What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-07 · 355 added, 325 removed, 1087 unchanged (38% of the section changed)

2 unchanged sentences

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

of operations for the quarter ended June 30, 2023.

of operations for the quarter ended September 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 second quarter 2023:

During third quarter 2023:

• we continued to increase net income and core earnings;

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

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

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

• we provided $2.3 billion in liquidity and lending capacity to lenders serving rural America.

• 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 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;

Farmer Mac’s performance during third 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 such as inflation, failures and liquidity concerns in the banking industry, rising interest rates, and geopolitical conflicts, Farmer Mac continued to deliver solid financial results.

These financial results for third 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 in 2021 and 2022;

• 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.

• our disciplined approach to interest rate risk management that helps to protect earnings from the effects of interest rate volatility and has been accretive to Farmer Mac during periods of rising interest rates;

• effective capital strategies that resulted in advantageous funding in a 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

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

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

(in thousands)

1 unchanged sentence

Core earnings 45,188 42,162 33,392

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.

The $10.9 million sequential increase in net income attributable to common stockholders was due to a $7.1 million after-tax increase in net interest income, a $1.6 million after-tax increase in guarantee fees, a $1.0 million after-tax decrease in our provision for credit losses, and a $0.8 million after-tax increase in the fair value of undesignated financial derivatives.

The $16.7 million year-over-year increase in net income attributable to common stockholders was due to a $15.6 million after-tax increase in net interest income, a $2.3 million after-tax increase in guarantee fees, a $1.5 million after-tax increase in the fair value of undesignated financial derivatives, and a $0.5 million after-tax decrease in our provision for credit losses.

These factors were partially offset by a $3.7 million after-tax increase in operating expenses.

The $3.0 million sequential increase in core earnings was due to a $1.3 million after-tax increase in net effective spread and a $1.0 million after-tax decrease in our provision for credit losses.

The $11.8 million year-over-year increase in core earnings was due to a $14.0 million after-tax increase in net effective spread and a $0.5 million after-tax decrease in our provision for credit losses, partially offset by a $3.7 million after-tax increase in operating expenses.

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

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For the Three Months Ended

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

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

(in thousands)

3 unchanged sentences

Net effective spread % 1.20 % 1.20 % 1.03 %

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.

The $9.0 million sequential increase in net interest income was primarily due to a $8.1 million increase in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives), and an increase of $0.8 million related to net new business volume.

In percentage terms, the sequential 0.10% increase was primarily attributable to the increase in net fair value changes from designated financial derivatives.

The $19.8 million year-over-year increase in net interest income was primarily due to a $10.7 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, a $4.3 million increase related to net new business volume, and a $3.8 million increase in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives).

In percentage terms, the 0.18% increase was primarily attributable to a decrease of 0.14% in funding costs and an increase of 0.05% in net fair value changes from designated financial derivatives.

The $1.6 million sequential increase in net effective spread was primarily due to a decrease of $1.2 million in non-GAAP funding costs due to the same factors mentioned above that decreased our funding costs.

In percentage terms, net effective spread remained relatively constant.

The $17.8 million year-over-year increase in net effective spread was primarily due to a $14.8 million decrease in non-GAAP funding costs, due to the same factors mentioned above that decreased our funding costs, and a $3.5 million increase related to net new business volume.

In percentage terms, the year-over-year increase of 0.17% was primarily attributable to a decrease in non-GAAP funding costs.

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Business Volume

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.

Our outstanding business volume was $27.7 billion as of September 30, 2023, a net increase of $0.9 billion from June 30, 2023 after taking into account all new business, maturities, and paydowns on existing assets.

The net increase was primarily attributable to a net increase of $509.1 million in the Rural Infrastructure Finance line of business and a net increase of $405.9 million in the Agricultural Finance line of business.

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

June 30, 2023 December 31, 2022

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

On-Balance Sheet Off-Balance Sheet

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(dollars in thousands)

September 30, 2023 $ 149,989 2.0 % $ 30,171 0.9 %

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 %

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Increase/(decrease) from prior year-ending $ (19,678) (0.3) % $ (9,562) (0.3) %

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.

The decrease of $6.4 million in on-balance sheet substandard assets during the third quarter was primarily driven by the full payoff of a substandard agricultural storage and processing loan.

The $8.1 million decrease in substandard assets in our off-balance sheet portfolios during third quarter was primarily due to credit upgrades in livestock, permanent plantings, crops, and part-time farms.

There was one substandard asset with an outstanding balance of $29.5 million in the Rural Infrastructure Finance portfolio as of September 30, 2023, and there were no substandard assets as of 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 June 30, 2023, 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 September 30, 2023, June 30, 2023, and December 31, 2022:

On-Balance Sheet Off-Balance Sheet

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(dollars in thousands)

September 30, 2023 $ 39,602 0.52 % $ 2,840 0.08 %

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 %

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Increase/(decrease) from prior year-ending $ (79) (0.01) % $ (977) (0.04) %

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.

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 June 30, 2023.

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.

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

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

As of both September 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

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(1) the net effects of cash settlements on agency forward contracts on the debt of other GSEs and U.S.

Treasury security futures that we use as short-term economic hedges on the issuance of debt;

Treasury security futures

that we use as short-term economic hedges on the issuance of debt;

and (2) the net effects of initial cash payments that Farmer Mac receives upon the inception of certain swaps.

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For the Three Months Ended

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

(in thousands, except per share amounts)

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Gains on undesignated financial derivatives due to fair value changes (see Table 13) 2,921 6,441

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

Unrealized losses on trading securities (57) (285)

Gains/(losses) on hedging activities due to fair value changes

Unrealized gains/(losses) on trading securities

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 29 24

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Credit related expense (GAAP):

Provision for/(release of) losses 1,142 (1,535)

(Release of)/provision for losses

Total credit related expense (181) 450

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Income tax expense (4)

13,475 10,303

Preferred stock dividends (GAAP) 6,792 6,791

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Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings

For the Six Months Ended

June 30, 2023 June 30, 2022

For the Nine Months Ended

September 30, 2023 September 30, 2022

(in thousands, except per share amounts)

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Guarantee and commitment fees (2)

14,063 13,467

Total revenues 259,024 199,187

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(in thousands, except per share amounts)

2 unchanged sentences

Gains on undesignated financial derivatives due to fair value changes (see Table 13) 0.27 0.60 0.55 1.10

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

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

Gains/(losses) on hedging activities due to fair value changes

0.30 (0.06) (0.17) 0.51

Unrealized gains/(losses) on trading securities

0.16 (0.07) 0.19 (0.09)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value — — 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 For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(in thousands, except per share amounts)

2 unchanged sentences

Gains on undesignated financial derivatives due to fair value changes (see Table 13) 0.27 0.59 0.54 1.09

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

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

Gains/(losses) on hedging activities due to fair value changes

0.29 (0.06) (0.16) 0.50

Unrealized gains/(losses) on trading securities

0.16 (0.07) 0.18 (0.09)

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

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

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.

Unrealized gains/(losses) on trading securities.

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

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

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Net Interest Income .

The following table provides information about interest-earning assets and funding for the six months ended ended June 30, 2023 and 2022.

The following table provides information about interest-earning assets and funding for the three and nine months ended September 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.

Therefore, as the average balance of non-accruing loans and the income received increases or decreases, the net interest income and yield will fluctuate accordingly.

The average balance of loans in consolidated trusts with beneficial interests owned by third parties is disclosed in the net effect of consolidated trusts and is not included in the average balances of interest-earning assets and interest-bearing liabilities.

The average balance of loans in consolidated trusts with beneficial interests owned by third parties and for which Farmer Mac guarantees all classes of securities issued is disclosed in the net effect of consolidated trusts and is not included in the average balances of interest-earning assets and interest-bearing liabilities.

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

For the Six Months Ended

June 30, 2023 June 30, 2022

For the Three Months Ended

September 30, 2023 September 30, 2022

Balance Income/

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Net interest income/yield $ 28,696,106 $ 87,643 1.22 % $ 26,222,639 $ 67,853 1.04 %

(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.

(1) Excludes interest income of $8.5 million and $7.7 million in the third quarter 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 $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.

(3) Excludes interest expense of $7.5 million and $6.8 million in the third quarter 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.

For the Nine Months Ended

September 30, 2023 September 30, 2022

Balance Income/

Expense Average

Balance Income/

Expense Average

(dollars in thousands)

Interest-earning assets:

Cash and investments $ 5,833,829 $ 209,429 4.79 % $ 5,114,900 $ 38,497 1.00 %

Loans, Farmer Mac Guaranteed Securities and USDA Securities (1)

21,518,428 805,922 4.99 % 19,543,316 386,968 2.64 %

Total interest-earning assets 27,352,257 1,015,351 4.95 % 24,658,216 425,465 2.30 %

Notes payable due within one year 3,463,479 115,557 4.45 % 2,741,738 21,630 1.05 %

Notes payable due after one year (2)

22,242,225 657,538 3.94 % 20,735,954 209,573 1.35 %

Total interest-bearing liabilities (3)

25,705,704 773,095 4.01 % 23,477,692 231,203 1.31 %

Net non-interest-bearing funding 1,646,553 — 1,180,524 —

Total funding 27,352,257 773,095 3.77 % 24,658,216 231,203 1.25 %

Net interest income/yield prior to consolidation of certain trusts 27,352,257 242,256 1.18 % 24,658,216 194,262 1.05 %

Net effect of consolidated trusts (4)

880,150 3,122 0.47 % 852,223 3,043 0.48 %

Net interest income/yield $ 28,232,407 $ 245,378 1.16 % $ 25,510,439 $ 197,305 1.03 %

(1) Excludes interest income of $25.6 million and $23.7 million in the first nine months 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 $22.4 million and $20.6 million in the first nine months 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 $48.1 million year-over-year increase in net interest income was primarily due to a $40.3 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 $17.0 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.

These factors were partially offset by a $7.7 million decrease in the fair value of derivatives designated in fair value hedge accounting

relationships (designated financial derivatives) and a $1.1 million decrease in cash-basis interest income.

In percentage terms, the 0.13% increase was primarily attributable to a decrease of 0.18% in funding costs, partially offset by a decrease of 0.04% in net fair value changes from designated financial derivatives.

1 unchanged sentence

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 Six Months Ended June 30, 2023

Compared to Same Period in 2022

For the Nine Months Ended September 30, 2023 Compared to Same Period in 2022

Increase/(Decrease) Due to

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Dollars Yield Dollars Yield Dollars Yield Dollars Yield

7 unchanged sentences

Net effective spread $ 83,424 1.20 % $ 65,641 1.03 % $ 242,429 1.18 % $ 184,426 1.00 %

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.

The $58.0 million year-over-year increase in net effective spread was primarily due to a $45.8 million decrease in non-GAAP funding costs due to the same factors mentioned above that decreased our funding costs, and a $16.4 million increase related to net new business volume.

These factors were partially offset by a $1.1 million decrease in cash-basis interest income.

3 unchanged sentences

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

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

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

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

As of September 30, 2023 As of September 30, 2022

Losses Reserve

6 unchanged sentences

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

Provision for/(release of) losses 1,073 69 1,142 (1,372) (163) (1,535)

(Release of)/provision for losses

(136) (45) (181) 617 (167) 450

Charge-offs — — — — — —

Ending Balance $ 17,215 $ 1,660 $ 18,875 $ 13,709 $ 1,510 $ 15,219

For the Six Months Ended

For the Nine Months Ended

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

3 unchanged sentences

See Notes 5 and 6 to the consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."

During the three months ended 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.

During the three months ended September 30, 2023, we recorded a $0.2 million release from the allowance for losses primarily as a result of a single collateral dependent agricultural storage and processing loan that fully paid off during the quarter, partially offset by one rural infrastructure loan that was downgraded to substandard during the quarter.

During the nine months ended September 30, 2023, we recorded a $1.7 million provision to the allowance for loan losses as a result of the above-mentioned rural infrastructure loan.

Guarantee and Commitment Fees .

The following table presents guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs, for the three and six months ended June 30, 2023 and 2022:

For the Three Months Ended For the Six Months Ended

For the Three Months Ended For the Nine Months Ended

Change Change

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

September 30, 2023 September 30, 2022 $ % September 30, 2023 September 30, 2022 $ %

(dollars in thousands)

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Guarantee and commitment fee income $ 5,520 $ 2,644 $ 2,876 109 % $ 12,942 $ 9,551 $ 3,391 36 %

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.

Guarantee and commitment fees increased for the three and nine months ended September 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 $4.8 million and $14.1 million for the three and nine months ended September 30, 2023, respectively, compared to $4.2 million and $13.5 million for the three and nine months ended September 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.

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Gains on financial derivatives .

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

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

For the Three Months Ended For the Nine Months Ended

Change Change

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

September 30, 2023 September 30, 2022 $ % September 30, 2023 September 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 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/(losses) due to terminations or net settlements" in the table above.

Operating Expenses .

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

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

For the Three Months Ended For the Nine Months Ended

Change Change

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

September 30, 2023 September 30, 2022 $ % September 30, 2023 September 30, 2022 $ %

(dollars in thousands)

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Compensation and Employee Benefits .

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.

The increase in compensation and employee benefits expenses for the three and nine months ended September 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 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.

The increase in G&A expenses for the three and nine months ended September 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 and six months ended June 30, 2023 and 2022:

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

Change Change

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

September 30, 2023 September 30, 2022 $ % September 30, 2023 September 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 and six months ended June 30, 2023 and 2022:

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

Net New Business Volume

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

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

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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 $26.7 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's outstanding business volume was $27.7 billion as of September 30, 2023, a net increase of $0.9 billion from June 30, 2023 after taking into account all new business, maturities, and paydowns on existing assets.

The $0.3 billion net increase in Farm & Ranch during third quarter 2023 resulted from $1.4 billion of new purchases, commitments, and guarantees, partially offset by $1.0 billion of scheduled maturities and repayments.

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.

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

Farmer Mac also purchased a total of $1.0 billion in Farm & Ranch AgVantage Securities during third quarter 2023, which primarily reflected the refinancing of maturing securities.

The $1.0 billion in gross purchases was partially offset by $0.8 billion in scheduled maturities.

The $0.1 billion net increase in Corporate AgFinance during third quarter 2023 resulted from $0.3 billion of new purchases and commitments, which was partially offset by $0.2 billion of scheduled maturities and repayments.

Farmer Mac purchased a total of $195.6 million in loans, which was partially offset by $159.7 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 $0.3 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.

The $0.5 billion net increase in Rural Utilities during third quarter 2023 resulted from $0.6 billion of new purchases, commitments, and guarantees, which was partially offset by $0.1 billion of scheduled maturities and repayments.

Farmer Mac purchased a total of $500.0 million in AgVantage Securities, $43.5 million in telecommunications loans, and $47.0 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 $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

The $2.7 million net increase in Renewable Energy during third quarter 2023 primarily reflects $17.4 million in loan purchases and unfunded commitments, partially offset by $14.7 million in repayments.

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

The $607.3 million net increase in Farm & Ranch during third quarter 2022 resulted from $1.9 billion of

new purchases, commitments, and guarantees, mostly offset by $1.3 billion of scheduled maturities and

Farmer Mac purchased a total of $303.9 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

improved borrower economics albeit navigating a substantially higher interest rate environment.

$303.9 million in gross Farm & Ranch loan purchases was partially offset by $166.8 million in scheduled

maturities and repayments.

Farmer Mac also purchased a total of $1.0 billion in Farm & Ranch AgVantage Securities during third

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

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The $1.0 billion in gross purchases was

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

partially offset by $0.7 billion in scheduled maturities.

The $67.5 million net increase in Corporate AgFinance during third quarter 2022 resulted from

$169.9 million of new purchases and commitments, which was offset by $102.5 million of scheduled

maturities and repayments.

Farmer Mac purchased a total of $136.0 million in loans, which was offset by

$84.6 million in scheduled maturities and repayments.

This net increase in loans was primarily due to

Farmer Mac's continued focus to support loans to larger and more complex agribusinesses focused on food

and fiber processing, and other food supply chain production.

The $124.2 million net increase in Rural Utilities during third quarter 2022 resulted from $547.1 million

of new purchases, commitments, and guarantees, which was partially offset by $422.9 million of

scheduled maturities and repayments.

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

Farmer Mac purchased a total of $400.0 million in AgVantage

Securities, $75.8 million in telecommunications loans and $60.0 million in electric distribution and

generation and transmission loans.

The $135.8 million in loan purchases was partially offset by $68.1

million in scheduled maturities and repayments.

The $48.2 million net increase in Renewable Energy during third quarter 2022 primarily reflects

$61.7 million in loan purchases, partially offset by $13.4 million in repayments.

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(dollars in thousands)

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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 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.

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.

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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 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.

During the three and nine months ended September 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 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.

During the three and nine months ended September 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 June 30, 2023 As of December 31, 2022

Balance Sheet As of September 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 June 30, 2023:

Schedule of Principal Amortization as of June 30, 2023

Schedule of Principal Amortization as of September 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 $ 10,977,162 $ 3,867,746 $ 2,531,699 $ 17,376,607

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.

Of Farmer Mac's $27.7 billion outstanding principal balance of business volume as of September 30, 2023, $9.7 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 June 30, 2023:

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

AgVantage Balances by Year of Maturity

June 30, 2023

September 30, 2023

(in thousands)

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

The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.8 years as of June 30, 2023.

The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.4 years as of September 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 second quarter 2023 continued to be 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 third 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:

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

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 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.

• 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 and wholesale funding 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 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.

• Resilient access to debt capital markets as investors seek government and agency issuances.

In third quarter 2023, elevated interest rates continued to cause fluctuations in bank liquidity due to deposit withdrawals.

Farmer Mac, not being a depository institution, is insulated from similar liquidity concerns.

In fact, certain economic disruptions could potentially have a positive impact on Farmer Mac’s funding costs relative to the market.

Historically, significant economic events have often led investors to seek high-quality fixed income investments, such as Farmer Mac’s debt securities.

As Farmer Mac’s funding strategies do not rely on deposits, it is generally capable of extending funding beyond short-term disruptions, thereby circumventing many potential liquidity concerns.

This funding advantage could present Farmer Mac with increased opportunities in a competitive lending environment.

economy continued to exhibit signs of growing volatility in third 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 2024.

economy in the remainder of 2023 and into 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.

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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.

This is due to our fundamental asset liability management approach, where Farmer Mac matches 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.

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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.

Conversely, when interest rates decline, loan purchase volume often increases but prepayments also tend to increase.

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

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

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Farmer Mac continues to expand its investments in human capital, technology, and business infrastructure to increase capacity and efficiency as it seeks to accommodate its growth opportunities and achieve its long-term strategic objectives.

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

Farmer Mac expects continued increases in its operating expenses over the next several years.

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

Agricultural Industry .

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.

The agricultural economy experienced somewhat favorable conditions in third 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 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.

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

Farm expense price levels partially stabilized in third quarter 2023, after falling for several consecutive quarters.

While many expense categories have dropped significantly from their 2022 peak levels, several other categories such as interest, labor, and other inputs remain elevated and could experience additional upward pressure through the remainder of the year and into 2024.

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

Overall farm incomes are expected to trend lower in 2023 after reaching new highs in 2022.

The USDA estimates that net cash farm income climbed another 35% to $202.2 billion in 2022, a new all-time high.

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

The primary driver of increased profitability was higher cash revenues, contrary to 2019 and 2020 when elevated government support payments lifted farm incomes.

The USDA estimates production expenses rose by 15% 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 27% to $148.6 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.

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

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

Rising farm incomes alongside low interest rates in 2020 and 2021 drove a rapid rise in land values and a decrease in farm delinquencies and bankruptcies.

This trend has continued into 2023.

Land value survey data from the USDA show a 7.4% increase in average farm real estate values from June 2022 to June 2023.

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 10% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) between April 2022 and April 2023.

Annual farm real estate value gains were highest in the Northern Plains (13.7%) and the Southern Plains (9.4%) but also strong in the Lake states (8.2%), the Corn Belt (7.1%), and the Southeast (5.7%).

The Federal Reserve Bank of Chicago AgLetter reported a 9% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) between July 2022 and July 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 first quarter 2023 in the face of rapidly rising interest rates.

Farmland value growth rates moderated in second 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.

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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 the second half of 2023.

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

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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 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 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.

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

Positive economic conditions in the agricultural economy improved Farmer Mac's agricultural portfolio performance in 2022 and throughout the first three quarters of 2023.

Farmer Mac's 90-day delinquency levels decreased slightly in third quarter 2023 relative to second quarter 2023.

The overall delinquency

rate decreased from 0.42% of the Agricultural Finance line of business as of June 30, 2023 to 0.39% of the Agricultural Finance line of business as of September 30, 2023.

The third quarter 2023 percentage is also slightly lower than the 0.42% delinquency rate as of September 30, 2022.

The year-over-year decrease in the seriously delinquent rate was caused by typical, seasonal portfolio delinquency activity as well as a resolution of a large, agribusiness credit workout.

The top five exposures of seriously delinquent loans as of third quarter 2023 represent over half of all 90-day delinquent loans.

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.

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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 June 30, 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 September 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.

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

External market conditions that could adversely impact the farm and food sectors in the remainder of 2023 and into 2024 include foreign trade and trade policy, supply chain disruptions, and environmental conditions.

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

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

Through May 2023, agricultural export values were down approximately 8% in 2023 compared to 2022.

The USDA projects U.S.

agriculture exports will drop to $177.5 billion in 2023, a 9% decline relative to last year.

Through August 2023, agricultural export values were down approximately 12% in 2023 compared to 2022.

The value of the U.S.

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.

dollar relative to other major currencies rose 3% in third quarter 2023.

A strong U.S.

dollar could potentially be a headwind for farm, food, fiber, and fuel exports through the last quarter of 2023.

Slower global growth could also 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, 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.

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

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.

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.

There has been a sizable improvement in conditions in 2023 for large portions of the West Coast, especially California, but drought conditions have intensified in other areas of the country.

Approximately 19% of the continental U.S.

was classified as being in severe to extreme drought as of September 30, 2023, according to data from the National Center for Environmental Information.

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 2023.

affected by drought conditions in third quarter 2023 is in the Central and Southern Plains.

Dry weather across a significant portion of the Mississippi River basin this summer has led to sharply lower river levels this fall.

Barge traffic has been reduced as a result, complicating logistics for grain processors across the northern U.S.

Higher transportation costs for barges may ultimately lead to lower farmgate prices,

although the impact will likely vary significantly based on alternative transportation options such as rail.

For loans in other 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.

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 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.

Energy Information Administration, sales and the revenue from the sale of electricity to customers has slowed with an annual decline in sales of 1.2% and an increase in revenue of 7.5%, respectively, in the last 12 months through July 2023 compared to July 2022.

This decline in sales was driven by a drop in the residential and industrial sectors.

The average price of electricity to industrial customers decreased 10.2% in July 2023 relative to last year.

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

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

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

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.

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

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

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

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

Oil and natural gas prices were volatile during much of 2022 but have moderated throughout 2023, contributing to modest declines in electricity prices this year as of July.

Through September 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 segment are varied by industry.

For electric cooperatives, ongoing normal-course capital expenditures related to maintaining and upgrading utility infrastructure are expected to continue at historical levels based on replacement and modernization of existing infrastructure.

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

Investment in rural telecommunications infrastructure continues to be robust for cooperative and non-cooperative providers due to their access to federally funded programs, such as USDA's Broadband Equity Access and Deployment Program (BEAD), the Federal Communications Commission's Rural Digital Opportunity Fund (RDOF), the USDA’s ReConnect, and the USDA’s Telecommunications Infrastructure Loan and Loan Guarantee program.

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

Finally, the growth in renewable energy generation and deployment of energy storage technologies may continue to deepen Farmer Mac's relationships with existing customers through new business opportunities.

According to data from the U.S.

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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 $327.9 million as of June 30, 2023.

Because of these policy tailwinds, analytics from Bloomberg New Energy Finance (BNEF) estimate that investors will install nearly 400 gigawatts of renewable energy capacity between

2023 and 2030.

BNEF analysis also anticipates that nearly $2.5 trillion will be invested in renewable projects between 2021 and 2050.

If realized, growth in renewable energy capacity may broaden Farmer Mac's customer base focused on financing renewable energy projects and companies.

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

Under this initiative, Farmer Mac's total outstanding loans and loan commitments of renewable energy financing transactions was $330.6 million as of September 30, 2023.

Legislative and Regulatory Outlook .

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

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

• The current farm bill expired 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's customers.

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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.

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

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

• On October 5, 2023, FCA approved a final rule on cyber risk management.

The rule requires an assessment of internal and external risk factors, identification of potential systems and software vulnerabilities, the establishment of a risk management program for the risks identified, development of a cyber risk training program, policies for managing third-party relationships, and the establishment of board reporting requirements.

The effective date of the final rule is January 1, 2025.

• 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.

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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 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:

June 30, 2023 December 31, 2022 $ %

September 30, 2023 December 31, 2022 $ %

(in thousands)

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Total liabilities and equity $ 28,311,381 $ 27,333,110 $ 978,271 4 %

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

The increase in total assets was primarily attributable to new Farmer Mac Guaranteed Securities volume, 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 liabilities was primarily due to an increase in total notes payable to fund the acquisition of Farmer Mac Guaranteed Securities and loan volume, including those held in consolidated trusts.

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

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Agricultural Finance - Direct Credit Exposure

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

Farmer Mac's direct credit exposure to Agricultural Finance mortgage loans as of September 30, 2023 was $11.0 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.

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.

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 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.

For Agricultural Finance mortgage loans to which Farmer Mac has direct credit exposure, Farmer Mac's 90-day delinquencies as of September 30, 2023, were $42.4 million (0.39% of the Agricultural Finance mortgage loan portfolio to which Farmer Mac has direct credit exposure), compared to $45.4 million (0.42% of the Agricultural Finance mortgage loan portfolio) as of June 30, 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 23 delinquent loans as of September 30, 2023, compared to 42 delinquent loans as of June 30, 2023 and 37 delinquent loans as of December 31, 2022.

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

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

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

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

Farmer Mac's 90-day delinquency rate as of September 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.

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(dollars in thousands)

September 30, 2023 $ 11,014,678 $ 42,443 0.39 %

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

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

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

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

Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.15% of total outstanding business volume as of September 30, 2023, compared to 0.17% as of December 31, 2022 and 0.17% as of September 30, 2022.

The following table presents outstanding Agricultural Finance mortgage loans and 90-day delinquencies as of September 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 September 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 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%.

As of September 30, 2023, Farmer Mac's Agricultural Finance mortgage loans (to which it has direct credit exposure) comprising substandard assets were $180.2 million (1.6% of the portfolio), compared to $194.6 million (1.8% of the portfolio) as of June 30, 2023, and $209.4 million (2.0% of the portfolio) as of December 31, 2022.

Those substandard assets comprised 210 loans as of September 30, 2023, 239 loans as of June 30, 2023, and 243 loans as of December 31, 2022.

The decrease of $14.4 million in Agricultural Finance substandard assets during third quarter 2023 was primarily driven by a substandard loan payoff in our on-balance sheet portfolios.

Agricultural Finance substandard assets decreased as a percentage of both our on-balance sheet and our off-balance sheet Agricultural Finance portfolios during third quarter 2023.

The percentage of Agricultural Finance substandard assets within the portfolio as of September 30, 2023 was below the historical average.

Farmer Mac's average Agricultural Finance substandard assets as a percentage of its Agricultural Finance mortgage loans over the last 15 years is approximately 4%.

The highest substandard asset rate observed during the last 15 years occurred in 2010 at approximately 8%, which coincided with an increase in substandard loans within Farmer Mac's ethanol portfolio.

If Farmer Mac's substandard asset rate increases from current levels, it is likely that Farmer Mac's provision to the allowance for loan losses and the reserve for losses will also increase.

Although some credit losses are inherent to the business of agricultural lending, Farmer Mac believes that losses associated with the current agricultural credit cycle will be moderated by the strength and diversity of its portfolio, which Farmer Mac believes is adequately collateralized.

Farmer Mac considers a loan's original loan-to-value ratio as one of many factors in evaluating loss severity.

Although some credit losses are inherent to the business of agricultural lending, Farmer Mac believes that losses associated with the current agricultural credit cycle will be moderated by the strength and diversity of its Agricultural Finance portfolio, which Farmer Mac believes is adequately collateralized.

Within Agricultural Finance, Farmer Mac considers a Farm & Ranch loan's original loan-to-value ratio as one of many factors in evaluating loss severity.

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

As of 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.

As of September 30, 2023 and December 31, 2022, the average unpaid principal balances for Farm & Ranch 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 second quarter 2023 was 51%, compared to 43% for loans purchased during second 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 June 30, 2023 and December 31, 2022, respectively.

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 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 June 30, 2023 and December 31, 2022, respectively.

The weighted-average original loan-to-value ratio for Farm & Ranch mortgage loans purchased during third quarter 2023 was 49%, compared to 47% for loans purchased during third quarter 2022.

The weighted-average original loan-to-value ratio for Farm & Ranch mortgage loans and loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs was 50% and 51% as of September 30, 2023 and December 31, 2022, respectively.

The weighted-average original loan-to-value ratio for all 90-day delinquencies was 54% and 46% as of September 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 June 30, 2023

Agricultural Finance Mortgage Loans current loan-to-value ratio by internally assigned risk rating as of September 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 June 30, 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 September 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 June 30, 2023

Original Loans, Guarantees, and LTSPCs as of September 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 June 30, 2023

As of September 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 June 30, 2023

As of September 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 June 30, 2023 was $3.8 billion across 45 states.

Farmer Mac's direct credit exposure to Rural Infrastructure Finance loans held and loans underlying LTSPCs as of September 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 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.

As of September 30, 2023, there were no delinquencies in Farmer Mac's portfolio of Rural Infrastructure Finance loans.

As of September 30, 2023, there was one telecommunications loan downgraded to substandard, with an unpaid principal balance of $29.5 million.

Farmer Mac evaluates credit risk of Rural Infrastructure assets by reviewing a variety of borrower credit risk characteristics.

These characteristics can include (but is not limited to) financial metrics, internal risk ratings, ratings assigned by ratings agencies, types of customers served, sources of power supply, and the regulatory environment.

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

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

The following table disaggregates Farmer Mac’s portfolio of Rural Infrastructure loans by portfolio segment and by internally assigned risk ratings.

As of September 30, 2023

Rural Infrastructure Finance portfolio by internally assigned risk rating

Acceptable Special Mention Substandard Total

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Distribution Cooperative $ 2,321,834 $ — $ — $ 2,321,834

G&T Cooperative 697,645 — — 697,645

Generation and Transmission Cooperative

692,779 — — 692,779

Renewable Energy 330,575 — — 330,575

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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 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.

As of September 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 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.

During the previous three years ended September 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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Servicers are responsible to Farmer Mac for material errors in the servicing of those loans.

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

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

If a servicer materially breaches the terms of its servicing

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

Farmer Mac also can proceed against the servicer in arbitration or exercise any remedies available to it under law.

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

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

As of September 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 $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

The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Agricultural Finance line of business totaled $6.1 billion as of September 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 $3.6 billion as of September 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 September 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 September 30, 2023 and December 31, 2022:

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

Counterparty Balance Required Collateralization Balance Required Collateralization

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Total outstanding $ 9,686,813 $ 9,009,925

(1) Consists of AgVantage securities issued by 10 and 12 different issuers as of June 30, 2023 and December 31, 2022, respectively.

(1) Consists of AgVantage securities issued by 10 and 12 different issuers as of September 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 June 30, 2023, Farmer Mac had $0.9 billion of cash and cash equivalents and $4.8 billion of investment securities.

As of September 30, 2023, Farmer Mac had $0.8 billion of cash and cash equivalents and $4.9 billion of investment securities.

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

§§ 652.1-652.45 ("Liquidity and Investment Regulations").

In addition to establishing a portfolio of highly liquid investments as an available source of cash, the goals of Farmer Mac's investment policies are designed to minimize Farmer Mac's exposure to financial market volatility, preserve capital, and support Farmer Mac's access to the debt markets.

In addition to establishing a portfolio of highly liquid investments as an available source of cash, the goals of Farmer Mac's investment

policies are designed to minimize Farmer Mac's exposure to financial market volatility, preserve capital, and support Farmer Mac's access to the debt markets.

The Liquidity and Investment Regulations and Farmer Mac's internal policies require that investments held in Farmer Mac's investment portfolio meet the following creditworthiness standards:

(1) at a minimum, at least one obligor of the investment must have a very strong capacity to meet financial commitments for the life of the investment, even under severely adverse or stressful conditions, and

generally present a very low risk of default;

(2) if the obligor whose capacity to meet financial commitments is being relied upon to meet the standard set forth in subparagraph (1) is located outside of the United States, the investment must also be fully guaranteed by a U.S.

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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 ($140.0 million as of June 30, 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).

However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($72.0 million as of September 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 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 $0.8 billion of cash and cash equivalents held as of September 30, 2023 mature within three months.

As of September 30, 2023, $3.1 billion of the $4.9 billion of investment securities (63%) 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 June 30, 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 September 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 June 30, 2023 As of December 31, 2022

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

+100 basis points (4.0) % (3.7) %

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Percentage Change in NES from Base Case

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

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

+100 basis points (0.2) % 0.4 %

-100 basis points 0.1 % (0.6) %

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.

As of September 30, 2023, Farmer Mac's duration gap was positive 3.8 months, compared to positive 3.6 months as of December 31, 2022.

Interest rates within the yield curve increased during the first nine months of 2023, as the 2-year U.S.

Treasury Note yield-to-maturity increased by approximately 62 basis points and the 10-year U.S.

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Treasury securities.

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.

As of September 30, 2023, Farmer Mac had $24.5 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to just over thirty years, of which $9.6 billion were pay-fixed interest rate swaps, $14.0 billion were receive-fixed interest rate swaps, and $0.9 billion were basis swaps.

Farmer Mac enters into interest rate swaps to more closely match the cash flow and duration characteristics of its interest-earning assets with those of its debt.

For example, Farmer Mac transacts pay-fixed interest rate swaps and issues floating rate debt to effectively create fixed rate funding that approximately matches the duration of the corresponding fixed rate assets being funded.

Farmer Mac evaluates the overall cost of using interest rate swaps in conjunction with debt issuance as a funding alternative to duration-matched debt and enters into interest rate swaps to manage interest rate risks across the balance sheet.

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.

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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 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.

As of both September 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 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 September 30, 2023, Farmer Mac held $7.9 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 $9.6 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 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.

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 reference rate SOFR.

Farmer Mac has not had, and does not foresee, a material impact on our business due to the replacement of LIBOR with SOFR.

We had no further variable LIBOR exposure as of September 30, 2023.

Liquidity and Capital Resources

Farmer Mac's primary sources of funds to meet its liquidity and funding needs are the proceeds of its debt issuances, guarantee and commitment fees, net effective spread, loan repayments, and maturities of AgVantage and investment securities.

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

Farmer Mac funds its purchases of eligible loan assets, USDA Securities, Farmer Mac Guaranteed Securities, and investment assets and finances its operations primarily by issuing debt obligations of various maturities in the debt capital markets.

As of 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.

As of September 30, 2023, Farmer Mac had outstanding discount notes of $1.5 billion, medium-term notes that mature within one year of $6.4 billion, and medium-term notes that mature after one year of $17.6 billion.

Assuming continued access to the debt capital markets, Farmer Mac believes it has sufficient liquidity and capital resources to support its operations for the next 12 months and for the foreseeable future.

Farmer Mac has a contingency funding plan to manage unanticipated disruptions in its access to the debt capital markets.

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

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 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 293 days of liquidity throughout third quarter 2023 and had 297 days of liquidity as of September 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 June 30, 2023 and December 31, 2022:

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

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

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

(in thousands)

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Total $ 5,700,764 $ 5,485,598

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.

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

As of September 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 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.

As of September 30, 2023 and 2022, Farmer Mac's Tier 1 capital ratio was 16.0% and 14.9%, respectively.

As of September 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:

September 30, 2023 $ 1,384,273 $ 275,932 $ 607,979 $ 17,390 $ 2,285,574

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

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September 30, 2021 1,791,662 122,043 609,745 4,152 2,527,602

June 30, 2021 925,950 159,958 410,666 3,441 1,500,015

For the year ended:

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Unscheduled 108,960 104,999 20,578 — 234,537

September 30, 2023 $ 1,031,183 $ 215,382 $ 101,576 $ 14,716 $ 1,362,857

Scheduled $ 1,050,480 $ 81,386 $ 558,944 $ 52,203 $ 1,743,013

Unscheduled 96,507 55,976 13,138 — 165,621

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

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September 30, 2021 $ 1,100,000 $ 406,285 $ 95,644 $ 4,043 $ 1,605,972

Scheduled $ 380,684 $ 139,774 $ 225,257 $ 4,704 $ 750,419

Unscheduled 409,393 3,921 1,652 — 414,966

June 30, 2021 $ 790,077 $ 143,695 $ 226,909 $ 4,704 $ 1,165,385

For the year ended:

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(in thousands)

September 30, 2023 $ 18,461,835 $ 1,741,306 $ 7,118,295 $ 330,575 $ 27,652,011

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

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September 30, 2021 15,565,589 1,379,816 6,080,691 92,695 23,118,791

June 30, 2021 14,873,926 1,664,059 5,566,591 92,585 22,197,161

On-Balance Sheet Outstanding Business Volume

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(in thousands)

September 30, 2023 $ 13,727,280 $ 3,019,317 $ 6,255,690 $ 23,002,287

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

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September 30, 2021 12,921,572 2,872,499 3,818,550 19,612,621

June 30, 2021 11,800,429 2,878,637 4,254,625 18,933,691

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

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For the quarter ended:

September 30, 2023 (2)

$ 32,718 0.97 % $ 8,250 2.05 % $ 6,362 0.39 % $ 1,150 1.46 % $ 34,412 0.49 % $ 532 0.04 % $ 83,424 1.20 %

June 30, 2023 34,388

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September 30, 2022 (2)

June 30, 2022 (2)

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

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

March 31, 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 %

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September 30, 2021 28,914 1.06 % 7,163 1.80 % 2,067 0.16 % 236 1.09 % 17,386 0.31 % 159 0.01 % 55,925 0.99 %

June 30, 2021 29,163 1.06 % 6,676 1.65 % 1,759 0.14 % 378 1.80 % 18,449 0.33 % 126 0.01 % 56,551 1.01 %

(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 June 30, 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 September 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

September 2023 June 2023 March 2023 December 2022 September 2022 June

2022 March 2022 December 2021 September 2021

(in thousands)

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Credit related expense/(income):

Provision for/(release of) losses 1,142 750 1,945 450 (1,535) (54) (1,428) 255 (983)

(Release of)/provision for losses (181) 1,142 750 1,945 450 (1,535) (54) (1,428) 255

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

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Gains/(losses) on undesignated financial derivatives due to fair value changes $ 2,921 $ 2,141 $ 916 $ 1,596 $ 6,441 $ 2,846 $ 2,612 $ (1,242) $ (405)

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

Gains/(losses) on hedging activities due to fair value changes 3,210 (4,901) (105) (148) (624) 428 5,687 (2,079) 1,818

Unrealized gains/(losses) on trading assets 1,714 (57) 359 31 (757) (285) 94 (76) 36

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

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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