change daily as market interest rates change. 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(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 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. The following table presents these significant commitments: Table 37 As of December 31, 2021 2020 (in thousands) LTSPCs $ 3,191,061 $ 2,881,856 Mandatory commitments to purchase loans and USDA Securities 78,449 125,811 For more information about Farmer Mac's commitments to purchase loans, see Note 12 to the consolidated financial statements. Off-Balance Sheet Arrangements 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; 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. For 106 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. As of December 31, 2021 and 2020, outstanding off-balance sheet LTSPCs and Farmer Mac Guaranteed Securities totaled $3.8 billion and $3.3 billion, respectively. The following table presents the balance of outstanding LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities as of December 31, 2021 and 2020: Table 38 Outstanding Balance of LTSPCs and Off-Balance Sheet Farmer Mac Guaranteed Securities As of December 31, 2021 2020 (in thousands) 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(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 None. 107 Supplemental Information The following tables present quarterly and annual information about new business volume, repayments, and outstanding business volume: Table 39 New Business Volume Agricultural Finance Rural Infrastructure Finance Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Total (in thousands) For the quarter ended: December 31, 2021 $ 2,075,540 $ 411,838 $ 631,338 $ 12,594 $ 3,131,310 September 30, 2021 1,791,662 122,043 609,745 4,152 2,527,602 June 30, 2021 925,950 159,958 410,666 3,441 1,500,015 March 31, 2021 1,087,897 186,393 171,546 23,484 1,469,320 December 31, 2020 907,316 242,394 145,416 44,313 1,339,439 September 30, 2020 1,059,891 212,829 52,300 10,000 1,335,020 June 30, 2020 1,069,693 279,021 358,866 — 1,707,580 March 31, 2020 768,700 165,128 392,668 10,000 1,336,496 December 31, 2019 721,248 311,756 242,900 10,000 1,285,904 For the year ended: December 31, 2021 $ 5,881,049 $ 880,232 $ 1,823,295 $ 43,671 $ 8,628,247 December 31, 2020 3,805,600 899,372 949,250 64,313 5,718,535 108 Table 40 Repayments of Assets Agricultural Finance Rural Infrastructure Finance Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Total (in thousands) For the quarter ended: Scheduled $ 928,663 $ 205,778 $ 816,802 $ 18,526 $ 1,969,769 Unscheduled 318,024 48,042 — — 366,066 December 31, 2021 $ 1,246,687 $ 253,820 $ 816,802 $ 18,526 $ 2,335,835 Scheduled $ 725,713 $ 406,285 $ 95,443 $ 4,043 $ 1,231,484 Unscheduled 374,287 — 201 — 374,488 September 30, 2021 $ 1,100,000 $ 406,285 $ 95,644 $ 4,043 $ 1,605,972 Scheduled $ 380,684 $ 139,774 $ 225,257 $ 4,704 $ 750,419 Unscheduled 409,393 3,921 1,652 — 414,966 June 30, 2021 $ 790,077 $ 143,695 $ 226,909 $ 4,704 $ 1,165,385 Scheduled $ 721,090 $ 120,621 $ 100,482 $ 2,671 $ 944,864 Unscheduled 501,651 82,090 2,279 — 586,020 March 31, 2021 $ 1,222,741 $ 202,711 $ 102,761 $ 2,671 $ 1,530,884 Scheduled $ 365,732 $ 197,108 $ 405,597 $ 561 $ 968,998 Unscheduled 400,809 27,850 1,610 — 430,269 December 31, 2020 $ 766,541 $ 224,958 $ 407,207 $ 561 $ 1,399,267 Scheduled $ 569,820 $ 74,038 $ 211,152 $ 279 $ 855,289 Unscheduled 531,062 1,489 — — 532,551 September 30, 2020 $ 1,100,882 $ 75,527 $ 211,152 $ 279 $ 1,387,840 Scheduled $ 523,721 $ 109,543 $ 67,708 $ 240 $ 701,212 Unscheduled 448,900 50,737 3,935 — 503,572 June 30, 2020 $ 972,621 $ 160,280 $ 71,643 $ 240 $ 1,204,784 Scheduled $ 320,488 $ 94,775 $ 165,467 $ — $ 580,730 Unscheduled 326,078 8,318 — — 334,396 March 31, 2020 $ 646,566 $ 103,093 $ 165,467 $ — $ 915,126 Scheduled $ 220,004 $ 94,130 $ 489,876 $ 198 $ 804,208 Unscheduled 244,303 17,747 34,063 — 296,113 December 31, 2019 $ 464,307 $ 111,877 $ 523,939 $ 198 $ 1,100,321 For the year ended: Scheduled $ 2,756,150 $ 872,458 $ 1,237,984 $ 29,944 $ 4,896,536 Unscheduled 1,603,355 134,053 4,132 — 1,741,540 December 31, 2021 $ 4,359,505 $ 1,006,511 $ 1,242,116 $ 29,944 $ 6,638,076 Scheduled $ 1,779,761 $ 475,464 $ 849,924 $ 1,080 $ 3,106,229 Unscheduled 1,706,849 88,394 5,545 — 1,800,788 December 31, 2020 $ 3,486,610 $ 563,858 $ 855,469 $ 1,080 $ 4,907,017 109 Table 41 Outstanding Business Volume Agricultural Finance Rural Infrastructure Finance Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Total (in thousands) As of: December 31, 2021 $ 16,094,639 $ 1,537,834 $ 5,895,227 $ 86,763 $ 23,614,463 September 30, 2021 15,565,589 1,379,816 6,080,691 92,695 23,118,791 June 30, 2021 14,873,926 1,664,059 5,566,591 92,585 22,197,161 March 31, 2021 14,738,052 1,647,796 5,382,835 93,848 21,862,531 December 31, 2020 14,872,894 1,664,115 5,314,051 73,035 21,924,095 September 30, 2020 14,737,485 1,646,679 5,575,841 29,283 21,989,288 June 30, 2020 14,778,474 1,509,378 5,734,694 19,562 22,042,108 March 31, 2020 14,681,403 1,390,637 5,447,470 19,802 21,539,312 December 31, 2019 14,559,268 1,328,602 5,220,270 9,802 21,117,942 Table 42 On-Balance Sheet Outstanding Business Volume Fixed Rate 5- to 10-Year ARMs & Resets 1-Month to 3-Year ARMs Total Held in Portfolio (in thousands) As of: December 31, 2021 $ 13,228,675 $ 2,896,014 $ 3,695,269 $ 19,819,958 September 30, 2021 12,921,572 2,872,499 3,818,550 19,612,621 June 30, 2021 11,800,429 2,878,637 4,254,625 18,933,691 March 31, 2021 11,454,321 2,824,551 4,410,661 18,689,533 December 31, 2020 11,330,414 2,816,840 4,511,964 18,659,218 September 30, 2020 10,879,372 2,811,547 5,013,640 18,704,559 June 30, 2020 10,793,629 2,845,266 5,076,445 18,715,340 March 31, 2020 10,296,598 2,818,869 4,996,478 18,111,945 December 31, 2019 10,045,712 2,863,199 4,702,577 17,611,488 110 The following table presents the quarterly net effective spread (a non-GAAP measure) by segment: Table 43 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) For the quarter ended: December 31, 2021 (2) $ 28,998 0.99 % $ 6,321 1.84 % $ 2,521 0.19 % $ 356 1.53 % $ 15,979 0.28 % $ 158 0.01 % $ 54,333 0.94 % September 30, 2021 28,914 1.06 % 7,163 1.80 % 2,067 0.16 % 236 1.09 % 17,386 0.31 % 159 0.01 % 55,925 0.99 % June 30, 2021 29,163 1.06 % 6,676 1.65 % 1,759 0.14 % 378 1.80 % 18,449 0.33 % 126 0.01 % 56,551 1.01 % March 31, 2021 26,461 0.98 % 6,921 1.67 % 1,720 0.14 % 249 1.28 % 18,394 0.33 % 114 0.01 % 53,859 0.97 % December 31, 2020 (1) 25,596 0.95 % 6,237 1.53 % 1,838 0.15 % 123 1.20 % 20,585 0.37 % 143 0.01 % 54,522 0.98 % September 30, 2020 23,735 0.89 % 5,786 1.45 % 2,022 0.16 % 75 1.19 % 20,034 0.37 % 150 0.01 % 51,802 0.96 % 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 % 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) 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. 111 The following table presents quarterly core earnings (a non-GAAP measure) reconciled to net income attributable to common stockholders: Table 44 Core Earnings by Quarter End December 2021 September 2021 June 2021 March 2021 December 2020 September 2020 June 2020 March 2020 December 2019 (in thousands) Revenues: Net effective spread $ 54,333 $ 55,925 $ 56,551 $ 53,859 $ 54,522 $ 51,802 $ 46,469 $ 44,163 $ 45,991 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 Total revenues 65,750 60,934 61,186 58,550 59,686 56,914 52,460 49,733 51,523 Credit related expense/(income): (Release of)/provision for losses (1,428) 255 (983) (31) 2,973 1,200 51 3,831 2,851 REO operating expenses — — — — — — — — — Losses/(gains) on sale of REO — — — — 22 — — (485) — Total credit related expense/(income) (1,428) 255 (983) (31) 2,995 1,200 51 3,346 2,851 Operating expenses: Compensation and employee benefits 11,246 10,027 9,779 11,795 9,497 8,791 8,087 10,127 6,732 General and administrative 8,492 6,330 6,349 6,336 6,274 5,044 5,295 5,363 5,773 Regulatory fees 812 750 750 750 750 725 725 725 725 Total operating expenses 20,550 17,107 16,878 18,881 16,521 14,560 14,107 16,215 13,230 Net earnings 46,628 43,572 45,291 39,700 40,170 41,154 38,302 30,172 35,442 Income tax expense 9,809 9,152 9,463 8,520 8,470 8,297 8,016 6,598 7,526 Preferred stock dividends 6,792 6,774 5,842 5,269 5,269 5,166 3,939 3,431 3,432 Core earnings $ 30,027 $ 27,646 $ 29,986 $ 25,911 $ 26,431 $ 27,691 $ 26,347 $ 20,143 $ 24,484 Reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes $ (1,213) $ (1,864) $ (3,721) $ 1,695 $ (1,758) $ (4,149) $ 8,700 $ (6,484) $ 4,469 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 (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 Net effects of terminations or net settlements on financial derivatives (429) (351) 109 1,165 1,583 233 720 (1,300) 1,339 Issuance costs on the retirement of preferred stock — — — — — (1,667) — — — Income tax effect related to reconciling items 36 892 1,208 (544) (798) 1,957 (1,419) 2,856 (1,218) Net income attributable to common stockholders $ 29,892 $ 24,289 $ 25,444 $ 27,958 $ 29,431 $ 18,659 $ 31,687 $ 9,399 $ 29,066