What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-07 compared with 2023-05-09 · 364 added, 302 removed, 1048 unchanged (39% 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 March 31, 2023.

of operations for the quarter ended June 30, 2023.

Financial information included in this report is

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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.

During first quarter 2023:

During second quarter 2023:

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

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• we provided $1.6 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.

• we acquired servicing rights on $0.6 billion of loans serviced for others.

Farmer Mac’s performance during second 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:

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

• 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 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.

• an increase in outstanding business volume at higher spreads while credit quality improved;

• our 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;

• 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

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

June 30, 2023 March 31, 2023 June 30, 2022

(in thousands)

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Core earnings 42,162 38,884 30,748

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.

The $0.2 million sequential increase in net income attributable to common stockholders was due to a $1.0 million after-tax increase in the fair value of undesignated financial derivatives, partially offset by a $0.4 million after-tax increase in operating expenses and a $0.4 million after-tax decrease in guarantee fees.

The $5.4 million year-over-year increase in net income attributable to common stockholders was due to a $11.7 million after-tax increase in net interest income.

This factor was partially offset by a $3.3 million after-tax increase in operating expenses, a $2.1 million after-tax increase in our provision for credit losses, and a $1.7 million after-tax decrease in the fair value of undesignated financial derivatives.

The $3.3 million sequential increase in core earnings was due to a $3.7 million after-tax increase in net effective spread, partially offset by a $0.4 million after-tax increase in operating expenses.

The $11.4 million year-over-year increase in core earnings was due to a $16.5 million after-tax increase in net effective spread, partially offset by a $3.3 million after-tax increase in operating expenses and a $2.1 million after-tax increase in our provision for credit losses.

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

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For the Three Months Ended

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

June 30, 2023 March 31, 2023 June 30, 2022

(in thousands)

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Net effective spread % 1.20 % 1.15 % 0.99 %

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.

The $0.4 million sequential decrease in net interest income was primarily due to a $4.8 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives).

This factor was partially offset by an increase of $2.3 million in cash-basis interest income, an increase of $1.1 million related to net new business volume, and a decrease of $0.8 million in funding costs primarily due to our disciplined funding strategies and higher nominal interest rates that have led to an upward repricing of our excess capital that is held in our short-term investment portfolio.

In percentage terms, the sequential (0.02)% decrease was primarily attributable to a decrease in net fair value changes from designated financial derivatives.

The $14.8 million year-over-year increase in net interest income was primarily due to a $17.7 million decrease in funding costs primarily due to our disciplined funding strategies and higher nominal interest rates that have led to an upward repricing of our excess capital that is held in our short-term investment portfolio and a $2.8 million increase related to net new business volume.

These factors were partially offset by a $5.5 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives).

In percentage terms, the 0.12% increase was primarily attributable to a decrease of 0.25% in funding costs, partially offset by a decrease of 0.08% in net fair value changes from designated financial derivatives.

The $4.6 million sequential increase in net effective spread in dollars was primarily due to an increase of $2.3 million in cash-basis interest income, a decrease of $1.2 million in non-GAAP funding costs due to the same factors mentioned above that decreased our funding costs, and an increase of $0.5 million in net new business volume.

In percentage terms, the sequential increase of 0.05% was primarily attributable to an increase of 0.03% in cash-basis interest income and a decrease of 0.01% in non-GAAP funding costs.

The $20.9 million year-over-year increase in net effective spread in dollars was primarily due to a $16.0 million decrease in non-GAAP funding costs, due to the same factors mentioned above that decreased our funding costs, and a $5.8 million increase related to net new business volume.

These factors were partially offset by a $0.9 million decrease in cash-basis interest income.

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Business Volume

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.

Our outstanding business volume was $26.7 billion as of June 30, 2023, a net increase of $0.3 billion from March 31, 2023 after taking into account all new business, servicing rights acquisitions, maturities, sales, and paydowns on existing assets.

The net increase was primarily attributable to a net increase of $511.3 million in the Agricultural Finance line of business and was partially offset by a net decrease of $258.4 million in the Rural Infrastructure Finance line of business.

Included in the $511.3 million net increase in the Agricultural Finance line of business is new servicing rights on $563.0 million of loans (i.e., loans serviced for others).

These new servicing rights were acquired to further leverage our loan servicing function.

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."

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in thousands)

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Credit Quality

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:

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 June 30, 2023, March 31, 2023, and December 31, 2022:

On-Balance Sheet Off-Balance Sheet

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(dollars in thousands)

June 30, 2023 $ 156,403 2.1 % $ 38,228 1.2 %

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 $ (16,853) (0.2) % $ 6,412 0.2 %

Increase/(decrease) from prior year-ending $ (13,264) (0.2) % $ (1,505) — %

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.

The decrease of $16.9 million in on-balance sheet substandard assets during the second quarter was primarily driven by credit upgrades in crops and was partially offset by credit downgrades in storage and processing, livestock, permanent plantings, and part-time farms.

The $6.4 million increase in substandard assets in our off-balance sheet portfolios during second quarter was primarily due to credit downgrades in permanent plantings and part-time farms and was partially offset by credit upgrades in crops and livestock.

There were no substandard assets in the Rural Infrastructure Finance portfolio as of both June 30, 2023 and December 31, 2022.

For an analysis of current loan-to-value ratios across substandard and other internally assigned risk ratings, see Table 24 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 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:

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 June 30, 2023, March 31, 2023, and December 31, 2022:

On-Balance Sheet Off-Balance Sheet

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(dollars in thousands)

June 30, 2023 $ 40,798 0.54 % $ 4,570 0.14 %

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 $ (24,803) (0.34) % $ (475) (0.02) %

Increase/(decrease) from prior year-ending $ 1,117 0.01 % $ 753 0.02 %

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.

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 March 31, 2023.

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.

On-balance sheet Agricultural Finance assets 90 or more days delinquent decreased in permanent plantings, crops, part-time farms, and livestock, and was partially offset by increases in storage and processing.

Off-balance sheet Agricultural Finance assets 90 days or more delinquent decreased in livestock and permanent plantings and was partially offset by increases in part-time farms.

As of both June 30, 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."

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

Farmer Mac's disclosure of these non-GAAP measures is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP.

Farmer Mac's disclosure of these non-GAAP

measures is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP.

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.

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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

March 31, 2023 March 31, 2022

June 30, 2023 June 30, 2022

(in thousands, except per share amounts)

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(Losses)/gains on hedging activities due to fair value changes (4,901) 428

Unrealized gains on trading securities 359 94

Unrealized losses on trading securities (57) (285)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 29 (62)

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(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 Six Months Ended

June 30, 2023 June 30, 2022

(in thousands, except per share amounts)

Net income attributable to common stockholders $ 80,665 $ 79,725

Less reconciling items:

Gains on undesignated financial derivatives due to fair value changes (see Table 13) 3,057 5,458

(Losses)/gains on hedging activities due to fair value changes (5,006) 6,115

Unrealized gains/(losses) on trading securities 302 (191)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 58 (42)

Net effects of terminations or net settlements on financial derivatives 1,106 18,048

Income tax effect related to reconciling items 102 (6,172)

Sub-total (381) 23,216

Core earnings $ 81,046 $ 56,509

Composition of Core Earnings:

Net effective spread (1)

$ 159,005 $ 118,785

Guarantee and commitment fees (2)

Total revenues 169,716 128,872

Credit related expense (GAAP):

Provision for/(release of) losses 1,892 (1,589)

Total credit related expense 1,892 (1,589)

Operating expenses (GAAP):

Compensation and employee benefits 29,288 25,013

General and administrative 16,947 14,798

Regulatory fees 1,666 1,625

Total operating expenses 47,901 41,436

Net earnings 119,923 89,025

Income tax expense (4)

25,295 18,933

Preferred stock dividends (GAAP) 13,582 13,583

Core earnings $ 81,046 $ 56,509

Core earnings per share:

Basic $ 7.49 $ 5.24

Diluted $ 7.42 $ 5.20

Weighted-average shares:

Basic 10,817 10,782

Diluted 10,917 10,876

(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 GAAP Basic Earnings Per Share to Core Earnings - Basic Earnings Per Share

For the Three Months Ended

March 31, 2023 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

(in thousands, except per share amounts)

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(Losses)/gains on hedging activities due to fair value changes (0.45) 0.04 (0.46) 0.57

Unrealized gains on trading securities 0.03 0.01

Unrealized (losses)/gains on trading securities — (0.03) 0.03 (0.02)

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

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

For the Three Months Ended

March 31, 2023 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

(in thousands, except per share amounts)

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(Losses)/gains on hedging activities due to fair value changes (0.45) 0.04 (0.46) 0.56

Unrealized gains on trading securities 0.03 0.01

Unrealized (losses)/gains on trading securities — (0.03) 0.03 (0.02)

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

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

Unrealized gains on trading securities.

Unrealized (losses)/gains on trading securities.

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

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Net Interest Income .

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

The following table provides information about interest-earning assets and funding for the six months ended ended June 30, 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 Three Months Ended

March 31, 2023 March 31, 2022

For the Six Months Ended

June 30, 2023 June 30, 2022

Balance Income/

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Net interest income/yield $ 28,000,558 $ 157,735 1.13 % $ 25,154,338 $ 129,452 1.03 %

(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.

(1) Excludes interest income of $17.1 million and $16.0 million in the first half of 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 $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.

(3) Excludes interest expense of $15.0 million and $13.8 million in the first half of 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 $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 $28.3 million year-over-year increase in net interest income was primarily due to a $29.6 million decrease in funding costs primarily due to our disciplined funding strategies and higher nominal interest rates that have led to an upward repricing of our excess capital that is held in our short-term investment portfolio, and a $12.8 million increase related to net new business volume.

These factors were partially offset by a $11.6 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives) and a $2.1 million decrease in cash-basis interest income.

In percentage terms, the 0.10% increase was primarily attributable to a decrease of 0.20% in funding costs, partially offset by a decrease of 0.08% in net fair value changes from designated financial derivatives.

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 Three Months Ended March 31, 2023

For the Six Months Ended June 30, 2023

Compared to Same Period in 2022

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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

March 31, 2023 March 31, 2022

Dollars Yield Dollars Yield

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Dollars Yield Dollars Yield Dollars Yield Dollars Yield

(dollars in thousands)

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Net effective spread $ 81,832 1.20 % $ 60,946 0.99 % $ 159,005 1.17 % $ 118,785 0.98 %

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.

The $40.2 million year-over-year increase in net effective spread in dollars was primarily due to a $31.0 million decrease in non-GAAP funding costs due to the same factors mentioned above that decreased our funding costs, and a $12.9 million increase related to net new business volume.

These factors were partially offset by a $2.1 million decrease in cash-basis interest income.

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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 month period ended March 31, 2023 and 2022:

For the Three Months Ended

March 31, 2023 March 31, 2022

The following table summarizes the components of Farmer Mac's total allowance for losses for the three and six month periods ended June 30, 2023 and 2022:

As of June 30, 2023 As of June 30, 2022

Losses Reserve

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(in thousands)

For the Three Months Ended

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

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Ending Balance $ 17,351 $ 1,705 $ 19,056 $ 13,092 $ 1,677 $ 14,769

For the Six Months Ended

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

Provision for/(release of) losses 1,620 272 1,892 (1,316) (273) (1,589)

Charge-offs — — — (84) — (84)

Ending Balance $ 17,351 $ 1,705 $ 19,056 $ 13,092 $ 1,677 $ 14,769

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 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.

During the three months ended June 30, 2023, we recorded a $1.1 million provision to the allowance for losses primarily as a result of increased loan volume in agricultural storage and processing and telecommunications.

During the six months ended June 30, 2023, we recorded a $1.9 million provision to the allowance for loan losses as a result of the above mentioned increased loan volume and a single agricultural storage and processing loan whose financial position continued to deteriorate related to the borrower's ongoing bankruptcy.

See Note 12 ("Subsequent Event") to the consolidated financial statements for more information about this loan based on events that occurred after June 30, 2023.

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 months ended March 31, 2023 and 2022:

For the Three Months Ended

March 31, 2023 March 31, 2022 $ %

For the Three Months Ended For the Six Months Ended

Change Change

June 30, 2023 June 30, 2022 $ % June 30, 2023 June 30, 2022 $ %

(dollars in thousands)

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Guarantee and commitment fee income $ 3,489 $ 3,213 $ 276 9 % $ 7,422 $ 6,908 $ 514 7 %

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.

Guarantee and commitment fees increased for the three and six months ended June 30, 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 $4.6 million and $9.2 million for the three and six months ended June 30, 2023, respectively, compared to $4.7 million and $9.3 million for the three and six months ended June 30, 2022, respectively.

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

Additionally, Farmer Mac has excluded guarantee asset fair value changes, because these fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations if Farmer Mac fulfills its guarantee obligation throughout the term of the guaranteed securities, as is expected.

Farmer Mac has also excluded guarantee asset fair value changes from the presentation of core earnings because these fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations if Farmer Mac fulfills its guarantee obligation throughout the term of the guaranteed securities, as is expected.

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 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 $ %

The components of gains and losses on financial derivatives for the three and six months ended June 30, 2023 and 2022 are summarized in the following table:

For the Three Months Ended For the Six Months Ended

Change Change

June 30, 2023 June 30, 2022 $ % June 30, 2023 June 30, 2022 $ %

(dollars in thousands)

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

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

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

Operating Expenses .

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 $ %

The components of operating expenses for the three and six months ended June 30, 2023 and 2022 are summarized in the following table:

For the Three Months Ended For the Six Months Ended

Change Change

June 30, 2023 June 30, 2022 $ % June 30, 2023 June 30, 2022 $ %

(dollars in thousands)

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Compensation and Employee Benefits .

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.

The increase in compensation and employee benefits expenses for the three and six months ended June 30, 2023 compared to the same periods in 2022 was largely due to increased headcount.

General and Administrative Expenses (G&A) .

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.

The increase in G&A expenses for the three and six months ended June 30, 2023 compared to the same periods in 2022 was primarily due to increased spending on software licenses and information technology and other consultants to support growth and strategic initiatives.

One of those initiatives is a multi-year effort to replace Farmer Mac's 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 months ended March 31, 2023 and 2022:

For the Three Months Ended

March 31, 2023 March 31, 2022 $ %

The following table presents income tax expense and the effective income tax rate for the three and six months ended June 30, 2023 and 2022:

For the Three Months Ended For the Six Months Ended

Change Change

June 30, 2023 June 30, 2022 $ % June 30, 2023 June 30, 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 months ended March 31, 2023 and 2022:

The following table sets forth the net growth or decrease in Farmer Mac's lines of business for the three and six months ended June 30, 2023 and 2022:

Net New Business Volume

For the Three Months Ended

March 31, 2023 March 31, 2022

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

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

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

(in thousands)

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(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 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's outstanding business volume was $26.7 billion as of June 30, 2023, a net increase of $0.3 billion from March 31, 2023 after taking into account all new business, servicing rights acquisitions, maturities, sales, and paydowns on existing assets.

The $0.4 billion increase in Farm & Ranch during second quarter 2023 resulted from $1.6 billion of new purchases, commitments, guarantees, and loans serviced for others, partially offset by $1.1 billion of scheduled maturities and repayments.

Included in the $1.6 billion of new volume is newly purchased servicing rights on $0.6 billion of loans (i.e., loans serviced for others).

These new servicing rights were acquired to further leverage our loan servicing function.

Loans serviced for others earn servicing fee income rather than interest income and are a component of outstanding business volume because they are assets under our management.

Farmer Mac purchased a total of $0.2 billion in Farm & Ranch loans, partially offset by $0.1 billion in repayments.

The $0.1 billion net increase was primarily driven by improved borrower economics despite the continued higher interest rate environment.

Farmer Mac also purchased a total of $0.7 billion in Farm & Ranch AgVantage Securities during second quarter 2023, which primarily reflected the refinancing of maturing securities.

The $0.7 billion in gross purchases was more than offset by $0.9 billion in scheduled maturities.

The $0.1 billion net increase in Corporate AgFinance during second quarter 2023 resulted from $0.2 billion of new purchases and commitments, which was partially offset by $0.1 billion of scheduled maturities, repayments, and sales.

Farmer Mac purchased a total of $105.3 million in loans, which was partially offset by $90.3 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.

The $0.3 billion net decrease in Rural Utilities during second quarter 2023 resulted from $0.3 billion of new purchases, commitments, and guarantees, which was more than offset by $0.6 billion of scheduled maturities and repayments.

Farmer Mac purchased a total of $150.0 million in AgVantage Securities, $80.1 million in telecommunications loans, and $55.2 million in electric distribution and generation and transmission loans.

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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

The $19.4 million net increase in Renewable Energy during second quarter 2023 primarily reflects $71.6 million in loan purchases and unfunded commitments, partially offset by $52.2 million in repayments.

Farmer Mac's outstanding business volume was $24.5 billion as of June 30, 2022, a net increase of $0.2 billion from March 31, 2022 after taking into account all new business, scheduled maturities, and paydowns on existing assets.

The $16.4 million net increase in Farm & Ranch during second quarter 2022 resulted from $1.4 billion of

new purchases, commitments, and guarantees, mostly offset by $1.4 billion of scheduled maturities and

Farmer Mac purchased a total of $432.6 million in loans, which was primarily driven by

improved borrower economics as well as a competitive, albeit an increasing, interest rate environment

resulting in demand for intermediate and long-term financing solutions.

The $432.6 million in gross Farm

& Ranch loan purchases was partially offset by $153.8 million in scheduled maturities and repayments.

Farmer Mac also purchased a total of $0.8 billion in Farm & Ranch AgVantage Securities during second

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

2 unchanged sentences

The $0.8 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

more than offset by $1.0 billion in scheduled maturities.

Approximately $0.3 billion of the total $0.8

billion in gross purchases reflected purchases that refinanced maturing AgVantage securities and were

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

The $26.6 million net increase in Corporate AgFinance during second quarter 2022 resulted from

$107.9 million of new loan purchases, which was partially offset by $81.4 million of scheduled maturities,

repayments, and sales.

Farmer Mac purchased a total of $85.4 million in loans, which was partially offset by $44.3 million in scheduled maturities, repayments, and sales.

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 supply chain production.

The $165.6 million net increase in Rural Utilities during second quarter 2022 resulted from $326.9 million

of new purchases, commitments, and guarantees, which was partially offset by $161.3 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

Farmer Mac purchased a total of $196.5 million in Rural Utilities

electric distribution and generation and transmission comprised $161.5 million and

telecommunication comprised $35.0 million, 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 $196.5 million in loan purchases was partially offset by $24.4 million in

scheduled maturities and repayments.

The $27.4 million net increase in Renewable Energy during second quarter 2022 primarily reflects

$35.3 million in loan purchases, partially offset by $7.9 million in repayments.

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

March 31, 2023 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

(dollars in thousands)

AgVantage securities $ 878,455 $ 905,796 $ 1,573,655 $ 2,847,156

Structured securitization transactions (not consolidated) — —

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

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

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

Farmer Mac concluded that it was the primary beneficiary of the trust because Farmer Mac retained significant interest and has power over the activities most significant to the economic performance of the Variable Interest Entity 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.

During the three and six months ended June 30, 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 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.

During the three and six months ended June 30, 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 March 31, 2023 As of December 31, 2022

Balance Sheet As of June 30, 2023 As of December 31, 2022

(in thousands)

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

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 March 31, 2023:

Schedule of Principal Amortization as of March 31, 2023

Schedule of Principal Amortization as of June 30, 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 $ 10,895,122 $ 3,728,259 $ 2,546,588 $ 17,169,969

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.

Of Farmer Mac's $26.7 billion outstanding principal balance of business volume as of June 30, 2023, $9.0 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 March 31, 2023:

The following table summarizes by maturity date the outstanding principal amount of both on- and off-balance sheet AgVantage securities as of June 30, 2023:

AgVantage Balances by Year of Maturity

March 31, 2023

June 30, 2023

(in thousands)

2 unchanged sentences

2025 1,066,125

2026 1,155,315

2027 1,025,698

Thereafter (1)

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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 4.4 years as of March 31, 2023.

The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.8 years as of June 30, 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 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.

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

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

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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.

Farmer Mac anticipates positive momentum in wholesale volume refinancing activity in the second half of 2023, with most of the AgVantage Securities scheduled to mature in the second half of 2023 expected to be successfully refinanced through the purchase of new AgVantage Securities.

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.

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

• Farmer Mac's growing relationships with larger regional and national lenders, as well as consolidation within the agricultural and rural infrastructure 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.

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• 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.

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.

The higher interest rate environment continued to create volatility in bank liquidity in second quarter 2023 in response to bank failures in first quarter 2023, which included the first commercial bank failures since 2020 and the largest bank failure since 2009.

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 some commercial banks.

Some economic disruptions could actually positively affect Farmer Mac's funding costs relative to the market because, historically, major economic events have tended to cause investors to seek high-quality fixed income investments like Farmer Mac's debt securities.

Because Farmer Mac's funding strategies are not depository in nature, Farmer Mac is generally able 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.

economy continued to exhibit signs of slowing in second 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.

economy in 2023 and 2024.

And while labor markets continue to remain resilient, slower consumer spending, declines in residential housing investment, and the continued tightening of credit conditions following bank industry stress indicate that the probability of a U.S.

or global recession remains elevated.

Farmer Mac believes that its portfolio is sufficiently balanced to withstand the market volatility that arises with an economic recession, as the agricultural, food, and infrastructure industries tend not to be directly correlated with the general economy.

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.

The recent rise in short-term rates has provided an asymmetric benefit to Farmer Mac's earnings, and Farmer Mac projects limited downside to earnings when rates decline due to its proactive equity capital allocation strategies.

This is due to our fundamental asset liability management approach, where Farmer Mac match funds the duration and convexity of our assets and liabilities in all rate environments, which enables Farmer Mac to minimize earnings volatility in periods of short-term interest rate volatility.

In addition to active fundamental asset liability management that enables Farmer Mac to mitigate earnings volatility in periods of short-term interest rate volatility, Farmer Mac's business has certain natural business hedges that help to insulate it from interest rate volatility.

This is a key differentiator for Farmer Mac relative to other financial services entities.

For example, when interest rates rise, prepayments also tend to decline - but interest earned on excess cash and capital would likely increase and Farmer Mac would continue to have strong market access, as Farmer Mac does not rely on deposits as a source of funding.

Conversely, when interest rates decline, loan purchase volume often increases but prepayments also tend to increase, and interest earned on our liquidity portfolio usually ebbs.

Farmer Mac is able to manage its interest rate risk through exercising callable issuances and maintaining its spreads.

Although these natural business dynamics are not perfect offsets, they do counterbalance to mitigate volatility from changes in short-term interest rates.

Operating Expense .

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Agricultural Industry .

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

The agricultural economy experienced somewhat favorable conditions in second quarter 2023, with mixed commodity prices and continued easing in 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.

Farm expense price levels fell again in second 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 and into 2024.

Grain commodity prices moderated again in second quarter 2023 due to stabilizing supply expectations, though uncertainty in Ukraine could increase price volatility in the second half of 2023 and into 2024.

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

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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.

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

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

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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 12% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) between January 2022 and January 2023.

The Federal Reserve Bank of Chicago AgLetter reported a 10% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) between April 2022 and April 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.

Farmland value growth rates moderated in first quarter 2023 in the face of rapidly rising interest rates.

Growth rates in land values could remain low in 2023 and into 2024 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 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.

Economic conditions are likely to bring mixed effects to credit demand during the second half of 2023.

Strong asset appreciation in recent years 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.

However, the elevated interest rate environment could adversely impact mortgage portfolio growth, 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 2023.

Combined, these factors are expected to be generally supportive of continued net portfolio growth for Farmer Mac during the second half of 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's 90-day delinquency levels decreased slightly in second quarter 2023 relative to first quarter 2023.

The overall delinquency rate decreased from 0.66% of the Agricultural Finance line of business as of March 31, 2023 to 0.42% of the Agricultural Finance line of business as of June 30, 2023.

The second quarter 2023 percentage is higher than the 0.20% delinquency rate as of June 30, 2022.

The year-over-year increase in the seriously delinquent rate was caused by a small number of larger exposures experiencing idiosyncratic business disruptions.

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

See Note 12 - ("Subsequent Event") to the consolidated financial statements for more information about one of these delinquent loans based on events that occurred after June 30, 2023.

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.

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 March 31, 2023, 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 June 30, 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.

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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 USDA's estimate for fiscal year 2023 is a small decrease in export value over 2022.

Through May 2023, agricultural export values were down approximately 8% 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.

dollar relative to other major currencies fell 2% in second quarter 2023, which may help support farm, food, fiber, and fuel exports through the second 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.

Because Farmer Mac has significant exposure to crop commodities like corn, soybeans, hay, wheat, and cotton, a sustained rally in agricultural commodities is likely to continue to benefit Farmer Mac's overall portfolio credit quality more than degradation from downward pressure on livestock and consumer product profitability.

Because Farmer Mac has significant exposure to crop commodities like corn, soybeans, hay, wheat, and cotton, any increase in agricultural commodity prices is likely to benefit Farmer Mac's overall portfolio credit quality more than degradation from downward pressure on livestock and consumer product profitability.

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

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.

Many of those events affected agriculture, including midwestern storms, western wildfires, excessive heat, 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 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 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.

Long and persistent heat and 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 2023, particularly in California.

Only 3% of the continental U.S.

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

Much of the U.S.

that experienced high drought conditions in second quarter 2023 is in the Central Plains.

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.

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.

Farmer Mac has limited portfolio exposure in affected areas, but California flooding could remain a disruptor for western agricultural production in 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 1.4% and 14.9%, respectively, in the last 12 months through February 2023 compared to February 2022.

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 April 2023 compared to April 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.

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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 throughout 2022.

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.

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

Through June 30, 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.

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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 that incentivizes domestic production in clean energy technologies such as solar and wind.

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 legislation, 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.

Under this initiative, Farmer Mac's total outstanding loans and loan commitments of renewable energy financing transactions was $327.9 million as of June 30, 2023.

Legislative and Regulatory Outlook .

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• 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.

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

• In January 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.

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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.

In the FCA's proposed 2023 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.

Senate confirmed Vincent Logan to be a member of the FCA board.

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

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

• Two of the three members of the FCA 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.

In addition to potential changes at the board level, the FCA appointed Thomas R.

Fay as the new director of the Office of Secondary Market Oversight (OSMO) in July 2023.

OSMO is the office at FCA responsible for the examination, regulation, and supervision of the activities of Farmer Mac.

Balance Sheet Review

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

March 31, 2023 December 31, 2022 $ %

June 30, 2023 December 31, 2022 $ %

(in thousands)

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Total liabilities and equity $ 27,659,565 $ 27,333,110 $ 326,455 1 %

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.

The increase in total assets was primarily attributable to new loan volume, including those held in consolidated trusts, 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, 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.

The increase in total equity was primarily due to an increase in retained earnings and an increase in accumulated other comprehensive income.

Risk Management

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Agricultural Finance - Direct Credit Exposure

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's direct credit exposure to Agricultural Finance mortgage loans as of June 30, 2023 was $10.8 billion across 48 states.

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

For Corporate AgFinance loans, which are often larger loan exposures to agriculture production and agribusinesses that support agriculture production, food and fiber processing, and other supply chain production, and which may have risk profiles that differ from smaller agricultural mortgage loans, Farmer Mac has implemented methodologies and parameters that help assess credit risk based on the appropriate sector, borrower construct, and transaction complexity.

For more information about Farmer Mac's underwriting and collateral valuation standards for Agricultural Finance mortgage loans, see "Business—Farmer Mac's Lines of Business—Agricultural Finance—Underwriting and Collateral Standards—Farm & Ranch" and "Business—Farmer Mac's Lines of Business—Agricultural Finance—Underwriting and Collateral Standards—Corporate AgFinance" in Farmer Mac's 2022 Annual Report.

For more information about Farmer Mac's underwriting and collateral valuation standards for

Agricultural Finance mortgage loans, see "Business—Farmer Mac's Lines of Business—Agricultural Finance—Underwriting and Collateral Standards—Farm & Ranch" and "Business—Farmer Mac's Lines of Business—Agricultural Finance—Underwriting and Collateral Standards—Corporate AgFinance" in Farmer Mac's 2022 Annual Report.

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 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.

For Agricultural Finance mortgage loans to which Farmer Mac has direct credit exposure, Farmer Mac's 90-day delinquencies as of June 30, 2023, were $45.4 million (0.42% of the Agricultural Finance mortgage loan portfolio to which Farmer Mac has direct credit exposure), compared to $70.6 million (0.66% of the Agricultural Finance mortgage loan portfolio) as of March 31, 2023 and $43.5 million (0.41% of the Agricultural Finance mortgage loan portfolio) as of December 31, 2022.

Those 90-day delinquencies consisted of 42 delinquent loans as of June 30, 2023, compared to 51 delinquent loans as of March 31, 2023 and 37 delinquent loans as of December 31, 2022.

The decrease in 90-day delinquencies was primarily driven by decreased delinquencies in permanent plantings, crops, livestock, and part-time farms and was partially offset by increased delinquencies in storage and processing.

The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of June 30, 2023.

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

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 90-day delinquency rate as of June 30, 2023 was below Farmer Mac's historical average.

In the near-term, our delinquency rate may exceed our historical average due to changes in the agricultural or general economy or unforeseen and idiosyncratic events like adverse weather events.

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)

June 30, 2023 $ 10,826,201 $ 45,368 0.42 %

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

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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

Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.17% of total outstanding business volume as of June 30, 2023, compared to 0.17% as of December 31, 2022 and 0.08% as of June 30, 2022.

The following table presents outstanding Agricultural Finance mortgage loans and 90-day delinquencies as of June 30, 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 June 30, 2023

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

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

As of 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.

As of June 30, 2023, Farmer Mac's Agricultural Finance mortgage loans (to which it has direct credit exposure) comprising substandard assets were $194.6 million (1.8% of the portfolio), compared to $205.1 million (1.9% of the portfolio) as of March 31, 2023, and $209.4 million (2.0% of the portfolio) as of December 31, 2022.

Those substandard assets comprised 239 loans as of June 30, 2023, 241 loans as of March 31, 2023, and 243 loans as of December 31, 2022.

The decrease of $10.5 million in substandard assets during second quarter 2023 was primarily driven by credit upgrades in our on-balance sheet portfolios.

Substandard assets decreased as a percentage of our on-balance sheet portfolio and increased as a percentage of our off-balance sheet portfolio during second quarter 2023.

The percentage of substandard assets within the portfolio as of June 30, 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 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.

As of June 30, 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 $800,000 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 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 weighted-average original loan-to-value ratio for Agricultural Finance mortgage loans purchased during second quarter 2023 was 51%, compared to 43% for loans purchased during second quarter 2022.

The weighted-average original loan-to-value ratio for all 90-day delinquencies was 37% and 46% as of June 30, 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 March 31, 2023

Agricultural Finance Mortgage Loans current loan-to-value ratio by internally assigned risk rating as of June 30, 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 March 31, 2023 by year of origination, geographic region, and commodity/collateral type.

The following table presents Farmer Mac's cumulative net credit losses relative to the cumulative original balance for all Agricultural Finance mortgage loans as of June 30, 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 March 31, 2023

Original Loans, Guarantees, and LTSPCs as of June 30, 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 March 31, 2023

As of June 30, 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 March 31, 2023

As of June 30, 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 March 31, 2023 was $3.7 billion across 45 states.

Farmer Mac's direct credit exposure to Rural Infrastructure Finance loans held and loans underlying LTSPCs as of June 30, 2023 was $3.8 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 March 31, 2023, there were no delinquencies in Farmer Mac's portfolio of Rural Infrastructure Finance loans.

As of June 30, 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 March 31, 2023

Rural Infrastructure Finance portfolio by internally assigned risk rating as of June 30, 2023

Acceptable Special Mention Substandard Total

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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 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.

As of June 30, 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.

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

During the previous three years ended 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.

During the previous three years ended June 30, 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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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 March 31, 2023, Farmer Mac had not exercised any remedies or taken any formal action against any servicers.

During the previous three years ended June 30, 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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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 March 31, 2023, Farmer Mac had not experienced any credit losses on any AgVantage securities.

As of June 30, 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 $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

The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Agricultural Finance line of business totaled $5.8 billion as of June 30, 2023 and $6.0 billion as of 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 $3.1 billion as of June 30, 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 June 30, 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 June 30, 2023 and December 31, 2022:

As of June 30, 2023 As of December 31, 2022

Counterparty Balance Required Collateralization Balance Required Collateralization

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Total outstanding $ 8,970,735 $ 9,009,925

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

(1) Consists of AgVantage securities issued by 10 and 12 different issuers as of June 30, 2023 and December 31, 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 March 31, 2023, Farmer Mac had $0.9 billion of cash and cash equivalents and $4.7 billion of investment securities.

As of June 30, 2023, Farmer Mac had $0.9 billion of cash and cash equivalents and $4.8 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.

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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 ($137.0 million as of March 31, 2023).

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).

However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($70.0 million as of June 30, 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 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 $0.9 billion of cash and cash equivalents held as of June 30, 2023 mature within three months.

As of June 30, 2023, $3.1 billion of the $4.8 billion of investment securities (66%) 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 March 31, 2023 and December 31, 2022 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 June 30, 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 As of March 31, 2023 As of December 31, 2022

Interest Rate Scenario As of June 30, 2023 As of December 31, 2022

+100 basis points (3.9) % (3.7) %

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Percentage Change in NES from Base Case

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

Interest Rate Scenario As of June 30, 2023 As of December 31, 2022

+100 basis points (0.8) % 0.4 %

-100 basis points 0.4 % (0.6) %

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 shortening the duration of Farmer Mac's funded assets compared to its debt and financial derivatives, thereby narrowing Farmer Mac's duration gap.

As of June 30, 2023, Farmer Mac's duration gap was positive 3.4 months, compared to positive 3.6 months as of December 31, 2022.

Interest rates within the yield curve flattened during the first half of 2023, as the 2-year U.S.

Treasury Note yield-to-maturity increased by approximately 47 basis points and the 10-year U.S.

Treasury Note yield-to-maturity decreased by approximately 4 basis points versus year-end 2022.

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

Financial Derivatives Transactions

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Treasury securities.

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.

As of June 30, 2023, Farmer Mac had $25.3 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to just over thirty years, of which $9.5 billion were pay-fixed interest rate swaps, $14.4 billion were receive-fixed interest rate swaps, and $1.5 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.

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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 SOFR).

Also, certain financial derivatives are designated as cash flow hedges to mitigate the volatility of future interest rate payments on floating rate debt.

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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 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

As of both June 30, 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 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.

As of June 30, 2023, Farmer Mac held $7.1 billion of floating rate assets in its lines of business and its investment portfolio that reset based on floating rate market indices, such as SOFR.

As of the same date, Farmer Mac also had $9.5 billion of interest rate swaps outstanding where Farmer Mac pays a fixed rate of interest and receives a floating rate of interest, primarily SOFR.

Discontinuation of LIBOR

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 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 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.

Farmer Mac does not foresee a material impact on our business due to the 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 June 30, 2023, Farmer Mac held $2.3 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 $8.3 billion notional amount of interest rate swaps, each of which previously reset based on LIBOR.

Our Non-Cumulative Series C Preferred Stock currently pays a fixed rate of interest until July 17, 2024 and thereafter pays interest at a floating rate equal to three-month LIBOR plus 3.260% if we do not redeem it.

As discussed above, some of Farmer Mac’s assets, liabilities, and equity were indexed to LIBOR with exposure extending past June 30, 2023.

The publication of LIBOR on a representative basis ceased for one-week and two-month LIBOR as of January 1, 2022, and the remaining LIBOR tenors ceased immediately after June 30, 2023.

During the period, Farmer Mac had LIBOR exposure related to assets, liabilities, and equity with interest rates indexed to LIBOR.

As of June 30, 2023, Farmer Mac has transitioned all outstanding LIBOR exposure to convert to reference rate SOFR beginning July 3, 2023 or at the start of the next reset period.

Therefore, we have no further variable LIBOR exposure at June 30, 2023.

Liquidity and Capital Resources

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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 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.

As of June 30, 2023, Farmer Mac had outstanding discount notes of $1.0 billion, medium-term notes that mature within one year of $7.4 billion, and medium-term notes that mature after one year of $16.7 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.

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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.

In accordance with the methodology for calculating available days of liquidity under those regulations, Farmer Mac maintained a monthly average of 307 days of liquidity throughout second quarter 2023 and had 307 days of liquidity as of June 30, 2023.

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

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• mortgage-backed securities.

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

The following table presents these assets as of June 30, 2023 and December 31, 2022:

As of June 30, 2023 As of December 31, 2022

(in thousands)

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Total $ 5,641,679 $ 5,485,598

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.

The objectives of the investment portfolio as of June 30, 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 March 31, 2023, Farmer Mac was in compliance with its statutory capital requirements and was classified as within "level 1" (the highest compliance level).

As of June 30, 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 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.

As of June 30, 2023 and 2022, Farmer Mac's Tier 1 capital ratio was 15.9% and 14.7%, respectively.

As of June 30, 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.

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For the quarter ended:

June 30, 2023 $ 1,574,169 $ 218,136 $ 294,292 $ 71,611 $ 2,158,208

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

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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 96,507 55,976 13,138 — 165,621

June 30, 2023 $ 1,146,987 $ 137,362 $ 572,082 $ 52,203 $ 1,908,634

Scheduled $ 279,676 $ 78,482 $ 95,809 $ 11,424 $ 465,391

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

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

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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)

June 30, 2023 $ 18,116,503 $ 1,680,756 $ 6,611,892 $ 327,901 $ 26,737,052

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

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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)

June 30, 2023 $ 13,721,129 $ 3,003,560 $ 5,493,104 $ 22,217,793

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

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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:

March 31, 2023 (2)

June 30, 2023 (2)

$ 34,388 1.03 % $ 7,444 1.92 % $ 5,808 0.38 % $ 1,100 1.47 % $ 32,498 0.48 % $ 594 0.04 % $ 81,832 1.20 %

March 31, 2023 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 %

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June 30, 2022 (2)

March 31, 2022 (2)

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 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 %

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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 March 31, 2023 and 2022.

(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 June 30, 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

June 2023 March 2023 December 2022 September 2022 June

2022 March 2022 December 2021 September 2021 June 2021

2022 March 2022 December 2021 September 2021 June 2021 March 2021

(in thousands)

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REO operating expenses — — 819 — — — — — —

Losses on sale of REO — — — — — — — — —

Total credit related expense/(income) 1,142 750 2,764 450 (1,535) (54) (1,428) 255 (983)

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(Losses)/gains on hedging activities due to fair value changes (4,901) (105) (148) (624) 428 5,687 (2,079) 1,818 (5,866)

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

Unrealized (losses)/gains on trading assets (57) 359 31 (757) (285) 94 (76) 36 (61)

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

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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