FEDERAL AGRICULTURAL MORTGAGE CORP 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The objective of this section of the report is to provide a discussion and analysis, from management’s perspective, of the material information necessary to assess Farmer Mac's financial condition and results of operations for the year ended December 31, 2023. Financial information included in this report is consolidated to include the accounts of Farmer Mac and its two subsidiaries – Farmer Mac Mortgage Securities Corporation and Farmer Mac II LLC. This discussion and analysis of financial condition and results of operations should be read together with Farmer Mac's consolidated financial statements and the related notes to the consolidated financial statements for the fiscal years ended December 31, 2023, 2022, and 2021. Overview Farmer Mac is a mission-focused, purpose-driven company determined to drive economic opportunity and prosperity by increasing the accessibility of financing for American agriculture and rural infrastructure. As the nation’s secondary market for agricultural and rural infrastructure loans, we help strengthen and connect rural America by providing a broad array of financial solutions to lenders that support flexible low-cost financing to farmers, ranchers, agribusinesses, renewable energy projects, rural utilities (including telecommunications, fiber, and broadband projects), and other related rural businesses and enterprises. Farmer Mac also serves as a critical investment tool for entities such as states, counties, municipalities, pension funds, banks, public trust funds, and credit unions. Farmer Mac offers those entities a variety of investment opportunities that may diversify their investment portfolios and provide the opportunity to earn a competitive return on their investment dollars. During 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, 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; and • we provided $8.3 billion in liquidity and lending capacity to lenders serving rural America. Farmer Mac’s performance during 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 recent 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 2023 reflected a variety of factors, including: • 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; 56 • effective capital strategies that resulted in advantageous funding in an elevated interest rate environment in the current period; • an increase in outstanding business volume at higher spreads while credit quality improved; and • the resilience of the farm economy, as producers had benefited from healthy farm incomes and liquidity from relatively high commodity prices in 2021 and 2022. The discussion below of Farmer Mac's financial information includes "non-GAAP measures," which are measures of financial performance not presented in accordance with generally accepted accounting principles in the United States ("GAAP"). For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." Net Income and Core Earnings The following table shows our net income attributable to common stockholders and core earnings for the periods presented. Core earnings and core earnings per share are non-GAAP measures that differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value fluctuations and specified infrequent or unusual transactions. Table 1 For the Years Ended December 31, 2023 2022 2021 (in thousands) Net income attributable to common stockholders $ 172,838 $ 150,979 $ 111,412 Core earnings 171,156 124,314 113,570 The $21.9 million year-over-year increase in net income attributable to common stockholders was due to a $44.7 million after-tax increase in net interest income and a $2.9 million after-tax increase in guarantee fees. These factors were partially offset by a $15.6 million after-tax decrease in the fair value of undesignated financial derivatives and a $12.1 million after-tax increase in operating expenses. The $39.6 million year-over-year increase in net income attributable to common stockholders for 2022 compared to 2021 was due to a $38.7 million after-tax increase in net interest income and a $17.6 million after-tax increase in the fair value of undesignated financial derivatives. These factors were partially offset by a $5.2 million after-tax decrease related to the non-recurrence of the gain on the sale of mortgage loans that occurred in the prior period, a $6.6 million increase in operating expenses, a $2.5 million increase in preferred stock dividends, and a $2.4 million increase in our provision for credit losses. The $46.8 million year-over-year increase in core earnings was due to a $56.4 million after-tax increase in net effective spread, partially offset by a $12.1 million after-tax increase in operating expenses. The $10.7 million year-over-year increase in core earnings for 2022 compared to 2021 was due to a $27.5 million after-tax increase in net effective spread. This factor was partially offset by a $5.2 million after-tax decrease related to the non-recurrence of the gain on the sale of mortgage loans that occurred in the prior period, a $6.6 million increase in operating expenses, a $2.5 million increase in preferred stock dividends, and a $2.4 million increase in our provision for credit losses. 57 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." Net Interest Income and Net Effective Spread The following table shows our net interest income and net effective spread in both dollars and percentage yield or spread for the periods presented. Farmer Mac uses net effective spread, a non-GAAP measure, as an alternative to net interest income because management believes it is a useful metric that reflects the economics of the net spread between all the assets owned by Farmer Mac and all related funding, including any associated derivatives, some of which may not be included in net interest income. Table 2 For the Years Ended December 31, 2023 2022 2021 (in thousands) Net interest income $ 327,547 $ 270,940 $ 221,951 Net interest yield % 1.15 % 1.04 % 0.94 % Net effective spread $ 326,980 $ 255,529 $ 220,668 Net effective spread % 1.18 % 1.02 % 0.98 % The $56.6 million year-over-year increase in net interest income was primarily due to a $48.9 million decrease in funding costs and a $19.9 million increase related to net new business volume. The decrease in funding costs was primarily due to our disciplined funding strategies and higher nominal interest rates that have led to an upward repricing of our excess long-term capital that we raised when interest rates were at historical lows and is held in our investment portfolio. The factors that contributed to the increase in net interest income were partially offset by an $11.2 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives). In percentage terms, the 0.11% increase was primarily attributable to a decrease of 0.16% in funding costs and a decrease of 0.04% in net fair value changes from designated financial derivatives. The $49.0 million year-over-year increase in net interest income for 2022 compared to 2021 was primarily attributable to a $21.9 million increase from net new business volume and a $21.4 million decrease in funding costs, due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity, and a $6.1 million increase in the fair value of designated financial derivatives. In percentage terms, the year-over-year 0.10% increase was primarily attributable to a decrease of 0.08% in funding costs and an increase of 0.02% in net fair value changes from financial derivatives designated in hedge accounting relationships (designated financial derivatives). The $71.5 million year-over-year increase in net effective spread was primarily due to a $54.6 million decrease in non-GAAP funding costs, due to the same factors mentioned above that decreased our funding costs, and a $20.6 million increase related to net new business volume. In percentage terms, the year-over-year increase of 0.16% was primarily attributable to a decrease in non-GAAP funding costs. 58 The $34.9 million year-over-year increase in net effective spread in dollars for 2022 compared to 2021 was primarily due to a $23.6 million increase from net new business volume, a $7.7 million decrease in non-GAAP funding costs, due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity, a $2.4 million increase in net servicing revenue, and a $0.9 million increase in cash-basis interest income. In percentage terms, the year-over-year increase of 0.04% was primarily attributable to a decrease of 0.03% in non-GAAP funding costs and an increase of 0.01% in cash-basis interest income. For more information about Farmer Mac's use of net effective spread as a financial measure, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." For a reconciliation of net interest income to net effective spread, see Table 10 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income." Business Volume Our outstanding business volume was $28.5 billion as of December 31, 2023, a net increase of $2.5 billion from December 31, 2022 after taking into account all new business, maturities, and paydowns on existing assets. The net increase was primarily attributable to a net increase of $1.4 billion in the Rural Infrastructure Finance line of business and a net increase of $1.2 billion 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." Capital Table 3 As of December 31, 2023 December 31, 2022 (in thousands) Core capital $ 1,452,008 $ 1,322,801 Capital in excess of minimum capital level required 589,399 516,882 The increase in capital in excess of the minimum capital level required was primarily due to an increase in retained earnings. 59 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 December 31, 2023 and 2022: Table 4 On-Balance Sheet Off-Balance Sheet Substandard Assets % of Portfolio Substandard Assets % of Portfolio (dollars in thousands) December 31, 2023 $ 152,865 2.0 % $ 33,086 1.0 % December 31, 2022 169,667 2.3 % 39,733 1.2 % Increase/(decrease) from prior year-ending $ (16,802) (0.3) % $ (6,647) (0.2) % The decrease of $16.8 million in on-balance sheet substandard assets during 2023 was primarily driven by the full payoff of a substandard agricultural storage and processing loan. The $6.6 million decrease in substandard assets in our off-balance sheet portfolios during 2023 was primarily due to credit upgrades in livestock and crops, and was partially offset by credit downgrades in permanent plantings and part-time farms. There was one substandard asset with an outstanding balance of $29.4 million in the Rural Infrastructure Finance portfolio as of December 31, 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 26 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees." 60 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 December 31, 2023 and 2022: Table 5 On-Balance Sheet Off-Balance Sheet 90-Day Delinquencies % of Portfolio 90-Day Delinquencies % of Portfolio (dollars in thousands) December 31, 2023 $ 32,893 0.42 % $ 1,784 0.05 % December 31, 2022 39,681 0.53 % 3,817 0.12 % Increase/(decrease) from prior year-ending $ (6,788) (0.11) % $ (2,033) (0.07) % On-balance sheet Agricultural Finance assets 90 or more days delinquent decreased in agricultural storage and processing and was partially offset by increases in permanent plantings, crops, livestock, and part-time farms. Off-balance sheet Agricultural Finance assets 90 days or more delinquent decreased in permanent plantings and livestock and was partially offset by increases in crops and part-time farms. The top ten borrower exposures over 90 days delinquent in either the on- or off-balance sheet Agricultural Finance portfolio represented over half of the aggregate 90-day delinquencies as of December 31, 2023. As of both December 31, 2023 and 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." Critical Accounting Estimates The preparation of Farmer Mac's consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes for the periods presented. Farmer Mac considers an accounting estimate made in accordance with GAAP to be critical when it involves a significant level of estimation uncertainty and it has had or is likely to have a material impact on our financial condition or results of operations. The accounting estimate that Farmer Mac considers to be critical in the preparation of its consolidated financial statements is the estimation of the fair value of AgVantage Securities (AgVantage). Farmer Mac considers the fair value of AgVantage Securities that are classified as held-to-maturity (AgVantage HTM) because of their impact on the company's fair value disclosures in Note 5 to the consolidated financial statements – Farmer Mac Guaranteed Securities and USDA Securities and Note 13 to the consolidated financial statements – Fair Value Disclosures. Farmer Mac considers the fair value of AgVantage Securities that are classified as available-for-sale (AgVantage AFS) to be a critical estimate due to the significance of the periodic measurement of mark-to-market adjustments relative to the company's total assets, comprehensive income, and equity. Farmer Mac also considers the fair value of AgVantage to be a critical accounting estimate because Farmer Mac applies a discount rate in calculating the net present value of future expected cash flows that is both significant to the estimate of their fair value and 61 unobservable in the market. Farmer Mac relies upon this significant unobservable input to estimate the fair value of AgVantage because there are no observable transactions in these securities in the market. Farmer Mac's AgVantage HTM amortized cost was $4.2 billion and $1.0 billion as of December 31, 2023 and 2022, respectively. The fair value of AgVantage HTM had net unrealized losses in the amount of $34.8 million and $53.7 million as of December 31, 2023 and 2022, respectively. See Note 5 to the consolidated financial statements – Farmer Mac Guaranteed Securities and USDA Securities for more information. Farmer Mac's AgVantage AFS fair value was $5.5 billion and $7.6 billion as of December 31, 2023 and 2022, respectively. The fair value of AgVantage AFS had accumulated net unrealized losses in the amount of $293.0 million and $408.9 million as of December 31, 2023 and 2022, respectively. See Note 5 to the consolidated financial statements – Farmer Mac Guaranteed Securities and USDA Securities for more information. Farmer Mac applies discount rates that are commensurate with the risks involved to estimate the fair value measurement of AgVantage AFS. As of December 31, 2023, Farmer Mac applied discount rates that ranged from 4.7% to 5.4% (with a weighted average of 5.0%). As of December 31, 2022, Farmer Mac applied discount rates that ranged from 4.7% to 6.1% (with a weighted average of 5.1%). Use of different discount rates than those selected by Farmer Mac may result in materially different estimates of fair value for AgVantage AFS. Farmer Mac selects the discount rate for each AgVantage AFS security by analyzing credit default swap levels and the long-term credit outlook of Farmer Mac's major counterparties and estimating an appropriate credit spread relative to U.S. Treasury yields. The periodic measurement of fair value and underlying discount rate methodology is subject to Farmer Mac’s internal controls and review by management. As of December 31, 2023, a 0.50% increase in the discount rates used to determine the fair value of AgVantage AFS would decrease the overall GAAP carrying value by approximately 2.01%. See Note 13 to the consolidated financial statements – Fair Value Disclosures for more information. For a description of Farmer Mac’s accounting policy for fair value measurements, see Note 2(n) to the consolidated financial statements – Significant Accounting Policies, Fair Value Measurements. Use of Non-GAAP Measures In the accompanying analysis of its financial information, Farmer Mac uses "non-GAAP measures," which are measures of financial performance that are not presented in accordance with GAAP. Specifically, Farmer Mac uses the following non-GAAP measures: "core earnings," "core earnings per share," and "net effective spread." Farmer Mac uses these non-GAAP measures to measure corporate economic performance and develop financial plans because, in management's view, they are useful alternative measures in understanding Farmer Mac's economic performance, transaction economics, and business trends. The non-GAAP financial measures that Farmer Mac uses may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of these non-GAAP measures is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP. 62 Core Earnings and Core Earnings Per Share The main difference between core earnings and core earnings per share (non-GAAP measures) and net income attributable to common stockholders and earnings per common share (GAAP measures) is that those non-GAAP measures exclude the effects of fair value fluctuations. These fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is expected. Another difference is that these two non-GAAP measures exclude specified infrequent or unusual transactions that we believe are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. For example, in prior periods, we excluded any losses on retirement of preferred stock from core earnings and core earnings per share. Similar transactions may reoccur in future periods. For a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings and of earnings per common share to core earnings per share, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." Net Effective Spread Farmer Mac uses net effective spread to measure the net spread Farmer Mac earns between its interest-earning assets and the related net funding costs of these assets. As further explained below, net effective spread differs from net interest income and net interest yield by excluding certain items from net interest income and net interest yield and including certain other items that net interest income and net interest yield do not contain. Farmer Mac excludes from net effective spread the interest income and interest expense associated with the consolidated trusts and the average balance of the loans underlying these trusts to reflect management's view that the net interest income Farmer Mac earns on the related Farmer Mac Guaranteed Securities owned by third parties is effectively a guarantee fee. Accordingly, the excluded interest income and interest expense associated with consolidated trusts is reclassified to guarantee and commitment fees in determining Farmer Mac's core earnings. Farmer Mac also excludes from net effective spread the fair value changes of financial derivatives and the corresponding assets or liabilities designated in fair value hedge accounting relationships because they are not expected to have an economic effect on Farmer Mac's financial performance, as we expect to hold the financial derivatives and corresponding hedged items to maturity. Net effective spread also differs from net interest income and net interest yield because it includes the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge accounting relationships ("undesignated financial derivatives"). Farmer Mac uses interest rate swaps to manage its interest rate risk exposure by synthetically modifying the interest rate reset or maturity characteristics of certain assets and liabilities. The accrual of the contractual amounts due on interest rate swaps designated in hedge accounting relationships is included as an adjustment to the yield or cost of the hedged item and is included in net interest income. For undesignated financial derivatives, Farmer Mac records the income or expense related to the accrual of the contractual amounts due in "Gains on financial derivatives" on the consolidated statements of operations. However, the accrual of the contractual amounts due for undesignated financial derivatives are included in Farmer Mac's calculation of net effective spread. 63 Net effective spread also differs from net interest income and net interest yield because it includes the net effects of terminations or net settlements on financial derivatives, which consist of: (1) the net effects of cash settlements on agency forward contracts on the debt of other GSEs and U.S. Treasury security futures that we use as short-term economic hedges on the issuance of debt; and (2) the net effects of initial cash payments that Farmer Mac receives upon the inception of certain swaps. The inclusion of these items in net effective spread is intended to reflect our view of the complete net spread between an asset and all of its related funding, including any associated derivatives, whether or not they are designated in a hedge accounting relationship. For a reconciliation of net interest income and net interest yield to net effective spread, see Table 10 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income." Results of Operations Reconciliations of Farmer Mac's net income attributable to common stockholders to core earnings and core earnings per share are presented in the following tables along with information about the composition of core earnings: 64 Table 6 Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings For the Years Ended December 31, 2023 2022 2021 (in thousands, except per share amounts) Net income attributable to common stockholders $ 172,838 $ 150,979 $ 111,412 Less reconciling items: Gains/(losses) on undesignated financial derivatives due to fair value changes (see Table 13) 5,142 13,495 (1,431) (Losses)/gains on hedging activities due to fair value changes (5,394) 5,343 (1,810) Unrealized gains/(losses) on trading securities 1,979 (917) (115) Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 175 39 130 Net effects of terminations or net settlements on financial derivatives 227 15,794 494 Income tax effect related to reconciling items (447) (7,089) 574 Sub-total 1,682 26,665 (2,158) Core earnings $ 171,156 $ 124,314 $ 113,570 Composition of Core Earnings: Revenues: Net effective spread (1) $ 326,980 $ 255,529 $ 220,668 Guarantee and commitment fees (2) 18,928 18,144 17,533 Gains on sale of mortgage loans — — 6,539 Other (3) 3,299 1,684 1,680 Total revenues 349,207 275,357 246,420 Credit related expense (GAAP): Provision for/(release of) losses 1,136 806 (2,187) REO operating expenses — 819 — Total credit related expense 1,136 1,625 (2,187) Operating expenses (GAAP): Compensation and employee benefits 58,914 48,766 42,847 General and administrative 34,963 29,772 27,507 Regulatory fees 3,222 3,269 3,062 Total operating expenses 97,099 81,807 73,416 Net earnings 250,972 191,925 175,191 Income tax expense (4) 52,651 40,446 36,944 Preferred stock dividends (GAAP) 27,165 27,165 24,677 Core earnings $ 171,156 $ 124,314 $ 113,570 Core earnings per share: Basic $ 15.80 $ 11.52 $ 10.56 Diluted $ 15.65 $ 11.42 $ 10.47 Weighted-average shares: Basic 10,829 10,791 10,758 Diluted 10,937 10,883 10,846 (1) Net effective spread is a non-GAAP measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for an explanation of net effective spread. See Table 10 for a reconciliation of net interest income to net effective spread. (2) Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities. 65 (3) Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities. (4) Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings. Table 7 Reconciliation of GAAP Basic Earnings Per Share to Core Earnings - Basic Earnings Per Share For the Years Ended December 31, 2023 2022 2021 (in thousands, except per share amounts) GAAP - Basic EPS $ 15.97 $ 14.00 $ 10.36 Less reconciling items: Gains/(losses) on undesignated financial derivatives due to fair value changes (see Table 13) 0.49 1.25 (0.13) (Losses)/gains on hedging activities due to fair value changes (0.50) 0.50 (0.17) Unrealized gains/(losses) on trading securities 0.18 (0.08) (0.01) Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 0.02 — 0.01 Net effects of terminations or net settlements on financial derivatives 0.02 1.47 0.04 Income tax effect related to reconciling items (0.04) (0.66) 0.06 Sub-total 0.17 2.48 (0.20) Core Earnings - Basic EPS $ 15.80 $ 11.52 $ 10.56 Shares used in per share calculation (GAAP and Core Earnings) 10,829 10,791 10,758 Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings - Diluted Earnings Per Share For the Years Ended December 31, 2023 2022 2021 (in thousands, except per share amounts) GAAP - Diluted EPS $ 15.81 $ 13.87 $ 10.27 Less reconciling items: Gains/(losses) on undesignated financial derivatives due to fair value changes (see Table 13) 0.47 1.24 (0.13) (Losses)/gains on hedging activities due to fair value changes (0.49) 0.49 (0.17) Unrealized gains/(losses) on trading securities 0.18 (0.08) (0.01) Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 0.02 — 0.01 Net effects of terminations or net settlements on financial derivatives 0.02 1.45 0.05 Income tax effect related to reconciling items (0.04) (0.65) 0.05 Sub-total 0.16 2.45 (0.20) Core Earnings - Diluted EPS $ 15.65 $ 11.42 $ 10.47 Shares used in per share calculation (GAAP and Core Earnings) 10,937 10,883 10,846 The non-GAAP reconciling items between net income attributable to common stockholders and core earnings are: 1. Gains/(losses) on financial derivatives due to fair value changes are presented by two reconciling items in Table 6 above: (a) Gains/(losses) on undesignated financial derivatives due to fair value changes; and (b) (Losses)/gains on hedging activities due to fair value changes. 66 2. 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. 3. The net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value. The amount of this non-GAAP reconciling item is the recorded amount of premium, discount, or deferred gain amortization during the reporting period on those assets for which the premium, discount, or deferred gain was based on the application of an accounting principle (e.g., consolidation of variable interest entities) rather than on a cash transaction (e.g., a purchase price premium or discount). 4. The net effects of terminations or net settlements on financial derivatives. These terminations or net settlements relate to: • Forward contracts on the debt of other GSEs and futures contracts on U.S. Treasury securities. These contracts are used as a short-term economic hedge of the issuance of debt. For GAAP purposes, realized gains or losses on settlements of these contracts are reported in the consolidated statements of operations in the period in which they occur. For core earnings purposes, these realized gains or losses are deferred and amortized as net yield adjustments over the term of the related debt, which generally ranges from 3 to 15 years. The following sections provide more detail about specific components of Farmer Mac's results of operations. Net Interest Income . The following table provides information about interest-earning assets and funding for the years ended December 31, 2023, 2022, and 2021. 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 (single-class) 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. 67 Table 8 For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Average Balance Income/ Expense Average Rate Average Balance Income/ Expense Average Rate Average Balance Income/ Expense Average Rate (dollars in thousands) Interest-earning assets: Cash and investments $ 5,894,515 $ 287,144 4.87 % $ 5,236,118 $ 82,659 1.58 % $ 4,726,552 $ 18,660 0.39 % Loans, Farmer Mac Guaranteed Securities and USDA Securities (1) 21,739,403 1,070,932 4.93 % 19,882,489 602,537 3.03 % 17,838,238 368,330 2.06 % Total interest-earning assets 27,633,918 1,358,076 4.91 % 25,118,607 685,196 2.73 % 22,564,790 386,990 1.72 % Funding: Notes payable due within one year 3,274,799 150,666 4.60 % 2,876,452 48,481 1.69 % 3,779,689 3,820 0.10 % Notes payable due after one year (2) 22,631,904 884,034 3.91 % 20,987,990 370,014 1.76 % 18,004,757 166,083 0.92 % Total interest-bearing liabilities (3) 25,906,703 1,034,700 3.99 % 23,864,442 418,495 1.75 % 21,784,446 169,903 0.78 % Net non-interest-bearing funding 1,727,215 — 1,254,165 — 780,344 — Total funding 27,633,918 1,034,700 3.74 % 25,118,607 418,495 1.67 % 22,564,790 169,903 0.75 % Net interest income/yield prior to consolidation of certain trusts 27,633,918 323,376 1.17 % 25,118,607 266,701 1.06 % 22,564,790 217,087 0.96 % Net effect of consolidated trusts (4) 873,181 4,171 0.48 % 850,916 4,239 0.50 % 1,049,521 4,864 0.46 % Net interest income/yield $ 28,507,099 $ 327,547 1.15 % $ 25,969,523 $ 270,940 1.04 % $ 23,614,311 $ 221,951 0.94 % (1) Excludes interest income of $34.2 million, $31.7 million, and $39.0 million in 2023, 2022, and 2021, respectively, related to consolidated trusts with beneficial interests owned by third parties (single-class). (2) Includes current portion of long-term notes. (3) Excludes interest expense of $30.0 million, $27.4 million, and $34.1 million in 2023, 2022, and 2021, respectively, related to consolidated trusts with beneficial interests owned by third parties (single-class). (4) Includes the effect of consolidated trusts with beneficial interests owned by third parties (single-class). The $56.6 million year-over-year increase in net interest income was primarily due to a $48.9 million decrease in funding costs and a $19.9 million increase related to net new business volume. The decrease in funding costs was due to our disciplined funding strategies and higher nominal interest rates that have led to an upward repricing of our excess long-term capital that we raised when interest rates were at historical lows and is held in our investment portfolio. The factors that contributed to an increase in net interest income were partially offset by an $11.2 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives). In percentage terms, the 0.11% increase was primarily attributable to a decrease of 0.16% in funding costs and a decrease of 0.04% in net fair value changes from designated financial derivatives. For 2022 compared to 2021, the $49.0 million year-over-year increase in net interest income was primarily attributable to a $21.9 million increase from net new business volume, a $21.4 million decrease in funding costs due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity, and a $6.1 million increase in the fair value of designated financial derivatives. In percentage terms, the year-over-year 0.10% increase was primarily attributable to a decrease of 0.08% in funding costs and an increase of 0.02% in net fair value changes from financial derivatives designated in hedge accounting relationships (designated financial derivatives). The following table sets forth information about changes in the components of Farmer Mac's net interest income prior to consolidation of certain trusts for the periods indicated. For each category, information is provided on changes attributable to changes in volume (change in volume multiplied by prior rate), and 68 changes in rate (change in rate multiplied by old volume), and then allocated based on the relative size of rate and volume changes from the prior period. Table 9 2023 vs. 2022 2022 vs. 2021 Increase/(Decrease) Due to Increase/(Decrease) Due to Rate Volume Total Rate Volume Total (in thousands) Income from interest-earning assets: Cash and investments $ 192,859 $ 11,626 $ 204,485 $ 61,778 $ 2,221 $ 63,999 Loans, Farmer Mac Guaranteed Securities and USDA Securities 407,548 60,847 468,395 188,111 46,096 234,207 Total 600,407 72,473 672,880 249,889 48,317 298,206 Expense from other interest-bearing liabilities 577,519 38,686 616,205 230,931 17,661 248,592 Change in net interest income prior to consolidation of certain trusts (1) $ 22,888 $ 33,787 $ 56,675 $ 18,958 $ 30,656 $ 49,614 (1) Excludes the effect of debt in consolidated trusts with beneficial interests owned by third parties (single-class). The following table presents a reconciliation of net interest income and net interest yield to net effective spread. Net effective spread is measured by: including (1) expenses related to undesignated financial derivatives, which consists of income or expense related to contractual amounts due on financial derivatives not designated in hedge relationships (the income or expense related to financial derivatives designated in hedge accounting relationships is already included in net interest income), and (2) the amortization of losses due to terminations or net settlements of financial derivatives; and excluding (1) the amortization of premiums and discounts on assets consolidated at fair value, (2) the net effects of consolidated trusts with beneficial interests owned by third parties (single-class), and (3) the fair value changes of financial derivatives and corresponding financial assets or liabilities in fair value hedge relationships. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for more information about net effective spread. Table 10 For the Years Ended December 31, 2023 2022 2021 Dollars Yield Dollars Yield Dollars Yield (dollars in thousands) Net interest income/yield $ 327,547 1.15 % $ 270,940 1.04 % $ 221,951 0.94 % Net effects of consolidated trusts (4,171) 0.02 % (4,239) 0.02 % (4,864) 0.02 % Expense related to undesignated financial derivatives (4,845) (0.02) % (7,756) (0.03) % 2,841 0.01 % Amortization of premiums/discounts on assets consolidated at fair value (175) — % (24) — % (45) — % Amortization of losses due to terminations or net settlements on financial derivatives 3,230 0.01 % 2,413 0.01 % 446 — % Fair value changes on fair value hedge relationships 5,394 0.02 % (5,805) (0.02) % 339 0.01 % Net effective spread $ 326,980 1.18 % $ 255,529 1.02 % $ 220,668 0.98 % The $71.5 million year-over-year increase in net effective spread was primarily due to a $54.6 million decrease in non-GAAP funding costs, 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 69 portfolio, and a $20.6 million increase related to net new business volume. In percentage terms, the year-over-year increase of 0.16% was primarily attributable to a decrease in non-GAAP funding costs. For 2022 compared to 2021, the $34.9 million year-over-year increase in net effective spread in dollars was primarily due to a $23.6 million increase from net new business volume, a $7.7 million decrease in non-GAAP funding costs due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity, a $2.4 million increase in net servicing revenue, and a $0.9 million increase in cash-basis interest income. In percentage terms, the year-over-year increase of 0.04% was primarily attributable to an decrease of 0.03% in non-GAAP funding costs and an increase of 0.01% in cash-basis interest income. See Note 14 to the consolidated financial statements for more information about net interest income and net effective spread from Farmer Mac's individual business segments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Information" for quarterly net effective spread by line of business. 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-year period ended December 31, 2023: Table 11 Allowance for Losses Reserve for Losses Total Allowance for Losses (in thousands) Balance as of December 31, 2020 $ 14,298 $ 3,277 $ 17,575 Release of losses (860) (1,327) (2,187) Recovery 1,054 — 1,054 Balance as of December 31, 2021 $ 14,492 $ 1,950 $ 16,442 Provision for/(release of) losses 1,323 (517) 806 Charge-offs (84) — (84) Balance as of December 31, 2022 $ 15,731 $ 1,433 $ 17,164 Provision for losses 858 278 1,136 Balance as of December 31, 2023 $ 16,589 $ 1,711 $ 18,300 See Notes 8 and 12 to the consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees." During 2023, we recorded a $1.1 million net provision to the total allowance for losses primarily as a result of one rural infrastructure loan that was downgraded to substandard during the year, partially offset by an allowance for losses release related to a single collateral dependent agricultural storage and processing loan that fully paid off during the year. Guarantee and Commitment Fees . The following table presents guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs, for the years ended December 31, 2023, 2022, and 2021: 70 Table 12 For the Years Ended December 31, 2023 2022 2021 (dollars in thousands) Contractual guarantee and commitment fees $ 15,084 $ 14,235 $ 12,669 Guarantee obligation amortization 4,331 5,913 7,257 Guarantee asset fair value changes (2,703) (7,108) (7,257) Guarantee and commitment fee income $ 16,712 $ 13,040 $ 12,669 Guarantee and commitment fees increased for the year ended December 31, 2023 compared to 2022, which was due to increases in the average outstanding balance of LTSPCs during the period. As adjusted for the core earnings presentation, guarantee and commitment fees were $18.9 million for the year ended December 31, 2023, compared to $18.1 million and $17.5 million for the years ended December 31, 2022, and 2021, 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. Farmer Mac has also excluded guarantee asset fair value changes from the presentation of core earnings because these fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations if Farmer Mac fulfills its guarantee obligation throughout the term of the guaranteed securities, as is expected. For more information about net income attributable to common stockholders, the composition of core earnings, and a reconciliation of net income attributable to common stockholders to core earnings, see Table 6 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." Gains on financial derivatives . The components of gains and losses on financial derivatives for the years ended December 31, 2023, 2022, and 2021 are summarized in the following table: Table 13 For the Years Ended December 31, 2023 2022 2021 (dollars in thousands) Gains/(losses) due to fair value changes $ 5,142 $ 13,495 $ (1,431) Accrual of contractual payments (4,845) (7,756) 2,841 Gains/(losses) due to terminations or net settlements 2,585 16,892 (1,086) Gains on financial derivatives $ 2,882 $ 22,631 $ 324 These changes in fair value are primarily the result of fluctuations in long-term interest rates. The accrual of periodic cash settlements for interest paid or received from Farmer Mac's interest rate swaps that are undesignated financial derivatives is shown as income or expense related to financial derivatives. Payments or receipts to terminate undesignated derivative positions or net cash settled forward sales contracts on the debt of other GSEs and undesignated U.S. Treasury security futures and initial cash payments received upon the inception of certain undesignated swaps are included in "Gains/(losses) due to 71 terminations or net settlements" in the table above. See Note 6 to the consolidated financial statements for more information about Farmer Mac's financial derivatives. Gains on Sale of Mortgage Loans Table 14 For the Years Ended December 31, 2023 2022 2021 (in thousands) Gains on sale of mortgage loans $ — $ — $ 6,539 In 2021, Farmer Mac executed a structured securitization of Farm & Ranch loans that resulted in a gain of $6.5 million from the sale of the pool of mortgage loans into the securitization vehicle. Operating Expenses . The components of operating expenses for the years ended December 31, 2023, 2022, and 2021 are summarized in the following table: Table 15 For the Years Ended December 31, 2023 2022 2021 (dollars in thousands) Compensation and employee benefits $ 58,914 $ 48,766 $ 42,847 General and administrative 34,963 29,772 27,507 Regulatory fees 3,222 3,269 3,062 Total Operating Expenses $ 97,099 $ 81,807 $ 73,416 Compensation and Employee Benefits . The increase in compensation and employee benefits expenses for the year ended December 31, 2023 compared to 2022 was largely due to increased headcount. The increase in compensation and employee benefits expenses for 2022 compared to 2021 was due to increased headcount (full year impact of 32 net new hires in 2021 and 5 net new hires in 2022) and increased executive stock compensation. General and Administrative Expenses (G&A) . The increase in G&A expenses for the year ended December 31, 2023 compared to 2022 was primarily due to increased spending on software licenses and information technology and other consultants to support growth and strategic initiatives. 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. That initiative is expected to be completed during the first half of 2024. 72 Income Tax Expense . The following table presents income tax expense and the effective income tax rate for the years ended December 31, 2023, 2022, and 2021: Table 16 For the Years Ended December 31, 2023 2022 2021 (dollars in thousands) Income tax expense $ 53,098 $ 47,535 $ 36,372 Effective tax rate 21.0 % 21.1 % 21.1 % 73 Business Volume . The following table sets forth the net growth or decrease in Farmer Mac's lines of business for the years ended December 31, 2023 and 2022: Table 17 Net New Business Volume For the Years Ended December 31, 2023 December 31, 2022 On or Off Balance Sheet Net Growth/(Decrease) Net Growth/(Decrease) (in thousands) Agricultural Finance: Farm & Ranch: Loans On-balance sheet $ (17,300) $ 375,680 Loans held in consolidated trusts: Beneficial interests owned by third-party investors (single-class) (1) On-balance sheet (44,006) (33,705) Beneficial interests owned by third-party investors (structured) (1) On-balance sheet 264,691 296,658 IO-FMGS (2) On-balance sheet (1,213) (1,675) USDA Securities On-balance sheet (38,430) (38,504) AgVantage Securities (1) On-balance sheet 230,000 880,000 LTSPCs and unfunded loan commitments Off-balance sheet 177,634 235,155 Other Farmer Mac Guaranteed Securities (3) Off-balance sheet (48,351) (77,405) Loans serviced for others Off-balance sheet 556,984 (2,051) Total Farm & Ranch $ 1,080,009 $ 1,634,153 Corporate AgFinance: Loans On-balance sheet $ 93,470 $ 42,953 AgVantage Securities (1) On-balance sheet (70,721) (7,864) Unfunded loan commitments Off-balance sheet 67,723 30,584 Total Corporate AgFinance $ 90,472 $ 65,673 Total Agricultural Finance $ 1,170,481 $ 1,699,826 Rural Infrastructure Finance: Rural Utilities: Loans On-balance sheet $ 292,781 $ 499,323 AgVantage Securities (1) On-balance sheet 854,312 10,894 LTSPCs and unfunded loan commitments Off-balance sheet (24,814) (44,245) Other Farmer Mac Guaranteed Securities (3) Off-balance sheet (1,169) (1,586) Total Rural Utilities $ 1,121,110 $ 464,386 Renewable Energy: Loans On-balance sheet $ 220,716 $ 132,807 Unfunded loan commitments Off-balance sheet 36,635 10,600 Total Renewable Energy $ 257,351 $ 143,407 Total Rural Infrastructure Finance $ 1,378,461 $ 607,793 Total $ 2,548,942 $ 2,307,619 (1) Categories of Farmer Mac Guaranteed Securities. (2) An interest-only Farmer Mac Guaranteed Security retained as part of a structured securitization. (3) Other categories of Farmer Mac Guaranteed Securities that were sold by Farmer Mac to third parties. 74 Farmer Mac's outstanding business volume was $28.5 billion as of December 31, 2023, a net increase of $2.5 billion from December 31, 2022 after taking into account all new business, maturities, and paydowns on existing assets. The $1.1 billion net increase in Farm & Ranch during 2023 resulted from $5.0 billion of new purchases, commitments, and guarantees, partially offset by $3.9 billion of scheduled maturities and repayments. Included in the $5.0 billion of new volume is newly purchased servicing rights on $0.6 billion of loans (i.e., loans serviced for others). 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 also purchased a total of $2.7 billion in Farm & Ranch AgVantage Securities during 2023, which primarily reflected the refinancing of maturing securities. The $2.7 billion in gross purchases was partially offset by $2.5 billion in scheduled maturities. The $90.5 million net increase in Corporate AgFinance during 2023 resulted from $0.9 billion of new purchases and unfunded loan commitments, which was partially offset by $0.8 billion of scheduled maturities, repayments, and paydowns on revolving commitments. Farmer Mac purchased a total of $578.1 million in loans, including draws on revolving commitments, which was partially offset by $484.6 million in scheduled maturities, repayments, and paydowns on revolving commitments. 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 $1.1 billion net increase in Rural Utilities during 2023 resulted from $2.0 billion of new purchases, unfunded loan commitments, and guarantees, which was partially offset by $0.9 billion of scheduled maturities and repayments. Farmer Mac purchased a total of $1.5 billion in AgVantage Securities, $232.5 million in telecommunications loans, and $297.6 million in electric distribution and generation and transmission loans. The $530.1 million in loan purchases was partially offset by $237.3 million in scheduled maturities and repayments. The net increase in loan purchases primarily reflected borrowers' normal-course capital expenditures related to maintaining and upgrading utility infrastructure as well as investments in broadband infrastructure, and Farmer Mac's continued focus to support telecommunications investment in rural America. The $257.4 million net increase in Renewable Energy during 2023 primarily reflects $273.5 million in loan purchases and unfunded commitments, partially offset by $52.7 million in repayments. Farmer Mac's outstanding business volume was $25.9 billion as of December 31, 2022, a net increase of $2.3 billion from December 31, 2021 after taking into account all new business, scheduled maturities, and paydowns on existing assets. The $1.6 billion net increase in Farm & Ranch during 2022 resulted from $6.9 billion of new purchases, commitments, and guarantees, mostly offset by $5.3 billion of scheduled maturities and repayments. Farmer Mac purchased a total of $1.4 billion in loans, which was primarily driven by improved borrower economics albeit navigating a substantially higher interest rate environment. The $1.4 billion in gross Farm & Ranch loan purchases was partially offset by $1.1 billion in scheduled maturities and repayments. 75 Farmer Mac also purchased a total of $4.2 billion in Farm & Ranch AgVantage Securities during 2022, which primarily reflected the refinancing of maturing securities as well as financial counterparties seeking to add longer-term AgVantage securities to manage their asset-liability maturity profile given increases in credit spreads and interest rates. The $4.2 billion in gross purchases was partially offset by $3.3 billion in scheduled maturities. Of the AgVantage Securities that were acquired during 2022 and were still outstanding as of December 31, 2022, $470.0 million are scheduled to mature by June 30, 2023 and an additional $600.0 million are scheduled to mature by December 31, 2023. The $65.7 million net increase in Corporate AgFinance during 2022 resulted from $546.6 million of new purchases and unfunded loan commitments, which was partially offset by $480.9 million of scheduled maturities, repayments, and sales. Farmer Mac purchased a total of $328.9 million in loans, which was partially offset by $276.9 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 $464.4 million net increase in Rural Utilities during 2022 resulted from $1.4 billion of new purchases, unfunded loan commitments, and guarantees, which was partially offset by $927.8 million of scheduled maturities and repayments. Farmer Mac purchased a total of $670.0 million in AgVantage Securities, $231.0 million in telecommunications loans, and $449.5 million in electric distribution and generation and transmission loans. The $680.5 million in loan purchases was partially offset by $181.2 million in scheduled maturities and repayments. The net increase in loan purchases primarily reflected borrowers' normal-course capital expenditures related to maintaining and upgrading utility infrastructure as well as investments in broadband infrastructure, and Farmer Mac's continued focus to support telecommunications investment in rural America. The $143.4 million net increase in Renewable Energy during 2022 primarily reflects $182.3 million in loan purchases and unfunded loan commitments, partially offset by $38.9 million in repayments. The level and composition of Farmer Mac’s outstanding business volume is based on the relationship between new business, loan sales, scheduled maturities, and repayments on existing assets from year to year. This relationship in turn depends on a variety of factors both internal and external to Farmer Mac. The external factors include general market forces, competition, and our counterparties’ liquidity needs, access to alternative funding, desired products, and assessment of strategic factors. The internal factors include our assessment of profitability, mission fulfillment, credit risk, and customer relationships. For more information about potential growth opportunities in Farmer Mac's lines of business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Outlook" in this report. 76 The following table sets forth information about the Farmer Mac Guaranteed Securities issued during the periods indicated: Table 18 For the Years Ended December 31, 2023 2022 2021 (dollars in thousands) AgVantage securities $ 4,284,405 $ 4,990,483 $ 3,919,907 Structured securitization transactions (not consolidated) — — 289,519 Loans securitized and held in consolidated trusts with beneficial interests owned by third parties (structured and single-class) 317,524 460,588 113,175 Total Farmer Mac Guaranteed Securities Issuances $ 4,601,929 $ 5,451,071 $ 4,322,601 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 2023, Farmer Mac sold and securitized agricultural mortgage loans in a structured securitization resulting in $281.0 million of Farmer Mac Guaranteed Securities. Farmer Mac consolidates the assets and liabilities of the trust for this structured securitization. Farmer Mac does not consider the assets held by the related securitization trust to be available to satisfy the claims of the creditors of Farmer Mac and/or the depositor. During 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 2021, Farmer Mac realized a $5.2 million gain after tax from the sale of Farmer Mac Guaranteed Securities in its structured securitization transaction. 77 The following table sets forth information about outstanding volume in each of Farmer Mac's lines of business as of the dates indicated: Table 19 Outstanding Business Volume On or Off Balance Sheet As of December 31, 2023 2022 2021 (in thousands) Agricultural Finance: Farm & Ranch: Loans On-balance sheet $ 5,133,450 $ 5,150,750 $ 4,775,070 Loans held in consolidated trusts: Beneficial interests owned by third-party investors (single-class) (1) On-balance sheet 870,912 914,918 948,623 Beneficial interests owned by third-party investors (structured) (1) On-balance sheet 561,349 296,658 — IO-FMGS (2) On-balance sheet 9,409 10,622 12,297 USDA Securities On-balance sheet 2,368,872 2,407,302 2,445,806 AgVantage Securities (1) On-balance sheet 5,835,000 5,605,000 4,725,000 LTSPCs and unfunded loan commitments Off-balance sheet 2,999,943 2,822,309 2,587,154 Other Farmer Mac Guaranteed Securities (3) Off-balance sheet 452,602 500,953 578,358 Loans serviced for others Off-balance sheet 577,264 20,280 22,331 Total Farm & Ranch $ 18,808,801 $ 17,728,792 $ 16,094,639 Corporate AgFinance: Loans On-balance sheet $ 1,259,723 $ 1,166,253 $ 1,123,300 AgVantage Securities (1) On-balance sheet 288,879 359,600 367,464 Unfunded loan commitments Off-balance sheet 145,377 77,654 47,070 Total Corporate AgFinance $ 1,693,979 $ 1,603,507 $ 1,537,834 Total Agricultural Finance $ 20,502,780 $ 19,332,299 $ 17,632,473 Rural Infrastructure Finance: Rural Utilities: Loans On-balance sheet $ 3,094,477 $ 2,801,696 $ 2,302,373 AgVantage Securities (1) On-balance sheet 3,898,468 3,044,156 3,033,262 LTSPCs and unfunded loan commitments Off-balance sheet 487,778 512,592 556,837 Other Farmer Mac Guaranteed Securities (3) Off-balance sheet — 1,169 2,755 Total Rural Utilities $ 7,480,723 $ 6,359,613 $ 5,895,227 Renewable Energy: Loans On-balance sheet $ 440,286 $ 219,570 $ 86,763 Unfunded loan commitments Off-balance sheet 47,235 10,600 — Total Renewable Energy $ 487,521 $ 230,170 $ 86,763 Total Rural Infrastructure Finance $ 7,968,244 $ 6,589,783 $ 5,981,990 Total $ 28,471,024 $ 25,922,082 $ 23,614,463 (1) A type of Farmer Mac Guaranteed Security. (2) An interest-only Farmer Mac Guaranteed Security retained as part of a structured securitization. (3) Other categories of Farmer Mac Guaranteed Securities that were sold by Farmer Mac to third parties. 78 The following table summarizes by maturity date the scheduled principal amortization of loans held, loans underlying off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and LTSPCs, USDA Securities, and Farmer Mac Guaranteed USDA Securities as of December 31, 2023: Table 20 Schedule of Principal Amortization as of December 31, 2023 Loans Loans Underlying Off-Balance Sheet Farmer Mac Guaranteed Securities and LTSPCs USDA Securities and Farmer Mac Guaranteed USDA Securities Total (in thousands) 2024 $ 613,695 $ 344,092 $ 111,958 $ 1,069,745 2025 610,817 246,828 114,089 971,734 2026 585,917 310,052 119,223 1,015,192 2027 696,170 248,520 119,790 1,064,480 2028 814,868 299,813 120,020 1,234,701 Thereafter 8,038,730 2,483,552 1,983,870 12,506,152 Total $ 11,360,197 $ 3,932,857 $ 2,568,950 $ 17,862,004 Of Farmer Mac's $28.5 billion outstanding principal balance of business volume as of December 31, 2023, $10.0 billion were AgVantage securities included in the Agricultural Finance and Rural Infrastructure Finance lines of business. Unlike business volume in the form of purchased loans, USDA Securities, and loans underlying LTSPCs and non-AgVantage Farmer Mac Guaranteed Securities, most AgVantage securities do not require periodic payments of principal based on amortization schedules and instead have fixed maturity dates when the secured general obligation is due. The following table summarizes by maturity date the outstanding principal amount of both on- and off-balance sheet AgVantage securities as of December 31, 2023: Table 21 AgVantage Balances by Year of Maturity As of December 31, 2023 (in thousands) 2024 $ 2,576,297 2025 1,676,625 2026 1,195,815 2027 1,048,898 2028 245,451 Thereafter (1) 3,279,261 Total $ 10,022,347 (1) Includes various maturities ranging from 2029 to 2044. The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.2 years as of December 31, 2023. 79 Related Party Transactions . As provided by Farmer Mac's statutory charter, only banks, insurance companies, and other financial institutions or similar entities may hold Farmer Mac's Class A voting common stock, and only institutions of the FCS may hold Farmer Mac's Class B voting common stock. Farmer Mac's charter also provides that holders of Class A voting common stock elect five members of Farmer Mac's 15-member board of directors and that holders of Class B voting common stock elect five members of the board of directors. The ownership of Farmer Mac's two classes of voting common stock is currently concentrated in a small number of institutions. Approximately 51% of the Class A voting common stock is held by four financial institutions, with 31% held by one institution. Approximately 97% of the Class B voting common stock is held by five FCS institutions (two of which are related to each other through a parent-subsidiary relationship). Unlike some other GSEs, specifically other FCS institutions and the Federal Home Loan Banks, Farmer Mac is not structured as a cooperative owned exclusively by member institutions and established to provide services exclusively to its members. Farmer Mac, as a stockholder-owned, publicly-traded corporation, seeks to fulfill its mission of serving the financing needs of rural America in a way that is consistent with providing a return on the investment of its stockholders, including those who do not directly participate in the secondary market provided by Farmer Mac. Farmer Mac generally requires most financial institutions that participate in Farmer Mac's Agricultural Finance line of business to own a requisite amount of common stock, based on the size and type of institution. As a result of this requirement, coupled with the ability of holders of Class A and Class B voting common stock to elect two-thirds of Farmer Mac's board of directors, Farmer Mac regularly conducts business with "related parties," including institutions affiliated with members of Farmer Mac's board of directors and institutions that own large amounts of Farmer Mac's voting common stock. Farmer Mac has adopted a Code of Business Conduct and Ethics and other related corporate policies that govern any conflicts of interest that may arise in these transactions, and Farmer Mac's policy is to require that any transactions with related parties be conducted in the ordinary course of business, with terms and conditions comparable to those available to any other counterparty not related to Farmer Mac. The following table summarizes the material relationships between Farmer Mac and certain related parties. The related parties listed in the table below consist of (1) all holders of at least five percent of a class of Farmer Mac voting common stock as of December 31, 2023 and (2) other institutions that are considered "related parties" through an affiliation with a Farmer Mac director and that have conducted business with Farmer Mac during the two years ended December 31, 2023. The table below does not specify any relationships based on the ownership of Farmer Mac's non-voting common stock or any series of preferred stock. Table 22 Name of Institution Ownership of Farmer Mac Voting Common Stock Affiliation with Any Farmer Mac Directors Primary Aspects of Institution's Business Relationship with Farmer Mac AgFirst Farm Credit Bank 84,024 shares of Class B voting common stock (16.79% of outstanding Class B stock and 5.49% of total voting common stock outstanding) None In 2023 and 2022, Farmer Mac earned approximately $1.4 million and $1.2 million, respectively, in fees attributable to transactions with AgFirst, primarily commitment fees for LTSPCs. 80 Name of Institution Ownership of Farmer Mac Voting Common Stock Affiliation with Any Farmer Mac Directors Primary Aspects of Institution's Business Relationship with Farmer Mac AgriBank, FCB 201,621 shares of Class B voting common stock (40.30% of outstanding Class B stock and 13.17% of total voting common stock outstanding) None Farmer Mac did not conduct any business with AgriBank during 2023 or 2022. Bath State Bank Less than 5% ownership Farmer Mac director Dennis L. Brack serves as a director of Bath State Bank and Bath State Bancorp, the holding company of Bath State Bank. Farmer Mac purchased $1.3 million and no USDA Securities from Bath State Bank in 2023 and 2022, respectively. Farmer Mac also purchased $0.3 million and $2.1 million in Agricultural Finance mortgage loans from Bath State Bank in 2023 and 2022, respectively. CoBank, ACB 163,253 shares of Class B voting common stock (32.63% of outstanding Class B stock and 10.66% of total voting common stock outstanding) Farmer Mac director Everett M. Dobrinski served as a director of CoBank through December 2019. Although no longer a director of CoBank, Mr. Dobrinski served on CoBank's independent nominating committee until December 2023. Farmer Mac purchased $438.8 million and $376.0 million in loans from CoBank in 2023 and 2022, respectively. In 2023 and 2022, CoBank retained $3.6 million and $3.5 million of servicing fees related to the loan participations sold to Farmer Mac, respectively. Farm Credit Bank of Texas (FCBT) 38,503 shares of Class B voting common stock (7.70% of outstanding Class B stock and 2.51% of total voting common stock outstanding) None In 2023 and 2022, Farmer Mac earned approximately $3.4 million and $2.9 million, respectively, in fees attributable to transactions with FCBT, primarily commitment fees for LTSPCs. In both 2023 and 2022, FCBT retained approximately $0.1 million in servicing fees for its work as a Farmer Mac servicer. Matthew 25 Management Corp. 71,500 shares of Class A voting common stock (6.94% of outstanding Class A stock and 4.67% of total voting common stock outstanding) None Farmer Mac did not conduct any business with Matthew 25 Management Corp. during 2023 or 2022. National Rural Utilities Cooperative Finance Corporation (CFC) 81,500 shares of Class A voting common stock (7.91% of outstanding Class A stock and 5.32% of total voting common stock outstanding) None Transactions with CFC represented 37.1% and 46.7% of loans under the Rural Infrastructure Finance line of business during 2023 and 2022, respectively. In 2023 and 2022, Farmer Mac earned commitment fees of approximately $1.0 million and $1.1 million, respectively, attributable to transactions with CFC. In 2023 and 2022, Farmer Mac earned interest income of $143.5 million and $79.4 million, respectively, attributable to AgVantage transactions with CFC. In 2023 and 2022, CFC retained approximately $3.7 million and $3.4 million in servicing fees for its work as a Farmer Mac servicer, respectively. 81 Name of Institution Ownership of Farmer Mac Voting Common Stock Affiliation with Any Farmer Mac Directors Primary Aspects of Institution's Business Relationship with Farmer Mac The Vanguard Group, Inc. 53,805 shares of Class A voting common stock (5.22% of outstanding Class A stock and 3.51% of total voting common stock outstanding) None Farmer Mac did not conduct any business with The Vanguard Group during 2023 or 2022. Zions Bancorporation, National Association (Zions) 322,100 shares of Class A voting common stock (31.25% of outstanding Class A stock and 21.04% of total voting common stock outstanding) None In 2023 and 2022, Farmer Mac's purchases of on-balance sheet Agricultural Finance mortgage loans from Zions represented approximately 9.5% and 12.9%, respectively, of Agricultural Finance mortgage loan purchase volume for those years. Those purchases represented 6.9% and 9.6%, respectively, of total Agricultural Finance mortgage loan business volume (excluding AgVantage and USDA Securities) for those years. The purchases of USDA Securities from Zions represented approximately 0.1% and 1.5%, respectively, of the USDA Guarantees purchases for the years ended December 31, 2023 and 2022. Transactions with Zions represented 3.1% and 3.5%, respectively, of Farmer Mac's total outstanding business volume (excluding loans serviced for others) as of December 31, 2023 and 2022. In 2023 and 2022, Zions retained approximately $11.2 million and $10.4 million, respectively, in servicing fees for its work as a Farmer Mac servicer. As discussed in more detail in Note 2(o) to the consolidated financial statements, Farmer Mac’s consolidated financial statements include the accounts of variable interest entities ("VIEs") in which Farmer Mac determines itself to be the primary beneficiary, including securitization trusts where Farmer Mac shares the power to make decisions about default mitigation with a related party. If that related party status changes, consolidation or deconsolidation of securitization trusts may occur. For more information about related party transactions, see Note 3 to the consolidated financial statements. 82 Outlook Business Outlook Products and Portfolio. Farmer Mac serves a vital role in serving rural America by offering liquidity, capital, and risk management tools as a secondary market that help increase the accessibility of financing for American agriculture and rural infrastructure. The growth trajectory of Farmer Mac is closely tied to the capital and liquidity needs of the lending institutions serving agriculture and rural infrastructure businesses and the overall financial health of borrowers in these sectors. Despite significant increases in market interest rates over the past two years and global and economic volatility, Farmer Mac was able to increase outstanding business volume and net effective spread by 9.8% and 28.0%, respectively, in 2023. The increase in outstanding business volume and net effective spread primarily reflects Farmer Mac's effective and active asset-liability and capital management strategies, the diversification of Farmer Mac’s business model, and the resiliency of the agriculture and rural infrastructure sectors. Several factors continue to influence business volume growth dynamics. The rise in market interest rates that have persisted over the past few years has had a direct impact on Farmer Mac’s Farm & Ranch product interest rates, and there generally exists an inverse correlation between Farm & Ranch new loan purchase volumes and changes in Farm & Ranch product interest rates, with higher product interest rates slowing portfolio loan prepayments. The net effect of these forces contributed to positive Farm & Ranch loan purchase portfolio growth in 2023 as new Farm & Ranch loan purchases outpaced loan prepayments, although the overall net Farm & Ranch loan purchase portfolio growth was below prior years, primarily because of the continued higher product interest rate environment. Future changes in monetary policy and sustained elevated product interest rates are anticipated to influence the demand for Agricultural Finance mortgage loans and the pace of repayments. Farmer Mac experienced significant momentum in its wholesale finance product during 2023, driven by volatile market credit spreads resulting in greater liquidity and diversification needs from our counterparties. This momentum could continue into 2024 and will be determined by market interest rates and credit spreads, overall economic conditions, and the relative value of Farmer Mac’s products versus the broader market. Corporate AgFinance loan purchases and unfunded commitments increased 12.9% in 2023 to $1.4 billion despite volatile transaction velocity throughout 2023 due to market and economic uncertainty. The Rural Infrastructure Finance segments showed substantial business volume growth in 2023, driven by counterparty demand for wholesale funding, increased investment activity in telecommunications and rural broadband borrowers, and additional financing for renewable energy projects. Finally, Farmer Mac increased assets under management through the expansion of its servicing platform through loan pool purchases and purchases of loan servicing rights for loans owned by other entities. Opportunities for profitable future growth include Farmer Mac's crucial role in alleviating liquidity, equity capital, and return-on-equity capital challenges faced by agricultural and rural infrastructure lenders. The suite of offerings encompasses loan and portfolio purchases, participations, guarantees, LTSPCs, wholesale funding, and securitizations. Ongoing business and product development efforts continue to attract institutional investors and nontraditional lenders, resulting in the diversification of Farmer Mac's customer base and product set, potentially generating increased product demand from new sources. Farmer Mac’s improved loan servicing capabilities enhance our loan portfolio purchase value proposition, adding new product offerings to an increasingly diverse customer base. Growing relationships with larger agriculture lenders, financial industry consolidation, and interest rate and market volatility continue to provide increased opportunities for Farmer Mac, influencing the demand 83 for loan purchases, risk management solutions, and wholesale funding. This growth may lead to an increase in the average transaction size within Farmer Mac’s lines of business. The financing needs arising from mergers, acquisitions, consolidation, and vertical integration in the agricultural and rural infrastructure industries present further opportunities for Farmer Mac’s loan purchase products and other financing solutions. Furthermore, investments supporting consumer and food supply demand may increase financing needs in the food and agriculture supply chain, potentially requiring incremental capital support through the secondary market. Deepening relationships with eligible rural infrastructure counterparties are expected to continue to create opportunities to support fiber and broadband-related projects, rural telecommunications investments, and renewable energy projects. Operations . Throughout 2023, Farmer Mac was not affected by the liquidity concerns that affected many regional and national banks due to fluctuations caused by elevated interest rates and deposit withdrawals. Unlike depository institutions, Farmer Mac's funding strategies do not rely on deposits, allowing us to navigate beyond short-term liquidity disruptions and to take advantage of increased opportunities in a competitive lending environment. Our funding advantage over regional and national banks is also aided by the fact that our debt has a contractual term to maturity and that only we have the ability to call our callable debt before its original maturity date when market conditions are beneficial to Farmer Mac. In contrast, depository institutions largely rely on demand deposit accounts in which the depositors hold the right to withdraw at any time. Because of these differences in funding strategies, certain economic disruptions may have a positive impact on Farmer Mac’s funding costs relative to the overall market. The increase in short-term rates during the last two years has provided an asymmetric benefit to Farmer Mac's earnings as a result of effective capital allocation and interest rate risk strategies. Our proactive equity capital allocation strategies help to limit any downside effect to earnings when rates decline. Farmer Mac's fundamental asset-liability management approach, which matches the duration and convexity of assets and liabilities in all rate environments, also helps to minimize earnings volatility during periods of short-term interest rate fluctuations. In addition to active asset-liability management, Farmer Mac's business may benefit from natural business hedges that help mitigate vulnerability to effects from interest rate volatility. When interest rates rise, prepayments tend to decline, but interest earned on excess cash and capital increases, maintaining Farmer Mac's strong market access without relying on deposits. Conversely, when interest rates decline, loan purchase volume often increases, but prepayments tend to rise as well. Farmer Mac manages its interest rate risk by issuing callable debt and maintaining market-based credit spreads. Although these natural business dynamics may not be perfect offsets, they often effectively counterbalance to mitigate volatility from changes in short-term interest rates. Farmer Mac expects continued increases in its operating expenses over the next several years as we continue to expand our investments in human capital, technology, and business infrastructure to increase capacity and efficiency as we seek to accommodate growth opportunities and achieve our long-term strategic objectives. Investments in infrastructure and funding platforms to support strategic objectives are expected to allow Farmer Mac to scale more efficiently with future portfolio and earnings growth. These investments will likely help improve product delivery and funding efficiency, potentially creating additional benefits for future growth. Another focus of our infrastructure investments will be a continued effort to expand our servicing capabilities and to enhance the efficiency and effectiveness of processes associated with loan onboarding and servicing. Farmer Mac will continue to leverage technology enhancements and servicing 84 standardization efforts to drive scalability and consistency. In 2023, Farmer Mac’s servicing portfolios grew by more than 50% in both number of loans serviced and outstanding balances. Servicing capabilities also increased to incorporate new features as we started servicing eligible loans on behalf of others. Technology enhancements are planned for 2024 to continue to incorporate all Farmer Mac loan portfolios onto our servicing platform and to provide flexibility in accessing loan portfolio information, as well as streamlining operational workflows. Agricultural Finance Industry Outlook Farm Incomes. Overall farm incomes fell in 2023 and are forecast to fall again in 2024 after reaching new highs in 2022. The USDA estimates that net cash farm income climbed 34% to $202.2 billion in 2022, a new all-time high. The primary driver of increased profitability in 2022 was higher cash revenues, in contrast to 2019 and 2020, when elevated government support payments supported farm incomes. Although the USDA estimates that net cash farm income decreased 21% in 2023 and will decrease another 24% in 2024 due to lower commodity prices and elevated farm expenses, the average of 2023 and 2024 farm income projections are 10% higher than the 10-year average, demonstrating the continued strength in farm profitability. Grain commodity prices may see increased volatility in 2024 due to changing global supply levels, but some livestock and animal protein sectors may see offsetting benefits from lower feed costs, particularly the cattle sector. Demand for corn and soybean by-products could see a boost in 2024 as renewable diesel and sustainable aviation fuel markets mature. Farm expenses could also abate somewhat in 2024, with lower expected feed, fertilizer, and fuel costs partially offset by higher expected interest, labor, and rental rates. Land Values. Record-setting farm incomes in 2021 and 2022, combined with historically low interest rates in 2020 and 2021, drove a rapid rise in land values and a decrease in farm delinquencies and bankruptcies. Momentum for farmland values persisted throughout 2023 due to high levels of farm liquidity and a constrained supply of farmland for sale. 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 (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%). Farmland value growth rates moderated in the second half of 2023 in the face of continued higher market interest rates. The Federal Reserve Bank of Chicago AgLetter reported a 5% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) between October 2022 and October 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. Growth rates in land values could moderate slightly into 2024 due to compressing farm profitability and a continued elevated interest rate environment, although a low supply of available farmland and strong demand for the asset class across a wide variety of investors could help maintain balance in the farmland transaction markets. While regional averages for farmland values generally provide a good barometer for the overall changes in U.S. farmland values, economic forces affecting land markets are highly localized, and some markets may experience greater volatility in farmland values than state or national averages indicate. Based on our robust collateral underwriting standards, we believe that our loan collateral is well-positioned to endure reasonably foreseeable volatility in farmland values due to external factors. Markets and Weather. Exogenous factors facing farm and food producers can create uncertainty and market instability within the sector. Some of the external market conditions that could adversely affect the farm and food sectors in 2024 include foreign trade and trade policy, supply chain disruptions, and 85 environmental conditions. The U.S. 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 projects that U.S. agriculture exports will drop to $169.5 billion in 2024, a 14% decrease relative to peak levels in 2022. Through November 2023, agricultural export values were down approximately 11% in 2023 compared to 2022. The value of the U.S. dollar relative to other major currencies fell 3% in 2023, but economic and geopolitical uncertainties such as conflicts in Eastern Europe and the Middle East increased U.S. dollar volatility during the year. A strong U.S. dollar could potentially be a headwind for farm, food, fiber, and fuel exports heading into 2024. 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. Severe weather conditions and long-term environmental change continue to shape agricultural sectors. The U.S. experienced 28 separate billion-dollar weather disasters in 2023, the highest number of billion-dollar weather disasters on record, as tracked by the National Oceanic and Atmospheric Administration. Many of those events affected agriculture, including midwestern storms, flooding, western wildfires, excessive heat, and drought. Federal crop insurance provides a strong mitigator against this risk, but farmers and ranchers face increasingly severe weather incidents. Long and persistent heat and drought conditions affected agricultural production regions in the western and midwestern parts of the United States in 2021 and 2022. There was 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 14% of the continental U.S. was classified as being in severe to exceptional drought as of January 2, 2024, according to data from the National Center for Environmental Information. For loans in other areas that commonly experience exceptional drought (primarily in California), Farmer Mac's underwriting standards include an assessment of anticipated long-term water availability for the related property and how water availability impacts the collateral value and the borrower's liquidity position to mitigate that risk. Ag Processing and Food Supply Chain. The production of food, feed, fiber, and biofuels has been economically viable in the past few years, but some factors may change in 2024. Rising consumer inflation boosted the profitability of the food processing and supply chains in 2021 and 2022. Lower consumer prices increased the volume of consumer spending but also limited the profit expansion of food and fiber businesses. Biofuels have gained more demand due to low-carbon regulations in several states and incremental tax benefits for the production of renewable diesel and sustainable aviation fuel. A large amount of planned biofuel projects and new facilities for 2024 and 2025 could raise the prices of raw materials such as corn and soybeans. A strong U.S. dollar, trade issues, and a high risk of global economic turmoil could pose challenges for these sectors in 2024. Nonetheless, consumer spending remains strong at the beginning of 2024, creating favorable conditions for value-added food, feed, fiber, and biofuel consumption. Credit demand in these sectors could grow in the next few quarters if interest rate policy moderates, inflation rises again, or economic uncertainty clears up. Rural Infrastructure Finance Industry Outlook Power and Energy. Economic conditions affecting rural power and electricity markets typically follow those in the general economy. According to data from the U.S. Energy Information Administration, sales and the revenue from the sale of electricity to customers have slowed, with an annual decrease in sales of 1.1% and an increase in revenue of 2.9%, respectively, in the last 12 months through November 2023 compared to November 2022. This decrease in sales was driven by a drop in the residential electricity sector. The average price of electricity to industrial customers increased 2.0% in November 2023 relative to 2022. Higher energy input prices, such as natural gas and coal, became a headwind in 2022. Natural gas 86 prices rose consistently in 2021 and 2022 because of reduced supply and additional demand for U.S. liquified natural gas from European countries. Coal prices also rapidly increased in 2022, driven by higher natural gas prices and additional overseas demand to offset limited Russian coal exports. Oil and natural gas price volatility moderated throughout 2023, but geopolitical uncertainty in the Middle East and Eastern Europe could increase volatility in 2024. Despite higher input costs, power producers are generally able to pass cost increases through higher retail electricity prices, as evidenced by the increase in retail electricity price increases throughout 2022 and parts of 2023. Through December 31, 2023, Farmer Mac had not observed material degradation in the financial performance of its rural utilities portfolio, and that portfolio has never had a serious delinquency or default since its inception. Credit demand for electric cooperatives will likely be tied to ongoing normal-course capital expenditures related to maintaining and upgrading utility 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. Generally, these investments are expected to continue at historical levels based on the replacement and modernization of existing infrastructure. Telecommunications. Rural telecommunication connectivity has proven to be of vital economic importance in the last decade, as more households and agricultural enterprises require more data and connectivity to thrive. The rapid growth in digital technologies, including the ongoing interest and investment in artificial intelligence, advancements in cloud computing, and wireless network densification, will require significantly more computing and storage capabilities as well as investment in additional fiber network capacity. These industry tailwinds are creating additional investments in rural telecommunications infrastructure by cooperative and non-cooperative providers, which is aided by access to many 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 program, 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. Renewable Energy. Growth in renewable energy generation and deployment of energy storage technologies has the potential to continue to deepen Farmer Mac's relationships with existing customers through new business opportunities. According to data from the U.S. Energy Information Administration, renewable electricity capacity is expected to grow by 48% in the next five years, compared to total electric capacity growth of 10%. The rising cost of fossil fuel-based inputs combined with the falling costs of renewable power generation may hasten this increase in capacity along with recently enacted legislation, such as the Inflation Reduction Act of 2022 that incentivizes domestic production in clean energy technologies such as solar and wind. 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 has the potential to broaden Farmer Mac's customer base focused on financing renewable energy projects and companies. In response to this expected growth, Farmer Mac has hired industry-specialized staff and deployed new financing products tailored to the renewable energy sector, which represents a new and growing market opportunity for Farmer Mac. 87 Legislative and Regulatory Outlook . Farmer Mac continues to monitor potential legislative and regulatory changes that could affect Farmer Mac or its stakeholders, including: • On November 16, 2023, President Biden signed into law a one-year extension of the 2018 farm bill. The extension (through September 30, 2024) will give Congress more time to reauthorize and update a variety of programs impacting farm profitability, agricultural credit, and rural infrastructure. A farm bill is a critical piece of legislation for a variety of Farmer Mac's customers. Congress has started an extensive process to review programs that are included in the farm bill in preparation for reauthorization. Farmer Mac is seeking changes to its charter in this farm bill reauthorization to enhance its partnerships and services in support of lenders serving farmers, ranchers, agribusinesses, and rural infrastructure. Because the source of Farmer Mac's charter is federal statute, any proposed changes to the text of our charter are subject to approval by Congress and being signed into law by the President of the United States. • 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. • The FCA's proposed 2023 regulatory agenda includes a proposed rulemaking to review Farmer Mac's regulatory capital framework. The FCA's regulatory agenda estimates that proposed rulemaking in May 2024, although this timeline may change. Farmer Mac's management team will continue to monitor the FCA's process for this potential rulemaking. • Two of the three members of the FCA board are currently serving in holdover status because their terms have expired. These board members will continue to serve in their roles until replacements are nominated by the President and confirmed by the U.S. Senate. 88 Balance Sheet Review The following table summarizes Farmer Mac's balance sheet as of the periods indicated: Table 23 As of Change December 31, 2023 December 31, 2022 $ % (in thousands) Assets Cash and cash equivalents $ 888,707 $ 861,002 $ 27,705 3 % Investment securities 4,979,504 4,628,268 351,236 8 % Farmer Mac Guaranteed Securities 9,745,548 8,628,380 1,117,168 13 % USDA Securities 2,355,412 2,411,601 (56,189) (2) % Loans, net of allowance 9,607,531 8,994,350 613,181 7 % Loans held in trusts 1,431,818 1,211,116 220,702 18 % Other 515,862 598,393 (82,531) (14) % Total assets $ 29,524,382 $ 27,333,110 $ 2,191,272 8 % Liabilities Notes Payable $ 26,336,542 $ 24,469,113 $ 1,867,429 8 % Debt securities of consolidated trusts held by third parties 1,351,069 1,181,948 169,121 14 % Other 424,908 410,091 14,817 4 % Total liabilities $ 28,112,519 $ 26,061,152 $ 2,051,367 8 % Total equity 1,411,863 1,271,958 139,905 11 % Total liabilities and equity $ 29,524,382 $ 27,333,110 $ 2,191,272 8 % Assets . 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 Farmer Mac Guaranteed Securities, loan volume, and investment portfolio assets, including those held in consolidated trusts. Equity . The increase in total equity was primarily due to an increase in retained earnings and an increase in accumulated other comprehensive income. Risk Management Credit Risk – Loans and Guarantees . Agricultural Finance - Direct Credit Exposure Farmer Mac's direct credit exposure to Agricultural Finance mortgage loans as of December 31, 2023 was $11.2 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 89 transaction complexity. For more information about Farmer Mac's underwriting and collateral valuation standards for Agricultural Finance mortgage loans, see "Business—Farmer Mac's Lines of Business—Agricultural Finance—Underwriting and Collateral Standards—Farm & Ranch" and "Business—Farmer Mac's Lines of Business—Agricultural Finance—Underwriting and Collateral Standards—Corporate AgFinance." Farmer Mac's 90-day delinquency measure includes loans 90 days or more past due, as well as loans in foreclosure and non-performing loans where the borrower is in bankruptcy. For Agricultural Finance mortgage loans to which Farmer Mac has direct credit exposure, Farmer Mac's 90-day delinquencies as of December 31, 2023, were $34.7 million (0.31% of the Agricultural Finance mortgage loan portfolio to which Farmer Mac has direct credit exposure), compared to $43.5 million (0.41% of the Agricultural Finance mortgage loan portfolio) as of December 31, 2022. Those 90-day delinquencies consisted of 23 delinquent loans as of December 31, 2023, compared to 37 delinquent loans as of December 31, 2022. The decrease in the number of 90-day delinquencies was primarily driven by decreased delinquencies in agricultural storage and processing, and was partially offset by increased delinquencies in crops, permanent plantings, part-time farms, and livestock. The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of December 31, 2023. Farmer Mac believes that it remains adequately collateralized on its delinquent loans. Farmer Mac's 90-day delinquency rate as of December 31, 2023 was below Farmer Mac's historical average. In the near-term, our delinquency rate may exceed our historical average due to changes in the agricultural or general economy or unforeseen and idiosyncratic events like adverse weather events. Farmer Mac's average 90-day delinquency rate as a percentage of its Agricultural Finance mortgage loan portfolio over the last 15 years is approximately 1%. The highest 90-day delinquency rate observed during that period occurred in 2009 at approximately 2%, which coincided with increased delinquencies in loans within Farmer Mac's ethanol loan portfolio. The following table presents historical information about Farmer Mac's 90-day delinquencies in the Agricultural Finance mortgage loan portfolio compared to the unpaid principal balance of all Agricultural Finance mortgage loans to which Farmer Mac has direct credit exposure: Table 24 Agricultural Finance Mortgage Loans 90-Day Delinquencies Percentage (dollars in thousands) As of: December 31, 2023 $ 11,223,276 $ 34,677 0.31 % September 30, 2023 11,014,678 42,443 0.39 % June 30, 2023 10,826,201 45,368 0.42 % March 31, 2023 10,680,419 70,646 0.66 % December 31, 2022 10,719,571 43,498 0.41 % September 30, 2022 10,508,549 44,232 0.42 % June 30, 2022 10,128,083 20,623 0.20 % March 31, 2022 9,879,978 55,847 0.57 % December 31, 2021 9,811,749 47,307 0.48 % Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.12% of total outstanding business volume as of December 31, 2023, compared to 0.17% as of December 31, 2022 and 0.20% as of December 31, 2021. 90 The following table presents outstanding Agricultural Finance mortgage loans and 90-day delinquencies as of December 31, 2023 by year of origination, geographic region, commodity/collateral type, original loan-to-value ratio, and range in the size of borrower exposure: Table 25 Agricultural Finance Mortgage Loans 90-Day Delinquencies as of December 31, 2023 Distribution of Agricultural Loans Agricultural Loans 90-Day Delinquencies (1) Percentage (dollars in thousands) By year of origination: 2013 and prior 6 % $ 718,725 $ 2,982 0.41 % 2014 2 % 198,726 1,102 0.55 % 2015 3 % 318,518 9,585 3.01 % 2016 5 % 512,420 2,871 0.56 % 2017 5 % 513,356 1,262 0.25 % 2018 5 % 595,089 2,409 0.40 % 2019 7 % 820,410 551 0.07 % 2020 18 % 1,964,250 5,232 0.27 % 2021 23 % 2,616,354 931 0.04 % 2022 15 % 1,735,928 7,752 0.45 % 2023 11 % 1,229,500 — 0.45 % Total 100 % $ 11,223,276 $ 34,677 0.31 % By geographic region (2) : Northwest 13 % $ 1,397,173 $ 1,837 0.13 % Southwest 31 % 3,438,077 17,422 0.51 % Mid-North 26 % 2,966,948 2,626 0.09 % Mid-South 17 % 1,942,663 10,355 0.53 % Northeast 4 % 439,449 1,296 0.29 % Southeast 9 % 1,038,966 1,141 0.11 % Total 100 % $ 11,223,276 $ 34,677 0.31 % By commodity/collateral type: Crops 49 % $ 5,475,379 $ 20,994 0.38 % Permanent plantings 22 % 2,460,486 6,252 0.25 % Livestock 19 % 2,124,438 4,116 0.19 % Part-time farm 4 % 490,975 3,315 0.68 % Ag. Storage and Processing 6 % 655,279 — — % Other — % 16,719 — — % Total 100 % $ 11,223,276 $ 34,677 0.31 % By original loan-to-value ratio: 0.00% to 40.00% 16 % $ 1,761,182 $ 551 0.03 % 40.01% to 50.00% 22 % 2,480,809 9,227 0.37 % 50.01% to 60.00% 35 % 3,877,916 18,980 0.49 % 60.01% to 70.00% 20 % 2,291,423 5,118 0.22 % 70.01% to 80.00% (3) 2 % 247,698 801 0.32 % 80.01% to 90.00% (3) — % 24,752 — — % Enterprise Value (4) 5 % 539,496 — — % Total 100 % $ 11,223,276 $ 34,677 0.31 % By size of borrower exposure (5) : Less than $1,000,000 25 % $ 2,845,173 $ 5,033 0.18 % $1,000,000 to $4,999,999 37 % 4,185,109 20,059 0.48 % $5,000,000 to $9,999,999 15 % 1,664,029 — — % $10,000,000 to $24,999,999 13 % 1,444,359 9,585 0.66 % $25,000,000 and greater 10 % 1,084,606 — — % Total 100 % $ 11,223,276 $ 34,677 0.31 % 91 (1) Includes loans held and loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. (2) Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). (3) Primarily part-time farm loans. Loans with an original loan-to-value ratio of greater than 80% are required to have private mortgage insurance. (4) "Enterprise Value" loans are generally secured by all business assets and common stock (in addition to first lien mortgages) of the borrower and the value of the borrowing entity depends on its ability to generate recurring positive cash flow. Enterprise Value is the estimated value of the borrower as a going concern, which is estimated using one or more valuation techniques such as discounted cash flow, cash flow multiples, asset liquidation, or other valuation techniques. (5) Includes aggregated loans to single borrowers or borrower-related entities. Another indicator that Farmer Mac considers in analyzing the credit quality of its Agricultural Finance mortgage loans is the level of internally-rated "substandard" assets, both in dollars and as a percentage of the outstanding portfolio. Assets categorized as "substandard" have a well-defined weakness or weaknesses, and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. As of December 31, 2023, Farmer Mac's Agricultural Finance mortgage loans (to which it has direct credit exposure) comprising substandard assets were $186.0 million (1.7% of the portfolio), compared to $209.4 million (2.0% of the portfolio) as of December 31, 2022. Those substandard assets comprised 206 loans as of December 31, 2023 and 243 loans as of December 31, 2022. The decrease of $23.4 million in Agricultural Finance substandard assets during 2023 was primarily driven by the payoff of a substandard loan that had been in our on-balance sheet portfolio. Agricultural Finance substandard assets decreased as a percentage of both our on-balance sheet and our off-balance sheet Agricultural Finance portfolios during 2023. The percentage of Agricultural Finance substandard assets within the portfolio as of December 31, 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 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 December 31, 2023 and 2022, the average unpaid principal balances for Farm & Ranch loans outstanding and to which Farmer Mac has direct credit exposure was $804,000 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. This calculation does not reflect any amortization of the original loan balance or any adjustment to the original appraised value to provide a current market value. The original loan-to-value ratio of any cross-collateralized loans is calculated on a combined basis rather than on a loan-by-loan basis. The weighted-average original loan-to-value ratio for Farm & Ranch mortgage loans purchased during 2023 was 51%, compared to 50% for loans purchased during 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 52% and 51% as of December 31, 2023 and 92 2022, respectively. The weighted-average original loan-to-value ratio for all 90-day delinquencies was 56% and 46% as of December 31, 2023 and 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 47% and 46% as of December 31, 2023 and 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: Table 26 Agricultural Finance Mortgage Loans current loan-to-value ratio by internally assigned risk rating as of December 31, 2023 Acceptable Special Mention Substandard Total (in thousands) Current loan-to-value ratio (1) : 0.00% to 40.00% $ 2,941,132 $ 58,143 $ 48,923 $ 3,048,198 40.01% to 50.00% 2,808,638 95,906 41,127 2,945,671 50.01% to 60.00% 2,888,136 78,501 44,403 3,011,040 60.01% to 70.00% 1,335,688 58,715 30,072 1,424,475 70.01% to 80.00% 188,582 28,425 17,555 234,562 80.01% and greater 15,963 — 3,871 19,834 Enterprise Value (2) 507,885 31,611 — 539,496 Total $ 10,686,024 $ 351,301 $ 185,951 $ 11,223,276 (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. (2) "Enterprise Value" loans are generally secured by all business assets and common stock (in addition to first lien mortgages) of the borrower and the value of the borrowing entity depends on its ability to generate recurring positive cash flow. Enterprise Value is the estimated value of the borrower as a going concern, which is estimated using one ore more valuation techniques such as discounted cash flow, cash flow multiples, asset liquidation, or other valuation techniques. 93 The following table presents Farmer Mac's cumulative net credit losses relative to the cumulative original balance for all Agricultural Finance mortgage loans as of December 31, 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. Table 27 Agricultural Finance Mortgage Loans Credit Losses Relative to Cumulative Original Loans, Guarantees, and LTSPCs as of December 31, 2023 Cumulative Original Loans, Guarantees and LTSPCs Cumulative Net Credit Losses/(Recoveries) Cumulative Loss Rate (dollars in thousands) By year of origination: 2013 and prior $ 18,730,988 $ 33,785 0.18 % 2014 1,097,131 — — % 2015 1,251,414 (516) (0.04) % 2016 1,599,533 903 0.06 % 2017 1,709,852 4,311 0.25 % 2018 1,403,244 — — % 2019 1,630,441 — — % 2020 2,934,102 — — % 2021 3,346,715 — — % 2022 2,003,044 — % 2023 1,419,621 — % Total $ 37,126,085 $ 38,483 0.10 % By geographic region (1) : Northwest $ 4,705,793 $ 12,094 0.26 % Southwest 12,434,219 8,542 0.07 % Mid-North 9,213,586 17,165 0.19 % Mid-South 5,361,636 (613) (0.01) % Northeast 1,921,518 323 0.02 % Southeast 3,489,333 972 0.03 % Total $ 37,126,085 $ 38,483 0.10 % By commodity/collateral type: Crops $ 17,023,194 $ 3,790 0.02 % Permanent plantings 8,028,667 9,783 0.12 % Livestock 8,158,577 3,836 0.05 % Part-time farm 1,936,477 1,090 0.06 % Ag. Storage and Processing 1,810,339 19,984 1.10 % Other 168,831 — — % Total $ 37,126,085 $ 38,483 0.10 % (1) Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). 94 Analysis of portfolio performance indicates that commodity type is the primary determinant of Farmer Mac's exposure to loss on a given loan. The following tables present concentrations of Agricultural Finance mortgage loans by commodity type within geographic region and cumulative credit losses by origination year and commodity type: Table 28 As of December 31, 2023 Agricultural Finance Mortgage Loans Concentrations by Commodity Type within Geographic Region Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (dollars in thousands) By geographic region (1) : Northwest $ 711,850 $ 232,794 $ 300,766 $ 116,082 $ 35,658 $ 23 $ 1,397,173 6.4 % 2.1 % 2.7 % 1.0 % 0.3 % — % 12.5 % Southwest 730,660 1,848,059 605,245 115,172 123,674 15,267 3,438,077 6.5 % 16.5 % 5.4 % 1.0 % 1.2 % 0.1 % 30.7 % Mid-North 2,392,197 10,635 264,769 82,100 216,004 1,243 2,966,948 21.3 % 0.1 % 2.4 % 0.7 % 1.9 % — % 26.4 % Mid-South 1,104,414 83,432 625,700 67,730 61,387 — 1,942,663 9.8 % 0.7 % 5.6 % 0.6 % 0.5 % — % 17.2 % Northeast 187,279 42,835 69,641 48,936 90,758 — 439,449 1.7 % 0.4 % 0.6 % 0.4 % 0.8 % — % 3.9 % Southeast 348,979 242,731 258,317 60,955 127,798 186 1,038,966 3.1 % 2.2 % 2.4 % 0.5 % 1.1 % — % 9.3 % Total $ 5,475,379 $ 2,460,486 $ 2,124,438 $ 490,975 $ 655,279 $ 16,719 $ 11,223,276 48.8 % 22.0 % 19.1 % 4.2 % 5.8 % 0.1 % 100.0 % (1) Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). 95 Table 29 As of December 31, 2023 Agricultural Loans Cumulative Credit Losses by Origination Year and Commodity Type Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Total (in thousands) By year of origination: 2013 and prior $ 3,427 $ 9,783 $ 3,836 $ 1,066 $ 15,673 $ 33,785 2014 — — — — — — 2015 (540) — — 24 — (516) 2016 903 — — — — 903 2017 — — — — 4,311 4,311 2018 — — — — — — 2019 — — — — — — 2020 — — — — — — 2021 — — — — — — 2022 — — — — — — 2023 — — — — — — Total $ 3,790 $ 9,783 $ 3,836 $ 1,090 $ 19,984 $ 38,483 For more information about the credit quality of Farmer Mac's Agricultural Finance mortgage loans and the associated allowance for losses please refer to Note 8 and Note 12 to the consolidated financial statements. Activity affecting the allowance for loan losses and reserve for losses is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Provision for and Release of Allowance for Loan Losses and Reserve for Losses." Rural Infrastructure Finance - Direct Credit Exposure Farmer Mac's direct credit exposure to Rural Infrastructure Finance loans held and loans underlying LTSPCs as of December 31, 2023 was $4.1 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." As of December 31, 2023, there were no delinquencies in Farmer Mac's portfolio of Rural Infrastructure Finance loans. As of December 31, 2023, there was one telecommunications loan classified as substandard, with an unpaid principal balance of $29.4 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 disaggregates Farmer Mac’s portfolio of Rural Infrastructure loans by portfolio segment and by internally assigned risk ratings. 96 Table 30 As of December 31, 2023 Rural Infrastructure Finance portfolio by internally assigned risk rating Acceptable Special Mention Substandard Total (in thousands) Distribution Cooperative $ 2,396,940 $ — $ — $ 2,396,940 Generation and Transmission Cooperative 678,354 — — 678,354 Renewable Energy 487,521 — — 487,521 Telecommunications 467,711 9,850 29,400 506,961 Rural Infrastructure Total $ 4,030,526 $ 9,850 $ 29,400 $ 4,069,776 For more information about the credit quality of Farmer Mac's Rural Infrastructure Finance portfolio and the associated allowance for losses please refer to Notes 8 and 12 of the consolidated financial statements. Other Considerations Regarding Credit Risk Related to Loans and Guarantees The credit exposure on USDA Securities, including those underlying Farmer Mac Guaranteed USDA Securities, is guaranteed by the full faith and credit of the United States. Therefore, Farmer Mac believes that we have little or no credit risk exposure to the USDA Securities in the Agricultural Finance line of business because of the USDA guarantee. As of December 31, 2023, Farmer Mac had not experienced any credit losses on any USDA Securities or Farmer Mac Guaranteed USDA Securities and does not expect to incur any such losses in the future. Because we do not expect credit losses on this portfolio, Farmer Mac does not provide an allowance for losses on its portfolio of USDA Securities. Farmer Mac requires many lenders to make representations and warranties about the conformity of Agricultural Finance mortgage loans to Farmer Mac's standards, the accuracy of loan data provided to Farmer Mac, and other requirements related to the loans. Sellers who make these representations and warranties are responsible to Farmer Mac for breaches of those representations and warranties. Farmer Mac has the ability to require a seller to cure, replace, or repurchase a loan sold or transferred to Farmer Mac if any breach of a representation or warranty is discovered that was material to Farmer Mac's decision to purchase the loan or that directly or indirectly causes a default or potential loss on a loan sold or transferred by the seller to Farmer Mac. During the previous three years ended December 31, 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. For rural housing and part-time farm mortgage loans, Farmer Mac relies on representations and warranties from the seller that those loans conform to Farmer Mac's specified underwriting criteria. For more information about Farmer Mac's loan eligibility requirements and underwriting standards, see "Business—Farmer Mac's Lines of Business—Agricultural Finance—Loan Eligibility," "Business—Farmer Mac's Lines of Business—Agricultural Finance—Underwriting and Collateral Standards—Farm & Ranch," "Business—Farmer Mac's Lines of Business—Agricultural Finance—Underwriting and Collateral Standards—Corporate AgFinance," and "Business—Farmer Mac's Lines of Business—Rural Infrastructure Finance—Underwriting and Collateral Standards." Under contracts with Farmer Mac and in consideration for servicing fees, Farmer Mac-approved servicers service loans in accordance with Farmer Mac's requirements. Servicers are responsible to Farmer Mac for material errors in the servicing of those loans. If a servicer materially breaches the terms of its servicing 97 agreement with Farmer Mac, such as failing to forward payments received or releasing collateral without Farmer Mac's consent, or experiences insolvency or bankruptcy, the servicer is responsible for any corresponding damages to Farmer Mac and, in most cases, Farmer Mac has the right to terminate the servicing relationship for a particular loan or the entire portfolio serviced by the servicer. Farmer Mac also can proceed against the servicer in arbitration or exercise any remedies available to it under law. During the previous three years ended December 31, 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." Credit Risk – Counterparty Risk . Farmer Mac is exposed to credit risk arising from its business relationships with other institutions, which include: • issuers of AgVantage securities; • approved lenders and servicers; and • interest rate swap counterparties. Farmer Mac approves AgVantage counterparties and manages institutional credit risk related to those AgVantage counterparties by requiring them to meet Farmer Mac's standards for creditworthiness for the particular counterparty type and transaction. The required collateralization level is established when the AgVantage facility is entered into with the counterparty and does not change during the life of the AgVantage securities issued under the facility without Farmer Mac's consent. In AgVantage transactions, the corporate obligor is typically required to remove from the pool of pledged collateral loans that become and remain (within specified parameters) delinquent in the payment of principal or interest and to substitute eligible loans that are current in payment or pay down the AgVantage securities to maintain the minimum required collateralization level. In the event of a default on an AgVantage security, Farmer Mac would have recourse to the pledged collateral and have rights to the ongoing borrower payments of principal and interest. As a result, Farmer Mac has indirect credit exposure to the Agricultural Finance mortgage loans and Rural Infrastructure loans that secure AgVantage securities. For AgVantage counterparties that are institutional real estate investors or financial funds and other similar entities, Farmer Mac also typically requires that the counterparty (1) maintain a higher collateralization level, through either a higher overcollateralization percentage or lower loan-to-value ratio thresholds and (2) comply with specified financial covenants for the life of the related AgVantage security to avoid default. As of December 31, 2023, Farmer Mac had not experienced any credit losses on any AgVantage securities over the life of the program. For a more detailed description of AgVantage securities, see "Business—Farmer Mac's Lines of Business—Agricultural Finance—Other Products – Agricultural Finance—AgVantage Securities" and "Business—Farmer Mac's Lines of Business—Rural Infrastructure Finance—Other Products – Rural Infrastructure Finance—AgVantage Securities." The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Agricultural Finance line of business totaled $6.1 billion as of December 31, 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 $3.9 billion as of December 31, 2023 and $3.0 billion as of December 31, 2022. The unpaid principal balance of outstanding off-balance sheet AgVantage securities totaled $0.0 million as of December 31, 2023 and $1.2 million as of December 31, 2022. 98 The following table provides information about the issuers of AgVantage securities and the required collateralization levels for those transactions as of December 31, 2023 and 2022: Table 31 As of December 31, 2023 As of December 31, 2022 Counterparty Balance Required Collateralization Balance Required Collateralization (dollars in thousands) AgVantage: CFC $ 3,898,468 100% $ 3,045,325 100% MetLife 2,050,000 103% 2,050,000 103% Rabo AgriFinance 3,085,000 105% 2,855,000 105% Other (1) 988,879 100% to 125% 1,059,600 100% to 125% Total outstanding $ 10,022,347 $ 9,009,925 (1) Consists of AgVantage securities issued by 8 and 12 different issuers as of December 31, 2023 and 2022, respectively. Farmer Mac manages institutional credit risk related to lenders and servicers by requiring those institutions to meet Farmer Mac's standards for creditworthiness. Farmer Mac monitors the financial condition of those institutions by evaluating financial statements and credit rating agency reports. For more information about Farmer Mac's lender eligibility requirements, see "Business—Farmer Mac's Lines of Business—Agricultural Finance—Lenders" and "Business—Farmer Mac's Lines of Business—Rural Infrastructure Finance—Lenders and Loan Servicing." Farmer Mac manages institutional credit risk related to its interest rate swap counterparties through collateralization provisions contained in each of its swap agreements that vary based on the market value of its swap portfolio with each counterparty. Farmer Mac and its interest rate swap counterparties are required to fully collateralize their derivatives positions without any minimum threshold for cleared swap transactions, as well as for non-cleared swap transactions entered into after March 1, 2017. Farmer Mac transacts interest rate swaps with multiple counterparties to reduce counterparty credit exposure concentration. Farmer Mac's usage of cleared derivatives has increased over time as has its exposure to clearinghouses. The usage of cleared swap transactions reduces Farmer Mac's exposure to individual counterparties with the central clearinghouse acting to settle the change in value of contracts on a daily basis. Credit risk related to interest rate swap contracts is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Interest Rate Risk" and Note 6 to the consolidated financial statements. Credit Risk – Other Investments . As of December 31, 2023, Farmer Mac had $0.9 billion of cash and cash equivalents and $5.0 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 Liquidity and Investment Regulations. In addition to establishing a portfolio of highly liquid investments as an available source of cash, the goals of Farmer Mac's investment policies are designed to minimize Farmer Mac's exposure to financial market volatility, preserve capital, and support Farmer Mac's access to the debt markets. The Liquidity and Investment Regulations and Farmer Mac's internal policies require that investments held in Farmer Mac's investment portfolio meet the following creditworthiness standards: (1) at a minimum, at least one obligor of the investment must have a very strong capacity to meet financial commitments for the life of the investment, even under severely adverse or stressful conditions, and generally present a very low risk of default; (2) if the obligor whose capacity to meet financial commitments is being relied upon to meet the standard set forth in subparagraph (1) is located outside of 99 the United States, the investment must also be fully guaranteed by a U.S. government agency; and (3) the investment must exhibit low credit risk and other risk characteristics consistent with the purpose or purposes for which it is held. The Liquidity and Investment Regulations and Farmer Mac's internal policies also establish concentration limits, which are intended to limit exposure to any single entity, issuer, or obligor. The Liquidity and Investment Regulations limit Farmer Mac's total credit exposure to any single entity, issuer, or obligor of securities to 10% of Farmer Mac's regulatory capital ($147.0 million as of December 31, 2023). However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($73.5 million as of December 31, 2023). These exposure limits do not apply to obligations of U.S. government agencies or GSEs, although Farmer Mac's current policy restricts investing more than 100% of regulatory capital in the senior non-convertible debt securities of any one GSE. Although the Liquidity and Investments Regulations do not establish limits on the maximum amount, expressed as a percentage of Farmer Mac's investment portfolio, that can be invested in each eligible asset class, Farmer Mac's internal policies set forth asset class limits as part of Farmer Mac's overall risk management framework. Interest Rate Risk . Farmer Mac is subject to interest rate risk on all interest-earning assets on its balance sheet because of timing differences in the cash flows due to maturity, paydown, or repricing of the assets and debt together with financial derivatives. Cash flow mismatches due to changing interest rates can reduce the earnings of Farmer Mac if assets prepay sooner than expected and the resulting cash flows must be reinvested in lower-yielding investments when Farmer Mac's funding costs cannot be correspondingly reduced. Alternatively, Farmer Mac could realize a decline in income if assets repay more slowly than originally forecasted and the associated maturing debt must be replaced by debt issuances at higher interest rates. Interest Rate Risk Management The goal of interest rate risk management at Farmer Mac is to manage the balance sheet in a manner that generates stable earnings and value across a variety of interest rate environments. Recognizing that interest rate sensitivities may change with the passage of time and as interest rates change, Farmer Mac regularly assesses this exposure and, if necessary, adjusts its portfolio of interest-earning assets, debt, and financial derivatives. Farmer Mac's objective is to maintain its exposure to interest rate risk within appropriate limits, as approved by Farmer Mac's board of directors. Farmer Mac's management-level Asset and Liability Committee ("ALCO") provides oversight, establishes guidelines, and approves strategies to maintain interest rate risk within the board-established limits. Farmer Mac's primary strategy for managing interest rate risk is to fund asset purchases with debt that together with financial derivatives have similar duration and convexity characteristics and help mitigate impacts from interest rate changes across the yield curve. As part of this strategy, Farmer Mac seeks to issue debt securities across a variety of maturities that together with financial derivatives closely align the forecasted debt and financial derivative cash flows with forecasted asset cash flows. Farmer Mac issues discount notes and both callable and non-callable medium-term notes across a spectrum of maturities to execute its debt issuance strategy. Portions of Farmer Mac's callable debt is 100 issued to mitigate prepayment risk associated with certain interest-earning assets held on balance sheet. In general, as interest rates decline, prepayments typically increase, and Farmer Mac is able to economically extinguish certain callable debt issuances. In addition, Farmer Mac enters into financial derivatives, primarily interest rate swaps, to better match the durations of Farmer Mac's assets and liabilities, thereby reducing overall sensitivity to changing interest rates. Taking into consideration the prepayment provisions and the default probabilities associated with its portfolio of interest-earning assets, Farmer Mac incorporates behavioral models when projecting and valuing cash flows associated with these assets. In recognition that borrowers' behaviors in various interest rate environments may change over time, Farmer Mac periodically evaluates the effectiveness of these models compared to actual prepayment experience and adjusts and refines the models as necessary to improve the precision of future prepayment forecasts. Changes in interest rates may affect the timing of asset prepayments which may, in turn, impact durations and values of the assets. Declining interest rates generally result in increased prepayments, which shortens the duration of these assets, while rising interest rates generally result in lower prepayments, thereby extending the duration of the assets. Farmer Mac is subject to interest rate risk on loans and securities it has committed to acquire but not yet purchased (other than delinquent loans purchased through LTSPCs or loans designated for securitization under a forward purchase agreement). When Farmer Mac commits to purchase these assets, it is exposed to interest rate risk between the time it commits to purchase the loans and the time it issues debt to fund the purchase of these loans. Farmer Mac manages the interest rate risk exposure related to these loans by entering into exchange-traded futures contracts involving U.S. Treasury securities and other financial derivatives. Similarly, when Farmer Mac commits to sell certain assets, the associated interest rate exposure is primarily managed with exchange-traded futures contracts involving U.S. Treasury securities and other financial derivatives. Farmer Mac's $0.9 billion of cash and cash equivalents held as of December 31, 2023 mature within three months. As of December 31, 2023, $3.1 billion of the $5.0 billion of investment securities (61%) 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. The fixed rate investment securities are generally funded in a manner consistent with Farmer Mac's overall funding strategy that approximates a duration and convexity match. 101 Interest Rate Risk Metrics Farmer Mac regularly evaluates and conducts interest rate shock simulations on its portfolio of financial assets, debt, and financial derivatives and examines a variety of metrics to quantify and manage its exposure to interest rate risk. These metrics include sensitivity to interest rate movements on the market value of equity ("MVE") and forecasted net effective spread ("NES") as well as a duration gap analysis. MVE represents management's estimate of the present value of all future cash flows from its current portfolio of on- and off-balance sheet assets, liabilities, and financial derivatives, discounted at current interest rates and appropriate spreads. However, MVE is not indicative of the market value of Farmer Mac as a going concern because these market values are theoretical and do not reflect future business activities. The MVE sensitivity analysis measures the degree to which the market values of Farmer Mac's assets, liabilities, and financial derivatives are estimated to change for a given change in interest rates. Farmer Mac's NES simulation represents the difference between projected income over the next twelve months from the current portfolio of interest-earning assets and interest expense produced by the related funding, including associated financial derivatives. Farmer Mac's NES simulation may be impacted by changes in market interest rates resulting from timing differences between maturities and re-pricing characteristics of funded assets and debt together with the associated financial derivatives. The direction and magnitude of any such effect depends on the direction and magnitude of the change in interest rates across the yield curve as well as the composition of Farmer Mac's portfolio. The NES simulation represents an estimate of the net effective spread income that Farmer Mac's current portfolio is expected to produce over a twelve-month horizon. As a result, the NES simulation sensitivity statistics provide a short-term view of Farmer Mac's NES income sensitivity to interest rate shocks. Duration is a measure of a financial instrument's fair value sensitivity to small changes in interest rates. Duration gap is calculated using the net estimated durations of Farmer Mac's interest-earning assets, debt, and financial derivatives. Duration gap quantifies the extent to which estimated fair value sensitivities are matched for interest-earning assets, debt and financial derivatives. Duration gap provides a relatively concise measure of the interest rate risk inherent in Farmer Mac's outstanding portfolio. A positive duration gap denotes that the duration of Farmer Mac's interest-earning assets is greater than the duration of its debt and financial derivatives. A positive duration gap indicates that with small changes in interest rate movements the fair value change of Farmer Mac's interest-earning assets is more sensitive than the fair value change of its debt and financial derivatives. Conversely, a negative duration gap indicates that with small changes in interest rate movements the fair value change of Farmer Mac's interest-earning assets are less sensitive than the fair value change of its debt and financial derivatives. A duration gap of zero indicates that with small changes in interest rate movements the fair value change of Farmer Mac's interest-earning assets is effectively offset by the fair value change of its debt and financial derivatives. Each of the interest rate risk metrics is quantified using asset/liability models and derived based on management's best estimates of factors such as implied forward interest rates across the yield curve, interest rate volatility, and timing of asset prepayments and callable debt redemptions. Accordingly, these metrics are estimates rather than precise measurements. Actual results may differ to the extent there are material changes to Farmer Mac's financial asset portfolio or changes in funding or hedging strategies undertaken to mitigate unfavorable sensitivities to interest rate changes. 102 The following schedule summarizes the results of Farmer Mac's MVE and NES sensitivity analysis as of December 31, 2023 and 2022 to an immediate and instantaneous uniform or "parallel" shift in the yield curve: Table 32 Percentage Change in MVE from Base Case Interest Rate Scenario As of December 31, 2023 As of December 31, 2022 +100 basis points (3.6) % (3.7) % -100 basis points 2.9 % 2.7 % Percentage Change in NES from Base Case Interest Rate Scenario As of December 31, 2023 As of December 31, 2022 +100 basis points — % 0.4 % -100 basis points 0.8 % (0.6) % As of December 31, 2023, Farmer Mac's duration gap was positive 3.4 months, compared to positive 3.6 months as of December 31, 2022. The U.S. Treasury interest rate yield curve remained inverted during 2023, although the 2-year U.S. Treasury Note yield-to-maturity decreased by approximately 18 basis points and the 10-year U.S. Treasury Note yield-to-maturity was relatively flat compared to year-end 2022. This rate movement contributed to shortening the duration of Farmer Mac's funded assets compared to its debt and financial derivatives, thereby narrowing Farmer Mac's duration gap. Financial Derivatives Transactions The economic effects of financial derivatives are included in Farmer Mac's MVE, NES, and duration gap analyses. Farmer Mac typically enters into the following types of financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of interest-earning assets, future cash flows, and debt issuance, and not for trading or speculative purposes: • "pay-fixed" interest rate swaps, in which Farmer Mac pays fixed rates of interest to, and receives floating rates of interest from, counterparties; • "receive-fixed" interest rate swaps, in which Farmer Mac receives fixed rates of interest from, and pays floating rates of interest to, counterparties; • "basis swaps," in which Farmer Mac pays floating rates of interest based on one index to, and receives floating rates of interest based on a different index from, counterparties; and • exchange-traded futures contracts involving U.S. Treasury securities. As of December 31, 2023, Farmer Mac had $25.8 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to just over thirty years, of which $9.9 billion were pay-fixed interest rate swaps, $15.0 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. 103 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. SOFR). Also, certain financial derivatives are designated as cash flow hedges to mitigate the volatility of future interest rate payments on floating rate debt. As discussed in Note 6 to the consolidated financial statements, all financial derivatives are recorded on the balance sheet at fair value as derivative assets or as derivative liabilities. Changes in the fair values of undesignated financial derivatives are reported in "Gains on financial derivatives" in the consolidated statements of operations. For financial derivatives designated in fair value hedge accounting relationships, changes in the fair values of the hedged items related to the risk being hedged are reported in "Net interest income" in the consolidated statements of operations. Interest accruals on derivatives designated in fair value hedge accounting relationships are also recorded in "Net interest income" in the consolidated statements of operations. For financial derivatives designated in cash flow hedge accounting relationships, the unrealized gain or loss on the derivative is recorded in other comprehensive income. Because the hedging instrument is an interest rate swap and the hedged forecasted transactions are future interest payments on floating rate debt, amounts recorded in accumulated other comprehensive income are reclassified to "Total interest expense" in conjunction with the recognition of interest expense on the debt. All of Farmer Mac's interest rate swap transactions are conducted under standard collateralized agreements that limit Farmer Mac's potential credit exposure to any counterparty. As of both December 31, 2023 and 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 Farmer Mac is subject to re-funding and repricing risk on any floating rate assets that are not funded to contractual maturity. Re-funding and repricing risk arises from potential changes in funding costs resulting from a funding strategy whereby Farmer Mac issues floating rate debt across a variety of maturities to fund floating rate or synthetically floating rate assets that on average may have longer maturities. Changes in Farmer Mac's funding costs relative to the benchmark market index rate to which the assets are indexed can cause changes to net interest income when debt matures and is reissued at then current interest rates to continue funding those assets. Farmer Mac is subject to re-funding and repricing risk on a portion of its fixed rate assets as a result of its use of pay-fixed receive-floating interest rate swaps that effectively convert the required funding needed from fixed rate to floating rate. These fixed rate assets are then effectively floating rate assets that require floating rate funding. Farmer Mac can meet floating rate funding needs in several ways, including: • issuing short-term fixed rate discount notes with maturities that match the reset period of the assets; • issuing floating rate medium-term notes with maturities and reset frequencies that match the assets being funded; • issuing non-maturity matched, floating rate medium-term notes with reset frequencies that match the assets being funded; or • issuing non-maturity matched, fixed rate discount notes or medium-term notes swapped to floating rate to match the interest rate reset dates of the assets. 104 To meet certain floating rate funding needs, Farmer Mac frequently issues shorter-term floating-rate medium-term notes or fixed rate medium-term notes paired with a received-fixed interest rate swap because these funding alternatives generally provide a lower cost of funding while generating an effective interest rate match. As funding for these floating rate assets matures, Farmer Mac seeks to refinance the debt associated with these assets in a similar fashion to achieve an appropriate interest rate match in the context of Farmer Mac's overall debt issuance and liquidity management strategies. However, if the funding cost of Farmer Mac’s discount notes or medium-term notes increased relative to the benchmark market index of the associated assets during the time between when these floating rate assets were first funded and when Farmer Mac refinanced the associated debt, Farmer Mac would be exposed to a commensurate reduction of net effective spread. Conversely, if the funding cost on Farmer Mac’s discount notes or medium-term notes decreased relative to the benchmark market index during that time, Farmer Mac would benefit from a commensurate increase to net effective spread. Farmer Mac's debt issuance strategy targets balancing liquidity risk and re-funding and repricing risk while maintaining an appropriate liability management profile that is consistent with Farmer Mac's risk tolerance. Farmer Mac regularly adjusts its funding strategies to mitigate the effects of interest rate variability and seeks to maintain an effective mixture of funding structures in the context of its overall liability and liquidity management strategies. As of December 31, 2023, Farmer Mac held $8.0 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 $9.9 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 Farmer Mac has not had, and does not foresee, a material impact on our business due to the replacement of LIBOR with SOFR. We have had no further LIBOR exposure since the quarter-ended 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 repayments 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 December 31, 2023, Farmer Mac had outstanding discount notes of $1.7 billion, medium-term notes that mature within one year of $6.4 billion, and medium-term notes that mature after one year of $18.5 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 105 under those regulations, Farmer Mac maintained a monthly average of 307 days of liquidity throughout 2023 and had 319 days of liquidity as of December 31, 2023. Farmer Mac maintains cash, cash equivalents (including U.S. Treasury securities, operational deposits, and other short-term money market instruments), and other investment securities that can be drawn upon for liquidity needs. Farmer Mac's current policies authorize liquidity investments in: • obligations of or fully guaranteed by the United States or a U.S. government agency; • obligations of or fully guaranteed by GSEs; • municipal securities; • international and multilateral development bank obligations; • money market instruments; • diversified investment funds; • asset-backed securities; • corporate debt securities; and • mortgage-backed securities. The following table presents these assets as of December 31, 2023 and 2022: Table 33 As of December 31, 2023 As of December 31, 2022 (in thousands) Cash and cash equivalents $ 888,707 $ 861,002 Investment securities: Guaranteed by U.S. Government and its agencies 1,249,568 1,444,650 Guaranteed by GSEs 3,704,037 3,160,919 Asset-backed securities 19,082 19,027 Total $ 5,861,394 $ 5,485,598 The objectives of the investment portfolio as of December 31, 2023 and 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 . Farmer Mac is subject to the following statutory capital requirements – minimum, critical, and risk-based. Farmer Mac must comply with the higher of the minimum capital requirement and the risk-based capital requirement. As of December 31, 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 December 31, 2023 and 2022, Farmer Mac's Tier 1 capital ratio was 15.4% and 14.9%, respectively. As of December 31, 2023, Farmer Mac was in compliance with its capital adequacy policy. Farmer Mac does not expect its compliance on an ongoing basis with the FCA's rule on capital planning, including Farmer Mac's policy on Tier 1 capital, to materially affect Farmer Mac's operations or financial condition. 106 For more information about the capital requirements applicable to Farmer Mac, its capital adequacy policy, and the FCA's rule on capital planning, see "Business—Government Regulation of Farmer Mac—Capital Standards." See Note 9 to the consolidated financial statements for more information about Farmer Mac's capital position. Discount and Medium-term Notes . The following table presents the amount and timing of Farmer Mac's known, fixed, and determinable discount and medium-term note obligations by payment date as of December 31, 2023. The payment amounts represent those amounts due to the investor (including return of discount and interest on debt) and do not include unamortized premiums or discounts or other similar carrying value adjustments. Table 34 One Year or Less One to Three Years Three to Five Years Over Five Years Total (in thousands) Discount notes (1) $ 1,768,539 $ — $ — $ — $ 1,768,539 Medium-term notes (1) 6,353,538 9,354,027 5,666,797 3,495,980 24,870,342 Interest payments on fixed rate medium-term notes (2) 553,339 710,935 369,933 310,559 1,944,766 Interest payments on floating rate medium-term notes (3) 137,144 149,402 70,673 32,457 389,676 (1) Future events, including additional issuance of discount notes and medium-term notes and refinancing of those notes, could cause actual payments to differ significantly from these amounts. For more information about discount notes and medium-term notes, see Note 7 to the consolidated financial statements. (2) Interest payments on callable medium-term notes are calculated based on maturity. Future calls of these notes could cause actual interest payments to differ significantly from the amounts presented. (3) Calculated using the effective interest rates as of December 31, 2023. As a result, these amounts do not reflect the effects of changes in the interest rates effective on future interest rate reset dates. Farmer Mac enters into financial derivatives contracts under which it either receives cash from counterparties, or is required to pay cash to them, depending on changes in interest rates. Financial derivatives are carried on the consolidated balance sheets at fair value, representing the net present value of expected future cash payments or receipts based on market interest rates as of the balance sheet date adjusted for the consideration of credit risk of Farmer Mac and its counterparties. The fair values of the contracts change daily as market interest rates change. Because the financial derivative liabilities recorded on the consolidated balance sheet as of December 31, 2023 do not represent the amounts that may ultimately be paid under the financial derivative contracts, those liabilities are not included in the table presented above. More information about financial derivatives is included in Note 2(f) and Note 6 to the consolidated financial statements. Contingent Liabilities . In conducting its loan purchase activities, Farmer Mac enters into mandatory delivery commitments to purchase agricultural mortgage loans and USDA Securities. In conducting its LTSPC activities, Farmer Mac commits, subject to the applicable LTSPC agreement, to a future purchase of one or more loans from identified pools of eligible loans that met Farmer Mac's standards when the applicable transaction was entered into and Farmer Mac assumed the credit risk on the loans. The following table presents these significant commitments: Table 35 As of December 31, 2023 2022 (in thousands) LTSPCs $ 3,680,333 $ 3,423,155 Mandatory commitments to purchase loans and USDA Securities 31,049 9,907 107 For more information about Farmer Mac's commitments to purchase loans, see Note 12 to the consolidated financial statements. Off-Balance Sheet Arrangements Farmer Mac offers approved lenders two credit enhancement alternatives to increase their liquidity or lending capacity while retaining the cash flow benefits of their loans: (1) certain categories of Farmer Mac Guaranteed Securities; and (2) LTSPCs. Both products are available through each of the Agricultural Finance and Rural Infrastructure Finance lines of business. For securitization trusts where Farmer Mac is the primary beneficiary, the trust assets and liabilities are included on Farmer Mac's consolidated balance sheet. For securitization trusts where Farmer Mac is not the primary beneficiary and in the event of deconsolidation, both of these alternatives create off-balance sheet obligations for Farmer Mac. See Note 12 to the consolidated financial statements for more information about consolidation and Farmer Mac's off-balance sheet business activities. As of December 31, 2023 and 2022, outstanding off-balance sheet LTSPCs and Farmer Mac Guaranteed Securities totaled $4.1 billion and $3.9 billion, respectively. The following table presents the balance of outstanding LTSPCs, off-balance sheet Farmer Mac Guaranteed Securities, and unfunded loan commitments as of December 31, 2023 and 2022: Table 36 Outstanding Balance of LTSPCs and Off-Balance Sheet Farmer Mac Guaranteed Securities As of December 31, 2023 2022 (in thousands) Agricultural Finance: Corporate AgFinance: Unfunded loan commitments $ 145,377 $ 77,654 Farm & Ranch: LTSPCs and unfunded loan commitments 2,999,943 2,822,309 Farmer Mac Guaranteed Securities 452,602 500,953 Total Agricultural Finance obligations 3,597,922 3,400,916 Rural Infrastructure: Rural Utilities: LTSPCs and unfunded loan commitments 487,778 512,592 Farmer Mac Guaranteed Securities — 1,169 Renewable Energy: Unfunded loan commitments 47,235 10,600 Total Rural Infrastructure obligations 535,013 524,361 Total off-balance sheet $ 4,132,935 $ 3,925,277 See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees" and Notes 2(c), 2(e), 5 and 12 to the consolidated financial statements for more information about Farmer Mac Guaranteed Securities and Notes 2(m) and 12 to the consolidated financial statements for more information about LTSPCs. 108 Other Matters None. Supplemental Information The following tables present quarterly and annual information about new business volume, repayments, and outstanding business volume: Table 37 New Business Volume Agricultural Finance Rural Infrastructure Finance Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Total (in thousands) For the quarter ended: December 31, 2023 $ 1,282,045 $ 188,272 $ 434,511 $ 225,986 $ 2,130,814 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 March 31, 2023 750,040 203,211 683,232 89,747 1,726,230 December 31, 2022 1,114,255 165,395 140,222 43,737 1,463,609 September 30, 2022 1,927,209 169,932 547,117 61,653 2,705,911 June 30, 2022 1,418,397 107,916 326,899 35,307 1,888,519 March 31, 2022 2,452,539 103,353 377,965 41,636 2,975,493 December 31, 2021 2,075,540 411,838 631,338 12,594 3,131,310 For the year ended: December 31, 2023 $ 4,990,527 $ 885,551 $ 2,020,014 $ 404,734 $ 8,300,826 December 31, 2022 6,912,400 546,596 1,392,203 182,333 9,033,532 109 Table 38 Repayments of Assets Agricultural Finance Rural Infrastructure Finance Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Total (in thousands) For the quarter ended: Scheduled $ 827,122 $ 133,468 $ 53,614 $ 69,040 $ 1,083,244 Unscheduled 106,041 102,131 18,469 — 226,641 December 31, 2023 $ 933,163 $ 235,599 $ 72,083 $ 69,040 $ 1,309,885 Scheduled $ 922,223 $ 110,383 $ 80,998 $ 14,716 $ 1,128,320 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 Scheduled $ 279,676 $ 78,482 $ 95,809 $ 11,424 $ 465,391 Unscheduled 231,288 128,254 57,354 — 416,896 March 31, 2023 $ 510,964 $ 206,736 $ 153,163 $ 11,424 $ 882,287 Scheduled $ 447,976 $ 64,308 $ 75,671 $ 9,809 $ 597,764 Unscheduled 136,245 132,366 1,201 — 269,812 December 31, 2022 $ 584,221 $ 196,674 $ 76,872 $ 9,809 $ 867,576 Scheduled $ 724,580 $ 38,018 $ 422,917 $ 13,429 $ 1,198,944 Unscheduled 296,763 64,439 — — 361,202 September 30, 2022 $ 1,021,343 $ 102,457 $ 422,917 $ 13,429 $ 1,560,146 Scheduled $ 1,114,779 $ 42,162 $ 159,491 $ 7,898 $ 1,324,330 Unscheduled 286,303 30,203 1,791 — 318,297 June 30, 2022 $ 1,401,082 $ 72,365 $ 161,282 $ 7,898 $ 1,642,627 Scheduled $ 1,535,369 $ 39,480 $ 266,349 $ 7,790 $ 1,848,988 Unscheduled 434,794 60,947 397 — 496,138 March 31, 2022 $ 1,970,163 $ 100,427 $ 266,746 $ 7,790 $ 2,345,126 Scheduled $ 928,663 $ 205,778 $ 816,802 $ 18,526 $ 1,969,769 Unscheduled 318,024 48,042 — — 366,066 December 31, 2021 $ 1,246,687 $ 253,820 $ 816,802 $ 18,526 $ 2,335,835 For the year ended: Scheduled $ 3,079,501 $ 403,719 $ 789,365 $ 147,383 $ 4,419,968 Unscheduled 542,796 391,360 109,539 — 1,043,695 December 31, 2023 $ 3,622,297 $ 795,079 $ 898,904 $ 147,383 $ 5,463,663 Scheduled $ 3,822,704 $ 183,968 $ 924,428 $ 38,926 $ 4,970,026 Unscheduled 1,154,105 287,955 3,389 — 1,445,449 December 31, 2022 $ 4,976,809 $ 471,923 $ 927,817 $ 38,926 $ 6,415,475 110 Table 39 Outstanding Business Volume Agricultural Finance Rural Infrastructure Finance Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Total (in thousands) As of: December 31, 2023 $ 18,808,801 $ 1,693,979 $ 7,480,723 $ 487,521 $ 28,471,024 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 March 31, 2023 17,685,961 1,599,982 6,889,682 308,493 26,484,118 December 31, 2022 17,728,792 1,603,507 6,359,613 230,170 25,922,082 September 30, 2022 17,199,347 1,634,786 6,296,263 196,242 25,326,638 June 30, 2022 16,591,999 1,567,311 6,172,063 148,018 24,479,391 March 31, 2022 16,575,595 1,540,760 6,006,446 120,609 24,243,410 December 31, 2021 16,094,639 1,537,834 5,895,227 86,763 23,614,463 Table 40 On-Balance Sheet Outstanding Business Volume Fixed Rate 5- to 10-Year ARMs & Resets 1-Month to 3-Year ARMs Total Held in Portfolio (in thousands) As of: December 31, 2023 $ 14,133,794 $ 3,171,672 $ 6,455,359 $ 23,760,825 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 March 31, 2023 13,607,740 3,020,229 5,924,032 22,552,001 December 31, 2022 13,693,810 3,031,288 5,251,427 21,976,525 September 30, 2022 13,810,162 2,960,596 4,644,958 21,415,716 June 30, 2022 13,798,771 2,939,467 3,993,956 20,732,194 March 31, 2022 14,174,611 2,858,521 3,443,816 20,476,948 December 31, 2021 13,228,675 2,896,014 3,695,269 19,819,958 111 The following table presents the quarterly net effective spread (a non-GAAP measure) by segment: Table 41 Net Effective Spread (1) Agricultural Finance Rural Infrastructure Finance Treasury Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Funding Investments Net Effective Spread Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield (dollars in thousands) For the quarter ended: December 31, 2023 (2) $ 33,329 0.98 % $ 8,382 2.06 % $ 7,342 0.43 % $ 1,540 1.69 % $ 33,361 0.47 % $ 597 0.04 % $ 84,551 1.19 % September 30, 2023 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 1.03 % 7,444 1.92 % 5,808 0.38 % 1,100 1.47 % 32,498 0.48 % 594 0.04 % 81,832 1.20 % March 31, 2023 32,465 0.97 % 7,148 1.94 % 5,507 0.36 % 858 1.53 % 31,738 0.47 % (543) (0.04) % 77,173 1.15 % December 31, 2022 (2) 32,770 0.98 % 7,471 1.94 % 4,960 0.34 % 935 1.76 % 27,656 0.42 % (2,689) (0.19) % 71,103 1.07 % September 30, 2022 33,343 1.04 % 7,600 1.99 % 4,220 0.30 % 705 1.97 % 22,564 0.36 % (2,791) (0.21) % 65,641 1.03 % 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 % December 31, 2021 28,998 0.99 % 6,321 1.84 % 2,521 0.19 % 356 1.53 % 15,979 0.28 % 158 0.01 % 54,333 0.94 % (1) Farmer Mac excludes the Corporate segment in the presentation above because the segment does not have any interest-earning assets. (2) See Note 14 to the consolidated financial statements for a reconciliation of GAAP net interest income by segment to net effective spread by segment for the years ended December 31, 2023 and 2022. 112 The following table presents quarterly core earnings (a non-GAAP measure) reconciled to net income attributable to common stockholders: Table 42 Core Earnings by Quarter End December 2023 September 2023 June 2023 March 2023 December 2022 September 2022 June 2022 March 2022 December 2021 (in thousands) Revenues: Net effective spread $ 84,551 $ 83,424 $ 81,832 $ 77,173 $ 71,103 $ 65,641 $ 60,946 $ 57,839 $ 54,333 Guarantee and commitment fees 4,865 4,828 4,581 4,654 4,677 4,201 4,709 4,557 4,637 Gains on sale of mortgage loans — — — — — — — — 6,539 Other 767 1,056 409 1,067 390 473 307 514 241 Total revenues 90,183 89,308 86,822 82,894 76,170 70,315 65,962 62,910 65,750 Credit related expense/(income): (Release of)/provision for losses (575) (181) 1,142 750 1,945 450 (1,535) (54) (1,428) REO operating expenses — — — — 819 — — — — Total credit related expense/(income) (575) (181) 1,142 750 2,764 450 (1,535) (54) (1,428) Operating expenses: Compensation and employee benefits 15,523 14,103 13,937 15,351 12,105 11,648 11,715 13,298 11,246 General and administrative 8,916 9,100 9,420 7,527 8,055 6,919 7,520 7,278 8,492 Regulatory fees 725 831 831 835 832 812 813 812 812 Total operating expenses 25,164 24,034 24,188 23,713 20,992 19,379 20,048 21,388 20,550 Net earnings 65,594 65,455 61,492 58,431 52,414 50,486 47,449 41,576 46,628 Income tax expense 13,881 13,475 12,539 12,756 11,210 10,303 9,909 9,024 9,809 Preferred stock dividends 6,791 6,792 6,791 6,791 6,791 6,791 6,792 6,791 6,792 Core earnings $ 44,922 $ 45,188 $ 42,162 $ 38,884 $ 34,413 $ 33,392 $ 30,748 $ 25,761 $ 30,027 Reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes $ (836) $ 2,921 $ 2,141 $ 916 $ 1,596 $ 6,441 $ 2,846 $ 2,612 $ (1,242) (Losses)/gains on hedging activities due to fair value changes (3,598) 3,210 (4,901) (105) (148) (624) 428 5,687 (2,079) Unrealized (losses)/gains on trading assets (37) 1,714 (57) 359 31 (757) (285) 94 (76) Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 88 29 29 29 57 24 (62) 20 71 Net effects of terminations or net settlements on financial derivatives (800) (79) 583 523 1,268 (3,522) 2,536 15,512 (429) Income tax effect related to reconciling items 1,089 (1,638) 464 (362) (590) (327) (1,148) (5,024) 789 Net income attributable to common stockholders $ 40,828 $ 51,345 $ 40,421 $ 40,244 $ 36,627 $ 34,627 $ 35,063 $ 44,662 $ 27,061