What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-07 · 435 added, 484 removed, 915 unchanged (50% of the section changed)

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perspective, of the material information necessary to assess Farmer Mac's financial condition and results

of operations for the quarter ended September 30, 2022.

of operations for the quarter ended March 31, 2023.

Financial information included in this report is

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• prospects for growth in business volume;

• assessment of the effect of the COVID-19 pandemic on our business, financial results, financial condition, and business plans and strategies;

• trends in net interest income and net effective spread;

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• the level of lender interest in Farmer Mac's products and the secondary market provided by Farmer Mac;

• the general rate of growth in agricultural mortgage and rural utilities indebtedness;

• the effect of economic conditions and geopolitics on agricultural mortgage or rural utilities lending, borrower repayment capacity, or collateral values, including fluctuations in interest rates, changes in U.S.

• the general rate of growth in agricultural mortgage and rural infrastructure indebtedness;

• the effect of economic conditions stemming from disruptive global events or otherwise on agricultural mortgage or rural infrastructure lending, borrower repayment capacity, or collateral values, including rapid inflation, fluctuations in interest rates, changes in U.S.

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

agricultural products, supply chain disruptions, increases in input costs, labor availability, volatility in commodity prices, and the effects of the conflict between Russia and Ukraine;

agricultural products and foreign currency exchange rates, supply chain disruptions, increases in input costs, labor availability, volatility from the recent commercial banking failures, and volatility in commodity prices;

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

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• the effects of the Federal Reserve’s efforts to achieve monetary policy normalization and slow inflation;

• other factors that could hinder agricultural mortgage lending or borrower repayment capacity, including the effects of severe weather and drought, climate change, or fluctuations in agricultural real estate values;

• the duration, mitigation efforts, spread, severity, and social and economic disruption of the COVID-19 pandemic and its effects on the business operations of agricultural and rural borrowers, the capital markets, and Farmer Mac's business operations.

• other factors that could hinder agricultural mortgage lending or borrower repayment capacity, including the effects of severe weather, flooding and drought, climate change, or fluctuations in agricultural real estate values.

Considering these potential risks and uncertainties, no undue reliance should be placed on any forward-looking statements expressed in this report.

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The information in this report is not necessarily indicative of future results.

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 related rural businesses and enterprises.

Farmer Mac is a mission-focused, purpose-driven company determined to drive economic opportunity and prosperity by increasing the accessibility of financing for American agriculture and rural infrastructure.

As the nation’s secondary market for agricultural and rural infrastructure loans, we help strengthen and connect rural America by providing 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 related rural businesses and enterprises.

Farmer Mac also serves as a critical investment tool for entities such as states, counties, municipalities, pension funds, banks, public trust funds, and credit unions.

Farmer Mac offers those entities a variety of investment opportunities that may diversify their investment portfolios and provide the opportunity to earn a competitive return on their investment dollars.

Farmer Mac’s performance during third quarter 2022, 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.

Despite ongoing macroeconomic concerns and potential headwinds such as deteriorating macroeconomic conditions, inflation, rising interest rates, the COVID-19 pandemic, and war in Ukraine, Farmer Mac delivered solid financial results.

These financial results in the first three quarters of 2022 reflected a variety of factors, including:

During first quarter 2023:

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

• we maintained our strong capital position and uninterrupted access to the debt capital markets, which historically have not been subject to the same short-term disruptions and liquidity concerns experienced by institutions that rely primarily on deposits to fund their assets;

• we provided $1.7 billion in liquidity and lending capacity to lenders serving rural America;

• we closed our third structured securitization transaction involving approximately $300 million of agricultural mortgage loans.

Farmer Mac’s performance during first quarter 2023, described in more detail below, reflects the success of our continued focus on pursuing new channels and innovative ways to further our mission to increase the accessibility of financing for American agriculture and rural infrastructure.

Despite ongoing macroeconomic concerns and potential headwinds such as volatile macroeconomic conditions, inflation, failures and liquidity concerns in the banking industry, rising interest rates, and war in Ukraine, Farmer Mac continued to deliver solid financial results.

These financial results for first quarter 2023 reflected a variety of factors, including:

(1) the resilience of the farm economy, as producers have benefited from healthy farm incomes and liquidity from relatively high commodity prices resulting from heightened demand, with revenues rising faster than the costs of inputs;

(2) an increase in Farmer Mac's outstanding business volume at higher spreads while credit quality improved;

(3) Farmer Mac's disciplined approach to interest rate risk management that helps to protect earnings from the effects of interest rate volatility and are accretive to Farmer Mac during periods of rising interest rates;

and (4) Farmer Mac's effective funding strategies that resulted in advantageous funding during the first nine months of 2022, which have also benefited from the rising interest rate environment in the current period.

(3) Farmer Mac's disciplined approach to interest rate risk management that helps to protect earnings from the effects of interest rate volatility and is accretive to Farmer Mac during periods of rising interest rates;

and (4) Farmer Mac's effective funding strategies that resulted in advantageous funding, which have also benefited from the rising interest rate environment in the current period.

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

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For the Three Months Ended

September 30, 2022 June 30, 2022 September 30, 2021

March 31, 2023 December 31, 2022 March 31, 2022

(in thousands)

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Core earnings 38,884 34,413 25,761

The $0.4 million sequential decrease in net income attributable to common stockholders was due to a $2.4 million after-tax decrease in the fair value of undesignated financial derivatives and a $1.6 million after-tax increase in the provision for credit losses.

These factors were partially offset by a $3.1 million after-tax increase in net interest income and a $0.5 million after-tax decrease in operating expenses.

The $6.1 million year-over-year increase in net income attributable to common stockholders was due to a $7.1 million after-tax increase in net interest income and a $1.3 million after-tax increase in the fair value of undesignated financial derivatives.

These factors were partially offset by a $1.8 million after-tax increase in operating expenses and a $0.4 million decrease in guarantee fees.

The $2.6 million sequential increase in core earnings was due to a $3.7 million after-tax increase in net effective spread and a $0.5 million after-tax decrease in operating expenses.

These factors were partially offset by an increase in our provision for credit losses of $1.6 million after tax.

The $5.7 million year-over-year increase in core earnings was due to a $7.7 million after-tax increase in net effective spread, partially offset by a $1.8 million after-tax increase in operating expenses.

The $3.6 million sequential increase in net income attributable to common stockholders was due to a $4.3 million after-tax increase in net interest income and a $0.9 million after-tax decrease in our provision for credit losses.

These factors were partially offset by a $2.1 million after-tax increase in operating expenses.

The $4.4 million year-over-year decrease in net income attributable to common stockholders was due to a $13.1 million after-tax decrease in the fair value of undesignated financial derivatives and a $1.8 million after-tax increase in operating expenses.

These factors were partially offset by a $10.7 million after-tax increase in net interest income.

The $4.5 million sequential increase in core earnings was due to a $4.8 million after-tax increase in net effective spread and a $0.9 million after-tax decrease in our provision for credit losses.

These factors were partially offset by a $2.1 million after-tax increase in operating expenses.

The $13.1 million year-over-year increase in core earnings was due to a $15.3 million after-tax increase in net effective spread.

This factor was partially offset by a $1.8 million after-tax increase in operating expenses.

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

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For the Three Months Ended

September 30, 2022 June 30, 2022 September 30, 2021

March 31, 2023 December 31, 2022 March 31, 2022

(in thousands)

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Net effective spread % 1.15 % 1.07 % 0.97 %

The $3.9 million sequential increase in net interest income was primarily due to a $2.9 million decrease in funding costs, due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity, and an increase of $1.9 million from net new business volume.

These factors were partially offset by a $1.2 million decrease in the fair value of designated financial derivatives.

In percentage terms, the sequential 0.04% increase was primarily attributable to a decrease of 0.04% in funding costs and an increase of 0.01% in net new business volume, partially offset by a decrease of 0.02% in net fair value changes from financial derivatives designated in hedge accounting relationships (designated financial derivatives).

The $8.9 million year-over-year increase in net interest income was primarily attributable to a $6.0 million increase from net new business volume and a $5.5 million decrease in funding costs, due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity.

These factors were partially offset by a $2.6 million decrease in the fair value of designated financial derivatives.

In percentage terms, the year-over-year 0.04% increase was primarily attributable to a decrease of 0.07% in funding costs, partially offset by a decrease of 0.04% in net fair value changes from financial derivatives designated in hedge accounting relationships (designated financial derivatives).

The $4.7 million sequential increase in net effective spread in dollars was primarily due to an increase of $3.2 million from net new business volume and a $2.2 million decrease in non-GAAP funding costs, due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity.

These factors were partially offset by a $0.4 million decrease in cash-basis

interest income.

In percentage terms, the sequential increase of 0.04% was primarily attributable to a decrease of 0.04% in non-GAAP funding costs and an increase of 0.02% in net new business volume.

The $9.7 million year-over-year increase in net effective spread in dollars was primarily due to a $7.1 million increase from net new business volume, a $2.3 million decrease in non-GAAP funding costs, due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity, and a $0.6 million increase in cash-basis interest income.

In percentage terms, the year-over-year increase of 0.04% was primarily attributable to an decrease of 0.01% in non-GAAP funding costs and an increase of 0.02% in net new business volume.

The $5.4 million sequential increase in net interest income was primarily attributable to a $6.6 million decrease in funding costs, due to advantageous funding execution and increasing spreads on interest-earning assets on our short-term investments;

partially offset by a $0.7 million decrease in cash-basis interest income.

In percentage terms, the sequential 0.06% increase was primarily attributable to a decrease of 0.09% in funding costs, partially offset by a decrease of 0.01% related to cash-basis interest income.

The $13.5 million year-over-year increase in net interest income was primarily due to a $11.4 million decrease in funding costs primarily due to advantageous funding execution and a $6.8 million increase related to net new business volume.

These factors were partially offset by a $2.5 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives) and a $1.9 million decrease in cash-basis interest income.

In percentage terms, the 0.08% increase was primarily attributable to a decrease of 0.16% in funding costs, partially offset by a decrease of 0.04% in net fair value changes from designated financial derivatives, and a decrease of 0.03% in cash-basis interest income.

The $6.1 million sequential increase in net effective spread in dollars was primarily due to a decrease of $7.4 million in non-GAAP funding costs, due to advantageous funding execution and increased spreads on interest-earning assets on our short-term investments;

partially offset by a $0.7 million decrease in cash-basis interest income.

In percentage terms, the sequential increase of 0.08% was primarily attributable to a decrease of 0.09% in non-GAAP funding costs and a decrease of 0.01% in cash-basis interest income.

The $19.3 million year-over-year increase in net effective spread in dollars was primarily due to a $14.9 million decrease in non-GAAP funding costs, due to advantageous funding execution and increased spreads on interest-earning assets on our short-term investments, and a $6.7 million increase related to net new business volume.

These factors were partially offset by a $1.9 million decrease in cash-basis interest income.

In percentage terms, the year-over-year increase of 0.18% was primarily attributable to a decrease in non-GAAP funding costs.

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 10 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income."

Business Volume

Our outstanding business volume was $25.3 billion as of September 30, 2022, a net increase of $0.8 billion from June 30, 2022 after taking into account all new business, maturities, sales, and paydowns on existing assets.

The net increase was primarily attributable to net increases of $0.2 billion in the Rural Infrastructure Finance line of business and $0.7 billion in the Agricultural Finance line of business.

Our outstanding business volume was $26.5 billion as of March 31, 2023, a net increase of $0.6 billion from December 31, 2022 after taking into account all new business, maturities, sales, and paydowns on existing assets.

The net increase was primarily attributable to a net increase of $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."

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in thousands)

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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 September 30, 2022, June 30, 2022, and December 31, 2021:

The following table presents Agricultural Finance on- and off-balance sheet substandard assets, in dollars and as a percentage of the respective portfolio as of March 31, 2023 and December 31, 2022:

On-Balance Sheet Off-Balance Sheet

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(dollars in thousands)

September 30, 2022 $ 174,737 2.4 % $ 32,139 1.0 %

June 30, 2022 169,310 2.4 % 44,362 1.5 %

March 31, 2023 $ 173,256 2.3 % $ 31,816 1.0 %

December 31, 2022 169,667 2.3 % 39,733 1.2 %

Increase/(decrease) from prior quarter-ending $ 5,427 — % $ (12,223) (0.5) %

Increase/(decrease) from prior year-ending $ 3,589 — % $ (7,917) (0.2) %

The increase of $5.4 million in on-balance sheet substandard assets during third quarter was primarily driven by credit downgrades in permanent plantings, part-time farms, and agricultural storage and processing, partially offset by credit upgrades during the quarter in crops and livestock.

The on-balance sheet Agricultural Finance mortgage loan portfolio grew by $176.3 million, but the net credit downgrades had an offsetting impact, which caused the percentage of substandard assets to remain constant.

The $12.2 million decrease in substandard assets in our off-balance sheet LTSPC and Farmer Mac Guaranteed Securities portfolios during third quarter was primarily due to credit upgrades in permanent plantings, crops, livestock and part-time farms.

There were no substandard assets in the Rural Infrastructure Finance portfolio as of September 30, 2022 and one loan classified as substandard in that portfolio as of December 31, 2021.

The increase of $3.6 million in on-balance sheet substandard assets during first quarter was primarily driven by credit downgrades in crops and was partially offset by credit upgrades in permanent plantings.

The $7.9 million decrease in substandard assets in our off-balance sheet portfolios during first quarter was primarily due to credit upgrades in livestock.

There were no substandard assets in the Rural Infrastructure Finance portfolio as of both March 31, 2023 and December 31, 2022.

For an analysis of current loan-to-value ratios across substandard and other internally assigned risk ratings, see Table 25 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 September 30, 2022, June 30, 2022, and December 31, 2021:

The following table presents 90-day delinquencies for the on- and off-balance sheet Agricultural Finance portfolios, in dollars and as a percentage of the respective balance sheet category as of March 31, 2023 and December 31, 2022:

On-Balance Sheet Off-Balance Sheet

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(dollars in thousands)

September 30, 2022 $ 42,015 0.57 % $ 2,217 0.07 %

June 30, 2022 18,751 0.26 % 1,872 0.06 %

March 31, 2023 $ 65,601 0.88 % $ 5,045 0.16 %

December 31, 2022 39,681 0.53 % 3,817 0.12 %

Increase/(decrease) from prior quarter-ending $ 23,264 0.31 % $ 345 0.01 %

Increase/(decrease) from prior year-ending $ 25,920 0.35 % $ 1,228 0.04 %

On-balance sheet Agricultural Finance loans 90 or more days delinquent increased in all commodity groups, except agricultural storage and processing.

Off-balance sheet Agricultural Finance LTSPCs and Farmer Mac Guaranteed Securities 90 days or more delinquent increased in permanent plantings and part-time farms.

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 September 30, 2022.

As of both September 30, 2022 and December 31, 2021, there were no 90-day delinquencies in Farmer Mac's portfolio of Rural Infrastructure Finance loan purchases and loans underlying LTSPCs.

On-balance sheet Agricultural Finance assets 90 or more days delinquent increased in permanent plantings, crops, and livestock, and was partially offset by decreases in agricultural storage and processing.

Off-balance sheet Agricultural Finance assets 90 days or more delinquent increased in permanent plantings, livestock, and part-time farms.

As of both March 31, 2023 and December 31, 2022, 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 Pandemic

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

Farmer Mac has adopted a "Presence with Purpose" work arrangement, a flexible, hybrid approach under which employees spend a combination of time working remotely or in one of Farmer Mac's offices depending on the nature of the work and the related business needs.

Farmer Mac has maintained uninterrupted access to the debt capital markets 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" in the 2021 Annual Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Outlook" in the 2021 Annual Report and in this report.

Use of Non-GAAP Measures

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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.

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

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

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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.

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."

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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.

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 "Gains/(losses) on financial derivatives" on the consolidated statements of operations.

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

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

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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.

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 10 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income."

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For the Three Months Ended

September 30, 2022 September 30, 2021

March 31, 2023 March 31, 2022

(in thousands, except per share amounts)

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Less reconciling items:

Gains/(losses) on undesignated financial derivatives due to fair value changes (see Table 13) 6,441 (405)

Gains on undesignated financial derivatives due to fair value changes (see Table 13) 916 2,612

(Losses)/gains on hedging activities due to fair value changes (105) 5,687

Unrealized (losses)/gains on trading securities (757) 36

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 24 23

Net effects of terminations or net settlements on financial derivatives (3,522) (351)

Income tax effect related to reconciling items (327) (236)

Sub-total 1,235 885

Core earnings $ 33,392 $ 27,646

Composition of Core Earnings:

Net effective spread (1)

$ 65,641 $ 55,925

Guarantee and commitment fees (2)

Total revenues 70,315 60,934

Credit related expense (GAAP):

Provision for losses 450 255

Total credit related expense 450 255

Operating expenses (GAAP):

Compensation and employee benefits 11,648 10,027

General and administrative 6,919 6,330

Regulatory fees 812 750

Total operating expenses 19,379 17,107

Net earnings 50,486 43,572

Income tax expense (4)

Preferred stock dividends (GAAP) 6,791 6,774

Core earnings $ 33,392 $ 27,646

Core earnings per share:

Basic $ 3.09 $ 2.57

Diluted $ 3.07 $ 2.55

Weighted-average shares:

Basic 10,799 10,766

Diluted 10,874 10,842

(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 10 for a reconciliation of net interest income to net effective spread.

(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.

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings

For the Nine Months Ended

September 30, 2022 September 30, 2021

(in thousands, except per share amounts)

Net income attributable to common stockholders $ 114,352 $ 84,351

Less reconciling items:

Gains/(losses) on undesignated financial derivatives due to fair value changes (see Table 13) 11,899 (189)

Gains on hedging activities due to fair value changes 5,491 269

Unrealized losses on trading securities (948) (39)

Unrealized gains on trading securities 359 94

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 29 20

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Guarantee and commitment fees (2)

13,467 12,896

Total revenues 82,894 62,910

Credit related expense (GAAP):

Release of losses (1,139) (759)

Provision for/(release of) losses 750 (54)

Total credit related expense 750 (54)

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Income tax expense (4)

29,236 27,135

Preferred stock dividends (GAAP) 6,791 6,791

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

For the Three Months Ended For the Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

For the Three Months Ended

March 31, 2023 March 31, 2022

(in thousands, except per share amounts)

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Less reconciling items:

Gains/(losses) on undesignated financial derivatives due to fair value changes (see Table 13) 0.60 (0.04) 1.10 (0.02)

Gains on undesignated financial derivatives due to fair value changes (see Table 13) 0.09 0.24

(Losses)/gains on hedging activities due to fair value changes (0.01) 0.53

Unrealized losses on trading securities (0.07) — (0.09) —

Unrealized gains on trading securities 0.03 0.01

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

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

For the Three Months Ended For the Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

For the Three Months Ended

March 31, 2023 March 31, 2022

(in thousands, except per share amounts)

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Less reconciling items:

Gains/(losses) on undesignated financial derivatives due to fair value changes (see Table 13) 0.59 (0.04) 1.09 (0.02)

Gains on undesignated financial derivatives due to fair value changes (see Table 13) 0.09 0.24

(Losses)/gains on hedging activities due to fair value changes (0.01) 0.52

Unrealized losses on trading securities (0.07) — (0.09) —

Unrealized gains on trading securities 0.03 0.01

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

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Gains/(losses) on financial derivatives due to fair value changes are presented by two reconciling items in Table 6 above:

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

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

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

Unrealized (losses)/gains on trading securities.

Unrealized 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.

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Net Interest Income .

The following table provides information about interest-earning assets and funding for the nine months ended September 30, 2022 and 2021.

The following table provides information about interest-earning assets and funding for the quarters ended March 31, 2023 and 2022.

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

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

For the Nine Months Ended

September 30, 2022 September 30, 2021

For the Three Months Ended

March 31, 2023 March 31, 2022

Balance Income/

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Net interest income/yield $ 27,849,155 $ 79,058 1.14 % $ 24,761,761 $ 65,538 1.06 %

(1) Excludes interest income of $23.7 million and $30.1 million in first nine months of 2022 and 2021, respectively, related to consolidated trusts with beneficial interests owned by third parties.

(1) Excludes interest income of $8.5 million and $8.1 million in first quarter 2023 and 2022, 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 $20.6 million and $26.4 million in first nine months of 2022 and 2021, respectively, related to consolidated trusts with beneficial interests owned by third parties.

(3) Excludes interest expense of $7.5 million and $7.0 million in first quarter 2023 and 2022, respectively, related to consolidated trusts with beneficial interests owned by third parties.

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

The $29.2 million year-over-year increase in net interest income was primarily due to a $12.3 million increase from net new business volume, a $12.0 million decrease in funding costs, due to increasing yields on interest-earning assets, and a $4.5 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 0.07% increase was primarily attributable to an increase of 0.06% related to the decrease in funding costs.

The $13.5 million year-over-year increase in net interest income was primarily due to a $11.4 million decrease in funding costs and a $6.8 million increase related to net new business volume.

The decrease in funding costs was primarily attributable to advantageous funding execution.

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

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

For the Nine Months Ended September 30, 2022 Compared to Same Period in 2021

For the Three Months Ended March 31, 2023

Compared to Same Period in 2022

Increase/(Decrease) Due to

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

For the Three Months Ended For the Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Dollars Yield Dollars Yield Dollars Yield Dollars Yield

For the Three Months Ended

March 31, 2023 March 31, 2022

Dollars Yield Dollars Yield

(dollars in thousands)

6 unchanged sentences

Net effective spread $ 77,173 1.15 % $ 57,839 0.97 %

The $18.1 million year-over-year increase in net effective spread in dollars was primarily due to a $15.8 million increase from net new business volume and a $2.1 million increase in net coupon yields related to the acquisition of loan servicing rights.

In percentage terms, net effective spread increased by 0.01% as a result of increased spreads on net new business volume.

The $19.3 million year-over-year increase in net effective spread in dollars was primarily due to a $14.9 million decrease in non-GAAP funding costs, due to advantageous funding execution;

and a $6.7 million increase related to net new business volume.

These factors were partially offset by a $1.9 million decrease in cash-basis interest income.

In percentage terms, the year-over-year increase of 0.18% was primarily attributable to a decrease in non-GAAP funding costs.

See Note 10 to the consolidated financial statements for more information about net interest income and net effective spread from Farmer Mac's individual business segments.

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

The following table summarizes the components of Farmer Mac's total allowance for losses for the three and nine months ended September 30, 2022 and 2021:

As of September 30, 2022 As of September 30, 2021

The following table summarizes the components of Farmer Mac's total allowance for losses for the three month period ended March 31, 2023 and 2022:

For the Three Months Ended

March 31, 2023 March 31, 2022

Losses Reserve

4 unchanged sentences

(in thousands)

For the Three Months Ended

Beginning Balance $ 15,731 $ 1,433 $ 17,164 $ 14,492 $ 1,950 $ 16,442

2 unchanged sentences

Ending Balance $ 16,278 $ 1,636 $ 17,914 $ 14,464 $ 1,840 $ 16,304

For the Nine Months Ended

Beginning balance $ 14,492 $ 1,950 $ 16,442 $ 14,298 $ 3,277 $ 17,575

(Release of)/provision for losses (699) (440) (1,139) 518 (1,277) (759)

Charge-offs (84) — (84) — — —

Ending balance $ 13,709 $ 1,510 $ 15,219 $ 14,816 $ 2,000 $ 16,816

See Notes 5 and 6 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."

During the three months ended September 30, 2022, we recorded a $0.5 million provision to the allowance for losses primarily as a result of further deterioration of one agricultural storage and processing loan and net new loan volume.

During the nine months ended September 30, 2022 we recorded a $1.1 million release from the allowance primarily as a result of updated credit loss model forecast assumptions and improvements in risk ratings, partially offset by a risk rating downgrade of the one agricultural storage and processing loan mentioned previously.

During first quarter 2023, we recorded a $0.8 million provision to the allowance for losses primarily as a result of one agricultural storage and processing loan whose financial position continued to deteriorate related to the borrower's ongoing bankruptcy.

Guarantee and Commitment Fees .

The following table presents guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs, for the three and nine months ended September 30, 2022 and 2021:

For the Three Months Ended For the Nine Months Ended

Change Change

September 30, 2022 September 30, 2021 $ % September 30, 2022 September 30, 2021 $ %

For the Three Months Ended

March 31, 2023 March 31, 2022 $ %

(dollars in thousands)

Contractual guarantee fees $ 3,494 $ 3,155 $ 339 11 % $ 10,556 $ 9,182 $ 1,374 15 %

Contractual guarantee and commitment fees $ 3,705 $ 3,502 $ 203 6 %

Guarantee obligation amortization 1,768 2,195 (427) (19) %

Guarantee asset fair value changes (1,540) (2,002) 462 23 %

Guarantee fee income $ 2,644 $ 3,155 $ (511) (16) % $ 9,551 $ 9,182 $ 369 4 %

Guarantee and commitment fees decreased for the three months ended September 30, 2022 compared to 2021, which was due to a decrease in the fair value of retained beneficial interests in off-balance sheet structured securitizations during third quarter 2022.

Guarantee and commitment fees increased for the nine months ended September 30, 2022 compared to 2021, which was due to increases in the average outstanding balance of LTSPCs during the period.

As adjusted for the core earnings presentation, guarantee and commitment fees were $4.2 million and $13.5 million for the three and nine months ended September 30, 2022, respectively, compared to $4.3 million and $12.9 million for the three and nine months ended September 30, 2021, respectively.

Guarantee and commitment fee income $ 3,933 $ 3,695 $ 238 6 %

Guarantee and commitment fees increased for the quarter ended March 31, 2023 compared to 2022, which was due to increases in the average outstanding balance of LTSPCs during the period.

As adjusted for the core earnings presentation, guarantee and commitment fees were $4.7 million for the quarter ended March 31, 2023, compared to $4.6 million for first quarter 2022.

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.

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

Gains/(losses) on financial derivatives .

The components of gains and losses on financial derivatives for the three and nine months ended September 30, 2022 and 2021 are summarized in the following table:

For the Three Months Ended For the Nine Months Ended

Change Change

September 30, 2022 September 30, 2021 $ % September 30, 2022 September 30, 2021 $ %

Gains on financial derivatives .

The components of gains and losses on financial derivatives for the three months ended March 31, 2023 and 2022 are summarized in the following table:

For the Three Months Ended

March 31, 2023 March 31, 2022 $ %

(dollars in thousands)

Gains/(losses) due to fair value changes $ 6,441 $ (405) $ 6,846 (1,690) % $ 11,899 $ (189) $ 12,088 (6,396) %

Gains due to fair value changes $ 916 $ 2,612 $ (1,696) (65) %

Accrual of contractual payments (1,626) (994) (632) 64 %

(Losses)/gains due to terminations or net settlements (3,056) (600) (2,456) 409 % 15,285 (384) 15,669 (4,080) %

Gains/(losses) on financial derivatives $ 772 $ (888) $ 1,660 (187) % $ 21,551 $ 2,581 $ 18,970 735 %

Gains due to terminations or net settlements 1,109 15,370 (14,261) (93) %

Gains on financial derivatives $ 399 $ 16,988 $ (16,589) (98) %

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

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

Other Income .

The following table presents other income for the three and nine months ended September 30, 2022 and 2021:

For the Three Months Ended For the Nine Months Ended

Change Change

September 30, 2022 September 30, 2021 $ % September 30, 2022 September 30, 2021 $ %

(dollars in thousands)

Late fees $ 397 $ 266 $ 131 49 % $ 1,042 $ 805 $ 237 29 %

Servicing fees 232 35 197 563 % 764 35 729 2,083 %

Mortgage servicing rights amortization (80) — (80) N/A (347) — (347) N/A

Other 102 281 (179) (64) % 346 760 (414) (54) %

Total other income $ 651 $ 582 $ 69 12 % $ 1,805 $ 1,600 $ 205 13 %

The increase in other income for the three and nine months ended September 30, 2022 compared to 2021 is primarily due to an increase in fees related to Farmer Mac's master and central servicing operations for off-balance sheet Farmer Mac Guaranteed Securities, partially offset by a decrease in loan rate modification fees.

Operating Expenses .

The components of operating expenses for the three and nine months ended September 30, 2022 and 2021 are summarized in the following table:

For the Three Months Ended For the Nine Months Ended

Change Change

September 30, 2022 September 30, 2021 $ % September 30, 2022 September 30, 2021 $ %

The components of operating expenses for the three months ended March 31, 2023 and 2022 are summarized in the following table:

For the Three Months Ended

March 31, 2023 March 31, 2022 $ %

(dollars in thousands)

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Compensation and Employee Benefits .

The increase in compensation and employee benefits expenses for 2022 compared to 2021 was due to increased headcount and increased stock compensation.

The increase in compensation and employee benefits expenses for first quarter 2023 compared to 2022 was due to increased short-term incentive compensation paid in first quarter 2023 resulting from Farmer Mac's performance during 2022 and increased headcount.

General and Administrative Expenses (G&A) .

The increase in G&A expenses for 2022 compared to 2021 was primarily due to increased spending on software licenses and 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 first quarter 2023 compared to 2022 was primarily due to increased spending on software licenses and information technology and other consultants to support growth and strategic initiatives.

Specifically, Farmer Mac has begun a multi-year effort to replace its platform for securities trades and to implement a treasury management system.

Income Tax Expense .

The following table presents income tax expense and the effective income tax rate for the three and nine months ended September 30, 2022 and 2021:

For the Three Months Ended For the Nine Months Ended

Change Change

September 30, 2022 September 30, 2021 $ % September 30, 2022 September 30, 2021 $ %

The following table presents income tax expense and the effective income tax rate for the three months ended March 31, 2023 and 2022:

For the Three Months Ended

March 31, 2023 March 31, 2022 $ %

(dollars in thousands)

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Business Volume .

The following table sets forth the net growth or decrease in Farmer Mac's lines of business for the three and nine months ended September 30, 2022 and 2021:

The following table sets forth the net growth or decrease in Farmer Mac's lines of business for the three months ended March 31, 2023 and 2022:

Net New Business Volume

For the Three Months Ended For the Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

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

For the Three Months Ended

March 31, 2023 March 31, 2022

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

(in thousands)

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Loans held in consolidated trusts:

Beneficial interests owned by third-party investors (Pass-Through) On-balance sheet (11,835) (100,621) (125,517) (309,673)

Beneficial interests owned by third-party investors (Structured) On-balance sheet 297,298 — 297,298 —

Beneficial interests owned by third-party investors (Pass-Through) (1)

On-balance sheet (19,661) (60,423)

Beneficial interests owned by third-party investors (Structured) (1)

On-balance sheet 276,442 —

On-balance sheet (433) (378)

USDA Securities On-balance sheet (50,607) (4,999)

AgVantage Securities On-balance sheet 310,000 355,000 580,000 (20,000)

AgVantage Securities (1)

On-balance sheet 70,000 430,000

LTSPCs and unfunded commitments Off-balance sheet 7,762 (8,824)

Farmer Mac Guaranteed Securities Off-balance sheet (14,466) (16,417) (69,244) (58,368)

Other Farmer Mac Guaranteed Securities (3)

Off-balance sheet (12,858) (33,874)

Loans serviced for others Off-balance sheet (448) (1,042)

2 unchanged sentences

Loans On-balance sheet $ 6,611 $ (14,837)

AgVantage Securities On-balance sheet (4,282) (332,580) (18,778) (371,766)

Unfunded Loan Commitments Off-balance sheet 20,324 28,818 37,983 31,035

AgVantage Securities (1)

On-balance sheet (21,915) 7,798

Unfunded commitments Off-balance sheet 11,779 9,965

Total Corporate AgFinance $ (3,525) $ 2,926

3 unchanged sentences

Loans On-balance sheet $ 89,922 $ 157,232

AgVantage Securities On-balance sheet 76,425 476,810 29,567 785,710

LTSPCs and Unfunded Loan Commitments Off-balance sheet (19,946) 43,917 (25,573) 13,443

Farmer Mac Guaranteed Securities Off-balance sheet — — — —

AgVantage Securities (1)

On-balance sheet 471,229 (23,381)

LTSPCs and unfunded commitments Off-balance sheet (31,011) (22,632)

Other Farmer Mac Guaranteed Securities (3)

Off-balance sheet (71) —

Total Rural Utilities $ 530,069 $ 111,219

1 unchanged sentence

Loans On-balance sheet $ 66,916 $ 5,483

Unfunded Loan Commitments Off-balance sheet (11,755) (3,120) 9,964 4,388

Unfunded commitments Off-balance sheet 11,407 28,363

Total Renewable Energy $ 78,323 $ 33,846

1 unchanged sentence

Total $ 562,036 $ 628,947

(1) Categories of Farmer Mac Guaranteed Securities.

(2) An interest-only Farmer Mac Guaranteed Security retained as part of a structured securitization.

Farmer Mac's outstanding business volume was $25.3 billion as of September 30, 2022, a net increase of $0.8 billion from June 30, 2022 after taking into account all new business, maturities, sales, and paydowns on existing assets.

The $607.3 million net increase in Farm & Ranch during third quarter 2022 resulted from $1.9 billion of new purchases, commitments, and guarantees, mostly offset by $1.3 billion of scheduled maturities and repayments.

Farmer Mac purchased a total of $303.9 million in loans, which was primarily driven by improved borrower economics albeit navigating a substantially higher interest rate environment.

The $303.9 million in gross Farm & Ranch loan purchases was partially offset by $166.8 million in scheduled maturities and repayments.

Farmer Mac also purchased a total of $1.0 billion in Farm & Ranch AgVantage Securities during third quarter 2022, which primarily reflected the refinancing of maturing securities as well as financial counterparties seeking to add longer term AgVantage securities to manage their asset-liability maturity profile given recent increases in credit spreads and interest rates.

(3) Other categories of Farmer Mac Guaranteed Securities that were sold by Farmer Mac to third parties.

Farmer Mac's outstanding business volume was $26.5 billion as of March 31, 2023, a net increase of $0.6 billion from December 31, 2022 after taking into account all new business, maturities, sales, and paydowns on existing assets.

The modest decrease in Farm & Ranch during first quarter 2023 resulted from $0.8 billion of new purchases, commitments, and guarantees, offset by $0.8 billion of scheduled maturities and repayments.

Farmer Mac purchased a total of $0.2 billion in loans, which was primarily driven by improved borrower economics while also navigating a substantially higher interest rate environment.

Farmer Mac also purchased a total of $0.2 billion in Farm & Ranch AgVantage Securities during first quarter 2023, which primarily reflected the refinancing of maturing securities as well as financial counterparties seeking to add longer-term AgVantage securities to manage their asset-liability maturity profile given recent increases in credit spreads and interest rates.

The $0.2 billion in gross purchases was partially offset by $0.1 billion in scheduled maturities.

The $67.5 million net increase in Corporate AgFinance during third quarter 2022 resulted from $169.9 million of new purchases and commitments, which was offset by $102.5 million of scheduled maturities and repayments.

Farmer Mac purchased a total of $136.0 million in loans, which was offset by $84.6 million in scheduled maturities and repayments.

This net increase in loans was primarily due to Farmer Mac's continued focus to support loans to larger and more complex agribusinesses focused on food and fiber processing, and other food supply chain production.

The $124.2 million net increase in Rural Utilities during third quarter 2022 resulted from $547.1 million of new purchases, commitments, and guarantees, which was partially offset by $422.9 million of scheduled maturities and repayments.

The modest decrease in Corporate AgFinance during first quarter 2023 resulted from $0.2 billion of new purchases and commitments, which was offset by $0.2 billion of scheduled maturities, repayments, and sales.

Farmer Mac purchased a total of $145.1 million in loans, which was partially offset by $138.5 million in scheduled maturities and repayments.

The increase in loan purchases was primarily due to Farmer Mac's continued focus to support loans to larger and more complex agribusinesses focused on food and fiber processing and other food supply chain production.

The $0.5 billion net increase in Rural Utilities during first quarter 2023 resulted from $0.7 billion of new purchases, commitments, and guarantees, which was partially offset by $0.2 billion of scheduled maturities and repayments.

Farmer Mac purchased a total of $500.0 million in AgVantage Securities, $92.8 million in telecommunications loans, and $90.4 million in electric distribution and generation and transmission loans.

The $183.2 million in loan purchases was partially offset by $93.3 million in scheduled maturities and repayments.

The $48.2 million net increase in Renewable Energy during third quarter 2022 primarily reflects $61.7 million in loan purchases, partially offset by $13.4 million in repayments.

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

The $691.7 million net increase in Farm & Ranch during third quarter 2021 resulted from $1.8 billion of new purchases and guarantees, partially offset by $1.1 billion of scheduled maturities and repayments.

The $284.2 million net decrease in Corporate AgFinance during third quarter 2021 resulted from $406.3 million of scheduled maturities, repayments, and sales.

This was partially offset by $122.0 million of new purchases.

The $514.1 million net increase in Rural Utilities during third quarter 2021 resulted from $609.7 million of new purchases and guarantees, which was partially offset by $96.6 million of scheduled maturities and repayments.

The net increase in loan purchases primarily reflected borrowers' normal-course capital expenditures related to maintaining and upgrading utility infrastructure as well as investments in broadband infrastructure, and Farmer Mac's continued focus to support telecommunications investment in rural America.

The $78.3 million net increase in Renewable Energy during first quarter 2023 primarily reflects $89.7 million in loan purchases and unfunded commitments, partially offset by $11.4 million in repayments.

Farmer Mac's outstanding business volume was $24.2 billion as of March 31, 2022, a net increase of $0.6 billion from December 31, 2021 after taking into account all new business, scheduled maturities, and paydowns on existing assets.

The $0.5 billion net increase in Farm & Ranch during first quarter 2022 resulted from $2.5 billion of new

purchases, commitments, and guarantees, partially offset by $2.0 billion of scheduled maturities and

Farmer Mac purchased a total of $416.2 million in loans, which was primarily driven by farm

real estate acquisitions due to improved borrower economics as well as a competitive, while also navigating an increasing interest rate environment resulting in demand for intermediate and long-term financing solutions.

The $416.2 million in gross Farm & Ranch loan purchases was partially offset by $255.7 million in scheduled maturities and repayments.

Farmer Mac also purchased a total of $1.8 billion in Farm & Ranch AgVantage Securities during first

quarter 2022, which primarily reflected the refinancing of maturing securities as well as financial

counterparties seeking to add longer term AgVantage securities to manage their asset-liability maturity

profile given recent increases in credit spreads and interest rates.

The $1.8 billion in gross purchases was

partially offset by $1.3 billion in scheduled maturities.

Approximately $1.1 billion of the total $1.8 billion

in gross purchases reflected purchases that refinanced maturing AgVantage securities and were issued at

short-term tenors, which may create volatility in AgVantage volumes throughout the year.

Farmer Mac does not anticipate a material impact to its net effective spread given the low spread related to

these securities due to the short maturities and the credit strength of the counterparties.

The $2.9 million net increase in Corporate AgFinance during first quarter 2022 resulted from

$103.4 million of new loan and AgVantage security purchases, which was offset by $100.4 million of

scheduled maturities and repayments.

Farmer Mac purchased a total of $61.7 million in loans, which was

offset by $76.5 million in scheduled maturities and repayments.

This net decrease in loans was primarily

due to scheduled amortization and prepayments due to strong land values and agricultural incomes.

The $111.2 million net increase in Rural Utilities during first quarter 2022 resulted from $378.0 million of

new purchases, commitments, and guarantees, which was partially offset by $266.7 million of scheduled

maturities and repayments.

Farmer Mac purchased a total of $208.0 million in Rural Utilities loans, which

was fueled by a competitive but increasing interest rate environment resulting in demand for long-term

financing solutions for planned maintenance and capital expenditures.

The $208.0 million in loan

purchases was partially offset by $50.7 million in scheduled maturities and repayments.

The $33.8 million net increase in Renewable Energy during first quarter 2022 primarily reflects a

$35.0 million commitment to a large solar project being constructed in the southeast United States,

consisting of $6.6 million of funded loan purchases (which was partially offset by $1.2 million of other

loan repayments) and $28.4 million in unfunded loan commitments expected to be drawn throughout

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

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

For the Three Months Ended For the Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

For the Three Months Ended

March 31, 2023 March 31, 2022

(dollars in thousands)

AgVantage securities $ 695,200 $ 1,941,360

Structured securitization transactions (not consolidated) — —

Loans securitized and held in consolidated trusts with beneficial interests owned by third parties 285,201 25,928

Total Farmer Mac Guaranteed Securities Issuances $ 980,401 $ 1,967,288

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

During third quarter 2022, Farmer Mac executed a structured securitization transaction, whereby it sold and securitized agricultural mortgage loans resulting in $297.7 million of Farmer Mac Guaranteed Securities.

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

During the first quarter of 2023, Farmer Mac executed its third structured securitization transaction, whereby it sold and securitized agricultural mortgage loans resulting in $281.0 million of Farmer Mac Guaranteed Securities.

In this transaction, Farmer Mac transferred selected loans to a depositor which then deposited the loans into a trust, at which time the loans became assets of the trust.

Farmer Mac does not consider these trust fund assets to be available to satisfy the claims of the creditors of Farmer Mac and/or the depositor.

During the three and nine months ended September 30, 2022 and 2021, Farmer Mac realized no gains or losses from the securitization of loans that it holds in consolidated trusts.

Farmer Mac concluded that it was the primary beneficiary of the trust because Farmer Mac controls the trust in its role as Master Servicer.

Therefore, Farmer Mac consolidates the assets and liabilities of the trust for this structured securitization.

Farmer Mac does not consider the assets held by the related securitization trust to be available to satisfy the claims of the creditors of Farmer Mac and/or the depositor.

During the three months ended March 31, 2023 and 2022, 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 the three and nine months ended September 30, 2022 and 2021, Farmer Mac realized no gains or losses from the issuance of Farmer Mac Guaranteed USDA Securities or AgVantage Securities.

During the three months ended March 31, 2023 and 2022, Farmer Mac realized no gains or losses from the issuance of Farmer Mac Guaranteed USDA Securities or AgVantage Securities.

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

Outstanding Business Volume

Balance Sheet As of September 30, 2022 As of December 31, 2021

Balance Sheet As of March 31, 2023 As of December 31, 2022

(in thousands)

3 unchanged sentences

Loans held in consolidated trusts:

Beneficial interests owned by third-party investors (Pass-Through) On-balance sheet 823,106 948,623

Beneficial interests owned by third-party investors (Structured) On-balance sheet 297,298 —

Beneficial interests owned by third-party investors (Pass-Through) (1)

On-balance sheet 895,257 914,918

Beneficial interests owned by third-party investors (Structured) (1)

On-balance sheet 573,100 296,658

On-balance sheet 10,189 10,622

USDA Securities On-balance sheet 2,356,695 2,407,302

AgVantage Securities On-balance sheet 5,305,000 4,725,000

AgVantage Securities (1)

On-balance sheet 5,675,000 5,605,000

LTSPCs and unfunded commitments Off-balance sheet 2,830,071 2,822,309

Farmer Mac Guaranteed Securities Off-balance sheet 509,114 578,358

Other Farmer Mac Guaranteed Securities (3)

Off-balance sheet 488,095 500,953

Loans serviced for others Off-balance sheet 19,832 20,280

2 unchanged sentences

Loans On-balance sheet $ 1,172,864 $ 1,166,253

AgVantage Securities On-balance sheet 348,686 367,464

Unfunded Loan Commitments Off-balance sheet 85,053 47,070

AgVantage Securities (1)

On-balance sheet 337,685 359,600

Unfunded commitments Off-balance sheet 89,433 77,654

Total Corporate AgFinance $ 1,599,982 $ 1,603,507

3 unchanged sentences

Loans On-balance sheet $ 2,891,618 $ 2,801,696

AgVantage Securities On-balance sheet 3,062,829 3,033,262

LTSPCs and Unfunded Loan Commitments Off-balance sheet 531,264 556,837

Farmer Mac Guaranteed Securities Off-balance sheet 2,755 2,755

AgVantage Securities (1)

On-balance sheet 3,515,385 3,044,156

LTSPCs and unfunded commitments Off-balance sheet 481,581 512,592

Other Farmer Mac Guaranteed Securities (3)

Off-balance sheet 1,098 1,169

Total Rural Utilities $ 6,889,682 $ 6,359,613

1 unchanged sentence

Loans On-balance sheet $ 286,486 $ 219,570

Unfunded Loan Commitments Off-balance sheet 9,964 —

Unfunded commitments Off-balance sheet 22,007 10,600

Total Renewable Energy $ 308,493 $ 230,170

1 unchanged sentence

Total $ 26,484,118 $ 25,922,082

(1) A Farmer Mac Guaranteed Security.

(2) An interest-only Farmer Mac Guaranteed Security retained as part of a structured securitization.

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 September 30, 2022:

Schedule of Principal Amortization as of September 30, 2022

(3) Other categories of Farmer Mac Guaranteed Securities that were sold by Farmer Mac to third parties.

Schedule of Principal Amortization as of March 31, 2023

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

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Total $ 10,657,047 $ 3,705,064 $ 2,562,818 $ 16,924,929

Of Farmer Mac's $25.3 billion outstanding principal balance of business volume as of September 30, 2022, $8.7 billion were AgVantage securities included in the Agricultural Finance and Rural Infrastructure Finance lines of business.

Of Farmer Mac's $26.5 billion outstanding principal balance of business volume as of March 31, 2023, $9.5 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 September 30, 2022:

The following table summarizes by maturity date the outstanding principal amount of both on- and off-balance sheet AgVantage securities as of March 31, 2023:

AgVantage Balances by Year of Maturity

September 30, 2022

March 31, 2023

(in thousands)

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(1) Includes various maturities ranging from 2028 to 2049.

The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 5.1 years as of September 30, 2022.

The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.4 years as of March 31, 2023.

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 servicing agriculture and rural infrastructure businesses 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, wholesale funding, or securitizations.

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

Market interest rates have increased significantly since the lows experienced in 2021, and interest rates on Farmer Mac products during the first quarter 2023 were higher than Farmer Mac's 15-year historical averages.

New loan origination volumes tend to correlate inversely with changes in interest rates.

However, prepayment rates also generally correlate inversely with changes in interest rates, with higher interest rates typically slowing the pace of portfolio loan repayments.

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

Despite a higher interest rate environment, 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 liquidity, 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, wholesale funding, or securitizations.

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

• Economic disruptions could positively affect Farmer Mac's funding costs relative to the market, as historically, major economic events have tended to tilt investors toward high-quality fixed income investments.

Furthermore, Farmer Mac's funding strategies are not depository in nature, allowing Farmer Mac to fund beyond short-term disruptions and avoid many potential liquidity concerns.

Funding advantages could provide Farmer Mac with more opportunities in a competitive lending environment.

• 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 acquisition opportunities for agricultural producers resulting from high agricultural incomes and rising costs 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.

• Expansion and acquisition opportunities for agricultural producers resulting from high agricultural incomes and rising input costs 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.

• Investments necessary to support consumer demand could increase the need for financing within the food and agriculture supply chain, which may increase the need for incremental capital support from the secondary market.

• Market interest rates have increased significantly since the lows experienced in 2021, and rates are now higher than Farmer Mac's 15-year historical averages.

New loan origination and sales volumes tend to correlate inversely with changes in interest rates.

However, prepayment rates also generally correlate inversely with changes in interest rates, with higher interest rates typically slowing the pace of portfolio loan repayments.

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

The war in Ukraine continues to affect volatility for commodity prices and agricultural production costs for farmers and ranchers, who were already challenged by a strong inflationary environment.

While agricultural commodity prices have thus far outpaced the significant increase in input costs, the impact on global commodity markets from the Ukraine conflict creates further uncertainty for farmers and ranchers in terms of global production, prices, and costs for the remainder of 2022 and into 2023.

Heightened market volatility is likely to persist until there is more certainty around the timing, pace, and conclusion of the conflict in Ukraine.

In addition to continued uncertainty from supply-side disruptions, market interest rates increased rapidly during third quarter 2022, driven by the Federal Reserve’s accelerated efforts to achieve monetary policy normalization and decelerate inflation.

A higher interest rate environment could slow the pace of farm mortgage refinancing.

While lower refinances could result in lower levels of new loan purchases in Farm & Ranch and USDA Guarantees products, it could also result in lower portfolio prepayment speeds, as was Farmer Mac’s experience between 2014 and 2018.

Loan prepayment speeds in 2022 have fallen to pre-pandemic levels, and they are likely to correlate inversely with interest rates.

Farmer Mac offers a range of interest rates, tenors, and resetting options for loan products, allowing flexibility for originators and borrowers in all interest rate environments.

economy continued to slow in third quarter 2022 after a rapid expansion in 2021.

Higher consumer price inflation, particularly for food and energy, combined with a rising interest rate environment, has curtailed economists’ outlooks for the U.S.

economy heading into 2023.

And while labor markets remain resilient, slower consumer spending and declines in residential housing investment indicate that the probability of a U.S.

The higher interest rate environment stressed bank liquidity in first quarter 2023, causing the first commercial bank failures since 2020 and the largest bank failure since 2009.

The recently failed banks were not substantial agricultural mortgage originators or Farmer Mac customers.

Additionally, Farmer Mac is not a depository institution with volatility in investor withdrawals, which we believe insulates our portfolio from the same kinds of liquidity concerns recently facing various commercial banks.

Finally, Farmer Mac offers a range of interest rates, tenors, and rate resetting options for loan products, allowing flexibility for originators and borrowers in all interest rate environments.

economy continued to exhibit signs of slowing in first quarter 2023.

While consumer spending has retreated modestly from the highs experienced in 2022, the significantly higher interest rate environment continues to create uncertainty for the economic outlook for the U.S.

economy in 2023.

And while labor markets continue to remain somewhat resilient, slower consumer spending, declines in residential housing investment, continued political debates on the U.S.

debt ceiling, and tightening credit conditions following bank industry stress indicate that the probability of a U.S.

or global recession is increasing.

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Farmer Mac believes these sectors are generally well positioned to withstand an economic downturn due to ample consumer demand and government support.

We believe that the current debt ceiling debate, while creating general market volatility, is not likely to have a material negative effect on Farmer Mac's ability to continue to access the capital debt market and issue debt.

We understand that investors generally view GSE debt, such as Farmer Mac's, as a safe alternative and Farmer Mac is seeing continued strong demand at all parts on the yield curve.

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, along with business and revenue growth.

We expect these efforts to continue and increase over the next 1 - 2 years as we continue to grow our revenue and diversify our funding sources.

Farmer Mac expects continued increases in its operating expenses over the next several years, but the growth rate in employee headcount may slow in the coming quarters.

We will continue making investments in our infrastructure and funding platforms to support these strategies and scale with our growth.

During 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 should 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.

Agricultural Industry .

The agricultural economy experienced largely favorable conditions in third quarter 2022, with strong commodity prices partially offset by elevated input prices.

In response to Russia's

invasion of Ukraine, grain commodity prices rose rapidly during first quarter 2022 and continued to be elevated during much of the second and third quarters of 2022.

Higher commodity prices for grains and many animal proteins are likely to substantially increase gross cash receipts for the 2022 marketing year.

Farm expenses remained elevated in third quarter 2022, driven by rising feed, energy, interest, and labor costs.

While commodity prices declined in the second quarter due to a strengthening U.S.

dollar and reduced demand due to the high-price conditions, most major commodities remained elevated in third quarter 2022.

Prices are likely to remain elevated as a result of the global supply shortages in food and energy.

Growth in farm income outpaced growth in expense in 2021 and again in 2022.

Net cash farm income increased by nearly 25% in 2021 to $146.4 billion.

The USDA forecasts that net cash farm income will climb another 15% to $168.5 billion by the end of 2022, a new all-time high.

For both years, the primary driver of increased profitability is higher cash revenues and not government support payments like in 2019 and 2020.

The USDA forecasts production expenses to rise by 17.8% in 2022, a level experienced in the 1970s and again in the 2012-2014 agricultural economy expansion.

The increase in farm profitability combined with low interest rates in 2020 and 2021 drove a rapid rise in land values and a decrease in farm delinquencies and bankruptcies.

The agricultural economy experienced generally favorable conditions in first quarter 2023, with level commodity prices and easing input price inflation.

In response to Russia's invasion of Ukraine in early 2022, grain commodity prices rose rapidly during first half of 2022 and continued to be elevated during much of the second half of 2022.

Higher commodity prices for grains and many animal proteins substantially increased gross cash receipts for the 2022 marketing year.

Farm expense price levels fell again in first quarter 2023, driven by moderating feed, energy, and fertilizer prices.

However, several farm expense categories such as interest, labor, and other inputs remain elevated and could experience additional upward pressure throughout 2023.

Major commodity prices could remain elevated in 2023 as a result of the global supply shortages in food and energy, as well as a weakening U.S.

Any such price stability would help support farm incomes in 2023.

Overall farm income reached new highs in 2022 following a very profitable year in 2021.

Net cash farm income increased by more than 28% in 2021 to $149.5 billion.

The USDA estimates that net cash farm income climbed another 27% to $189.9 billion in 2022, a new all-time high.

For both years, the primary driver of increased profitability was higher cash revenues and not government support payments like in 2019 and 2020.

The USDA estimates production expenses rose by 19% in 2022, a level experienced in the 1970s and again in the 2012-2014 agricultural economy expansion.

Looking forward, the USDA expects net cash farm income to fall by 21% to $150.6 billion in 2023 due to moderating commodity prices and rising farm expenses.

However, the 2023 farm income projections are 20% higher than the 10-year average, demonstrating the continued strength in the farm economy.

The increase in farm profitability combined with low interest rates in 2020 and 2021 drove a rapid rise in land values and a decrease in farm delinquencies and bankruptcies that extended into 2023.

Land value survey data from the USDA show a 12.4% increase in average farm real estate values from June 2021 to June 2022.

Annual farm real estate value gains were highest in the Northern Plains (19.8%) and the Corn Belt (14.9%) but also strong in the Lake states (13.7%), the Southern Plains (11.3%), and the Pacific (9.7%).

The Federal Reserve Bank of Chicago AgLetter reported a 22% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) between July 2021 and July 2022.

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.

The Federal Reserve Bank of Chicago AgLetter reported a 12% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) between January 2022 and January 2023.

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) during that same period.

Farmland value growth rates moderated in fourth quarter 2022 in the face of rapidly rising interest rates.

Growth rates in land values could remain low in 2023 due to compressing farm profitability and an elevated interest rate environment.

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 in farmland values than state or national averages indicate.

Economic conditions are likely to bring mixed effects to credit demand heading into 2023.

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.

A rising interest rate environment could have mixed effects on mortgage portfolios, potentially lowering new sales and originations but also slowing portfolio prepayments.

Economic conditions are likely to bring mixed effects to credit demand during 2023.

Strong asset appreciation could signal additional demand and capacity for farm debt 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 for multiple years, which also contributes to increasing credit demand.

However, the elevated interest rate environment could adversely impact mortgage portfolio growth, potentially lowering new sales and originations but also potentially slowing portfolio prepayments.

Finally, a changing 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 expected to be generally supportive of continued net portfolio growth for Farmer Mac in fourth quarter 2022.

Positive economic conditions in the agricultural economy improved Farmer Mac's portfolio performance in 2022, and they could continue to positively influence loan delinquencies and losses into 2023.

Farmer Mac's 90-day delinquency levels increased in third quarter 2022 relative to second quarter 2022.

The overall delinquency rate increased from 0.20% of the Farm & Ranch operating segment as of June 30, 2022 to 0.42% of the Farm & Ranch operating segment as of September 30, 2022, although the third quarter percentage is lower than the 0.58% delinquency rate as of September 30, 2021.

The percentage of the portfolio rated substandard also continued to improve in third quarter 2022 to the lowest levels since

Combined, these factors are expected to be generally supportive of continued net portfolio growth for Farmer Mac in 2023.

Positive economic conditions in the agricultural economy improved Farmer Mac's agricultural portfolio performance in 2022, and they could continue to positively influence loan delinquencies and losses throughout 2023.

Farmer Mac's 90-day delinquency levels increased slightly in first quarter 2023 relative to fourth quarter 2022.

The overall delinquency rate increased from 0.41% of the Agricultural Finance line of business as of December 31, 2022 to 0.66% of the Agricultural Finance line of business as of March 31, 2023.

The first quarter 2023 percentage is higher than the 0.57% delinquency rate as of March 31, 2022.

The increase in the seriously delinquent rate is explained by a small number of larger exposures experiencing idiosyncratic business disruptions.

The top five exposures of seriously delinquent loans as of first quarter 2023 represent nearly two-thirds of all 90-day delinquent loans.

However, rising input costs, market volatility, and the potential for continued economic and weather-related stress increase the level of uncertainty inherent in the agricultural credit sector, which could negatively affect the trajectory of the current agricultural cycle.

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.

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 September 30, 2022, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."

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 March 31, 2023, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."

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

External market conditions that could adversely impact the farm and food sectors in the remaining months of 2022 and into 2023 include U.S.

dollar strength, supply chain disruptions, foreign trade and trade policy, and environmental conditions.

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's estimate for fiscal year 2022 is a sizable increase in export value over 2021, and through August 2022, agricultural export values are up 16% in 2022 compared to 2021.

However, a deteriorating global economic outlook combined with the continued tightening of U.S.

central bank policy has increased the relative value of the U.S.

dollar, which could provide a headwind for future export sales in 2022 and 2023.

Disruptions to global grain supplies in Ukraine and Russia could continue to boost U.S.

agricultural product demand.

External market conditions that could adversely impact the farm and food sectors in 2023 include foreign trade and trade policy, supply chain disruptions, and environmental conditions.

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

The USDA's estimate for fiscal year 2023 is a small decrease in export value over 2022, but through February 2023, agricultural export values were up approximately 3% in 2023 compared to 2022.

The value of the U.S.

dollar relative to other major currencies fell 1% in first quarter 2023, which may help support farm, food, fiber, and fuel exports through the first half of 2023.

Slower global growth could be a headwind for consumer-oriented products like animal proteins, dairy, fruits, and nuts, and Ukrainian corn and wheat production may eventually stabilize.

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

experienced 15 separate billion-dollar weather disasters in 2022 through October 11, 2022, as tracked by the National Oceanic and Atmospheric Administration.

experienced 18 separate billion-dollar weather disasters in 2022, as tracked by the National Oceanic and Atmospheric Administration.

Many of those events affected agriculture, including midwestern storms, western wildfires, and 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 have impacted agricultural production regions in the West and Midwest in 2021 and 2022, but there has been a modest improvement in conditions in third quarter 2022.

Long and persistent drought conditions affected agricultural production regions in the western and midwestern parts of the United States in 2021 and 2022, but there has been a sizable improvement in conditions in fourth quarter 2022 and the first quarter 2023, particularly in California.

Roughly 6% of the continental U.S.

remained in exceptional or extreme drought as of October 25, 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 and could potentially impact producers.

Agricultural production in California, Oregon, Washington, Arizona, and Utah is likely to experience the greatest impact from the 2021 and 2022 droughts.

remained in exceptional or extreme drought as of April 18, 2023, according to data from the National Drought Mitigation Center.

While this represents the lowest level of widespread drought since 2020, the current drought cycle is the longest in nearly 20 years.

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.

During the latter part of third quarter 2022, hurricane Ian made landfall in southwestern Florida, and after crossing over the Florida peninsula, the hurricane made a second landfall in South Carolina.

The storm caused significant damage and has

impacted numerous counties and communities in its wake.

Farmer Mac is assessing any potential impacts to farmers, ranchers, and rural utility customers that were in the path of the hurricane Ian, but at this time, we do not anticipate any material risks to Farmer Mac customers or credit exposures.

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" in Farmer Mac's 2021 Annual Report.

Flooding can also disrupt agricultural production, although the impacts are generally more temporary than those from extended drought.

Copious winter precipitation in California has resulted in field flooding, particularly in the Tulare Lake bed.

Farmer Mac has limited portfolio exposure in affected areas, but California flooding could remain a disruptor for western agricultural production in the coming quarters of 2023.

Rural Infrastructure Industry .

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According to data from the U.S.

Energy Information Administration, sales and the revenue from the sale of electricity to customers increased by 3.9% and 14.2%, respectively, in the last 12 months through July 2022 compared to July 2021.

Energy Information Administration, sales and the revenue from the sale of electricity to customers increased by 1.4% and 14.9%, respectively, in the last 12 months through February 2023 compared to February 2022.

This increase was driven by a sharp increase in sales to the commercial, industrial, and transportation sectors and an increase in the retail price of electricity.

Higher energy input prices such as natural gas and coal have become more of a headwind in 2022.

Higher energy input prices such as natural gas and coal became a headwind in 2022.

Natural gas prices rose consistently in 2021 and 2022 because of reduced supply and additional demand for U.S.

liquified natural gas from European countries.

Coal prices also rapidly increased in third quarter 2022, driven by higher natural gas prices and additional overseas demand to offset limited Russian coal exports.

Despite higher input costs, power producers are generally able to pass cost increases through higher retail electricity prices, which has contributed to the increase in electricity costs impacting retail customers during third quarter 2022.

Oil and natural gas prices were volatile during third quarter 2022 and have recently come off their 2022 highs, a positive signal for sector profitability entering fourth quarter 2022.

Through September 30, 2022, Farmer Mac had not observed material degradation in the financial performance of its rural infrastructure portfolio, and that portfolio has never experienced a serious delinquency or default since inception.

Coal prices also rapidly increased in 2022, driven by higher natural gas prices and additional overseas demand to offset limited Russian coal exports.

Oil and natural gas prices were volatile during much of 2022 but moderated in fourth quarter 2022 and early 2023.

Through March 31, 2023, Farmer Mac had not observed material degradation in the financial performance of its rural infrastructure portfolio, and that portfolio has never experienced a serious delinquency or default since inception.

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

Farmer Mac's future growth opportunities for financing the electric cooperative industry may be affected by the demand for electric power in rural areas, capital expenditures by electric cooperatives driven by regulatory or technological changes, the changing interest rate environment, increased policy initiatives to support rural connectivity, and competitive dynamics within the rural utilities cooperative finance industry.

Cooperatives and service providers have access to numerous federally funded programs in 2022, such as the Federal Communications Commission's Rural Digital Opportunity Fund (RDOF), the USDA’s ReConnect, and the USDA’s Telecommunications Infrastructure Loan and Loan Guarantee program.

Cooperatives and service providers have access to numerous federally funded programs, such as the Federal Communications Commission's Rural Digital Opportunity Fund (RDOF), the USDA’s ReConnect, and the USDA’s Telecommunications Infrastructure Loan and Loan Guarantee program.

In addition to capital projects spurred by these programs, Farmer Mac could see an increase in financing opportunities for other telecommunications providers in rural areas, with wireless broadband increasingly important to economic opportunity and precision agriculture.

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

The rising cost of fossil fuel-based inputs combined with the falling costs of renewable power generation may hasten this increase in capacity along with recently enacted legislature, such as the Inflation Reduction Act of 2022, aimed at incentivizing domestic production in clean energy technologies such as solar and wind.

This growth may 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

Under this new initiative, Farmer Mac's total outstanding loans and loan commitments of renewable energy financing transactions was $196.2 million as of September 30, 2022.

The rising cost of fossil fuel-based inputs combined with the falling costs of renewable power generation may hasten this increase in capacity along with recently enacted legislature, such as the Inflation Reduction Act of 2022 that incentivizes domestic production in clean energy technologies such as solar and wind.

Any such growth in renewable energy capacity may broaden Farmer Mac's customer base with cooperative lenders focused on lending to renewable energy customers.

In response to this expected 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 initiative, Farmer Mac's total outstanding loans and loan commitments of renewable energy financing transactions was $308.5 million as of March 31, 2023.

Legislative and Regulatory Outlook .

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

• On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 ("IRA") which included debt relief for economically distressed borrowers of Farm Service Agency direct and guaranteed farm ownership and operating loans programs.

Farmer Mac provides a secondary market for the USDA guaranteed portion of these loans.

On October 18, 2022, USDA announced that approximately 11,000 delinquent direct and guaranteed borrowers had their accounts brought current.

Notably, the relief provided was not full debt forgiveness that had been previously contemplated by the American Recovery Act.

Farmer Mac does not anticipate an acceleration of prepayments on the USDA-guaranteed loans it holds due to the IRA debt relief provision.

• The IRA also included $20 billion for financial and technical assistance to help farmers and ranchers implement and expand conservation practices that help address climate change, as well as several renewable energy initiatives aimed at boosting long-term resiliency, reliability, and affordability of rural electric systems.

Under the IRA, rural electric cooperatives are directly eligible for energy innovation tax credits for the first time.

A new voluntary $9.7 billion USDA loan and grant program was also established for rural electric cooperatives that build or purchase renewable energy systems.

These initiatives, together with other provisions in the IRA, aim to boost renewable energy production in rural areas, which could lead to increased business volumes for Farmer Mac’s Rural Infrastructure Finance business segment.

• The IRA also included a fifteen-percent alternative minimum tax on corporations with book incomes over $1 billion for taxable years beginning after December 31, 2022 and a one-percent excise tax on stock repurchases by public companies that occur after December 31, 2022.

The IRA's corporate alternative minimum tax is not expected to apply to Farmer Mac any time in the near future based on the company's current level of reported financial statement income.

Farmer Mac has sponsored a stock repurchase program since 2015 but has not repurchased any shares of its Class C common stock since first quarter 2020.

Farmer Mac's current repurchase program authorizes up to $9.8 million in repurchases of its Class C common stock.

The IRA's excise tax on stock repurchases will apply to the extent Farmer Mac buys back any shares of Class C common stock after December 31, 2022.

• Congress is scheduled to reauthorize the farm bill in 2023.

This omnibus piece of legislation contains several programs that impact farm profitability, agricultural credit, and rural infrastructure.

Farmer Mac has been seeking modifications to its charter during the farm bill reauthorization to enhance its partners and services in support of farmers, ranchers, agribusinesses, and rural infrastructure.

Farmer Mac will continue to monitor this legislation for any impact it may have on Farmer Mac and its stakeholders.

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

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.

As these investments are made, they may have a positive impact on the global

competitiveness of U.S.

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.

• The Farm Credit Administration ("FCA") is the prudential regulator of Farmer Mac.

• The current farm bill expires on September 30, 2023.

Covering a variety of programs impacting farm profitability, agricultural credit, and rural infrastructure, it is a critical piece of legislation for rural America and the agricultural sector which includes Farmer Mac customers.

Congress has started an extensive process to review programs that are included in the farm bill in preparation for reauthorization.

Farmer Mac is seeking enhancement to its charter in this farm bill reauthorization to enhance its partnerships and services in support of farmers, ranchers, agribusinesses, and rural infrastructure.

Farmer Mac will continue to work with Congress to enhance its charter and monitor changes to farm bill programs that may impact farm sector profitability.

• On January 13, 2023, the FCA board approved an advanced notice of proposed rulemaking to review Farmer Mac's regulatory capital framework.

The notice sought public comment on Farmer Mac's regulatory capital requirements in the context of its business activities.

The comment period was originally scheduled to close March 27, 2023 but was later extended to April 26, 2023.

Farmer Mac and ten other organizations submitted comment letters before the extended deadline.

In the FCA's proposed spring regulatory agenda, the agency is targeting a proposed rulemaking on Farmer Mac's regulatory capital framework for May 2024.

This timeline may change, and Farmer Mac's management team will continue to monitor the FCA's process for this potential rulemaking.

• On September 29, 2022, the U.S.

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Logan was subsequently appointed to be the Chairman and CEO of the FCA by President Biden on October 21, 2022.

Logan is expected to serve in this role until his term expires on May 21, 2026.

As a board member, he and the other board members are responsible for making policy, adopting regulations, and overseeing and examining Farmer Mac.

• Two of FCA's three board members are currently serving in holdover status because their terms have expired.

They will continue to serve in their roles until the President nominates individuals to replace the board members and they are confirmed by the U.S.

Farmer Mac will continue to monitor changes to the composition of the FCA board, as it may affect Farmer Mac's regulatory environment.

The remaining two members of the board are currently serving in holdover status because their terms have expired.

These board members will continue to serve in their roles until replacements are nominated by the President and confirmed by the U.S.

In addition to changes at the board level, the director of the Office of Secondary Market Oversight (OSMO), the office at FCA responsible for the examination, regulation, and supervision of the activities of Farmer Mac to ensure its safety and soundness, retired in December 2022.

FCA has designated an acting director while the agency works to appoint a full-time director.

Balance Sheet Review

The following table summarizes Farmer Mac's balance sheet as of the periods indicated:

September 30, 2022 December 31, 2021 $ %

March 31, 2023 December 31, 2022 $ %

(in thousands)

Cash and cash equivalents $ 864,594 $ 861,002 $ 3,592 — %

Investment securities, net of allowance 4,449,017 3,882,590 566,427 15 %

Farmer Mac Guaranteed Securities, net of allowance 8,302,041 8,361,798 (59,757) (1) %

Investment securities 4,696,168 4,628,268 67,900 1 %

Farmer Mac Guaranteed Securities 9,219,420 8,628,380 591,040 7 %

USDA Securities 2,360,333 2,411,601 (51,268) (2) %

Loans, net of allowance 8,900,485 8,994,350 (93,865) (1) %

Loans held in trusts, net of allowance 1,120,000 948,059 171,941 18 %

Loans held in trusts 1,467,855 1,211,116 256,739 21 %

Other 431,092 598,393 (167,301) (28) %

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Total liabilities and equity $ 27,939,947 $ 27,333,110 $ 606,837 2 %

The increase in total assets was primarily attributable to new loan volume and a larger investment portfolio.

The increase in total assets was primarily attributable to new loan volume, including those held in consolidated trusts, new Farmer Mac Guaranteed Securities, and a larger investment portfolio.

Liabilities .

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

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

The increase in total equity was primarily due to an increase in retained earnings, partially offset by a decrease in accumulated other comprehensive income.

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Agricultural Finance - Direct Credit Exposure

Farmer Mac's direct credit exposure to Agricultural Finance mortgage loans as of September 30, 2022 was $10.1 billion across 48 states.

Farmer Mac's direct credit exposure to Agricultural Finance mortgage loans as of March 31, 2023 was $10.7 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.

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

For Agricultural Finance mortgage loans to which Farmer Mac has direct credit exposure, Farmer Mac's 90-day delinquencies as of September 30, 2022, were $44.2 million (0.42% of the Agricultural Finance mortgage loan portfolio to which Farmer Mac has direct credit exposure), compared to $20.6 million (0.20% of the Agricultural Finance mortgage loan portfolio) as of June 30, 2022 and $47.3 million (0.48% of the Agricultural Finance mortgage loan portfolio) as of December 31, 2021.

Those 90-day delinquencies were comprised of 31 delinquent loans as of September 30, 2022, compared to 19 delinquent loans as of June 30, 2022 and 32 delinquent loans as of December 31, 2021.

The increase in 90-day delinquencies was primarily driven by increased delinquencies in crops, permanent plantings, livestock, and part-time farms.

The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of September 30, 2022.

For Agricultural Finance mortgage loans to which Farmer Mac has direct credit exposure, Farmer Mac's 90-day delinquencies as of March 31, 2023, were $70.6 million (0.66% of the Agricultural Finance mortgage loan portfolio to which Farmer Mac has direct credit exposure), compared to $43.5 million (0.41% of the Agricultural Finance mortgage loan portfolio) as of December 31, 2022.

Those 90-day delinquencies were comprised of 51 delinquent loans as of March 31, 2023, compared to 37 delinquent loans as of December 31, 2022.

The increase in 90-day delinquencies was primarily driven by increased delinquencies in permanent plantings and crops and was partially offset by decreased delinquencies in agricultural storage and processing.

The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of March 31, 2023.

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

Farmer Mac's 90-day delinquency rate as of September 30, 2022 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 90-day delinquency rate as of March 31, 2023 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 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%.

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(dollars in thousands)

September 30, 2022 $ 10,508,549 $ 44,232 0.42 %

June 30, 2022 10,128,083 20,623 0.20 %

March 31, 2023 $ 10,680,419 $ 70,646 0.66 %

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

Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.17% of total outstanding business volume as of September 30, 2022, compared to 0.20% as of December 31, 2021 and 0.24% as of September 30, 2021.

The following table presents outstanding Agricultural Finance mortgage loans and 90-day delinquencies as of September 30, 2022 by year of origination, geographic region, commodity/collateral type, original loan-to-value ratio, and range in the size of borrower exposure:

Agricultural Finance Mortgage Loans 90-Day Delinquencies as of September 30, 2022

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

March 31, 2021 8,629,352 72,346 0.84 %

Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.27% of total outstanding business volume as of March 31, 2023, compared to 0.17% as of December 31, 2022 and 0.23% as of March 31, 2022.

The following table presents outstanding Agricultural Finance mortgage loans and 90-day delinquencies as of March 31, 2023 by year of origination, geographic region, commodity/collateral type, original loan-to-value ratio, and range in the size of borrower exposure:

Agricultural Finance Mortgage Loans 90-Day Delinquencies as of March 31, 2023

Distribution of Agricultural Loans Agricultural Loans 90-Day Delinquencies (1)

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Total 100 % $ 10,680,419 $ 70,646 0.66 %

(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.

(1) Includes loans held and loans underlying off-balance sheet Farmer Mac 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:

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

As of September 30, 2022, Farmer Mac's Agricultural Finance mortgage loans (to which it has direct credit exposure) comprising substandard assets were $206.9 million (2.0% of the portfolio), compared to $213.7 million (2.1% of the portfolio) as of June 30, 2022 and $246.7 million (2.5% of the portfolio) as of December 31, 2021.

Those substandard assets comprised 251 loans as of September 30, 2022, 249 loans as of June 30, 2022, and 274 loans as of December 31, 2021.

The decrease of $6.8 million in substandard assets during third quarter 2022 was driven by credit upgrades in our off-balance sheet portfolio, partially offset by credit downgrades in our on-balance sheet portfolio.

Substandard assets remained constant as a percentage of the total on-balance sheet portfolio due to volume growth being offset by credit downgrades.

Substandard assets decreased as a percentage of the total off-balance sheet portfolio due to a combination of credit upgrades and volume growth.

The percentage of substandard assets within the portfolio as of September 30, 2022 was below the historical average.

As of March 31, 2023, Farmer Mac's Agricultural Finance mortgage loans (to which it has direct credit exposure) comprising substandard assets were $205.1 million (1.9% of the portfolio), compared to $209.4 million (2.0% of the portfolio) as of December 31, 2022.

Those substandard assets comprised 241 loans as of March 31, 2023 and 243 loans as of December 31, 2022.

The decrease of $4.3 million in substandard assets during first quarter 2023 was primarily driven by credit upgrades in our off-balance sheet portfolios.

Substandard assets decreased as a percentage of our off-balance sheet portfolio and remained flat as a percentage of our on-balance sheet portfolio.

The percentage of substandard assets within the portfolio as of March 31, 2023 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%.

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

As of September 30, 2022 and December 31, 2021, the average unpaid principal balances for Agricultural Finance mortgage loans outstanding and to which Farmer Mac has direct credit exposure was $804,000 and $790,000, respectively.

As of March 31, 2023 and December 31, 2022, the average unpaid principal balances for Agricultural Finance mortgage loans outstanding and to which Farmer Mac has direct credit exposure was $796,000 and $806,000, respectively.

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

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

The weighted-average original loan-to-value ratio for Agricultural Finance mortgage loans purchased during third quarter 2022 was 37%, compared to 51% for loans purchased during third quarter 2021.

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 51% and 52% as of September 30, 2022 and December 31, 2021, respectively.

The weighted-average original loan-to-value ratio for all 90-day delinquencies was 55% and 51% as of September 30, 2022 and December 31, 2021, respectively.

loans and loans underlying off-balance sheet Agricultural Finance Guaranteed Securities and LTSPCs was 46% and 47% as of September 30, 2022 and December 31, 2021, respectively.

The weighted-average original loan-to-value ratio for Agricultural Finance mortgage loans purchased during first quarter 2023 was 44%, compared to 46% for loans purchased during first quarter 2022.

The weighted-average original loan-to-value ratio for Agricultural Finance mortgage loans and loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs was 50% and 51% as of March 31, 2023 and December 31, 2022, respectively.

The weighted-average original loan-to-value ratio for all 90-day delinquencies was 47% and 46% as of March 31, 2023 and December 31, 2022, 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 Farmer Mac Guaranteed Securities and LTSPCs was 45% and 46% as of March 31, 2023 and December 31, 2022, respectively.

The following table presents the current loan-to-value ratios for the Agricultural Finance mortgage loans to which Farmer Mac has direct credit exposure, as disaggregated by internally assigned risk ratings:

Agricultural Finance Mortgage Loans current loan-to-value ratio by internally assigned risk rating as of September 30, 2022

Agricultural Finance Mortgage Loans current loan-to-value ratio by internally assigned risk rating as of March 31, 2023

Acceptable Special Mention Substandard Total

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

The following table presents Farmer Mac's cumulative net credit losses relative to the cumulative original balance for all Agricultural Finance mortgage loans as of September 30, 2022 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.

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 March 31, 2023 by year of origination, geographic region, and commodity/collateral type.

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

Agricultural Finance Mortgage Loans Credit Losses Relative to Cumulative

Original Loans, Guarantees, and LTSPCs as of September 30, 2022

Original Loans, Guarantees, and LTSPCs as of March 31, 2023

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

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The following tables present concentrations of Agricultural Finance mortgage loans by commodity type within geographic region and cumulative credit losses by origination year and commodity type:

As of September 30, 2022

As of March 31, 2023

Agricultural Finance Mortgage Loans Concentrations by Commodity Type within Geographic Region

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

As of September 30, 2022

As of March 31, 2023

Agricultural Loans Cumulative Credit Losses by Origination Year and Commodity Type

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Rural Infrastructure Finance - Direct Credit Exposure

Farmer Mac's direct credit exposure to Rural Infrastructure Finance loans held and loans underlying LTSPCs as of September 30, 2022 was $3.4 billion across 45 states.

Farmer Mac's direct credit exposure to Rural Infrastructure Finance loans held and loans underlying LTSPCs as of March 31, 2023 was $3.7 billion across 45 states.

For more information about Farmer Mac's underwriting and collateral valuation standards for Rural Infrastructure Finance loans, see "Business—Farmer Mac's Lines of Business—Rural Infrastructure Finance—Underwriting and Collateral Standards" in Farmer Mac's 2022 Annual Report.

As of September 30, 2022, there were no delinquencies in Farmer Mac's portfolio of Rural Infrastructure Finance loans.

As of March 31, 2023, there were no delinquencies in Farmer Mac's portfolio of Rural Infrastructure Finance loans.

Farmer Mac evaluates credit risk for these assets by reviewing a variety of borrower credit risk characteristics.

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

Rural Infrastructure Finance portfolio by internally assigned risk rating as of September 30, 2022

Rural Infrastructure Finance portfolio by internally assigned risk rating as of March 31, 2023

Acceptable Special Mention Substandard Total

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Telecommunications 356,102 — — 356,102

Rural Utilities Total $ 3,426,921 $ — $ — $ — $ — $ — $ 3,426,921

Rural Infrastructure Total $ 3,681,692 $ — $ — $ 3,681,692

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 5 and 6 of the consolidated financial statements.

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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 September 30, 2022, 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.

As of March 31, 2023, 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.

Farmer Mac requires many lenders to make representations and warranties about the conformity of Agricultural Finance mortgage 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 September 30, 2022, there have been no breaches of representations and warranties by sellers that resulted in Farmer Mac requiring a seller to cure, replace, or repurchase a loan.

During the previous three years ended March 31, 2023, 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.

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Under contracts with Farmer Mac and in consideration for servicing fees, Farmer Mac-approved servicers service loans in accordance with Farmer Mac's requirements.

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

If a servicer materially breaches the terms of its servicing

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

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

If a servicer materially breaches the terms of its servicing agreement with Farmer Mac, such as failing to forward payments received or releasing collateral without

Farmer Mac's consent, or experiences insolvency or bankruptcy, the servicer is responsible for any corresponding damages to Farmer Mac and, in most cases, Farmer Mac has the right to terminate the servicing relationship for a particular loan or the entire portfolio serviced by the servicer.

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 September 30, 2022, Farmer Mac had not exercised any remedies or taken any formal action against any servicers.

During the previous three years ended March 31, 2023, 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" in Farmer Mac’s 2022 Annual Report.

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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.

As a result, Farmer Mac has indirect credit exposure to the Agricultural Finance mortgage loans and Rural Infrastructure 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 September 30, 2022, Farmer Mac had not experienced any credit losses on any AgVantage securities.

As of March 31, 2023, 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" in Farmer Mac’s 2022 Annual Report.

The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Agricultural Finance line of business totaled $5.7 billion as of September 30, 2022 and $5.1 billion as of December 31, 2021.

The unpaid principal balance of on-balance sheet AgVantage securities secured by loans eligible for the Rural Infrastructure Finance line of business totaled $3.1 billion as of September 30, 2022 and $3.0 billion as of December 31, 2021.

The unpaid principal balance of outstanding off-balance sheet AgVantage securities totaled $2.8 million as of both September 30, 2022 and December 31, 2021.

The following table provides information about the issuers of AgVantage securities and the required collateralization levels for those transactions as of September 30, 2022 and December 31, 2021:

As of September 30, 2022 As of December 31, 2021

The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Agricultural Finance line of business totaled $6.0 billion as of both March 31, 2023 and December 31, 2022.

The unpaid principal balance of on-balance sheet AgVantage securities secured by loans eligible for the Rural Infrastructure Finance line of business totaled $3.5 billion as of March 31, 2023 and $3.0 billion as of December 31, 2022.

The unpaid principal balance of outstanding off-balance sheet AgVantage securities totaled $1.1 million as of March 31, 2023 and $1.2 million as of December 31, 2022.

The following table provides information about the issuers of AgVantage securities and the required collateralization levels for those transactions as of March 31, 2023 and December 31, 2022:

As of March 31, 2023 As of December 31, 2022

Counterparty Balance Required Collateralization Balance Required Collateralization

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Total outstanding $ 9,529,168 $ 9,009,925

(1) Consists of AgVantage securities issued by 12 and 13 different issuers as of September 30, 2022 and December 31, 2021, respectively.

(1) Consists of AgVantage securities issued by 10 and 12 different issuers as of March 31, 2023 and 2022, respectively.

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

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Credit Risk – Other Investments .

As of September 30, 2022, Farmer Mac had $0.9 billion of cash and cash equivalents and $4.4 billion of investment securities.

The management of the credit risk inherent in these investments is governed by Farmer Mac's internal policies as well as FCA regulations found at 12 C.F.R.

§§ 652.1-652.45 (the "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.

As of March 31, 2023, Farmer Mac had $0.9 billion of cash and cash equivalents and $4.7 billion of investment securities.

The management of the credit risk inherent in these investments is governed by Farmer Mac's internal policies as well as regulations issued by the FCA found at 12 C.F.R.

§§ 652.1-652.45 ("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;

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.

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

The Liquidity and Investment Regulations limit Farmer Mac's total credit exposure to any single entity, issuer, or obligor of securities to 10% of Farmer Mac's regulatory capital ($131.1 million as of September 30, 2022).

However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($65.5 million as of September 30, 2022).

However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($68.5 million as of March 31, 2023).

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

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Treasury securities and other financial derivatives.

Farmer Mac's $0.9 billion of cash and cash equivalents held as of September 30, 2022 mature within three months.

As of September 30, 2022, $3.3 billion of the $4.4 billion of investment securities (75%) 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 $0.9 billion of cash and cash equivalents held as of March 31, 2023 mature within three months.

As of March 31, 2023, $3.2 billion of the $4.7 billion of investment securities (69%) 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.

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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 September 30, 2022 and December 31, 2021 to an immediate and instantaneous uniform or "parallel" shift in the yield curve:

The following schedule summarizes the results of Farmer Mac's MVE and NES sensitivity analysis as of March 31, 2023 and December 31, 2022 to an immediate and instantaneous uniform or "parallel" shift in the yield curve:

Percentage Change in MVE from Base Case

Interest Rate Scenario (1)

As of September 30, 2022 As of December 31, 2021 (1)

Interest Rate Scenario As of March 31, 2023 As of December 31, 2022

+100 basis points (3.2) % (3.7) %

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Percentage Change in NES from Base Case

Interest Rate Scenario As of September 30, 2022 As of December 31, 2021 (1)

Interest Rate Scenario As of March 31, 2023 As of December 31, 2022

+100 basis points 0.2 % 0.4 %

-100 basis points (0.4) % (0.6) %

(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 points as of December 31, 2021.

As of September 30, 2022, Farmer Mac's duration gap was positive 2.8 months, compared to negative 1.5 months as of December 31, 2021.

Farmer Mac updated its duration gap measure to interest-earning assets, debt, and financial derivatives as of December 31, 2021.

Interest rates within the yield curve flattened during the first nine months of 2022 with the 2-year and 10-year U.S.

As of March 31, 2023, Farmer Mac's duration gap was positive 3.1 months, compared to positive 3.6 months as of December 31, 2022.

Interest rates within the yield curve flattened during 2023 with the 2-year and 10-year U.S.

Treasury Note yield-to-maturity increasing by approximately 40 basis points and 41 basis points, respectively, versus year-end 2022.

This rate movement contributed to extending the duration of Farmer Mac's funded assets compared to its debt and financial derivatives, thereby lengthening Farmer Mac's duration gap.

This rate movement contributed to shortening 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

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Treasury securities.

As of September 30, 2022, Farmer Mac had $22.4 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to just over thirty years, of which $8.7 billion were pay-fixed interest rate swaps, $11.9 billion were receive-fixed interest rate swaps, and $1.8 billion were basis swaps.

As of March 31, 2023, Farmer Mac had $25.0 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to just over thirty years, of which $9.1 billion were pay-fixed interest rate swaps, $14.1 billion were receive-fixed interest rate swaps, and $1.8 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.

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

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

Changes in the fair values of undesignated financial derivatives are reported in "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.

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

As of both September 30, 2022 and December 31, 2021, Farmer Mac had no uncollateralized net exposures based on the mark-to-market value of the portfolio of interest rate swaps

As of both March 31, 2023 and December 31, 2022, 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

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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 and liquidity management strategies.

As of September 30, 2022, Farmer Mac held $6.2 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 March 31, 2023, Farmer Mac held $7.6 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 $9.1 billion of interest rate swaps outstanding where Farmer Mac pays a fixed rate of interest and receives a floating rate of interest, primarily LIBOR or SOFR.

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As described in "Risk Factors—Market Risk" in Part I, Item 1A of the 2022 Annual Report, Farmer Mac faces risks associated with the reform, replacement, or discontinuation of the LIBOR benchmark interest rate and the transition to an alternative benchmark interest rate.

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

As of September 30, 2022, Farmer Mac held $2.9 billion of floating rate assets in its lines of business and its investment portfolio, had issued $0.3 billion of floating rate debt, and had entered into $11.1 billion notional amount of interest rate swaps, each of which reset based on LIBOR.

Farmer Mac continues to evaluate the potential effect on our business of replacement benchmark interest rates expected to replace LIBOR, including SOFR, which is the replacement benchmark rate recommended by the Alternative Reference Rates Committee and designated by the Adjustable Interest Rate (LIBOR) Act and implementing regulations.

As of March 31, 2023, Farmer Mac held $2.6 billion of floating rate assets in its lines of business and its investment portfolio, had issued $0.2 billion of floating rate debt, and had entered into $9.8 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 September 30, 2022, we had $1.2 billion outstanding in medium-term notes based on SOFR, a potential alternative benchmark interest rate index.

The market transition away from LIBOR and towards alternative benchmark interest rate indices may be complicated and is expected to require 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, may require different hedging strategies, or may require

renegotiation of existing transactions.

As of March 31, 2023, we had $1.2 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 steady access to the debt capital markets throughout third quarter 2022.

Farmer Mac regularly accesses the debt capital markets for funding, and Farmer Mac has maintained steady access to the debt capital markets throughout 2023.

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 September 30, 2022, Farmer Mac had outstanding discount notes of $0.9 billion, medium-term notes that mature within one year of $6.5 billion, and medium-term notes that mature after one year of $16.7 billion.

As of March 31, 2023, Farmer Mac had outstanding discount notes of $0.9 billion, medium-term notes that mature within one year of $7.6 billion, and medium-term notes that mature after one year of $16.8 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 351 days of liquidity during third quarter 2022 and had 355 days of liquidity as of September 30, 2022.

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

In accordance with the methodology for calculating available days of liquidity under those regulations, Farmer Mac maintained a monthly average of 295 days of liquidity throughout first quarter 2023 and had 286 days of liquidity as of March 31, 2023.

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.

Treasury securities, operational deposits, 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:

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• mortgage-backed securities.

The following table presents these assets as of September 30, 2022 and December 31, 2021:

As of September 30, 2022 As of December 31, 2021

The following table presents these assets as of March 31, 2023 and December 31, 2022:

As of March 31, 2023 As of December 31, 2022

(in thousands)

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Total $ 5,557,090 $ 5,485,598

The objectives of the investment portfolio as of September 30, 2022 and December 31, 2021 are to provide a level of liquidity that mitigates enterprise risk, provides a reliable source of short-term and long-term liquidity, to prepare for the possibility of future volatility in the debt capital markets, and to support program asset growth.

The objectives of the investment portfolio as of March 31, 2023 and December 31, 2022 are to provide a level of liquidity that mitigates enterprise risk, provides a reliable source of short-term and long-term liquidity, to prepare for the possibility of future volatility in the debt capital markets, and to support program asset growth.

Capital Requirements .

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

As of September 30, 2022, 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).

As of March 31, 2023, Farmer Mac was in compliance with its statutory capital requirements and was classified as within "level 1" (the highest compliance level).

In accordance with the 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 September 30, 2022 and December 31, 2021, Farmer Mac's Tier 1 capital ratio was 14.9% and 14.8%, respectively.

As of September 30, 2022, 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" in Farmer Mac's 2021 Annual Report.

As of March 31, 2023 and 2022, Farmer Mac's Tier 1 capital ratio was 15.7% and 14.9%, respectively.

As of March 31, 2023, Farmer Mac was in compliance with its capital adequacy policy.

Farmer Mac does not expect its compliance on an ongoing basis with the 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 the FCA's rule on capital planning, see "Business—Government Regulation of Farmer Mac—Capital Standards" in Farmer Mac's 2022 Annual Report.

See Note 8 to the consolidated financial statements for more information about Farmer Mac's capital position.

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For the quarter ended:

September 30, 2022 $ 1,927,209 $ 169,932 $ 547,117 $ 61,653 $ 2,705,911

June 30, 2022 1,418,397 107,916 326,899 35,307 1,888,519

March 31, 2023 $ 750,040 $ 203,211 $ 683,232 $ 89,747 $ 1,726,230

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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

For the year ended:

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Unscheduled 231,288 128,254 57,354 — 416,896

September 30, 2022 $ 1,021,343 $ 102,457 $ 422,917 $ 13,429 $ 1,560,146

Scheduled $ 1,114,779 $ 42,162 $ 159,491 $ 7,898 $ 1,324,330

Unscheduled 286,303 30,203 1,791 — 318,297

June 30, 2022 $ 1,401,082 $ 72,365 $ 161,282 $ 7,898 $ 1,642,627

Scheduled $ 1,535,369 $ 39,480 $ 266,349 $ 7,790 $ 1,848,988

Unscheduled 434,794 60,947 397 — 496,138

March 31, 2023 $ 510,964 $ 206,736 $ 153,163 $ 11,424 $ 882,287

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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

For the year ended:

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(in thousands)

September 30, 2022 $ 17,199,347 $ 1,634,786 $ 6,296,263 $ 196,242 $ 25,326,638

June 30, 2022 16,591,999 1,567,311 6,172,063 148,018 24,479,391

March 31, 2023 $ 17,685,961 $ 1,599,982 $ 6,889,682 $ 308,493 $ 26,484,118

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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

On-Balance Sheet Outstanding Business Volume

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(in thousands)

September 30, 2022 $ 13,810,162 $ 2,960,596 $ 4,644,958 $ 21,415,716

June 30, 2022 13,798,771 2,939,467 3,993,956 20,732,194

March 31, 2023 $ 13,607,740 $ 3,020,229 $ 5,924,032 $ 22,552,001

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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

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

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For the quarter ended:

September 30, 2022 (2)

$ 33,343 1.04 % $ 7,600 1.99 % $ 4,220 0.30 % $ 705 1.97 % $ 22,564 0.36 % $ (2,791) (0.21) % $ 65,641 1.03 %

June 30, 2022 32,590 1.05 % 6,929 1.87 % 3,733 0.27 % 468 1.78 % 18,508 0.30 % (1,282) (0.10) % 60,946 0.99 %

March 31, 2023 (2)

$ 32,465 0.97 % $ 7,148 1.94 % $ 5,507 0.36 % $ 858 1.53 % $ 31,738 0.47 % $ (543) (0.04) % $ 77,173 1.15 %

December 31, 2022 32,770 0.98 % 7,471 1.94 % 4,960 0.34 % 935 1.76 % 27,656 0.42 % (2,689) (0.19) % 71,103 1.07 %

September 30, 2022 33,343 1.04 % 7,600 1.99 % 4,220 0.30 % 705 1.97 % 22,564 0.36 % (2,791) (0.21) % 65,641 1.03 %

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, 2022 32,590 1.05 % 6,929 1.87 % 3,733 0.27 % 468 1.78 % 18,508 0.30 % (1,282) (0.10) % 60,946 0.99 %

March 31, 2022 (2)

30,354 1.02 % 7,209 1.96 % 3,159 0.23 % 375 1.69 % 16,738 0.28 % 4 — % 57,839 0.97 %

December 31, 2021 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 %

(1) Farmer Mac excludes the Corporate segment in the presentation above because the segment does not have any interest-earning assets.

(2) See Note 10 to the consolidated financial statements for a reconciliation of GAAP net interest income by segment to net effective spread by segment for the three months ended September 30, 2022 and 2021.

(2) See Note 10 to the consolidated financial statements for a reconciliation of GAAP net interest income by segment to net effective spread by segment for the three months ended March 31, 2023 and 2022.

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

Core Earnings by Quarter End

September 2022 June

2022 March 2022 December 2021 September 2021 June 2021 March 2021 December 2020 September 2020

March 2023 December 2022 September 2022 June

2022 March 2022 December 2021 September 2021 June 2021 March 2021

(in thousands)

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Guarantee and commitment fees 4,654 4,677 4,201 4,709 4,557 4,637 4,322 4,334 4,240

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

Gains on sale of mortgage loans — — — — — 6,539 — — —

Other 1,067 390 473 307 514 241 687 301 451

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(Losses)/gains on hedging activities due to fair value changes (105) (148) (624) 428 5,687 (2,079) 1,818 (5,866) 4,317

Unrealized (losses)/gains on trading assets (757) (285) 94 (76) 36 (61) (14) 223 (258)

Unrealized gains/(losses) on trading assets 359 31 (757) (285) 94 (76) 36 (61) (14)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 29 57 24 (62) 20 71 23 20 16

Net effects of terminations or net settlements on financial derivatives 523 1,268 (3,522) 2,536 15,512 (429) (351) 109 1,165

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

Income tax effect related to reconciling items (362) (590) (327) (1,148) (5,024) 789 (236) 1,852 (1,831)

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis